UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
___ EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________________ to _______________
Commission file number 333-18755
---------
PLUMA, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1541893
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 Fieldcrest Road 27288
Eden, North Carolina (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (336) 635-4000
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class Name of Each Exchange
on Which Registered
Common Stock, No par value New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
<PAGE>
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes x . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of Common Stock, no par value, held by
non-affiliates of the registrant, as of April 5, 1999, was approximately
$2,650,316.
---------
As of April 5, 1999 there were 8,109,152 shares of Common Stock, no par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders
to be held on June 23, 1999 are incorporated by reference into Parts I and III
of this report.
PART I
ITEM 1. Business
GENERAL
Pluma (the "Company") is a vertically integrated manufacturer and distributor of
high quality fleece and jersey activewear. The Company is focused on increasing
sales and profitability by offering high value products to a diverse customer
base. Also in 1998, Pluma operated two nationally recognized wholesale
distributors, Stardust Corporation ("Stardust") in Verona, Wisconsin and Frank
L. Robinson Company ("FLR") in Los Angeles, California. These distributors were
acquired in December 1997. Although the Company has elected to close FLR in an
effort to reduce overhead, it continues to operate Stardust and believes that
Stardust is strategically important to the distribution of Pluma's "SANTEE"
branded products and allows the Company to serve smaller customers who would
otherwise prove more difficult to service efficiently. Pluma sells its products
to companies such as adidas, Starter and Walt Disney. In addition, the Company
sells products under its own "PLUMA(R)", "SANTEE(R)", and "SNOWBANK(R)" brand
names to retail and wholesale customers such as Sam's Club and Alpha Shirt
Company.
Since its inception, the Company has been an innovator of new products and
styles and has focused on delivering higher quality products. The Company was
one of the first to introduce heavyweight, fuller cut fleece products at
attractive price points and fleecewear with higher cotton content. These
products were well received by consumers, and the Company rapidly increased
sales and profitability as it expanded its business across broad market
segments. In 1990, the Company began to produce heavyweight cotton jersey
products suitable for outerwear in order to diversify its product mix, more
efficiently utilize its manufacturing base and increase sales and profitability.
Pluma targets a diverse customer base across multiple markets and distribution
channels. Currently, Pluma's material customers include branded customers such
as adidas, Reebok and Starter, retailers such as Miller's Outpost and Sam's Club
and entertainment customers such as Hard Rock Cafe and Walt Disney. In addition,
Pluma sells to wholesale distributors, screenprinters and embroiderers who sell
the Company's products to a wide variety of retailers, ranging from small
souvenir and resort stores to large nationwide department stores. The Company's
diverse customer base provides product exposure to many consumer markets and
enables Pluma to balance its production more evenly throughout the year.
Stardust has been in operation since 1988 and served approximately 6000
customers in the apparel industry in 1998. Stardust's products include jersey
and fleece products as well as golf shirts, jackets and headwear. Its primary
customers include smaller screenprinters and embroiderers, retailers and
advertising specialists, customers who otherwise would
<PAGE>
be inaccessible to the Company as the result of financial inefficiencies that
would result from Pluma's manufacturing division's attempts to service these
customers.
Pluma recognizes the benefits of competing in a global market. To take advantage
of lower production costs,during 1998, the Company utilized the services of two
joint ventures in Mexico (in which Pluma is a partner) to assemble (sew)
component parts of the Company's products. However, the Company underestimated
management involvement required to implement non-domestic production. These
joint ventures failed to produce the required quantities of product in a timely
fashion and quality problems were also experienced. The Company also determined
that more competitive pricing could be obtained from other Latin American
manufacturers. The Company is currently analyzing the competitiveness of the two
joint ventures with other manufacturing companies in Latin America. Should it be
determined that similar services are offered by other Latin American companies
at more competitive prices than those currently being offered by the joint
ventures Pluma intends to pursue these opportunities in an effort to expand a
portion of its manufacturing operation to Latin America.
PRODUCTS
Pluma's high quality fleece and jersey activewear meet consumer preferences for
heavier weights and higher cotton content. The Company's fleece products include
a variety of styles and colors of tops and bottoms in seven and one-half, nine,
and eleven ounce weights in cotton/polyester blends ranging from 50% cotton/50%
polyester to 100% cotton. Pluma also manufacturers six and seven ounce 100%
cotton jersey tops and bottoms designed for outerwear.
The Company believes that certain design and construction features enhance the
quality and appeal of its products relative to some competitors.
o Pluma's fleece and jersey tops are fuller cut and heavier weight.
o Pluma produces higher stitch count fabrics to reduce shrinkage, provide a
better printing surface and increase softness.
o Pluma uses air jet spun yarn for its 50% cotton/50% polyester fleece fabric to
prevent pilling.
o Most of Pluma's ribbed fabrics contain spandex to retain
shape.
o Pluma uses greater detail in its sewing processes to enhance durability and
appearance.
o Pluma utilizes advanced finishing techniques, including the application of
softeners and napping (brushing), to give its fleece fabrics more bulk and
softer texture.
The sales mix of fleece and jersey products (excluding sales by FLR and
Stardust) for the three years ended December 31, 1998, in sales, gross dozens
sold, excluding close-outs and irregulars, and the average sales price per dozen
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
In thousands 1998 1997 1996
Except average ------------------------------------ --------------------------------- ----------------------------------
Sales price per dozen Gross Avg. Gross Avg. Gross Avg.
Dozens Sales Price/ Dozens Sales Price/ Dozens Sales Price/
Sales Sold Dozen Sales Sold Dozen Sales Sold Dozen
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fleece $ 57,568 613 $ 93.85 $ 80,751 879 $ 91.88 $ 80,423 871 $ 92.41
Jersey 53,772 944 56.97 51,836 841 61.67 46,803 765 61.16
Total/Average 111,340 1,557 71.50 132,587 1,720 76.78 127,226 1,636 76.79
</TABLE>
Since introducing jersey products in 1990, the Company has increased jersey
sales in order to diversify its product mix, more efficiently utilize its
manufacturing base and reduce the impact of seasonality that is inherent in the
fleece industry. Generally, jersey products sell at lower price points and
generate lower profit margins than fleece.
2
<PAGE>
The sales mix of products for the Company's Stardust and FLR divisions for the
year ended December 31, 1998 was as follows:
STARDUST
GROSS SALES PERCENTAGE
PRODUCT IN THOUSANDS OF GROSS SALES
------- ------------ --------------
Jersey 23,998 47.0%
Fleece 11,771 23.1%
Golf Shirts 12,984 25.5%
Caps 1,135 2.2%
Jackets 1,132 2.2%
TOTAL 51,019 100.0%
FLR
GROSS SALES PERCENTAGE
PRODUCT IN THOUSANDS OF GROSS SALES
------- ------------ --------------
Jersey 18,474 54.9%
Fleece 9,562 28.6%
Underwear 3,222 9.7%
Golf Shirts 1,932 5.8%
Miscellaneous 492 1.0%
TOTAL 33,682 100.0%
As of December 31, 1998 and 1997, the Company (excluding Stardust and FLR) had
backlog orders of approximately 844,182 dozens, or approximately $43 million,
and 645,475 dozens or approximately $37 million, respectively. Backlogs are
computed from orders on hand at the last day of each fiscal period. The Company
believes that as a result of the seasonality and the just-in-time nature of its
business, order backlogs are not a reliable indicator of future sales volume.
CUSTOMERS
Pluma targets a diverse customer base which is comprised of five primary
markets. These markets include branded, retailers, screenprinters and
embroiderers, wholesale distributors and entertainment. As a result of Pluma's
ability to customize products according to its customer's needs, it is focusing
on increasing sales to its branded and retail customers, which produce higher
gross margins.
For the years ended December 31, 1998, 1997, and 1996, Pluma's top ten customers
accounted for 47.9%, 80.2% and 75.5%, respectively, of the Company's net sales
and 58.9%, 47.2% and 65.4% , respectively, of its accounts receivable. For the
year ended December 31, 1998, the Company's top three customers, Sam's Club,
adidas and Starter Galt, accounted for 25.7%, 9.4% and 2.5%, respectively, of
the Company's net sales. For the year ended December 31, 1997, the Company's top
three customers, Sam's Club, adidas and FLR accounted for 31.1%, 12.0% and 8.7%
respectively of the Company's net sales. For the year ended December 31, 1996,
the Company's top three customers, Sam's Club, adidas and Frank L. Robinson,
accounted for 24.1%, 14.7% and 7.2%, respectively, of the Company's net sales.
Pluma provides products to its customers pursuant to purchase orders on an
as-needed basis.
3
<PAGE>
BRANDED
Branded accounts consist of customers such as adidas, Bike and Reebok. These
accounts require the manufacturer to meet exact specifications, such as styling,
color, screenprinting and embroidery. Products are labeled, packaged and shipped
ready for sale to consumers. The Company's ability to accommodate the
specialized nature of products manufactured for these customers often results in
higher margins. Branded accounts constituted approximately 12.2% of the
Company's net sales for the year ended December 31, 1998, 23.0% of the Company's
net sales for 1997 and 20.6% for 1996.
RETAILERS
Retail customers include specialty, high-end and value-oriented retailers. The
Company's largest retail customer in 1998 was Sam's Club, which markets and
sells "Pluma" labeled products. Pluma's other retail customers include Miller's
Outpost, which sells its own private label products manufactured by Pluma or
products with Pluma's "SANTEE(R)" label. The Company believes that this market
segment holds significant opportunity for growth as other value-oriented retail
formats continue to grow in popularity. Retail customers constituted
approximately 28.0% of the Company's net sales for the year ended December 31,
1998 and 40.9% and 33.7% for the same periods in 1997 and 1996, respectively. As
a result of the growth of the Company's business with Sam's Club, coupled with
increased consumer recognition of the "Pluma" brand name, the Company has
granted a license to Kayser Roth Corporation ("Kayser Roth") that allows it to
manufacture and distribute socks to Sam's Club under the "Pluma" brand name.
SCREENPRINTERS AND EMBROIDERERS
Screenprinters and embroiderers include Endless Design, Artisans and SouthPrint
among others. These customers typically purchase basic products to which they
add design and logos; they then resell these products to a wide variety of
retailers, ranging from small souvenir and resort stores to large, nationwide
department stores. Certain screenprinters and embroiderers resell under Pluma's
"SANTEE(R)" label. Screenprinters and embroiderers constituted approximately
7.9% of the Company's net sales for the year ended December 31, 1998 and 11.3%
and 19.7% for the same periods in 1997 and 1996, respectively.
WHOLESALE DISTRIBUTORS
Wholesale distributors include T-C Distributors and Laurel Run. These customers
generally purchase goods in large volume for further distribution to companies
such as Converse, as well as to small customers, which are typically more
difficult for the Company to service. All products sold to these customers
contain Pluma's "SANTEE(R)" label, which is becoming more recognizable by
consumers. Wholesale distributors (exclusive of Stardust and FLR in 1998)
constituted approximately 2.0% of the Company's net sales for the year ended
December 31, 1998 and 16.7% and 17.5% for the same periods in 1997 and 1996,
respectively. Wholesale distributor sales were less during 1998 than in prior
years as the result of the acquisition of Stardust and FLR, who were large
customers of Pluma before their acquisition.
ENTERTAINMENT
Entertainment accounts consist of customers such as Hard Rock Cafe and Walt
Disney. This market segment demands a basic product on which designs are printed
or embroidered for souvenir sales. Demand for goods sold to this market segment
is relatively consistent throughout the year. Entertainment accounts constituted
approximately 3.0% of the Company's net sales for the year ending December 31,
1998 and 8.1% and 8.4% for the same periods in 1997 and 1996 respectively.
STARDUST AND FLR
Stardust and FLR accounted for approximately 45.0% of the Company's net sales
for the year ending December 31, 1998. Stardust sells approximately one-third of
its products to screenprinters and embroiderers, one-third to retailers and the
4
<PAGE>
remaining one-third to advertising specialists, Stardust's fastest growing
customer segment. Pluma has closed FLR and is in the process of liquidating a
substantial portion of its inventory.
Historically, approximately two percent of Pluma's sales consisted of irregular
products sold by the Company and independent sellers.
MANUFACTURING
Pluma is a vertically integrated manufacturer. The Company's manufacturing
process consists of knitting, dyeing, finishing, cutting and sewing. Using
proprietary equipment and advanced manufacturing processes, Pluma has the
flexibility to shift its knitting, dyeing and sewing operations between various
fabric weights, blends and styles, as well as between fleece and jersey with
minimal downtime.
At the end of 1998, Pluma was manufacturing all of if its fabrics domestically,
using independent contractors as needed. The Company continued to shift its
sewing operations to Latin America in 1998 to meet customer demands for value
and to take advantage of the labor cost savings. By the end of 1998,
approximately 50% of the Company's products were sewn domestically at sites
within close proximity to the Company's textile manufacturing facilities. The
remaining 50% of the Company's products were sewn or produced in Latin America
by the joint ventures and other contractors.
Pluma's vertically integrated manufacturing process includes the following:
KNITTING
The Company operates, high-speed circular knitting machines that produce various
types of fabric in its manufacturing facilities in Eden, North Carolina. The
circular knitting process eliminates the need for side-seaming, reduces waste
and consequently, lowers production costs. Proprietary knitting processes enable
the Company to change its production with minimal downtime for setup. The
Company can shift its knitting processes between various fabric blends, weights
and styles, as well as between fleece and jersey fabrics, without significant
loss of utilization. Pluma uses spandex in all of its ribbed fabrics to retain
shape and produces high stitch count fabrics, which results in lower shrinkage,
a better printing surface and a softer feel.
DYEING
The Company believes that its computer-controlled, pressurized dyeing operations
in Eden, North Carolina, are state-of-the-art. Computerized controls reduce
processing time and improve control of dyeing cycles, temperatures, water
pressure and chemical usage, thereby producing greater consistency and
minimizing waste. In addition, the Company's pressurized dyeing process
increases bulking, which reduces shrinkage and color bleeding of its fabrics.
FINISHING AND CUTTING
The finishing process consists of extracting, drying, napping (brushing) and
compacting the fabric. Fleece fabrics are then napped to produce a soft and
heavy feel. Also, fabrics are compacted to minimize shrinkage and increase
stability.
Pluma's cutting operation in Eden, North Carolina, uses Bierrebi & Geber
automatic continuous-cutting machines with computer-controlled hydraulic
die-cutting heads. The Company's Gerber cutting system interfaces with its
computerized pattern design process. The Company utilizes these machines to
improve consistency and efficiency and generate less waste. Manual cutting is
used to provide flexibility to process low-volume orders.
5
<PAGE>
SEWING
The Company's domestic sewing facilities are currently located in Martinsville,
Chatham, Vesta and Altavista, Virginia. Pluma's sewing operations begin with the
pre-assembly of component parts utilizing computerized sewing equipment.
Pre-assembled parts are then sewn using the Company's proprietary tandem sewing
process or conventional sewing. Management believes that its tandem sewing
process is unique and gives the Company a competitive advantage in sewing
operations by enhancing product quality and manufacturing flexibility.
Pluma's proprietary tandem sewing process utilizes the Company's patented tandem
sewing table. This proprietary equipment allows operations to move rapidly
between sewing steps to reduce further assembly time. The table is easily
adjustable to accommodate different operators' physical characteristics,
minimizing downtime between shifts and thereby facilitating multi-shift
operations.
The Company increased its engagement of independent sewing contractors in 1998.
These independent contractors sewed approximately 37.0% of all Pluma products
during 1998 as compared to 16.0% of the Company's products in 1997 and 1996.
During 1998, 21.9% of the Company's products were sewn by independent
contractors located in Mexico and Honduras, while 15.1% were sewn by domestic
contractors. The Company intends to increase its engagement of foreign
independent contractors to sew its products as evidenced by the fact that by
December of 1998 approximately 50% of the Company's products were being sewn in
Latin America.
The Company hires independent embroidery and screen printing subcontractors to
print or embroider special images on products ordered by certain of its
entertainment and branded accounts. The Company believes that it is more cost
effective to outsource these services.
PACKAGING AND DISTRIBUTION
Pluma operates a three-building complex in Martinsville, Virginia, which serves
as its central packaging and distribution facility. The complex contains
approximately 462,950 square feet of packing and storage space.
The packaging process includes folding, tagging, bagging, packing and bar
coding. The Company's packaging operation employs automated folding machines and
other technologically advanced equipment that package products efficiently.
Pluma uses computers, scanners, radios, conveyor systems and order pickers to
track, locate and move products within its facilities and to the loading docks
for shipment. One conveyor system links two facilities, thereby significantly
reducing handling time.
The Company leases a fleet of 7 tractors and 78 trailers and owns six trailers.
It leases one truck to transport materials between plants, as necessary. It
relies upon common carriers for delivery to its customers.
SOURCES OF RAW MATERIALS
Pluma purchases yarn, dye stuffs and chemicals that are the principal raw
materials used in its products. Management believes that there is sufficient
availability of raw materials from a number of suppliers at competitive prices
to satisfy current and anticipated needs of the Company.
The Company does not spin its own yarn. Yarn spinning is a capital intensive
operation in which there is substantial domestic and foreign competition. The
Company often makes advance purchases of yarn based on projected demand. Should
any or all of these yarn suppliers be unable for any reason to fulfill their
obligations under these yarn contracts, the Company believes that such an
occurrence would not have a material adverse effect on the Company's business as
yarn is available to the Company from other suppliers at comparable prices.
6
<PAGE>
Pluma maintains a five- to ten-day supply of raw material inventories,
minimizing the need for storage space. During 1998, Pluma's principal yarn
suppliers included Parkdale Mills, Inc. and Mayo Yarns, Inc. and its principal
suppliers of dye and chemicals included Clariant, DyStar and Ciba Specialty
Chemicals.
As discussed in Item 7 hereof, since June 30, 1998, the Company has experienced
a liquidity crises and has remained in default under certain provisions of a
Credit Agreement with its lenders. Since November 1998, the Company's lenders
have extended to the Company successive thirty-day agreements to forbear from
exercising their remedies as a result of the defaults. As a result of
insufficient cash, the Company has been unable to pay its suppliers on a timely
basis. Furthermore, since November 1998, the Company's suppliers have expressed
concern regarding the Company's ability to operate beyond thirty-day periods
resulting from the short forbearance periods. As a result of not timely paying
its suppliers and the short forbearance periods described above, the Company has
experienced difficulty in obtaining adequate supplies in a timely manner which
caused disruptions and delays in production and some lost sales. The Company has
secured amended credit and forbearance agreements and is implementing a new
business plan designed to eliminate the problems described in this paragraph.
See Item 7 below. There can be no assurance that this problem will not continue.
SEASONALITY
The activewear business is seasonal. Typically, demand for fleece products is
much lower during the first and second quarters each year and is partially
offset by increased demand for jersey products in these periods. Notwithstanding
the Company's efforts to diversify its product mix and customer base to create a
more consistent demand for its products throughout the year, the Company
produces and stores fleece finished goods inventory during the first half of
each year. This practice enables the Company to meet the heavy demand for
delivery during the second half of the year.
COMPETITION
The fleece and jersey activewear industry is highly competitive. Pluma's major
competitors are vertically integrated manufacturers such as Fruit of the Loom,
Inc., Russell Corporation, Tultex Corporation and VF Corporation. Certain of
these competitors have greater financial resources and larger manufacturing,
distribution and marketing capabilities than the Company; however, no single
manufacturer dominates the industry. Among other factors, the Company's future
success will depend to a significant extent upon its ability to remain
competitive in the areas of price, quality, marketing, product development,
manufacturing capabilities, distribution and order processing, which are the
principal methods of competing within the fleece and jersey apparel industry.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local environmental laws
and regulations governing, among other things, the discharge, storage, handling
and disposal of a variety of hazardous and nonhazardous substances and wastes
used in or resulting from its operations and potential remediation obligations
thereunder. At the Company's textile manufacturing facility in Eden, North
Carolina, the Company disposes of dye waste through the city's municipal
wastewater treatment system under a permit issued by state regulatory
authorities.
The Company's operations also are governed by laws and regulations relating to
employee safety and health, principally OSHA and regulations thereunder, which,
among other things, establish exposure limitations for cotton dust,
formaldehyde, asbestos and noise, and regulate chemical and ergonomic hazards in
the workplace.
LABOR
The Company had approximately 2,150 employees at December 31, 1998. Since that
time, Pluma has downsized its labor force in an effort to reduce overhead and
at March 31, 1999 employed 1,626 persons. Management considers labor relations
to be good. Some of the Company's competitors located in its geographic area are
unionized, and there can be no assurance that the Company will not become a
target for union organizing activity in the future. To the extent that
unionization increases the Company's cost of operations, the Company could be
impacted adversely from both an operating and financial standpoint.
7
<PAGE>
TRADEMARKS AND LICENSES
Pursuant to an Assignment from Superba, Inc. recorded December 22, 1997, Pluma
became the owner of the registered trademark SANTEE(R), U.S. Registration No.
830,629. SNOWBANK(R) and PLUMA(R) are also registered trademarks owned by
Pluma, U.S. Registration No. 2,079,657 and U.S. Registration No. 2,139,902,
respectively. Applications have been filed to register these marks and
THERMOLATOR(TM) in the European Community, Japan and Mexico. SANTEE(R) is
registered in Mexico under RN 579379. PLUMA(R), SANTEE(R) and SNOWBANK(R) are
all utilized in connection with marketing certain styles of the Company's
activewear.
On October 24, 1995, the Company entered into a license agreement with Kayser
Roth granting to Kayser Roth a limited exclusive license to use the name "PLUMA"
in connection with the manufacture and sale of socks in the United States and
Mexico to Sam's Club (the "Kayser Roth Agreement"). The Company receives a
royalty from Kayser Roth equal to 2.0% of net sales of socks bearing the Pluma
label up to $3,000,000 of such sales and 1.5% of all net sales of socks
thereafter (in each case, less customary trade discounts, shipping charges,
returns and allowances and sales taxes). The Kayser Roth Agreement terminates on
December 31, 1999, but is renewable by Kayser Roth for successive one-year terms
thereafter. Sam's Club has informed the Company that it may cancel its Pluma
sock program at the end of 1999. The Company maintains appropriate quality
control standards in the Kayser Roth Agreement designed to ensure that only
quality products are distributed under the PLUMA(R) name.
On July 30, 1996, U.S. Patent No. 5,540,160 was issued by the USPTO for the
Company's tandem sewing table.
ITEM 2. Properties
All of the Company's facilities are located in North Carolina, Virginia and
Wisconsin. All buildings are well maintained and several of its facilities have
been expanded since operations commenced in 1987. All of the facilities owned by
the Company are encumbered by a deed of trust to a group of lenders to secure a
$115,000,000 credit facility previously extended to the Company. The principal
facilities summarized below list those facilities utilized by the company in
1998. The Company consolidated some of its operations in 1999 and any changes
occurring as of April 5, 1999 are footnoted. The location, approximate size,
owned or leased status, year in which operations commenced and use of the
Company's principal facilities are summarized in the following table:
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
8
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ------------------ ------------------ ----------------- ------------------
LOCATION SQUARE FOOTAGE OWNERSHIP OPERATIONS USE
COMMENCED
<S> <C> <C> <C> <C>
Eden, NC 170,900 Owned 1987 Executive
offices, dyeing,
finishing and
cutting
Eden, NC 139,169 Owned 1993 Knitting and
yarn storage
Eden, NC 4,000 Leased 1998(1) Outlet Store
Eden, NC 18,000 Leased 1987(2) Sewing/Storage
Eden, NC 21,000 Leased 1998(8) Storage
Martinsville, VA 198,000 Leased 1996 Distribution and
warehouse
Martinsville, VA 181,600 Leased 1988 Distribution,
packaging and
warehouse
Martinsville, VA 83,200 Leased 1994(7) Distribution,
packaging and
management
information
systems
Martinsville, VA 43,900 Owned 1988 Sewing
Martinsville, VA 15,600 Leased 1992(3) Storage
Martinsville, VA 11,500 Leased 1997(1) Product development and outlet
Martinsville, VA 8,300 Owned 1997 Marketing and
sales office and
some executive
offices
Rocky Mount, VA 82,000 Owned 1995(4) Sewing
Chatham, VA 52,000 Owned 1990 Sewing
Vesta, VA 24,000 Owned 1994(5) Sewing
Altavista, VA 12,000 Owned 1996 Sewing
Altavista, VA 2,200 Leased 1997(1) Outlet store
Los Angeles, CA 139,500 Leased 1997(6) Distributor
Verona, WI 63,000 Owned 1997 Distributor
</TABLE>
(1) In December 1998, the Company made the decision to close the factory
outlet locations. The Eden Factory Outlet lease terminated December 31,
1998. The Martinsville Factory Outlet lease ended March 20, 1999.
Product Development, once housed at this same location, was relocated to
the Company's main facility in Eden, NC. The Altavista Factory outlet
closed January 31, 1999.
(2) The Company leased this facility to perform sewing operations from 1987
through 1993 and subsequently executed a new lease for this facility in
December 1996. Sewing operations ceased in this facility in January 1999
and it is currently used for storage.
(3) This lease terminated February 12, 1999.
9
<PAGE>
(4) Sewing operations are expected to cease at this facility in April 1999
and the Company intends to sell this property in an absolute auction in
1999.
(5) The Company exercised its option to purchase this property in October
1997.
(6) The Company began the process of closing this facility in March 1999.
(7) The pre-assembly, packaging and distribution operations at this facility
were consolidated into the Company's other existing facilities in March
1999. The Company entered a new lease effective March 31, 1999 to lease
1,116 square feet of this same facility to house some of its Management
Information Systems.
(8) This warehouse was utilized as temporary storage. The lease thereon
expired April 6, 1999.
ITEM 3. Legal Proceedings
The Company is not a party to nor is any of its property the subject of
any legal proceedings, the result of which it believes could have a material
adverse impact on its business, properties, or financial condition.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
EXECUTIVE OFFICERS OF THE COMPANY
"Election of Directors' on pages 1 and 2 of the Proxy Statement for
the Annual Meeting of Share Owners to be held June 23, 1999, is incorporated
herein by reference.
Additional executive officers as of December 31, 1998 and as of April 5,
1999 who were not directors are as follows:
<TABLE>
<CAPTION>
Name Age Position
- -------------------------------------- ------ -------------------------------------------------
<S> <C> <C>
Forrest H. Truitt, II (1) 44 Executive Vice President and Chief Financial
Officer
Milton A. Barber, IV 38 Sr. Vice President of Sales and Marketing
David S. Green 49 Sr. Vice President of Human Resources
Walter E. Helton 59 Sr. Vice President of Operations
Douglas A. Shelton 41 Sr. Vice President of Manufacturing
Nancy B. Barksdale 41 Vice President and Controller
Clifford F. Campbell 39 Vice President and Treasurer
Raymond L. Rea 57 Vice President of Manufacturing
Jeffrey N. Robinson (2) 36 Vice President of Sales and President of Frank
L. Robinson, Inc.
James E. Beale 45 Vice President of Wholesale Distribution and
President of Stardust Corporation
John R. Beale 51 Executive Vice President of Stardust Corporation
William H. Watts 58 Vice President and Chief Financial Officer
Keith D. Lake 48 Vice President of Textile Operations
Frederick T. Burke, II 42 Vice President of Distribution
</TABLE>
(1) Mr. Truitt resigned as an employee of Pluma on March 1, 1999.
(2) The Company has made the decision to close FLR. Although the Company
remains obligated to Mr. Robinson under the terms of an employment
agreement, it is not anticipated that Mr. Robinson will remain an active
employee of the Company.
FORREST H. TRUITT, II served as Executive Vice President and Chief Financial
Officer of the company until March 1, 1999 when he resigned as an officer of the
Company. He became Vice President, Treasurer and Chief Financial Officer
10
<PAGE>
in March 1996 and became an Executive Vice President in January 1997. Mr. Truitt
relinquished his title as Treasurer in September 1998. From February 1994 until
he joined the Company, Mr. Truitt was a self-employed financial consultant.
Prior to that time, he served as the Chief Financial Officer of Mayo Yarns from
September 1993 to February 1994, and Vice President of Finance and
Secretary/Treasurer of Vintage Yarns, Inc. from 1982 until 1993.
WILLIAM H. WATTS was appointed Chief Financial Officer and Vice President on
March 8, 1999. Prior to joining the Company he was a self-employed financial
consultant. He served as Executive Vice President and Chief Financial Officer of
Signal Apparel Company, Inc., Chattanooga, TN from 1995 to 1997. From 1991 to
1994, he was Vice President of Finance of Land >n Sea, Inc., New York, NY, a
manufacturer and importer of women's and children's sportswear.
MILTON A. BARBER, IV became Senior Vice President of Sales and Marketing in
October 1997. Mr. Barber has been Vice President of Sales and Marketing since
January 1996. From July 1991 until December 1995, Mr. Barber served as an
Assistant Vice President of Sales and Marketing for Box & Company. Mr. Barber
was employed by Bassett-Walker, Inc. from 1987 until 1991.
DAVID S. GREEN became Senior Vice President of Human Resources in October 1997.
Mr. Green has served the company as Vice President of Human Resources since
1993. Prior to joining the Company in 1993, Mr. Green had been employed by Sara
Lee for 17 years where his most recent title was Director of Employee Relations
at the Martinsville, Virginia knitwear division.
WALTER E. HELTON became Senior Vice President of Operations in October 1997. Mr.
Helton is Vice President of Operations responsible for management information
systems. Before joining the Company in January 1992, Mr. Helton was employed by
Sara Lee as Director of Information Systems.
DOUGLAS A. SHELTON is Senior Vice President of Manufacturing. Mr. Shelton joined
the company in May 1996 as Director of Cutting. He was previously employed by
Sara Lee as Plant Manager from August 1989 to May 1996.
NANCY B. BARKSDALE is Vice President and Controller. She received her CPA
certification from the Commonwealth of Virginia in 1983. From 1983 until 1987,
Ms. Barksdale was employed by Bassett-Walker, Inc. as Assistant Controller.
Since 1987, Ms. Barksdale has served as Controller for Pluma, and served as
Treasurer from August 1993 until March 1996. She was promoted to Vice president
in January 1996.
CLIFFORD F. CAMPBELL has served as Vice President and Treasurer since September
1998. Mr. Campbell was employed at Butler and Burke, Certified Public
Accountants in Winston-Salem, NC from 1984 until 1997. He became a partner of
Butler and Burke in 1990. He joined the Company in March of 1997 as a Financial
Analyst.
RAYMOND L. REA is Vice President of Manufacturing responsible for all sewing
operations. Prior to his employment with the Company in 1987, Mr. Rea had been
employed by Bassett-Walker, Inc. for 25 years.
JEFFREY N. ROBINSON was Vice President of Marketing & Sales and President of
Frank L. Robinson, Inc., a division of Pluma, Inc. Prior to joining the Company
in 1997, Mr. Robinson was employed as a partner in Frank L. Robinson Company, a
wholesale distributor, since 1985. The Company has made the decision to close
FLR. Although the Company remains obligated to Mr. Robinson under the terms of
an employment agreement, it is not anticipated that Mr. Robinson will remain an
active employee of the Company.
JAMES E. BEALE is Vice President of Wholesale Distribution and President of
Stardust Corporation, a division of Pluma, Inc. Mr. Beale served as General
Manager of Stardust Corporation, a wholesale distributor since 1988 until he
joined Pluma in December of 1997. Mr. Beale is the brother of John R. Beale, an
executive officer of Stardust Corporation.
JOHN R. BEALE is Executive Vice President of Stardust Corporation, a division of
Pluma, Inc. Mr. Beale was founder and President of Stardust Corporation from
1988 until he joined Pluma in December of 1997. He is the brother of James A.
Beale, an executive Officer of the Company.
11
<PAGE>
KEITH D. LAKE became Vice President of Textile Operations in January 1999. Prior
to joining the Company in May 1998 as Assistant Vice President of Textile
Manufacturing, Mr. Lake was employed by Kingstree Knits, a division of Texfi
Industries, Inc., Haw River, NC from May 1992 to May 1998. He has worked in the
textile industry for 26 years.
FREDERICK T. BURKE II became Vice President of Distribution in March 1999. Mr.
Burke joined Pluma in September 1998 as Director of Retail Sales. Prior to
accepting a position with Pluma, Mr. Burke served as Vice President of Sales of
Starter Corporation, an athletic apparel company, from October 1996 to April
1998. From 1983 to 1996, Mr. Burke was employed by Lee Apparel Company as Vice
President of Sales.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock is the only class of stock currently issued
and outstanding. The Company's common stock is listed on the New York Stock
Exchange under PLU.
The following table represents the high and low closing sales price of
the Company's common stock as listed on the New York Stock Exchange for each
full quarterly period within 1997, 1998 and on April 5, 1999.
<TABLE>
<CAPTION>
High Low High Low
1997 Quarter Ended 1998 Quarter Ended
<S> <C> <C> <C>
March 31 $12.250 $12.000 March 31 $6.75 $6.56
June 30 $15.750 $11.750 June 30 $6.75 $6.69
September 30 $14.625 $10.000 September 30 $2.38 $2.13
December 31 $10.375 $ 8.438 December 31 $2.08 $1.13
April 5, 1999 $ .56 .50
</TABLE>
The approximate number of registered holders of the Company's common
stock on April 5, 1999 was 236.
The Company did not pay a dividend on its common stock in 1997 or 1998.
The Company's credit agreement with its several lenders prohibits the Company
from declaring and paying a dividend on its common stock. Any such dividend
payment constitutes a default under the credit agreement. The Company has not
established a dividend policy and does not expect that a dividend will be
declared and paid in the foreseeable future.
- -------------------------------------------------------------------------------
ITEM 6.
SELECTED FINANCIAL AND OPERATING DATA
Statement of operations data for each of the years in the three-year period
ended December 31, 1998, and the balance sheet data as of December 31, 1998 and
1997 set forth below have been derived from the Company's audited financial
statements included elsewhere in this Form 10-K. The statement of operations
data for each of the years in the two-year period ended December 31, 1995 and
the balance sheet data as of December 31, 1996, 1995 and 1994 are derived from
the Company's audited financial statements which are not included in this Form
10-K.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1998(9) 1997(1) 1996(4) 1995(4) 1994
(10)(11) (2)(3) (8) (5)(6)
-----------------------------------------------------
In thousands, except per share data
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 187,254 $134,555 $127,820 $ 100,710 $ 97,908
Cost of goods sold 186,010 118,279 106,247 81,429 81,409
Gross profit 1,244 16,276 21,573 19,281 16,499
Selling, general & administrative expenses 35,969 10,976 9,149 14,385 7,300
Income (loss) from operations (34,725) 5,300 12,424 4,896 9,199
Other expenses, net 7,153 1,782 3,251 3,130 2,255
Income (loss) before income taxes (41,878) 3,518 9,173 1,766 6,944
Income taxes (benefit) (5,819) 1,475 3,355 659 2,594
Net income (loss) $ (36,059) $ 2,043 $ 5,818 $ 1,107 $ 4,350
Earnings (loss) per common share - basic and diluted:
Net income (loss) $ (4.45) $ 0.27 $ 1.09 $ 0.21 $ 0.83
Weighted average number of
shares outstanding 8,109 7,554 5,316 5,316 5,244
Cash dividends per common share $ 0.00 $ 0.02 $ 0.11 $ 0.11 $ 0.11
<CAPTION>
December 31,
-----------------------------------------------------
1998(9) 1997(1) 1996(4) 1995(4) 1994
(10)(11) (2)(3) (8) (5)(6)
-----------------------------------------------------
In thousands
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ (44,664) $ 32,975 $ 49,901 $ 50,052 $ 31,926
Total assets 158,543 165,737 89,218 88,613 68,554
Long-term debt, net of current portion 0 40,000 44,420 50,120 30,465
Total shareholders' equity 27,609 63,668 32,143 26,902 26,373
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1998(9)(10) 1997(1) 1996(4) 1995(4) 1994
(11) (2)(3) (8) (5)(6)
-----------------------------------------------------
In thousands
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Gross profit as a percentage of net sales 0.7% 12.1% 16.9% 19.1% 16.9%
Income (loss) from operations as a
percentage of net sales (18.5%) 4.0% 9.7% 4.9% 9.4%
Depreciation & amortization $ 6,570 $ 4,057 $ 3,804 $ 3,440 $ 2,885
Capital expenditures 12,904 9,782 3,399 5,856 4,495
EBITDA (7) (27,494) 9,914 16,712 8,627 12,386
</TABLE>
12
<PAGE>
(1) In March 1997, the Company completed its initial public offering of
2,500,000 shares of common stock at $12.00 per share. Upon the exercise of
the over-allotment option in April 1997, the Company issued an additional
293,300 shares at $12.00 per share. The $29.6 million in net proceeds from
the issuance of common stock was used to reduce debt.
(2) During 1997, the Company capitalized significant costs associated with the
implementation of a new management information system designed to improve
the company's production planning, scheduling and distribution, as well as,
its financial reporting capabilities. In November 1997, the Emerging Issues
Task Force released EITF Issue No. 97-13 requiring certain costs associated
with software implementation to be expensed as incurred. In the fourth
quarter of 1997, the Company expensed $2.1 million of such costs which had
previously been capitalized during 1997.
(3) In December 1997, the Company purchased certain assets and assumed certain
liabilities of Stardust Corporation ("Stardust") and Frank L. Robinson
Company ("FLR"), former customers of the Company. The Company paid $51.5
million in cash for these assets, including related acquisition costs, and
assumed liabilities in the amount of $16.7 million. The acquisitions have
been accounted for as purchases. Accordingly, the assets, liabilities and
results of operations of the acquired businesses are included in the
balance sheets and statements of operations as of and since December 1997.
The acquisitions were financed through additional debt.
(4) In December 1995, the Company brought its sales and marketing functions
in-house in order to increase control and enhance profitability (the "Box
Transaction"). The Company had previously conducted its sales and marketing
activities through an exclusive sales agent, Box & Company ("Box &
Company"), under an arrangement (the "Sales & Marketing Agreement") whereby
the Company paid a commission of 3.0% of net sales plus an allowance for
certain promotional material. Box & Company is a corporation owned by G.
Walker Box, a principal shareholder of the Company and Chairman of the
Board. The Company terminated the Sales & Marketing Agreement as of December
31,1995, and recorded a non-recurring charge of $2.0 million, the amount of
the termination payment.
(5) Includes a non-recurring charge of $3.3 million to increase the allowance
for doubtful accounts receivable primarily related to the bankruptcy of a
customer.
(6) Had the Box Transaction occurred at the beginning of 1995, excluding the two
non-recurring charges mentioned in notes (4) and (5), for the year ended
December 31, 1995, selling, general, and administrative expenses ("SG&A")
would have been $7.3 million compared to $14.4 million as reported. In
addition, income from operations, net income, earnings per common
share-basic and diluted and EBITDA would have been $12.0 million, $5.5
million, $1.04 and $15.7 million, respectively.
(7) Represents earnings (loss) before interest expense, income taxes,
depreciation and amortization. EBITDA is commonly used to analyze companies
on the basis of operating performance, leverage and liquidity. EBITDA should
not be considered as a measure of profitability or liquidity as determined
in accordance with generally accepted accounting principles in the
statements of operations and cash flows.
(8) Includes $83,930 of expense from the change in the method of determining
the cost of inventories, except production supplies, from the FIFO method
to the LIFO method. The effect of the change was to decrease net income in
1996 by $53,212 ($0.01 per share).
(9) During March 1999, the Company announced the closing of FLR. Includes the
writeoff of goodwill of approximately $7.0 million associated with the FLR
purchase (see note (3) above). Inventory reserves were increased $3.0
million to reflect the estimated net realizable value for inventories to be
liquidated.
(10)Includes approximately $9.2 million reserve to reflect the estimated net
realizable value associated with a planned inventory liquidation.
(11)Includes reserves of approximately $2.2 million for property to be sold
during 1999. During January 1999 the Company announced the closing of its
sewing operation in Rocky Mount, Virginia. The building and related
equipment are to be disposed of at auction. Other long-lived assets are also
to be disposed of during 1999. In accordance with SFAS 121, these assets are
written down to their net realizable value at December 31, 1998.
17
<PAGE>
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Pluma is a vertically integrated manufacturer and distributor of high quality
fleece and jersey activewear. The Company is focused on increasing sales and
profitability by offering high value products to a diverse customer base across
multiple markets and distribution channels. During 1998, the Company operated
two nationally recognized wholesale distributors, Stardust Corporation in
Verona, Wisconsin ("Stardust") and Frank L. Robinson, Company in Los Angeles,
California ("FLR"). Although the Company elected in March 1999 to close FLR, it
continues to operate Stardust. Currently, Pluma's material customers include
branded customers such as adidas and Starter, retailers such as Miller's Outpost
and Sam's Club and entertainment customers such as Busch Gardens, Hard Rock Cafe
and Walt Disney. The Company sells products under its own "PLUMA(R)",
"SANTEE(R)" and "SNOWBANK(R)" brand names to retail and wholesale customers. In
addition, Pluma sells to screenprinters and embroiderers who sell the Company's
products to a wide variety of retailers, ranging from souvenir and resort stores
to large nationwide department stores. Pluma seeks to grow both by increasing
sales to existing customers and by adding new customers. This diverse customer
base provides product exposure to many customer markets and enables Pluma to
balance its production more evenly throughout the year.
During 1997, the Company capitalized significant costs associated with the
implementation of a new management information system designed to improve the
Company's production planning, scheduling and distribution, as well as, its
financial reporting capabilities. In November 1997, the Emerging Issues Task
Force released EITF Issue No. 97-13 requiring certain costs associated with
software implementations to be expensed as incurred. In the fourth quarter of
1997, the Company expensed $2.1 million of such costs which had previously been
capitalized during 1997.
In December 1997, the Company purchased certain assets and assumed certain
liabilities of Stardust and FLR, former customers of the company. The Company
paid $51.5 million in cash for these assets, including related acquisition costs
and assumed liabilities in the amount of $16.7 million. The acquisitions have
been accounted for as purchases. Accordingly, the assets and liabilities of the
acquired businesses are included in the balance sheet as of December 31, 1997.
The results of Stardust's and FLR's operations from the dates of the
acquisitions to December 31, 1997 did not have a material impact on the
Company's results of operations for that year. The acquisitions were financed
through additional debt.
During 1998, the Company aggressively entered into agreements with Latin
American manufacturers to produce product. Unfortunately, there were
manufacturing disruptions that accompanied these sourcing decisions as their
manufacturers (joint ventures in which the Company is a partner) failed to
provide quantities of product in a timely fashion and quality problems were also
experienced. The Company also determined that more competitive pricing could be
obtained from the Latin American manufacturers. Therefore the Company failed to
realize the full benefit of non-domestic production. Simultaneously, the Company
experienced manufacturing disruptions in its domestic operations, as well as
higher than anticipated levels of fabric waste. The disruptions and waste at its
domestic facilities were due primarily to problems encountered during the
Company's implementation of a new management information system.
In April, 1998, the Company closed a senior credit facility of $115,000,000.00
(the "Credit Agreement") with a group of lenders (the "Banks"). In June, 1998,
the Company violated certain financial and performance covenants contained in
the credit facility and consequently, the Company became in default under the
credit agreement. Thereafter, the Company and the Banks engaged in continuing
negotiations concerning the Company's default and, initially, the Banks agreed
to a number of short-term credit agreement amendments and waiver agreements
which allowed the Company to remain in technical compliance with the credit
agreement. The Banks' agreement to waive the Company's defaults ended on
November 15, 1998. However, while not granting the Company a default waiver, on
November 16, 1998, the Banks entered into a Forbearance Agreement in which they
agreed to forbear from exercising the rights and remedies available to them as a
result of the Company's violations of the financial and performance covenants
set forth in the Credit Agreement. This allowed the Company to continue
operations notwithstanding its loan agreement defaults. The Forbearance
Agreement was subsequently amended a number of times (extending the Banks'
forbearance in successive thirty-day intervals) and, on March 31, 1999 the
Company reached an agreement with the Banks to extend and
modify the existing Credit Agreement through September 30, 1999. Subsequently on
April 15, 1999, the Company's credit facility was once again amended by the
Tenth Amendment to Credit Agreement and Sixth Amendment to Forbearance Agreement
which further modified the Company's credit arrangement and provided a cure
period for an interest payment default in the amount of $1,177,370 until
June 11, 1999. The Credit Agreement and Forbearance Agreement as amended
require the Company to achieve certain revised performance and financial goals,
grant the Banks the right to acquire warrants representing up to ten percent
(10%) of the equity in the Company, and provide the Company with additional
availability under its revolving credit line in an amount projected by the
Company to be the minimum amount necessary to enable the Company to perform
under a revised business plan designed to return the Company to profitability.
As part of the Company's above-referenced negotiations with the Banks, the
Company was required to retain various consultants to assist in the formulation
and implementation of a strategic business plan (the "New Business Plan") as
well as to assist the Company in managing its operations while under the strain
of continuing severe cash shortages. During the fourth quarter of 1998 and
continuing into the first quarter of 1999, the Company implemented a number of
initiatives in order to counter its cash crisis and remain operationally viable.
These initiatives included the expedited liquidation of a significant amount of
inventory, the closure of certain domestic manufacturing and distribution
operations and a substantial reduction and severance of employees. The Company
anticipates further closures and asset sales to occur in 1999, including the
sale of one or more of the Company's manufacturing facilities and the sale of
the Company's sales office located in Martinsville, Virginia.
As a part of the above referenced initiatives, in March 1999, the Company closed
the operations of FLR and began shipping certain FLR inventories to Stardust.
The remaining FLR inventories have been identified for liquidation and have been
written down to reflect their estimated net realizable value. In addition,
goodwill of approximately $7.0 million associated with the FLR acquisition was
written off as a result of the closing.
14
<PAGE>
The following table presents the major components of the Company's Statements of
Operations as a percentage of net sales:
Years Ended December 31,
----------------------------------
1998 1997 1996
----------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 99.3 87.9 83.1
Gross profit .7 12.1 16.9
Selling, general and administrative expenses 19.2 8.1 7.2
Income (loss) from operations (18.5) 4.0 9.7
Other expenses, net 3.9 1.4 2.5
Income (loss) before income taxes (22.4) 2.6 7.2
Income taxes (benefit) (3.1) 1.1 2.6
Net income (loss) (19.3)% 1.5% 4.6%
RESULTS OF OPERATIONS
Year Ended December 31, 1998, Compared To Year Ended December 31, 1997
Net Sales. Net sales for 1998 were $187.3 million, an increase of $52.7 million,
or 39.2%, over net sales of $134.6 million for 1997. This increase was
attributable primarily to the inclusion of sales from FLR and Stardust which
were acquired in December 1997. New sales from FLR and Stardust after
intercompany eliminations were $23.8 million and $41.4 million, respectively, in
1998. This increase in net sales, however, was lower than anticipated due to
increased competition resulting in lower sales prices, interruptions in
production associated with a difficult implementation of a new management
information system, a temporary disruption of supply of inventory encountered at
Stardust and FLR and lower than expected sales of fleece products because of a
relatively warm winter.
The Company's implementation during 1998 of a new management information system
consumed signficantly more capital and management focus than had been
anticipated and created numerous operational problems for the Company. Pluma
experienced continuous system problems in scheduling and in producing the
appropriate product mix in the correct volumes required to meet customer orders.
As a result, the Company overproduced certain styles and colors of products not
ordered by customers, which led to an accumulation of excess inventory which
could not be sold. Furthermore, sales were lost as the result of the Company's
inability to timely manufacture product ordered by its customers.
Historically, a large majority of the inventory sold by Stardust and FLR had
been produced by manufacturers other than Pluma. The Company anticipated that
this would continue for some time until its capacity could be increased to meet
the demand for Stardust's and FLR's inventory needs. However, shortly after the
acquisition of these distributorships, two manufacturers who manufactured more
than 50% of Stardust's inventory in 1997, and a significant portion of FLR's
inventory in 1997, ceased shipping product to these distributorships. Shipments
did not resume from these third-party manufacturers until late in the second
quarter of 1998. This unanticipated inventory supply disruption required the
Company to attempt to manufacture product needed by its distributors internally
and/or acquire product from alternate sources. The unexpected demand placed on
the Company's manufacturing facilities delayed manufacturing for other
customers. These delays resulted in the Company not meeting certain customer
orders in a timely fashion, leading to lost sales and an inventory buildup of
product not taken by customers when their orders were completed.
During 1998, because of the downward trend in product prices due to an overall
market decline, inflation had a minimal effect on the Company's net sales. The
Company is exposed to inflationary pressures from the purchases of raw materials
and labor. However, during 1998, these markets were relatively stable and
inflation did not have a material effect on income from continuing operations.
Gross Profit. Gross profit as a percentage of net sales declined to 0.7% in 1998
from 12.1% in 1997. This decline was primarily due to increases in the inventory
market reserves based on the Company's decision in early 1999 to liquidate
certain inventories and to record those inventories at the resulting estimated
net realizable values at December 31, 1998. A $3.0 million reserve was recorded
against FLR inventory that is to be liquidated as a result of the closing of
FLR. The Company has also applied a $9.2 million reserve against manufactured
inventory for items that will be liquidated in order to reduce SKU's and
generate cash for operations. As a result of the general decline in the textile
industry during 1998, the Company experienced increased pricing pressures,
resulting in lower margins. In addition, the Company's product mix shifted more
toward jersey goods as the demand for fleece declined due to a warmer than
expected winter. Margins on jersey products are typically lower than those for
fleece.
Selling, General and Administrative Expenses. SG&A increased by $25.0 million in
1998 to $36.0 million from $11.0 million in 1997, an increase of 227.7%. This
increase was due to several factors. The Company's SG&A expenses include $20.5
million for the operations of FLR and Stardust in 1998. As these acquisitions
occurred in late December 1997, SG&A expenses were not materially affected by
the operations of FLR and Stardust in 1997. Amortization of the goodwill
associated with the acquisitions of FLR and Stardust was $1.7 million in 1998.
Amortization of goodwill in 1997 was not substantial. Additionally, with the
closing of the FLR operations, the Company wrote off the $7.0 million of
goodwill associated with the FLR acquisition. Furthermore, the Company has also
announced its intent to sell its Rocky Mount, Virginia sewing facility with
certain related equipment and its Martinsville, Virginia corporate offices. As a
result of these planned dispositions, the Company has placed reserves totaling
$2.3 million against these assets to reflect the estimated fair value of the
properties.
Other Expenses, Net. Other expenses, net, increased 301.4% to $7.2 million in
1998 from $1.8 million in 1997, an increase of $5.4 million. This increase was
primarily a result of an increase in interest expense. Interest expense
increased by 234.1% to $7.8 million in 1998 from $2.3 million in 1997 due to an
increase in average debt outstanding during 1998.
Income Taxes. The effective tax rate was 13.9% in 1998 compared to 41.9% in
1997. This decrease is attributable primarily to a valuation allowance in 1998
of $10.0 million, or 23.7% as a percentage of the loss before income taxes. The
valuation allowance was established due to the uncertain ability of the Company
15
<PAGE>
to generate future taxable income and the resulting uncertain realization of tax
loss carryforwards and other deferred tax assets.
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Sales. Net sales increased 5.3% to $134.6 million in 1997 from $127.8
million in 1996. Gross dozens sold of fleece and jersey increased 5.1% to 1.7
million dozens in 1997 from 1.6 million dozens in 1996. The increase in net
sales was primarily attributable to increased sales of jersey activewear and
revenue from the addition of new customers. Sales of jersey activewear increased
by $5.0 million to $51.8 million in 1997, a 10.8% increase over the $46.8
million of jersey product sold in 1996. The average sales price per dozen for
total products sold declined by 1.0% primarily due to the increase in volume of
jersey activewear sold. Jersey products generally carry a lower sales price than
fleece products. During 1997, because of the downward trend in product prices
due to an overall market decline, inflation had a minimal effect on the
Company's net sales. The Company is exposed to inflationary pressures from the
purchases of raw materials and labor. However, during 1997, these markets were
relatively stable and inflation did not have a material effect on income from
continuing operations.
Gross Profit. Gross profit was 12.1% of net sales in 1997 compared to 16.9% in
1996. This decline in gross profit was the result of lower manufacturing
efficiencies and increased labor costs. Manufacturing efficiencies were
adversely impacted during the second and third quarters of 1997 by the
reconfiguration of the Company's textile facilities and product quality issues
resulting from changes in the Company's manufacturing processes and the
utilization of defective yarns. Labor costs increased in order to recapture a
loss of production which resulted from the Company's manufacturing
inefficiencies.
Selling, General and Administrative Expenses. SG&A increased 19.7% to $11.0
million in 1997 from $9.1 million in 1996, an increase of $1.9 million. This
increase was due primarily to the expensing of $2.1 million of software
implementation costs in compliance with EITF Issue No. 97-13. This increase in
SG&A expense was partially offset by a decline in management bonuses.
Other Expenses, Net. Other expenses, net, decreased 44.4% to $1.8 million in
1997 from $3.3 million in 1996. This decrease was primarily the result of a
decrease in interest expense. Average borrowings were lower due to the
application of the net proceeds of the Company's March 1997 initial public
offering.
Income Taxes. The effective tax rate was 41.9% in 1997 compared to 36.6% in
1996.
UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data for 1998 follows:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
March 31 June 30 September 30 December 31
--------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $39,196,435 $51,059,701 $54,608,997 $42,388,437
Gross profit (loss) 4,014,171 4,631,530 2,969,030 (10,370,812)
Net income (loss) (881,683) (1,718,296) (2,709,364) (30,749,345)
Earnings (loss) per share - basic and diluted (0.11) (0.21) (0.33) (3.80)
Summarized unaudited quarterly financial data for 1997 follows:
<CAPTION>
Three Months Ended
--------------------------------------------------------
March 31 June 30 September 30 December 31
--------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $27,285,730 $33,226,268 $38,965,527 $ 35,077,528
Gross profit 4,692,571 5,172,762 4,897,317 1,513,041
Net income (loss) 864,435 1,430,627 1,768,378 (2,020,602)
Earnings (loss) per share - basic and diluted 0.15 0.18 0.22 (0.25)
</TABLE>
16
<PAGE>
Liquidity And Capital Resources
As a result of the inability of the Company to increase the amount of funds
available for borrowing under its credit facility with the Banks and its
operating losses during 1998, the Company experienced severe liquidity
shortages during the last quarter of 1998 which continued during the first
quarter of 1999. As a result of this inadequate liquidity, the Company failed to
pay its suppliers in a timely manner, causing delays in the delivery to the
Company of raw materials. This caused some disruptions and delays in production
and, at times, resulted in lost sales.
At December 31, 1998, the Company had a working capital deficiency of ($44.7)
million, a decrease of $77.7 million as compared to working capital of $33.0
million at December 31, 1997. This decrease is primarily attributable to an
increase in current maturities of long-term debt of $64.9 million resulting from
the Company classifying all of its debt as current. In addition, working capital
declined due to increases in accounts payable and accrued expenses of $7.7
million and a net decrease in receivables of $8.0 million. These reductions in
working capital were partially offset by an increase in inventories of $5.5
million.
Net cash used in operating activities of $11.0 million for the year ended
December 31, 1998 resulted primarily from the net loss of $36.1 million, less
noncash charges of $6.6 million for depreciation and amortization, $2.3 million
for losses on disposal of property and $7.0 million for the write off of
goodwill attributable to FLR. The changes in accounts payable, accrued expenses,
receivables and inventories discussed above were also adjustments to reconcile
the net loss to the net cash used in operations.
Net cash used in investing activities of $13.8 million for the year ended
December 31, 1998 was attributable primarily to capital expenditures for
manufacturing and computer equipment to enhance manufacturing and management
information systems capabilities.
Net cash provided by financing activities of $25.5 million for the year ended
December 31, 1998 resulted from additional net borrowings during the year.
ORIGINAL CREDIT AGREEMENT
In April 1998, the Company entered into a syndicated credit agreement (the
"Credit Agreement") with a group of financial institutions (the "Banks") for the
purpose of refinancing its then existing credit facility. The Credit Agreement
has been amended several times and currently exists under the "Ninth Amendment
to Credit Agreement". Among the various provisions, limitations and restrictions
contained in the Credit Agreement, the Company must meet specified consolidated
net worth, leverage ratio, fixed charge coverage ratio, funded debt to total
capitalization ratio and consolidated earnings before the effect of interest
expense, income taxes, depreciation and amortization requirements. Under the
Credit Agreement, the Company is restricted in the amount of its capital
expenditures, indebtedness to certain other parties, payment of dividends, or
redemption of its stock that would create an event of default. In the event of
a default under the Credit Agreement unless a waiver or forbearance is
obtained, any unpaid principal and accrued interest may be declared immediately
due and payable. The Credit Agreement may be terminated at any time upon the
occurrence of an event of default. The Company retains the right to remedy
certain events of default within 30 days after notice.
As of December 31, 1998, the Company was in default under certain of the
above-referenced covenants and had not obtained waivers of these defaults from
the Banks. As of December 31, 1998, the Company was required to have a funded
indebtedness to capitalization ratio of less than 0.65, a consolidated net worth
greater than or equal to $62.5 million, a fixed charge coverage ratio of less
than 1.50, and consolidated earnings before the effect of interest expense,
income taxes, depreciation and amortization greater than or equal to $20
million. As of December 31, 1998, the Company had a funded indebtedness to
capitalization ratio of 0.80, a consolidated net worth of $27.6 million, a fixed
charge coverage ratio of (2.26), and a consolidated loss before the effect of
interest expense, income taxes, depreciation and amortization of $(27.5)
million. Due to these violations, the Company has classified all of its debt as
current at December 31, 1998.
AMENDED CREDIT AGREEMENT AND AMENDED FORBEARANCE AGREEMENT
The Credit Agreement and Forbearance Agreement have been amended several times
and currently exist under the Tenth Amendment to the Credit Agreement and Sixth
Amendment to the Forbearance Agreement, which were executed on April 15, 1999.
As currently amended, the Credit Agreement includes a revolving loan facility
(the "Revolving Loans") and a term loan facility. The maximum amount available
under the term loan is $45.0 million (the "Term Loan"). The total amount that
can be borrowed under the Revolving Loans is limited to the Borrowing Base,
defined as the sum of (i) 85% of Eligible Receivables (as defined), (ii) 60% of
Eligible Inventory (as defined), and (iii) $18.0 million through April 29, 1999;
$18,400,000 through May 28, 1999; $18,800,000 through June 29, 1999;
<PAGE>
$19.5 million from June 30, 1999 through July 30, 1999; $16.1 million from July
31, 1999 through August 30, 1999; $14.5 million from August 31, 1999 through
September 29, 1999; and $0 thereafter. The maximum amount that can be borrowed
under the Revolving Loans is limited to $63.0 million through July 30, 1999;
$55.6 million from July 31, 1999 through August 30, 1999 and, $53.0 million
thereafter.
Although the Company's defaults under the original Credit Agreement have not
been waived by the Banks, pursuant to the Forbearance
Agreement as amended, the Banks have agreed to forbear until September 30, 1999
from exercising the rights and remedies available to them as a result of the
Company's defaults under the Credit Agreement. Among other provisions in the
Forbearance Agreement, as amended until September 30, 1999, (i) the
Company's capital expenditures are limited to $0.2 million in the aggregate in
any calendar month and $0.6 million in the aggregate from April 1, 1999 to
September 30, 1999; (ii) the Company must have net sales of at least $7.2
million in any three week period; (iii) the Company must not have aggregate
payments, less aggregate cash receipts, in excess of $1.8 million in any one
week; (iv) the Company must have aggregate receipts in excess of aggregate cash
payments during any three-week period; (v) for the period April 1, 1999 through
May 31, 1999, the Company's EBITDA must be greater than or equal to $3.0
million, and for the period from April 1, 1999 through July 31, 1999, the
Company's EBITDA must be greater than or equal to $5.6 million; and (vi) the
Company's trade payables may not exceed $16.4 million at any time. The
Forbearance Agreement as amended, also provides that the Banks may request
that the Company transfer to them warrants for the issuance of stock
representing 10% of the diluted common equity of the Company and requires
that interest in the amount of $1,177,310 which was payable on April 13, 1999
be paid in weekly installments of $150,000 until paid in full on June 11, 1999.
A violation of the covenants contained in the Credit Agreement, as
amended and/or the Forbearance Agreement, as amended, will constitute events of
default thereunder. As such, unless a waiver or forbearance is obtained, the
Banks may, at their discretion, declare the unpaid principal of and any accrued
interest in respect of all amounts outstanding to them to be immediately due and
payable. Furthermore, even if there are no defaults by the Company under its
agreements with the Banks, the Banks' obligation to forbear from exercising
their remedies resulting from the Company's loan defaults expires on September
30, 1999. The Company is seeking alternative sources of financing. However,
there can be no assurances that new or additional financing will be obtained by
the Company or that the Banks will waive or continue to forbear from exercising
their rights to demand payment of the outstanding debt in the future. In the
event that the Banks declare the unpaid principal balances of their loans and
accrued interest due and payable and alternative financing can not be obtained,
the Company may not have the ability to continue to operate.
In response to the Company's poor performance and its liquidity problems
experienced during 1998 and the first quarter of 1999, the Company developed the
New Business Plan which is designed to return the Company to profitability by
reducing overhead and other costs and to provide the Company with the ability to
service its debt. Pursuant to the New Business Plan, the Company has eliminated
management positions and reduced some management salaries. Additional personnel
and overhead cost reduction measures have been and are planned to be taken
related to organizational down-sizing and the closing of certain facilities. In
January 1999, management announced its intention to close its Rocky Mount
production facility and all of the Company's outlet stores and has listed its
Rocky Mount manufacturing facility for auction. In addition, the Company has
down-sized its administrative office and has discontinued its Eden sewing
operations.
In connection with the closing of the sewing facilities noted above and a
down-sizing at its other sewing facilities, the Company has shifted a
significant portion of its sewing operations to outside contractors, primarily
in Mexico. The Company has experienced lower overhead costs associated with the
use of outside sewing contractors. In March 1999, the Company also announced the
closing of FLR. As a result of this closing, the Company will move certain FLR
inventories to Stardust to be sold as part of the Stardust operations.
Approximately $5.0 million of other FLR inventories will be liquidated to
generate cash. These inventories to be liquidated are reported at the estimated
net realizable value in the balance sheet at December 31, 1998.
As part of the Company's New Business Plan, the Company is in the process of
eliminating certain less profitable product styles. The Company believes that
this will reduce its product mix to a more manageable level. As a result of this
reduction, close-out inventories of approximately $7.9 million have been
identified for liquidation. These inventories are also reported in the balance
sheet at the estimated net realizable value at December 31, 1998.
Notwithstanding their expiration dates of September 30, 1999, the Ninth
Amendment to the Credit Agreement and the Fifth Amendment to the Forbearance
Agreement provide the Company with operating flexibility not available to it
during the last quarter of 1998 and the first quarter of 1999. Furthermore, the
New Business Plan's goal to complete an operational and financial restructuring
of the Company is designed to return the Company to profitability. However,
there can be no assurances that (i) the Company will have sufficient liquidity
to successfully implement the New Business Plan or pay its debts in a timely
manner, (ii) the New Business Plan will return the Company to profitability,
even if successfully and completely implemented and (iii) the Company will be
able to comply with every covenant contained in its Credit Agreement (as amended
by the Ninth Agreement thereto) and the Fifth Amendment to the Forbearance
Agreement.
The Company's independent public accountants have included a "going concern"
emphasis paragraph in their audit report accompanying the 1998 financial
statements. The paragraph states that the Company's significant net loss,
negative working capital and uncertain ability to obtain additional financing
for operations raise substantial doubt about the Company's ability to continue
as a going concern and cautions that the financial statements do not include
adjustments that might result from the outcome of this uncertainty.
17
<PAGE>
YEAR 2000 COMPLIANCE
The Company recognizes that the arrival of the Year 2000 poses a unique
worldwide challenge to the ability of all systems to recognize the date change
from December 31, 1999 to January 1, 2000 and, like other companies, has
assessed its computer applications and business processes to provide for their
continued functionality. The Company believes that its current management
information systems will consistently and properly recognize the Year 2000. As
stated above, the Company is in the process of completing its implementation of
its new management information systems to improve its production planning,
scheduling and distribution, as well as its financial reporting capabilities.
This new management information system will be Year 2000 compliant. Many of the
Company's other systems include new hardware and packaged software recently
purchased from large vendors who have represented that these systems are Year
2000 compliant. The Company is in the process of obtaining assurances from
vendors that timely updates will be made available to make all remaining
purchased software Year 2000 compliant. The Company does not believe anticipated
expenditures to assure Year 2000 compliance will be material. In addition, the
Company plans to communicate with others with whom it does significant business
to determine their Year 2000 compliance readiness and the extent to which the
Company is vulnerable to any third party Year 2000 issues. Although the Company
expects to be Year 2000 compliant when necessary, failure of the Company or
significant key suppliers or customers to be fully compliant could potentially
have a material adverse impact on the results of the Company's operations.
However, due to the many factors involved, including factors impacting third
parties, which the Company cannot readily ascertain, the Company is currently
unable to estimate the potential impact. However, there can be no guarantee that
a failure to convert by another company would not have a material adverse effect
on the Company.
The Company considers the likelihood of the Company not being ready for the Year
2000 to be remote, but is currently unable to determine the likelihood of its
key suppliers and customers not being ready for the Year 2000. Contingency plans
are not being developed in the event that critical operations become interrupted
as the result of key suppliers or customers failing to resolve their respective
Year 2000 issues in a timely manner.
FORWARD LOOKING STATEMENTS
Information in this annual Form 10-K may contain forward looking statements.
These statements involve risks and uncertainties that could cause actual results
to differ materially, including without limitation, the actual costs of
operating the Company's business, actual operating performance, the ability to
maintain large client contracts, or to enter into new contracts and the level of
demand for the Company's products. Additional factors that could cause actual
results to differ materially are the ability to maintain adequate borrowing
capability to operate as discussed above and in the Company's previous filings
with the Securities and Exchange Commission.
18
<PAGE>
ITEM 8. Pluma, Inc. Financial Statements for the years ended December 31, 1998,
1997 and 1996 and Independent Auditor's Report.
INDEPENDENT AUDITOR'S REPORT
Shareholders and Board of Directors of Pluma, Inc.:
We have audited the accompanying balance sheets of Pluma, Inc. as of December
31, 1998 and 1997, and the related statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Pluma, Inc. at December 31, 1998 and 1997,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that Pluma,
Inc. will continue as a going concern. As discussed in Notes 5 and 17 to the
financial statements, at December 31, 1998, the Company was not in compliance
with certain covenants of its long-term debt agreement and had not obtained
waivers relating to its non-compliance. The Company has negotiated a forbearance
agreement with the lenders through September 30, 1999 and also is seeking other
sources of long-term financing. The Company is also experiencing difficulty in
generating sufficient cash flow to meet its obligations and sustain its
operations. The Company's difficulties in meeting its debt agreement covenants
and financing needs, its substantial loss from operations for the year ended
December 31, 1998, and its negative working capital position discussed in Note
17 raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 17. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The Company changed its method of capitalizing and expensing certain costs
related to software implementation in 1997 in accordance with EITF Issue No.
97-13 (see Note 6). As discussed in Note 3, the Company changed its method of
determining the cost of inventories in 1996.
Deloitte & Touche LLP
Winston-Salem, North Carolina
April 6, 1999
19
<PAGE>
<TABLE>
<CAPTION>
PLUMA, INC.
BALANCE SHEETS, DECEMBER 31, 1998 AND 1997
- ----------------------------------------------------------------------------------------------
ASSETS 1998 1997
CURRENT ASSETS:
<S> <C> <C>
Cash $ 1,612,087 $ 1,875,992
Accounts receivable, including related parties
(less allowance - 1998, $6,845,714;
1997, $2,353,577) 24,844,607 32,001,332
Income taxes receivable 3,039,390 1,952,796
Other receivables 1,906,178
Deferred income taxes 1,539,385
Inventories, net 56,690,891 51,177,900
Other current assets 83,043 919,873
-------- ----------
Total current assets 86,270,018 91,373,456
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,065,689 929,689
Land improvements 810,419 719,699
Buildings and improvements 18,916,761 16,663,608
Machinery and equipment 48,585,396 36,420,561
Construction in progress 486,121 4,762,235
-------- ----------
Total property, plant and equipment 69,864,386 59,495,792
Less accumulated depreciation 26,046,667 21,496,857
----------- -----------
Property, plant and equipment, net 43,817,719 37,998,935
----------- -----------
OTHER ASSETS:
Goodwill (less accumulated amortization -
1998, $1,412,700; 1997, $26,655) 26,308,208 34,831,646
Other 2,147,465 1,533,840
---------- ----------
Total other assets 28,455,673 36,365,486
----------- -----------
TOTAL $ 158,543,410 $ 165,737,877
============== ==============
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY 1998 1997
CURRENT LIABILITIES:
Current maturities of long-term debt $ 108,723,716 $ 43,869,192
Accounts payable, including related parties 17,838,270 12,057,069
Accrued expenses 4,372,255 2,472,458
---------- ----------
Total current liabilities 130,934,241 58,398,719
------------ -----------
LONG-TERM DEBT 40,000,000
------------ -----------
DEFERRED INCOME TAXES 3,671,301
------------ -----------
COMMITMENTS AND CONTINGENCIES
(Notes 10, 12 and 13)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 1,000,000
shares authorized
Common stock, no par value, 15,000,000
shares authorized, 8,109,152 shares
issued and outstanding 36,849,127 36,849,127
Retained earnings (deficit) (9,239,958) 26,818,730
------------ -----------
Total shareholders' equity 27,609,169 63,667,857
TOTAL $ 158,543,410 $ 165,737,877
============== ==============
</TABLE>
See notes to financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
PLUMA, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ----------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
NET SALES, including related parties $ 187,253,570 $ 134,555,053 $ 127,820,319
COST OF GOODS SOLD, including related parties 186,009,651 118,279,362 106,247,340
------------ ------------ -----------
GROSS PROFIT 1,243,919 16,275,691 21,572,979
------------ ------------ -----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES, including related parties 24,834,379 8,859,529 9,149,039
AMORTIZATION OF GOODWILL 1,742,913 26,655
WRITEOFF OF GOODWILL 7,042,973
PROVISION FOR LOSS ON DISPOSAL OF ASSETS 2,348,578
SOFTWARE IMPLEMENTATION EXPENSES 2,089,316
----------- ---------- ----------
Total operating expenses 35,968,843 10,975,500 9,149,039
----------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS (34,724,924) 5,300,191 12,423,940
----------- ---------- ----------
OTHER INCOME (EXPENSES):
Interest expense (7,813,572) (2,338,930) (3,735,468)
Other income 660,702 557,102 484,058
----------- ---------- ----------
Total other expenses, net (7,152,870) (1,781,828) (3,251,410)
----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (41,877,794) 3,518,363 9,172,530
----------- ---------- ---------
INCOME TAXES (BENEFIT):
Current (3,687,190) 1,390,880 2,445,471
Deferred (2,131,916) 84,645 908,680
----------- ---------- ----------
Total income taxes (benefit) (5,819,106) 1,475,525 3,354,151
----------- ---------- ----------
NET INCOME (LOSS) $ (36,058,688) $ 2,042,838 $ 5,818,379
============= ============ ============
EARNINGS (LOSS) PER COMMON SHARE - BASIC
AND DILUTED $ (4.45) $ 0.27 $ 1.09
======= ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING $ 8,109,152 $ 7,553,782 $ 5,315,852
============ ============ ============
</TABLE>
See notes to financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
PLUMA, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ----------------------------------------------------------------------------------------------
RETAINED
Common Stock Earnings Shareholders'
Shares Amount (Deficit) Equity
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 5,315,852 $ 7,222,550 $ 19,679,768 $ 26,902,318
NET INCOME 5,818,379 5,818,379
DIVIDENDS ($.11 per share) (577,804) (577,804)
---------- ---------- ----------- ------------
BALANCE, DECEMBER 31, 1996 5,315,852 7,222,550 24,920,343 32,142,893
DIVIDENDS ($.02 per share) (144,451) (144,451)
ISSUANCE OF COMMON STOCK
IN PUBLIC OFFERING 2,793,300 29,626,577 29,626,577
NET INCOME 2,042,838 2,042,838
---------- ---------- ----------- ------------
BALANCE, DECEMBER 31, 1997 8,109,152 36,849,127 26,818,730 63,667,857
---------- ---------- ----------- ------------
NET LOSS (36,058,688) (36,058,688)
---------- ---------- ----------- ------------
BALANCE, DECEMBER 31, 1998 8,109,152 $ 36,849,127 $ (9,239,958) $ 27,609,169
========== ============ ============= ==============
</TABLE>
See notes to financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
PLUMA, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $(36,058,688) $ 2,042,838 $ 5,818,379
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Provision for depreciation and amortization 6,570,209 4,056,744 3,804,481
Provision for loss on disposal of property, plant and
equipment 2,348,578
Writeoff of goodwill 7,042,973
Other, net 1,040,342 (192,066) (105,154)
(Increase) decrease in accounts receivable 7,156,725 (6,966,587) (606,032)
(Increase) decrease in income taxes receivable (1,086,594) (1,952,796) 1,057,783
(Increase) decrease in other receivables 1,906,178 (1,906,178)
Increase (decrease) in deferred income taxes (2,131,916) 84,645 908,680
(Increase) decrease in inventories (5,512,991) 1,483,055 (1,856,648)
Increase (decrease) in accounts payable 5,781,201 (380,638) 1,627,989
Increase (decrease) in accrued expenses 1,899,797 (992,524) 943,100
Decrease in note payable - related party sales agency (1,999,000)
------------ ------------ ------------
Net cash provided by (used in) operating activities (11,044,186) (4,723,507) 9,593,578
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (12,904,276) (9,781,622) (3,398,804)
Acquisitions (51,538,504)
Other, net (921,177) (453,997) (221,175)
------------ ------------ ------------
Net cash used in investing activities (13,825,453) (61,774,123) (3,619,979)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 45,000,000 83,268,342
Repayments of long-term debt (84,117,982) (849,640) (849,640)
Borrowings from note payable - Bank 20,000,000
Repayments of note payable - Bank (20,000,000)
Net borrowings from (repayments of) revolving loan 64,591,000 (43,569,904) (4,851,096)
Payment of loan fees (867,284) (248,790)
Payment of dividends (144,451) (577,804)
Proceeds from issuance of common stock 29,626,577
------------ ------------ ------------
Net cash provided by (used in) financing activities 24,605,734 68,082,134 (6,278,540)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (263,905) 1,584,504 (304,941)
CASH, BEGINNING OF PERIOD 1,875,992 291,488 596,429
------------ ------------ ------------
CASH, END OF PERIOD $ 1,612,087 $ 1,875,992 $ 291,488
============ ============ ============
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
PLUMA, INC.
STATEMENTS OF CASH FLOWS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 6,215,444 $ 2,970,587 $ 3,860,064
Income taxes $ 57,500 $ 3,715,176 $ 1,430,000
Details of acquisitions:
Fair value of assets $ 68,248,278
Liabilities $ 16,709,774
Cash paid $ 51,538,504
</TABLE>
See notes to financial statements.
24
<PAGE>
PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
Pluma, Inc. (the "Company") is a vertically integrated manufacturer and
distributor of high quality fleece and jersey activewear. The Company is
focused on increasing sales and profitability by offering high value
products to a diverse customer base. The Company sells its products either
directly or through its distributors to a number of highly recognized
companies such as adidas, Starter and Walt Disney. In addition, the Company
sells products under its own "Pluma," "SANTEE" and "SNOWBANK" brand names
to retail and wholesale customers. The Company operates in a single
business segment.
During 1997, the Company completed acquisitions of two of its distributor
customers, Stardust Corporation ("Stardust") and Frank L. Robinson Company
("FLR") (see Note 11). In March 1999, the Company announced the closing of
FLR (see Note 17).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE - Accounts receivable is reduced by an allowance for
bad debts and sales returns to the amount expected to be collected with a
charge against net income. Specific accounts that are considered to be
uncollectible are written off by reducing accounts receivable and the
allowance.
INVENTORIES - Beginning in 1996, raw materials, work-in-progress and
finished goods inventories are valued at the lower of cost, as determined
by the last-in, first-out ("LIFO") method, or market. Production supplies
are valued at the lower of cost, as determined by the first-in, first-out
("FIFO") method, or market. Inventory cost includes material and conversion
costs.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated at
cost and is depreciated using the straight-line method for financial
reporting purposes and accelerated methods for income tax purposes.
Maintenance and repairs are charged to income and betterments are
capitalized.
The average estimated useful lives of property for purposes of computing
depreciation are:
Land improvements 15 years
Buildings and improvements 39 years
Machinery and equipment 10 years
Computer hardware and software 5 years
GOODWILL - Goodwill represents costs in excess of net assets of businesses
acquired (see Note 11). Goodwill is amortized on a straight-line basis over
20 years. The Company continually reviews goodwill to assess recoverability
from estimated future results of operations and cash flows of the related
operating entities (see Note 17).
25
<PAGE>
SELF-INSURANCE RESERVES - Self-insurance reserves represent the estimated
liability on medical and workers' compensation claims reported to the
Company plus reserves for claims incurred but not yet reported and the
estimated settlement expenses related to these claims. The liabilities for
claims and related settlement expenses are determined using "case basis"
evaluations and statistical analysis and represent estimates of the
ultimate net cost of all losses incurred through the balance sheet date.
The Company's policy is to discount its workers' compensation reserves at a
discount rate not to exceed a risk-free rate of return on U.S. government
securities of similar duration on the reserves being discounted. Although
considerable variability is inherent in such estimates, management believes
that the liabilities for unpaid claims and related settlement expenses are
adequate. The estimates are continually reviewed by management and, as
adjustments to these liabilities become necessary, such adjustments are
reflected in current operations. Self-insurance reserves are included in
accrued expenses (see Note 4).
LOAN FEES - Loan fees are capitalized and amortized to other expense using
the effective interest method over the term of the related debt.
INCOME TAXES - Income taxes are provided on pre-tax earnings as reported in
the financial statements. Deferred income taxes result from temporary
differences between the amounts of assets and liabilities for financial
reporting purposes and such amounts as measured for income tax purposes.
STOCK OPTIONS - SFAS No. 123, "Accounting for Stock-Based Compensation,"
adopts a "fair value based method" of accounting for employee stock option
plans or similar stock-based compensation plans. Under the fair value based
method, compensation cost is measured at the grant date based on the fair
value of the award and is recognized over the service or vesting period.
The statement does allow entities to continue to measure compensation using
the "intrinsic value based method" of APB No. 25 provided that they make
pro forma disclosures on net income and earnings per common share as if the
fair value based method of accounting had been applied. The Company has
elected to continue to follow APB No. 25 (see Note 8).
TREASURY STOCK - Under the state laws of North Carolina, shares of stock
repurchased by the Company are considered authorized but unissued shares,
and are reflected as such in the financial statements.
EARNINGS (LOSS) PER COMMON SHARE - In February 1997, the Financial
Accounting Standards Board issued SFAS No. 128, "Earnings per Share." SFAS
No. 128 is effective for financial statements for periods ending after
December 15, 1997 and early adoption is not permitted. This statement
changes the method of computing and presenting earnings (loss) per common
share. SFAS No. 128 requires the presentation of basic earnings (loss) per
common share and diluted earnings (loss) per common share ("EPS") on the
face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS is computed by dividing the net income
available to common shareholders by the weighted average shares of
outstanding common stock. The calculation of diluted EPS is similar to
basic EPS except that the denominator includes dilutive potential common
shares such as stock options and warrants and the numerator is adjusted to
add back (a) any convertible preferred dividends and (b) the after tax
amount of interest recognized in the period associated with any convertible
debt.
Options to purchase shares of common stock were outstanding during 1998,
1997 and 1996 (see Note 8) but were not included in the computation of
diluted EPS because the options' exercise prices were greater than the
average market prices of the common shares during those years. Accordingly,
there were no differences in the numerators and denominators
used in the basic EPS and diluted EPS computations.
26
<PAGE>
REVENUE RECOGNITION - The Company recognizes the sale of goods when the
goods are shipped or ownership is assumed by the customer. Sales are
recognized net of estimated returns and allowances.
ADVERTISING - The Company expenses the costs of advertising as incurred
except for catalog expenses, which are capitalized and amortized over the
expected period of future benefits.
CAPITALIZED SOFTWARE COSTS - The Company capitalizes certain computer
software costs which are amortized utilizing the straight-line method over
the economic lives of the related products not to exceed five years. As
discussed in Note 6, certain costs related to SAP software implementation
are expensed.
DERIVATIVE INSTRUMENTS - The Company entered into a derivative instrument
to manage exposure to fluctuations in interest rates. The differential to
be paid or received as interest rates change is accrued and recognized as
an adjustment of interest expense related to the debt (the hedge method).
The related amount payable to or receivable from the counterparty is
included in trade and other payables. The fair value of the swap agreement
is not recognized in the financial statements. Gains and losses on
terminations of interest rate swap agreements are deferred on the balance
sheet (in other long-term liabilities) and amortized as an adjustment to
interest expense related to the debt over the remaining term of the
original contract life of the terminated swap agreement.
COMPREHENSIVE INCOME - Effective January 1, 1998, the Company adopted SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on the
Company's net income (loss) or shareholder's equity.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from these estimates.
RECLASSIFICATIONS - Certain 1997 and 1996 amounts have been reclassified
from their original presentation to conform with the 1998 presentation.
NEW ACCOUNTING STANDARDS - In June 1998, SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued, establishing
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. This statement
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Company will be required to apply the
provisions of this statement beginning with the first fiscal quarter of
2000.
27
<PAGE>
3. INVENTORIES, NET
Inventories at December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
At FIFO cost:
<S> <C> <C>
Raw materials $ 986,561 $ 1,429,371
Work-in-progress 6,652,569 6,077,538
Finished goods 64,207,881 45,885,484
Production supplies 870,382 953,147
------------- -----------
72,717,393 54,345,540
Excess of FIFO over LIFO cost (2,804,528) (1,846,435)
------------- -----------
69,912,865 52,499,105
Excess of cost over market (13,221,974) (1,321,205)
------------- -----------
Total $ 56,690,891 $51,177,900
============= ===========
</TABLE>
During 1996, the Company changed its method of determining the cost of
inventories, except production supplies, from the FIFO method to the LIFO
method. The Company believes the LIFO method more closely relates current
costs with current sales in periods of rising prices. The effect of the
change was to decrease net income for 1996 by $52,212 ($.01 per share). The
change had no effect on prior years because inventories under the FIFO
method at December 31, 1995, as previously reported, were the amount of the
beginning 1996 inventories used under the LIFO method. Accordingly, pro
forma results for prior years under the LIFO method are not applicable.
If the cost of all inventories had been determined by the FIFO method,
which approximates current cost, the cost of inventories would have been
$2,804,528 and $1,846,435 greater at December 31, 1998 and 1997,
respectively.
Reserves have been recorded against inventory for the estimated excess of
cost over market related primarily to inventories to be liquidated (see
Note 17).
4. ACCRUED EXPENSES
Accrued expenses at December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Salaries, commissions and bonuses $ 183,601 $ 702,186
Interest 1,724,710 126,582
Insurance 1,467,314 888,309
Other 996,630 755,381
----------- -----------
Total $4,372,255 $ 2,472,458
=========== ===========
</TABLE>
28
<PAGE>
5. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revolving loans $ 64,591,000 $83,268,342
Term loan 45,000,000
Subordinated debt 849,640
Loan fees (867,284) (248,790)
------------ ----------
Total 108,723,716 83,869,192
Less current maturities 108,723,716 43,869,192
------------ ----------
Long-term debt $ $40,000,000
============ ===========
</TABLE>
The Company entered into a syndicated credit facility (the "Credit
Agreement") on April 23, 1998 with a group of financial institutions for
the purpose of refinancing its existing revolving loan. The Credit
Agreement is administered by one of the member financial institutions. This
agreement has been amended and was operating under the fifth amendment as
of December 31, 1998. As amended at December 31, 1998, this agreement
consists of a term loan (the "Term Loan") and revolving loans (the
"Revolving Loans"), which include swingline loans. The Term Loan consists
of $45,000,000. Revolving Loans may be either Eurodollar Loans with a
minimum aggregate principal of $2,000,000 and integral multiples of
$500,000 or Base Rate loans with a minimum aggregate principal amount of
$500,000 and integral multiples of $100,000. The amount that can be
borrowed under Revolving Loans is limited to the lesser of the Borrowing
Base, as defined, or $70,000,000. The borrowing base is calculated as the
sum of (i) 85% of eligible receivables, as defined, (ii) 60% of eligible
inventory, as defined, and (iii) $3,000,000 through January 29, 1999, and
$0 thereafter. Swingline loans may be obtained up to $5,000,000. Swingline
loans can be made as advances of Revolving Loan amounts. Term Loan
borrowings are due in specified quarterly installments beginning in April
1999 with the final maturity in January, 2003. Any amounts outstanding
under the Revolving Loans mature on April 23, 2003.
Long-term debt is collateralized by substantially all accounts receivable,
inventories, general intangibles and property. In addition, dividends on
common stock are prohibited until such time that amounts outstanding under
the Credit Agreement have been repaid.
For the Term Loan and Revolving Loans, interest rates under the Credit
Agreement are based on the Base Rate or the Eurodollar Rate. The interest
rate for swingline loans is based on the Quoted Rate, the rate per annum
offered by the swingline lender and accepted by the Company with respect to
the swingline loan. The interest rate for the swingline loan at December
31, 1998 was 9.3%. For loans bearing the Eurodollar Rate, the interest rate
equals the quotient obtained by dividing (a) the interbank offered rate for
such eurodollar loans for such interest period by (b) 1 minus the
eurodollar reserve required for such eurodollar loans for such interest
period plus 3.75%. The interest rate for Eurodollar loans at December 31,
1998 ranged from 8.95% to 9.09%. For Base Rate loans, the per annum rate is
equal to the higher of (a) the Federal Funds Rate for such day plus one
percent and (b) the prime rate for such day plus one percent. The interest
rate for Base Rate loans was 8.75% at December 31, 1998. The Credit
Agreement also requires a commitment fee equal to 0.375% per annum on the
daily amounts of unused revolving loans. For letters of credit, a fee is
charged for the average daily maximum amount available to be drawn under
each letter of credit computed at a per annum rate of 3.5% for each day
from the date of issuance to the date of expiration.
29
<PAGE>
Among the various provisions, limitations and restrictions contained in the
Credit Agreement, the Company must meet specified funded indebtedness to
capitalized ratio, fixed charge coverage ratio, leverage ratio,
consolidated net worth, and earnings before the effect of interest expense,
income taxes, depreciation and amortization ("EBITDA") requirements. The
Credit Agreement may be terminated at any time upon the occurrence of an
event of default. The Company retains the right to remedy certain events of
default within 30 days after notice. The Company was not in compliance with
the Credit Agreement covenants and had not obtained waivers relating to its
non-compliance. Accordingly, all amounts outstanding under the Credit
Agreement have been reported in the balance sheet at December 31, 1998 as
current.
Subsequent to December 31, 1998, the Credit Agreement was amended and is
currently operating under the Ninth Amendment to Credit Agreement, executed
on March 31, 1999. This amendment redefined the Borrowing Base as the sum
of (i) 85% of eligible receivables, as defined, (ii) 60% of eligible
inventory, as defined, and (iii) $18,000,000 through June 29, 1999;
$19,500,000 from June 30, 1999 through July 30, 1999; $16,100,000 from July
31, 1999 through August 30, 1999; $14,500,000 from August 31, 1999 through
September 29, 1999; and $0 thereafter. The maximum amount that can be
borrowed under the Revolving Loans was also limited to $63,000,000 through
July 30, 1999; $55,600,000 from July 31, 1999 through August 30, 1999; and
$53,000,000 thereafter.
Although the Company did not obtain a waiver for its covenant violations,
the Company reached an agreement with its lenders whereby the lenders
agreed to forbear exercising their rights and remedies (the "Forbearance
Agreement") under the Credit Agreement through September 30, 1999. Among
other provisions in the Forbearance Agreement, the Company is limited as to
the amount of capital expenditures, must maintain specified net sales,
maintain a minimum change in cash, maintain a minimum EBITDA and is limited
in the amount of trade payables. The Forbearance Agreement also provides
that the lenders may request stock warrants representing 10% of the diluted
common equity of the Company (see Note 7).
The Company issued a promissory note dated January 28, 1994, to a former
officer/shareholder in connection with the repurchase of his stock (see
Note 7). Interest on the unpaid principal balance is paid quarterly at an
annual rate of 5.0%, since May 1, 1994. The promissory note is subordinated
to the Credit Agreement. The Company's obligations under the promissory
note are secured by the shares repurchased from the former
officer/shareholder. In the event the Company is in default under the terms
of the promissory note, the former officer/shareholder will be entitled to
have the Company's Common Stock reissued to him. The number of shares to be
reissued in the event of default will be determined by dividing the amount
due under the note at the time of such default by the fair value of the
Company's Common Stock shares at such time. This note was paid in full on
January 31, 1998.
Although the entire debt outstanding as of December 31, 1998 has been
reported as current due to the covenant violations as mentioned above, the
Credit Agreement, as amended, requires future annual payments as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 6,000,000
2000 9,500,000
2001 11,500,000
2002 14,250,000
2003 67,473,716
-------------
Total $ 108,723,716
=============
</TABLE>
30
<PAGE>
6. SOFTWARE IMPLEMENTATION EXPENSES
During 1997, the Company capitalized significant costs in connection with
its SAP software implementation. In November 1997, EITF Issue No. 97-13 was
issued requiring certain costs related to software implementation be
expensed as incurred. The Company expensed $2,089,316 of such costs in
1997.
7. CAPITAL STOCK
In March 1997, the Company completed its initial public offering of
2,500,000 shares of Common Stock at $12.00 per share. In April 1997, the
Underwriters' over-allotment option for 293,300 shares of Common Stock at
$12.00 per share was exercised. The net proceeds of $29,626,577 were used
to reduce debt.
On January 28, 1997, the Board of Directors declared a .736-for-one reverse
Common Stock split for shareholders of record on February 3, 1997. All
references in the accompanying financial statements to the number of common
shares and per share amounts reflect the reverse stock split.
On July 22, 1996, the Company amended its Articles of Incorporation
changing the par value of Common Stock from $1.00 per share to Common Stock
having no par value and authorizing 1,000,000 shares of no par value
Preferred Stock.
During the year ended December 31, 1996, the Company held stock exchanges
which are private stock sales or purchases as defined under the terms of
its Stock Transfer and Redemption Agreement adopted by the Company on June
10, 1991. Under this agreement, shares of the Company could be traded at
certain times of the year. Numerous transactions among authorized parties
(as defined in the agreement) took place under these exchanges. The Company
did not repurchase shares during 1998, 1997 and 1996 under the Stock
Transfer and Redemption Agreement.
Effective March 31, 1999, the Company reached an agreement with its lenders
whereby the lenders agreed to forbear exercising their rights and remedies
under the Credit Agreement (see Note 5). Among the provisions of the
Forbearance Agreement, the lenders may request stock purchase warrants
to acquire 10% of the diluted common equity of the Company (901,017
shares as of March 31, 1999). The warrants have an exercise price of $0.01
per share. These warrants vest and become exercisable as follows: 25%
beginning March 31, 1999; 25% beginning October 1, 1999; 25% beginning
April 1, 2000; and, 25% beginning October 1, 2000. If the debt under the
Credit Agreement is paid in full, all unvested warrants are forfeited.
Furthermore, the Company may call the warrants for a price of $5.00 per
share through December 31, 1999 and $10.00 per share thereafter. The
estimated fair value of these warrants at the date of agreement was $0.50
per share using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0.0%, expected volatility of 243.7%,
risk-free interest rate of 4.6% and expected lives of 2 years.
31
<PAGE>
8. STOCK OPTIONS
In May 1995, the Company adopted the 1995 Stock Option Plan in which
515,200 shares of the Company's Common Stock may be issued. The exercise
price of the options may not be less than the fair value of the Common
Stock on the date of grant. The options granted become exercisable at such
time or times as shall be determined by the Compensation Committee of the
Board of Directors (the "Committee"). The Committee may at any time
accelerate the exercisability of all or any portion of any stock option.
These options expire, if not exercised, ten years from the date of grant.
Participants in the Plan may be independent contractors or employees of
independent contractors, full or part-time officers and other employees of
the Company, or independent directors of the Company.
The Company applies APB No. 25 and related interpretations in accounting
for the 1995 Stock Option Plan. Accordingly, no compensation cost has been
recognized since the exercise price approximates the fair value of the
stock price at the grant dates. Had compensation cost been determined based
on the fair value at the grant dates consistent with the method of SFAS No.
123, the Company's net income (loss) and earnings (loss) per share would
have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
Net income (loss):
<S> <C> <C> <C>
As reported $(36,058,688) $2,042,838 $5,818,379
Pro forma (36,230,316) 1,838,229 5,679,877
Earnings (loss) per share - basic and dilutive:
As reported $(4.45) $ 0.27 $ 1.09
Pro forma (4.47) 0.24 1.07
</TABLE>
A summary of the status of the Company's Stock Option Plan as of December 31,
1998, 1997 and 1996, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding, January 1, 1996 350,336 $13.077
Granted 32,384 13.077
--------
Outstanding, December 31, 1996 382,720 13.077
Forfeited (2,355) 13.077
--------
Outstanding, December 31, 1997 380,365 13.077
Granted 123,000 2.000
Forfeited (15,309) 13.077
--------
Outstanding, December 31, 1998 488,056 10.285
========
1998 1997 1996
Options exercisable at year end 364,999 181,351 117,171
======== ======== =======
Weighted-average fair value of options
granted during the year $ 0.90 $ 0.00 $ 6.60
======= ======= ======
</TABLE>
32
<PAGE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
Number Weighted- Weighted- Number Weighted-
Outstanding Average Average Exercisable Average
Exercise at Remaining Exercise at Exercise
Prices 12/31/98 Contractual Life Price 12/31/98 Price
<S> <C> <C> <C> <C> <C>
$13.077 365,056 7.0 $ 13.077 241,999 $ 13.077
2.000 123,000 10.0 2.000 123,000 2.000
-------- --------
$2.000 to
13.077 488,056 7.8 10.285 364,999 9.344
======== ========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998 and 1996, respectively: dividend yield
of 0.0% and 0.08%, expected volatility of 123.0% and 40.9%, risk-free
interest rates of 4.7% and 5.9%, and expected lives of 5 years.
9. INCOME TAXES
The provision for income tax expense (benefit) for the years ended December
31, 1998, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current federal income tax expense (benefit) $(3,306,063) $1,254,831 $2,178,903
Current state income tax expense (benefit) (381,127) 136,049 266,568
------------ ---------- ---------
Total current income tax expense
(benefit) (3,687,190) 1,390,880 2,445,471
------------ ---------- ---------
Deferred federal income tax expense (benefit) (1,902,244) 78,638 809,689
Deferred state income tax expense (benefit) (229,672) 6,007 98,991
------------ ---------- ---------
Total deferred income tax expense
(benefit) (2,131,916) 84,645 908,680
------------ ---------- ---------
Total income tax expense (benefit) $(5,819,106) $1,475,525 $3,354,151
============= =========== ==========
</TABLE>
The provision for income taxes differs from the amount computed by applying
the U.S. federal income tax rate (34%) because of the effect of the
following items:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Income taxes computed at U.S. federal
statutory rate $(14,238,450) $1,196,243 $3,118,660
State income taxes, net of federal
income tax effect (1,532,046) 93,758 243,027
Valuation allowance 9,917,010
Other, net 34,380 185,524 (7,536)
-------------- ----------- -----------
Total income tax expense (benefit) $ (5,819,106) $1,475,525 $3,354,151
============== =========== ===========
</TABLE>
33
<PAGE>
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. Significant components comprising the Company's net deferred
tax assets and liabilities were as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
Deferred tax liabilities:
Current -
<S> <C> <C>
Prepaid insurance and other $ (99,890) $ (115,838)
Long-term -
Property, plant and equipment (4,818,302) (3,669,607)
Goodwill (3,246)
------------ ------------
Total deferred tax liabilities (4,918,192) (3,788,691)
------------ ------------
Deferred tax assets:
Current -
Bad debt and returns reserves 1,928,796 244,324
Medical and workers' compensation reserves 278,908 205,575
Uniform capitalization 1,085,228 606,434
Lower of cost or market write-down 4,465,202 408,905
Deferred compensation 326,765 165,485
Other 40,040 24,500
Long-term
Goodwill writeoff and amortization 2,367,466
Tax loss carryforwards 4,317,463
Other 25,334 1,552
------------ ------------
Total deferred tax assets 14,835,202 1,656,775
------------ ------------
Valuation reserve allowance (9,917,010)
------------ ------------
Net deferred tax asset (liability) $ $ (2,131,916)
============ ============
</TABLE>
A valuation allowance has been established due to the uncertain ability of
the Company to generate future taxable income and the resulting uncertain
realization of tax loss carryforwards and other deferred tax assets.
The Company has tax loss carryforwards of $10,416,764 which expire
principally in 2019.
34
<PAGE>
10. LEASES
At December 31, 1998, the Company was committed to pay rentals under
various noncancelable operating leases with lease terms in excess of one
year as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $ 2,316,009
2000 2,184,359
2001 2,094,977
2002 1,724,933
2003 1,347,941
Thereafter 4,229,522
-------------
Total $ 13,897,741
=============
</TABLE>
Lease agreements frequently include renewal options and require that the
Company pay for utilities, taxes, insurance and maintenance expenses.
Options to purchase are also included in some lease agreements.
Rental expense under all leases accounted for as operating leases was
$2,827,628, $2,260,469, and $2,145,061 for the years ended December 31,
1998, 1997 and 1996, respectively (see Note 13).
11. ACQUISITIONS
In December 1997, the Company purchased certain assets and assumed certain
liabilities of Stardust Corporation ("Stardust") and Frank L. Robinson
Company ("FLR") for $51,538,504 in cash, including related acquisition
costs. The acquisitions have been accounted for as purchases. Accordingly,
the assets and liabilities of the acquired businesses are included in the
balance sheet as of December 31, 1997. The results of Stardust's and FLR's
operations from the dates of the acquisitions to December 31, 1997 were not
significant. The acquisitions were financed through additional debt.
The allocation of the acquisition costs resulted in intangibles, primarily
non-compete agreements of $500,000, and goodwill of $34,858,301. The
non-compete agreements and the goodwill are being amortized on a
straight-line basis over 5 years and 20 years, respectively.
The pro forma unaudited results of operations as though Stardust and FLR
had been acquired as of the beginning of fiscal 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net sales $221,960,415 $225,898,606
Net income 2,225,288 6,239,372
Earnings per share - basic and diluted 0.29 1.17
</TABLE>
The pro forma results include amortization of the intangibles presented
above and interest expense on debt assumed to finance the acquisitions. The
pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been completed as of the beginning of
each of the fiscal periods presented, nor are they necessarily indicative
of future results.
35
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with three of its senior executive
officers. The terms of two of these agreements expire in December 2000 and
the third expires December 2002. Upon termination of one of the employment
agreements after a change of control in the Company, as defined, the
Company would be liable for a maximum of three times the eligible
employee's (i) average annual salary, as defined, plus (ii) any bonuses, as
defined. For the other two agreements, upon termination of an employment
agreement after a change of control in the Company, as defined, the Company
would be liable for (i) a maximum of the employee's annual salary, as
defined, plus (ii) any bonuses, as defined. In addition, under the
employment agreements, the senior executive officers are entitled to a
minimum annual bonus payment to be paid at such time as bonuses to other
executive officers.
WATER TAKE-OR-PAY - At December 31, 1998, the Company had an outstanding
take-or-pay agreement for the purchase of treated water and wastewater
treatment for its Eden, North Carolina facilities. The committed amount is
for 450 million gallons per year through June 30, 2011. Under this
contract, the Company is committed at December 31, 1998 to purchase treated
water and wastewater treatment, assuming current price levels, as follows:
Fixed and Determinable Portion of Take-or-Pay Obligations:
<TABLE>
<CAPTION>
YEAR COMMITTED AMOUNT
<S> <C>
1999 $ 1,018,125
2000 1,002,375
2001 988,875
2002 975,375
2003 959,625
Thereafter 6,887,250
-----------
Total $11,831,625
===========
</TABLE>
The Company maintains a Sales Incentive Plan payable to the sales staff if
specified sales volume is reached.
Arising out of the conduct of its business, on occasion, various claims,
suits and complaints have been filed or are pending against the Company. In
the opinion of management, all matters are adequately covered by insurance
or, if not covered, are without merit or are of such kind, or involve such
amounts, as would not have a material effect on the financial position or
results of operations taken as a whole if disposed of unfavorably.
13. RELATED PARTY TRANSACTIONS
Prior to 1996, sales commissions of $3,327,307, at a rate of 3.0% of the
aggregate sales price of orders shipped by the Company, plus marketing
reimbursements, were paid to the Company's sales agency, a company owned by
a certain shareholder and director of the Company. During December 1995,
the Company entered into an agreement for the termination of the sales
contract with the sales agency. Under the terms of this agreement, the
Company paid the sales agency $1,000 on December 29, 1995 and $1,999,000
with a promissory note that was paid in full in January 1996. The Company
has not paid commissions to the sales agency for sales subsequent to
December 31, 1995.
The Company has various operating leases from certain shareholders. The
leases have terms of approximately one to 14 years with aggregate minimum
monthly payments of $122,037, $100,623 and $98,751 in 1998, 1997 and 1996,
respectively. Total operating lease expense for 1998, 1997 and 1996 was
$1,472,948, $1,197,186 and $1,144,193, respectively. As of December 31,
1998, future minimum lease payments under these operating leases totaled
$9,823,944.
36
<PAGE>
A contractor performed miscellaneous work totaling $2,774,992, $344,751,
and $478,646 for the years ended December 31, 1998, 1997 and 1996,
respectively. Certain shareholders/directors of the Company are affiliated
with the contractor. At December 31, 1998, $43,791 was due to this
contractor.
During 1998, 1997 and 1996, the Company made payments totaling $938,109,
$118,345 and $223,338, respectively, for contract services rendered to the
Company for packaging and preparing Company products for shipment. A
director/shareholder is affiliated with this contractor. At December 31,
1998, $343,385 was due to this contractor.
During 1998, 1997 and 1996, the Company contracted for fabric dyeing
totaling $160,351, $16,894 and $42,776, respectively, with a contractor
owned by a shareholder and former director of the Company. The Company had
sales to this contractor in 1998, 1997, and 1996 of $115,131, $871,958 and
$80,005, respectively, and had a net balance receivable of $393,749 at
December 31, 1998.
During 1998, 1997 and 1996, the Company made payments to a contractor
totaling $121,394, $361,472 and $121,395, respectively, for advisory fees.
A director/shareholder of the Company is affiliated with this contractor.
At December 31, 1998, $20,522 was due to this contractor.
During 1998, the Company made payments to a contractor totaling $184,899
for advisory fees. A director of the Company is affiliated with this
contractor. At December 31, 1998, $9,636 was due to this contractor.
An electrical contractor performed services totaling $263,923 and $333,104
during 1998 and 1997, respectively. This contractor is affiliated with a
director/officer of the Company.
14. SALES TO MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
A substantial amount of sales and receivables are to relatively few
customers. Credit limits, ongoing credit evaluations and account monitoring
procedures are utilized to minimize the risk of loss. Collateral is
generally not required.
Certain customers have accounted for significant percentages of the
Company's net sales as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Customer A 25.7% 31.1% 24.1%
Customer B 9.4% 12.0% 14.7%
Gross sales by type of product were as follows (in millions):
Fleece $ 76.7 $ 81.0 $ 80.4
Jersey 96.2 51.9 46.8
Closeouts/Irregulars 3.2 4.6 5.0
Other 21.8 0.1
The geographic location of property, plant and equipment, net, was as
follows (in millions):
1998 1997
U.S. $42.8 $38.0
Mexico 1.0
</TABLE>
37
<PAGE>
15. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) retirement savings plan for the benefit of
its employees who have completed at least one year of service and have
attained age 21. The amount of the Company's annual matching contribution
is discretionary, and the Company currently funds accrued profit sharing
expenses. During 1998, 1997 and 1996, the Company contributed $297,842,
$172,983 and $161,461, respectively, to the 401(k) retirement savings plan.
The Company has a deferred compensation plan providing key executives and
directors with the opportunity to participate in an unfunded, deferred
compensation program. Under the program, participants may defer base
compensation and bonuses and earn returns on their deferred amounts. The
Company may make discretionary matching contributions to the Plan. The
program is not qualified under the Internal Revenue Code. The total of net
participant deferrals, which is reflected in accrued liabilities was
$790,333 at December 31, 1998 and $452,115 at December 31, 1997 and $0 at
December 31, 1996. The Company contributed to the plan $25,343 in 1998 and
$20,246 in 1997 and $0 in 1996.
16. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value. The carrying amount of cash, accounts receivable and
trade accounts payable is a reasonable estimate of fair value. The fair
value of long-term debt is estimated based on quoted market prices. At
December 31, 1998, the carrying value of long-term debt is a reasonable
estimate of fair value. All financial instruments are held for purposes
other than trading.
The Company has entered into an interest rate swap agreement to reduce the
impact of changes in interest rates on some of its variable rate debt. The
swap agreement is a contract to exchange variable rate for fixed rate
interest payments over the life of the agreement without the exchange of
the underlying notional amounts. The notional amount of the interest rate
swap agreement is used to measure interest to be paid or received and does
not represent the amount of exposure to credit loss. The differential paid
or received on the interest rate swap agreement is recognized as an
adjustment to interest expense. The interest rate swap agreement is held
for purposes other than trading. The Company has entered into an interest
rate swap transaction pursuant to which it has exchanged its variable rate
interest obligation on $45,000,000 notional principal amount for a fixed
rate payment obligation of 5.89% per annum for the four year period
beginning April 30, 1999. The fixing of the interest rate for these periods
minimizes in part the Company's exposure to the uncertainty of variable
interest rates during this four-year period. The carrying value of the
interest rate swap at December 31, 1998 is $0 and the fair value is
($841,465). The fair value of the interest rate swap is based on an average
quoted market price. The interest rate swap contract is with one of the
financial institutions which is a member of the Credit Agreement (see
Note 5).
17. GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company incurred a net loss of $36,058,688 for the year
ended December 31, 1998 and has classified all of its debt as current as of
December 31, 1998 (see Note 5). The Company also has negative working
capital of $44,664,223 at December 31, 1998. These factors among others may
indicate that the Company will be unable to continue as a going concern for
a reasonable period of time.
38
<PAGE>
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. As described
in Note 5, the Company was not in compliance with debt covenants and was
unable to get a waiver for its violations from the banks. The Company has
been experiencing difficulty in obtaining additional financing in excess of
its current obligations. The Company's ability to continue as a going
concern is dependent upon its ability to generate sufficient cash flow to
meet its obligations on a timely basis and its ability to continue or
obtain other long-term financing.
In response to the Company's poor performance and its liquidity problems
experienced during 1998, the Company took on a project to develop a
business plan to discuss, analyze and plan future turnaround measures to
bring the Company back into profitability and to provide the Company with
the ability to service its debt.
In order to reduce overhead and other costs, the Company has eliminated one
management position, reduced management salaries, and has suspended
management bonuses for an indefinite period. Additional personnel and
overhead cost reduction measures have been and are planned to be taken
related to the closing of certain facilities. In December 1998, management
announced its intention to close the Rocky Mount production facility and
all of the outlet stores and has listed the Rocky Mount facility for
auction. The Company has also decided to sell its sales office in
Martinsville, Virginia. Due to these planned dispositions, property, plant
and equipment have been reduced by approximately $2,300,000 to reflect
their estimated net realizable value. In addition, the Company has
down-sized its corporate and administrative positions and has discontinued
the Eden sewing operations.
Because of the closing of the sewing facilities noted above and due to the
down-sizing at other sewing facilities, the Company has shifted a
significant portion of its sewing operations to outside contractors,
primarily in Mexico. The Company has experienced lower overhead costs
associated with the use of outside sewing contractors. In March 1999, the
Company also announced the closing of the Frank L. Robinson, Inc.
distributorship. As a result of this closing, the Company will move certain
FLR inventories to Stardust to be sold as part of the Stardust operations.
Approximately $2,000,000 of other FLR inventories will be liquidated to
generate cash. These inventories to be liquidated are reported at their
estimated net realizable value in the balance sheet at December 31, 1998.
The Company is in the process of eliminating certain less profitable
product styles. The Company believes that this will reduce its product mix
to a more manageable level. Due to this reduction, close-out inventories of
approximately $7,900,000 have been identified for liquidation. These
inventories are also reported in the balance sheet at their estimated net
realizable value at December 31, 1998.
While there is no assurance that the measures discussed above will be
sufficient to return the Company to profitability or enable it to generate
the sufficient cash to service the existing debt, the Company has
negotiated a forbearance agreement with the banks (see Note 5) and is
seeking additional outside financing to support its turnaround efforts.
18. ADVERTISING
The Company expenses the costs of advertising as incurred, except for
catalog expenses which are capitalized and amortized over the expected
period of future benefits.
Catalog expenses consist primarily of the production and distribution costs
of the catalog. The capitalized costs of the catalog are amortized over the
twelve-month period following the publication of the catalog.
At December 31, 1998, and 1997, $287,523 and $353,040, respectively, of
advertising, primarily catalog costs, was reported as other current assets.
Advertising expense was $1,579,103, $304,610 and $253,441 in 1998, 1997 and
1996, respectively, including $195,000 in 1998 for amounts written down to
net realizable value.
39
<PAGE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
40
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The sections entitled "Nominees for Election Term Expiring 2002,"
"Incumbent Directors Term Expiring 2001," and "Incumbent Directors Term Expiring
2000" on pages 2 and 3 of the Proxy Statement for the Annual Meeting of Share
Owners to be held June 23, 1999, are incorporated herein by reference.
"Executive Officers of the Company" on page 10 of this report is
incorporated herein by reference.
ITEM 11. Executive Compensation
"Compensation Committee Report on Executive Compensation," "Performance
Graph," "Executive Compensation," "Stock Options and Stock Appreciation Rights"
and "Aggregated Opinion/SAR Exercises in the Last Fiscal Year and Year End
Option Values" on pages 10 through 16 of the Proxy Statement for the Annual
Meeting of Share Owners to be held June 23, 1999, are incorporated herein by
reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) Information concerning security ownership of management set forth in
the Proxy Statement for the Annual Meeting of Share Owners to be held June 23,
1999, under the caption "Ownership of Equity Securities in the Company" on pages
7 and 8 is incorporated herein by reference.
(b) "Principal Share Owners" on page 9 of the Proxy Statement for the
Annual Meeting of Share Owners to be held June 23, 1999 is incorporated herein
by reference.
(c) There are no arrangements known to the registrant the implementation
on consummation of which may result in a change in control of the registrant.
ITEM 13. Certain Relationships and Related Transactions
"Compensation Committee Interlocks and Insider Participation" and
"Certain Relationships and Related Transactions Involving Directors not on the
Compensation Committee" on pages 4 thru 6 of the Proxy Statement for the Annual
Meeting of Share Owners to be held June 23, 1999 are incorporated herein by
reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) List of Documents filed as part of this report:
(1) Financial Statements
All financial statements of the registrant as set forth under
Item 8 of this report on Form 10-K.
(2) Financial Statement Schedules
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
Exhibit Page Number or
Number Description Incorporation by
- ------ ----------- Reference to
-----------------
<S> <C> <C>
3.1 Amended and Restated Articles of Exhibit 3.1 to Registration
Incorporation Statement No. 333-18755, filed
December 24, 1996
3.2 By-Laws Exhibit 3.2 to Registration
Statement No. 333-18755, filed
December 24, 1996
4.1 Specimen Common Stock Certificate Exhibit 4.1 to Registration
Statement No. 333-18755, filed
December 24, 1996
10.1 Lease Agreement dated June 10, 1989, Exhibit 10.1 to Registration
<PAGE>
Exhibit Page Number or
Number Description Incorporation by
- ------ ----------- Reference to
-----------------
by and between North Bowles Statement No. 333-18755, filed
Partnership and Pluma, Inc. and December 24, 1996
amendment thereto date December 1,
1990
10.2.1 Lease Agreement dated February 1, Exhibit 10.2.1 to Registration
1996, by and between North Bowles Statement No. 333-18755, filed
Partnership and Pluma, Inc. December 24, 1996
10.2.2 Lease Agreement dated December 1, Exhibit 10.2.2 to Registration
1995, by and between North Bowles Statement No. 333-18755, filed
Partnership and Pluma, Inc. December 24, 1996
10.3.1 Form of Credit Agreement Dated as of Exhibit No. 10.1 to
April 23, 1998 Among Pluma, Inc., as Form 10-Q filed for the quarter
Borrowers, and Certain Subsidiaries of the ending June 30, 1998.
Borrowers From Time to Time Party Hereto,
as Guarantors, the Several Lenders From
Time to Time Party Hereto and
NationsBank, N.A., as Agent (the "Credit
Agreement")
10.3.2 First Amendment to Credit Agreement and
Waiver Dated as of August 27, 1998
10.3.3 Second Amendment to Credit Agreement
Dated as of September 30, 1998
10.3.4 Third Amendment to Credit Agreement
Dated as of November 16, 1998
10.3.5 Fourth Amendment to Credit Agreement
Dated as of December 11, 1998
10.3.6 Fifth Amendment to Credit Agreement
Dated as of December 31, 1998
10.3.7 Sixth Amendment to Credit Agreement
Dated as of January 29, 1999
10.3.8 Seventh Amendment to Credit Agreement
Dated as of March 1, 1999
10.3.9 Eighth Amendment to Credit Agreement
Dated as of March 15, 1999
10.3.10 Ninth Amendment to Credit Agreement
Dated as of March 31, 1999
10.3.10a Tenth Amendment to Credit Agreement
Dated as of April 15, 1999
10.3.11 Forbearance Agreement Dated as of
November 16, 1998 Between Pluma, Inc.,
as Borrower and NationsBank, N.A., as
Agent
10.3.12 Amendment to Forbearance Agreement
Dated as of December 31, 1998
10.3.13 Second Amendment to Forbearance
Agreement Dated as of January 29, 1999
10.3.14 Third Amendment to Forbearance
Agreement Dated as of March 1, 1999
10.3.15 Fourth Amendment to Forbearance
Agreement Dated as of March 15, 1999
10.3.16 Fifth Amendment to Forbearance
Agreement Dated as of March 31, 1999
10.3.17 Sixth Amendment to Forbearance Agreement
Dated as of April 15, 1999
10.4 Trademark License Agreement dated Exhibit 10.7 to Registration
July 2, 1996, by and between Pluma, Statement No. 333-18755, filed
Inc. and Kayser Roth Corporation December 24, 1996
10.5 Adoption Agreement #005 Exhibit 10.11 to Registration
Nonstandardized Codess.401(k) Profit Statement No. 333-18755, filed
Sharing Plan by Pluma, Inc. to First December 24, 1996
Union National Bank of North Carolina
dated November 30, 1993 and
Amendments thereto
10.6 1995 Stock Option Plan of Pluma, Inc. Exhibit 10.12 to Registration
Statement No. 333-18755, filed
December 24, 1996
10.7 Form of Incentive Stock Option Exhibit 10.13 to Registration
Agreement by and among Pluma, Inc. Statement No. 333-18755, filed
and the Named Officers December 24, 1996
10.8 Form of Nonstatutory Stock Option Exhibit 10.14 to Registration
Agreement by and among Pluma, Inc. Statement No. 333-18755, filed
and its Directors December 24, 1996
10.9 Pluma, Inc. Non-Qualified Deferred Exhibit 10.15 to Registration
Compensation Plan Statement No. 333-18755, filed
December 24, 1996
10.10 Pluma, Inc. Senior Executive Bonus Exhibit 10.16 to Registration
Plan Statement No. 333-18755, filed
December 24, 1996
10.11 Pluma, Inc. Sales Incentive Plan Exhibit 10.17 to Registration
Statement No. 333-18755, filed
December 24, 1996
42
<PAGE>
Exhibit Page Number or
Number Description Incorporation by
- ------ ----------- Reference to
-----------------
10.12.1 License Agreement dated October 9, Exhibit 10.18.1 to Registration
1996 between SAP America, Inc. and Statement No. 333-18755, filed
Pluma, Inc. for license to utilize SAP December 24, 1996
R/3 Software
10.12.2 Professional Services Agreement dated Exhibit 10.18.2 to Registration
October 9, 1996, between SAP Statement No. 333-18755, filed
America, Inc. and Pluma, Inc. for December 24, 1996
installation of R/3 Software
10.13.1 Consulting Agreement dated
December 6, 1996, between Philpott Ball &
Company and Pluma, Inc.
13
<PAGE>
Exhibit Page Number or
Number Description Incorporation by
- ------ ----------- Reference to
-----------------
10.14 Form of Employment Agreement by Exhibit 10.21 to Registration
and among Pluma, Inc. and R. Duke Statement No. 333-18755, filed
Ferrell, G. Walker Box, George G. December 24, 1996
Wade, C. Monroe Light, David S.
Green, Walter Helton, Raymond Rea,
Nancy Barksdale, Forrest H. Truitt, II;
Milton A. Barber and Jeffrey D. Cox,
John Beale, Jim Beale and Jeffrey
Robinson, except John Beale and
Jim Beale's agreement provided for
guaranteed bonuses of $50,000 annually
and Jeffrey Robinson's agreement
provides for a $55,000 bonus annually,
to be paid when bonuses are paid to
other executives
10.15 Form of Asset Purchase Agreement Exhibit 1 to Form 8-K filed
among Pluma, Inc., Stardust December 22, 1997
Corporation and John Beale and Linda
Beale dated December 22, 1997
10.16 Form of Asset Purchase Agreement Exhibit 1 to Form 8-K filed
among Pluma, Inc., Frank L. Robinson January 12, 1998
Company and the Partners of Frank L.
Robinson Company dated December
30, 1997
10.17 Letter Agreement Between Ronald A.
Norelli and Pluma, Inc. Dated January 28,
1999 engaging Mr. Norelli to assume the
responsibilities of Chief Executive Officer
of Pluma, Inc.
10.18 Settlement Agreement Dated June 18,
1998 Between Gildan Activewear, Inc. and
Pluma, Inc. for the supply of product
10.19 Agreement and Release Between Pluma,
Inc. and C. Monroe Light Dated February 9,
1999
10.20 Agreement and Release Between Pluma,
Inc. and R. Duke Ferrell, Jr. Dated February
22, 1999
10.21 Representative's Agreement Dated August
18, 1998 Between Pluma, Inc. and the Adair Group
for the sale of irregular products
10.22 Form of Non-Statutory Stock Option
Agreement By and Among Pluma, Inc. and
Certain of its Employees
10.23 Form of Incentive Stock Option Agreement
By and Among Pluma, Inc. and Certain of
its Employees
10.24 Letter Agreement Dated December 29, 1997
Between Pluma, Inc. and Norelli &
Company for the performance of consulting
services
10.25 Letter Agreement Dated February 4, 1998
Between Pluma, Inc. and Norelli &
Company for the performance of consulting
services
10.26 Letter Agreement Dated March 17, 1998
Between Pluma, Inc. and Norelli &
Company for the performance of consulting
services
10.27 Letter Agreement Dated October 1, 1998 Between
Pluma, Inc. and Ronald A. Norelli for the
engagement of Mr. Norelli as Vice Chairman
of the Company's Board of Directors.
11 Statement re: Computation of Per Set forth in Company's Annual
Share Earnings Report attached hereto as
Exhibit 13
24 Power of Attorney (included as the
signature page hereto)
</TABLE>
(b) Reports on Form 8-K.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunder duly authorized.
PLUMA, INC.
By: /s/ Ronald A. Norelli
-------------------------
Ronald A. Norelli.,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report is signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
/s/ Ronald A. Norelli 4-15-98
- ------------------------------------------ ---------------------
Ronald A. Norelli, CEO Date
/s/ George G. Wade 4-12-98
- ------------------------------------------ ---------------------
George G. Wade, President, COO & Secretary Date
/s/ John B. Adams 4-15-98
- ------------------------------------------ ---------------------
John B. Adams, Director Date
/s/ Barry A. Bowles 4-12-98
- ------------------------------------------ ---------------------
Barry A. Bowles, Director Date
/s/ G. Walker Box 4-15-98
- ------------------------------------------ ---------------------
G. Walker Box, Chairman Date
/s/ Kemp D. Box 4-13-98
- ------------------------------------------ ---------------------
Kemp D. Box, Director Date
/s/ C. Monroe Light 4-15-98
- ------------------------------------------ ---------------------
C. Monroe Light, Director Date
/s/ R. Stephens Pannill 4-12-98
- ------------------------------------------ ---------------------
R. Stephens Pannill, Director Date
/s/ J. Robert Philpott, Jr. 4-12-98
- ------------------------------------------ ---------------------
J. Robert Philpott, Jr., Director Date
/s/ William H. Watts 4-12-98
- ------------------------------------------ ---------------------
William H. Watts, VP & CFO Date
/s/ Nancy B. Barksdale 4-12-98
- ------------------------------------------ ------------------
Nancy B. Barksdale, VP & Controller Date
45
FIRST AMENDMENT TO
CREDIT AGREEMENT AND WAIVER
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER (hereinafter, the
"Amendment") is entered into as of August 27, 1998 among PLUMA, INC., a North
Carolina corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on
behalf of the Lenders (the "Agent"). Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings given to them in the
Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998 (as amended, modified,
supplemented, extended or restated from time to time, the "Credit Agreement");
WHEREAS, Events of Default currently exist under the Credit Agreement
(the "Existing Defaults") as a result of the failure of the Credit Parties to
comply as of the fiscal quarter ending June 30, 1998 with the terms of Section
7.11(b) of the Credit Agreement, Section 7.11(d) of the Credit Agreement and
Section 7.11(e) of the Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders provide a limited
waiver of the Existing Defaults and continue to make available to the Borrower
the Loans provided under the Credit Agreement; and
WHEREAS, the Lenders are willing to provide a limited waiver of the
Existing Defaults and continue to make available to the Borrower the Loans,
based upon and subject to the terms and conditions specified in this Amendment
and, in connection therewith, the Required Lenders have directed the Agent to
execute this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Reaffirmation of Existing Debt. The Credit Parties acknowledge and
confirm (a) that the Agent, on behalf of the Lenders, has a valid and
enforceable first priority perfected security interest in the Collateral, (b)
that the Borrower's obligation to repay the outstanding principal amount of the
Loans and reimburse the Issuing Lender for any drawing on a Letter of Credit is
unconditional and not subject to any offsets, defenses or counterclaims, (c)
that the Agent and the Lenders have performed fully all of their respective
obligations under the Credit Agreement and the other Credit Documents, and (d)
by entering into this Amendment, the Lenders do not waive (except for the
limited waiver of the Existing Defaults) or release any term or condition of the
Credit Agreement or any of the other Credit Documents or any of their rights or
remedies under such Credit Documents or applicable law or any of the obligations
of any Credit Party thereunder.
1
<PAGE>
2. Limited Waiver. The Borrower acknowledges that it is not in
compliance with the financial covenants contained in Section 7.11(b), Section
7.11(d) and Section 7.11(e) of the Credit Agreement (the "Existing Defaults").
The Lenders hereby waive the Existing Defaults for the period from June 30, 1998
through September 29, 1998, subject to the terms and conditions set forth
herein. This limited waiver shall not modify or affect (a) the Borrower's
obligation to comply with Section 7.11(b), Section 7.11(d) and Section 7.11(e)
on and at all times after September 30, 1998 and (b) the Borrower's obligation
to comply fully with any other duty, term, condition or covenant contained in
the Credit Agreement and the other Credit Documents. Nothing herein contained
shall be deemed to constitute a waiver of any rights or remedies the Agent or
any Lender may have under the Credit Agreement or any other Credit Documents or
under applicable law.
3. New Definition. The following definition is hereby added to Section
1.1 of the Credit Agreement:
"NEW CONSULTANT" SHALL HAVE THE MEANING PROVIDED SUCH TERM IN
SECTION 7.19 HEREOF.
4. Amended Definitions.
(a) The definition of "Applicable Percentage" set forth in
Section 1.1 of the Credit Agreement is amended and restated in its
entirety to read as follows:
"APPLICABLE PERCENTAGE" MEANS, FOR PURPOSES OF CALCULATING
(I) THE APPLICABLE INTEREST RATE FOR ANY REVOLVING LOAN OR ANY
TERM LOAN, (A) FOR EURODOLLAR LOANS, 3.75% THROUGH AND INCLUDING
SEPTEMBER 21, 1998 AND 3.50% AT ALL TIMES AFTER SEPTEMBER 21,
1998 AND (B) FOR BASE RATE LOANS, 1.00% THROUGH AND INCLUDING
SEPTEMBER 21, 1998 AND .75% AT ALL TIMES AFTER SEPTEMBER 21,
1998, (II) THE APPLICABLE RATE OF THE UNUSED FEE FOR ANY DAY FOR
PURPOSES OF SECTION 3.5(B), .375% AND (C) THE APPLICABLE RATE FOR
THE LETTER OF CREDIT FEE FOR ANY DAY, 3.50%.
(b) The definition of "Borrowing Base" set forth in Section 1.1
of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:
"BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85%
OF ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH
CASE AS SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE
DELIVERED TO THE AGENT AND THE LENDERS IN ACCORDANCE WITH THE
TERMS OF SECTION 7.1(C) AND (C) DURING THE PERIOD (I) FROM AND
INCLUDING AUGUST 27, 1998 THROUGH AND INCLUDING SEPTEMBER 11,
1998, $4,000,000, (II) FROM AND INCLUDING SEPTEMBER 12, 1998
THROUGH AND INCLUDING SEPTEMBER 21, 1998, $2,000,000, AND (III)
AFTER SEPTEMBER 21, 1998, $0.
2
<PAGE>
5. Minimum Amounts. Section 2.1(b)(ii) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
"(II) MINIMUM AMOUNTS. EACH EURODOLLAR LOAN THAT IS A
REVOLVING LOAN SHALL BE IN A MINIMUM AGGREGATE PRINCIPAL AMOUNT
OF $2,000,000 AND INTEGRAL MULTIPLES OF $500,000 IN EXCESS
THEREOF (OR THE REMAINING AMOUNT OF THE REVOLVING COMMITTED
AMOUNTS, IF LESS) AND EACH BASE RATE LOAN THAT IS A REVOLVING
LOAN SHALL BE IN A MINIMUM AGGREGATE PRINCIPAL AMOUNT OF $500,000
AND INTEGRAL MULTIPLES OF $100,000 IN EXCESS THEREOF (OR THE
REMAINING AMOUNT OF THE REVOLVING COMMITMENT, IF LESS).
6. Voluntary Prepayments. Section 3.3(a) of the Credit Agreement is
hereby amended to provide that partial prepayments of Loans (other than
Swingline Loans) shall be in a minimum principal amount of $2,000,000 and
integral multiples of $100,000 in excess thereof.
7. Year 2000 Compliance. A new Section 6.25 is hereby added to the
Credit Agreement and shall read as follows:
6.25 YEAR 2000 COMPLIANCE.
EACH CREDIT PARTY HAS (I) INITIATED A REVIEW AND
ASSESSMENT OF ALL AREAS WITHIN ITS AND EACH OF ITS SUBSIDIARIES'
BUSINESS AND OPERATIONS THAT COULD REASONABLY BE EXPECTED TO BE
ADVERSELY AFFECTED BY THE "YEAR 2000 PROBLEM" (THAT IS, THE RISK
THAT COMPUTER APPLICATIONS USED BY SUCH CREDIT PARTY OR ANY OF
ITS SUBSIDIARIES MAY BE UNABLE TO RECOGNIZE AND PERFORM PROPERLY
DATE-SENSITIVE FUNCTIONS INVOLVING CERTAIN DATES PRIOR TO AND ANY
DATE AFTER DECEMBER 31, 1999), (II) DEVELOPED A PLAN AND TIMELINE
FOR ADDRESSING THE YEAR 2000 PROBLEM ON A TIMELY BASIS, AND (III)
TO DATE, IMPLEMENTED THAT PLAN IN ACCORDANCE WITH THE TIMETABLE.
BASED ON THE FOREGOING, EACH CREDIT PARTY BELIEVES THAT ALL
COMPUTER APPLICATIONS THAT ARE MATERIAL TO ITS AND ANY OF ITS
SUBSIDIARIES' BUSINESS AND OPERATIONS ARE REASONABLY EXPECTED ON
A TIMELY BASIS TO BE ABLE TO PERFORM PROPERLY DATE-SENSITIVE
FUNCTIONS FOR ALL DATES BEFORE AND AFTER JANUARY 1, 2000 (THAT
IS, BE "YEAR 2000 COMPLIANT"), EXCEPT TO THE EXTENT THAT A
FAILURE TO DO SO COULD NOT REASONABLY BE EXPECTED TO HAVE
MATERIAL ADVERSE EFFECT.
8. Financial Statements. Section 7.1(b) of the Credit Agreement is
hereby amended and restated in its entirety to read as follows:
(B) MONTHLY FINANCIAL STATEMENTS. AS SOON AS AVAILABLE, AND IN
ANY EVENT WITHIN 30 DAYS AFTER THE CLOSE OF EACH CALENDAR MONTH
(I) A CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT OF THE
CONSOLIDATED PARTIES, AS OF THE END OF SUCH CALENDAR MONTH,
TOGETHER WITH RELATED CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS AND OF CASH FLOWS FOR SUCH CALENDAR MONTH IN
EACH CASE SETTING FORTH IN COMPARATIVE
3
<PAGE>
FORM CONSOLIDATED FIGURES FOR THE CORRESPONDING PERIOD OF THE
PRECEDING FISCAL YEAR AND (II) A CONSOLIDATING BALANCE SHEET AND
INCOME STATEMENT OF THE BORROWER AND ITS MATERIAL SUBSIDIARIES,
AS OF THE END OF SUCH CALENDAR MONTH, TOGETHER WITH RELATED
CONSOLIDATING STATEMENTS OF OPERATIONS AND RETAINED EARNINGS AND
OF CASH FLOWS FOR SUCH CALENDAR MONTH, IN EACH CASE SETTING FORTH
IN COMPARATIVE FORM CONSOLIDATING FIGURES FOR THE CORRESPONDING
PERIOD OF THE PRECEDING FISCAL YEAR, ALL SUCH FINANCIAL
INFORMATION DESCRIBED ABOVE TO BE IN REASONABLE FORM AND DETAIL
AND REASONABLY ACCEPTABLE TO THE AGENT, AND ACCOMPANIED BY A
CERTIFICATE OF THE CHIEF FINANCIAL OFFICER OF THE BORROWER TO THE
EFFECT THAT SUCH MONTHLY FINANCIAL STATEMENTS FAIRLY PRESENT IN
ALL MATERIAL RESPECTS THE FINANCIAL CONDITION OF THE CONSOLIDATED
PARTIES OR THE BORROWER AND ITS MATERIAL SUBSIDIARIES, AS
APPLICABLE, AND HAVE BEEN PREPARED IN ACCORDANCE WITH GAAP,
SUBJECT TO CHANGES RESULTING FROM AUDIT AND NORMAL YEAR-END AUDIT
ADJUSTMENTS. THE BORROWER ACKNOWLEDGES AND AGREES THAT SUCH
MONTHLY FINANCIAL STATEMENTS SHALL BE USED TO TEST THE FINANCIAL
COVENANTS CONTAINED IN SECTION 7.11.
9. Borrowing Base Certificate. The following sentence is hereby added at
the end of Section 7.1(e) of the Credit Agreement and shall read as follows:
FURTHERMORE, THE BORROWER AGREES TO PROVIDE ON EACH BUSINESS DAY
TO THE AGENT AND EACH OF THE LENDERS A BORROWING BASE CERTIFICATE
AS OF SUCH BUSINESS DAY SUBSTANTIALLY IN THE FORM OF EXHIBIT
7.1(E)(II) AND CERTIFIED BY THE CHIEF FINANCIAL OFFICER OF THE
BORROWER TO BE TRUE AND CORRECT AS OF THE DATE THEREOF.
10. PLAN OF ACTION; CASH FORECAST. NEW SECTIONS 7.1(O) AND 7.1(P) ARE
HEREBY ADDED TO THE CREDIT AGREEMENT AND SHALL READ AS FOLLOWS:
(O) PLAN OF ACTION. ON OR BEFORE SEPTEMBER 21, 1998, THE BORROWER
SHALL PROVIDE THE AGENT WITH A DETAILED REPORT (IN FORM AND
SUBSTANCE SATISFACTORY TO THE AGENT) OUTLINING ITS PLAN OF ACTION
(INCLUDING A TIMETABLE FOR SUCH PLAN) FOR THOSE MATTERS
IDENTIFIED ON SCHEDULE 7.1(O) ATTACHED HERETO.
(P) CASH FORECAST. THE BORROWER WILL DELIVER EVERY OTHER WEEK (BY
NO LATER THAN WEDNESDAY OF SUCH WEEK) TO THE AGENT AND EACH OF
THE LENDERS A CASH FORECAST SUBSTANTIALLY IN THE FORM OF EXHIBIT
7.1(P). THE PARTIES HERETO AGREE THAT THE BORROWER'S CASH
FORECAST AS OF AUGUST 24, 1998 IS AS ATTACHED HERETO AS EXHIBIT
7.1(P).
4
<PAGE>
11. Audit/Inspections. The last sentence of Section 7.10 of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
THE CREDIT PARTIES AGREE THAT THE AGENT, AND ITS REPRESENTATIVES, MAY
CONDUCT A QUARTERLY AUDIT OF THE COLLATERAL, AT THE EXPENSE OF THE
BORROWER. IT IS UNDERSTOOD AND AGREED THAT THE FIRST SUCH AUDIT SHALL BE
CONDUCTED IN SEPTEMBER, 1998.
12. Business Consultant. A new Section 7.19 is hereby added to the
Credit Agreement and shall read as follows:
7.19 BUSINESS CONSULTANT. THE BORROWER HAS PREVIOUSLY RETAINED
NORELLI AND COMPANY ("N&C") AS A BUSINESS AND FINANCIAL CONSULTANT FOR
THE BORROWER. IMMEDIATELY UPON OBTAINING APPROVAL FROM ITS BOARD OF
DIRECTORS, THE BORROWER WILL MAKE AVAILABLE TO THE LENDERS FROM TIME TO
TIME APPROPRIATE REPRESENTATIVES OF N&C TO REVIEW AND DISCUSS WITH THE
LENDERS THE RECOMMENDATIONS THAT HAVE BEEN MADE BY N&C TO THE BORROWER
(INCLUDING MAKING AVAILABLE TO THE LENDERS COPIES OF ALL WRITTEN
MATERIALS PROVIDED BY N&C TO THE BORROWER). THE LENDERS MAY ELECT TO
ENGAGE, AT THE EXPENSE OF THE BORROWER, A THIRD PARTY EXPERT TO REVIEW
ON BEHALF OF THE LENDERS THE INFORMATION PREPARED BY N&C. THE BORROWER
COVENANTS AND AGREES THAT, IF REQUESTED BY THE REQUIRED LENDERS, THE
BORROWER WILL IMMEDIATELY HIRE AN ADDITIONAL BUSINESS CONSULTANT
SATISFACTORY TO THE AGENT IN THE AGENT'S REASONABLE DISCRETION (THE "NEW
CONSULTANT"). THE EXACT SCOPE OF THE NEW CONSULTANT'S SERVICES SHALL BE
AGREED UPON BY THE BORROWER AND THE NEW CONSULTANT, BUT MUST BE
SATISFACTORY TO THE AGENT IN THE AGENT'S REASONABLE DISCRETION. IF
REQUIRED TO BE RETAINED PURSUANT TO THE TERMS HEREOF THE BORROWER SHALL
CAUSE THE NEW CONSULTANT (I) TO MEET PERIODICALLY WITH THE AGENT AT ITS
REASONABLE REQUEST TO REPORT UPON THE NEW CONSULTANT'S FINDINGS AND
RECOMMENDATIONS AND (II) TO MEET WITH THE LENDERS TO REPORT ON THE NEW
CONSULTANT'S FINDINGS AND RECOMMENDATIONS. THE BORROWER SHALL PAY ALL
COSTS ASSOCIATED WITH ITS RETENTION OF THE NEW CONSULTANT. THE BORROWER
SHALL NOT TERMINATE THE NEW CONSULTANT'S SERVICES, OR DENY THE NEW
CONSULTANT ACCESS TO INFORMATION NECESSARY TO PERFORM ITS SERVICES
WITHIN THE SCOPE OF ITS ENGAGEMENT, PRIOR TO THE EXPIRATION OF SUCH
ENGAGEMENT. ALL REPORTS AND INFORMATION PROVIDED BY N&A AND/OR THE NEW
CONSULTANT TO THE AGENT OR THE LENDERS SHALL BE SUBJECT TO THE
CONFIDENTIALITY PROVISIONS OF SECTION 11.15 HEREOF.
13. Exhibit 7.1(e)(ii). New Exhibits 7.1(e)(ii) and 7.1(p) are hereby
added to the Credit Agreement and shall read as Exhibit 7.1(e)(ii) and Exhibit
7.1(p) attached hereto.
14. Schedule 7.1(o). A new Schedule 7.1(o) is hereby added to the Credit
Agreement and shall read as Schedule 7.1(o) attached hereto.
5
<PAGE>
15. Conditions Precedent. The effectiveness of this Amendment is subject
to the satisfaction of each of the following conditions:
(a) The Agent shall have received original duly executed
counterparts of this Amendment duly executed by the Credit Parties and
the Agent.
(b) Payment by the Borrower (i) to the Agent for the pro rata
benefit of the Lenders an amendment fee in an amount equal to $115,000
and (ii) of all other costs and expenses heretofore incurred by the
Agent, including without limitation legal fees and expenses, in
connection with the negotiation, administration, amendment and
enforcement of any of the Credit Documents.
(c) The Agent shall have received such other documents and
information as it deems reasonably necessary.
16. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the other
Credit Documents, are hereby ratified and confirmed and shall remain in
full force and effect according to their terms.
(b) The Borrower hereby represents and warrants as follows:
(i) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and delivered
by the Borrower and constitutes the Borrower's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar
laws affecting creditors' rights generally and (ii) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(iii) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by the Borrower of this Amendment.
(c) The Borrower represents and warrants to the Lenders that (i)
except for the representation contained in Section 6.2(a) with respect
to matters previously disclosed to the Lenders, the representations and
warranties of the Credit Parties set forth in Section 6 of the
6
<PAGE>
Credit Agreement are true and correct as of the date hereof and (ii) no
unwaived event has occurred and is continuing which constitutes a
Default or an Event of Default.
(d) This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but
all of which shall constitute one and the same instrument. Delivery of
an executed counterpart of this Amendment by telecopy shall be effective
as an original and shall constitute a representation that an executed
original shall be delivered.
(e) THIS AMENDMENT 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
NORTH CAROLINA.
Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.
PLUMA, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By:___________________________________
Name:_________________________________
Title:________________________________
7
SECOND AMENDMENT TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (hereinafter, the
"Amendment") is entered into as of September 30, 1998 among PLUMA, INC., a North
Carolina corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on
behalf of the Lenders (the "Agent"). Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings given to them in the
Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998 (as further
amended, modified, supplemented, extended or restated from time to time, the
"Credit Agreement");
WHEREAS, the parties desire to amend certain terms of the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amended Definitions. The Credit Agreement is hereby amended in the
following respects:
(a) The definition of "Applicable Percentage" set forth in
Section 1.1 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"APPLICABLE PERCENTAGE" MEANS, FOR PURPOSES OF CALCULATING
(I) THE APPLICABLE INTEREST RATE FOR ANY REVOLVING LOAN OR ANY
TERM LOAN, (A) FOR EURODOLLAR LOANS, 3.75% THROUGH AND INCLUDING
OCTOBER 30, 1998 AND 3.50% AT ALL TIMES AFTER OCTOBER 30, 1998
AND (B) FOR BASE RATE LOANS, 1.00% THROUGH AND INCLUDING OCTOBER
30, 1998 AND .75% AT ALL TIMES AFTER OCTOBER 30, 1998, (II) THE
APPLICABLE RATE OF THE UNUSED FEE FOR ANY DAY FOR PURPOSES OF
SECTION 3.5(B), .375% AND (C) THE APPLICABLE RATE FOR THE LETTER
OF CREDIT FEE FOR ANY DAY, 3.50%.
(b) The definition of "Borrowing Base" set forth in Section 1.1
of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:
"BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85%
OF ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH
CASE AS SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE
DELIVERED TO THE AGENT AND THE LENDERS IN
<PAGE>
ACCORDANCE WITH THE TERMS OF SECTION 7.1(C) AND (C) DURING THE
PERIOD (I) FROM AND INCLUDING AUGUST 27, 1998 THROUGH AND
INCLUDING OCTOBER 30, 1998, $4,000,000 AND (II) AFTER OCTOBER 30,
1998, $0.
2. Deposit Account. A new Section 7.20 is hereby added to the Credit
Agreement and shall read as follows:
7.20 DEPOSIT ACCOUNT
THE CREDIT PARTIES SHALL ESTABLISH WITH THE AGENT AND PLEDGE TO
THE AGENT FOR THE BENEFIT OF THE LENDERS A DEPOSIT ACCOUNT (THE "DEPOSIT
ACCOUNT") AS COLLATERAL SECURITY FOR THE CREDIT PARTY OBLIGATIONS
PURSUANT TO A CASH COLLATERAL SECURITY AGREEMENT IN FORM AND SUBSTANCE
SATISFACTORY TO THE AGENT. EACH OF THE CREDIT PARTIES HEREBY AGREES THAT
IT WILL CAUSE EACH ACCOUNT DEBTOR OBLIGATED TO PAY A RECEIVABLE TO
DIRECT PAYMENT OF SUCH RECEIVABLE TO THE DEPOSIT ACCOUNT. THE CREDIT
PARTIES FURTHER AGREE THAT THE AGENT SHALL APPLY THE FUNDS IN THE
DEPOSIT ACCOUNT TO PAYMENT OF THE LOANS.
3. Conditions Precedent. The effectiveness of this Amendment is subject
to the satisfaction of each of the following conditions:
(a) The Agent shall have received original duly executed
counterparts of this Amendment duly executed by the Credit Parties and
the Agent.
(b) Payment by the Borrower of all other costs and expenses
heretofore incurred by the Agent, including without limitation legal
fees and expenses, in connection with the negotiation, administration,
amendment and enforcement of any of the Credit Documents.
(c) The Agent shall have received such other documents and
information as it deems reasonably necessary.
4. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the other
Credit Documents, are hereby ratified and confirmed and shall remain in
full force and effect according to their terms.
(b) The Borrower hereby represents and warrants as follows:
(i) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
2
<PAGE>
(ii) This Amendment has been duly executed and delivered
by the Borrower and constitutes the Borrower's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar
laws affecting creditors' rights generally and (ii) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(iii) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by the Borrower of this Amendment.
(c) The Borrower represents and warrants to the Lenders that (i)
except for the representation contained in Section 6.2(a) with respect
to matters previously disclosed to the Lenders, the representations and
warranties of the Credit Parties set forth in Section 6 of the Credit
Agreement are true and correct as of the date hereof and (ii) no
unwaived event has occurred and is continuing which constitutes a
Default or an Event of Default.
(d) This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but
all of which shall constitute one and the same instrument. Delivery of
an executed counterpart of this Amendment by telecopy shall be effective
as an original and shall constitute a representation that an executed
original shall be delivered.
(e) THIS AMENDMENT 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
NORTH CAROLINA.
Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.
PLUMA, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By:_______________________________________
Name:_____________________________________
Title:____________________________________
3
THIRD AMENDMENT TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (hereinafter, the "Amendment")
is entered into as of October 30, 1998 among PLUMA, INC., a North Carolina
corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on behalf
of the Lenders (the "Agent"). Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings given to them in the Credit
Agreement.
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998 and by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998 (as further
amended, modified, supplemented, extended or restated from time to time, the
"Credit Agreement");
WHEREAS, the Borrower and the Agent are parties to that certain
Forbearance Agreement dated as of the date hereof (the "Forbearance Agreement");
WHEREAS, in accordance with and as a condition precedent to the
Forbearance Agreement, the parties desire to amend certain terms of the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Reaffirmation of Existing Debt. The Credit Parties acknowledge and
confirm (a) that the Agent, on behalf of the Lenders, has a valid and
enforceable first priority perfected security interest in the Collateral, (b)
that the Borrower's obligation to repay the outstanding principal amount of the
Loans and reimburse the Issuing Lender for any drawing on a Letter of Credit is
unconditional and not subject to any offsets, defenses or counterclaims, (c)
that the Agent and the Lenders have performed fully all of their respective
obligations under the Credit Agreement and the other Credit Documents, and (d)
by entering into this Amendment, the Lenders do not waive or release any term or
condition of the Credit Agreement or any of the other Credit Documents or any of
their rights or remedies under such Credit Documents or applicable law or any of
the obligations of any Credit Party thereunder.
2. Amendments. The Credit Agreement is hereby amended in the following
respects:
(a) The definition of "Applicable Percentage" set forth in
Section 1.1 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
<PAGE>
"APPLICABLE PERCENTAGE" MEANS, FOR PURPOSES OF CALCULATING
(I) THE APPLICABLE INTEREST RATE FOR ANY REVOLVING LOAN OR ANY
TERM LOAN, (A) FOR EURODOLLAR LOANS, 3.75% THROUGH AND INCLUDING
NOVEMBER 30, 1998 AND 3.50% AT ALL TIMES AFTER NOVEMBER 30, 1998
AND (B) FOR BASE RATE LOANS, 1.00% THROUGH AND INCLUDING NOVEMBER
30, 1998 AND .75% AT ALL TIMES AFTER NOVEMBER 30, 1998, (II) THE
APPLICABLE RATE OF THE UNUSED FEE FOR ANY DAY FOR PURPOSES OF
SECTION 3.5(B), .375% AND (C) THE APPLICABLE RATE FOR THE LETTER
OF CREDIT FEE FOR ANY DAY, 3.50%.
(b) The definition of "Borrowing Base" set forth in Section 1.1
of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:
"BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85%
OF ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH
CASE AS SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE
DELIVERED TO THE AGENT AND THE LENDERS IN ACCORDANCE WITH THE
TERMS OF SECTION 7.1(C) AND (C) DURING THE PERIOD (I) FROM AND
INCLUDING AUGUST 27, 1998 THROUGH AND INCLUDING NOVEMBER 30,
1998, $4,000,000 AND (II) AFTER NOVEMBER 30, 1998, $0.
(c) The definition of "New Consultant" contained in Section 1.1
of the Credit Agreement is deleted in its entirety.
(d) The following definitions are hereby added to Section 1.1 of
the Credit Agreement:
"BORROWER'S CONSULTANTS" MEANS N&C, PWC AND TSG.
"N&C" SHALL HAVE THE MEANING PROVIDED SUCH TERM IN SECTION 7.19
HEREOF.
"PWC" SHALL HAVE THE MEANING PROVIDED SUCH TERM IN SECTION 7.19
HEREOF.
"TSG" SHALL HAVE THE MEANING PROVIDED SUCH TERM IN SECTION 7.19
HEREOF.
(e) Section 7.1(f) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
(F) ANNUAL BUSINESS PLAN AND BUDGETS. AT LEAST 30 DAYS
PRIOR TO THE END OF EACH FISCAL YEAR OF THE BORROWER, AN ANNUAL
BUSINESS PLAN AND BUDGET OF THE CONSOLIDATED PARTIES CONTAINING,
AMONG OTHER THINGS, PRO FORMA FINANCIAL STATEMENTS FOR THE NEXT
FISCAL YEAR; PROVIDED, HOWEVER, THAT THE ANNUAL BUSINESS PLAN AND
BUDGET FOR FISCAL YEAR 1999: (I) SHALL NOT BE DUE UNTIL DECEMBER
15, 1998 AND (II) SHALL BE PREPARED WITH THE ASSISTANCE OF PWC.
2
<PAGE>
(f) A new Section 7.1(o) is hereby added to the Credit Agreement
and shall read as follows:
(O) CASH FLOW FORECASTS. COMMENCING ON THURSDAY, NOVEMBER
12, 1998 AS OF MONDAY, NOVEMBER 9, 1998, AND CONTINUING ON A
ROLLING BASIS ON MONDAY OF EACH WEEK THEREAFTER, DETAILED CASH
FLOW PROJECTIONS FOR THE THEN UPCOMING THIRTEEN WEEKS, EACH IN
FORM ACCEPTABLE TO THE AGENT. THROUGH AT LEAST THE THIRTEEN WEEK
CASH FLOW PROJECTION DUE MONDAY, DECEMBER 28, 1998, SUCH
PROJECTIONS SHALL BE PREPARED BY OR WITH THE MATERIAL ASSISTANCE
OF PWC.
(g) A new Section 7.1(p) is hereby added to the Credit Agreement
and shall read as follows:
(P) CASH FLOW RECONCILIATIONS. COMMENCING ON MONDAY,
NOVEMBER 16, 1998, AND CONTINUING ON MONDAY OF EACH WEEK
THEREAFTER, A TRUE AND ACCURATE RECONCILIATION REPORT, REFLECTING
A DETAILED COMPARISON BETWEEN THE CONSOLIDATED PARTIES' ACTUAL
CASH FLOW COMPUTATIONS THROUGH THE END OF THE PREVIOUS WEEK AND
THAT PROJECTED FOR SUCH WEEK IN THE MOST RECENT CASH FLOW
PROJECTION INCLUDING SUCH PERIOD PROVIDED TO THE AGENT IN
ACCORDANCE WITH SECTION 7.1(O) HEREOF . THROUGH AT LEAST THE
RECONCILIATION REPORT DUE THURSDAY, DECEMBER 31, 1998, SUCH
RECONCILIATION REPORTS SHALL BE PREPARED BY OR WITH THE MATERIAL
ASSISTANCE OF PWC.
(h) Section 7.19 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
7.19 CONSULTANTS. THE BORROWER PREVIOUSLY HAS RETAINED
NORELLI AND COMPANY ("N&C") AND PRICEWATERHOUSE COOPERS,
L.L.P.("PWC") AS BUSINESS AND FINANCIAL CONSULTANTS FOR THE
BORROWER, AND BORROWER PREVIOUSLY HAS RETAINED THE STEPHENS GROUP
("TSG") AS A MANAGEMENT INFORMATION CONSULTANT. THE BORROWER
SHALL MAKE AVAILABLE TO THE LENDERS FROM TIME TO TIME APPROPRIATE
REPRESENTATIVES OF THE BORROWER'S CONSULTANTS TO REVIEW AND
DISCUSS WITH THE LENDERS THE RECOMMENDATIONS AND/OR REPORTS THAT
HAVE BEEN MADE BY ANY OF THE BORROWER'S CONSULTANTS TO THE
BORROWER (INCLUDING MAKING AVAILABLE TO THE LENDERS COPIES OF ALL
WRITTEN MATERIALS PROVIDED BY ANY OF THE BORROWER'S CONSULTANTS
TO THE BORROWER). THE LENDERS MAY ELECT TO ENGAGE, AT THE EXPENSE
OF THE BORROWER, A THIRD PARTY EXPERT TO REVIEW ON BEHALF OF THE
LENDERS THE INFORMATION PREPARED BY ANY OF THE BORROWER'S
CONSULTANTS. THE BORROWER SHALL CAUSE THE BORROWER'S CONSULTANTS,
AS THE AGENT MAY REQUEST, (I) TO MEET PERIODICALLY WITH THE AGENT
TO REPORT UPON THE BORROWER'S CONSULTANTS' FINDINGS, REPORTS AND
RECOMMENDATIONS AND (II) TO MEET WITH THE LENDERS TO REPORT ON
THE BORROWER'S CONSULTANTS' FINDINGS, REPORTS AND
RECOMMENDATIONS. THE BORROWER SHALL PAY ALL COSTS ASSOCIATED WITH
ITS RETENTION OF THE BORROWER'S CONSULTANTS.
3
<PAGE>
THE BORROWER SHALL NOT TERMINATE THE BORROWER'S CONSULTANTS'
SERVICES, OR DENY ANY OF THE BORROWER'S CONSULTANTS ACCESS TO
INFORMATION NECESSARY TO PERFORM ITS SERVICES WITHIN THE SCOPE OF
ITS ENGAGEMENT, PRIOR TO THE EXPIRATION OF SUCH ENGAGEMENT. ALL
REPORTS AND INFORMATION PROVIDED BY THE BORROWERS' CONSULTANTS TO
THE AGENT OR THE LENDERS SHALL BE SUBJECT TO THE CONFIDENTIALITY
PROVISIONS OF SECTION 11.15 HEREOF.
3. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the other
Credit Documents, are hereby ratified and confirmed and shall remain in
full force and effect according to their terms.
(b) The Borrower hereby represents and warrants as follows:
(i) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and delivered
by the Borrower and constitutes the Borrower's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar
laws affecting creditors' rights generally and (ii) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(iii) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by the Borrower of this Amendment.
(c) The Borrower represents and warrants to the Lenders that (i)
except for the representation contained in Section 6.2(a) with respect
to matters previously disclosed to the Lenders, the representations and
warranties of the Credit Parties set forth in Section 6 of the Credit
Agreement are true and correct as of the date hereof and (ii) other than
the Acknowledged Events of Default (as defined in the Forbearance
Agreement) no unwaived event has occurred and is continuing which
constitutes a Default or an Event of Default.
(d) This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but
all of which shall constitute one and the same instrument. Delivery of
an executed counterpart of this Amendment by telecopy shall be effective
as an original and shall constitute a representation that an executed
original shall be delivered.
4
<PAGE>
(e) The Borrower hereby releases the Agent, the Lenders, and the
Agent's and the Lenders' respective officers, employees,
representatives, agents, counsel and directors from any and all actions,
causes of action, claims, demands, damages and liabilities of whatever
kind or nature, in law or in equity, now known or unknown, suspected or
unsuspected to the extent that any of the foregoing arises from any
action or failure to act on or prior to the date hereof.
(f) THIS AMENDMENT 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
NORTH CAROLINA.
Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.
PLUMA, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By:_______________________________________
Name:_____________________________________
Title:____________________________________
5
FOURTH AMENDMENT TO
CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (hereinafter, the
"Amendment") is entered into as of December __, 1998 among PLUMA, INC., a North
Carolina corporation (the "Borrower"), NATIONSBANK, N.A., as Agent for and on
behalf of the Lenders (the "Agent") and the Lenders. Capitalized terms used
herein and not otherwise defined herein shall have the respective meanings given
to them in the Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998, that certain
Second Amendment to Credit Agreement between the Borrower and the Agent for and
on behalf of the Lenders dated as of September 30, 1998 and that certain Third
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of November 16, 1998 (as further amended,
modified, supplemented, extended or restated from time to time, the "Credit
Agreement");
WHEREAS, the Borrower and the Agent on behalf of the Lenders are parties
to that certain Forbearance Agreement dated as of November 16, 1998 (the
"Forbearance Agreement");
WHEREAS, the parties desire to amend certain terms of the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Reaffirmation of Existing Debt. The Credit Parties acknowledge and
confirm: (a) that the Agent, on behalf of the Lenders, has a valid and
enforceable first priority perfected security interest in the Collateral subject
only to certain Permitted Liens, (b) that the Borrower's obligation to repay the
outstanding principal amount of the Loans and reimburse the Issuing Lender for
any drawing on a Letter of Credit is unconditional and not subject to any
offsets, defenses or counterclaims, (c) that the Agent and the Lenders have
performed fully all of their respective obligations under the Credit Agreement,
the Forbearance Agreement and the other Credit Documents, and (d) by entering
into this Amendment, the Lenders do not waive or release any term or condition
of the Credit Agreement, the Forbearance Agreement or any of the other Credit
Documents or any of their rights or remedies under such Credit Documents or
applicable law or any of the obligations of any Credit Party thereunder.
<PAGE>
2. Credit Agreement Amendment. The definition of "Borrowing Base" set
forth in Section 1.1 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85%
OF ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH
CASE AS SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE
DELIVERED TO THE AGENT AND THE LENDERS IN ACCORDANCE WITH THE
TERMS OF SECTION 7.1(C) AND (C) DURING THE PERIOD (I) FROM AND
INCLUDING DECEMBER 11, 1998 THROUGH AND INCLUDING DECEMBER 31,
1998, $3,000,000 AND (II) AFTER DECEMBER 31, 1998, $0.
3. Fourth Amendment Fee. In consideration of the willingness of the
Agent, on behalf of the Lenders, to enter this Amendment, simultaneously with
the execution of this Amendment the Borrower shall pay to the Agent for the
account of the Lenders an Amendment fee in the amount of $50,000.00 (the "Fourth
Amendment Fee"), such Fourth Amendment Fee to be divided among the Lenders pro
rata based on the respective Revolving Commitment Percentages of the Lenders
immediately prior to the execution of this Amendment.
4. Conditions Precedent. The effectiveness of this Amendment is subject
to the satisfaction of each of the following conditions:
(a) The Agent shall have received original duly executed
counterparts of this Amendment duly executed by the Credit Parties and
the Agent.
(b) The Agent shall have received Fourth Amendment Fee.
5. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the other
Credit Documents, are hereby ratified and confirmed and shall remain in
full force and effect according to their terms.
(b) The Borrower hereby represents and warrants as follows:
(i) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and delivered
by the Borrower and constitutes the Borrower's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (a) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar
laws
2
<PAGE>
affecting creditors' rights generally and (b) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(iii) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by the Borrower of this Amendment.
(c) The Borrower represents and warrants to the Lenders that (i)
except for the representation contained in Section 6.2(a) with respect
to matters previously disclosed to the Lenders, the representations and
warranties of the Credit Parties set forth in Section 6 of the Credit
Agreement are true and correct as of the date hereof and (ii) other than
the Acknowledged Events of Default (as defined in the Forbearance
Agreement) no unwaived event has occurred and is continuing which
constitutes a Default or an Event of Default.
(d) This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but
all of which shall constitute one and the same instrument. Delivery of
an executed counterpart of this Amendment by telecopy shall be effective
as an original and shall constitute a representation that an executed
original shall be delivered.
(e) The Borrower hereby releases the Agent, the Lenders, and the
Agent's and the Lenders' respective officers, employees,
representatives, agents, counsel and directors from any and all actions,
causes of action, claims, demands, damages and liabilities of whatever
kind or nature, in law or in equity, now known or unknown, suspected or
unsuspected to the extent that any of the foregoing arises from any
action or failure to act on or prior to the date hereof.
(f) THIS AMENDMENT 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
NORTH CAROLINA.
[Remainder of page intentionally left blank]
3
<PAGE>
Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.
PLUMA, INC., a North Carolina corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
NATIONSBANK, N.A., as Agent for and on
behalf of the Lenders
By:_______________________________________
Name:_____________________________________
Title:____________________________________
4
FIFTH AMENDMENT TO
CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (hereinafter, this "Amendment")
is entered into as of December __, 1998 among PLUMA, INC., a North Carolina
corporation (the "Borrower"), NATIONSBANK, N.A., as Agent for and on behalf of
the Lenders (the "Agent") and the Lenders. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings given to them in the
Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998, by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998, by that Third
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of November 16, 1998 and by that certain Fourth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 11, 1998 (as further amended,
modified, supplemented, extended or restated from time to time, the "Credit
Agreement").
WHEREAS, the Borrower and the Agent on behalf of the Lenders are parties
to that certain Forbearance Agreement dated as of November 16, 1998, as amended
by an Amendment to Forbearance Agreement dated as of the date hereof (as further
amended, modified, supplemented, extended or restated from time to time, the
"Forbearance Agreement"); and
WHEREAS, the parties desire to amend certain terms of the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Reaffirmation of Existing Debt. The Credit Parties acknowledge and
confirm: (a) that the Agent, on behalf of the Lenders, has a valid and
enforceable first priority perfected security interest in the Collateral subject
only to certain Permitted Liens, (b) that the Borrower's obligation to repay the
outstanding principal amount of the Loans and reimburse the Issuing Lender for
any drawing on a Letter of Credit is unconditional and not subject to any
offsets, defenses or counterclaims, (c) that the Agent and the Lenders have
performed fully all of their respective obligations under the Credit Agreement,
the Forbearance Agreement and the other Credit Documents, and (d) by entering
into this Amendment, the Lenders do not waive or release any term or condition
of the Credit Agreement, the Forbearance Agreement or any of the other Credit
Documents or any of their rights or remedies under such Credit Documents or
applicable law or any of the obligations of any Credit Party thereunder.
<PAGE>
2. Amendments. The Credit Agreement is hereby amended in the following
respects:
(a) The definition of "Borrowing Base" set forth in Section 1.1
of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:
"BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85%
OF ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH
CASE AS SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE
DELIVERED TO THE AGENT AND THE LENDERS IN ACCORDANCE WITH THE
TERMS OF SECTION 7.1(C) AND (C) DURING THE PERIOD (I) FROM AND
INCLUDING DECEMBER 11, 1998 THROUGH AND INCLUDING JANUARY 29,
1999, $3,000,000 AND (II) AFTER JANUARY 29, 1999, $0.
(b) The following definition is hereby added to Section 1.1 of
the Credit Agreement:
"MANAGEMENT GROUP" MEANS COLLECTIVELY, THE CHIEF EXECUTIVE
OFFICER, THE PRESIDENT, THE CHIEF FINANCIAL OFFICER AND THE
CONTROLLER OF THE BORROWER.
(c) Section 7.1(f) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
(F) ANNUAL BUSINESS PLAN AND BUDGETS. AT LEAST 30 DAYS
PRIOR TO THE END OF EACH FISCAL YEAR OF THE BORROWER, AN ANNUAL
BUSINESS PLAN AND BUDGET OF THE CONSOLIDATED PARTIES CONTAINING,
AMONG OTHER THINGS, PRO FORMA FINANCIAL STATEMENTS FOR THE NEXT
FISCAL YEAR; PROVIDED, HOWEVER, THAT THE ANNUAL BUSINESS PLAN AND
BUDGET OF THE CONSOLIDATED PARTIES FOR FISCAL YEAR 1999: (I)
SHALL NOT BE DUE UNTIL JANUARY 11, 1999 AND (II) SHALL BE
PREPARED WITH THE MATERIAL ASSISTANCE OF PWC.
(d) A new Section 8.14 is hereby added to the Credit Agreement
and shall read as follows:
8.14 MANAGEMENT.
MAKE OR PERMIT TO OCCUR ANY CHANGE IN THE
INDIVIDUALS CONSTITUTING THE MANAGEMENT GROUP AS OF DECEMBER 21,
1998; PROVIDED, HOWEVER, IN THE EVENT OF THE DEATH OR VOLUNTARY
RESIGNATION OF A MEMBER OF THE MANAGEMENT GROUP, THE BORROWER
SHALL HAVE A PERIOD OF 30 DAYS TO REPLACE SUCH DECEASED OR
RESIGNED MEMBER OF THE MANAGEMENT GROUP WITH AN INDIVIDUAL WHO
HAS EXTENSIVE EXPERIENCE AND A GOOD REPUTATION IN THE UNITED
STATES TEXTILE INDUSTRY AS AN EXECUTIVE IN THE AREA OF THE
VACANCY CREATED BY SUCH DEATH OR VOLUNTARY RESIGNATION BEFORE THE
BORROWER SHALL BE DEEMED TO HAVE VIOLATED THIS SECTION 8.14.
2
<PAGE>
3. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the other
Credit Documents, are hereby ratified and confirmed and shall remain in
full force and effect according to their terms.
(b) The Borrower hereby represents and warrants as follows:
(i) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and delivered
by the Borrower and constitutes the Borrower's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (a) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar
laws affecting creditors' rights generally and (b) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(iii) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by the Borrower of this Amendment.
(c) The Borrower represents and warrants to the Lenders that (i)
except for the representation contained in Section 6.2(a) with respect
to matters previously disclosed to the Lenders, the representations and
warranties of the Credit Parties set forth in Section 6 of the Credit
Agreement are true and correct as of the date hereof and (ii) other than
the Acknowledged Events of Default (as defined in the Forbearance
Agreement) no unwaived event has occurred and is continuing which
constitutes a Default or an Event of Default.
(d) This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but
all of which shall constitute one and the same instrument. Delivery of
an executed counterpart of this Amendment by telecopy shall be effective
as an original and shall constitute a representation that an executed
original shall be delivered.
(e) The Borrower hereby releases the Agent, the Lenders, and the
Agent's and the Lenders' respective officers, employees,
representatives, agents, counsel and directors from any and all actions,
causes of action, claims, demands, damages and liabilities of whatever
kind or nature, in law or in equity, now known or unknown, suspected or
3
<PAGE>
unsuspected to the extent that any of the foregoing arises from any
action or failure to act on or prior to the date hereof.
(f) THIS AMENDMENT 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
NORTH CAROLINA.
Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.
PLUMA, INC., a North Carolina corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
NATIONSBANK, N.A., as Agent for and on
behalf of the Lenders
By:_______________________________________
Name:_____________________________________
Title:____________________________________
4
SIXTH AMENDMENT TO
CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (hereinafter, this "Amendment")
is entered into as of January 29, 1999 among PLUMA, INC., a North Carolina
corporation (the "Borrower"), NATIONSBANK, N.A., as Agent for and on behalf of
the Lenders (the "Agent") and the Lenders. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings given to them in the
Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998, by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998, by that Third
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of November 16, 1998, by that certain Fourth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 11, 1998 and by that certain Fifth
Amendment to Credit Agreement dated as of December 31, 1998 (as further amended,
modified, supplemented, extended or restated from time to time, the "Credit
Agreement").
WHEREAS, the Borrower and the Agent on behalf of the Lenders are parties
to that certain Forbearance Agreement dated as of November 16, 1998, as amended
by an Amendment to Forbearance Agreement dated as of December 31, 1998 and by a
Second Amendment to Forbearance Agreement dated as of the date hereof (as
further amended, modified, supplemented, extended or restated from time to time,
the "Forbearance Agreement"); and
WHEREAS, the parties desire to amend certain terms of the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Reaffirmation of Existing Debt. The Credit Parties acknowledge and
confirm: (a) that the Agent, on behalf of the Lenders, has a valid and
enforceable first priority perfected security interest in the Collateral subject
only to certain Permitted Liens, (b) that the Borrower's obligation to repay the
outstanding principal amount of the Loans and reimburse the Issuing Lender for
any drawing on a Letter of Credit is unconditional and not subject to any
offsets, defenses or counterclaims, (c) that the Agent and the Lenders have
performed fully all of their respective obligations under the Credit Agreement,
the Forbearance Agreement and the other Credit Documents, and (d) by entering
into this Amendment, the Lenders do not waive or release any term
<PAGE>
or condition of the Credit Agreement, the Forbearance Agreement or any of the
other Credit Documents or any of their rights or remedies under such Credit
Documents or applicable law or any of the obligations of any Credit Party
thereunder.
2. Amendments. The Credit Agreement is hereby amended in the following
respects:
(a) The definition of "Applicable Percentage" set forth in
Section 1.1 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"APPLICABLE PERCENTAGE" MEANS, FOR PURPOSES OF CALCULATING
(I) THE APPLICABLE INTEREST RATE FOR ANY REVOLVING LOAN OR ANY
TERM LOAN, (A) FOR EURODOLLAR LOANS, 3.75% FROM JANUARY 29, 1999
AND THEREAFTER AND (B) FOR BASE RATE LOANS, 3.00% FROM JANUARY
29, 1999 AND THEREAFTER, (II) THE APPLICABLE RATE OF THE UNUSED
FEE FOR ANY DAY FOR PURPOSES OF SECTION 3.5(B), .375% AND (III)
THE APPLICABLE RATE FOR THE LETTER OF CREDIT FEE FOR ANY DAY,
3.50%.
(b) The definition of "Borrowing Base" set forth in Section 1.1
of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:
"BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85%
OF ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH
CASE AS SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE
DELIVERED TO THE AGENT AND THE LENDERS IN ACCORDANCE WITH THE
TERMS OF SECTION 7.1(C) AND (C) DURING THE PERIOD (I) FROM AND
INCLUDING JANUARY 30, 1998 THROUGH AND INCLUDING MARCH 1, 1999,
$4,500,000 AND (II) AFTER MARCH 1, 1999, $0.
(c) Section 7.19 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
7.19 CONSULTANTS. THE BORROWER PREVIOUSLY HAS RETAINED
NORELLI AND COMPANY ("N&C") AND PRICEWATERHOUSE COOPERS,
L.L.P.("PWC") AS BUSINESS AND FINANCIAL CONSULTANTS FOR THE
BORROWER, AND BORROWER PREVIOUSLY HAS RETAINED THE STEPHENS GROUP
("TSG") AS A MANAGEMENT INFORMATION CONSULTANT. THE BORROWER
SHALL MAKE AVAILABLE TO THE LENDERS FROM TIME TO TIME APPROPRIATE
REPRESENTATIVES OF THE BORROWER'S CONSULTANTS TO REVIEW AND
DISCUSS WITH THE LENDERS THE RECOMMENDATIONS AND/OR REPORTS THAT
HAVE BEEN MADE BY ANY OF THE BORROWER'S CONSULTANTS TO AND/OR ON
BEHALF OF THE BORROWER (INCLUDING MAKING AVAILABLE TO THE LENDERS
COPIES OF ALL WRITTEN MATERIALS PROVIDED BY ANY OF THE BORROWER'S
CONSULTANTS TO THE BORROWER). THE LENDERS MAY ELECT TO ENGAGE, AT
THE EXPENSE OF THE BORROWER, A THIRD-PARTY EXPERT TO REVIEW ON
BEHALF OF THE LENDERS THE INFORMATION PREPARED BY ANY OF THE
BORROWER'S CONSULTANTS. THE BORROWER SHALL CAUSE THE BORROWER'S
CONSULTANTS, AS THE AGENT MAY REQUEST, (I) TO MEET PERIODICALLY
WITH THE AGENT TO REPORT UPON THE BORROWER'S CONSULTANTS'
FINDINGS, REPORTS AND
2
<PAGE>
RECOMMENDATIONS AND (II) TO MEET WITH THE LENDERS TO REPORT ON
THE BORROWER'S CONSULTANTS' FINDINGS, REPORTS AND
RECOMMENDATIONS. THE BORROWER SHALL PAY ALL COSTS ASSOCIATED WITH
ITS RETENTION OF THE BORROWER'S CONSULTANTS. THE BORROWER SHALL
NOT TERMINATE PWC'S SERVICES UNLESS IT IMMEDIATELY REPLACES PWC
WITH A BUSINESS AND FINANCIAL CONSULTANT WITH SIMILAR EXPERIENCE
AND REPUTATION. THE BORROWER SHALL NOT DENY ANY OF THE BORROWER'S
CONSULTANTS ACCESS TO INFORMATION NECESSARY TO PERFORM ITS
SERVICES WITHIN THE SCOPE OF ITS ENGAGEMENT, PRIOR TO THE
EXPIRATION OF SUCH ENGAGEMENT. ALL REPORTS AND INFORMATION
PROVIDED BY THE BORROWERS' CONSULTANTS TO THE AGENT, THE LENDERS
OR ANY THIRD-PARTY EXPERT ENGAGED BY THE LENDERS SHALL BE SUBJECT
TO THE CONFIDENTIALITY PROVISIONS OF SECTION 11.15 HEREOF.
(d) Section 8.14 is hereby amended so that the reference to
"December 21, 1998" is changed to "January 29, 1999."
3. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the other
Credit Documents, are hereby ratified and confirmed and shall remain in
full force and effect according to their terms.
(b) The Borrower hereby represents and warrants as follows:
(i) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and delivered
by the Borrower and constitutes the Borrower's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (a) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar
laws affecting creditors' rights generally and (b) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(iii) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by the Borrower of this Amendment.
(c) The Borrower represents and warrants to the Lenders that (i)
except for the representation contained in Section 6.2(a) with respect
to matters previously disclosed to the Lenders, the representations and
warranties of the Credit Parties set forth in Section 6 of the Credit
Agreement are true and correct as of the date hereof and (ii) other than
the
3
<PAGE>
Acknowledged Events of Default (as defined in the Forbearance Agreement)
no unwaived event has occurred and is continuing which constitutes a
Default or an Event of Default.
(d) This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but
all of which shall constitute one and the same instrument. Delivery of
an executed counterpart of this Amendment by telecopy shall be effective
as an original and shall constitute a representation that an executed
original shall be delivered.
(e) The Borrower hereby releases the Agent, the Lenders, and the
Agent's and the Lenders' respective officers, employees,
representatives, agents, counsel and directors from any and all actions,
causes of action, claims, demands, damages and liabilities of whatever
kind or nature, in law or in equity, now known or unknown, suspected or
unsuspected to the extent that any of the foregoing arises from any
action or failure to act on or prior to the date hereof.
(f) THIS AMENDMENT 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
NORTH CAROLINA.
Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.
PLUMA, INC., a North Carolina corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
NATIONSBANK, N.A., as Agent for and on
behalf of the Lenders
By:______________________________________
Name:____________________________________
Title:___________________________________
4
SEVENTH AMENDMENT TO
CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT (hereinafter, this
"Amendment") is entered as of March 1, 1999 among PLUMA, INC., a North Carolina
corporation (the "Borrower"), NATIONSBANK, N.A., as Agent for and on behalf of
the Lenders (the "Agent") and the Lenders. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings given to them in the
Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998, by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998, by that Third
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of November 16, 1998, by that certain Fourth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 11, 1998, by that certain Fifth
Amendment to Credit Agreement dated as of December 31, 1998 and by that certain
Sixth Amendment to Credit Agreement dated as of January 29, 1999 (as further
amended, modified, supplemented, extended or restated from time to time, the
"Credit Agreement").
WHEREAS, the Borrower and the Agent on behalf of the Lenders are parties
to that certain Forbearance Agreement dated as of November 16, 1998, as amended
by an Amendment to Forbearance Agreement dated as of December 31, 1998, by a
Second Amendment to Forbearance Agreement dated as of January 29, 1999 and by a
Third Amendment to Forbearance Agreement dated as of the date hereof (as further
amended, modified, supplemented, extended or restated from time to time, the
"Forbearance Agreement");
WHEREAS, the Borrower has advised the Lenders that it has written down
the cost value of certain Inventory by $17,253,000 for Borrowing Base purposes
in accordance with a "Summary of Inventory Adjustments," prepared by the
Borrower with the material assistance of PwC, a copy of which was provided by
the Borrower to the Agent on February 25, 1999;
WHEREAS, the aforementioned Inventory cost value write down has caused a
corresponding $10,351,000 reduction to the Eligible Inventory component of the
Borrowing Base; and
WHEREAS, the parties desire to amend certain terms of the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. Reaffirmation of Existing Debt. The Credit Parties acknowledge and
confirm: (a) that the Agent, on behalf of the Lenders, has a valid and
enforceable first priority perfected security interest in the Collateral subject
only to certain Permitted Liens, (b) that the Borrower's obligation to repay the
outstanding principal amount of the Loans and reimburse the Issuing Lender for
any drawing on a Letter of Credit is unconditional and not subject to any
offsets, defenses or counterclaims, (c) that the Agent and the Lenders have
performed fully all of their respective obligations under the Credit Agreement,
the Forbearance Agreement and the other Credit Documents, and (d) by entering
into this Amendment, the Lenders do not waive or release any term or condition
of the Credit Agreement, the Forbearance Agreement or any of the other Credit
Documents or any of their rights or remedies under such Credit Documents or
applicable law or any of the obligations of any Credit Party thereunder.
2. Amendments. The Credit Agreement is hereby amended in the following
respects:
(a) The definition of "Borrowing Base" set forth in Section 1.1
of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:
"BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85%
OF ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH
CASE AS SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE
DELIVERED TO THE AGENT AND THE LENDERS IN ACCORDANCE WITH THE
TERMS OF SECTION 7.1(E) AND (C) DURING THE PERIOD (I) FROM AND
INCLUDING MARCH 2, 1999 THROUGH AND INCLUDING MARCH 15, 1999,
$14,400,000 AND (II) AFTER MARCH 15, 1999, $0.
(b) The definition of "Revolving Committed Amount" set forth in
Section 1.1 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"REVOLVING COMMITTED AMOUNT" MEANS SIXTY THREE MILLION
DOLLARS ($63,000,000) OR SUCH LESSER AMOUNT AS THE REVOLVING
COMMITTED AMOUNT MAY BE REDUCED PURSUANT TO SECTION 3.4.
(c) Section 8.14 is hereby amended in its entirety, so that
such section now reads as follows:
8.14 MANAGEMENT.
THE BORROWER WILL NOT MAKE OR PERMIT TO OCCUR ANY
CHANGE IN THE INDIVIDUALS CONSTITUTING THE MANAGEMENT GROUP AS OF
FEBRUARY 24, 1999; PROVIDED, HOWEVER, THAT IN THE EVENT OF THE
DEATH OR VOLUNTARY RESIGNATION OF A MEMBER OF THE MANAGEMENT
GROUP, THE BORROWER SHALL HAVE A PERIOD OF 30 DAYS TO REPLACE
SUCH DECEASED OR RESIGNED MEMBER OF THE MANAGEMENT GROUP WITH AN
INDIVIDUAL WHO HAS EXTENSIVE EXPERIENCE AND A GOOD REPUTATION IN
THE UNITED STATES TEXTILE INDUSTRY AS
2
<PAGE>
AN EXECUTIVE IN THE AREA OF THE VACANCY CREATED BY SUCH DEATH OR
VOLUNTARY RESIGNATION BEFORE THE BORROWER SHALL BE DEEMED TO HAVE
VIOLATED THIS SECTION 8.14; AND PROVIDED FURTHER, THAT BORROWER
MAY WITHOUT VIOLATING THIS SECTION 8.14 REPLACE ITS INTERIM CHIEF
EXECUTIVE OFFICER WITH AN INDIVIDUAL WHO HAS EXTENSIVE EXPERIENCE
AND A GOOD REPUTATION IN THE UNITED STATES TEXTILE INDUSTRY AS A
SENIOR EXECUTIVE AND WHO IS RETAINED BY THE BORROWER ON A
FULL-TIME BASIS.
3. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the other
Credit Documents, are hereby ratified and confirmed and shall remain in
full force and effect according to their terms.
(b) The Borrower hereby represents and warrants as follows:
(i) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and delivered
by the Borrower and constitutes the Borrower's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (a) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar
laws affecting creditors' rights generally and (b) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(iii) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by the Borrower of this Amendment.
(c) The Borrower represents and warrants to the Lenders that (i)
except for the representation contained in Section 6.2(a) with respect
to matters previously disclosed to the Lenders, the representations and
warranties of the Credit Parties set forth in Section 6 of the Credit
Agreement are true and correct as of the date hereof and (ii) other than
the Acknowledged Events of Default (as defined in the Forbearance
Agreement) no unwaived event has occurred and is continuing which
constitutes a Default or an Event of Default.
(d) This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but
all of which shall constitute one and the same instrument. Delivery of
an executed counterpart of this Amendment by telecopy shall be effective
as an original and shall constitute a representation that an executed
original shall be delivered.
3
<PAGE>
(e) The Borrower hereby releases the Agent, the Lenders, and the
Agent's and the Lenders' respective officers, employees,
representatives, agents, counsel and directors from any and all actions,
causes of action, claims, demands, damages and liabilities of whatever
kind or nature, in law or in equity, now known or unknown, suspected or
unsuspected to the extent that any of the foregoing arises from any
action or failure to act on or prior to the date hereof.
(f) THIS AMENDMENT 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
NORTH CAROLINA.
Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.
PLUMA, INC., a North Carolina corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
NATIONSBANK, N.A., as Agent for and on
behalf of the Lenders
By:______________________________________
Name:____________________________________
Title:___________________________________
4
EIGHTH AMENDMENT TO
CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT (hereinafter, this
"Amendment") is entered as of March 15, 1999 among PLUMA, INC., a North Carolina
corporation (the "Borrower"), NATIONSBANK, N.A., as Agent for and on behalf of
the Lenders (the "Agent") and the Lenders. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings given to them in the
Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998, by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998, by that certain
Third Amendment to Credit Agreement between the Borrower and the Agent for and
on behalf of the Lenders dated as of November 16, 1998, by that certain Fourth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 11, 1998, by that certain Fifth
Amendment to Credit Agreement dated as of December 31, 1998, by that certain
Sixth Amendment to Credit Agreement dated as of January 29, 1999 and by that
certain Seventh Amendment to Credit Agreement dated as of March 1, 1999 (as
further amended, modified, supplemented, extended or restated from time to time,
the "Credit Agreement");
WHEREAS, the Borrower and the Agent on behalf of the Lenders are parties
to that certain Forbearance Agreement dated as of November 16, 1998, as amended
by an Amendment to Forbearance Agreement dated as of December 31, 1998, by a
Second Amendment to Forbearance Agreement dated as of January 29, 1999, by a
Third Amendment to Forbearance Agreement dated as of March 1, 1999 and by a
Fourth Amendment to Forbearance Agreement dated as of the date hereof (as
further amended, modified, supplemented, extended or restated from time to time,
the "Forbearance Agreement"); and
WHEREAS, the parties desire to amend certain terms of the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Reaffirmation of Existing Debt. The Credit Parties acknowledge and
confirm: (a) that the Agent, on behalf of the Lenders, has a valid and
enforceable first priority perfected security interest in the Collateral subject
only to certain Permitted Liens, (b) that the Borrower's obligation to repay the
outstanding principal amount of the Loans and reimburse the Issuing Lender for
any drawing on a Letter of Credit is unconditional and not subject to any
offsets, defenses or
<PAGE>
counterclaims, (c) that the Agent and the Lenders have performed fully all of
their respective obligations under the Credit Agreement, the Forbearance
Agreement and the other Credit Documents, and (d) by entering into this
Amendment, the Lenders do not waive or release any term or condition of the
Credit Agreement, the Forbearance Agreement or any of the other Credit Documents
or any of their rights or remedies under such Credit Documents or applicable law
or any of the obligations of any Credit Party thereunder.
2. Amendments. The Credit Agreement is hereby amended so that the
definition of "Borrowing Base" set forth in Section 1.1 of the Credit Agreement
is amended and restated in its entirety to read as follows:
"BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85% OF
ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH CASE AS SET
FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE DELIVERED TO THE
AGENT AND THE LENDERS IN ACCORDANCE WITH THE TERMS OF SECTION 7.1(E) AND
(C) DURING THE PERIOD (I) FROM AND INCLUDING MARCH 15, 1999 THROUGH AND
INCLUDING MARCH 31, 1999, $14,400,000 AND (II) AFTER MARCH 31, 1999, $0.
3. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the other
Credit Documents, are hereby ratified and confirmed and shall remain in
full force and effect according to their terms.
(b) The Borrower hereby represents and warrants as follows:
(i) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and delivered
by the Borrower and constitutes the Borrower's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (a) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar
laws affecting creditors' rights generally and (b) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(iii) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by the Borrower of this Amendment.
(c) The Borrower represents and warrants to the Lenders that (i)
except for the representation contained in Section 6.2(a) with respect
to matters previously disclosed to the
2
<PAGE>
Lenders, the representations and warranties of the Credit Parties set
forth in Section 6 of the Credit Agreement are true and correct as of
the date hereof and (ii) other than the Acknowledged Events of Default
(as defined in the Forbearance Agreement) no unwaived event has occurred
and is continuing which constitutes a Default or an Event of Default.
(d) This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but
all of which shall constitute one and the same instrument. Delivery of
an executed counterpart of this Amendment by telecopy shall be effective
as an original and shall constitute a representation that an executed
original shall be delivered.
(e) The Borrower hereby releases the Agent, the Lenders, and the
Agent's and the Lenders' respective officers, employees,
representatives, agents, counsel and directors from any and all actions,
causes of action, claims, demands, damages and liabilities of whatever
kind or nature, in law or in equity, now known or unknown, suspected or
unsuspected to the extent that any of the foregoing arises from any
action or failure to act on or prior to the date hereof.
(f) THIS AMENDMENT 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
NORTH CAROLINA.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
3
<PAGE>
Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.
PLUMA, INC., a North Carolina corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
NATIONSBANK, N.A., as Agent for and on
behalf of the Lenders
By:_______________________________________
Name:_____________________________________
Title:____________________________________
4
NINTH AMENDMENT TO
CREDIT AGREEMENT
THIS NINTH AMENDMENT TO CREDIT AGREEMENT (hereinafter, this "Amendment")
is entered into as of March 31, 1999 among PLUMA, INC., a North Carolina
corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on behalf
of the Lenders (the "Agent"). Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings given to them in the Credit
Agreement.
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998, by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998, by that certain
Third Amendment to Credit Agreement between the Borrower and the Agent for and
on behalf of the Lenders dated as of November 16, 1998, by that certain Fourth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 11, 1998, by that certain Fifth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 31, 1998, by that certain Sixth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of January 29, 1999, by that certain Seventh
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of March 1, 1999, and by that certain Eighth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of March 15, 1999 (as further amended, modified,
supplemented, extended or restated from time to time, the "Credit Agreement");
WHEREAS, the Borrower and the Agent on behalf of the Lenders are parties
to that certain Forbearance Agreement dated as of November 16, 1998, as amended
by an Amendment to Forbearance Agreement dated as of December 31, 1998, by a
Second Amendment to Forbearance Agreement dated as of January 29, 1999, by a
Third Amendment to Forbearance Agreement dated as of March 1, 1999, by a Fourth
Amendment to Forbearance Agreement dated as of March 15, 1999, and by a Fifth
Amendment to Forbearance Agreement dated as of the date hereof (as further
amended, modified, supplemented, extended or restated from time to time, the
"Forbearance Agreement"); and
WHEREAS, the parties desire to amend certain terms of the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Reaffirmation of Existing Debt. The Credit Parties acknowledge and
confirm: (a) that the Agent, on behalf of the Lenders, has a valid and
enforceable first priority perfected security interest in the Collateral subject
only to certain Permitted Liens, (b) that the Borrower's obligation
<PAGE>
to repay the outstanding principal amount of the Loans and reimburse the Issuing
Lender for any drawing on a Letter of Credit is unconditional and not subject to
any offsets, defenses or counterclaims, (c) that the Agent and the Lenders have
performed fully all of their respective obligations under the Credit Agreement,
the Forbearance Agreement and the other Credit Documents, and (d) by entering
into this Amendment, the Lenders do not waive or release any term or condition
of the Credit Agreement, the Forbearance Agreement or any of the other Credit
Documents or any of their rights or remedies under such Credit Documents or
applicable law or any of the obligations of any Credit Party thereunder.
2. Amendments. The Credit Agreement is hereby amended in the following
respects:
(a) The definition of "Borrowing Base" set forth in Section 1.1
of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:
"BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85%
OF ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH
CASE AS SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE
DELIVERED TO THE AGENT AND THE LENDERS IN ACCORDANCE WITH THE
TERMS OF SECTION 7.1(E) AND (C) DURING THE PERIOD (I) FROM AND
INCLUDING MARCH 31, 1999 THROUGH AND INCLUDING JUNE 29, 1999,
$18,000,000, (II) FROM AND INCLUDING JUNE 30, 1999 THROUGH AND
INCLUDING JULY 30, 1999, $19,500,000, (III) FROM AND INCLUDING
JULY 31, 1999 THROUGH AND INCLUDING AUGUST 30, 1999, $16,100,000,
(IV) FROM AND INCLUDING AUGUST 31, 1999 THROUGH AND INCLUDING
SEPTEMBER 29, 1999, $14,500,000 AND (V) AFTER SEPTEMBER 29, 1999,
$0.
(b) The definition of "Revolving Committed Amount" set forth in
Section 1.1 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"REVOLVING COMMITTED AMOUNT" MEANS (I) DURING THE PERIOD
FROM AND INCLUDING MARCH 31, 1999 THROUGH AND INCLUDING JULY 30,
1999, SIXTY THREE MILLION DOLLARS ($63,000,000) OR SUCH LESSER
AMOUNT AS THE REVOLVING COMMITTED AMOUNT MAY BE REDUCED PURSUANT
TO SECTION 3.4, (II) DURING THE PERIOD FROM AND INCLUDING JULY
31, 1999 THROUGH AND INCLUDING AUGUST 30, 1999, FIFTY FIVE
MILLION SIX HUNDRED THOUSAND DOLLARS ($55,600,000), OR SUCH
LESSER AMOUNT AS THE REVOLVING COMMITTED AMOUNT MAY BE REDUCED
PURSUANT TO SECTION 3.4 AND (III) AFTER AUGUST 30, 1999, FIFTY
THREE MILLION DOLLARS ($53,000,000), OR SUCH LESSER AMOUNT AS THE
REVOLVING COMMITTED AMOUNT MAY BE REDUCED PURSUANT TO SECTION
3.4.
(c) Section 2.3(c) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
2
<PAGE>
- --------------------------- ------------------------
PRINCIPAL AMORTIZATION TERM LOAN PRINCIPAL
PAYMENT DATES AMORTIZATION PAYMENT
- --------------------------- ------------------------
September 30, 1999 $4,000,000
- --------------------------- ------------------------
October 29, 1999 $2,000,000
- --------------------------- ------------------------
January 31 , 2000 $2,000,000
- --------------------------- ------------------------
April 28, 2000 $2,500,000
- --------------------------- ------------------------
July 31, 2000 $2,500,000
- --------------------------- ------------------------
October 31, 2000 $2,500,000
- --------------------------- ------------------------
January 31, 2001 $2,500,000
- --------------------------- ------------------------
April 30, 2001 $3,000,000
- --------------------------- ------------------------
July 31, 2001 $3,000,000
- --------------------------- ------------------------
October 31, 2001 $3,000,000
- --------------------------- ------------------------
January 31, 2002 $3,000,000
- --------------------------- ------------------------
April 30, 2002 $3,750,000
- --------------------------- ------------------------
July 31, 2002 $3,750,000
- --------------------------- ------------------------
October 31, 2002 $3,750,000
- --------------------------- ------------------------
January 31, 2003 $3,750,000
- --------------------------- ------------------------
Total $45,000,000
- --------------------------- ------------------------
3. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the other
Credit Documents, are hereby ratified and confirmed and shall remain in
full force and effect according to their terms.
(b) The Borrower hereby represents and warrants as follows:
(i) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and delivered
by the Borrower and constitutes the Borrower's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (a) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar
laws affecting creditors' rights generally and (b) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(iii) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by the Borrower of this Amendment.
(c) The Borrower represents and warrants to the Lenders that (i)
except for the representation contained in Section 6.2(a) with respect
to matters previously disclosed to the Lenders, the representations and
warranties of the Credit Parties set forth in Section 6 of the
3
<PAGE>
Credit Agreement are true and correct as of the date hereof and (ii)
other than the Acknowledged Events of Default (as defined in the
Forbearance Agreement) no unwaived event has occurred and is continuing
which constitutes a Default or an Event of Default.
(d) This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but
all of which shall constitute one and the same instrument. Delivery of
an executed counterpart of this Amendment by telecopy shall be effective
as an original and shall constitute a representation that an executed
original shall be delivered.
(e) The Borrower hereby releases the Agent, the Lenders, and the
Agent's and the Lenders' respective officers, employees,
representatives, agents, counsel and directors from any and all actions,
causes of action, claims, demands, damages and liabilities of whatever
kind or nature, in law or in equity, now known or unknown, suspected or
unsuspected to the extent that any of the foregoing arises from any
action or failure to act on or prior to the date hereof.
(f) THIS AMENDMENT 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 NORTH CAROLINA.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
4
<PAGE>
Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.
PLUMA, INC., a North Carolina corporation
By:__________________________________
Name:________________________________
Title:_______________________________
NATIONSBANK, N.A., as Agent for and on
behalf of the Lenders
By:___________________________________
Name:_________________________________
Title:________________________________
5
TENTH AMENDMENT TO
CREDIT AGREEMENT
----------------
THIS TENTH AMENDMENT TO CREDIT AGREEMENT (hereinafter, this "Amendment")
is entered into as of April __, 1999 among PLUMA, INC., a North Carolina
corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on behalf
of the Lenders (the "Agent"). Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings given to them in the Credit
Agreement.
RECITALS
--------
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended (as further
amended, modified, supplemented, extended or restated from time to time, the
"Credit Agreement");
WHEREAS, the Borrower and the Agent on behalf of the Lenders are parties
to that certain Forbearance Agreement dated as of November 16, 1998, as amended
(as further amended, modified, supplemented, extended or restated from time to
time, the "Forbearance Agreement"); and
WHEREAS, the parties desire to amend certain terms of the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Reaffirmation of Existing Debt. The Credit Parties acknowledge and
confirm: (a) that the Agent, on behalf of the Lenders, has a valid and
enforceable first priority perfected security interest in the Collateral subject
only to certain Permitted Liens, (b) that the Borrower's obligation to repay the
outstanding principal amount of the Loans and reimburse the Issuing Lender for
any drawing on a Letter of Credit is unconditional and not subject to any
offsets, defenses or counterclaims, (c) that the Agent and the Lenders have
performed fully all of their respective obligations under the Credit Agreement,
the Forbearance Agreement and the other Credit Documents, and (d) by entering
into this Amendment, the Lenders do not waive or release any term or condition
of the Credit Agreement, the Forbearance Agreement or any of the other Credit
Documents or any of their rights or remedies under such Credit Documents or
applicable law or any of the obligations of any Credit Party thereunder.
2. Amendment. The Credit Agreement is hereby amended so that the
definition of "Borrowing Base" set forth in Section 1.1 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
<PAGE>
"BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85%
OF ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH
CASE AS SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE
DELIVERED TO THE AGENT AND THE LENDERS IN ACCORDANCE WITH THE
TERMS OF SECTION 7.1(E) AND (C) DURING THE PERIOD (I) FROM AND
INCLUDING MARCH 31, 1999 THROUGH AND INCLUDING APRIL 29, 1999,
$18,000,000, (II) FROM AND INCLUDING APRIL 30, 1999 THROUGH AND
INCLUDING MAY 27, 1999, $18,400,000, (III) FROM AND INCLUDING MAY
28, 1999 THROUGH AND INCLUDING JUNE 29, 1999, $18,800,000, (IV)
FROM AND INCLUDING JUNE 30, 1999 THROUGH AND INCLUDING JULY 30,
1999, $19,500,000, (V) FROM AND INCLUDING JULY 31, 1999 THROUGH
AND INCLUDING AUGUST 30, 1999, $16,100,000, (VI) FROM AND
INCLUDING AUGUST 31, 1999 THROUGH AND INCLUDING SEPTEMBER 29,
1999, $14,500,000 AND (VII) AFTER SEPTEMBER 29, 1999, $0.
3. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the other
Credit Documents, are hereby ratified and confirmed and shall remain in
full force and effect according to their terms.
(b) The Borrower hereby represents and warrants as follows:
(i) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and delivered
by the Borrower and constitutes the Borrower's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (a) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar
laws affecting creditors' rights generally and (b) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(iii) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by the Borrower of this Amendment.
(c) The Borrower represents and warrants to the Lenders that (i)
except for the representation contained in Section 6.2(a) with respect
to matters previously disclosed to the Lenders, the representations and
warranties of the Credit Parties set forth in Section 6 of the Credit
Agreement are true and correct as of the date hereof and (ii) other than
the Acknowledged Events of Default (as defined in the Forbearance
Agreement) no
<PAGE>
unwaived event has occurred and is continuing which constitutes a
Default or an Event of Default.
(d) This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but
all of which shall constitute one and the same instrument. Delivery of
an executed counterpart of this Amendment by telecopy shall be effective
as an original and shall constitute a representation that an executed
original shall be delivered.
(e) The Borrower hereby releases the Agent, the Lenders, and the
Agent's and the Lenders' respective officers, employees,
representatives, agents, counsel and directors from any and all actions,
causes of action, claims, demands, damages and liabilities of whatever
kind or nature, in law or in equity, now known or unknown, suspected or
unsuspected to the extent that any of the foregoing arises from any
action or failure to act on or prior to the date hereof.
(f) THIS AMENDMENT 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 NORTH CAROLINA.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.
PLUMA, INC., a North Carolina corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
NATIONSBANK, N.A., as Agent for and on
behalf of the Lenders
By:_______________________________________
Name:_____________________________________
Title:____________________________________
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT (hereinafter, this "Forbearance Agreement")
is entered into as of November __, 1998 between PLUMA, INC., a North Carolina
corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on behalf
of the Lenders (the "Agent"). Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings given to them in the Credit
Agreement (defined below).
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998 and by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998 (as further
amended, modified, supplemented, extended or restated from time to time, the
"Credit Agreement").
WHEREAS, the following Events of Default exist under the Credit
Agreement (collectively as the "Acknowledged Events of Default"): (1) as of the
fiscal quarter ended September 30, 1998, the Consolidated Parties have failed to
maintain the minimum Fixed Charge Coverage Ratio required by Section 7.11(b) of
the Credit Agreement, (2) as of the fiscal quarter ended September 30, 1998, the
Consolidated Parties have failed to maintain the minimum Consolidated Net Worth
required by Section 7.11(d) of the Credit Agreement, and (3) as of the fiscal
quarter ended September 30, 1998, the Consolidated Parties have failed to
maintain the minimum Consolidated EBITDA required by Section 7.11(e) of the
Credit Agreement.
WHEREAS, the Borrower has requested that the Lenders waive the
Acknowledged Events of Default, and the Lenders have refused that request.
WHEREAS, the Borrower now has asked the Lenders to: (1) forbear
exercising its rights and remedies arising from the Acknowledged Events of
Default until December 31, 1998 (the "Forbearance Termination Date") and
continue to make available to the Borrower the Loans provided under the Credit
Agreement and (2) release the Robinson Indemnity Receivables (defined below).
The Agent, on behalf of the Lenders, has agreed to do so, but only upon the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Forbearance. The Agent hereby agrees, for and on behalf of the
Lenders, that it shall, subject to the terms and conditions set forth herein,
forbear exercising its and their rights and remedies arising exclusively as a
result of the Acknowledged Events of Default until the Forbearance Termination
Date; provided, however, that the Agent shall be free to exercise any or all of
its rights
<PAGE>
and remedies arising on account of the Acknowledged Events of Default at any
time after the occurrence of a Forbearance Default (defined below).
2. Amendment to Credit Agreement. Simultaneously with the execution of
this Forbearance Agreement, the Borrower shall execute and deliver to the Agent,
on behalf of the Lenders, a Third Amendment to Credit Agreement (the "Third
Amendment") in form of that attached hereto as Exhibit A.
3. Assignment of Cash Collateral Account. Simultaneously with the
execution of this Forbearance Agreement, the Borrower, pursuant to Section 7.20
of the Credit Agreement, shall execute and deliver to the Agent, on behalf of
the Lenders, an Assignment of Cash Collateral Account (the "Assignment of Cash
Collateral Account") in form of that attached hereto as Exhibit B.
4. Consultant Authorization Letters. On or before November 16, 1998, the
Borrower shall have executed and delivered to each of the Borrower's Consultants
an authorization letter in substantially the form of that attached hereto as
Exhibit C, with copies thereof delivered to the Agent.
5. Inventory Appraisal. The Borrower hereby acknowledges that the Agent
has given the Borrower reasonable notice that the Agent intends to exercise its
rights under Section 7.10 of the Credit Agreement to appoint an independent
appraiser to visit Borrower's facilities and appraise the Borrower's inventory
during normal business hours on any business days between the date hereof and
the Forbearance Termination Date as may be chosen by the Agent.
6. October 29, 1998 Cash Flow Report Reconciliation. On or before
November 12, 1998, the Borrower shall supply to the Agent a true and accurate
reconciliation report, prepared by or with the material assistance of PwC,
reflecting a comparison between the Consolidated Parties' actual cash flow
computations through November 6, 1998 and that projected through such date on
that certain Projected 13 Week Cash Flow Analysis dated as of October 29, 1998
previously supplied by the Borrower to the Agent and the Lenders.
7. Forbearance Defaults. Nothing set forth herein or contemplated hereby
is intended to constitute an agreement by the Agent or the Lenders to forbear
the exercise of any of the rights and remedies available to the Agent and/or the
Lenders under the Credit Agreement and the other Credit Documents (all of which
rights and remedies are hereby expressly reserved by the Agent, on behalf of the
Lenders) upon and after the occurrence of a Forbearance Default. The term
"Forbearance Default" shall mean the existence or occurrence of any or all of:
(a) any Default or Event of Default under the Credit Agreement or any other
Credit Document other than the Acknowledged Events of Default or (b) a breach by
the Borrower of any term of this Forbearance Agreement. The Agent, on behalf of
the Lenders, shall be free to exercise any or all of its rights and remedies
arising on account of any Default or Event of Default under the Credit Agreement
or any
2
<PAGE>
other Credit Document upon the earlier of: (x) the occurrence of a Forbearance
Default or (y) the Forbearance Termination Date.
8. Conditions Precedent. As conditions precedent to the effectiveness of
this Forbearance Agreement, on or before the date hereof:
(a) The Agent shall have received original duly executed
counterparts of this Forbearance Agreement duly executed by the Credit
Parties and the Agent;
(b) The Borrower shall have executed and delivered to the Agent
the Third Amendment;
(c) The Borrower shall have executed and delivered to the Agent
the Assignment of Cash Collateral Account; and
(d) The Borrower shall have delivered to the Agent an opinion of
counsel to the Borrower in form and substance satisfactory to the Agent
as to the due authorization, execution, delivery and enforceablility of
this Forbearance Agreement, the Third Amendment and the Assignment of
Cash Collateral Agreement.
9. Release. The Borrower hereby releases the Agent, the Lenders, and the
Agent's and the Lenders' respective officers, employees, representatives,
agents, counsel and directors from any and all actions, causes of action,
claims, demands, damages and liabilities of whatever kind or nature, in law or
in equity, now known or unknown, suspected or unsuspected to the extent that any
of the foregoing arises from any action or failure to act on or prior to the
date hereof.
10. Expenses. Upon demand therefor, the Borrower shall pay all
out-of-pocket expenses incurred by the Agent in connection with the negotiation,
drafting and execution of this Forbearance Agreement and the exhibits hereto,
including without limitation reasonable fees and expenses of the Agent's
counsel.
11. Borrower's Representations. The Borrower hereby represents and
warrants as follows:
(a) The Borrower has taken all necessary action to authorize the
execution, delivery and performance of this Forbearance Agreement.
(b) This Forbearance Agreement has been duly executed and
delivered by the Borrower and constitutes the Borrower's legal, valid
and binding obligations, enforceable in accordance with its terms,
except as such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting creditors' rights generally and
(ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
3
<PAGE>
(c) No consent, approval, authorization or order of, or filing,
registration or qualification with, any court or governmental authority
or third party is required in connection with the execution, delivery or
performance by the Borrower of this Forbearance Agreement.
12. Counterparts. This Forbearance Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument.
Delivery of an executed counterpart of this Forbearance Agreement by telecopy
shall be effective as an original and shall constitute a representation that an
executed original shall be delivered.
13. GOVERNING LAW. THIS FORBEARANCE AGREEMENT 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 NORTH CAROLINA.
Each of the parties hereto has caused a counterpart of this Forbearance
Agreement to be duly executed and delivered as of the date first above written.
PLUMA, INC., A NORTH CAROLINA CORPORATION
By:______________________________________
Name:____________________________________
Title:___________________________________
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By:_____________________________________
Name:___________________________________
Title:__________________________________
4
AMENDMENT TO
FORBEARANCE AGREEMENT
THIS AMENDMENT TO FORBEARANCE AGREEMENT (hereinafter, this
"Amendment") is entered into as of December __, 1998 between PLUMA, INC., a
North Carolina corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for
and on behalf of the Lenders (the "Agent"). Capitalized terms used herein and
not otherwise defined herein shall have the respective meanings given to them in
the Credit Agreement (defined below).
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998, by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998, by that Third
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of November 16, 1998 and by that certain Fourth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 11, 1998 (as further amended,
modified, supplemented, extended or restated from time to time, the "Credit
Agreement").
WHEREAS, the following Events of Default exist under the Credit
Agreement (collectively as the "Acknowledged Events of Default"): (1) as of the
fiscal quarter ended September 30, 1998, the Consolidated Parties have failed to
maintain the minimum Fixed Charge Coverage Ratio required by Section 7.11(b) of
the Credit Agreement, (2) as of the fiscal quarter ended September 30, 1998, the
Consolidated Parties have failed to maintain the minimum Consolidated Net Worth
required by Section 7.11(d) of the Credit Agreement, and (3) as of the fiscal
quarter ended September 30, 1998, the Consolidated Parties have failed to
maintain the minimum Consolidated EBITDA required by Section 7.11(e) of the
Credit Agreement.
WHEREAS, the Borrower has requested that the Lenders waive the
Acknowledged Events of Default, and the Lenders have refused that request.
WHEREAS, the Borrower now has asked the Lenders to: (1) forbear
exercising its rights and remedies arising from the Acknowledged Events of
Default until December 31, 1998 (the "Forbearance Termination Date") and
continue to make available to the Borrower the Loans provided under the Credit
Agreement and (2) release the Robinson Indemnity Receivables (defined below).
The Agent, on behalf of the Lenders, has agreed to do so, but only upon the
terms and conditions set forth herein.
<PAGE>
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Forbearance. The Agent hereby agrees, for and on behalf of the
Lenders, that it shall, subject to the terms and conditions set forth herein,
forbear exercising its and their rights and remedies arising exclusively as a
result of the Acknowledged Events of Default until the Forbearance Termination
Date; provided, however, that the Agent shall be free to exercise any or all of
its rights and remedies arising on account of the Acknowledged Events of Default
at any time after the occurrence of a Forbearance Default (defined below).
2. Amendment to Credit Agreement. Simultaneously with the execution of
this Amendment, the Borrower shall execute and deliver to the Agent, on behalf
of the Lenders, a Third Amendment to Credit Agreement (the "Third Amendment") in
form of that attached hereto as Exhibit A.
3. Assignment of Cash Collateral Account. Simultaneously with the
execution of this Amendment, the Borrower, pursuant to Section 7.20 of the
Credit Agreement, shall execute and deliver to the Agent, on behalf of the
Lenders, an Assignment of Cash Collateral Account (the "Assignment of Cash
Collateral Account") in form of that attached hereto as Exhibit B.
4. Consultant Authorization Letters. On or before November 16, 1998, the
Borrower shall have executed and delivered to each of the Borrower's Consultants
an authorization letter in substantially the form of that attached hereto as
Exhibit C, with copies thereof delivered to the Agent.
5. Inventory Appraisal. The Borrower hereby acknowledges that the Agent
has given the Borrower reasonable notice that the Agent intends to exercise its
rights under Section 7.10 of the Credit Agreement to appoint an independent
appraiser to visit Borrower's facilities and appraise the Borrower's inventory
during normal business hours on any business days between the date hereof and
the Forbearance Termination Date as may be chosen by the Agent.
6. October 29, 1998 Cash Flow Report Reconciliation. On or before
November 12, 1998, the Borrower shall supply to the Agent a true and accurate
reconciliation report, prepared by or with the material assistance of PwC,
reflecting a comparison between the Consolidated Parties' actual cash flow
computations through November 6, 1998 and that projected through such date on
that certain Projected 13 Week Cash Flow Analysis dated as of October 29, 1998
previously supplied by the Borrower to the Agent and the Lenders.
7. Forbearance Defaults. Nothing set forth herein or contemplated hereby
is intended to constitute an agreement by the Agent or the Lenders to forbear
the exercise of any of the rights and remedies available to the Agent and/or the
Lenders under the Credit Agreement and the other Credit Documents (all of which
rights and remedies are hereby expressly reserved by the Agent, on
2
<PAGE>
behalf of the Lenders) upon and after the occurrence of a Forbearance Default.
The term "Forbearance Default" shall mean the existence or occurrence of any or
all of: (a) any Default or Event of Default under the Credit Agreement or any
other Credit Document other than the Acknowledged Events of Default or (b) a
breach by the Borrower of any term of this Amendment. The Agent, on behalf of
the Lenders, shall be free to exercise any or all of its rights and remedies
arising on account of any Default or Event of Default under the Credit Agreement
or any other Credit Document upon the earlier of: (x) the occurrence of a
Forbearance Default or (y) the Forbearance Termination Date.
8. Conditions Precedent. As conditions precedent to the effectiveness of
this Amendment, on or before the date hereof:
(a) The Agent shall have received original duly executed
counterparts of this Amendment duly executed by the Credit Parties and
the Agent;
(b) The Borrower shall have executed and delivered to the Agent
the Third Amendment;
(c) The Borrower shall have executed and delivered to the Agent
the Assignment of Cash Collateral Account; and
(d) The Borrower shall have delivered to the Agent an opinion of
counsel to the Borrower in form and substance satisfactory to the Agent
as to the due authorization, execution, delivery and enforceablility of
this Amendment, the Third Amendment and the Assignment of Cash
Collateral Agreement.
9. Release. The Borrower hereby releases the Agent, the Lenders, and the
Agent's and the Lenders' respective officers, employees, representatives,
agents, counsel and directors from any and all actions, causes of action,
claims, demands, damages and liabilities of whatever kind or nature, in law or
in equity, now known or unknown, suspected or unsuspected to the extent that any
of the foregoing arises from any action or failure to act on or prior to the
date hereof.
10. Expenses. Upon demand therefor, the Borrower shall pay all
out-of-pocket expenses incurred by the Agent in connection with the negotiation,
drafting and execution of this Amendment and the exhibits hereto, including
without limitation reasonable fees and expenses of the Agent's counsel.
11. Borrower's Representations. The Borrower hereby represents and
warrants as follows:
(a) The Borrower has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
3
<PAGE>
(b) This Amendment has been duly executed and delivered by the
Borrower and constitutes the Borrower's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar
laws affecting creditors' rights generally and (ii) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(c) No consent, approval, authorization or order of, or filing,
registration or qualification with, any court or governmental authority
or third party is required in connection with the execution, delivery or
performance by the Borrower of this Amendment.
12. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument. Delivery of an
executed counterpart of this Amendment by telecopy shall be effective as an
original and shall constitute a representation that an executed original shall
be delivered.
13. GOVERNING LAW. THIS AMENDMENT 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 NORTH CAROLINA.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY.]
4
<PAGE>
Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.
PLUMA, INC., A NORTH CAROLINA CORPORATION
By:_____________________________
Name:___________________________
Title:__________________________
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By:____________________________
Name:__________________________
Title:_________________________
5
SECOND AMENDMENT TO
FORBEARANCE AGREEMENT
THIS SECOND AMENDMENT TO FORBEARANCE AGREEMENT (hereinafter, this
"Second Forbearance Agreement Amendment") is entered as of January 29, 1999
between PLUMA, INC., a North Carolina corporation (the "Borrower") and
NATIONSBANK, N.A., as Agent for and on behalf of the Lenders (the "Agent").
Capitalized terms used herein and not otherwise defined or designated herein
shall have the respective meanings given to them in the Credit Agreement
(defined below).
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998, by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998, by that Third
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of November 16, 1998, by that certain Fourth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 11, 1998, and by that certain Fifth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 31, 1998 (as further amended,
modified, supplemented, extended or restated from time to time, the "Credit
Agreement");
WHEREAS, the Borrower and the Agent on behalf of the Lenders are parties
to that certain Forbearance Agreement dated as of November 16, 1998, as amended
by an Amendment to Forbearance Agreement (as further amended, modified,
supplemented, extended or restated from time to time, the "Forbearance
Agreement");
WHEREAS, the Borrower has informed the Lenders that it believes that as
of the fiscal quarter ended December 31, 1998, in addition to the previously
identified Acknowledged Events of Default (as defined the Forbearance
Agreement), the following Events of Default have occurred and are continuing
under the Credit Agreement (collectively the "Additional Acknowledged Events of
Default"): (1) as of the fiscal quarter ended December 31, 1998, the
Consolidated Parties have exceeded the maximum Funded Indebtedness to
Capitalization Ratio required by Section 7.11(a) of the Credit Agreement, (2) as
of the fiscal quarter ended December 31, 1998, the Consolidated Parties have
failed to maintain the minimum Fixed Charge Coverage Ratio required by Section
7.11(b) of the Credit Agreement, (3) as of the fiscal quarter ended December 31,
1998, the Consolidated Parties have exceeded the maximum Leverage Ratio required
by Section 7.11(c) of the Credit Agreement, (4) as of the fiscal quarter ended
December 31, 1998, the Consolidated Parties have failed to maintain the minimum
Consolidated Net Worth required by Section 7.11(d) of the Credit Agreement, and
(5) as of the fiscal quarter ended December 31, 1998, the Consolidated Parties
have
<PAGE>
failed to maintain the minimum Consolidated EBITDA required by Section 7.11(e)
of the Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders agree to amend the
Forbearance Agreement to: (i) forbear exercising their rights and remedies
arising from the Additional Acknowledged Events of Default until the Forbearance
Termination Date (as defined in the Forbearance Agreement) and (ii) extend the
Forbearance Termination Date to March 1, 1999. The Agent, on behalf of the
Lenders, has agreed to do so, but only upon the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Forbearance Termination Date. The Forbearance Agreement is hereby
amended so that the Forbearance Termination Date is extended to March 1, 1999.
2. Acknowledged Events of Default. The Forbearance Agreement is hereby
amended so that the term "Acknowledged Events of Default" shall include the
Additional Acknowledged Events of Default.
3. Eurodollar Loans. Notwithstanding the Forbearance Agreement, while
the Acknowledged Events of Default are continuing, each Eurodollar Loan
outstanding as of the date of this Second Forbearance Agreement Amendment shall
be converted to a Base Rate Loan at the end of the applicable Interest Period.
From and after the date hereof, the Borrower shall not be entitled to draw
additional Eurodollar Loans, continue Eurodollar Loans or convert Base Rate
Loans to Eurodollar Loans.
4. Lenders' Consultant. The Borrower hereby acknowledges that the Agent
has given the Borrower reasonable notice that the Agent intends to exercise its
rights on behalf of the Lenders under Section 7.10 of the Credit Agreement to
appoint an independent agent to visit the Borrower's facilities and review the
financial records and operations of the Borrower during normal business hours on
any Business Day as may be chosen by the Agent.
5. Assignments. Notwithstanding the Forbearance Agreement, while the
Acknowledged Events of Default are continuing, no consent or approval of the
Borrower shall be required to for any Lender to assign all or a portion of its
rights under the Credit Agreement (including, without limitation, all or a
portion of its Loans, its Notes, and its Commitment).
6. Amendment to Credit Agreement. Simultaneously with the execution of
this Second Forbearance Agreement Amendment, the Borrower shall execute and
deliver to the Agent, on behalf of the Lenders, a Sixth Amendment to Credit
Agreement (the "Sixth Amendment") in form of that attached hereto as Exhibit A.
2
<PAGE>
7. Second Forbearance Agreement Amendment Fees. In consideration of the
willingness of the Agent, on behalf of the Lenders, to enter this Second
Forbearance Agreement Amendment, the Borrower, simultaneously with the execution
of this Agreement, shall pay to the Agent for the account of each Lender who
consents to this Second Forbearance Agreement Amendment and the Sixth Amendment
and delivers evidence of such consent to the Agent by the date hereof, a fee in
an amount equal to .10% of such Lender's Commitment immediately prior to the
execution hereof (collectively, the "Second Forbearance Agreement Fees").
8. Preliminary Year 2000 Plan. On or before February 8, 1999, the
Borrower shall deliver to the Agent on behalf of the Lenders a preliminary
business plan and budget of the Borrower for fiscal year 2000, which preliminary
business plan and budget shall be prepared with the material assistance of PwC.
9. Conditions Precedent. As conditions precedent to the effectiveness of
this Second Forbearance Agreement Amendment, on or before the date hereof:
(a) The Agent shall have received original duly executed
counterparts of this Second Forbearance Agreement Amendment duly
executed by the Credit Parties and the Agent;
(b) The Borrower shall have executed and delivered to the Agent
the Sixth Amendment;
(c) The Agent, on behalf of the Lenders, shall have received the
Forbearance Agreement Fees; and
(d) The Borrower shall have delivered to the Agent an opinion of
counsel to the Borrower in form and substance satisfactory to the Agent
as to the due authorization, execution, delivery and enforceability of
this Second Forbearance Agreement Amendment and the Sixth Amendment.
10. Limited Modification Only. Except as specifically modified hereby,
the terms and conditions of the Forbearance Agreement remain in full force and
effect.
11. Release. The Borrower hereby releases the Agent, the Lenders, and
the Agent's and the Lenders' respective officers, employees, representatives,
agents, counsel and directors from any and all actions, causes of action,
claims, demands, damages and liabilities of whatever kind or nature, in law or
in equity, now known or unknown, suspected or unsuspected to the extent that any
of the foregoing arises from any action or failure to act on or prior to the
date hereof.
12. Expenses. Upon demand therefor, the Borrower shall pay all
out-of-pocket expenses incurred by the Agent in connection with the negotiation,
drafting and execution of this Second
3
<PAGE>
Forbearance Agreement Amendment and the exhibits hereto, including without
limitation reasonable fees and expenses of the Agent's counsel.
13. Borrower's Representations. The Borrower hereby represents and
warrants as follows:
(a) The Borrower has taken all necessary action to authorize the
execution, delivery and performance of this Second Forbearance Agreement
Amendment;
(b) This Second Forbearance Agreement Amendment has been duly
executed and delivered by the Borrower and constitutes the Borrower's
legal, valid and binding obligations, enforceable in accordance with its
terms, except as such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting creditors' rights generally and
(ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity); and
(c) No consent, approval, authorization or order of, or filing,
registration or qualification with, any court or governmental authority
or third party is required in connection with the execution, delivery or
performance by the Borrower of this Second Forbearance Agreement
Amendment.
14. Counterparts. This Second Forbearance Agreement Amendment may be
executed in any number of counterparts, each of which when so executed and
delivered shall be an original, but all of which shall constitute one and the
same instrument. Delivery of an executed counterpart of this Second Forbearance
Agreement Amendment by telecopy shall be effective as an original and shall
constitute a representation that an executed original shall be delivered.
15. GOVERNING LAW. THIS SECOND FORBEARANCE AGREEMENT AMENDMENT 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 NORTH
CAROLINA.
[SIGNATURES CONTINUE ON FOLLOWING PAGE.]
4
<PAGE>
Each of the parties hereto has caused a counterpart of this Second
Forbearance Agreement Amendment to be duly executed and delivered as of the date
first above written.
PLUMA, INC.,
a North Carolina corporation
By:_________________________________
Name:_______________________________
Title:______________________________
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By:__________________________________
Name:________________________________
Title:_______________________________
5
THIRD AMENDMENT TO
FORBEARANCE AGREEMENT
THIS THIRD AMENDMENT TO FORBEARANCE AGREEMENT (hereinafter, this "Third
Forbearance Agreement Amendment") is entered as of March 1, 1999 between PLUMA,
INC., a North Carolina corporation (the "Borrower") and NATIONSBANK, N.A., as
Agent for and on behalf of the Lenders (the "Agent"). Capitalized terms used
herein and not otherwise defined or designated herein shall have the respective
meanings given to them in the Credit Agreement (defined below).
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998, by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998, by that certain
Third Amendment to Credit Agreement between the Borrower and the Agent for and
on behalf of the Lenders dated as of November 16, 1998, by that certain Fourth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 11, 1998, by that certain Fifth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 31, 1998 and by that certain Sixth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of January 29, 1999 (as further amended,
modified, supplemented, extended or restated from time to time, the "Credit
Agreement");
WHEREAS, the Borrower and the Agent on behalf of the Lenders are parties
to that certain Forbearance Agreement dated as of November 16, 1998, as amended
by an Amendment to Forbearance Agreement dated as of December 31, 1998 and by a
Second Amendment to Forbearance Agreement dated as of January 29, 1999 (as
further amended, modified, supplemented, extended or restated from time to time,
the "Forbearance Agreement");
WHEREAS, the Borrower has violated Section 3.3(b)(i) of the Credit
Agreement by allowing the sum of the aggregate principal amount of outstanding
Revolving Loans plus LOC obligations outstanding plus the aggregate principal
amount of outstanding Swingline Loans to exceed the Borrowing Base without
immediately making payment on the Loans and/or to a cash collateral account in
respect of the LOC Obligations in an amount sufficient to eliminate such excess
(the "Overadvance Default");
WHEREAS, the Borrower has informed the Lenders that Borrower has
violated Section 8.14 of the Credit Agreement by changing the individual who
serves as its President (the "Management Group Change Default");
<PAGE>
WHEREAS, the Borrower has requested that the Lenders agree to (i) waive
the currently existing Management Group Change Default (ii) waive the currently
existing Overadvance Default, (iii) amend the Forbearance Agreement to extend
the Forbearance Termination Date to March 15, 1999, (iv) release the Robinson
Indemnity Receivables (defined below) and (v) amend the Credit Agreement to
allow the Borrower the opportunity to comply fully with Sections 3(b)(i) and
8.14 of the Credit Agreement going forward. The Agent, on behalf of the Lenders,
has agreed to do so, but only upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Waivers of Certain Defaults. The Agent, on behalf of the Lenders,
agrees to waive the currently existing Management Group Change Default and the
currently existing Overadvance Default. These limited waivers shall in no way
modify or affect the Borrower's obligations to comply fully with each and every
term and condition (including but not limited to those contained in Sections
3.3(b)(i) and 8.14) of the Credit Agreement, as amended by the Seventh
Amendment, from and after the date hereof.
2. Forbearance Termination Date. The Forbearance Agreement is hereby
amended so that the Forbearance Termination Date is extended to March 15, 1999.
3. Robinson Indemnity Receivables. The Agent, on behalf of the Lenders,
agrees that the Agent shall execute such documents as are necessary to release
its security interest, held on behalf of the Lenders, in the Receivables set
forth on Schedule I to this Forbearance Agreement (the "Robinson Indemnity
Receivables") to allow for the assignment, free and clear of any interest of the
Agent or the Lenders, of the Robinson Indemnity Receivables to Frank L. Robinson
Company, Harold Robinson, Carole Robinson, Jeffrey N. Robinson and James H.
Robinson (the "Robinson Parties") in accordance with Section 5.5 of that certain
Asset Purchase Agreement among the Borrower and the Robinson Parties dated
December 30, 1997 (the "Robinson Asset Purchase Agreement"), provided that the
Robinson Parties pay a minimum of $250,000 in immediately available funds in
exchange for the assignment of the Robinson Indemnity Receivables. The Borrower
shall cause any and all amounts paid by the Robinson Parties to the Borrower in
connection with the Robinson Parties' obligations to the Borrower under the
Robinson Asset Purchase Agreement to be paid directly to the Agent for
application to the outstanding principal balance of the Revolving Loans.
4. Amendment to Credit Agreement. Simultaneously with the execution of
this Third Forbearance Agreement Amendment, the Borrower shall execute and
deliver to the Agent, on behalf of the Lenders, a Seventh Amendment to Credit
Agreement (the "Seventh Amendment") in form of that attached hereto as Exhibit
A.
2
<PAGE>
5. Third Forbearance Agreement Amendment Fees. In consideration of the
willingness of the Agent, on behalf of the Lenders, to enter this Third
Forbearance Agreement Amendment, the Borrower, simultaneously with the execution
of this Agreement, shall pay to the Agent for the account of each Lender who
consents to this Third Forbearance Agreement Amendment and the Seventh Amendment
and delivers evidence of such consent to the Agent by the date hereof, a fee in
an amount equal to .05% of such Lender's Commitment immediately prior to the
execution of the Seventh Amendment (collectively, the "Third Forbearance
Agreement Amendment Fees").
6. Revised Business Plans. On or before March 5, 1999, the Borrower
shall deliver to the Agent on behalf of the Lenders revised business plans and
budgets of the Borrower for fiscal years 1999 and 2000, which revised business
plans and budgets shall be prepared with the material assistance of PwC.
7. Conditions Precedent. As conditions precedent to the effectiveness of
this Third Forbearance Agreement Amendment, on or before the date hereof:
(a) The Agent shall have received original duly executed
counterparts of this Third Forbearance Agreement Amendment duly executed
by the Credit Parties and the Agent;
(b) The Borrower shall have executed and delivered to the Agent
the Seventh Amendment;
(c) The Agent, on behalf of the Lenders, shall have received the
Third Forbearance Agreement Amendment Fees; and
(d) The Borrower shall have delivered to the Agent an opinion of
counsel to the Borrower in form and substance satisfactory to the Agent
as to the due authorization, execution, delivery and enforceability of
this Third Forbearance Agreement Amendment and the Seventh Amendment.
8. Limited Modification Only. Except as specifically modified hereby,
the terms and conditions of the Forbearance Agreement remain in full force and
effect.
9. Release. The Borrower hereby releases the Agent, the Lenders, and the
Agent's and the Lenders' respective officers, employees, representatives,
agents, counsel and directors from any and all actions, causes of action,
claims, demands, damages and liabilities of whatever kind or nature, in law or
in equity, now known or unknown, suspected or unsuspected to the extent that any
of the foregoing arises from any action or failure to act on or prior to the
date hereof.
10. Expenses. Upon demand therefor, the Borrower shall pay all
out-of-pocket expenses incurred by the Agent in connection with the negotiation,
drafting and execution of this Third
3
<PAGE>
Forbearance Agreement Amendment and the exhibits hereto, including without
limitation reasonable fees and expenses of the Agent's counsel.
11. Borrower's Representations. The Borrower hereby represents and
warrants as follows:
(a) The Borrower has taken all necessary action to authorize the
execution, delivery and performance of this Third Forbearance Agreement
Amendment;
(b) This Third Forbearance Agreement Amendment has been duly
executed and delivered by the Borrower and constitutes the Borrower's
legal, valid and binding obligations, enforceable in accordance with its
terms, except as such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting creditors' rights generally and
(ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity); and
(c) No consent, approval, authorization or order of, or filing,
registration or qualification with, any court or governmental authority
or third party is required in connection with the execution, delivery or
performance by the Borrower of this Third Forbearance Agreement
Amendment.
12. Counterparts. This Third Forbearance Agreement Amendment may be
executed in any number of counterparts, each of which when so executed and
delivered shall be an original, but all of which shall constitute one and the
same instrument. Delivery of an executed counterpart of this Third Forbearance
Agreement Amendment by telecopy shall be effective as an original and shall
constitute a representation that an executed original shall be delivered.
13. GOVERNING LAW. THIS THIRD FORBEARANCE AGREEMENT AMENDMENT 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 NORTH
CAROLINA.
[SIGNATURES CONTINUE ON FOLLOWING PAGE.]
4
<PAGE>
Each of the parties hereto has caused a counterpart of this Third
Forbearance Agreement Amendment to be duly executed and delivered as of the date
first above written.
PLUMA, INC.,
a North Carolina corporation
By:____________________________________
Name:__________________________________
Title:_________________________________
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By:_____________________________________
Name:___________________________________
Title:__________________________________
5
FOURTH AMENDMENT TO
FORBEARANCE AGREEMENT
THIS FOURTH AMENDMENT TO FORBEARANCE AGREEMENT (hereinafter, this
"Fourth Forbearance Agreement Amendment") is entered as of March 15, 1999
between PLUMA, INC., a North Carolina corporation (the "Borrower") and
NATIONSBANK, N.A., as Agent for and on behalf of the Lenders (the "Agent").
Capitalized terms used herein and not otherwise defined or designated herein
shall have the respective meanings given to them in the Credit Agreement
(defined below).
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998, by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998, by that certain
Fourth Amendment to Credit Agreement between the Borrower and the Agent for and
on behalf of the Lenders dated as of November 16, 1998, by that certain Fourth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 11, 1998, by that certain Fifth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 31, 1998, by that certain Sixth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of January 29, 1999, and by that certain Seventh
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of March 1, 1999 (as further amended, modified,
supplemented, extended or restated from time to time, the "Credit Agreement");
WHEREAS, the Borrower and the Agent for and on behalf of the Lenders are
parties to that certain Forbearance Agreement dated as of November 16, 1998, as
amended by that certain Amendment to Forbearance Agreement between the Borrower
and the Agent for and on behalf of the Lenders dated as of December 31, 1998, by
a Second Amendment to Forbearance Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of January 29, 1999, and by a Third
Amendment to Forbearance Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of March 1, 1999 (as further amended, modified,
supplemented, extended or restated from time to time, the "Forbearance
Agreement");
WHEREAS, the Borrower has requested that the Lenders agree to (i) amend
the Forbearance Agreement to extend the Forbearance Termination Date to March
31, 1999 and (ii) release the Capital Factors Receivables (defined below). The
Agent, for and on behalf of the Lenders, has agreed to do so, but only upon the
terms and conditions set forth herein;
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Forbearance Termination Date. The Forbearance Agreement is hereby
amended so that the Forbearance Termination Date is extended to March 31, 1999.
2. Capital Factors Receivables. The Agent, for and on behalf of the
Lenders, agrees that the Agent shall execute such documents as are necessary to
release its security interest, held for and on behalf of the Lenders, in the
Receivables set forth on Schedule I to this Forbearance Agreement (the "Capital
Factors Receivables") to allow for the assignment, free and clear of any
interest of the Agent or the Lenders, of the Capital Factors Receivables to
Capital Factors, Inc. ("Capital Factors"), provided that the Capital Factors
pays a minimum of $290,430 to the Borrower in immediately available funds in
exchange for the assignment of the Capital Factors Receivables.
3. Cash Flow Forecast. On or before March 22, 1999, the Borrower shall
deliver to the Agent on behalf of the Lenders a weekly cash flow forecast for
the period from March 31, 1999 through September 30, 1999, which cash flow
forecast shall be prepared with the material assistance of PwC.
4. Amendment to Credit Agreement. Simultaneously with the execution of
this Fourth Forbearance Agreement Amendment, the Borrower shall execute and
deliver to the Agent, on behalf of the Lenders, a Eighth Amendment to Credit
Agreement (the "Eighth Amendment") in form of that attached hereto as Exhibit A.
5. Fourth Forbearance Agreement Amendment Fees. In consideration of the
willingness of the Agent, on behalf of the Lenders, to enter this Fourth
Forbearance Agreement Amendment, the Borrower, simultaneously with the execution
of this Agreement, shall pay to the Agent for the account of each Lender who
consents to this Fourth Forbearance Agreement Amendment and the Eighth Amendment
and delivers evidence of such consent to the Agent by the date hereof, a fee in
an amount equal to .05% of such Lender's Commitment immediately prior to the
execution of the Eighth Amendment (collectively, the "Fourth Forbearance
Agreement Amendment Fees").
6. Conditions Precedent. As conditions precedent to the effectiveness of
this Fourth Forbearance Agreement Amendment, on or before the date hereof:
(a) The Agent shall have received original duly executed
counterparts of this Fourth Forbearance Agreement Amendment duly
executed by the Credit Parties and the Agent;
(b) The Borrower shall have executed and delivered to the Agent
the Eighth Amendment;
2
<PAGE>
(c) The Agent, on behalf of the Lenders, shall have received the
Fourth Forbearance Agreement Amendment Fees; and
(d) The Borrower shall have delivered to the Agent an opinion of
counsel to the Borrower in form and substance satisfactory to the Agent
as to the due authorization, execution, delivery and enforceability of
this Fourth Forbearance Agreement Amendment and the Eighth Amendment.
7. Limited Modification Only. Except as specifically modified hereby,
the terms and conditions of the Forbearance Agreement remain in full force and
effect.
8. Release. The Borrower hereby releases the Agent, the Lenders, and the
Agent's and the Lenders' respective officers, employees, representatives,
agents, counsel and directors from any and all actions, causes of action,
claims, demands, damages and liabilities of whatever kind or nature, in law or
in equity, now known or unknown, suspected or unsuspected to the extent that any
of the foregoing arises from any action or failure to act on or prior to the
date hereof.
9. Expenses. Upon demand therefor, the Borrower shall pay all
out-of-pocket expenses incurred by the Agent in connection with the negotiation,
drafting and execution of this Fourth Forbearance Agreement Amendment and the
exhibits hereto, including without limitation reasonable fees and expenses of
the Agent's counsel.
10. Borrower's Representations. The Borrower hereby represents and
warrants as follows:
(a) The Borrower has taken all necessary action to authorize the
execution, delivery and performance of this Fourth Forbearance Agreement
Amendment;
(b) This Fourth Forbearance Agreement Amendment has been duly
executed and delivered by the Borrower and constitutes the Borrower's
legal, valid and binding obligations, enforceable in accordance with its
terms, except as such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting creditors' rights generally and
(ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity); and
(c) No consent, approval, authorization or order of, or filing,
registration or qualification with, any court or governmental authority
or third party is required in connection with the execution, delivery or
performance by the Borrower of this Fourth Forbearance Agreement
Amendment.
11. Counterparts. This Fourth Forbearance Agreement Amendment may be
executed in any number of counterparts, each of which when so executed and
delivered shall be an original, but
3
<PAGE>
all of which shall constitute one and the same instrument. Delivery of an
executed counterpart of this Fourth Forbearance Agreement Amendment by telecopy
shall be effective as an original and shall constitute a representation that an
executed original shall be delivered.
12. GOVERNING LAW. THIS FOURTH FORBEARANCE AGREEMENT AMENDMENT 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 NORTH
CAROLINA.
[SIGNATURES CONTINUE ON FOLLOWING PAGE.]
4
<PAGE>
Each of the parties hereto has caused a counterpart of this Fourth
Forbearance Agreement Amendment to be duly executed and delivered as of the date
first above written.
PLUMA, INC.,
a North Carolina corporation
By:_________________________________
Name:_______________________________
Title:______________________________
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By:_________________________________
Name:_______________________________
Title:______________________________
5
FIFTH AMENDMENT TO
FORBEARANCE AGREEMENT
THIS FIFTH AMENDMENT TO FORBEARANCE AGREEMENT (hereinafter, this "Fifth
Forbearance Agreement Amendment") is entered as of March 31, 1999 between PLUMA,
INC., a North Carolina corporation (the "Borrower") and NATIONSBANK, N.A., as
Agent for and on behalf of the Lenders (the "Agent"). Capitalized terms used
herein and not otherwise defined or designated herein shall have the respective
meanings given to them in the Credit Agreement (defined below).
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998, by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998, by that certain
Third Amendment to Credit Agreement between the Borrower and the Agent for and
on behalf of the Lenders dated as of November 16, 1998, by that certain Fourth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 11, 1998, by that certain Fifth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of December 31, 1998, by that certain Sixth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of January 29, 1999, by that certain Seventh
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of March 1, 1999, and by that certain Eighth
Amendment to Credit Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of March 15, 1999 (as further amended, modified,
supplemented, extended or restated from time to time, the "Credit Agreement");
WHEREAS, the Borrower and the Agent for and on behalf of the Lenders are
parties to that certain Forbearance Agreement dated as of November 16, 1998, as
amended by that certain Amendment to Forbearance Agreement between the Borrower
and the Agent for and on behalf of the Lenders dated as of December 31, 1998, by
a Second Amendment to Forbearance Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of January 29, 1999, by a Third
Amendment to Forbearance Agreement between the Borrower and the Agent for and on
behalf of the Lenders dated as of March 1, 1999, and by a Fourth Amendment to
Forbearance Agreement between the Borrower and the Agent for and on behalf of
the Lenders dated as of March 15, 1999 (as further amended, modified,
supplemented, extended or restated from time to time, the "Forbearance
Agreement");
WHEREAS, the Borrower has informed the Lenders that it believes that in
addition to the previously identified Acknowledged Events of Default (as defined
the Forbearance Agreement), as of the fiscal quarter ended March 31, 1999 the
following Events of Default have occurred and are continuing under the Credit
Agreement (collectively the "Additional Acknowledged Events of
<PAGE>
Default"): (1) the Consolidated Parties have exceeded the maximum Funded
Indebtedness to Capitalization Ratio permitted by Section 7.11(a) of the Credit
Agreement, (2) the Consolidated Parties have failed to maintain the minimum
Fixed Charge Coverage Ratio required by Section 7.11(b) of the Credit Agreement,
(3) the Consolidated Parties have exceeded the maximum Leverage Ratio permitted
by Section 7.11(c) of the Credit Agreement, (4) the Consolidated Parties have
failed to maintain the minimum Consolidated Net Worth required by Section
7.11(d) of the Credit Agreement, and (5) the Consolidated Parties have failed to
maintain the minimum Consolidated EBITDA required by Section 7.11(e) of the
Credit Agreement;
WHEREAS, the Borrower has informed the Lenders that it anticipates that
the following additional Events of Default will exist under the Credit Agreement
as of the fiscal quarter ending June 30, 1999, (collectively the "Acknowledged
Anticipated Events of Default"): (1) the Consolidated Parties will have exceeded
the maximum Funded Indebtedness to Capitalization Ratio permitted by Section
7.11(a) of the Credit Agreement, (2) the Consolidated Parties will have failed
to maintain the minimum Fixed Charge Coverage Ratio required by Section 7.11(b)
of the Credit Agreement, (3) the Consolidated Parties will have exceeded the
maximum Leverage Ratio permitted by Section 7.11(c) of the Credit Agreement, (4)
the Consolidated Parties will have failed to maintain the minimum Consolidated
Net Worth required by Section 7.11(d) of the Credit Agreement, and (5) the
Consolidated Parties will have failed to maintain the minimum Consolidated
EBITDA required by Section 7.11(e) of the Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders agree to amend the
Forbearance Agreement to: (i) forbear exercising their rights and remedies
arising from the Additional Acknowledged Events of Default and the Acknowledged
Anticipated Events of Default until the Forbearance Termination Date (as defined
in the Forbearance Agreement) and (ii) extend the Forbearance Termination Date
to September 30, 1999. The Agent, on behalf of the Lenders, has agreed to do so,
but only upon the terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Forbearance Termination Date. The Forbearance Agreement is hereby
amended so that the Forbearance Termination Date is extended to September 30,
1999.
2. Acknowledged Events of Default. The Forbearance Agreement is hereby
amended so that the term "Acknowledged Events of Default" shall include the
Additional Acknowledged Events of Default and the Acknowledged Anticipated
Events of Default.
3. Permanent CEO. On or before April 30, 1999, the Borrower shall have
retained a full-time Chief Executive Officer who has extensive experience and a
good reputation in the United States textile industry as a senior executive.
2
<PAGE>
4. Special Reporting Requirements. In addition to the reporting
requirements set forth in Section 7.1 of the Credit Agreement, during the period
beginning on the date hereof and ending on the Forbearance Termination Date (the
"Forbearance Period"), the Borrower shall provide to the Agent the following in
form satisfactory to the Agent:
(a) Cash Flow Reconciliations. Commencing on Thursday, April 8,
1999, and continuing on Thursday of each week thereafter, a true and
accurate reconciliation report, reflecting a detailed comparison between
the Consolidated Parties= actual cash flow computations through the end
of the previous week and that projected through such week in the 29 week
cash flow forecast provided to the Agent on or about March 22, 1999 in
accordance with paragraph 2 of the March 15, 1999 Fourth Amendment to
Forbearance Agreement.
(b) Monthly Reports. As soon as available, and in any event
within 30 days after the close of each fiscal month, a consolidated
balance sheet and income statement of the Consolidated Parties as of the
end of such month.
(c) Payables Agings. Commencing on Thursday, April 8, 1999, and
continuing on Thursday of each week thereafter, a true and accurate
accounts payable aging report for the Borrower's fifty largest (in terms
of aggregate amount owed) suppliers of goods or services.
(d) Inventory Liquidation Plan. Commencing on Thursday, April 8,
1999, and continuing on Thursday of each week thereafter, a true and
accurate reconciliation report, reflecting a detailed comparison between
the Borrower's actual progress toward liquidating excess or ineligible
Inventory versus the Borrower's 1999 business plan provided to the Agent
and the Lenders on or about March 5, 1999 (the "Revised 1999 Business
Plan").
(e) FLR Liquidation Plan. Commencing on Thursday, April 8, 1999,
and continuing on Thursday of each week thereafter, a true and accurate
reconciliation report, reflecting a detailed comparison between the
Borrower's actual progress toward liquidating its F. L. Robinson
division versus the Revised 1999 Business Plan.
(f) Shift in Production. Commencing on Thursday, April 8, 1999,
and continuing on Thursday of each week thereafter, a true and accurate
reconciliation report, reflecting a detailed comparison between the
Borrower's actual progress toward moving certain production facilities
to Mexico versus the Revised 1999 Business Plan.
3
<PAGE>
5. Forbearance Period Covenants: Notwithstanding anything in the Credit
Agreement to the contrary:
(a) Capital Expenditures. The Credit Parties will not permit
Consolidated Capital Expenditures to exceed $200,000 in the aggregate in
any calendar month during the Forbearance Period or to exceed $618,000
in the aggregate for the entire Forbearance Period.
(b) Net Sales. The Credit Parties will not permit the
Consolidated Parties' net sales to be less than $7,200,000 in any
three-week period.
(c) Minimum Change in Cash: During the Forbearance Period, the
Credit Parties (i) will not permit the Consolidated Parties' aggregate
cash receipts less aggregate cash disbursements ("Change in Cash") to be
less than or equal to ($1,800,000) in any week, and (ii) will not permit
Change in Cash to be negative for each of any three consecutive weeks.
(d) Minimum EBITDA. The Credit Parties will cause Consolidated
EBITDA from April 1, 1999 to be (i) greater than or equal to $3,013,000
through May 31, 1999 and (ii) greater than or equal to $5,618,000
through July 31, 1999.
(e) Maximum Trade Payables. The Credit Parties will not permit
their aggregate outstanding amount of payables of the types shown on the
payables aging that Borrower supplied to the Agent on or about March 25,
1999 to exceed $16,400,000.
6. Revised Year 2000 Plan. On or before July 31, 1999, the Borrower
shall provide an updated business plan and budget for the fiscal year 2000,
which plan and budget shall include an analysis of a potential sale of the
Stardust Assets.
7. Lender Warrants. Unless the Loans are paid in full and the
Commitments terminated, the Borrower, within 45 days of receiving a written
request for the issuance of Lender Warrants from the Agent on behalf of the
Required Lenders, shall issue to the Lenders warrants (the "Lender Warrants")
representing 10% of the fully diluted common equity of the Borrower (or such
lesser percentage as may be dictated by the decision of one or more Lenders to
refuse Lender Warrants) and having the following characteristics:
(a) Terms. The Lender Warrants shall have a strike price of $.01
per share, be freely assignable, incorporate anti-dilution provisions
acceptable to the Lenders and be exercisable in accordance with the
following vesting schedule:
Date Percentage Vesting
---- ------------------
Issuance 25%
9/30/99 50%
3/31/00 75%
9/30/00 100%
4
<PAGE>
(b) Allocation. The Lender Warrants shall be divided among the
Lenders on a pro rata basis based on each Lender=s Commitments on the
date of issuance, provided that no Lender may hold Lender Warrants
corresponding to more than 4.9% of the fully diluted common equity of
the Borrower. In addition, any Lender may elect not to take Lender
Warrants, which election shall not affect the number of Lender Warrants
to which the other Lenders shall be entitled.
(c) Calls; Clawbacks. Prior to exercise, (i) the Borrower shall
have the right to call the Lender Warrants for a price of $5.00 per
share through December 31, 1999 and $10.00 per share thereafter and (ii)
in the event that (A) the Loans are paid in full and (B) the Commitments
are terminated, each Lender accepting warrants shall forfeit a
percentage of its Lender Warrants then held in accordance with the
following schedule:
Repayment in full by Percentage forfeited
9/30/99 75%
3/31/00 50%
9/30/00 25%
(d) Acknowledgment. The Borrower hereby acknowledges that
acceptance of Lender Warrants by any Lender does not constitute and
should not be deemed to constitute a waiver by such Lender or any other
Lender of any claims against any Person.
(e) Further Assurances. The Borrower shall execute and deliver,
or cause to be executed and delivered, such documents, agreements or
opinions as the Agent reasonably deems necessary to confirm the legality
and enforceability of the Lender Warrants.
8. Amendment to Credit Agreement. Simultaneously with the execution of
this Fifth Forbearance Agreement Amendment, the Borrower shall execute and
deliver to the Agent, on behalf of the Lenders, a Ninth Amendment to Credit
Agreement (the "Ninth Amendment") in form of that attached hereto as Exhibit A.
9. Fifth Forbearance Agreement Amendment Fees. In consideration of the
willingness of the Agent, on behalf of the Lenders, to enter this Fifth
Forbearance Agreement Amendment, the Borrower, simultaneously with the execution
of this Agreement, shall pay to the Agent for the account of each Lender a fee
in an amount equal to .15% of such Lender's Commitment immediately prior to the
execution of the Ninth Amendment (collectively, the "Fifth Forbearance Agreement
Amendment Fees").
10. Conditions Precedent. As conditions precedent to the effectiveness
of this Fifth Forbearance Agreement Amendment, on or before the date hereof:
(a) The Agent shall have received original duly executed
counterparts of this Fifth Forbearance Agreement Amendment duly executed
by the Credit Parties and the Agent;
5
<PAGE>
(b) The Borrower shall have executed and delivered to the Agent
the Ninth Amendment;
(c) The Agent, on behalf of the Lenders, shall have received the
Fifth Forbearance Agreement Amendment Fees; and
(d) The Borrower shall have delivered to the Agent an opinion of
counsel to the Borrower in form and substance satisfactory to the Agent
as to the due authorization, execution, delivery and enforceability of
this Fifth Forbearance Agreement Amendment and the Ninth Amendment.
(e) The Borrower shall have delivered to the Agent an updated
incumbency certificate of the Borrower certified by a secretary or
assistant secretary to be true and correct as of the date hereof.
11. Limited Modification Only. Except as specifically modified hereby,
the terms and conditions of the Forbearance Agreement remain in full force and
effect.
12. Release. The Borrower hereby releases the Agent, the Lenders, and
the Agent's and the Lenders' respective officers, employees, representatives,
agents, counsel and directors from any and all actions, causes of action,
claims, demands, damages and liabilities of whatever kind or nature, in law or
in equity, now known or unknown, suspected or unsuspected to the extent that any
of the foregoing arises from any action or failure to act on or prior to the
date hereof.
13. Expenses. Upon demand therefor, the Borrower shall pay all
out-of-pocket expenses incurred by the Agent in connection with the negotiation,
drafting and execution of this Fifth Forbearance Agreement Amendment and the
exhibits hereto, including without limitation reasonable fees and expenses of
the Agent's counsel.
14. Borrower's Representations. The Borrower hereby represents and
warrants as follows:
(a) The Borrower has taken all necessary action to authorize the
execution, delivery and performance of this Fifth Forbearance Agreement
Amendment;
(b) This Fifth Forbearance Agreement Amendment has been duly
executed and delivered by the Borrower and constitutes the Borrower's
legal, valid and binding obligations, enforceable in accordance with its
terms, except as such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting creditors' rights generally and
(ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity); and
(c) No consent, approval, authorization or order of, or filing,
registration or qualification with, any court or governmental authority
or third party is required in
6
<PAGE>
connection with the execution, delivery or performance by the Borrower
of this Fifth Forbearance Agreement Amendment.
15. Counterparts. This Fifth Forbearance Agreement Amendment may be
executed in any number of counterparts, each of which when so executed and
delivered shall be an original, but all of which shall constitute one and the
same instrument. Delivery of an executed counterpart of this Fifth Forbearance
Agreement Amendment by telecopy shall be effective as an original and shall
constitute a representation that an executed original shall be delivered.
16. Credit Document. The Forbearance Agreement and each Amendment
thereof (including but not limited to this Fifth Forbearance Agreement
Amendment) is a Credit Document executed pursuant to the Credit Agreement and
shall (unless otherwise expressly indicated therein) be construed, administered
and applied in accordance with the terms and provisions of the Credit Agreement.
17. GOVERNING LAW. THIS FIFTH FORBEARANCE AGREEMENT AMENDMENT 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 NORTH
CAROLINA.
Each of the parties hereto has caused a counterpart of this Fifth
Forbearance Agreement Amendment to be duly executed and delivered as of the date
first above written.
PLUMA, INC.,
a North Carolina corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By:_______________________________________
Name:_____________________________________
Title:____________________________________
7
SIXTH AMENDMENT TO
FORBEARANCE AGREEMENT
THIS SIXTH AMENDMENT TO FORBEARANCE AGREEMENT (hereinafter, this "Sixth
Forbearance Agreement Amendment") is entered as of April __, 1999 between PLUMA,
INC., a North Carolina corporation (the "Borrower") and NATIONSBANK, N.A., as
Agent for and on behalf of the Lenders (the "Agent"). Capitalized terms used
herein and not otherwise defined or designated herein shall have the respective
meanings given to them in the Credit Agreement (defined below).
RECITALS
--------
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended (as further
amended, modified, supplemented, extended or restated from time to time, the
"Credit Agreement");
WHEREAS, the Borrower and the Agent for and on behalf of the Lenders are
parties to that certain Forbearance Agreement dated as of November 16, 1998, as
amended (as further amended, modified, supplemented, extended or restated from
time to time, the "Forbearance Agreement");
WHEREAS, that in addition to the previously identified Acknowledged
Events of Default (as defined the Forbearance Agreement), the Borrower has
failed to make a $1,177,370.13 interest payment relating to a certain Eurodollar
Loan that constitutes part of the Revolving Loans and for which April 13, 1999
was the applicable Interest Payment Date (the "April 13, 1999 Interest Payment
Date Event of Default");
WHEREAS, the Borrower has requested that the Agent and the Lenders agree
to: (a) amend the Forbearance Agreement to include the April 13, 1999 Interest
Payment Date Event of Default as an Acknowledged Default (as defined in the
Forbearance Agreement) (b) accept the Borrower's proposed payment schedule for
curing the April 13, 1999 Interest Payment Date Event of Default by no later
than June 11, 1999 and (c) allow the interest payment of $54,500.00 relating to
another certain Eurodollar Loan that constitutes part of the Revolving Loans and
for which April 21, 1999 will be the applicable Interest Payment Date (the
"April 21, 1999 Interest Payment") to be included within the payment schedule
otherwise designed to cure the April 13, 1999 Interest Payment Date Event of
Default. The Agent, on behalf of the Lenders, has agreed to do so, but only upon
the terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. Acknowledged Events of Default. The Forbearance Agreement is hereby
amended so that the term "Acknowledged Events of Default" shall include the
April 13, 1999 Interest Payment Date Event of Default.
2. Cure Payments. Notwithstanding paragraph 1 of this Sixth Forbearance
Agreement Amendment, the Borrower shall cure the April 13, 1999 Interest Payment
Date Event of Default by making weekly payments of $150,000 each commencing on
Friday, April 16, 1999 and continuing on Friday of each week thereafter until
the April 13, 1999 Interest Payment Date Event of Default is cured; provided,
however, that: (a) the $150,000 payment due on April 23, 1999 pursuant to this
paragraph shall first be applied as the April 21, 1999 Interest Payment (and no
Default shall arise exclusively from the Borrower's failure to make the April
21, 1999 Interest Payment on April 21, 1999) and (b) the Borrower shall have
paid all amounts necessary to cure the April 13, 1999 Interest Payment Date
Event of Default by no later than June 11, 1999.
3. Amendment to Credit Agreement. Simultaneously with the execution of
this Sixth Forbearance Agreement Amendment, the Borrower shall execute and
deliver to the Agent, on behalf of the Lenders, a Tenth Amendment to Credit
Agreement (the "Tenth Amendment") in form of that attached hereto as Exhibit A.
4. Conditions Precedent. As conditions precedent to the effectiveness of
this Sixth Forbearance Agreement Amendment, on or before the date hereof:
(a) The Agent shall have received original duly executed
counterparts of this Sixth Forbearance Agreement Amendment duly executed
by the Credit Parties and the Agent;
(b) The Borrower shall have executed and delivered to the Agent
the Tenth Amendment; and
(c) The Borrower shall have delivered to the Agent an opinion of
counsel to the Borrower in form and substance satisfactory to the Agent
as to the due authorization, execution, delivery and enforceability of
this Sixth Forbearance Agreement Amendment and the Tenth Amendment.
5. Limited Modification Only. Except as specifically modified hereby,
the terms and conditions of the Forbearance Agreement remain in full force and
effect.
6. Release. The Borrower hereby releases the Agent, the Lenders, and the
Agent's and the Lenders' respective officers, employees, representatives,
agents, counsel and directors from any and all actions, causes of action,
claims, demands, damages and liabilities of whatever kind or nature, in law or
in equity, now known or unknown, suspected or unsuspected to the extent that any
of the foregoing arises from any action or failure to act on or prior to the
date hereof.
<PAGE>
7. Expenses. Upon demand therefor, the Borrower shall pay all
out-of-pocket expenses incurred by the Agent in connection with the negotiation,
drafting and execution of this Sixth Forbearance Agreement Amendment and the
exhibits hereto, including without limitation reasonable fees and expenses of
the Agent's counsel.
8. Borrower's Representations. The Borrower hereby represents and
warrants as follows:
(a) The Borrower has taken all necessary action to authorize the
execution, delivery and performance of this Sixth Forbearance Agreement
Amendment;
(b) This Sixth Forbearance Agreement Amendment has been duly
executed and delivered by the Borrower and constitutes the Borrower's
legal, valid and binding obligations, enforceable in accordance with its
terms, except as such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting creditors' rights generally and
(ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity); and
(c) No consent, approval, authorization or order of, or filing,
registration or qualification with, any court or governmental authority
or third party is required in connection with the execution, delivery or
performance by the Borrower of this Sixth Forbearance Agreement
Amendment.
9. Counterparts. This Sixth Forbearance Agreement Amendment may be
executed in any number of counterparts, each of which when so executed and
delivered shall be an original, but all of which shall constitute one and the
same instrument. Delivery of an executed counterpart of this Sixth Forbearance
Agreement Amendment by telecopy shall be effective as an original and shall
constitute a representation that an executed original shall be delivered.
10. Credit Document. The Forbearance Agreement and each Amendment
thereof (including but not limited to this Sixth Forbearance Agreement
Amendment) is a Credit Document executed pursuant to the Credit Agreement and
shall (unless expressly indicated therein) be construed, administered and
applied in accordance with the terms and provisions of the Credit Agreement.
11. GOVERNING LAW. THIS SIXTH FORBEARANCE AGREEMENT AMENDMENT 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 NORTH
CAROLINA.
Each of the parties hereto has caused a counterpart of this Sixth
Forbearance Agreement Amendment to be duly executed and delivered as of the date
first above written.
<PAGE>
PLUMA, INC.,
a North Carolina corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By:_______________________________________
Name:_____________________________________
Title:____________________________________
January 28, 1999
Personal & Confidential
Mr. Walker Box
Chairman of the Board
Pluma, Inc.
1300 Kings Mountain Road
P.O. Box 4431
Martinsville, VA 24112
Dear Walker:
This letter constitutes an agreement by Ronald A. Norelli ("Norelli") to
assume the responsibilities of the Chief Executive Officer of Pluma, Inc.
("Pluma") during the period of its financial and operational restructuring. It
is understood by Norelli and Pluma that the term of this engagement is limited
to that period of time determined by them to be necessary to complete Pluma's
financial and operational restructuring. As such, this agreement can be
terminated by either party upon thirty (30) days written notice.
Norelli agrees to act as, and assume the responsibilities of, Pluma's Chief
Executive Officer, as more specifically set forth herein, and Pluma agrees to
engage Norelli in such capacity upon the following terms and provisions:
(1) Norelli agrees to expend no less than three (3) days, but no more than
four (4) days during each calendar week performing his obligations to Pluma as
set forth herein. Although Norelli will expend as much time at Pluma's executive
offices as Norelli and Pluma deem necessary for the proper performance of his
duties hereunder, it is understood that a portion of Norelli's work related to
Pluma may be performed from the offices of Norelli & Company in Charlotte, North
Carolina.
<PAGE>
Mr. Walker Box
January 28, 1999
Page 2
(2) In addition to routine responsibilities of any chief executive officer,
the following shall constitute, but shall in no way limit, Norelli's duties to
be performed hereunder:
(a) Assume and maintain overall executive authority and responsibility
for Pluma during the term of this agreement;
(b) Oversee the execution of the 1999 Business Plan and related
Initiatives lists by keeping the management team and its advisors
(collectively the "Recovery Team") focused on the priority action steps and
objectives;
(c) Where needed, resolve issues and/or disagreements among the
Recovery Team in a timely fashion;
(d) Communicate regularly with Pluma's employees, the Board of
Directors and appropriate external constituencies, including the Bank
Group;
(e) Develop and implement Pluma's financial and recapitalization
strategy;
(f) Develop and implement the specifics of Pluma's strategy with
regard to trade suppliers;
(g) Oversee appropriate action steps regarding sale of assets not
contemplated as part of the ongoing business (e.g., Rocky Mount facility);
and
(h) Perform other duties assigned by the Board of Directors.
(3) As compensation for Norelli's services to be performed hereunder,
Norelli shall be paid on a monthly basis as follows:
(a) During any month in which Norelli has averaged working three full
days per week performing his responsibilities hereunder, Norelli shall be
paid the sum of $24,000 for such month.
(b) During any month in which Norelli has averaged working four full
days per week performing his responsibilities hereunder, Norelli shall be
paid the sum of $32,000 for such month.
(c) During any month in which Norelli has averaged between three
working days and four working days per week performing his responsibilities
hereunder, Norelli shall be paid between $24,000 and $32,000 for such
month. The exact amount to be paid Norelli
<PAGE>
Mr. Walker Box
January 28, 1999
Page 3
under this subparagraph 3(c) shall be determined on a prorated basis. In
this event, Norelli shall submit to Pluma an invoice for services rendered
with appropriate adjustments to account for such proration.
Although Norelli is assuming the responsibilities of Pluma's chief
executive officer hereunder, Pluma and Norelli acknowledge that he will not be
an employee of Pluma for purposes of federal and state income tax withholding
laws or any other purpose.
(4) In addition to the sums to be paid to Norelli in Paragraph 3 above, and
to compensate Norelli for loss of other business resulting from the
concentration of time required for the performance of his duties hereunder,
Pluma shall pay to Norelli $32,000 in each of the first two calendar months
after this agreement is terminated.
(5) During the term of this agreement, Norelli agrees to waive, on a
prorated basis, any annual retainer due him from Pluma as a result of Norelli's
duties as a member of Pluma's Board of Directors.
Sincerely,
RONALD A. NORELLI
Agreed and Accepted this ___ day of ________________, 1999
PLUMA, INC.
By: ______________________________
Mr. Walker Box
Chairman of the Board
SETTLEMENT AGREEMENT
This Agreement is made this ____ day of June, 1998, by and between GILDAN
ACTIVEWEAR INC. d/b/a GILDAN ACTIVEWEAR, a Canadian corporation with its
principal place of business at 725 Montee De Liesse, Montreal, Quebec, Canada
H4T1P5 (hereinafter "Gildan") and PLUMA, INC., a North Carolina, USA
corporation, with its principal place of business at 801 Fieldcrest Road, Eden,
North Carolina 27288 (hereinafter "Pluma").
PREAMBLE:
Gildan and Stardust Corporation, a Wisconsin corporation (hereinafter
"Stardust") previously entered into an Agreement dated October 22, 1996, and as
amended on October 21, 1997 (hereinafter collectively referred to as the
"Distributorship Agreement"), wherein Gildan granted to Stardust the exclusive
right to distribute Gildan products within the States of Iowa, Wisconsin,
Illinois, Michigan, Minnesota, Nebraska and Indiana (the "Exclusive Territory").
Until December 22, 1997, Stardust distributed Gildan fleece and jersey apparel
and Gildan furnished fleece and jersey activewear apparel to Stardust pursuant
to the Distributorship Agreement.
On December 22, 1997, Pluma purchased substantially all of the assets of
Stardust pursuant to the terms of an Asset Purchase Agreement by and between
Pluma and Stardust (the "Stardust Acquisition"). As part of the Stardust
Acquisition, Stardust assigned the Distributorship Agreement to Pluma and Pluma
became the owner of all Stardust's rights under the Distributorship Agreement,
the whole without prejudice to Gildan's contestation of the validity of such
assignment. Since the date of the Stardust Acquisition, Gildan has, without
prejudice to its rights, been supplying jersey and fleece activewear apparel to
Pluma's Stardust division in Verona, Wisconsin (the "Stardust Division")
pursuant to the terms of the Distributorship Agreement and the Stardust Division
has been operating as a Gildan distributor pursuant to the Distributorship
Agreement.
Frank L. Robinson Company ("FLR") operated a wholesale activewear
distributorship until December 30, 1997, and was a distributor of Gildan fleece
and jersey activewear. On December 30, 1997, Pluma purchased substantially all
of the assets of FLR pursuant to the terms of an Asset Purchase Agreement
between Pluma and FLR (the "FLR Acquisition"). Since the date of the FLR
Acquisition, Gildan has, without prejudice to its rights, been supplying Gildan
jersey and activewear apparel to Pluma's Frank L. Robinson Division in Los
Angeles, California (the "FLR Division") and the FLR Division has been a Gildan
distributor.
The Stardust Division operating in Wisconsin and the FLR Division operating
in California are hereinafter collectively referred to as the "Pluma
Distributors."
The Distributorship Agreement provides that Stardust (now Pluma through the
Stardust Division) has the right to purchase fleece and jersey activewear
apparel from Gildan at favorable prices, terms and discounts (the "Favorable
Terms"). Furthermore, the Distributorship Agreement prohibits Gildan from
establishing, or selling to, other distributors within the Exclusive Territory.
1
<PAGE>
In the event Gildan establishes, or sells its products to distributorships
within the Exclusive Territory, other than to Broder Brothers and Alpha Shirt
Company, distributors who distribute Gildan Products within the Exclusive
Territory (the "Permitted Distributors"), Pluma is entitled to an award of
liquidated damages from Gildan in the amount of $500,000.00 (the "Liquidated
Damages") each time Gildan establishes and/or sells its products to a
distributor (other than to the Permitted Distributors) within the Exclusive
Territory prior to December 31, 1999. Gildan has sold its products within the
Exclusive Territory to a distributor or distributors (including S & S, Inc. in
Addison, Illinois ["S&S"]) who is/are not Permitted Distributor(s) in violation
of the terms of the Distributorship Agreement. As a result of the Stardust
Acquisition, Pluma may be entitled to recover the Liquidated Damages from Gildan
which entitlement to damages is disputed by Gildan.
Pluma has requested that Gildan manufacture and supply to the Pluma
Distributors all Gildan fleece and jersey activewear apparel ordered by the
Pluma Distributors (the "Apparel") until December 31, 1999. Gildan has agreed to
manufacture and supply the Pluma Distributors with the Apparel ordered by them
from Gildan during the term hereof provided (i) such orders do not exceed a
certain volume for the remainder of the year 1998 and for the year 1999; (ii)
Pluma terminates the Distributorship Agreement, including its rights to the
Favorable Terms; and (iii) Pluma forebears from enforcing its alleged right to
collect the Liquidated Damages (unless Gildan defaults upon its obligations
hereunder) as provided in the Distributorship Agreement.
NOW, THEREFORE, in consideration of Pluma's agreement to terminate the
Distributorship Agreement (including its rights to the Favorable Terms) and
forebear from enforcing its alleged right to collect the Liquidated Damages as
set forth therein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Termination of Distributorship Agreement. Except as hereinafter set
forth, Pluma and Gildan agree that from and after the date hereof, the
Distributorship Agreement (including without limitation any benefit of the
Wisconsin Fair Dealership Law ("WFDL") and any and all other rights resulting
therefrom or related thereto) is terminated and Pluma shall have no further
rights thereunder, including a right to the Favorable Terms, nor shall the
termination of the Distributorship Agreement by this Settlement Agreement create
rights for either party under the WFDL. Notwithstanding the above, the
termination of Pluma's right to collect Liquidated Damages from Gildan as
provided in the Distributorship Agreement is conditional upon (i) Gildan
performing its obligations hereunder in every material respect, including its
manufacture of and delivery to Pluma of the Apparel in the volumes and upon the
price and terms required herein provided, however, that the performance of
Gildan's obligations hereunder are subject to and conditional upon Pluma
complying with its obligations hereunder and (ii) Gildan not selling its
products to wholesale distributors within the Exclusive Territory other than to
the Permitted Distributors and S&S. In the event Gildan fails to perform its
obligations herein in every material respect (including its failure to (i)
manufacture and deliver to Pluma Apparel according to this Agreement or (ii)
refrain from selling its products to wholesale distributors within the Exclusive
Territory other than the Permitted Distributors and S&S), then in such event
Pluma shall continue to have the right to collect the Liquidated Damages in
accordance with the terms of the Distributorship Agreement. For greater
2
<PAGE>
clarity, embroiders and screen printers who only perform decorating functions to
apparel shall not be considered to be wholesale distributors.
2. Grant of Limited Exclusive Distributorship. Except as otherwise set
forth in this Section 2, Gildan hereby grants to Pluma the exclusive right to
distribute Gildan products within the Exclusive Territory through the Stardust
Division. Notwithstanding the preceding sentence, Gildan may sell its products
within the Exclusive Territory to the Permitted Distributors and S&S. Gildan
agrees that during the term of this Agreement, unless otherwise mutually agreed
to in writing by Gildan and Pluma, Gildan will not establish or sell its
products to any distributor within the Exclusive Territory other than to the
Permitted Distributors and S&S. Notwithstanding anything hereunder to the
contrary, it is agreed and understood that Gildan may sell its products to
existing customers located outside the Exclusive Territory who at any time after
the date hereof, open an office in the Exclusive Territory or resell Gildan
Products to parties situated in the Exclusive Territory.
3. Supply.
3.01 During the term of this Agreement, Gildan agrees to manufacture and
sell to Pluma, or its designated agent, the Apparel pursuant to orders received
by Gildan from the Pluma Distributors from time to time. The Pluma Distributors
may resell the Apparel in any or all parts of the United States of America,
providing they comply with Gildan's distribution policies generally applicable
to all Gildan distributors. The parties shall follow the production scheduling,
delivery and ordering procedures set forth in Section 7 herein.
3.02 During the term hereof, Gildan agrees to manufacture, sell and deliver
to the Pluma Distributors , their entire requirements of the Apparel, of the
approximate quantities, sizes and styles and at the initial prices listed on
Schedule A attached hereto and incorporated herein by reference; provided, the
prices for the Apparel set forth on Schedule A are initial prices only, which
are subject to change as provided in Section 6 hereof. Notwithstanding anything
else contained herein, in no event shall Gildan be obligated to manufacture,
sell and deliver to the Pluma Distributors for the remainder of the calendar
year 1998 amounts of the Apparel, which when added to all products previously
delivered by Gildan to the Pluma Distributors in 1998, will be greater in volume
than the total amount of like or similar products that Gildan manufactured, sold
and delivered to the Pluma Distributors during calendar year 1997 as set forth
in Schedule B attached. Furthermore, Gildan shall not be obligated to
manufacture, sell and deliver to the Pluma Distributors during calendar year
1999 Apparel in volumes which are greater than the volume of products
manufactured for and delivered to the Pluma Distributors during calendar year
1997. Subject to Paragraph 7.06 below, Pluma and Gildan acknowledge and agree
that the Pluma Distributor's volume requirements for Apparel may vary between
size and style from 1997 to 1998, and from 1998 to 1999, and that Gildan's
obligation hereunder is to supply the same total volume of product supplied to
the Pluma Distributors in 1997 or Pluma in 1998, as the case may be, but not the
same volume of particular sizes or styles previously delivered.
3
<PAGE>
3.03 The Pluma Distributors shall have no obligation to purchase Apparel
until a firm order is placed by either of them with Gildan. A "firm order" is
defined as a purchase order for Apparel placed by the Pluma Distributors which
specifically sets forth product, amount, price and delivery period. "Forecasts"
are not "orders" and are merely estimates of possible future orders.
4. Term. The term of this Agreement shall begin on the date hereof and
shall continue through December 31, 1999, unless extended by the parties as set
forth herein. However, the termination of this Agreement shall not relieve
Gildan from fulfilling orders placed by Pluma with Gildan prior to the
expiration of the term of this Agreement within the constraints set forth in
Paragraph 3.02 above nor release Pluma of its financial obligations hereunder.
5. Prices, Terms and Conditions. The prices set forth on Schedule A shall
only be the prices for Apparel ordered by the Pluma Distributors after the date
hereof, but only until Gildan gives 30 days written notification to the Pluma
Distributors that prices for the Apparel have changed for all of its customers.
After a notification of a change in prices for the Apparel, the prices the Pluma
Distributors shall pay for the Apparel shall be based on the most recent review
of the Gildan distributor price list; provided that, in no event, shall the
prices paid by the Pluma Distributors for the Apparel be greater than the prices
charged by Gildan to its other wholesale customers. Prices shall be specified
F.O.B. at the Pluma Distributors' warehouses in Verona, Wisconsin and Los
Angeles, California. Gildan agrees that prices for the Apparel include packing
for shipment, marking shipping cartons, loading packaged Apparel into common
carriers at Gildan's shipping docks and the procurement of all shipment
documentation necessary for the Pluma Distributors to receive and accept shipped
Apparel in a timely and orderly manner. Terms of payment of the invoices for
Apparel shipped pursuant to this Agreement (the "New Invoices") shall be net 45
days or 2% 10 days or 1% 30 days, but in no event shall payment terms provided
the Pluma Distributors by Gildan related to the Apparel shipped pursuant to this
Agreement be less favorable than the best payment terms received by other Gildan
wholesale distributors.
6. Pluma's Payment of Outstanding Gildan Invoices. Pluma acknowledges the
existence of unpaid Gildan invoices for Gildan product previously shipped to the
Pluma Distributors (the "Old Invoices").
Pluma agrees to pay the Old Invoices as Apparel is delivered to the Pluma
Distributors pursuant to the terms of this Agreement and Gildan agrees to accept
payment of the Old Invoices as described in the next sentence hereof. Within
forty-eight (48) hours of the receipt by either Pluma Distributor of Apparel
shipped pursuant to this Agreement, Pluma agrees to pay to Gildan Old Invoices
in an amount equal to the New Invoices related to Apparel so shipped, with such
payments being applied to the payment of Old Invoices in the order in which such
Old Invoices were received.
Pluma agrees that upon the execution hereof, it has caused the FLR Division
to deliver to Gildan such documentation as is necessary to resolve any disputes
between Gildan and the FLR Division related to the application of prior payments
of Gildan invoices by the FLR Division.
4
<PAGE>
In the event that Pluma fails to make a payment to Gildan of any sum due
and payable under a New Invoice or an Old Invoice within five (5) business days
after Pluma's receipt of a written notice of payment default from Gildan or if
any other default by Pluma under this Agreement remains uncured for five (5)
business days after receipt of notice from Gildan that Pluma is in default of
another obligation herein contained, and if, in fact, Pluma is in default then
without prejudice to Gildan's right to enforce its remedies with respect
thereto, the Distributorship Agreement and any and all of Pluma's rights and
benefits hereunder (including, without limitation, any benefit of the Wisconsin
Fair Dealership Law and any and all other rights resulting therefrom or related
thereto) shall ipso facto terminate and all rights, if any, to claim any
Liquidated Damages shall be forever forfeited.
7. Production Scheduling and Delivery.
7.01 The Pluma Distributors agree to present Gildan with three month
forecasts, updated monthly, of projected purchases of the Apparel to be
manufactured by Gildan for the Pluma Distributors.
7.02 The Pluma Distributors shall provide Gildan with firm orders
("Purchase Orders") which will specify ship dates of at least two (2) months
lead time upon which each style and color of the Apparel ordered therein shall
be shipped complete to the Pluma Distributors. Gildan shall manufacture and ship
Apparel ordered by the Pluma Distributors in accordance with the specifications,
terms and conditions stated in each Pluma Distributors' Purchase Order to the
extent that the Purchase Orders do not exceed forecasts supplied pursuant to
Paragraph 7.01.
7.02A The provisions of Paragraphs 3.02 and 7.02 notwithstanding, during
the period of time beginning on the effective date of this Agreement and
continuing for sixty (60) days thereafter (the "Interim Period"), Gildan will
ship pursuant to Purchase Orders which specify reasonable ship dates within the
Interim Period and all outstanding Purchase Orders are hereby cancelled and will
be replaced by Purchase Orders providing for the shipment of Apparel
proportionally balanced by SKU in the quantities as set forth in Schedule C
hereto.
7.03 The parties agree that with regard to completion and shipment of
Apparel pursuant to Purchase Orders, time is of the essence and that the ship
date which appears on the face of a Pluma Distributor's Purchase Order is a
material and essential term of this Agreement.
7.04 Gildan agrees to acknowledge its acceptance of the ship date specified
on a Pluma Distributor's Purchase Order by supplying the Pluma Distributor with
a confirmation copy of the Purchase Order signed by Gildan's authorized
representative within thirty (30) days following Gildan's receipt of the Pluma
Distributor's Purchase Order.
7.05 In the event Gildan is unable to meet the requested delivery date for
any Pluma Distributor Purchase Order, Gildan agrees to notify the Pluma
Distributor in writing within thirty (30) days of receipt of the Purchase Order
of its inability to comply with the ship date. The
5
<PAGE>
parties will use their best efforts to agree upon a revised ship date and will
modify the Purchase Order accordingly. In any event, a signed confirmation copy
of the Pluma Distributor's Purchase Order, bearing the agreed-upon
modifications, must be received by Pluma within the Thirty (30) day period
specified in Section 7.04 above.
7.06 It is the intent of Gildan and the understanding of Pluma that, under
the terms of this Agreement, Pluma shall be treated on a preferred client basis.
Gildan represents and warrants to Pluma that the Pluma Distributors shall be
treated on equal basis with Gildan's other wholesale customers of equal or
greater size. Notwithstanding anything hereunder to the contrary, Gildan's
obligation to sell and to fill, supply and ship Apparel to Pluma Distributors
shall be made on a best efforts and endeavors basis only and shall be subject
(i) to the Pluma distributors not making any material deviations in its ordering
pattern (e.g. changes in styles and quantities of styles), as set forth in
Schedule B hereto, and (ii) to Gildan's production capacities from time to time
and other problems beyond the reasonable control of Gildan which may from time
to time be encountered such as strikes, customer clearing problems, raw material
shortage, acts of third parties and generally, and other act of force majeure.
Furthermore, any delivery dates agreed to by Gildan from time to time shall be
estimates only and Gildan shall not be held responsible for any direct or
indirect damages, including, lost profits, lost savings, third party claims or
other incidental or consequential damages resulting from any delay in delivery,
save and except if the delay in delivery was occasioned by circumstances solely
within the control of Gildan.
8. Defective and Nonconforming Returns.
8.01 Any and all shipments of Apparel by Gildan to the Pluma Distributors
that does not materially conform to Gildan product specifications, Distributor
Purchase Order details, terms and conditions, product quality standards, may be
returned to Gildan freight collect following 30 days prior written notice to
Gildan of the planned return, during which 30 days Gildan will be entitled to
have same inspected.
8.02 Any Gildan product received by the Distributors that is materially
defective or non-conforming may be retained by the Distributors as agreed to by
both Gildan and the Distributor. Any credits or deductions against Gildan
invoices for such products must be authorized in writing by Gildan, prior to the
Distributor taking the deduction or credit.
9. Waiver. The failure or forbearance by a party to exercise any of its
rights or remedies with respect to non-performance of this Agreement by the
other party shall not operate as a waiver as to any other or subsequent
non-performance.
10. Right to Adequate Assurance of Performance. If Pluma, acting reasonably
believes that Gildan is unwilling or unable to perform any of the obligations
required of Gildan under this Agreement, Pluma may, in writing, demand that
Gildan provide Pluma with assurances that Gildan is ready, willing and able to
perform. Pluma shall be entitled to suspend its own performance under the
Agreement until it receives adequate assurance, in writing, from Gildan of its
intent and ability
6
<PAGE>
to fully perform under this Agreement. If Gildan fails to provide Pluma with
adequate assurances of due performance within ten (10) days after receipt of
Pluma's written request for said assurances, Pluma may terminate its obligations
under this Agreement after ten (10) days written notice to Gildan, but such
termination shall not affect any of Pluma's legal remedies as a result of
Gildan's non-performance hereunder.
11. Other Agreements. The undersigned represent that they are authorized to
sign this Agreement on behalf of the parties hereto. The parties each represent
that no provision of this Agreement will violate any other agreement that a
party may have with any other person, company, firm or entity. Each party has
relied upon said representation in entering into this Agreement.
12. Notices. All notices which are provided for in this Agreement unless
specifically provided otherwise, shall be given in writing by certified or
registered mail, return receipt requested, by hand delivery or by telecopier or
facsimile transmission, and any such notice shall be deemed to have been given
on the date when such certified or registered mail or hand delivery or
telecopier or facsimile transmission was received and receipted for or refused.
All notices shall be addressed as follows:
If to Pluma: R. Duke Ferrell, Jr.
Chief Executive Officer and President
Pluma, Inc.
801 W. Fieldcrest Road
Eden, NC 27288
Telecopier Number: 336/635-1814
With a copy to: Thomas T. Crumpler, Esquire
Allman Spry Leggett & Crumpler, P.A.
380 Knollwood Street, Suite 700
Winston-Salem, NC 27103
Telecopier Number: 336/721-0414
If to Gildan: Gildan Activewear
725 Montee De Liesse
Montreal, Quebec, Canada H4T1P5
Attention: Glenn Chamandy
Telecopier Number: 514/735-3888
With a copy to: Gino Martel
Hart, Saint-Pierre
1 Place Ville Marie
Suite 2125
Montreal, Quebec H3B2C6
Telecopier Number: 514/866-8323
7
<PAGE>
Either party to this Agreement may provide the other party with written notice
of a change of address to be thereafter used for the purposes of this Agreement.
13. Entire Agreement. The signature of the parties set forth below are
their acknowledgment that this Agreement sets forth their entire understanding
and agreement, and that there are no representations or promises between the
parties hereto except as set forth herein. No provision of this Agreement may be
waived, changed, terminated, modified or discharged, orally or otherwise, except
by a writing signed by the party against whom such waiver, change, termination,
modification or discharge is sought to be enforced.
14. Consultation by Parties. If in performance under this Agreement any
causes beyond the control of either party hamper continuation and/or execution
of the relationship contemplated under this Agreement, then the parties shall
consult with each other in an effort to take whatever reasonable steps are
necessary to protect their interest, except as otherwise mentioned in this
Agreement.
15. Force Majeure. Except as otherwise provided for in this Agreement,
neither party shall hold the other responsible for any delay or failure of
performance occasioned or caused by strikes, riots, fire, insurrection or the
elements, embargoes, failure of carriers, inability to obtain materials or
transportation facilities, acts of God or of the public enemy, governmental
tariffs or quotas, compliance with any law, regulation or other governmental or
court order, whether or not valid, or other causes beyond the reasonable control
of the party.
16. Governing Law. This Agreement is entered into in the State of
Wisconsin. The parties agree that the construction, interpretation and validity
of this Agreement shall be governed by Wisconsin law, and that appropriate state
or federal courts in the state of Wisconsin shall have exclusive jurisdiction
over any suit, action or proceeding arising out of or relating to this
Agreement. The parties further agree that final judgment or decree in any such
suit, action or proceeding shall be conclusive and binding upon the parties, and
enforceable in any appropriate court.
17. Parties Bound. This Agreement shall be binding upon and inure to the
benefit of each party's respective officers, directors, employees, successors
and assigns.
18. Enforceability. If any provision of this Agreement is held void by a
final judgment or decree of any court, commission or other judicial or
quasi-judicial body of competent jurisdiction, this Agreement shall remain in
force and effect in all other aspects as if said provision had not been included
in the Agreement.
19. Representation of Counsel. Gildan and Pluma acknowledge that each was
given the opportunity to have this Agreement and all matters related thereto
reviewed and approved by independent counsel. This Agreement is totally
voluntary on the part of each party and each desires that the terms of this
Agreement be given full force and effect in the future.
8
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement on
the day and year first hereinabove written.
[Remainder of Page is Left Blank Intentionally -
Following Page is Signature Page]
9
<PAGE>
SIGNATURE PAGE TO
AGREEMENT BY AND BETWEEN
GILDAN ACTIVEWEAR, INC. AND PLUMA, INC.
DATED JUNE______, 1998
PLUMA PLUMA, INC.
By: ___________________________________
Its: ___________________________________
GILDAN GILDAN ACTIVEWEAR, INC.
By: ___________________________________
Its: ___________________________________
10
STATE OF NORTH CAROLINA )
) AGREEMENT AND RELEASE
COUNTY OF ROCKINGHAM )
THIS AGREEMENT AND RELEASE ("Agreement"), made and entered into this the
___ day of February, 1999, by and between C. Monroe Light ("Light") of
Martinsville, Virginia and Pluma, Inc. ("Pluma" or the "Company"), a corporation
with its principal offices in Eden, North Carolina;
WHEREAS, Light is employed by the Company as Executive Vice President; and
WHEREAS, the parties have determined that it is in their mutual best
interests to terminate the employment relationship between them upon the terms
and conditions set forth herein; and
WHEREAS the parties have entered into this Agreement for the purpose of
resolving any actual or potential disputes between them.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and for other good and adequate consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Light hereby resigns as an employee of Pluma, effective January 1, 1999.
However, if Light so elects, he may remain on the Company's Board of Directors
(the "Board") until his term thereon expires (provided Light is under no
obligation to remain on the Company's Board). In any event, Light shall not
stand for re-election for the Company's Board when his current term thereon
expires.
<PAGE>
2. Pluma will pay to Light the sum of $61,000 on the Effective Date of this
Agreement (as defined in Section 10(H)), or if the Effective Date is a weekend
day, on the first business day thereafter. Pluma will pay to Light the sum of
$40,000 on September 30, 1999; Pluma will pay to Light the sum of $35,000 on
June 30, 2000; and Pluma will pay to Light the sum of $40,000 on the date that
the last Monthly Installment (as defined in Section 3, below) is due.
3. In addition to the payments made pursuant to Section 2 above, Pluma
shall pay to Light $174,000 in monthly installments as hereinafter set forth
(the Monthly Installments), with the first such Monthly Installment being due
and payable on the Effective Date (or if the Effective Date is a weekend day, on
the first business day thereafter) and subsequent Monthly Installments being due
on the same day of each consecutive month thereafter for seventeen months. The
first six Monthly Installments shall be in the amount of $5,000 each and the
last eighteen Monthly Installments shall be in the amount of $8,000 each. The
Monthly Installment payments shall be made in accordance with Pluma's standard
payroll procedure until the entire sum of $174,000 has been paid to Light.
Payments made to Light under Section 2 and this Section 3 shall be subject to
federal and state income tax withholding procedure, if applicable, and any other
withholdings required by federal and state law, if any.
4. So long as Light continues to serve on Pluma's Board, Pluma shall
provide to Light the same medical and dental insurance coverage benefits as the
Company generally
2
<PAGE>
provides to its employees in accordance with its standard procedures during the
time period that he continues to serve on the Board. This obligation on the part
of Pluma shall terminate on the date Light ceases to serve on the Company's
Board. Thereafter, Light will have all rights provided under COBRA with respect
to medical and dental insurance coverage.
5. Other than the payments and other benefits provided in this Agreement
and except as set forth below, Pluma shall have no obligation to make any
payments to or for the benefit of Light, or to provide any benefits to Light of
any kind (including the payment of any benefit under the Pluma, Inc. Deferred
Compensation Plan for Selected Management Employees [the "Deferred Compensation
Plan"]) and, except as set forth in the next two paragraphs hereof, Light
expressly releases Pluma of and from any obligation to make any other payments
or provide any other benefits to him arising out of or related to his employment
by Pluma.
Notwithstanding the foregoing, Pluma acknowledges that Light is a
participant in Pluma's 401(k) plan available to all Pluma employees (the "401(k)
Plan") and that this Agreement shall in no way restrict Light's full right to
participate in the 401(k) Plan by receiving any sums due him thereunder as of
the date hereof and at the times and in the manner specified in the 401(k) Plan.
Furthermore, notwithstanding Light's waiver of his right to participate in
the Company's Deferred Compensation Plan as set forth above, in the event the
Company is unable, for any reason, to fulfill its obligations under this
Agreement, Light shall have the
3
<PAGE>
option to assert a claim under the Deferred Compensation Plan (the "Plan Claim")
in lieu of asserting his rights as a result of the Company's default under this
Agreement. The amount of the Plan Claim, if asserted, shall be reduced, dollar
for dollar, by the gross amount of cash payments made by the Company under
Sections 2 and 3 of this Agreement (including amounts withheld for federal or
state income tax purposes).
6. Pluma's obligation to make the payments to Light as set forth in
Sections 2 and 3 above shall survive Light's death. In the event of Light's
death, any payments still due and owing under this Agreement at the time of
Light's death shall be made at the times set forth herein to his estate,
personal representative or heirs as may be designated in his last will and
testament, or in the absence of such will, in accordance with the intestate laws
of the Commonwealth of Virginia.
7. On the Effective Date, the Company agrees to transfer to Light the split
dollar life insurance policy owned by the Company on the life of Light.
Thereafter, Light shall be responsible for said policy and the Company shall
have no further obligation with reference thereto.
8. Light agrees that for a period of three years from the effective date of
this Agreement he will not in any fashion, form or manner, either directly or
indirectly, solicit or use for his own purposes or for the purposes of any third
party, or divulge, disclose or communicate to any third party, "confidential
business information" in any form concerning Pluma. As used herein,
"confidential business information" means any information
4
<PAGE>
concerning the business and operations of Pluma, its agreements or relations
with agents, contractors, customers or employees, the status of work in
progress, its products, processes, costs, pricing, customers, employees, trade
secrets, plans, commercial intentions, business practices, or financial matters.
Light further agrees that he will not, while receiving payments under this
Agreement, disparage the business operations of Pluma.
9. Light will return to Pluma, at or prior to the cessation of his
employment, all copies of documents or other materials which contain or
otherwise reflect "confidential business information", including, without
limitation, letters, memoranda, notes, reports, calendars, telegrams,
telecopies, contracts, records, tables, charts, photographs, video and audio
tapes and transcriptions thereof, computer records--including, without
limitation, any and all computer discs, computer tapes and electronic or "E"
mail--and business or financial records. However, should Light elect to remain
on the Board of Pluma pursuant to Section 1 hereof, such confidential business
information need not be returned to the Company until such time as he resigns
from the Board or his current term ends.
10. LIGHT SPECIFICALLY ACKNOWLEDGES THE FOLLOWING:
(A) THAT HE HAS BEEN GIVEN AT LEAST TWENTY-ONE (21) DAYS WITHIN WHICH TO
CONSIDER AND NEGOTIATE THE TERMS RESULTING IN THIS AGREEMENT;
(B) THE COMPANY ADVISES LIGHT THAT HE SHOULD CONSULT WITH AN ATTORNEY
BEFORE EXECUTING THIS AGREEMENT, AND HE
5
<PAGE>
ACKNOWLEDGES THAT HE HAS HAD THE OPPORTUNITY TO CONSULT AN ATTORNEY AND THAT HE
HAS EXERCISED HIS RIGHT TO DO SO;
(C) THAT HE HAS SEVEN (7) DAYS FOLLOWING THE EXECUTION OF THIS AGREEMENT
(THE TIME SET FORTH IN SECTION 10(A) ABOVE) TO REVOKE THE AGREEMENT, AND THE
AGREEMENT WILL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL AFTER THIS SEVEN (7)
DAY PERIOD HAS EXPIRED. IN ORDER TO REVOKE THIS AGREEMENT, LIGHT SHOULD ADVISE
PLUMA IN WRITING OF HIS ELECTION TO REVOKE IT WITHIN THE SEVEN (7) DAY PERIOD.
(D) THAT HE RECOGNIZES THAT HE IS SPECIFICALLY RELEASING, AMONG OTHER
CLAIMS, ANY CLAIMS HE MAY HAVE ARISING UNDER THE AGE DISCRIMINATION IN
EMPLOYMENT ACT AND ALL AMENDMENTS THERETO, AND THAT THIS RELEASE IS KNOWING AND
VOLUNTARY;
(E) THAT HE IS NOT WAIVING ANY RIGHTS OR CLAIMS THAT HE MAY HAVE WHICH
ARISE AFTER THE EFFECTIVE DATE OF THIS AGREEMENT;
(F) THAT THIS AGREEMENT IS INTENDED BY THE PARTIES TO COMPLY WITH THE TERMS
AND PROVISIONS OF THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990 AND ALL
AMENDMENTS THERETO;
(G) THAT IN EXECUTING THIS AGREEMENT HE IS RECEIVING CONSIDERATION IN
EXCESS OF THAT TO WHICH HE IS ALREADY ENTITLED.
6
<PAGE>
(H) THAT, AS USED HEREIN, THE PHRASE "EFFECTIVE DATE" SHALL REFER TO THE
FIRST DAY AFTER THE EXPIRATION OF THE SEVEN (7) DAY PERIOD DESCRIBED IN
PARAGRAPH 10(C) HEREIN.
11. Light hereby knowingly and voluntarily releases Pluma, its
predecessors, successors, parents, subsidiaries, affiliates and its officers,
directors, shareholders, agents and employees (hereinafter the "Released
Parties") from any and all claims which he may have as of the Effective Date of
this Agreement against the Released Parties related to any employment
discrimination claims he may have under the Age Discrimination in Employment
Act, Title VII of the Civil Rights Act of 1964, The Older Workers Benefit
Protection Act, the Vocational Rehabilitation Act of 1973, the Americans With
Disabilities Act, the Family Medical Leave Act, the Employee Retirement Income
Security Act, and any claim for wrongful discharge, retaliatory discharge,
breach of contract, or any other claim for wages due him from Pluma. Light
further agrees that he will not file or permit to be filed any legal or
administrative proceeding seeking personal, equitable or monetary relief against
the Released Parties as to any matter arising out of or related to his
employment, compensation during his employment, or termination of his employment
with Pluma. Should any person, organization, agency or other entity file any
action, charge or complaint against the Released Parties as to any matters
released herein, Light agrees not to seek or accept any personal, equitable or
monetary relief in that action.
12. Except as otherwise required by any governmental or regulatory law or
court decision, Pluma and Light agree not to disclose, either directly or
indirectly, any information
7
<PAGE>
whatsoever regarding the substance of this Agreement, with the exception of any
attorney they may consult regarding its terms.
13. In the event of the initiation of any proceeding by Light against any
of the Released Parties, this Agreement and release may be plead in bar to any
claim of Light and a counterclaim for breach of this Agreement may be asserted.
Light shall indemnify the Released Parties from any loss or damage whatsoever,
including costs, expenses and attorneys fees, incurred in defense of said
proceeding.
14. Light and Pluma agree that this constitutes the entire agreement of the
parties, all prior or contemporaneous representations having been merged herein.
It is further agreed that there are no other representations, promises or
inducements that have been made to cause the execution of this Agreement that
are not expressly set forth herein. This Agreement may not be modified absent a
written agreement executed by all parties hereto.
15. This Agreement shall be binding on and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, successors
and assigns.
16. This Agreement shall be construed in accordance with the laws of the
State of North Carolina.
17. If any provision of this Agreement is determined by a court of
competent jurisdiction to be void, voidable, unlawful or for any reason
unenforceable, such provision shall be deemed fully severable, and the balance
of this Agreement shall be given full force and effect.
8
<PAGE>
IN TESTIMONY WHEREOF, the parties have hereto set their hands and seals the
day and year first written above.
_____________________________(SEAL)
C. Monroe Light
Pluma, Inc.
_____________________________(SEAL)
By:
9
STATE OF NORTH CAROLINA )
) AGREEMENT AND RELEASE
COUNTY OF ROCKINGHAM )
THIS AGREEMENT AND RELEASE ("Agreement"), made and entered into this the
___ day of February, 1999, by and between R. Duke Ferrell, Jr. ("Ferrell") of
Martinsville, Virginia and Pluma, Inc. ("Pluma" or the "Company"), a corporation
with its principal offices in Eden, North Carolina;
WHEREAS, Ferrell is employed by the Company as President and Chief
Operating Officer; and
WHEREAS, the parties have determined that it is in their mutual best
interests to terminate the employment relationship between them upon the terms
and conditions set forth herein; and
WHEREAS the parties have entered into this Agreement for the purpose of
resolving any actual or potential disputes between them.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and for other good and adequate consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Ferrell hereby resigns as an employee of Pluma, effective February 23,
1999. However, if Ferrell so elects, he may remain on the Company's Board of
Directors (the "Board") as an outside non-employee director until his term
thereon expires (provided Ferrell is under no obligation to remain on the
Company's Board). In any event, Ferrell shall not stand for re-election for the
Company's Board when his current term thereon expires, unless
<PAGE>
requested to do so by Pluma's Board of Directors. Ferrell will have no
obligation to stand for re-election, even if requested to do so by Pluma's
Board. As long as Ferrell continues to serve on Pluma's Board of Directors,
Ferrell shall be entitled to annual director compensation, director meeting fees
and expense reimbursement in the same manner as the same is paid to all outside
Pluma directors from time to time.
2. Pluma will pay to Ferrell the sum of $50,000 on the Effective Date of
this Agreement (as defined in Section 11(H)), or if the Effective Date is a
weekend day, on the first business day thereafter.
3. In addition to the payments made pursuant to Section 2 above, Pluma
shall pay to Ferrell $14,060 in monthly installments as hereinafter set forth
(the Monthly Installments), with the first such Monthly Installment being due
and payable on the first day of April 1999 (or if such date is a weekend day, on
the first business day thereafter) and subsequent Monthly Installments being due
on the same day of each consecutive month thereafter for three consecutive
months.
4. So long as Ferrell continues to serve on Pluma's Board, Pluma shall
provide to Ferrell the same medical and dental insurance coverage benefits as
the Company generally provides to its directors in accordance with its standard
procedures during the time period that he continues to serve on the Board. This
obligation on the part of Pluma shall terminate on the date Ferrell ceases to
serve on the Company's Board. Thereafter, Ferrell will have all rights provided
under COBRA with respect to medical and dental insurance coverage.
2
<PAGE>
5. On the Effective Date, the Company shall reimburse to Ferrell all
expenses incurred by him on behalf of the Company (such as travel, meals, etc.)
while carrying out his duties as an employee of the Company. Ferrell agrees to
submit proper invoices for such expenses prior to payment thereof by the
Company. Additionally, Ferrell shall be paid his regular salary as an employee
through the Company through the date hereof, said payment to be made at the time
Pluma's regular payroll for other Pluma employees is paid. Furthermore, the
Company acknowledges that the furniture in Ferrell's office at the Company's
Eden manufacturing facility is Ferrell's personal property, which may be removed
by him at his convenience.
On the Effective Date, and not withstanding anything contained to the
contrary in Section 1of that Incentive Stock Option Agreement between the
Company and Ferrell dated October 26, 1995 and Section 1 of that Non-Statutory
Stock Option Agreement between the Company and Ferrell dated October 26, 1995
(collectively the "Stock Options"), Ferrell shall have the right to purchase all
of the shares granted in the Stock Options under the terms thereof, as Ferrell
shall be deemed "fully vested" with the right to purchase all shares granted in
the Stock Options.
6. Other than the payments and other benefits provided in this Agreement
and except as set forth below, Pluma shall have no obligation to make any
payments to or for the benefit of Ferrell, or to provide any benefits to Ferrell
of any kind (including the payment of any benefit under the Pluma, Inc. Deferred
Compensation Plan for Selected Management
3
<PAGE>
Employees [the "Deferred Compensation Plan"]) and, except as set forth in the
next two paragraphs hereof, Ferrell expressly releases Pluma of and from any
obligation to make any other payments or provide any other benefits to him
arising out of or related to his employment by Pluma.
Notwithstanding the foregoing, Pluma acknowledges that Ferrell is a
participant in Pluma's 401(k) plan available to all Pluma employees (the "401(k)
Plan") and that this Agreement shall in no way restrict Ferrell's full right to
participate in the 401(k) Plan by receiving any sums due him thereunder as of
the date hereof and at the times and in the manner specified in the 401(k) Plan.
Furthermore, notwithstanding Ferrell's waiver of his right to participate
in the Company's Deferred Compensation Plan as set forth above, in the event the
Company is unable, for any reason, to fulfill its obligations under this
Agreement, Ferrell shall have the option to assert a claim under the Deferred
Compensation Plan (the "Plan Claim") in lieu of asserting his rights as a result
of the Company's default under this Agreement. The amount of the Plan Claim, if
asserted, shall be reduced, dollar for dollar, by the gross amount of cash
payments made by the Company under Sections 2 and 3 of this Agreement (including
amounts withheld for federal or state income tax purposes).
7. Pluma's obligation to make the payments to Ferrell as set forth in
Sections 2 and 3 above shall survive Ferrell's death. In the event of Ferrell's
death, any payments still due and owing under this Agreement at the time of
Ferrell's death shall be made at the times
4
<PAGE>
set forth herein to his estate, personal representative or heirs as may be
designated in his last will and testament, or in the absence of such will, in
accordance with the intestate laws of the Commonwealth of Virginia.
8. In consideration of the payments by Pluma to Ferrell as described in
Sections 2 and 3 above, Ferrell hereby agrees to serve the Company as a special
sales and marketing consultant for a period from the Effective Date until July
31, 1999, provided, however, the time period during which Ferrell agrees to
serve as a special sales and marketing consultant may be extended on a
month-to-month basis upon the mutual consent of Pluma and Ferrell, in which
event additional compensation may be payable to Ferrell. In such capacity,
Ferrell will be considered an independent contractor and not a Pluma employee.
Ferrell's duties as a special sales and marketing consultant to the Company
shall include such duties as may be specified by the Company from time to time,
but will likely include travel necessary to call on customers and potential
customers of the Company. Ferrell's duties may also include assisting Pluma's
sales staff and devising future marketing plans. All expenses incurred by
Ferrell in carrying out his duties to the Company under this Section 8 shall be
reimbursed to him by the Company upon submission by Ferrell of proper invoices
therefor. Notwithstanding the above, the Company acknowledges that Ferrell will
not spend all of his working time carrying out his duties referenced in this
Section 8 and may seek other employment during such time, even if such
employment is with a competitor of the Company.
5
<PAGE>
9. Ferrell agrees that for a period of three years from the effective date
of this Agreement he will not in any fashion, form or manner, either directly or
indirectly, solicit or use for his own purposes or for the purposes of any third
party, or divulge, disclose or communicate to any third party, "confidential
business information" in any form concerning Pluma. As used herein,
"confidential business information" means any information concerning the
business and operations of Pluma, its agreements or relations with agents,
contractors, customers or employees, the status of work in progress, its
products, processes, costs, pricing, customers, employees, trade secrets, plans,
commercial intentions, business practices, or financial matters. Ferrell further
agrees that from the date hereof, he will not disparage the business operations
or strategies of Pluma, any of its employees, directors, customers or business
prospects. Furthermore, Pluma and Ferrell agree that Ferrell's resignation from
the Company as set forth herein shall be characterized and referred to publicly
by both parties, when appropriate, as voluntary and mutually agreeable to both
Ferrell and the Company.
10. Ferrell will return to Pluma, at or prior to the cessation of his
employment, all copies of documents or other materials which contain or
otherwise reflect "confidential business information", including, without
limitation, letters, memoranda, notes, reports, calendars, telegrams,
telecopies, contracts, records, tables, charts, photographs, video and audio
tapes and transcriptions thereof, computer records--including, without
limitation, any and all computer discs, computer tapes and electronic or "E"
mail--and business or financial records. However, should Ferrell elect to remain
on the Board of Pluma pursuant to Section 1
6
<PAGE>
hereof, such confidential business information need not be returned to the
Company until such time as he resigns from the Board or his current term ends.
11. FERRELL SPECIFICALLY ACKNOWLEDGES THE FOLLOWING:
(A) THAT HE HAS AT LEAST TWENTY-ONE (21) DAYS WITHIN WHICH TO CONSIDER AND
NEGOTIATE THE TERMS RESULTING IN THIS AGREEMENT IF HE CHOOSES TO TAKE SUCH
PERIOD OF TIME FOR CONSIDERATION AND NEGOTIATION;
(B) THE COMPANY ADVISES FERRELL THAT HE SHOULD CONSULT WITH AN ATTORNEY
BEFORE EXECUTING THIS AGREEMENT, AND HE ACKNOWLEDGES THAT HE HAS HAD THE
OPPORTUNITY TO CONSULT AN ATTORNEY AND THAT HE HAS EXERCISED HIS RIGHT TO DO SO;
(C) THAT HE HAS SEVEN (7) DAYS FOLLOWING THE EXECUTION OF THIS AGREEMENT TO
REVOKE THE AGREEMENT, AND THE AGREEMENT WILL NOT BECOME EFFECTIVE OR ENFORCEABLE
UNTIL AFTER THIS SEVEN (7) DAY PERIOD HAS EXPIRED. IN ORDER TO REVOKE THIS
AGREEMENT, FERRELL SHOULD ADVISE PLUMA IN WRITING OF HIS ELECTION TO REVOKE IT
WITHIN THE SEVEN (7) DAY PERIOD.
(D) THAT HE RECOGNIZES THAT HE IS SPECIFICALLY RELEASING, AMONG OTHER
CLAIMS, ANY CLAIMS HE MAY HAVE ARISING UNDER THE AGE DISCRIMINATION IN
EMPLOYMENT ACT AND ALL
7
<PAGE>
AMENDMENTS THERETO, AND THAT THIS RELEASE IS KNOWING AND VOLUNTARY;
(E) THAT HE IS NOT WAIVING ANY RIGHTS OR CLAIMS THAT HE MAY HAVE WHICH
ARISE AFTER THE EFFECTIVE DATE OF THIS AGREEMENT;
(F) THAT THIS AGREEMENT IS INTENDED BY THE PARTIES TO COMPLY WITH THE TERMS
AND PROVISIONS OF THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990 AND ALL
AMENDMENTS THERETO;
(G) THAT IN EXECUTING THIS AGREEMENT HE IS RECEIVING CONSIDERATION IN
EXCESS OF THAT TO WHICH HE IS ALREADY ENTITLED.
(H) THAT, AS USED HEREIN, THE PHRASE "EFFECTIVE DATE" SHALL REFER TO THE
FIRST DAY AFTER THE EXPIRATION OF THE SEVEN (7) DAY PERIOD DESCRIBED IN
PARAGRAPH 11(C) HEREIN.
12. Ferrell hereby knowingly and voluntarily releases Pluma, its
predecessors, successors, parents, subsidiaries, affiliates and its officers,
directors, shareholders, agents and employees (hereinafter the "Released
Parties") from any and all claims which he may have as of the Effective Date of
this Agreement, known or unknown, against the Released Parties, including, but
not limited to, any employment discrimination claims he may have under the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, The
Older Workers Benefit Protection Act, the Vocational Rehabilitation Act of 1973,
the Americans With Disabilities Act, the Family Medical Leave Act, the Employee
Retirement Income Security Act, and any claim for wrongful discharge,
retaliatory discharge, breach of contract,
8
<PAGE>
intentional or negligent infliction of emotional distress, claim for wages due
him from Pluma or any other cause of action based on federal, state, local or
common law. Ferrell further agrees that he will not file or permit to be filed
any legal or administrative proceeding seeking personal, equitable or monetary
relief against the Released Parties as to any matter including all claims
arising out of or related to his employment, compensation during his employment,
or termination of his employment with Pluma. Should any person, organization,
agency or other entity file any action, charge or complaint against the Released
Parties as to any matters released herein, Ferrell agrees not to seek or accept
any personal, equitable or monetary relief in that action.
13. Except as otherwise required by any governmental or regulatory law or
court decision, Pluma and Ferrell agree not to disclose, either directly or
indirectly, any information whatsoever regarding the substance of this
Agreement, with the exception of any attorney they may consult regarding its
terms.
14. In the event of the initiation of any proceeding by Ferrell against any
of the Released Parties, this Agreement and Release may be plead in bar to any
claim of Ferrell and a counterclaim for breach of this Agreement may be
asserted. Ferrell shall indemnify the Released Parties from any loss or damage
whatsoever, including costs, expenses and attorneys fees, incurred in defense of
said proceeding. The Company shall indemnify Ferrell from any loss or damage
whatsoever including costs, expenses and attorney fees incurred by Ferrell in
the event Ferrell is successful in a claim against the Company for a breach of
this Agreement.
9
<PAGE>
15. The obligations of the Company under this Agreement are specifically
conditioned upon approval of the terms hereof by the Lender, as that term is
defined in the Credit Agreement dated as of April 23, 1998 among the Company,
the several lenders from time to time party thereto, and NationsBank as Agent.
The Company agrees to make a good faith effort to procure this approval by the
Effective Date. In the event such approval is not procured, neither the Company
nor Ferrell shall have any obligations hereunder and this Agreement shall be of
no further force or effect.
16. Ferrell and Pluma agree that this constitutes the entire agreement of
the parties, all prior or contemporaneous representations having been merged
herein. It is further agreed that there are no other representations, promises
or inducements that have been made to cause the execution of this Agreement that
are not expressly set forth herein. This Agreement may not be modified absent a
written agreement executed by all parties hereto.
17. This Agreement shall be binding on and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, successors
and assigns.
18. This Agreement shall be construed in accordance with the laws of the
State of North Carolina.
19. If any provision of this Agreement is determined by a court of
competent jurisdiction to be void, voidable, unlawful or for any reason
unenforceable, such provision shall be deemed fully severable, and the balance
of this Agreement shall be given full force and effect.
10
<PAGE>
IN TESTIMONY WHEREOF, the parties have hereto set their hands and seals
the day and year first written above.
_____________________________(SEAL)
R. Duke Ferrell, Jr.
Pluma, Inc.
_____________________________(SEAL)
By:
11
REPRESENTATIVE'S AGREEMENT
THIS AGREEMENT entered into this 18th day of August, 1998, between PLUMA,
INC., a North Carolina Corporation with its principal office at 801 Fieldcrest
Road, Eden, North Carolina 27288 (hereinafter, the "Company"); and THE ADAIR
GROUP, a Georgia limited liability corporation with its principal offices at 100
Galleria Parkway, Suite #420, Atlanta, GA 30339 (hereinafter, the
"Representative").
BACKGROUND
The Company is an established manufacturer of sportswear apparel products.
The Company has requested that the Representative act as an agent for the
Company to market and sell its products which are considered "irregulars" and/or
"close-outs" (the "Irregular Products") and Representative has agreed to
represent the Company in the solicitation of orders for the Irregular Products.
The Company and Representative desire to express herein the terms and conditions
upon which Representative shall represent the Company and solicit orders for the
Irregular Products.
COVENANTS
In consideration of the Mutual covenants contained herein, the parties
agree as follows:
1. The Company hereby appoints Representative as its sales representative
to sell its Irregular Products. This will not include the output or sales of
irregular or close-out products of the Frank L. Robinson and Stardust Divisions
of the Company or any future subsidiaries that become partially or wholly owned
by the Company, after the date hereof. This Agreement will not preclude the
Company and Representative from contracting for other services that are not
covered under this Agreement.
2. Representative hereby accepts such appointment and agrees to diligently
sell and promote the Company's Irregular Products subject to the provisions and
conditions hereinafter stated, and to devote such time as is reasonably
necessary to sell all of the Company's Irregular Products.
3. The Company shall be entitled to communicate, negotiate with and sell
close-out and irregular products directly to any regular customer of the Company
(i) which has an established policy with the Company regarding its purchase of
goods from the Company which are considered to be irregular; or (ii) who the
Company elects to sell Irregular Products to from time to time and the Company
will not be obligated to pay Representative any commissions on direct sales of
Irregular Products by the Company to such customers. Except for contact with its
regular customers as set forth in (i) and (ii) above, the Company will not
negotiate with or sell Irregular Products to new customers without first having
afforded the Representative the opportunity to sell all of the
<PAGE>
Company's Irregular Products (not sold to regular customers as specified above)
at prices equal to or greater than those prices set forth on Exhibit A. The
Company will notify the Representative of any contact with new customers
concerning the Irregular Products and will provide Representative with copies of
any written correspondence with such new customers. Thereafter, Representative
shall negotiate the sale of any Irregular Products to such new customers. In the
event Representative is unable to sell all of the Company's Irregular Products
(other than those sold by the Company to its regular customers as set forth
above), then the Company shall have those rights in Section 19 below.
4. The Company shall furnish to Representative such pricing, delivery and
technical information as necessary, in Company's opinion, for Representative to
effectively promote and sell the Company's Irregular Products. The price of the
Irregular Products that Representative shall quote to customers shall change
from time to time and Representative agrees that it shall not, without Company's
consent, sell the Irregular Products for less than the price quoted by Company
to Representative. The initial prices of the Irregular Products shall be as set
forth on Exhibit A attached hereto and incorporated herein by reference. As the
prices to be charged for the Irregular Products change from time to time, a new
Exhibit A shall be initialed by the parties and attached hereto.
5. All orders solicited by the Representative shall be subject to
acknowledgment and acceptance by the Company at its principal office, and will
be subject to its standard terms and conditions of sale or as agreed to by the
Company. The Company shall be under no obligation to Representative to accept
(or reject) any order solicited by Representative, but must give Representative
reasonable explanation for the rejection of any such order. Reasonable
explanation for the rejection of any order, for the purposes of this document,
shall include but not be limited to the following: (a) a sales price that will
not generate reasonable profits for the Company based on the Company's best
available information at the time of receipt of the order and the fact that the
goods being sold by Representative are irregular and/or close-out goods; (b) a
requested delivery date that the Company does not believe it can meet based in
the sole judgment and discretion of the Company; and (c) lack of adequate credit
information for credit approval, or credit unworthiness of a customer, as
determined by the Company, based upon information supplied to the Company by the
customer or available to the Company from other sources.
6. Representative shall make no representation or warranties to customers
or potential customers with respect to the Company's Irregular Products except
as stated in the standard policies and written warranty offered by the Company
or except as otherwise approved by the Company.
7. Representative shall not make any allowance or adjustments in the
accounts of customers or authorize the return of any product without obtaining
the prior authorization of the Company. In the event Representative makes such
allowances, adjustments or returns without prior authority by the Company, the
Representative shall be responsible for all costs incurred by the Company.
2
<PAGE>
8. Representative shall abide by all sales and marketing policies, rules
and regulations which the Company may from time to time adopt and communicate in
writing.
9. Representative shall, whenever requested by the Company, follow up on
all sales correspondence between the Company and any purchaser or prospective
purchaser of Irregular Products and shall assist in the solution of commercial
or technical problems arising between the Company and any such purchaser or
prospective purchaser.
10. Representative shall make and submit such reports and in such manner
and form as the Company may reasonably require regarding the business of the
Representative conducted under this Agreement. Representative shall furnish to
the Company, upon request, copies of all correspondence relating to the orders
solicited by Representative, pursuant to this Agreement.
11. Representative shall use its best efforts to assist Company in
implementing Company's accounts receivables collection policy to collect past
due accounts owed to Company by customers solicited by Representative; provided,
Representative shall have no obligation to institute legal proceedings or employ
counsel to collect such accounts. Any legal proceedings necessary to collect any
past due accounts shall be the responsibility of Company.
12. Representative shall participate with Company in the administration of
customer service, with Representative having primary responsibility for
receiving customer complaints or other problems and coordinating the resolution
thereof with the Company, provided, that Representative may refer repetitive
customer complaints and other problems relating to Irregular Products, to the
Company if said complaints continue as the result of Company consistently
failing to meet its obligations to any customer. Furthermore, Representative
will consult with Company regarding production scheduling with the understanding
that all regular customers take priority over customers of Irregular Products.
13. Representative shall be entitled to receive a commission on all
shipments of Irregular Products made by the Company which are booked by
Representative during the term of this Agreement as follows:
(a) An amount equal to ten percent (10%) of the Net Sales of shipments of
Irregular Products up to Eight Million and no/100 Dollars
($8,000,000.00);
(b) An amount equal to nine percent (9%) of all Net Sales of Irregular
Products exceeding Eight Million and no/100 Dollars ($8,000,000.00)
but less than Twelve Million and no/100 Dollars ($12,000,000.00); and
(c) An amount equal to eight percent (8%) of all Net Sales of Irregular
Products over Twelve Million and no/100 Dollars ($12,000,000.00).
3
<PAGE>
The term "Net Sales" shall mean the gross aggregate sales price of the Irregular
Products sold by Representative, to customers less (i) freight charges, (ii) any
discounts and credits allowed to customers by the Company, and (iii) any
uncollected accounts receivable from any such customers as determined by the
Company.
14. Any commissions due Representative pursuant to Section 13 above shall
be payable to Representative not later than the fifteenth (15th) day of the
month following the month in which Company collects the account receivable
related to a shipment booked by the Representative pursuant to and during the
term of this Agreement.
15. The Company shall not be responsible for any advertising and/or
promotion of the Company's Irregular Products. Representative may contract for
advertising and promotion of the Company's Irregular Products on behalf of the
Company, but only if agreed to and approved by by the Company prior to any such
promotion. Any advertising or promotion contracted by the Representative on
behalf of the Company shall be the sole responsibility and liability of the
Representative. Furthermore, Representative shall be responsible for paying all
other expenses incurred by it in selling the Irregular Products and Company
shall have no responsibility or liability therefor.
16. All other expenses incurred by the Representative in the promotion and
sales of the Company's Irregular Products shall be solely the responsibility of
Representative unless otherwise expressly authorized in writing by the Company.
17. Nothing in this Agreement shall be construed to constitute
Representative as a partner, employee or agent of the Company, nor shall either
party have any authority to bind or commit the other in any respect, it being
intended that each shall remain an independent contractor and, except as
expressly stated herein, shall remain in absolute control and responsible for
its own actions.
18. Representative shall not be entitled to assign its rights under this
Agreement or to authorize any other person, other than an employee of
Representative, to hold himself out as a representative of the Company without
the express written consent of the Company.
19. Either the Representative or the Company shall be entitled to terminate
this Agreement by giving six (6) months prior written notice to the other party
hereto. Upon termination of this Agreement, the Representative shall immediately
return to the Company all written price, delivery and technical information (and
copies thereof) relating to the Company's Irregular Products.
Notwithstanding the six (6) month notice requirement to terminate this
Agreement as referenced above, upon ten (10) days prior written notice to the
Representative, the Company shall be entitled to engage other representatives to
sell its irregular and close-out products, or the Company may sell such products
itself, without any obligations to make commission payments to Representative in
the event Representative fails for a period of sixteen (16) consecutive weeks to
sell
4
<PAGE>
all of the Company's Irregular Products (not sold by the Company to its regular
customers as provided in Section 3 above) at prices equal to or greater than
those prices set forth in Exhibit A. Representative shall be entitled to be
reinstated as the Company's Representative following its demonstration to the
reasonable satisfaction of the Company that it can sell again all of the
Company's Irregular Products.
20. Any termination of this Agreement shall not, however, relieve the
Company of any liability to the Representative for any earned but unpaid
commissions as provided above.
Additionally, in the event Pluma sells any Irregular Products to any of
those customers listed on Exhibit B (the "Representative's Customers") for a
period of one year after the date of the termination of this Agreement, the
Company shall be obligated to pay Representative commissions on such sales
according to Section 13 of this Agreement.
21. The Company agrees to indemnify and save harmless Representative
against any liability (including attorney fees) for patent or trademark
infringement resulting from the sales and/or use of the Company's Irregular
Products sold by Representative which fail to meet the Company's specifications
for such Irregular Products. The Representative shall notify the Company
immediately upon learning of any actions based upon alleged patent or trademark
infringement or defective or nonconforming Irregular Products.
Representative agrees to indemnify and hold harmless from loss or damage
(including attorney fees) which the Company might sustain as the result of the
Representative's misrepresentations, or negligence while selling the Irregular
Products of the Company. Representative agrees to maintain liability insurance
during the term of this Agreement.
22. Any legal notice or other communication under this Agreement shall be
in writing, and shall be considered given when delivered personally, by
Certified or Registered Mail, Return Receipt Requested, or upon receipt of a
confirmed transmission if sent by telecopy or facsimile transmission, and in
each case if addressed as follows:
COMPANY:
Pluma, Inc.
1300 Kings Mountain Road (24112)
P. O. Box 4431
Martinsville, VA 24115
Attn: Gus Barber (all correspondence)
Or Attn: Cheryl Wine, Esquire (legal notices)
REPRESENTATIVE:
The Adair Group
100 Galleria Parkway, Suite 4203500 Atlanta Industrial Parkway
Atlanta, GA 30339
Attn: Jeffrey S. Adair (all correspondence)
5
<PAGE>
23. Neither party may assign or delegate this Agreement without the prior
written consent of the other party.
24. This Agreement contains the entire understanding and agreement between
the parties with respect to the subject matter hereof and supersedes all
previous verbal and written agreements of the parties and may be modified or
amended only by a writing executed by Representative and an authorized officer
of the Company.
25. This agreement shall be governed in all respects by the laws of North
Carolina without regard to choice of law provisions. The parties agree that the
exclusive jurisdiction over and venue in any legal action or proceeding arising
out of this Agreement shall be in state and federal courts located in North
Carolina.
IN WITNESS WHEREOF, Company and Representative have executed this Agreement
on the day and year first written above.
COMPANY
Pluma, Inc.
By: /s/ R. Duke Ferrell, Jr.
---------------------------------------
R. Duke Ferrell, Jr., President and CEO
[CORPORATE SEAL]
REPRESENTATIVE
Riada/The Adair Group
By: /s/ Jeffrey S. Adair
---------------------------------------
Jeffrey S. Adair, President
[CORPORATE SEAL]
6
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Exhibit A RIADA MILLS PRICING
OLD VOL. VOLUME VARIANCE FROM
STYLE/DESC. PRICE PRICE -10% OLD PRICE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11I00 (Adult 7 oz. Crew) $ 28.20 $ 33.00 $ 29.70 $ 1.50
11I01 (9 oz. 80/20 & 50/5050/50) $ 31.44 $ 39.00 $ 35.10 $ 3.66
11I0J (JUMBO 7 & 9 oz.) $ 30.00 $ 42.00 $ 37.80 $ 7.80
11I05 (11 oz crews) $ 45.00 $ 57.00 $ 51.30 $ 6.30
11I42 (12 oz. 90/10) $ 57.00 $ 72.00 $ 64.80 $ 7.80
12I60 (Youth crews) $ 16.08 $ 19.80 $ 17.82 $ 1.74
13I00 (Juvenile crew) $ 15.00 $ 19.80 $ 17.82 $ 2.82
14I00 (Toddler crew) $ 14.40 $ 18.00 $ 16.20 $ 1.80
26I00 (Adult 7 oz. Pant) $ 31.44 $ 36.00 $ 32.40 $ 0.96
21I01 (Adult 9 oz. Pant) $ 36.00 $ 42.00 $ 37.80 $ 1.80
21I0J (Jumbo pants-7 & 9) $ 31.44 $ 39.00 $ 35.10 $ 3.66
22I30 (Youth pants $ 18.00 $ 24.00 $ 21.60 $ 3.60
23I00 (Juvenile Pants) $ 15.00 $ 18.00 $ 16.20 $ 1.20
24I00 (Toddler Pants) $ 14.40 $ 16.80 $ 15.12 $ 0.72
25I00 (Infant Pants $ 12.00 $ 15.00 $ 13.50 $ 1.50
91I00 (Adult Fashion tops) $ 37.80 $ 48.00 $ 43.20 $ 5.40
98I00 (Youth Fashion tops) $ 18.00 $ 27.00 $ 24.30 $ 6.30
51I00 (Zip hood 7 & 9 oz.) $ 57.00 $ 72.00 $ 64.80 $ 7.80
58I00 (Youth zip) $ 42.00 $ 48.00 $ 43.20 $ 1.20
53I00 (Juvenile zip) $ 30.00 $ 39.00 $ 35.10 $ 5.10
54I00 (Toddler zip) $ 28.80 $ 33.00 $ 29.70 $ 0.90
31I05 (11 oz. PO Hood) $ 64.20 $ 84.00 $ 75.60 $11.40
31I10 (Adult 7 oz. PO) $ 46.04 $ 57.00 $ 51.30 $ 5.26
31I01 (Adult 9 oz. PO) $ 54.00 $ 63.00 $ 56.70 $ 2.70
32I60 (Youth PO) $ 33.00 $ 42.00 $ 37.80 $ 4.80
33I00 (Juvenile PO) $ 27.00 $ 32.40 $ 29.16 $ 2.16
41I16 (Adult jersey short $ 18.00 $ 24.00 $ 21.60 $ 3.60
21I16 (Adult jersey Pant $ 23.04 $ 30.00 $ 27.00 $ 3.96
11I09 (Adult 6.1 oz t) $ 16.08 $ 18.00 $ 16.20 $ 0.12
11I19 (T-2XL) $ 16.08 $ 19.92 $ 17.93 $ 1.85
11I06 (7 oz. Adult t) $ 18.00 $ 24.00 $ 21.60 $ 3.60
11I16 (7 oz. L.S. T) $ 19.92 $ 25.20 $ 22.68 $ 2.76
51I10 (Adult cardigan) $ 51.00 $ 66.00 $ 59.40 $ 8.40
Average $ 3.76
</TABLE>
<PAGE>
EXHIBIT B
EXHIBIT B
Number Name Location Telephone
- --------------------------------------------------------------------------------
10175 STONE & COMPANY Martinsville
11191 SPORT MAX INC. Oshkosh
11200 GRANDPA PIDGEON'S Bridgeton 314/739-8300
11202 AMES DEPARTMENT STOR Rocky Hill 860/257-2000
11205 SPALDING HOSIERY SHO Griffin 770/227-4362
11220 J. TEPLER BROOKLYN 718-694-9300
11222 DEL PRINCE FASHIONS BUFFALO 716-838-2388
11225 COLIN'S IMPORTS,INC CULVER CITY 310-837-3388
11226 ALL THE TIME FASHION NEW YORK 212-448-9406
11227 FORMAN MILLS PENNSAUKEN 609-486-1447
11228 DONAVAN SALES WARWICK 401-467-6173
11229 SALAH SPORTSWEAR INC NEW YORK 212-545-8923
11235 COOPERS ALBUQUERQUE 505-296-8344
11242 A & N STORES/ STERNH SANDSTON 804-226-1325
11255 E.D COMPANY PIEGON FORGE 423-428-7646
11256 MYSTERY STORE STOCKTON
11257 T-SHIRT WHOLESALE OU FOUNTAIN VALLEY 714.434.1560
11262 MAIN STREET BOOT D/B PETALUMA
11263 SAMIL CO., INC. STATEN ISLAND 718-442-2338
11264 ACTION FOOTWEAR CHULA VISTA 619-427-7111
11265 NEW YORK MAN LTD. BROOKLYN 718-439-8734
11266 THE FAMILY CLOTHESLI STATE COLLEGE 814-237-1946
11267 DIAMOND MERCANTILE C CINCINATI
11268 T-SHIRT CITY CORP. LINCOLN
11270 CAPE CLOTHING FORESTDALE
11290 GRIGGS ENTERPRISES I PASCO 509-547-0566
11291 PRO'S CHOICE HOLIDAY 727-934-7727
11292 G & M VARIETY ST. JOSEPH 616-983-2160
11293 PARKER'S OUTLET CENT AVILLA 517-437-7973
11294 BRIAN FARM SVC LOA
11295 NATIONAL BARGAIN STO OAKLAND
11296 I. STERN & CO. GREEN ACRES 561-439-6533
11298 STUMP'S OUTPOST THERMOPOLIS
11299 ANNIE AND THE TEES NANTUCKET
11300 PATRICK DRY GOODS CO SALT LAKE CITY 801-363-5895
11325 LOS HERMANOS LOS ANGELES 213.488.4924
11326 BIG R KLAMATH FALLS 541.882.6650
11327 BONANZA WHOLESALE DI Oakland
11329 ARIK SURPLUS SAN FRANCISCO
11330 VALUE CITY DEPT. STO COLUMBUS 614.471.4722
11376 J.W. RITCHIE ROCKLAND
11377 LESLEE SCOTT INC. DUBLIN 925.828.3838
11381 G & M VARIETy ROCKVILLE
11382 K.R. STAFFORD & SONS HILLSBORO 603/464-3661
11383 FELDMANS ODESSA 816.230.5539
11390 RANDY SUPPLY CO. S. WEYMOUTH
11392 DOMEL INC. d/b/a/ SA HEMET 909/658-7247
11395 JEMBRO VARIETY STORE Brooklyn 718/832-1070
11396 APPAREL RESOURCES IN PORT ORANGE 904/760-6817
11406 LONGS DRUG WALNUT CREEK 805/735-7651
11409 RICHARDSON INC. GAINSVILLE 770/532-4402
11411 ULTRA GIFTS INC. LAUGHLIN 702/298-1919
11413 USA FAMILY OUTLET DEER PARK 516-254-0777
11414 CLASSY SWEATS SAN FRANCISCO
11415 A BAR L WESTERN TONOPAH
11417 SWEATSHIRTS ETC. RAYMOND
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made this, the 15th day of December, 1998, by and
between PLUMA, INC., a North Carolina corporation (hereinafter called the
"Company"), and __________________________, (hereinafter called "Employee").
WHEREAS, the Employee is a valued and productive member of the Company's
management team; and
WHEREAS, the Company considers it desirable and in its best interests
that the Employee be given an inducement to acquire and/or add to his
proprietary interest in the Company in the form of options to purchase common
shares of the Company; and
WHEREAS, the stock option granted hereunder is granted pursuant to the
terms of the Pluma, Inc. Stock Option Plan, dated October 26, 1995, and is to be
a nonstatutory stock option, not an incentive stock option.
NOW, THEREFORE, in consideration of the premises, it is agreed as
follows:
1. Grant of Option. The Company grants to the Employee the right and
option to purchase from it, on the terms and conditions following, all or any
part of an aggregate of _________________________ (________) shares of the
authorized, issued and outstanding no par value common shares of the Company.
The purchase price shall be $2.00 per share, which is the fair market value per
share in the Company's no par value common shares on the date of this Agreement.
The Employee is hereby granted the option to purchase
____________________________ (________) shares of common stock in the company
effective December 16, 1998.
2. Time of Exercise of Option. All granted options must be exercised, if
at all, by the Employee on or before December 15, 2008.
3. Method of Exercise. The option shall be exercised by written notice
directed to the Company at its principal place of business, accompanied by check
in payment of the option price for the number of shares specified and paid for.
The Company shall make immediate delivery of such shares, provided that if any
law or regulation requires the Company to take any action with respect to the
shares specified in such notice before the issuance thereof, then the date of
delivery of such shares shall be extended for the period necessary to take such
action.
4. Termination of Option. Except as otherwise stated in this Agreement, the
option, to the extent not previously exercised, shall terminate as provided
below:
(a) If the Employee's tenure as a Employee by or contractual
relationship with the Company terminates by reason of the Employee's
death, the stock option
Nonstatutory Stock Option Agreement Page 1 of 4
<PAGE>
may thereafter be exercised, to the extent exercisable at the date of
death, by the legal representative or legatee of the Employee, for a
period of six (6) months from the date of the Employee's death, or until
the expiration of the stated term of the option, if earlier.
(b) Any stock option held by the Employee, whose tenure as a
Employee with the Company is terminated by reason of disability (as such
term is defined in the Pluma, Inc. 1995 Stock Option Plan) may
thereafter be exercised, to the extent it was exercisable at the time of
such termination, for a period of six (6) months from the date of such
termination of employment, or until the expiration of the stated term of
the option, if earlier.
(c) If the Employee's tenure as an Employee with the Company has
been terminated for cause (as defined in the Company's 1995 Stock Option
Plan), any stock option held by such Employee shall immediately
terminate and be of no further force and effect; provided, however, the
Company, acting through the appropriate committee of its Board of
Employees, may, in its sole discretion, provide that such stock option
can be exercised for a period of up to thirty (30) days from the date of
termination of employment or until the expiration of the stated term of
the option, if earlier.
(d) If the Employee's tenure as an Employee with the Company
terminates for any reason other than Death, Disability or for Cause, any
stock option held by the Employee may thereafter be exercised, to the
extent it was exercisable on the date of termination for three (3)
months from the date of termination or until the expiration of the
stated term of the option, if earlier.
5. Limitation Upon Transfer.
During the lifetime of the Employee, this option and all rights
granted in this Agreement shall be exercisable only by the Employee, and except
as paragraph 4 otherwise provides, this option and all rights granted under this
contract shall not be transferred, assigned, pledged, or hypothecated in any way
(whether by operation of law or otherwise), other than by will or the laws of
descent and distribution of the state of residence of Employee, or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended, 26 United States Code Section 1, et seq., or Title I of the
Employee Retirement Income Security Act or the rules thereunder. Furthermore,
this option shall not be subject to execution, attachment, or similar process.
Upon any attempt to transfer, assign, pledge, hypothecate, or otherwise dispose
of such option or of such rights contrary to the provisions in this Agreement,
or upon the levy of any attachment or similar process upon such option or such
rights, such option and such rights shall immediately become null and void.
Nonstatutory Stock Option Agreement Page 2 of 4
<PAGE>
6. Reclassification, Consolidation, or Merger. If and to the extent that
the number of issued common shares of the Company shall be increased or reduced
by a change in par value, split-up, reclassification, distribution of a dividend
payable in shares, or the like, the number of shares subject to option and the
option price for them shall be proportionately adjusted. If the Company is
reorganized or consolidated or merged with another corporation, the Employee
shall be entitled to receive options covering shares of such reorganized,
consolidated, or merged company in the same proportion, at an equivalent price,
and subject to the same conditions. For purposes of the preceding sentence, the
excess of the aggregate fair market value of the shares subject to the option
immediately after the reorganization, consolidation, or merger over the
aggregate option price of such shares shall not be more than the excess of the
aggregate fair market value of all shares subject to the option immediately
before such reorganization, consolidation, or merger over the aggregate option
price of such shares. The new option or assumption of the old option shall not
give the Employee additional benefits which he did not have under the old
option.
7. Rights Prior to Exercise of Option. The option is nontransferable by
the Employee, except as herein otherwise provided in paragraph 4 (a) hereof, and
during his lifetime is exercisable only by him, and the Employee shall have no
rights as a shareholder in the option shares until payment of the option price
and delivery to him of such shares as herein provided.
8. Approval by Shareholders. The granting of the option is being made
pursuant to a plan adopted by the Board of Employees of the Company on October
26, 1995, which includes the aggregate number of 250,240 common shares of the
Company which may be issued as nonstatutory stock options, and which specifies
that the Employee is a member of the class of employees eligible to receive such
options. Such plan was approved by the shareholders of the Company on October
26, 1995.
9. Notices. Any notice to be given under the terms of this Agreement
shall be addressed to the Company in care of its Secretary at Pluma, Inc., 801
Fieldcrest Road, Eden, NC 27288, or at such other address as either party may
hereafter designate in writing to the other. Any such notice shall be deemed
duly given when enclosed in a properly sealed envelope or wrapper addressed as
herein required, certified and deposited (postage and certification fee prepaid)
in a post office or branch post office regularly maintained by the United States
Government.
10. Binding Effect. This Agreement shall be binding upon the heirs,
executors, administrators, and successors of the parties hereto.
Nonstatutory Stock Option Agreement Page 3 of 4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first above written.
PLUMA, INC.
[Corporate Seal] By: _______________________________
R. Duke Ferrell, Jr., President
ATTEST:
- -----------------------------
George G. Wade, Secretary
____________________________(SEAL)
______________________, Employee
Nonstatutory Stock Option Agreement Page 4 of 4
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is made this, the 15th day of December, 1998, by and
between PLUMA, INC., a North Carolina corporation (hereinafter called the
"Company"), __________________________, (hereinafter called "Employee").
WHEREAS, the Employee is a valued and productive member of the Company's
management team; and
WHEREAS, the Company considers it desirable and in its best interests
that the Employee be given an inducement to acquire and/or add to his
proprietary interest in the Company in the form of options to purchase common
shares of the Company; and
WHEREAS, the stock option granted hereunder is granted pursuant to the
terms of the Pluma, Inc. Stock Option Plan, dated October 26, 1995, and is to be
an Incentive Stock Option as defined in Section 422 of the Internal Revenue Code
of 1986, as may be amended from time to time.
NOW, THEREFORE, in consideration of the premises, it is agreed as
follows:
1. Grant of Option. The Company grants to the Employee the right and
option to purchase from it, on the terms and conditions following, all or any
part of an aggregate of ________________________ (________) shares of the
authorized, issued and outstanding no par value common shares of the Company.
The purchase price shall be $2.00 per share. The Employee is hereby granted the
option to purchase _________________________ (______) shares of common stock in
the company effective December 16, 1998.
2. Time of Exercise of Option. All granted options must be exercised, if
at all, by the Employee on or before December 15, 2008 (hereinafter referred to
as the "Terminal Date"), provided that the aggregate fair market value of stock
with respect to which incentive stock options are exercisable under this
Agreement for the first time by the Employee during any calendar year shall not
exceed One Hundred Thousand Dollars ($100,000.00).
3. Method of Exercise. The option shall be exercised by written notice
directed to the Company at its principal place of business, accompanied by check
in payment of the option price for the number of shares specified and paid for.
The Company shall make immediate delivery of such shares, provided that if any
law or regulation requires the Company to take any action with respect to the
shares specified in such notice before the issuance thereof, then the date of
delivery of such shares shall be extended for the period necessary to take such
action.
Incentive Stock Option Agreement/ Page 4 of 4
<PAGE>
4. Termination of Option. Except as otherwise stated in this Agreement,
the option, to the extent not previously exercised, shall terminate as provided
below:
(a) If the Employee's employment by or contractual relationship
with the Company terminates by reason of the Employee's death, the stock
option may thereafter be exercised, to the extent exercisable at the
date of death, or if the Employee dies within the three (3) month period
following the termination of employment (excluding an Employee
discharged for cause as provided in subparagraph (c), below), by the
legal representative or legatee of the Employee, for a period of six (6)
months from the date of the Employee's death, or until the expiration of
the stated term of the option, if earlier.
(b) Any stock option held by the Employee, whose employment by or
contractual relationship with the Company is terminated by reason of
disability (as such term is defined in the Pluma, Inc. 1995 Stock Option
Plan) may thereafter be exercised, to the extent it was exercisable at
the time of such termination, for a period of six (6) months from the
date of such termination of employment, or until the expiration of the
stated term of the option, if earlier.
(c) If the Employee's employment by or contractual relationship
with the Company has been terminated for cause (as defined in the
Company's 1995 Stock Option Plan), any stock option held by such
Employee shall immediately terminate and be of no further force and
effect; provided, however, the Company, acting through the appropriate
committee of its Board of Employees, may, in its sole discretion,
provide that such stock option can be exercised for a period of up to
thirty (30) days from the date of termination of employment or until the
expiration of the stated term of the option, if earlier.
(d) If the Employee's tenure as an Employee with the Company
terminates for any reason other than Death, Disability or for Cause, any
stock option held by the Employee may thereafter be exercised, to the
extent it was exercisable on the date of termination for three (3)
months from the date of termination or until the expiration of the
stated term of the option, if earlier.
5. Limitations. In accordance with the terms of Section 422 of the
Internal Revenue Code of 1986, the option granted under this Agreement is
limited so that the aggregate fair market value of the stock which the Employee
may purchase hereunder in any calendar year does not exceed $100,000.
Incentive Stock Option Agreement/ Page 2 of 4
<PAGE>
6. Limitation Upon Transfer.
(a) During the lifetime of the Employee, this option and all rights
granted in this Agreement shall be exercisable only by the Employee, and except
as paragraph 4 otherwise provides, this option and all rights granted under this
contract shall not be transferred, assigned, pledged, or hypothecated in any way
(whether by operation of law or otherwise), other than by will or the laws of
descent and distribution of the state of residence of Employee, or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended, 26 United States Code Section 1, et seq., or Title I of the
Employee Retirement Income Security Act or the rules thereunder. Furthermore,
this option shall not be subject to execution, attachment, or similar process.
Upon any attempt to transfer, assign, pledge, hypothecate, or otherwise dispose
of such option or of such rights contrary to the provisions in this Agreement,
or upon the levy of any attachment or similar process upon such option or such
rights, such option and such rights shall immediately become null and void.
(b) The underlying shares of stock acquired by the Employee as a result
of the exercise of any stock option granted herein shall be held by the Employee
and shall not be transferred, assigned, pledged or hypothecated in any way by
the Employee (other than by will or the laws of descent and distribution of the
state of residence of the Employee, or pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code of 1986, as amended, 26
United States Code Section 1, et seq., or Title I of the Employee Retirement
Security Act or the rules thereunder), and shall not be subject to execution,
attachment, or similar process, for a period of two years and one day from the
date of grant of the stock option so exercised, or for a period of one year and
one day after the stock is transferred to the Employee, whichever is later.
7. Reclassification, Consolidation, or Merger. If and to the extent that
the number of issued common shares of the Company shall be increased or reduced
by a change in par value, split-up, reclassification, distribution of a dividend
payable in shares, or the like, the number of shares subject to option and the
option price for them shall be proportionately adjusted. If the Company is
reorganized or consolidated or merged with another corporation, the Employee
shall be entitled to receive options covering shares of such reorganized,
consolidated, or merged company in the same proportion, at an equivalent price,
and subject to the same conditions. For purposes of the preceding sentence, the
excess of the aggregate fair market value of the shares subject to the option
immediately after the reorganization, consolidation, or merger over the
aggregate option price of such shares shall not be more than the excess of the
aggregate fair market value of all shares subject to the option immediately
before such reorganization, consolidation, or merger over the aggregate option
price of such shares. The new option or assumption of the old option shall not
give the Employee additional benefits which he did not have under the old
option.
Incentive Stock Option Agreement/ Page 3 of 4
<PAGE>
8. Rights Prior to Exercise of Option. The option is nontransferable by
the Employee, except as herein otherwise provided in paragraph 4 (a) hereof, and
during his lifetime is exercisable only by him, and the Employee shall have no
rights as a shareholder in the option shares until payment of the option price
and delivery to him of such shares as herein provided.
9. Approval by Shareholders. The granting of the option is being made
pursuant to a plan adopted by the Board of Employees of the Company on October
26, 1995, which includes the aggregate number of 264,960 common shares of the
Company which may be issued as incentive stock options, and which specifies that
the Employee is a member of the class of employees eligible to receive such
options. Such plan was approved by the shareholders of the Company on October
26, 1995.
10. Notices. Any notice to be given under the terms of this Agreement
shall be addressed to the Company in care of its Secretary at Pluma, Inc., 801
Fieldcrest Road, Eden, NC 27288, or at such other address as either party may
hereafter designate in writing to the other. Any such notice shall be deemed
duly given when enclosed in a properly sealed envelope or wrapper addressed as
herein required, certified and deposited (postage and certification fee prepaid)
in a post office or branch post office regularly maintained by the United States
Government.
11. Binding Effect. This Agreement shall be binding upon the heirs,
executors, administrators, and successors of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first above written.
PLUMA, INC.
[Corporate Seal] By: _______________________________
R. Duke Ferrell, Jr., President
ATTEST:
- -----------------------------
George G. Wade, Secretary
____________________________(SEAL)
__________________, Employee
Incentive Stock Option Agreement/ Page 4 of 4
December 29, 1997
Mr. J. Robert Philpott, Jr.
Director
Pluma, Inc.
c/o Philpott, Ball & Company
212 S. Tryon Street, Suite 1050
Charlotte, NC 28281
Subject: Organizational Assessment for Pluma, Inc.
Dear Bob:
This letter serves as the engagement letter for an Organizational Assessment to
be conducted for Pluma, Inc. ("Pluma") by Norelli & Company ("Norelli"). Norelli
accepts the engagement based on the understanding that Pluma, Inc. is the
client. For the purposes of this engagement, we will report to you in your
capacity as the individual designated by the Board of Directors of Pluma, Inc.
as the liaison between Pluma and Norelli.
OBJECTIVE OF PLUMA'S BOARD
- --------------------------
The Board's objective is to ensure that the management team is capable of
successfully implementing the strategy developed by the Board. This requires
structuring the management team so that the skills and interests of individual
managers match the tasks required to execute the strategic plan. It also
requires structuring the team so that team members work well together,
particularly the two most senior members of the team.
SCOPE OF NORELLI'S ACTIVITIES
- -----------------------------
To assist the Board in accomplishing its objective, Norelli expects to conduct
certain tasks as outlined below:
o conduct industry research to confirm Pluma's position in the industry;
o become familiar with Pluma's strategic plan and the requirements thereof;
o review the analyses performed in advance of the Stardust and Frank L. Robinson
acquisitions;
<PAGE>
Mr. J. Robert Philpott, Jr.
Engagement Letter
December 29, 1997
Page 2
o analyze the executive compensation plan;
o review the job descriptions of the President and the Chairman of the Board;
o conduct in-person interviews with each member of the Board of Directors and
with the following individuals:
Mr. Milton A. Barber
Mr. Douglas Shelton
Mr. Forrest H. Truitt, II
Mrs. G. Walker Box
Mrs. R. Duke Ferrell;
o consult with Behavioral Science professionals as appropriate;
o prepare specific recommendations for the division of responsibilities between
Messrs. Box and Ferrell; and
o identify additional issues which warrant further study.
NORELLI STAFF TIMING AND PROFESSIONAL FEE
- -----------------------------------------
The Norelli team for this engagement will include me, John A. Magee, Senior Vice
President, and Mason Elder, Senior Research Analyst. John and I will be involved
in all aspects of the project, and we will conduct all of the interviews. Mason
will focus primarily on the industry analysis, the acquisition analyses, the
executive compensation plan, and the strategic plan. We estimate that our
professional fee for the engagement will be Thirty-two Thousand Dollars
($32,000.00). Our fee will not exceed Thirty-five Thousand Dollars ($35,000.00).
Out-of-pocket expenses will be billed at cost. Our normal terms include
progress billings each month for work completed during the month. We will
provide our preliminary report to the Board in late January or early February.
<PAGE>
Mr. J. Robert Philpott, Jr.
Engagement Letter
December 29, 1997
Page 3
If the terms of this proposal are acceptable to you, please so indicate by
signing below and returning a copy of this letter to me. We look forward to your
favorable reply.
Sincerely,
Ronald A. Norelli
President
Accepted on Behalf of Pluma, Inc. by:
- ----------------------------- ----------------
J. Robert Philpott, Jr. Date
Director
February 4, 1998
Mr. J. Robert Philpott, Jr.
Director
Pluma, Inc.
c/o Philpott, Ball & Company
212 S. Tryon Street, Suite 1050
Charlotte, NC 28281
Subject: Organizational Assessment for Pluma, Inc., Phase II
Dear Bob:
This letter serves as the engagement letter for an Organizational Assessment to
be conducted for Pluma, Inc. ("Pluma") by Norelli & Company ("Norelli"). This
assessment, hereafter referred to as "Phase II", is to be conducted concurrently
with the Organizational Assessment being conducted pursuant to the engagement
letter dated December 29, 1997. Norelli accepts the engagement based on the
understanding that Pluma, Inc. is the client. For the purposes of this
engagement, we will report to you in your capacity as the individual designated
by the Board of Directors of Pluma, Inc. as the liaison between Pluma and
Norelli.
OBJECTIVE OF PLUMA'S BOARD
- --------------------------
The Board's objective is to identify the fundamental business, organizational,
and systems problems that have caused unexpected earnings surprises such as
those in the 4th quarter of 1997. Once the problems have been identified, the
Board would like assistance in designing and implementing solutions to the
problems.
SCOPE OF NORELLI'S ACTIVITIES
- -----------------------------
To assist the Board in accomplishing its objective, Norelli expects to conduct
certain tasks as outlined below:
o analyze the 4th quarter variance from plan to determine the amounts
attributable to specific causes and/or events;
o analyze the lines of authority and responsibility for coordinating sales and
manufacturing activities;
<PAGE>
Mr. J. Robert Philpott, Jr.
Engagement Letter
February 4, 1998
Page 2
o analyze the product mix and other assumptions behind the standard cost
system;
o chart the process and cycle times associated with each step required to
produce and deliver a garment to the customer;
o become familiar with the capabilities of the SAP system and assess the
reasonableness of management's expectations for the new system;
o conduct an assessment of the SAP installation process and progress toward
full functionality;
o present our findings tot he Board along with recommendations on how to
address the problems that we have identified.
NORELLI STAFF TIMING AND PROFESSIONAL FEE
- -----------------------------------------
The Norelli team for this engagement will include me, John A. Magee, Senior Vice
President, and Mason Elder, Senior Research Analyst. John will serve as the
project manager and he will conduct all of the interviews in the information
gathering phase of the project. Mason will focus primarily on our analysis of
the SAP project, both its current status and on what the system can be expected
to provide once it is installed. We estimate that our professional fee for the
engagement will be Thirty Five Thousand Dollars ($35,000.00). The estimate
includes Five Thousand Dollars ($5,000.00) for an independent systems consulting
firm to assist us in analyzing the installation of the SAP system and the
reasonableness of management's expectations for the new SAP system.
We anticipate that we will have a preliminary report for you by the middle of
March. However, the nature of this engagement is such that we can not predict in
advance exactly what we will find. The information gathering phase of the
project may require more than the fifteen interviews we have estimated. Also,
the time required to identify the relevant issues and develop recommendations
will depend in part on what the issues are. As a result, it may take longer to
deliver a final report. Likewise, our estimate of the professional fee is not
intended to be a guaranteed maximum price for the work on Phase II. However, we
will not go beyond $30,000 without advising you of your progress and obtaining
authorization to proceed further. Out-of- pocket expenses will be billed at
cost. Our normal terms include progress billings each month for work completed
during the month.
<PAGE>
Mr. J. Robert Philpott, Jr.
Engagement Letter
February 4, 1998
Page 3
If the terms of this proposal are acceptable to you, please so indicate by
signing below and returning a copy of this letter to me. We look forward to your
favorable reply.
Sincerely,
Ronald A. Norelli
President
Accepted on Behalf of Pluma, Inc. by:
- ------------------------------ -----------------
J. Robert Philpott, Jr. Date
Director
PERSONAL AND CONFIDENTIAL
VIA HAND DELIVERY
March 17, 1998
Mr. G. Walker Box
Chairman
Pluma, Inc.
P.O. Box 4431
Martinsville, Virginia 24112
Dear Walker:
I am pleased to present this engagement letter ("Letter") covering Norelli &
Company's ("Norelli") ongoing service to Pluma, Inc. ("Pluma", or the
"Company").
OBJECTIVES OF THE BOARD
- -----------------------
Norelli understands the objectives of Pluma's Board of Directors in this
expanded engagement to include the following:
o assess the structure of Pluma's Board of Directors and its
committees, identify any conflicts or potential conflicts of interest
of its members, if any, which might impair their ability to
objectively carry out their fiduciary duties or create a public
perception of impropriety, and evaluate the depth and breadth of
Pluma's Board members experience in the context of what is
required and should be expected from the Board to enable it to
successfully fulfill its fiduciary responsibility to the Company and
its shareholders;
<PAGE>
Mr. G. Walker Box
March 17, 1998
Page 2
o assess the structure of Pluma's management team and evaluate the
depth and breadth of its experience and abilities to execute
successfully the Company's strategic plan;
o to maintain an appropriate amount of positive tension between the
Board and management without creating management paralysis or
undermining the role and authority of the chief executive officer;
o to develop a Company retirement policy that will be used for all
present and future Company executives and specifically, to
facility the orderly retirement of George Wade;
o to evaluate the Company's budgets and forecasts to insure their
accuracy and sufficiency to facility proper decision making; and
o to recommend changes that may be necessary to insure that the
Company meets its objectives.
SCOPE OF ENGAGEMENT
- -------------------
In addressing the above mentioned objectives, I expect the scope of Norelli's
work to include the activities noted below:
o continuing confidential personal discussions with all members of
Pluma's Board of Directors;
o reviewing current practices and corporate governance policies of
other public companies similar to Pluma;
o attending meetings with senior management that will be necessary
to identify short term operating and sales issues;
o attending meetings of the Special Committee ("Committee") of
Pluma's Board of Directors as needed to report to the Committee
<PAGE>
Mr. G. Walker Box
March 17, 1998
Page 3
on the progress of the engagement, to obtain necessary information
and to obtain the perspective of the Committee;
o further assessment of management, including review of personnel
files and further interviews;
o assistance as needed to refine second and third quarter forecasts
and prioritize specific action plans for the next two quarters;
o interviews with other Company employees as determined by
Norelli and the Company's senior management;
o assessment of the Stardust and FL Robinson acquisitions and their
assimilation into Pluma's overall operations; and
o drafting and presentation of the report to the Board.
TIME FRAME, PROFESSIONAL FEE, INVOLVEMENT OF OTHER NORELLI STAFF
- ----------------------------------------------------------------
I will personally attend the Committee meetings, monthly management meetings,
visit the acquisitions at least once, and prepare the specific organizational
recommendations. I will also continue one-on-one discussions with both you and
Duke, and will conduct further interviews with others, such as Forrest, Doug,
and Gus. I do expect to be assisted on some of the aforementioned tasks by John
Magee, and to a lesser extent, Mason Elder. With your approval, we will begin
right away. We expect completion of most of the activities by the end of June,
but we will make interim reports to the Board as necessary.
I estimate our professional fee for the engagement as outlined to be Forty Six
Thousand Dollars ($46,000.00). Any additional involvement I have in "official"
Board activities (Board meetings, committee meetings, shareholder meeting, Board
conference calls, etc.) would be covered by the Company's standard Board
compensation policy. Normal terms are to invoice monthly for progress during the
month with payment due upon receipt. Out-of-pocket expenses are billed at cost.
<PAGE>
Mr. G. Walker Box
March 17, 1998
Page 4
We appreciate the confidence you and the Board continue to show in me and
Norelli & Company. We care about Pluma and are eager to continue to be a value
adding resource at an important time for the Company.
Sincerely,
Ronald A. Norelli
ACCEPTED ON BEHALF OF PLUMA, INC.
BY_____________________________________ DATE ________________
October 1, 1998
VIA HAND DELIVERY
Mr. G. Walker Box
Chairman of the Board
Pluma, Inc.
26 Broad Street
Martinsville, Virginia 24112
Dear Walker:
The purpose of this letter is to confirm the details of my serving Pluma, Inc.
("Pluma" or the "Company") in the specific capacity as Vice Chairman of the
Board, effective September 29, 1998, pursuant to the Board's action and approval
during its teleconference meeting of September 22, 1998.
ROLE OF VICE CHAIRMAN
- ---------------------
In addition to routine responsibilities of any Vice Chairman (acting in your
place as needed in order to conduct Board business) my role includes three other
specific responsibilities as noted below:
(1) to assist Forrest Truitt in managing Pluma's interactions and
relationships with the Company's lender group throughout the
period in which there are major issues to be resolved;
(2) to assist Forrest, Duke Ferrell and the Executive Management Team
in the development of proactive action steps to improve the
Company's financial position; and
(3) to be the primary interface between Pluma and the financial
consultants (PriceWaterhouseCoopers) retained by Pluma as a
requirement of the waiver and extension agreements with the bank
group.
<PAGE>
Mr. G. Walker Box
October 1, 1998
Page 2
SCOPE AND COMPENSATION
- ----------------------
In fulfilling these responsibilities, I expect to devote an average of one and
one-half (1 1/2) business days per week. For this commitment level, I will be
paid a salary of Twelve Thousand Dollars ($12,000.00) per month, beginning
October 1, 1998. In addition, I will waive the pro-rata portion of my annual
retainer as a Director, effective October 1, 1998.
For attendance at regular Board meetings of either the full Board or committees
of the Board, I will be paid the standard per meeting fees pursuant to Company
policies in effect at the time.
I thank you for your personal support. We all know that this is any important
time in the life of Pluma, Inc.
Sincerely,
Ronald A. Norelli
cc: Forrest H. Truitt
