CMI INDUSTRIES INC, POS AM, 1996-06-25

CMI INDUSTRIES INC
POS AM, 1996-06-25
BROADWOVEN FABRIC MILLS, COTTON

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1996

REGISTRATION NO. 33-67854
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

AMENDMENT NO. 1
TO
POST-EFFECTIVE AMENDMENT NO. 3
TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

CMI INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
---------------------
DELAWARE
(State or other jurisdiction of incorporation or organization)

2211
(Primary Standard Industrial Classification Code Number)

57-0836097
(I.R.S. Employer Identification Number)
---------------------
1301 GERVAIS STREET, SUITE 700
COLUMBIA, SOUTH CAROLINA 29201
(803) 771-4434
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

JOSEPH L. GORGA
PRESIDENT & CHIEF EXECUTIVE OFFICER
1301 GERVAIS STREET, SUITE 700
COLUMBIA, SOUTH CAROLINA 29201
(803) 771-4434
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES OF COMMUNICATIONS TO:

THOMAS C. HERMAN
SUTHERLAND, ASBILL & BRENNAN
999 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309
---------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: From time to time after the effective date of this Post-Effective
Amendment to the Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
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<PAGE> 2

CMI INDUSTRIES, INC.

FORM S-1 REGISTRATION STATEMENT
CROSS-REFERENCE SHEET

<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
----------------------------------------------- -----------------------------------------
<S> <C> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.................... Prospectus Summary; The Company; Risk Factors
4. Use of Proceeds................................ Use of Proceeds
5. Determination of Offering Price................ Plan of Distribution
6. Dilution....................................... Not Applicable
7. Selling Security Holders....................... Not Applicable
8. Plan of Distribution........................... Outside Front Cover Page; Plan of
Distribution
9. Description of Securities to be Registered..... Prospectus Summary; Description of the
Notes
10. Interests of Named Experts and Counsel......... Not Applicable
11. Information with Respect to the Registrant
a. Description of Business.................. Prospectus Summary; The Company;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business
b. Description of Property.................. Business -- Facilities
c. Legal Proceedings........................ Business -- Litigation
d. Market Price of and Dividends on Equity
Securities............................. Not Applicable
e. Financial Statements..................... Financial Statements
f. Selected Financial Data.................. Prospectus Summary; Selected Financial
Data
g. Supplementary Financial Information...... Not Applicable
h. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
i. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure............................. Not Applicable
j. Directors and Executive Officers......... Management; Certain Transactions;
Ownership of the Company
k. Executive Compensation................... Management
l. Security Ownership of Certain Beneficial
Owners and Management.................. Ownership of the Company
m. Certain Relationships and Related
Transactions........................... Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
</TABLE>
<PAGE> 3

SUBJECT TO COMPLETION JUNE 25, 1996

PROSPECTUS

$125,000,000

CMI INDUSTRIES, INC.

9 1/2% SENIOR SUBORDINATED NOTES DUE 2003

In October 1993, CMI Industries, Inc. ("CMI" or the "Company") issued $125
million aggregate principal amount of its 9 1/2% Senior Subordinated Notes due
2003 (the "Notes"). Interest on the Notes is payable semiannually on April 1 and
October 1 of each year. The Notes are redeemable at the option of CMI, in whole
or in part, at any time on or after October 1, 1998 at the redemption prices set
forth herein, plus accrued and unpaid interest to the date of redemption.
Notwithstanding the foregoing, at any time during the period ending October 28,
1996, the Company may, at its option, redeem up to 35% of the original aggregate
principal amount of the Notes at the redemption price set forth herein, plus
accrued and unpaid interest to the date of redemption, with the net proceeds of
an initial public offering of its common stock. Upon a Change of Control (as
defined herein), (i) the Company will have the option to redeem the Notes, in
whole or in part, at a redemption price equal to the principal amount thereof,
plus accrued and unpaid interest to the date of redemption, plus the Applicable
Premium (as defined herein) and (ii) subject to certain conditions, the Company
will be required to make an offer to purchase each holder's Notes at 101% of the
principal amount thereof, together with accrued and unpaid interest to the date
of purchase.

The Notes are unsecured and subordinated in right of payment to all
existing and future Senior Indebtedness (as defined herein) of the Company. As
of December 30, 1995, the aggregate outstanding principal amount of Senior
Indebtedness was approximately $32.4 million. Additional Senior Indebtedness may
be incurred by the Company from time to time, subject to certain restrictions
contained in the indenture pursuant to which the Notes were issued. See
"Description of the Notes."

SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT IN THE NOTES.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

This Prospectus is to be used by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") in connection with offers and sales related to
market-making transaction in the over-the-counter market at negotiated prices
related to prevailing market rates at the time of sale. Merrill Lynch may act as
principal or agent in such transactions.

The date of this Prospectus is June , 1996.

<PAGE> 4

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Notes. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted from the
Prospectus in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Notes, reference is made
to the Registration Statement. Statements made in this Prospectus concerning the
contents of any contract or other document are not necessarily complete. With
respect to each such contract or other document filed with the Commission as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved and each such statement shall
be deemed qualified in its entirety by such reference. The Registration
Statement and other information subsequently filed by the Company may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the Commission at Suite 1400, Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661, and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material may also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, will be required to file periodic reports and other information with
the Commission. Such obligation will be suspended if the Notes are not listed on
a national securities exchange or quoted on NASDAQ and are held of record by
less than 300 holders as of December 31, 1995 or the first day of any fiscal
year thereafter. In accordance with the indenture pursuant to which the Notes
were issued (the "Indenture"), the Company will, in any event, file with the
Commission, to the extent permitted under the Exchange Act, the annual reports,
quarterly reports and other documents required to be filed with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act regardless of whether the
Company is subject to such Sections and will make such reports and documents
available to the holders of the Notes within 15 days after it files them with
the Commission or, if filing such reports and documents by the Company with the
Commission is not permitted under the Exchange Act, within 15 days after it
would otherwise have been required to file such reports and documents if
permitted.

The Company intends to furnish holders of the Notes with annual reports
containing consolidated financial statements audited and reported upon with an
opinion expressed by independent auditors and with quarterly reports containing
unaudited consolidated financial statements for the first three quarters of each
fiscal year.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context otherwise requires, references in this Prospectus to "CMI" or the
"Company" shall refer to CMI Industries, Inc., a Delaware corporation, and its
subsidiaries.

THE COMPANY

CMI Industries, Inc. ("CMI" or the "Company") is a diversified manufacturer
of textile products serving a variety of markets, including the home
furnishings, woven apparel, elasticized knit apparel, furniture upholstery,
transportation upholstery, consumer products and industrial/medical markets. The
Company operates through two divisions: the Greige Fabrics Division and the
Finished Fabrics Division. The Company had net sales of $408.6 million in 1995.
The Greige Fabrics Division accounted for 45% of 1995 net sales, and the
Finished Fabrics Division accounted for 55% of 1995 net sales.

The Greige Fabrics Division is one of the largest domestic manufacturers of
light to midweight greige (unfinished) fabrics for sale to third parties. The
division's product line includes printcloths, broadcloths, twills and other
fabrics of 100% cotton and blends of polyester and combed or carded cotton, and
synthetic yarns. The division sells its fabrics primarily to integrated
manufacturers and converters for use in a wide variety of home furnishings,
woven apparel and industrial products. The Greige Fabrics Division also targets
selected niches in markets where value-added services can differentiate its
fabrics from imported fabrics. In addition, this division works closely with
certain manufacturers to customize fabrics, packaging and services to their
specific requirements.

The Finished Fabrics Division manufactures fabrics and products for sale to
the furniture upholstery, transportation upholstery, consumer products and
elasticized apparel markets. Furniture upholstery is supplied for use in
residential applications, office and public seating and wall panels for
open-plan office systems. Customers include contract and residential furniture
manufacturers. Furniture upholstery is also sold through an extensive
distributor network. Transportation upholstery is supplied for use in automobile
and light truck seating and interior component applications to domestic
automobile manufacturers and to Japanese manufacturers with domestic production
facilities. Consumer products such as blankets, mattress pads and afghans are
manufactured for sale to major retailers. The Finished Fabrics Division is a
leading manufacturer of dyed and finished elasticized fabrics primarily for use
in intimate apparel and foundation garments and also for use in stretch fabric
activewear and industrial and medical products. The division's vertically
integrated manufacturing operations produce woven and knit fabrics using a
variety of spandex, polyester, rayon, nylon and cotton yarns. Various dyeing and
finishing technologies are utilized which enable the division to finish and dye
its fabrics to achieve consistent specifications and color matching for its
products.

The Company was formed in 1986 at the direction of Merrill Lynch Capital
Partners, Inc. ("ML Capital Partners"), a wholly owned subsidiary of Merrill
Lynch & Co., Inc. ("ML & Co."), together with certain members of present or
former management for the purpose of acquiring Clinton Mills, Inc., a South
Carolina corporation, a predecessor in interest to the Greige Fabrics Division.
Affiliates of ML Capital Partners and certain members of management of the
Company who acquired shares of the Company's common stock (the "Common Stock")
in 1986 and thereafter and their affiliates (the "Management Investors")
currently own 58.8% and 40.9%, respectively, of the outstanding Common Stock.

THE NOTES

Notes Offered.............. $125,000,000 principal amount of 9 1/2% Senior
Subordinated Notes due 2003 (the "Notes").

Maturity Date.............. October 1, 2003.

Interest Payment Dates..... April 1 and October 1.

3
<PAGE> 6

Mandatory Redemption....... None; however, the Company must offer to purchase,
subject to certain conditions, each holder's
Notes (i) at 101% of the principal amount thereof
upon a Change of Control and (ii) at 100% of the
principal amount thereof upon certain Asset
Sales, up to the amount of the net proceeds from
such sales. See "Description of
Notes -- Covenants."

Optional Redemption........ The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after October 1, 1998 at the redemption prices
set forth herein, plus accrued and unpaid
interest to the date of redemption.
Notwithstanding the foregoing, during the period
ending October 28, 1996, the Company may, at its
option, redeem up to 35% of the original
aggregate principal amount of the Notes at the
redemption price set forth herein, plus accrued
and unpaid interest to the date of redemption,
with the net proceeds of an initial public
offering of its common stock.

Change of Control.......... Upon a Change of Control, (i) the Company will have
the option to redeem the Notes, in whole or in
part, at a redemption price equal to the
principal amount thereof, plus accrued and unpaid
interest to the date of redemption, plus the
Applicable Premium and (ii) subject to certain
conditions, the Company will be required to make
an offer to purchase each holder's Notes at 101%
of the principal amount thereof, together with
accrued and unpaid interest to the date of
purchase. Certain transactions with Permitted
Holders (as defined herein) may not be deemed to
be a Change of Control.

Ranking.................... The Notes are unsecured obligations of the Company
subordinated to all existing and future Senior
Indebtedness of the Company. As of December 30,
1995, the aggregate outstanding amount of Senior
Indebtedness of the Company was approximately
$32.4 million and no senior subordinated or
subordinated indebtedness of the Company (other
than the Notes) was outstanding.

Covenants.................. The Indenture contains certain covenants that,
among other things, restrict the payment of
dividends on and redemptions of capital stock of
the Company, the making of certain investments by
the Company and its Restricted Subsidiaries (as
defined herein), the incurrence of additional
indebtedness by the Company and its Restricted
Subsidiaries, the incurrence of other senior
subordinated indebtedness, the issuance of
preferred stock by Restricted Subsidiaries, the
incurrence of liens, the application of the
proceeds of certain asset sales, transactions
with affiliates, the incurrence of restrictions
on the ability of Restricted Subsidiaries to pay
dividends or other payments to the Company and
the ability of the Company to engage in certain
mergers or consolidations or to transfer all or
substantially all of its assets to another
person.

Market..................... The Notes were sold to a limited number of
investors. The Notes are included in the Fixed
Income Pricing System data base maintained by the
NASDAQ stock market and are traded
over-the-counter. Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), which makes
a market in the Notes and is an affiliate of ML
Capital Partners, has advised the Company that it
intends to make a market in the Notes but there
can be no assurance that Merrill Lynch will
continue to do so.

4
<PAGE> 7

RISK FACTORS

For a discussion of certain factors that should be considered in evaluating
an investment in the Notes, see "Risk Factors."

THE REFINANCING AND RELATED TRANSACTIONS

In October 1993, the Company consummated an underwritten public offering
(the "Offering") of $125 million principal amount of 9 1/2% Senior Subordinated
Notes due 2003 (the "Notes"). Immediately upon the issuance of the Notes, the
Company's principal operating subsidiaries, Clinton Mills, Inc. (including its
Elastic Fabrics of America Division) and Chatham Manufacturing, Inc., were
merged with and into the Company (the "Subsidiary Mergers"). The effect of the
Subsidiary Mergers was to convert the Company from a holding company to an
operating company. Following consummation of the Subsidiary Mergers and at
present, the Company has no significant subsidiaries.

The Company offered the Notes as part of an effort to improve its financial
and operating flexibility. The net proceeds of the Offering, together with
initial borrowings under a new $70 million revolving credit facility from The
First National Bank of Boston, which serves as the agent bank (the "Agent
Bank"), NationsBank of North Carolina, N.A. and The Wachovia Bank of South
Carolina and a $5.0 million uncommitted line of credit from The Wachovia Bank of
South Carolina, were used to refinance $118.7 million of outstanding debt,
comprised of $40.9 million in term loans and $46.7 million in revolving credit
loans under then-existing loan agreements with the Company's subsidiaries (the
"Subsidiary Loan Agreements"), and $31.1 million of 12% Senior Subordinated
Debentures due 1999 issued by Clinton Mills, Inc. (the "Clinton Debentures"). In
December 1994, the revolving credit facility was increased to $92.0 million and
the Wachovia line of credit was increased to $8.0 million. In June 1995, the
Wachovia line of credit was reduced to $4.0 million. In March 1996, the $92.0
million unsecured revolving credit facility was replaced with an $80.0 million
secured revolving credit facility (the "Credit Agreement") with the same group
of lenders and the Wachovia line of credit was renewed at $4.0 million (the
"Wachovia Credit Facility" and, together with the Credit Agreement, constitute
the "Bank Credit Facilities"). The Credit Agreement will mature in January 1998.

THE RESTRUCTURING

Effective December 1995, the Company approved a restructuring plan to
improve operating performance, reduce costs and realign certain resources in
order to better serve its customers (the "Restructuring"). In connection with
the plan, the Company recorded a $12.9 million nonrecurring charge ($8.1 million
after related income tax benefits) to operating expenses in the fourth quarter
of 1995. The restructuring plan consists of: (1) the closing of the Greige
Fabrics Division's Lydia plant in Clinton, SC and the disposition of idle
equipment and inventories; (2) the consolidation of the Finished Fabrics
Division's weaving operations in Elkin, NC from three buildings to two buildings
and the disposition of idle equipment and inventories; (3) the downsizing of the
Company's corporate offices in Columbia, SC and relocation of certain resources
back to the operating divisions; and (4) other process improvement initiatives
that will reduce costs but also require severance, retirement, or other
nonrecurring charges in order to implement the facility closures and overhead
reductions. In total, the Company estimates that over 700 manufacturing and
administrative positions will be permanently eliminated and expects that the
restructuring process will be completed by the end of the 1996 fiscal year.

SUMMARY FINANCIAL INFORMATION

Unless otherwise indicated or the context otherwise requires, references in
this Prospectus to years and quarters mean the Company's 52- or 53-week fiscal
years ended on or about December 31 and related fiscal quarters. Fiscal years
1991, 1993, 1994 and 1995 contained 52 weeks and ended December 28, 1991,
January 1, 1994, December 31, 1994 and December 30, 1995, respectively. Fiscal
year 1992 contained 53 weeks and ended January 2, 1993.

5
<PAGE> 8

The following table sets forth summary historical financial information for
the Company for fiscal years 1991 through 1995, which has been derived from the
audited financial statements of the Company for such periods and for the three
month periods ended April 1, 1995 and March 30, 1996. The information for the
three month periods ended April 1, 1995 and March 30, 1996 is unaudited but in
the opinion of management reflects all adjustments (which include only normal,
recurring adjustments) necessary for a fair presentation of such data. The
information contained in the following table reflects the results of operations
of Chatham Manufacturing from February 14, 1992, the Clarkesville plant from May
9, 1994, and the former United Elastic Corporation operations from January 3,
1995, the respective dates of acquisition. For additional information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements of the Company and the related Notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ---------------------
---------------------------------------------------- APRIL 1, MARCH 30,
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales......................... $216,656 $352,338 $370,396 $390,067 $408,636 $109,321 $ 88,580
Gross profit...................... 23,163 55,538 51,472 46,624 40,711 14,120 5,208
Selling, general and
administrative expenses......... 11,436 23,874 29,360 31,433 32,704 8,861 7,760
Restructuring and other
nonrecurring charges(1)......... -- -- -- -- 17,682 -- --
Operating income (loss)........... 11,727 31,664 22,112 15,191 (9,675) 5,259 (2,552)
Interest expense.................. (9,257) (10,104) (10,558) (14,430) (17,174) (4,396) (3,939)
Other income (expense)............ 898 (103) (419) 1,397 1,406 356 375
Income (loss) before income taxes
and extraordinary items......... 3,368 21,457 11,135 2,158 (25,443) 1,219 (6,116)
-------- -------- -------- -------- -------- -------- ----------
Net income (loss)................. $ 1,788 $ 13,103 $ 4,653 $ 1,369 $(15,943) $ 744 $ (3,978)
========= ========= ========= ========= ========= ========= ==========
Ratio of earnings to fixed
charges(2)...................... 1.35x 3.04x 2.02x 1.15x (0.48)x 1.28x (0.55)x
BALANCE SHEET DATA (AT END OF
PERIOD)
Working capital................... $ 31,088 $ 64,412 $ 82,932 $ 94,139 $ 80,542 $105,059 $ 77,646
Property, plant and equipment,
net............................. 82,446 112,337 120,411 135,800 125,774 141,290 122,529
Total assets...................... 136,829 230,462 249,575 281,949 257,108 297,525 248,307
Long-term debt, less current
portion......................... 76,791 100,608 124,052 153,962 154,245 169,158 154,511
Stockholders' equity.............. 27,619 55,749 60,402 61,771 42,508 62,515 38,530
OTHER DATA AND OTHER FINANCIAL
RATIOS
EBITDA(3)......................... $ 24,513 $ 48,366 $ 41,430 $ 36,790 $ 17,040 11,261 3,822
Depreciation and
amortization(4)................. 11,886 16,630 19,773 20,294 22,670 5,791 6,144
Capital expenditures.............. 3,299 22,857 25,179 28,390 8,850 1,909 2,747
Ratio of EBITDA to interest
expense(5)...................... 2.79x 5.05x 4.18x 2.67x 1.03x 2.65x 1.01x
Ratio of total debt (at end of
period) to EBITDA............... 3.30x 2.22x 3.07x 4.25x 9.10x -- --
</TABLE>

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

6
<PAGE> 9

cash flow as an indicator of the Company's operating performance. See the
Statements of Cash Flows included in the Financial Statements.
(4) Excludes amortization of deferred debt cost and debt discount cost. Includes
amortization of a $5.0 million noncompetition agreement obtained in the
Chatham acquisition, which was amortized over a two year period from
February 14, 1992 to February 14, 1994. Amortization expense includes
approximately $2.2 million, $2.5 million, and $0.3 million for the years
ended January 2, 1993, January 1, 1994, and December 31, 1994,
respectively, with respect to this agreement.
(5) Interest expense excludes amortization of deferred debt cost and debt
discount cost.

7
<PAGE> 10

RISK FACTORS

SUBSTANTIAL LEVERAGE

The Company had total Indebtedness (as defined in the Indenture) of
approximately $159.5 million on December 30, 1995. In addition, the Company had
up to $61.0 million of additional borrowing capacity under the Bank Credit
Facilities as of that date.

The level of the Company's indebtedness could have important consequences
to holders of the Notes including, but not limited to, the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; (ii) a portion of the Company's cash flow from
operations must be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company for its
operations; (iii) the Company's borrowings under the Bank Credit Facilities will
be at floating rates of interest, which could result in higher interest expenses
in the event of an increase in interest rates; (iv) such indebtedness contains
and will contain financial and restrictive covenants which if violated may
result in an event of default which, if not cured or waived, could have a
material adverse effect on the Company; and (v) the Company's high degree of
leverage may make it more vulnerable to general economic downturns. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

SUBORDINATION OF THE NOTES TO SENIOR INDEBTEDNESS; ASSET ENCUMBRANCES

The payment of principal of, premium, if any, and interest on, and any
other amounts owing in respect of the Notes will be subordinated to the prior
payment in full of all existing and future Senior Indebtedness of the Company,
which includes indebtedness under the Bank Credit Facilities. Therefore, in the
event of the bankruptcy, liquidation, dissolution, reorganization or other
winding up of the Company, the assets of the Company will be available to pay
obligations in respect of the Notes only after all Senior Indebtedness has been
paid in full, and there may not be sufficient assets remaining to pay amounts
due on any or all of the Notes. In addition, the Company may not pay the
principal of, premium, if any, or interest on, and any other amounts owing in
respect of, the Notes, or purchase, redeem or otherwise retire the Notes, if a
default in payment exists with respect to Senior Indebtedness. Under certain
circumstances, no payments may be made for a specified period with respect to
the principal of, premium, if any, or interest on, and any other amounts owing
in respect of, the Notes if a nonpayment default exists with respect to certain
Senior Indebtedness, including indebtedness under the Bank Credit Facilities.
See "Description of the Notes -- Subordination." The Company may incur up to
$80.0 million in revolving indebtedness under the Credit Agreement and up to
$4.0 million in indebtedness on an uncommitted basis under the Wachovia Credit
Facility.

The indebtedness under the Credit Agreement is secured by the Company's
inventory, receivables and certain intangibles, and contains a negative covenant
limiting the Company's right to grant security interests in its other assets.
The Wachovia Credit Facility is unsecured. The Notes are not secured by any
assets of the Company, and the Company has the right under the Indenture to
grant security interests in substantially all of its assets to secure Senior
Indebtedness. See "Description of Bank Credit Facilities" and "Description of
the Notes."

IMPACT OF DOWNTURNS IN GENERAL ECONOMIC OR TEXTILE INDUSTRY CONDITIONS

The Company and most of the United States textile industry are sensitive to
changes in general economic conditions. Downturns in general economic conditions
have led historically to periodic downturns in the Company's business. The
Company's production or sales prices could in the future be negatively affected
by several factors beyond the Company's control, including cyclical downturns in
the general economy or in the textile industry, increased competition, increases
in raw material prices and changes in consumer preferences.

8
<PAGE> 11

In addition, the ability of the Company to maintain its margins during downturns
in the general economy is affected by the significant fixed costs of its
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."

IMPACT OF COMPETITION AND REDUCTION IN IMPORT PROTECTION

The domestic textile industry is highly competitive and the Company
encounters direct competition from numerous domestic suppliers of fabric as well
as from integrated textile manufacturers. In addition, foreign textile
manufacturers are a significant competitive force in the market for commodity
style greige woven fabrics and affect the Greige Fabrics Division's competitive
environment. This division's fabrics are also used in apparel products which
compete with imported garments. Under the import tariff and quota framework
developed under the Arrangement Regarding International Trade in Textiles and
commonly known as the Multifiber Arrangement (the "MFA"), most significant
exporters of fabrics were subject to annual quotas. However, the MFA expired on
December 31, 1994 and was replaced by The Uruguay Round Agreement (the "Uruguay
Agreement") on textiles and clothing which contains a schedule for the gradual
phase-out of quotas established pursuant to the MFA over a ten year transition
period. After the transition period, textile and clothing trade will be fully
integrated into the World Trade Organization and subject to the same
restrictions as other sectors. The Uruguay Agreement contains a provision for
reducing tariffs on textiles and clothing products imposed by the United States
by approximately 12% overall, with the reductions phased in over a ten year
period. The reduction in the import protection accorded domestic fabric and
apparel manufacturers could adversely affect the Company. See
"Business -- Competition and International Trade Policy."

AVAILABILITY AND COST OF RAW MATERIALS

The principal raw materials used in the Company's operations are cotton and
man-made fibers and yarns. The price and availability of cotton are dependent
upon the level of cotton production. Cotton production is subject to factors
beyond the Company's control such as weather conditions and other forces of
nature. Additionally, the supply of cotton could be reduced as a result of
changes in federal agricultural policy. Similarly, the price and availability of
man-made fibers and yarns, some of which may only be obtained from a limited
number of suppliers, are influenced by demand, manufacturing capacity and costs,
and petroleum prices. The cost to the Company of these raw materials may
fluctuate significantly from time to time because of these factors and the
Company cannot provide assurance that it will be able to pass through any
increased costs to its customers. In such event, the Company's profitability
could be adversely affected. See "Business -- Raw Materials."

ABSENCE OF PUBLIC MARKET FOR THE NOTES

The Notes are not listed on any securities exchange and the Company does
not intend to apply for listing of the Notes on any securities exchange;
however, the Notes are included in the Fixed Income Pricing System data base
maintained by the NASDAQ stock market and are traded over the counter. The
Company has been advised by Merrill Lynch that it intends to continue making a
market in the Notes, as it has done since the consummation of the offering of
the Notes. However, Merrill Lynch is not obligated to do so and any market-
making activities with respect to the Notes may be discontinued at any time
without notice. If Merrill Lynch conducts any market-making activities, it may
be required to deliver a "market-making prospectus" when effecting offers and
sales of the Notes because it is an affiliate of the Company. See "Ownership of
the Company." For so long as a market-making prospectus is required to be
delivered, the ability of Merrill Lynch to make a market in the Notes may, in
part, be dependent on the ability of the Company to maintain a current
market-making prospectus. Although the Company has agreed with Merrill Lynch to
maintain a current market-making prospectus for so long as such a prospectus is
required to be delivered, there can be no assurance that the Company will at all
times be able to maintain such a prospectus, and its doing so will not obligate
Merrill Lynch to make a market in the Notes. Accordingly, there can be no
assurance as to the

9
<PAGE> 12

liquidity of the trading market for the Notes or that an active public market
for the Notes will develop. If an active public market does not develop, the
market price and liquidity of the Notes may be adversely affected.

ABILITY OF AFFILIATES OF ML CAPITAL PARTNERS TO CONTROL THE COMPANY

Certain affiliates of ML Capital Partners control 58.8% of the voting power
of the Company. See "Ownership of the Company." Accordingly, in the event such
affiliates of ML Capital Partners vote in concert in connection with matters
submitted to a stockholder vote, such as the election of the Company's Board of
Directors, they will be able to determine the outcome of such matters and
control the direction and future operations of the Company subject to the right
of management affiliated stockholders to approve certain transactions under the
supermajority voting requirements of a stockholders agreement. See "Ownership of
the Company -- Restated Stockholders Agreement."

10
<PAGE> 13

THE COMPANY

The Company is a diversified manufacturer of textile products serving a
variety of markets including the home furnishings, woven apparel, elasticized
knit apparel, furniture upholstery, transportation upholstery, consumer products
and industrial/medical markets. Effective January 1, 1995, the Company
reorganized its three operating divisions into two operating divisions: the
Greige Fabrics Division, which is one of the largest domestic manufacturers of
light to midweight greige (unfinished) fabrics for sale to third parties; and
the Finished Fabrics Division, which is a leading manufacturer of dyed and
finished elasticized knit fabrics, and a manufacturer of fabrics and products
for sale to the furniture upholstery, transportation upholstery and consumer
products markets. The Company had net sales of $408.6 million in 1995. The
Greige Fabrics Division and the Finished Fabrics Division accounted for
approximately 45% and 55%, respectively, of the Company's 1995 net sales.

The Company is the successor to businesses founded in the late 1800's. The
Greige Fabric Division's business was founded in 1896 and was controlled by
descendants of the founder until 1984 when it was acquired, together with the
former Elastic Fabrics of America Division, by Clinton Mills, Inc., a South
Carolina corporation ("Old Clinton"). The Company was formed in 1986 as CMI
Holdings, Inc. at the direction of Merrill Lynch Capital Partners, Inc. ("ML
Capital Partners"), a wholly owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), together with certain present or former members of management of the
Company for the purpose of acquiring Old Clinton in December 1986 (the "1986
Acquisition").

In February 1992, the Company acquired a minority common stock interest in
the former Chatham Manufacturing subsidiary, which was organized by the Company
and certain affiliates of ML Capital Partners who were not then stockholders of
the Company, to acquire the assets of Chatham Manufacturing Company ("Old
Chatham") and assets of another business affiliated with Old Chatham. Chatham
acquired the assets of Old Chatham in February 1992 for total consideration of
approximately $54.5 million, including the assumption of certain liabilities,
and, pursuant to an exchange arrangement entered into at that time, became a
wholly owned subsidiary of the Company in December of that year. In the
Subsidiary Mergers, the Clinton Mills subsidiary, including its Elastic Fabrics
of America Division, and the Chatham Manufacturing subsidiary, each became a
division of the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financing Agreements" and "Ownership of
the Company."

On May 9, 1994, the Company acquired certain assets of the Clarkesville
Mill division of United Merchants and Manufacturers, Inc., consisting primarily
of inventory and fixed assets, for a purchase price of approximately $12
million. The acquired assets consist principally of a manufacturing facility
located in Clarkesville, Georgia, which produces lightweight woven greige
fabrics primarily from man-made yarn. The acquired facility is part of the
Company's Greige Fabrics Division and currently manufactures fabrics for use in
the home furnishings, fashion apparel and to a lesser extent, industrial
markets.

On January 3, 1995, the Company completed its acquisition of substantially
all of the assets of United Elastic Corporation for a purchase price of
approximately $20.4 million plus the assumption of certain liabilities. The
acquired operations consist of a principal manufacturing facility located in
Stuart, Virginia, which produces narrow elasticized woven fabrics and products
for sale to the intimate apparel, swimwear and medical markets, and two smaller
manufacturing facilities located in South Carolina and Mississippi, which the
Company has sold. The Stuart, Virginia facility is part of the Company's
Finished Fabrics Division.

ML Capital Partners' affiliates and certain members of management of the
Company who acquired shares of Common Stock in the 1986 Acquisition and
thereafter and their affiliates (the "Management Investors") currently own 58.8%
and 40.9%, respectively, of the Company's outstanding Common Stock. See
"Ownership of the Company."

The Company, a Delaware corporation, maintains its principal executive
offices at 1301 Gervais Street, Suite 700, Columbia, South Carolina, 29201, and
its telephone number is (803) 771-4434.

11
<PAGE> 14

USE OF PROCEEDS

The net proceeds from the sale of the Notes were $120.0 million (after
deducting underwriting and other discounts and expenses of the Offering). The
Company used such net proceeds to redeem all of the outstanding Clinton
Debentures at an aggregate price of approximately $32.4 million (including a
redemption premium of $1.2 million), plus accrued and unpaid interest thereon.
The remaining net proceeds, together with initial borrowings under the revolving
credit facility, were used to repay all of the Company's indebtedness under the
Subsidiary Loan Agreements, which was comprised of $40.9 million in term loans
and $46.7 million in revolving credit loans.

12
<PAGE> 15

CAPITALIZATION

The following table presents the capitalization of the Company at March 30,
1996 and December 30, 1995. The table should be read in conjunction with the
Financial Statements of the Company and the Notes thereto included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 30, MARCH 30,
1995 1996
------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:(1)
Current portion of long-term debt.................................... $ 853 $ 4,000
========== ========
Long-term debt, excluding current portion:(1)
Bank Credit Facilities(2)............................................ $ 30,000 $ 30,242
Notes, net of unamortized discount(3)................................ 124,245 124,269
------------ ---------
Total long-term debt......................................... $154,245 $ 154,511
------------ ---------
Stockholders' equity:
Common stock, par value $1.00 per share.............................. 1,690 1,690
Additional paid-in capital........................................... 11,350 11,350
Retained earnings.................................................... 29,468 25,490
------------ ---------
Total stockholders' equity................................... 42,508 38,530
------------ ---------
Total capitalization......................................... $197,606 $ 197,041
========== ========
</TABLE>

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

(1) See Note 3 to the Company's audited financial statements at December 30,
1995 for additional information with respect to debt outstanding under the
Bank Credit Facilities.

(2) Excludes standby letters of credit of $0.95 million and accrued interest of
$0.24 million at March 30, 1996 and December 30, 1995.

(3) Excludes accrued interest of $5.94 and $2.97 million at March 30, 1996 and
December 30, 1995, respectively.

13
<PAGE> 16

SELECTED FINANCIAL DATA

The following table sets forth selected historical financial information
for the Company for fiscal years 1991 through 1995, which has been derived from
the audited financial statements of the Company for such periods, and for the
three month periods ended April 1, 1995 and March 30, 1996. The information for
the three month periods ended April 1, 1995 and March 30, 1996 is unaudited, but
in the opinion of management reflects all adjustments (which include only
normal, recurring adjustments) necessary for a fair presentation of such data.
The results of operations for any interim period are not necessarily indicative
of the results for an entire fiscal year. The information contained in the
following table reflects the results of operations of Chatham from February 14,
1992, the Clarkesville plant from May 9, 1994 and the former United Elastic
Corporation operations from January 3, 1995, the respective dates of
acquisition. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements of the Company, together with
the related notes and independent accountants' reports. The financial statements
of the Company as of December 31, 1994 and December 30, 1995, and for each of
the fiscal years in the three-year period ended December 30, 1995, and the
independent accountant's report thereon, are included elsewhere in this
Prospectus. See "Index to Financial Statements."

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR --------------------
---------------------------------------------------- APRIL 1, MARCH 30,
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales................................... $216,656 $352,338 $370,396 $390,067 $408,636 $109,321 $ 88,580
Depreciation................................ 11,628 14,160 17,226 19,879 22,660 5,636 5,922
Other cost of sales......................... 181,865 282,640 301,698 323,564 345,265 89,565 77,450
-------- -------- -------- -------- -------- -------- ---------
Gross profit................................ 23,163 55,538 51,472 46,624 40,711 14,120 5,208
Selling, general and administrative
expenses.................................. 11,436 23,874 29,360 31,433 32,704 8,861 7,760
Restructuring and other nonrecurring
charges(1)................................ -- -- -- -- 17,682 -- --
-------- -------- -------- -------- -------- -------- ---------
Operating income (loss)..................... 11,727 31,664 22,112 15,191 (9,675) 5,259 (2,552 )
Interest expense............................ (9,257) (10,104) (10,558) (14,430) (17,174) (4,396) (3,939 )
Other income (expense), net................. 898 (103) (419) 1,397 1,406 356 375
-------- -------- -------- -------- -------- -------- ---------
Total other income (expense)........ (8,359) (10,207) (10,977) (13,033) (15,768) (4,040) (3,564 )
-------- -------- -------- -------- -------- -------- ---------
Income (loss) before income taxes and
extraordinary items....................... 3,368 21,457 11,135 2,158 (25,443) 1,219 (6,116 )
Income taxes (benefit)...................... 1,580 8,354 4,343 789 (9,500) 475 (2,138 )
-------- -------- -------- -------- -------- -------- ---------
Income (loss) before extraordinary items.... 1,788 13,103 6,792 1,369 (15,943) 744 (3,978 )
Extraordinary item -- loss on refinancing
senior subordinated debentures, net of tax
benefit of $1,368......................... -- -- 2,139 -- -- -- --
-------- -------- -------- -------- -------- -------- ---------
Net income (loss)........................... $ 1,788 $ 13,103 $ 4,653 $ 1,369 $(15,943) $ 744 $ (3,978 )
======== ======== ======== ======== ======== ======== =========
Ratio of earnings to fixed charges(2)....... 1.35x 3.04x 2.02x 1.15x (0.48)x 1.28x (0.55 )x
BALANCE SHEET DATA (AT END OF PERIOD)
Current assets.............................. $ 51,335 $111,078 $122,300 $137,582 $123,281 147,658 117,780
Property, plant and equipment, net.......... 82,446 112,337 120,411 135,800 125,774 141,290 122,529
Other assets................................ 3,048 7,047 6,864 8,567 8,053 8,577 7,998
Total assets................................ 136,829 230,462 249,575 281,949 257,108 297,525 248,307
Current liabilities......................... 20,247 46,666 39,377 43,443 42,739 42,599 40,134
Long-term debt, less current portion........ 76,791 100,608 124,052 153,962 154,245 169,158 154,511
Other liabilities and deferred items........ 12,172 27,439 25,744 22,733 17,616 23,253 15,132
Stockholders' equity........................ 27,619 55,749 60,402 61,771 42,508 62,515 38,530
OTHER DATA AND OTHER FINANCIAL RATIOS
EBITDA(3)................................... $ 24,513 $ 48,366 $ 41,430 $ 36,790 $ 17,040 $ 11,261 $ 3,822
Depreciation and amortization(4)............ 11,886 16,630 19,773 20,294 22,670 5,791 6,144
Capital expenditures........................ 3,299 22,857 25,179 28,390 8,850 1,909 2,747
Ratio of EBITDA to interest expense(5)...... 2.79x 5.05x 4.18x 2.67x 1.03x 2.65x 1.01 x
Ratio of total debt (at end of period) to
EBITDA.................................... 3.30x 2.22x 3.07x 4.25x 9.10x -- --
</TABLE>

14
<PAGE> 17

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

(1) Includes $4,782 of executive severance charges recorded in the third quarter
related to the retirement of Mr. G. T. Williams, the Company's former
President and Chief Executive Officer, and $12,900 of charges recorded in
the fourth quarter related to the Restructuring.
(2) For purposes of computing this ratio, earnings consist of income before
income taxes and extraordinary item, plus fixed charges. Fixed charges
consist of interest expense on debt, amortization of deferred debt cost and
debt discount cost and the estimated interest component of rent expense.
(3) Represents income before interest, income taxes, extraordinary items,
depreciation and amortization. The Company has included information
concerning EBITDA as a measure of the Company's ability to service its
debt. EBITDA should not be considered as an alternative to, or more
meaningful than, operating income or cash flow as an indicator of the
Company's operating performance. See the Statements of Cash Flow included
in the Financial Statements.
(4) Excludes amortization of deferred debt cost and debt discount cost. Includes
amortization of a $5.0 million noncompetition agreement obtained in the
Chatham acquisition, which was amortized over a two-year period from
February 14, 1992 to February 14, 1994. Amortization expense includes
approximately $2.2 million, $2.5 million, and $0.3 million for the years
ended January 2, 1993, January 1, 1994, and December 31, 1994,
respectively.
(5) Interest expense excludes amortization of deferred debt cost and debt
discount cost.

15
<PAGE> 18

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

OVERVIEW

A number of factors influence the textile industry and operating results
for the Company, including general economic conditions, competition, raw
material prices and capital expenditures, some of which are not within the
Company's control. See "Risk Factors." The following factors have had an impact
on the Company's recent operating results.

General Economic Conditions. The Company's past operating results have
been affected by the general condition of the United States economy. The ability
of the Company to maintain its operating margins during downturns in the general
economy is affected by the capital intensive nature of its business. During the
difficult economic period that occurred between 1989 and 1991, the Company
maintained its normal level of production by increasing certain inventory levels
and continuing to sell despite declining prices and reduced profit margins. In
1992, the Company (excluding the results of operations for Chatham Manufacturing
Company, which was acquired in February 1992) experienced increases in both
sales and operating income, which the Company attributes in part to the
perception then held by the Company's customers that general economic conditions
were improving and, to a lesser extent, to the Company's modernization program.
Operating margins were down in 1993, 1994 and even further in 1995 due primarily
to deteriorating market conditions for fabrics manufactured by the Greige
Fabrics Division. Although recently the textile industry in general has been
impacted by poor retail sales, overcapacity and unprecedented raw material
costs, the decrease in demand for lightweight greige fabrics has been more
severe, resulting in market-wide price erosion, plant shutdowns and significant
capacity curtailments in the second half of 1995 and the first quarter of 1996.
The Company was not immune to these general conditions, and their impact has
prompted the Company to curtail its operating schedule at all plant locations
and decrease capacity by the closure of the Greige Fabrics Division's Lydia
plant and the realignment of the Finished Fabrics Division's weaving operations
at the Elkin plant.

Modernization and Capital Expenditures. An important element of the
Company's business strategy is the continuing modernization of its facilities,
which has resulted in a reduction in cash unit manufacturing costs and an
increase in production capacity and flexibility. Increased depreciation costs
resulting from the Company's modernization programs also impact the Company's
operating income. In 1993, the Company completed significant modernization
projects at each of its divisions but initiated new projects which were not
completed until the latter part of 1994. Although the Company believes that
continued modernization of its facilities is essential in order to realize the
earnings potential of its existing businesses and to compete effectively in its
markets, the Company has not been able to benefit from all these expenditures
because of the weak market conditions and an oversupply of certain fabrics.
Consequently, the Company has not fully utilized certain investments over the
last two years, which has negatively impacted results of operations.

Acquisitions. The acquisition of the assets of Chatham Manufacturing
Company (the Elkin and Boonville plants) in February 1992 has allowed the
Company to achieve greater market diversification and reduce its overall
reliance upon sales of greige fabrics. In addition to increased market
diversification, the acquisition provided the Company with access to markets
that are more difficult to enter than the markets of the Company's other
businesses. Unfortunately, in 1993 and 1994, the Company experienced significant
operating disruptions and quality problems at the Elkin facility, which
negatively impacted operating margins. The Company attempted to address these
issues through management changes and the reorganization of its divisional
structure in 1994. Operating margins at Elkin in 1995 remained substantially
below those of the Company's other businesses as the division worked to improve
its product mix, complete the development of its information systems and correct
certain quality and manufacturing inefficiencies that negatively impacted both
the Elkin facility and its customers during this time period. The Company has
invested and intends to continue to invest in new equipment at its Elkin
facility, and is confident that current performance trends in quality, on-time
delivery and product development are more consistent with fully realizing the
earnings potential at the Elkin facility.

16
<PAGE> 19

The acquisition of the Clarkesville plant in 1994 and the acquisition of
the former United Elastic Corporation operations in 1995 have allowed the
Company to diversify further its product offerings and provide its existing
customer base more value added products and service. To date, these acquisitions
have been positive and have added incremental sales with margins equal to, or
above, those of the Company's other businesses.

The Restructuring. Effective December 1995, the Company approved a
restructuring plan to improve operating performance, reduce costs and realign
certain resources in order to better serve its customers (the "Restructuring").
In connection with the plan, the Company recorded a $12.9 million nonrecurring
charge ($8.1 million after related income tax benefits) to operating expenses in
the fourth quarter of 1995. The restructuring plan consists of: (1) the closing
of the Greige Fabrics Division's Lydia plant in Clinton, SC and the disposition
of idle equipment and inventories; (2) the consolidation of the Finished Fabrics
Division's weaving operations in Elkin, NC from three buildings to two buildings
and the disposition of idle equipment and inventories; (3) the downsizing of the
Company's corporate offices in Columbia, SC and relocation of certain resources
back to the operating divisions; and (4) other process improvement initiatives
that will reduce costs but also require severance, retirement, or other
nonrecurring charges in order to implement the facility closures and overhead
reductions. In total, the Company estimates that over 700 manufacturing and
administrative positions will be permanently eliminated and expects that the
restructuring process will be completed by the end of the 1996 fiscal year.

Included in the $12.9 million nonrecurring charge are approximately $5.0
million of incremental cash expenditures. The Company expects to fund $1.3
million from assets in the Company's defined benefit plan and the balance,
approximately $3.7 million, from operations or amounts available under its
credit agreement primarily over the next eighteen months.

The Company believes that these restructuring initiatives in both its
Greige Fabrics Division and Finished Fabrics Division will allow the operations
to become more cost effective. Additionally, the Company's efforts to downsize
its corporate offices, coupled with improvements at the Elkin facility and other
expense reduction initiatives, should help position the Company to respond
quickly when market conditions do improve. Beginning in the third quarter of
1996, the Company anticipates that net operating costs will be reduced and that
operating margins will improve as a result of the restructuring initiatives;
however, the Company is unable to estimate the magnitude of these improvements
until current market conditions improve.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentages
that certain income and expense items bear to sales for such periods. All years
refer to the Company's fiscal years.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR --------------------
--------------------- APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
----- ----- ----- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Depreciation............................................ 4.7 5.1 5.5 5.2 6.7
Other cost of sales..................................... 81.4 82.9 84.5 81.9 87.4
----- ----- ----- -------- ---------
Gross profit............................................ 13.9 12.0 10.0 12.9 5.9
Selling, general and administrative expenses............ 7.9 8.1 8.0 8.1 8.8
Restructuring and other nonrecurring charges............ -- -- 4.3 -- --
----- ----- ----- -------- ---------
Operating income (loss)................................. 6.0 3.9 (2.3) 4.8 (2.9)
Other income (expense)
Interest expense...................................... (2.9) (3.7) (4.2) (4.0) (4.4)
Other, net............................................ (0.1) 0.4 0.3 0.3 0.4
----- ----- ----- -------- ---------
Income (loss) before income taxes and extraordinary
item.................................................. 3.0 0.6 (6.2) 1.1 (6.9)
Income taxes (benefit).................................. 1.2 0.2 (2.3) 0.4 (2.4)
----- ----- ----- -------- ---------
Income (loss) before extraordinary item................. 1.8 0.4 (3.9) 0.7 (4.5)
Extraordinary item -- net of income tax expense......... 0.6 -- -- -- --
----- ----- ----- -------- ---------
Net income (loss)....................................... 1.2% 0.4% (3.9)% 0.7% (4.5)%
===== ===== ===== ====== =======
</TABLE>

17
<PAGE> 20

First Three Months of Fiscal Year 1996 Compared to First Three Months of
Fiscal Year 1995

Sales for the three months ended March 30, 1996 decreased $20.7 million or
19.0% from $109.3 million to $88.6 million over the corresponding period of
1995. Sales of the Greige Fabrics Division decreased $11.6 million or 22.8%,
while sales of the Finished Fabrics Division decreased $9.1 million or 15.6%.
The decrease in sales for the Greige Fabrics Division may be attributed to poor
market conditions for lightweight apparel and home furnishings fabrics. Average
prices for these fabrics during the period declined 8.8% while volume decreased
15.2%. The sales decrease for the Finished Fabrics Division included a $5.4
million reduction in narrow elastic sales and a $3.3 million reduction in
furniture upholstery sales. The reductions in sales of both divisions may be
attributed to weak product demand, overcapacity and high raw material costs that
are negatively affecting the textile industry.

Operating income (loss) for the three month period ended March 30, 1996
decreased $7.8 million or 147% from $5.3 million to an operating loss of $(2.6)
million. The decline in profitability can be attributed to the Greige Fabrics
Division as lower average selling prices, reduced volumes and higher raw
material costs all combined to significantly reduce margins. Despite lower sales
volume, the Finished Fabrics Division reported improved levels of profitability
due to operating improvements which, coupled with lower corporate overhead
costs, helped to partially offset the reduction in earnings from the Greige
Fabrics Division. The Company's restructuring initiatives have not had a
favorable impact on operating income for the three months ended March 30, 1996.

Interest expense for the three months ended March 30, 1996 was $3.9
million, down $0.5 million from the same period in 1995. The decrease reflects
the Company's efforts to reduce its debt balances, and lower interest rates as
compared to the same period a year ago.

The provision (benefit) for income taxes decreased approximately $2.6
million. This decrease is due to the $7.3 million decrease in earnings before
taxes. The foregoing resulted in a decrease in net income of $4.7 million or
635% from $0.7 million to a net loss of $(4.0) million.

Fiscal Year 1995 Compared to Fiscal Year 1994

The Company's net sales increased $18.5 million, or 4.7% from $390.1
million in 1994 to $408.6 million in 1995. Sales of the Greige Fabrics Division
increased $6.6 million, or 3.7% while sales of the Finished Fabrics Division
increased $11.9 million or 5.6%. The sales increase for the Greige Fabrics
Division may be attributed to the Clarkesville, Georgia facility which reported
a full year's sales in 1995 and only eight months of sales in 1994. Without the
inclusion of Clarkesville sales, the Greige Fabrics Division's sales would have
decreased $2.3 million or 1.4%. This decline was the result of a 7.6% increase
in average selling prices on a volume decline of 8.6%. The sales increase for
the Finished Fabrics Division may be attributed to sales from the United Elastic
business which was acquired on January 3, 1995. Without the inclusion of
United's sales for 1995, the Finished Fabrics Division's sales would have
declined $29.1 million or 13.6%. The sales decrease relates to poor service
issues in 1993 and 1994 at the Company's Elkin facility, which negatively
impacted customer demand in 1995 for furniture and transportation upholstery
fabrics. Additionally, the Finished Fabrics Division was impacted by a reduction
in automobile production by the Company's transportation upholstery customers.
Sales of consumer products were also down in 1995 as market demand for woven
cotton afghans declined after three years of significant growth.

Despite the increase in the Company's sales, gross profit decreased $5.9
million or 12.7%, from $46.6 million to $40.7 million, as the gross margin
declined from 12.0% to 10.0%. Gross margins in 1994 reflected a nonrecurring
gain of $6.9 million relating to the curtailment of the Company's pension plans,
which was reflected as a reduction in cost of sales in 1994. Gross margins in
1995 reflect the inclusion of $4.9 million of gross profits from the United
Elastic business purchased in January 1995 and incremental earnings associated
with reporting a full year of sales from Clarkesville. Excluding the
nonrecurring curtailment gain reported in 1994 and the incremental impact of the
United Elastic and Clarkesville acquisitions on profitability, gross profits for
the Company would have declined $5.7 million or 14.8% in 1995 as compared to
1994, and gross margins would have declined from 10.1% to 9.4%. The decline in
gross profits may be attributed to unprecedented price levels for cotton,
polyester and certain other raw materials, coupled with the Company's

18
<PAGE> 21

decision to significantly curtail its operating schedule at all locations in the
fourth quarter and incur unabsorbed fixed overhead costs in order to decrease
inventories and production to levels more consistent with market demand.

Selling, general and administrative expenses increased $1.3 million or
4.1%, from $31.4 million in 1994 to $32.7 million in 1995; however as a
percentage of sales, expenses were down 0.1% from 8.1% to 8.0%. The increase was
the result of incremental expenses associated with the acquired United Elastic
business.

Restructuring and nonrecurring charges include $4.8 million of executive
severance charges recorded in the third quarter related to the retirement of Mr.
G. T. Williams, the Company's former President and Chief Executive Officer. The
remaining $12.9 million of restructuring and nonrecurring charges relate to the
Company's restructuring plan to improve operating performance, reduce costs and
realign manufacturing assets. Included in this charge are incremental cash
expenses of $5.0 million related to severance, employee benefits and plant
closure costs and $7.9 million of noncash expenses related to the write-off of
fixed assets and inventories.

Interest expense increased $2.7 million or 19.0% from $14.4 million in 1994
to $17.1 million in 1995. This increase reflects the impact of a rising interest
rate environment in 1995 and higher debt balances related to the Company's
capital spending, including the Clarkesville plant and United Elastic
acquisitions. Included in the $2.7 million increase in interest expense is the
Company's costs under an interest rate swap agreement which terminates on July
19, 1996. Under this agreement, the Company converted $50 million of fixed rate
indebtedness to floating rate indebtedness and incurred additional interest
costs of $0.9 million in 1995. In 1994, the Company earned $0.1 million under
the swap agreement. Other income, net of other expenses, remained unchanged at
$1.4 million.

Income taxes (benefit) as a percent of income (loss) before taxes remained
unchanged at 37%.

As a result of the foregoing factors, the Company reported a net loss of
$15.9 million in 1995 as compared to net income of $1.4 million in 1994.

Fiscal Year 1994 Compared to Fiscal Year 1993

The Company's net sales increased $19.7 million, or 5.3% from $370.4
million in 1993 to $390.1 million in 1994. Sales of the Greige Fabrics Division
increased $4.8 million, or 2.8% while sales of the Finished Fabrics Division
increased $14.9 million or 7.5%. The sales increase for the Greige Fabrics
Division may be attributed to sales from the Clarkesville, Georgia facility,
since its acquisition from United Merchants and Manufacturers, Inc. on May 9,
1994. Without the inclusion of Clarkesville sales, the Greige Fabrics Division's
sales would have decreased $7.9 million or 4.6%. This decline was the result of
an 8.5% decrease in average selling prices on a volume increase of 2.5%. The
sales increase for the Finished Fabrics Division relates to strong product
demand in the Company's elasticized knit fabric, transportation upholstery and
consumer product markets.

Despite the increase in the Company's sales, gross profit decreased $4.8
million or 9.4%, from $51.5 million in 1993 to $46.6 million in 1994, as the
gross margin decreased from 13.9% to 12.0%. The decrease in gross profit was
mitigated by the Company's realization of a curtailment gain of $6.9 million in
connection with the Company's pension plans, which was reflected as a reduction
in cost of sales in 1994. See Note 5 to Financial Statements. Excluding the
curtailment gain, gross profit would have decreased $11.7 million or 22.9% in
1994 compared to 1993, and gross margin would have decreased to 10.2% in 1994.
The decrease in gross profit may be attributed to lower average selling prices
for greige fabrics, incremental depreciation and manufacturing inefficiencies
resulting from modernization projects. Additionally, the deterioration in
margins for the Finished Fabrics Division resulted from inefficiencies connected
with shifting to a continuous production cycle at its Elkin facility, product
mix changes, off-quality production, and incremental charges associated with
yarn making and weaving commissioned to outside manufacturers.

Selling, general and administrative expenses increased $2.0 million or
7.0%, from $29.4 million in 1993 to $31.4 million in 1994; however as a
percentage of sales, the increase was 0.2% from 7.9% to 8.1%. The increase

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<PAGE> 22

was primarily the result of incremental expenses associated with upgrading the
Company's information systems and increased sales commissions associated with
the sales growth of the Finished Fabrics Division.

Interest expense increased $3.9 million or 36.7% from $10.6 million in 1993
to $14.4 million in 1994. This increase reflects the impact of a rising interest
rate environment in 1994 and higher debt balances related to the Company's
capital spending, including the Clarkesville plant acquisition. Other expenses,
net of other income, decreased approximately $2.2 million due to lower
amortization of a noncompetition agreement which expired in February 1994.

Income taxes as a percent of income before taxes decreased from 39% to 37%.
This decrease is the result of a tax benefit resulting from a 1994 net operating
loss for income tax purposes.

As a result of the foregoing factors, net income decreased $3.3 million or
70.5% from $4.7 million in 1993 to $1.4 million in 1994 and decreased as a
percent of sales from 1.3% to 0.4%.

FINANCING AGREEMENTS

The Company used the proceeds of the Offering together with borrowings
under replacement facilities to redeem the Clinton Debentures and repay the
outstanding indebtedness under the Subsidiary Loan Agreements.

Prior Credit Agreement

The Company's initial bank credit agreement originally provided an
unsecured revolving credit facility of up to $70.0 million, including a letter
of credit facility of up to $10.0 million until October 27, 1996, at which time
the entire amount outstanding was to mature. In December 1994, the revolving
credit agreement was increased to $92.0 million and extended until January 15,
1998 in anticipation of the acquisition of United Elastic Corporation on January
3, 1995. The maximum and average amounts outstanding during 1995 were $55.4
million and $45.0 million, respectively; at December 30, 1995, $30.0 million was
outstanding under this facility.

New Credit Agreement

Effective March 19, 1996, the Company and its lenders replaced the initial
bank credit agreement with the Credit Agreement. The Credit Agreement provides
for a revolving credit facility of up to $80.0 million, including a letter of
credit facility of up to $5.0 million. The borrowings under the Credit Agreement
are secured by all inventories, all receivables and certain intangibles. The
amount available under the revolving credit facility is limited to a percentage
of the collateral pledged by the Company, as evidenced by a monthly borrowing
base certificate to be delivered by the Company, and is reduced by any
outstanding letters of credit issued under the letter of credit facility. The
facility matures on January 15, 1998.

Interest Rates and Fees. Interest under the Credit Agreement is payable at
one of two specified rates, as selected by the Company, as follows: (i) the rate
announced as the base rate of the Agent Bank and (ii) a Eurodollar rate plus
1.5%. If average quarterly borrowings under the Credit Agreement exceed $40.0
million, or borrowing availability under the revolving credit facility falls
below $24.0 million, the rates available to the Company will be the base rate
plus 0.25% or the Eurodollar rate plus 1.75%. The Company pays a commitment fee
of 0.375% per annum on the unused portion of the revolving credit facility,
payable quarterly in arrears. The Company also pays a quarterly agency fee of
$12,500 to the Agent Bank. In addition, the Company will pay a fee on the date
any letter of credit is issued under the Credit Agreement and each anniversary
date thereafter in an amount equal to (i) 1.0% of the stated amount of any
standby letter of credit and (ii) 0.375% of the stated amount of any documentary
letter of credit.

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<PAGE> 23

may incur additional senior indebtedness in an aggregate principal amount of up
to $18.0 million, which amount includes borrowings under the Wachovia Credit
Facility, without obtaining the consent of the lenders. Up to $10.0 million of
such additional senior indebtedness may be secured by purchase money liens. The
Credit Agreement also contains affirmative covenants relating to compliance with
laws, preservation of corporate existence, maintenance of insurance, payment of
taxes, maintenance of properties, delivery of financial and other information to
the lenders under the Credit Agreement and other matters.

The Company is required to maintain certain financial ratios, including a
minimum tangible net worth of $35.0 million. The Company is also required to
maintain a minimum interest coverage ratio (EBITDA to interest) increasing from
not less than 1.25 to 1 for the three months ending June 30, 1996, to not less
than 1.5 to 1 for the three months ending September 30, 1996, to not less than
1.4 to 1 for the four consecutive quarters ending December 28, 1996, and to not
less than 1.5 to 1 for any four consecutive quarters thereafter.

Security. Borrowings under the Credit Agreement are secured by the
Company's inventory, receivables and certain intangibles. The Credit Agreement
contains a negative covenant limiting the Company's right to grant security
interests or other liens in its other assets. However, up to $10.0 million of
any additional senior indebtedness permitted under the Credit Agreement,
excluding borrowings under the Wachovia Credit Facility, may be secured by
assets of the Company other than inventory or receivables.

Events of Default. The Credit Agreement contains certain events of default
customary for this type of credit facility, including, among others, payment
events of default, covenant defaults, an event of default based on a change of
control of the Company, and a cross-default to other indebtedness of, and
bankruptcy and judgment defaults to, the Company.

Wachovia Credit Facility

The Wachovia Credit Facility originally provided an uncommitted line of
credit of up to $5.0 million. In December 1994, the Wachovia Credit Facility was
increased to a limit of $8.0 million, and in June 1995, the amount was reduced
to $4.0 million. Loan amounts, interest rates and maturities are offered by the
bank in its discretion and are accepted by the Company at the time of borrowing,
subject to the execution of a note and supporting loan documentation
satisfactory to the bank. Borrowings under the Wachovia Credit Facility
constitute additional senior indebtedness under the Credit Agreement and are
unsecured. The maximum and average amounts outstanding during 1995 were $8.0
million and $3.1 million respectively; at December 30, 1995, $0.9 million was
outstanding and the per annum interest rate was 7.8%.

LIQUIDITY AND CAPITAL RESOURCES

In 1995, net cash provided by operations increased $19.2 million from $11.6
million in 1994 to $30.8 million in 1995, primarily as a result of reducing the
Company's investment in working capital.

Net cash used in investing activities decreased $11.4 million from $40.3
million in 1994 to $28.9 million in 1995. Of the Company's 1995 investing
activities, $8.9 million related to capital expenditures for the purchase of
machinery and equipment in connection with the Company's modernization programs
and $20.1 million related to the acquisition of the former United Elastic
Corporation operations on January 3, 1995.

Net cash from financing activities decreased $33.9 million from a source of
$29.1 million in 1994 to a use of $4.8 million in 1995. The decline in
investment activities noted above coupled with working capital reductions and
increased cash provided from operations resulted in excess cash flow, which was
used to repurchase $3.3 million of Common Stock and repay $1.5 million on the
revolving credit facility.

Working capital (excluding cash, marketable securities and the current
portion of long-term debt) decreased $23.8 million from $104.9 million after the
acquisition of the United Elastic operations to $81.1 million at December 30,
1995. The decrease in working capital resulted from reductions in inventories
and trade receivables, and may be attributed to improved information system
capabilities throughout the Company to manage inventories and collect past due
balances. Included in the reduction in working capital is a $2.9 million
reduction in inventories related to the Restructuring.

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<PAGE> 24

The Company's primary ongoing cash requirements will be to cover debt
service, facilitate capital expenditures and position the Company to respond
when business conditions improve. In January 1994, the Company entered into an
interest rate swap transaction with The First National Bank of Boston to convert
from an economic perspective $50.0 million of the Company's fixed interest rate
indebtedness, represented by the Notes, to a floating rate indebtedness. The
Company's expense under this agreement will amount to $0.3 million in 1996 and
its obligation will terminate July 19, 1996. The Company currently intends to
make capital expenditures of approximately $15.0 million during 1996, of which
$2.7 million was invested in the first quarter of 1996. The Company believes
that cash flow from operations and amounts available under the Credit Agreement
and the Wachovia Credit Facility will be sufficient to fund current operations,
meet its debt service requirements, fund capital expenditures and fund amounts
to be paid pursuant to the Company's restructuring initiatives.

INFLATION

The Company does not believe that its financial results have been
materially impacted by the effects of inflation.

SEASONALITY

The Company experiences some seasonality in its sales at the Elkin
location. The Company estimates that this seasonality may increase sales in the
second half of each year by approximately 5 to 10 percent.

ENVIRONMENTAL

Federal and state laws and regulations relating to the discharge of
materials into the environment are continually changing; therefore it is
difficult to gauge the total future impact of such regulations on the Company.
In connection with the acquisition of the Elkin facility, environmental site
evaluations were performed by the Company which concluded that some form of
ground-water and soil remediation will be required and that some asbestos
abatement may be required at the Elkin facility. The Company believes that
sufficient amounts are accrued as of December 30, 1995 for the cost of these
expenditures. In the future, the Company may also construct facilities to
control flyash disposal and runoff from a coal pile at the Elkin facility. The
Company may also have remediation obligations with respect to contamination at
an off-site treatment facility and a previously removed leaking underground
storage tank. See "Business -- Regulation." The Company believes that based on
all currently available information, the resolution of environmental matters
will not have a material adverse effect on the Company. However, future events,
such as changes in or modified interpretations of existing laws and regulations
or enforcement policies, or further investigation or evaluation of potential
health hazards of certain business activities, may give rise to additional
compliance and other costs that could have a material adverse effect on the
Company. See Notes 7 and 8 to the Financial Statements included elsewhere in
this Prospectus.

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<PAGE> 25

BUSINESS

The Company is a diversified manufacturer of textile products serving a
variety of markets, including the home furnishings, woven apparel, elasticized
knit apparel, furniture upholstery, transportation upholstery, consumer products
and industrial/medical markets. The Company conducts its operations through its
Greige Fabrics and Finished Fabrics Divisions.

SALES SUMMARY

The following table presents, for the last three fiscal years, the dollar
sales and the percentages of the Company's sales contributed by each division.

<TABLE>
<CAPTION>
SALES BY DIVISION
----------------------------------------------------
1993 1994 1995
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Greige Fabrics Division..................... $171,528 46% $176,321 45% $182,923 45%
Finished Fabrics Division................... 190,868 54 213,746 55 225,713 55
-------- --- -------- --- -------- ---
Total............................. $370,396 100% $390,067 100% $408,636 100%
======== === ======== === ======== ===
</TABLE>

The following table presents, for the last five fiscal years, the
percentages of the Company's sales to the home furnishings, woven apparel,
elasticized fabric, furniture upholstery, transportation upholstery, consumer
products and industrial/medical/other markets, as estimated by the Company.

<TABLE>
<CAPTION>
PERCENTAGE OF DOLLAR SALES
----------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Home furnishings market................................... 40 % 29 % 25 % 28 % 28 %
Woven apparel market...................................... 33 19 18 15 11
Furniture upholstery market............................... -- 17 19 18 14
Elasticized knit apparel market........................... 23 14 15 16 25
Transportation upholstery market.......................... -- 7 10 11 8
Consumer products market.................................. -- 7 8 9 8
Industrial/medical/other markets.......................... 4 7 5 3 6
---- ---- ---- ---- ----
Total........................................... 100 % 100 % 100 % 100 % 100 %
==== ==== ==== ==== ====
</TABLE>

GREIGE FABRICS DIVISION

Products. The Greige Fabrics Division manufactures light to midweight
greige (unfinished) fabrics, including printcloths, broadcloths, twills and
other fabrics of 100% cotton and blends of polyester and combed or carded
cotton, and 100% synthetic yarns. None of the division's customers accounts for
more than 10% of Company sales. The division can manufacture fabric in a broad
range of styles, which are determined by the fibers used, the number and size of
the yarns and the width of the fabric, but concentrates on a limited number of
styles and blends. The division currently produces fabric in widths ranging from
43 to 135 inches and typically produces between 60 and 100 styles at any one
time. The division's production flexibility enables it to be a cost effective
manufacturer of traditional fabric styles available from a large number of
domestic and foreign producers and gives it the ability to respond to changes in
demand in its markets. The division works closely with major integrated
manufacturers to satisfy their specific requirements.

The fabrics sold by the Greige Fabrics Division are ultimately made into a
variety of home furnishings, woven apparel and industrial products. In the home
furnishings market, fabrics are used in comforters, bedspreads, sheets and
coordinating accessories, as well as curtains and other home furnishing
products. In the woven apparel markets, fabrics are used in a wide range of
items, including women's apparel, men's boxer shorts, trousers, and uniforms and
similar career apparel. Combed blends and 100% cotton fabrics are also used in
bolts of finished cloth sold at retail for home sewing and crafts. The principal
industrial uses for the Greige Fabrics Division's fabrics are medical and
athletic tapes.

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<PAGE> 26

Manufacturing and Capacity. The Greige Fabrics Division's manufacture of
woven fabrics involves two principal operations: spinning cotton and blends of
cotton and polyester into yarn, and weaving yarn into fabric.

Spinning. The division either spins or purchases the yarn it uses to
produce woven fabrics. Two types of spinning equipment are used: air-jet
spinning equipment, which combines spinning and winding into one process,
and traditional ring spinning equipment. Approximately 20% of current
spinning capacity is air-jet spinning.

Weaving. The division currently employs both shuttle and shuttleless
weaving machines. The division's shuttle looms can weave a single panel of
fabric up to 51 inches in width. The division's shuttleless machines are
more versatile and are capable of weaving multiple fabrics of different
widths simultaneously on the same machine, with some machines capable of
producing fabrics as wide as 147 inches. The shuttleless machines require a
lower labor complement and weave fabric at higher speeds and with higher
quality levels than shuttle machines. The flexibility of the shuttleless
machines permits production to be shifted among fabric widths to meet
changing market requirements and demand levels. When the Lydia plant ceases
operations in June 1996, the Company will no longer operate shuttle weaving
machines.

The division currently operates seven manufacturing plants. Six of its
plants are equipped with projectile and air-jet shuttleless machines and
supporting equipment including carding, spinning and yarn preparation equipment.
The division plans to make further capital expenditures of $3.0 million during
fiscal 1996. The expenditures will include additional air-jet shuttleless
weaving machines, yarn twisting and ancillary equipment. Capital expenditures
have been designed to expand production capabilities, reduce production costs
and increase quality. The only plant not equipped with shuttleless weaving
machines, the Lydia plant, will cease operating in 1996 as part of the
Restructuring.

Of the division's seven plants, five usually operate on a 24-hour,
seven-day week, and two operate on a 24 hour, five day week. More recently, the
Company has been forced to occasionally curtail these operating schedules in
response to soft market conditions, but believes that it will return to a full
operating schedule once the Restructuring is completed.

Marketing and Sales. The Greige Fabrics Division's fabrics are sold
primarily through the Company's New York sales office. Fabrics are sold to
integrated manufacturers and converters for use in various home furnishings
products, woven apparel, and a variety of industrial applications. Fabrics are
typically manufactured to order. The division's sales are generally not
seasonal.

FINISHED FABRICS DIVISION

Products. The Finished Fabrics Division manufactures a variety of dyed and
finished fabrics for use in diverse markets.

Elasticized Fabrics. The division manufactures a variety of dyed and
finished elasticized knit and woven fabrics for use in intimate apparel and
foundation garments. It also has a significant presence in the stretch
fabric activewear market, including swimwear fabrics, and produces fabrics
for use in industrial and medical products. The vertically integrated
manufacturing operations produce warp knit, circular knit and woven fabrics
using a variety of spandex, polyester, rayon, nylon, cotton and blends of
cotton yarns. The division dyes and finishes the majority of its
elasticized knit fabrics as well as lace products manufactured by others.

Furniture Upholstery. The division produces furniture upholstery for
residential applications, office and public seating as well as wall panels
for open office systems. The division's customers include contract and
residential furniture manufacturers. Furniture upholstery is also sold
through an extensive distributor network. Furniture upholstery fabrics are
offered in both wool and a broad range of manmade fibers and in a variety
of constructions, from jacquard and dobby wovens to knitted and tufted
piles. These various fabric constructions primarily utilize internally
produced woolen spun, filament and novelty type yarns. A wide variety of
dyeing methods, including raw stock, yarn and piece dyeing, are used.

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<PAGE> 27

Transportation Upholstery. The division supplies upholstery fabrics
for automobile and light truck seating and interior component applications
as well as for a variety of other transportation uses such as heavy truck
interiors, van conversions and after-market uses. Primary automotive
customers include domestic automobile manufacturers and Japanese automobile
manufacturers with United States manufacturing facilities. To a limited
extent, the division also exports its automotive fabrics to Japan for
overseas production. The Company has developed a strategic alliance with
Tatsumura Textile Company, Ltd., the leading supplier of automotive fabrics
to Toyota, Mazda and Mitsubishi, to help to increase its business with the
Japanese automakers. A wide variety of upholstery fabrics are produced for
the transportation market, primarily from spun and filament polyester. For
the transportation upholstery market, the division supplies flat and
jacquard wovens, jacquard and dobby woven velours, jacquard circular knits
and double needle bar knits, and employs stock, yarn and piece dyeing
technologies.

Consumer Products. The division produces blankets, mattress pads,
electric mattress pads, fringed throws, cotton jacquard afghans and infant
bedding for sale to the retail, institutional and health care markets. Its
consumer products are manufactured through either a loom woven process or a
non-woven Fiberwoven(R) process. Market placements have been made in
Mexico, Canada, Western Europe, Australia and the Far East.

Manufacturing and Capacity.

Elasticized Fabrics. Manufacturing warp knit, circular knit and woven
fabrics with elastomeric fibers is a more difficult and complicated process than
that required for other fabrics. Customers who purchase elasticized fabrics
typically require that the fabrics meet precise specifications related to
physical characteristics, shades, shrinkage and the like.

Knitting. Several types of warp knitting machines are used. These
machines are versatile with the capability of knitting high quality fabric
in many different styles at high speeds and low defect levels. For circular
knitting, the Company uses both single and double knit machines, some of
which have mini-jacquard capability.

Weaving. Several types of looms are used. These looms are versatile
with the capability of weaving high quality narrow elastic fabric up to
twelve inches in width. Certain looms have jacquard capabilities, and can
weave logo designs into the fabric.

Finishing and Dyeing. Various dyeing and finishing technologies are
utilized which allow the division to dye and finish its fabrics on-site to
achieve consistent specifications and color matching for its products. The
processes used depend upon the type and style of fabrics being produced.
The division scours and dyes most of its fabric in either pressurized or
non-pressurized dyeing vessels. Fabrics of regular warp construction are
normally steamed in preparation for other finishing processes. Fabrics are
sent through finishing frames that stretch and set the fabric at a desired
width. Computerized color matching equipment enables the division to meet
the stringent requirements of the markets it serves. For certain fabrics
and shades, it uses dyed yarn for both knitting and weaving.

The division manufactures its elasticized knit fabrics at its plant located
in Greensboro, North Carolina, which operates on a 24-hour, five or six-day
week. Since the acquisition of the former United Elastic Corporation operations
in January 1995, the division manufactures narrow elasticized woven fabrics in
Stuart, Virginia. This plant operates on a 24-hour, five day week.

Furniture Upholstery, Transportation Upholstery and Consumer Products. The
division operates a manufacturing complex in Elkin, North Carolina, containing
approximately 1.7 million square feet in 11 buildings and a plant in Boonville,
North Carolina. At the Elkin complex, manufacturing is vertically integrated
from fiber to finished fabric. The Boonville plant produces yarn from fiber,
which is then transferred to the Elkin facility for weaving. Manufacturing
processes include garnetting waste fiber, extruding nylon and dyeing raw stock,
yarn and fabric. The product of these processes may flow through other processes
such as carding, spinning, weaving, knitting, the nonwoven Fiberwoven(R) process
and finishing. The division employs computer systems that allow for the design
of fabrics without the production cost associated with sampling,

25
<PAGE> 28

shorten fabric development time and promote faster response to customer
inquiries. Since 1992 the Company has invested $21.5 million in new equipment at
the Elkin facility for stock dyeing, yarn preparation, weaving machines and
jacquard heads. Additionally, the Company has invested $4.0 million to improve
its management information systems. When combined with the computer design
systems, these investments increased weaving capacity by approximately 35%,
diversified the division's fabric design offerings and increased its dyeing
capacity. More recently, these investments have enabled the Division to provide
better quality fabrics on a more timely basis while maintaining lower inventory
levels. These investments have also allowed the Company to consolidate certain
of its manufacturing processes in order to better utilize its more efficient
technologies and become more cost effective. Consequently, certain assets have
become permanently idled and will be disposed of as part of the Restructuring.

Marketing and Sales.

Elasticized Fabrics. The division sells its elasticized fabrics through
the Company's New York and Los Angeles sales offices, and sales representatives
located in Greensboro, North Carolina and Stuart, Virginia. These fabrics are
manufactured only to order.

Furniture Upholstery, Transportation Upholstery and Consumer
Products. Sales and marketing functions are conducted at the product level.
Furniture upholstery is sold by sales personnel in Elkin and High Point, North
Carolina (including a showroom), New York, Chicago, Los Angeles, and Grand
Rapids, Michigan, and sales agents in the Far East, Australia, and South
America. Transportation upholstery has sales and marketing offices in Elkin,
North Carolina and Detroit, Michigan and a sales representative in Elkhart,
Indiana. Consumer products are sold and marketed through offices in Elkin, North
Carolina and New York and sales associates located throughout the United States.
Foreign consumer products are handled through agents or distributors in Mexico,
Canada, Western Europe, Australia and the Far East.

RAW MATERIALS

The principal raw materials the Company uses are cotton and man-made fibers
and yarns. In 1995, raw materials accounted for approximately 44% of cost of
sales. The Company uses many types of fibers, both natural (cotton and wool) and
man-made (polyester, nylon, olefin, rayon and acrylic) as well as yarns
including Lycra(R), a spandex elastomeric yarn produced by DuPont (E.I.) de
Nemours & Company, in the manufacture of its textile products. The Company
believes that availability and future price levels for fibers and yarns will
depend primarily upon supply and demand conditions, crop conditions, general
inflation, government agricultural programs and prices of petroleum-based raw
materials.

Generally, the Company has had no difficulty in obtaining raw materials.
Cotton is available from a large number of suppliers. The Company maintains a
limited supply of cotton in inventory; its usual procedure is to purchase cotton
only when firm orders have been obtained for the goods in which it will be used.
When management concludes that a certain grade of cotton may be in short supply
or that prices may be substantially higher in the near term, however, the
Company may deviate from this procedure and buy additional cotton for inventory.
Historically, the Company has not purchased significant amounts of cotton for
inventory and continues to purchase cotton for future delivery when orders are
received.

The principal man-made fibers and yarns purchased by the Company are
polyester and nylon. The Company maintains a limited supply of man-made fibers
and yarns in inventory. The Company currently purchases man-made fibers for its
Greige Fabrics Division from two suppliers, although other suppliers are
available. The Company also purchases yarns of texturized filament polyester
primarily from a limited number of suppliers for use in its woven and knit
fabrics, although other suppliers are available. Currently, most of the
elastomeric yarn used in the production of elasticized fabrics is Lycra(R).

PATENTS AND TRADEMARKS

The Company has registered a stylized "Clinton," "EFA" and "Chatham" as
trademarks. The Company does not own or use any other patents, licenses or
trademarks that are currently material in the conduct of its business.

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<PAGE> 29

BACKLOG

At December 30, 1995, the Company had aggregate unfilled orders of $64
million, as compared to $113 million at December 31, 1994. As of December 30,
1995, the Greige Fabrics Division had approximately $41 million of unfilled
customer orders for woven fabrics, as compared to $81 million at December 31,
1994. The decrease in the Greige Fabrics Division's order backlog from 1994 to
1995 is indicative of the weak market conditions for lightweight greige woven
fabrics and the general slowdown in the textile industry. The division expects
to fill substantially all of these orders in 1996. At December 30, 1995, the
Finished Fabrics Division had unfilled orders totaling $23 million, as compared
to $32 million at December 31, 1994. The division expects to fill all of these
orders in 1996. These backlogs consist of orders that are not generally subject
to cancellation prior to shipment, although the Company has in the past
accommodated customer requests for order deferments due to unusual
circumstances.

COMPETITION AND INTERNATIONAL TRADE POLICY

The domestic textile industry is highly competitive with no one firm
dominating the United States market. Many companies compete only in limited
segments of the textile market. In recent years, there has been a trend toward
consolidation in the United States textile industry. Textile competition is
based in varying degrees on price, product styling and differentiation, quality
and customer service. The importance of each of these factors depends upon the
needs of particular markets and customers.

The domestic textile industry has been fundamentally affected by
competition from imports. The level of import protection for domestic producers
of textiles has been and will continue to be subject to domestic political and
foreign policy considerations. Under the import tariff and quota framework
developed under the Arrangement Regarding International Trade in Textiles and
commonly known as the Multifiber Arrangement (the "MFA"), most significant
exporters of fabrics were subject to annual quotas. However, the MFA expired on
December 31, 1994, and was replaced by The Uruguay Round Agreement (the "Uruguay
Agreement") on textiles and clothing, which contains a schedule for the gradual
phase-out of quotas established pursuant to the MFA over a ten year transition
period. After the transition period, textile and clothing trade will be fully
integrated into the World Trade Organization and subject to the same
restrictions as other sectors. The Uruguay Agreement contains a provision for
reducing tariffs on textiles and clothing products imposed by the United States
by approximately 12% overall, with the reductions phased in over a ten year
period. The reduction in the import protection accorded domestic fabric and
apparel manufacturers could adversely affect the Company.

The Company believes that the North American Free Trade Agreement ("NAFTA")
has and will continue to affect competition in the domestic textile
manufacturing market by phasing out substantially all trade restrictions among
Canada, Mexico and the United States while maintaining such restrictions on
products imported from outside North America, subject to the Uruguay Agreement.
While the Company believes that as a result of NAFTA some labor-intensive
apparel production has and will continue to move to Mexico due to Mexico's lower
labor costs, the Company expects to compete for sales of fabric to such
operations in what may become a larger market for the Company's products. To the
extent that U.S. apparel manufacturers move production to Mexico and thus gain a
competitive advantage over Asian producers facing continuing import
restrictions, the Company believes that it would benefit from a resulting
increase in North American production, as neither Mexico nor Canada are
currently competitive producers of the fabrics used in the manufacture of
apparel.

The impact of import competition varies among the Company's divisions. The
Greige Fabrics Division sells its fabrics in markets where imports are a
significant competitive factor -- estimated by the Company at 30% of the
division's United States markets. In addition, the division's fabrics are used
in apparel products which compete with imported garments. In response to the
increasing effect of imports, the division has engaged in an extensive
modernization program which has added flexibility to its manufacturing process
and increased its fabric offerings. This modernization program has resulted in
increases in productivity and lower unit costs, net of depreciation. In
addition, marketing has been redirected in an effort to reduce its dependence on
commodity fabrics and has focused on developing long-term customer relationships
where value added

27
<PAGE> 30

services can differentiate its fabrics from imports. To implement this strategy,
the division has generally endeavored to decrease its sales to the apparel
market and shift more of its sales to home furnishing markets where competition
from imports is less severe. However, depending on market conditions, the
division may from time to time redirect its sales from home furnishings to
apparel to avoid market weakness or to obtain a benefit from opportunistic
selling. The Greige Fabrics Division's principal competitors include Greenwood
Mills and Alice Manufacturing.

The Finished Fabrics Division and other United States manufacturers of
elasticized fabrics and garments, including intimate apparel, swimwear and
activewear, have not been subject to the same pressure from imports experienced
by many other sportswear apparel manufacturers. Customers place significant
emphasis on product design, component shade-matching and other quality-related
criteria. Customers establish strict specifications that place a premium on
customer service, which places foreign manufacturers at a disadvantage. The
Company also believes that the swimwear market is less susceptible to import
competition because sales in the U. S. retail market are generally made within a
four-month period, and therefore close proximity of the swimwear manufacturer
and the fabric producer is advantageous for initial orders and replacements. The
Finished Fabrics Division's principal elasticized fabrics competitors include
Liberty Fabrics and Darlington.

Furniture upholstery, transportation upholstery and consumer products
compete in domestic markets that to date have experienced little competition
from imports. In these markets, product styling and differentiation, quality and
customer service are more significant considerations as compared to more
commodity-oriented markets that are more susceptible to import competition.
Principal competitors include Guilford of Maine (furniture upholstery), Milliken
(furniture and transportation upholstery), Collins and Aikman (furniture and
transportation upholstery) and Pillowtex (consumer products).

EMPLOYEES

On December 30, 1995 the Company had 4,981 employees, none of whom were
covered by a collective bargaining agreement. Of these employees, 4,408 were
employed as hourly associates, while 573 were employed as salaried associates.
All of the Company's employees are full-time. The Company believes that its
employee relations are good. Following completion of the Restructuring, the
Company anticipates that it will have approximately 3,750 hourly associates and
510 salaried associates.

28
<PAGE> 31

FACILITIES

The following table sets forth certain information relating to the
Company's principal facilities as of December 30, 1995. All of these facilities
are owned by the Company, except for the New York sales office and the Columbia
executive office. The Company's New York sales office is leased for a term
expiring in 2005. The Columbia executive office is leased for a term expiring in
2000. The Company believes all of its facilities are in good repair and are in
suitable condition for the purposes for which they are used.

<TABLE>
<CAPTION>
LOCATION SQ. FOOTAGE USE
- --------------------------------- ----------- ------------------------------------------------
<S> <C> <C>
Greige Fabrics Division
Clinton No. 1.................. 263,100 Manufacturing (191,000 sq. ft.)
Clinton, SC Warehouse and Office (72,000 sq. ft.)
Clinton No. 2.................. 544,900 Manufacturing (303,900 sq. ft.)
Clinton, SC Warehouse and Office (241,000 sq. ft.)
Lydia.......................... 472,100 Manufacturing (306,600 sq. ft.)
Clinton, SC Warehouse and Office (165,500 sq. ft.)
Bailey......................... 277,200 Manufacturing (224,100 sq. ft.)
Clinton, SC Warehouse and Office (53,100 sq. ft.)
Office -- Clinton, SC.......... 37,700 Office
Geneva No. 1................... 151,500 Manufacturing (128,300 sq. ft.)
Geneva, AL Warehouse and Office (23,200 sq. ft.)
Geneva No. 2................... 258,200 Manufacturing (211,900 sq. ft.)
Geneva, AL Warehouse and Office (46,300 sq. ft.)
Office -- Geneva, AL........... 7,500 Office
Clarkesville, GA............... 268,835 Manufacturing (170,119 sq. ft.)
Warehouse and Office (98,716 sq. ft.)
Finished Fabrics Division
Greensboro, NC................. 175,300 Manufacturing (138,800 sq. ft.)
Warehouse and Office (36,500 sq. ft.)
Stuart, VA..................... 415,340 Manufacturing (328,900 sq. ft.)
Warehouse and Office (86,440 sq. ft.)
Elkin, NC...................... 1,697,600 Manufacturing (1,270,500 sq. ft.)
Warehouse and Office (427,100 sq. ft.)
Boonville, NC.................. 128,500 Manufacturing (99,200 sq. ft.)
Warehouse and Office (29,300 sq. ft.)
Other
CMI Sales Office............... 16,332 Office
New York, NY
CMI Executive Office........... 18,730 Office
Columbia, SC
</TABLE>

As part of the Restructuring, the Company announced that it will cease
manufacturing operations at the Lydia plant, consolidate certain weaving
operations at its Elkin location and downsize its corporate administrative
functions in Columbia. Consequently, certain manufacturing space at Lydia and
Elkin will be available for warehousing by midyear, while the Company will
attempt to sublease a portion of its office space in Columbia.

29
<PAGE> 32

REGULATION

The Company's operations are subject to federal, state and local laws and
regulations relating to the environment, health and safety, and other regulatory
matters. Certain of the Company's operations may from time to time involve the
use of substances that are classified as toxic or hazardous substances within
the meaning of these laws and regulations. Environmental operating permits are,
or may be required, for certain of the Company's operations and such permits are
subject to modification, renewal and revocation. The Company monitors and
reviews its operations, procedures and policies for compliance with these laws
and regulations. Despite these compliance efforts, risk of environmental
liability is inherent in the operation of the Company's businesses, as it is
with other companies engaged in similar businesses, and there can be no
assurance that environmental liabilities will not have a material adverse effect
on the Company in the future.

The Company has identified certain groundwater and soil contamination which
will require remediation and asbestos which may require abatement at its Elkin
facility. The Company has accrued for the costs it expects to incur in
connection with this remediation and abatement. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Environmental" and
Notes 7 and 8 to Financial Statements.

In May 1993, the Greige Fabrics Division received a notice of potential
liability and an information request from the Environmental Protection Agency
("EPA") with respect to the AquaTech site in Greer, South Carolina. The Company
has been designated by the EPA as a potentially responsible party ("PRP") at the
site. The Company entered into a buyout agreement with a group of approximately
719 PRPs who funded a surface removal of hazardous substances from this site at
a cost in excess of $14.0 million. The Company's allocated share of the costs of
the surface cleanup under the buyout agreement was $5,000. The buyout agreement
does not commit the Company to any additional expenditures nor protect it from
liability for any additional costs. The Company has joined the AquaTech PRP
Group for Subsurface Remediation which is awaiting the completion of soil and
groundwater testing by the EPA at the AquaTech site. At this time neither the
extent of further cleanup nor the Company's share of any additional remediation
costs is known.

The Company reported to the North Carolina Department of Environment,
Health and Natural Resources that it found soil and groundwater contamination in
excess of state standards at its Greensboro facility resulting from a previously
removed leaking underground storage tank. The Company has completed an
environmental site assessment and determined that remediation costs associated
with a cleanup may approach $400,000. Partial reimbursement may be available
from the North Carolina Underground Storage Tank Trust Fund. The Company has
begun certain aspects of the cleanup phase, but is awaiting final approval from
the State of North Carolina to complete this remediation.

LITIGATION

The Company is from time to time involved in routine litigation incidental
to its business operations, as well as product liability litigation. In the
opinion of the Company's management, none of the litigation in which it is
currently involved is material.

30
<PAGE> 33
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the current
executive officers and directors of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- ---- -------------------------------------------
<S> <C> <C>
Joseph L. Gorga............................ 42 Director; President and Chief Executive
Officer
James A. Ovenden........................... 32 Director; Chief Financial Officer,
Executive Vice President and Assistant
Secretary
Joshua T. Hamilton......................... 43 Executive Vice President and President,
Greige Fabrics Division
W. James Raleigh........................... 68 Director
Rupinder S. Sidhu.......................... 39 Director
Stephen M. McLean.......................... 37 Director
Michael H. deHavenon....................... 55 Director
</TABLE>

Each member of the Board of Directors holds office until the next annual
meeting of the stockholders and until his successor is elected and qualified.
Officers are appointed by the Board of Directors and serve at the discretion of
the Board.

Joseph L. Gorga was named President and Chief Executive Officer and
appointed as a director of the Company in November 1995. Mr. Gorga joined a
predecessor of the Finished Fabrics Division as its President in 1991. He was
employed by Milliken & Co., an integrated textile manufacturer, from 1975
through 1991 and served as General Manager of the Automotive & Elastic Fabrics
Division from 1987 until his employment with the Company.

James A. Ovenden joined the Company in 1987 as Assistant Treasurer and
became Treasurer in 1988. He was appointed to the newly-created office of Chief
Financial Officer in 1993, served as Secretary from 1991 to 1993 and was elected
Executive Vice President and Assistant Secretary in 1993. He became a director
of the Company in 1990.

Joshua T. Hamilton, Executive Vice President of the Company and President
of the Greige Fabrics Division, joined a predecessor of the Greige Fabrics
Division in 1983 and served as Vice President of Operations from 1989 until
becoming President in 1992.

W. James Raleigh was elected as a director of the Company on April 2, 1996.
Mr. Raleigh previously served as President of the Greige Division's sales
organization until his retirement in September 1995.

Rupinder S. Sidhu has served as a director of the Company since 1986. Mr.
Sidhu has been a partner of Stonington Partners, Inc., a private investment
firm, since 1993. He has been a member of the Board of Directors of ML Capital
Partners, a private investment firm affiliated with ML & Co. since 1987. From
1993 to July 1994, he was a partner of ML Capital Partners and a Senior Vice
President of ML Capital Partners from 1987 to 1994. Mr. Sidhu was also a
Managing Director of the Investment Banking Division of ML & Co. from 1989 to
1994 and a Director of the Investment Banking Division of ML & Co. from 1987 to
1989. Mr. Sidhu is a director of Eckerd Corporation, First USA, Inc., and
Wherehouse Entertainment, Inc.

Stephen M. McLean has served as a director of the Company since 1992. Mr.
McLean has been a partner and a director of Stonington Partners, Inc., a private
investment firm, since 1993. He has been a member of the Board of Directors of
ML Capital Partners since 1987. Mr. McLean was a partner of ML Capital Partners
from 1993 to July 1994 and a Senior Vice President of ML Capital Partners from
1987 to 1993. He was also a Managing Director of the Investment Banking Division
of ML & Co. from 1987 to 1994. Mr. McLean is a director of Ithaca Holdings,
Inc., Pathmark Stores, Inc. and Supermarkets General Holding Corporation.

31
<PAGE> 34

Michael H. deHavenon was first elected as a director of the Company in 1986
and served until 1994 when he did not stand for reelection. Mr. deHavenon was
appointed to the Board on October 24, 1995. Since 1992, Mr. deHavenon has served
as President of Merrill Lynch Capital Corporation and its predecessor, a wholly-
owned subsidiary of ML & Co. which structures and manages leveraged private
investments, and from 1980 to 1990 was a Managing Director of ML & Co., engaged
in the investment banking business. In 1991, he served as a Managing Director of
Butler Capital Corporation, a privately held management buyout firm.

EXECUTIVE COMPENSATION

Compensation Summary. The following table shows, for the last three fiscal
years of the Company, annual compensation paid by the Company to Joseph L.
Gorga, the President and Chief Executive Officer, the two executive officers of
the Company serving at the end of the 1995 fiscal year and to G. Thaddeus
Williams, who served as the President and Chief Executive Officer until his
retirement in August 1995 (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(4) ($) OPTIONS(#) ($)
- ---------------------------- ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
G. Thaddeus Williams(2)..... 1995 $244,913(3) $ -- $138,955(5) -- $637,955(2)
1994 354,378(3) -- 138,090(5) -- --
1993 343,750(3) 150,000 99,640(5) -- 19,969(6)
Joseph L. Gorga............. 1995 $262,861 $160,000 $ 4,614(7) 15,000 $ --
President and Chief 1994 250,296 236,513 -- 10,000 --
Executive Officer 1993 217,542 116,000 -- -- --
Joshua T. Hamilton.......... 1995 $191,113 $ 20,000 $ 3,864(7) -- $ --
President, Greige Fabrics 1994 181,665 -- -- -- --
Division 1993 163,750 32,500 -- -- --
James A. Ovenden............ 1995 $184,981 $ 40,000 $ 3,764(7) -- $ --
Executive Vice President 1994 177,734 -- -- -- --
and Chief Financial 1993 170,000 42,000 -- -- --
Officer
</TABLE>

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

(1) The Company does not maintain a "long-term incentive plan," as that term is
defined by applicable rules of the Commission and has not made any awards
of restricted stock or stock appreciation rights.
(2) Mr. Williams retired from the Company as President and Chief Executive
Officer and resigned as a Director effective August 23, 1995. Mr. Williams
received compensation after August 23, 1995 pursuant to a severance and
consulting agreement effective as of his retirement date. See
"-- Employment and Severance Agreements."
(3) Includes $63,462, $100,000 and $50,000 of deferred compensation for 1995,
1994, and 1993, respectively, pursuant to Mr. Williams' employment
agreement as amended July 1, 1993. See "--Employment and Severance
Agreements."
(4) Bonus amounts for Messrs. Williams, Ovenden, Hamilton and Gorga represent
amounts paid under the Company's Incentive Compensation Program, which
provides for cash bonuses in years in which earnings before interest, taxes
and depreciation exceed predetermined levels of earnings. Bonuses for
Messrs. Williams and Ovenden are based on the performance of the Company
and bonuses for Mr. Hamilton and Mr. Gorga are based on the performance of
their respective divisions. In 1996, Mr. Gorga's bonus will be based on the
performance of the Company. In 1994, Messrs. Williams, Ovenden and Hamilton
did not earn bonuses under the Company's Incentive Compensation Program.
See "-- Employment and Severance Agreements."

32
<PAGE> 35

(5) Represents tax reimbursements made for the benefit of Mr. Williams with
respect to a supplemental retirement benefit and life insurance policies
provided pursuant to his employment agreement with the Company. See
"-- Pension Plans" and "-- Employment and Severance Agreements."
(6) Represents premium payments on two life insurance policies covering Mr.
Williams. See "-- Employment and Severance Agreements."
(7) Represents the Company's contribution on behalf of the named Executive
Officer to the Company's 401(k) Plan for Associates of CMI Industries, Inc.

Grants of Stock Options and Stock Appreciation Rights. The following table
sets forth information with respect to options to purchase Common Stock granted
to the Named Executive Officers for the 1995 fiscal year.

OPTION GRANTS IN LAST FISCAL YEAR(1)

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE OF ASSUMED
---------------------------------------- ANNUAL
PERCENT OF RATES OF STOCK PRICE
NUMBER OF TOTAL APPRECIATION FOR
SECURITIES UNDERLYING OPTIONS GRANTED OPTION TERM
OPTIONS TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR(3) PRICE ($/SHARE) DATE 5%($) 10%($)
- ----------------- ---------------------- --------------- ---------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
G. Thaddeus
Williams....... -- -- -- -- -- --
Joseph L.
Gorga(2)....... 15,000 50% $ 45 1/2/2004 $424,500 $1,075,800
James A.
Ovenden........ -- -- -- -- -- --
Joshua T.
Hamilton....... -- -- -- -- -- --
</TABLE>

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

(1) The Company does not maintain a plan that authorizes the issuance of stock
appreciation rights.
(2) The option granted is a non-qualified option, was granted at estimated fair
market value on the date of grant, has a term of 10 years and is
immediately exercisable.
(3) Based on options for 30,000 shares of Common Stock granted to all employees
during 1995.

Stock Option Exercises. The following table sets forth information with
respect to unexercised stock options held by the Named Executive Officers as of
December 30, 1995. None of the Named Executive Officers exercised any options
during the Company's 1995 fiscal year.

AGGREGATED FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR END (#) AT FISCAL YEAR END($)(1)
------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------- ------------------------- -------------------------
<S> <C> <C>
G. Thaddeus Williams............................... 45,000/0 $0/$0
Joseph L. Gorga.................................... 35,000/0 0/0
James A. Ovenden................................... 30,000/0 0/0
Joshua T. Hamilton................................. -- --
</TABLE>

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

(1) Calculated based on the difference between the estimated value of the Common
Stock underlying the options at December 30, 1995 and the exercise price.
Because the Common Stock is privately held and not listed on any securities
exchange, the fair market value of the Common Stock is not readily
ascertainable. Management's estimate of the value of the Common Stock
underlying the options includes a discount to reflect the lack of a public
market for the Common Stock and the restrictions applicable to the Common
Stock held by Management Investors pursuant to the terms of the Management
Subscription Agreements and the Restated Stockholders Agreement. See
"-- Management Subscription Agreements" and "Ownership of the Company."

33
<PAGE> 36

Awards Under Long-Term Incentive Plans. The Company does not maintain a
"long-term incentive plan" as that term is defined by applicable rules of the
Commission.

The 401(k) Plan. Effective January 1, 1995, the Company established The
401(k) Plan for Associates of CMI Industries, Inc., which covers substantially
all of the Company's employees. The Company intends to provide retirement
benefits in the future through the 401(k) plan. Under the 401(k) plan, the
Company will match 50% of employee contributions, not to exceed 2% of pay, for
all eligible and participating employees. Messrs. Ovenden, Gorga and Hamilton
are eligible to participate in the 401(k) plan.

Defined Benefit Retirement Plans. Effective December 31, 1994, the Company
merged its two defined benefit plans, the Chatham Manufacturing, Inc. Pension
Plan and the Clinton Retirement Income Program, and curtailed future benefits.
This restructuring resulted in a curtailment gain of $6.9 million, which reduced
the cost of sales in 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Clinton Retirement Income Program. In 1991 Clinton combined its Pension
Plan for salaried employees, its Retirement Plan for hourly employees and its
frozen Profit Sharing Plan to form the Clinton Retirement Income Program
("CRIP"). The CRIP is a noncontributory plan providing retirement benefits to
all salaried and hourly employees of the former Clinton subsidiary who meet
certain age and service requirements. Retirement benefits to salaried employees
generally equal the greater of (i) 1 1/2% of the average total cash compensation
for the five highest consecutive years before retirement, multiplied by the
number of years of service as a salaried employee and reduced by 50% of the
employee's primary Social Security benefit payable at normal retirement date and
(ii) 1% of the aggregate of the participant's total cash compensation for all
years of service as a salaried employee after December 31, 1980. Benefits can be
paid under the CRIP through one of several annuity options selected by the
participant, including joint and survivor annuity options.

The following table sets forth estimated annual benefits payable upon
retirement in the Company's last fiscal year to CRIP participants at normal
retirement age in the compensation and service classifications specified.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
- -------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000.................................... $ 20,541 $ 29,916 $ 39,291 $ 48,666 $ 58,041
150,000.................................... 26,166 37,416 48,666 59,916 71,166
175,000.................................... 31,791 44,916 58,041 71,166 84,291
200,000.................................... 37,416 52,416 67,416 82,416 97,416
225,000.................................... 43,041 59,916 76,791 93,666 110,541
250,000.................................... 48,666 67,416 86,166 104,916 118,800
300,000.................................... 59,916 82,416 104,916 118,800 118,800
400,000.................................... 82,416 112,416 118,800 118,800 118,800
450,000.................................... 93,666 120,000 120,000 120,000 120,000
500,000.................................... 104,916 120,000 120,000 120,000 120,000
550,000.................................... 116,166 120,000 120,000 120,000 120,000
600,000.................................... 120,000 120,000 120,000 120,000 120,000
650,000.................................... 120,000 120,000 120,000 120,000 120,000
700,000.................................... 120,000 120,000 120,000 120,000 120,000
750,000.................................... 120,000 120,000 120,000 120,000 120,000
</TABLE>

Beginning in 1994, recognizable pay in tax qualified plans was limited to
$150,000 per year. Because of the grandfather treatment of prior accruals in the
CRIP, the above table recognizes accrued benefits on compensation in excess of
$150,000. The credited years of service for each of the Named Executive Officers

34
<PAGE> 37

who participate in the CRIP are: Joseph L. Gorga, 4 years; James A. Ovenden, 8
years; Joshua T. Hamilton, 12 years; and G. Thaddeus Williams, 22 years.

Chatham Pension Plan. On February 14, 1992, the Company's former Chatham
subsidiary became the sponsor of a pension plan that was originally established
in 1969 by Chatham's predecessor. The plan is a noncontributory plan and covers
all Chatham employees as of the first day of the first plan year after the
employee's date of employment. Participants accrue benefits as of January 1 of
each year of eighty-five hundredths of one percent (.0085) of total compensation
for each plan year plus sixty-five hundredths of one percent (.0065) of
compensation which is in excess of $12,200. The plan is a career average plan
and has provision for accredited service prior to January 1, 1989. Benefits can
be paid under the Chatham Pension Plan through one of several annuity options. A
lump-sum payment option is also offered with spousal consent. The following
table sets forth estimates of annual benefits payable upon retirement in the
Company's last fiscal year at normal retirement age in the compensation and
service classifications specified. The assumptions used indicate the
remuneration as career average compensation.

The following table sets forth estimated annual benefits payable upon
retirement in the Company's last fiscal year to plan participants at normal
retirement age in the compensation and service classifications specified.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------
REMUNERATION 15 20 25 30 35
- ----------------------------------------------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000....................................... $26,935 $35,914 $44,892 $ 53,871 $ 62,849
150,000....................................... 32,560 43,414 54,267 65,121 75,974
175,000....................................... 38,185 50,914 63,642 76,371 89,099
200,000....................................... 43,810 58,414 73,017 87,621 102,224
225,000....................................... 49,435 65,914 82,392 98,871 115,349
235,840....................................... 51,875 69,166 86,458 103,749 118,800
</TABLE>

The above table limits remuneration to $235,840 since the Chatham Pension
Plan has no participants with grandfathered compensation in excess of the 1993
maximum recognizable compensation limit for tax qualified plans. None of the
Named Executive Officer participates in the Chatham Pension Plan.

Supplemental Retirement Benefit. Pursuant to Mr. Williams' employment
agreement with the Company, prior to modification in connection with his
retirement from the Company, the Company agreed to provide Mr. Williams with an
annual supplemental retirement benefit equal to sixty percent (60%) of the
average of his cash compensation (base salary and a portion of any bonus under
the Incentive Compensation Program) for the five highest years of compensation
during his term of employment with the Company, less the amount of benefits
payable to Mr. Williams under the CRIP during such year. Pursuant to the terms
of the employment agreement prior to modification, the Company made annual
annuity payments during the term of Mr. Williams' employment in an amount
determined to be sufficient in light of all relevant factors, including
anticipated benefits under the CRIP and projected levels of compensation, for
the purpose of fully funding the supplemental retirement benefit in the year
preceding the year in which Mr. Williams attained age 65.

In connection with Mr. Williams' retirement as President and Chief
Executive Officer of the Company and his resignation from the Board of Directors
in August 1995, the Company and Mr. Williams entered into a severance and
consulting agreement (the "Consulting Agreement") that modified the Company's
obligations to Mr. Williams with respect to the supplemental retirement benefit.
As modified by the Consulting Agreement, the Company will continue to make
annual annuity payments to fund fully the supplemental retirement benefit in the
year preceding the year in which Mr. Williams attains age 65. However, pursuant
to the Consulting Agreement, the supplemental retirement benefit has been
established as $275,000, rather than sixty percent (60%) of the average of his
cash compensation described above, less amounts payable to Mr. Williams under
the CRIP during the year.

35
<PAGE> 38

The supplemental retirement benefit is payable for a 15-year period
commencing when Mr. Williams attains age 65. Mr. Williams is the owner of the
annuity funded by the Company, and if the Company makes all required payments to
the issuer of the annuity, Mr. Williams must look solely to the annuity policy
for payment of this supplemental retirement benefit after reaching age 65. The
Company is required to fully fund the supplemental retirement benefit upon the
occurrence of a change in control (as defined) in the Company.

Compensation Committee Interlocks and Insider Participation. During the
1995 fiscal year, the Compensation Committee of the Company's Board of Directors
was composed of Messrs. Rupinder S. Sidhu, Stephen H. McLean, Michael H.
deHavenon (from his appointment to the Board in October 1995) and G. Thaddeus
Williams, the former President and Chief Executive Officer of the Company until
his resignation from the Board of Directors in August 1995. Messrs. Sidhu,
McLean and deHavenon are not, and have not been at any time, either officers or
employees of the Company. Messrs. Sidhu, McLean and deHavenon are officers of
various entities affiliated with ML Capital Partners or ML & Co. ML Capital
Partners, through various affiliates, beneficially owns 58.8% of the outstanding
shares of Common Stock.

COMPENSATION OF DIRECTORS

The Company pays no remuneration to its directors for serving as such.

EMPLOYMENT AND SEVERANCE AGREEMENTS

Mr. Williams. Until his retirement from the Company in August 1995, Mr.
Williams was employed as President and Chief Executive Officer of the Company
pursuant to an employment agreement effective as of January 1, 1991, which was
amended as of July 1, 1993. Pursuant to the terms of the Consulting Agreement,
the rights and obligations of Mr. Williams and the Company under the employment
agreement have been terminated, except as expressly provided by the Consulting
Agreement.

Prior to Mr. Williams' retirement, his employment agreement provided Mr.
Williams with a base salary of $250,000 per year, subject to annual review and
increase by the Board of Directors of the Company during the term of the
agreement. The employment agreement provided several other benefits for Mr.
Williams, including: (i) the funding of an annuity to pay for the supplemental
retirement benefit commencing at age 65 as described previously; (ii)
reimbursement to him for any income taxes owed by him on account of the
supplemental retirement benefit; and (iii) participation in the Company's
Incentive Compensation Program at specified levels. The employment agreement
also provided certain severance benefits in the event of termination by the
Company without cause prior to the expiration of Mr. Williams' term of
employment.

Pursuant to the Consulting Agreement, Mr. Williams is to receive two years
of severance payments at the annual rate of $275,000. Following the expiration
of the severance payment period, Mr. Williams will provide consulting services
to the Board of Directors and to the Chief Executive Officer of the Company for
a period of up to three years and shall receive an annual consulting fee of
$175,000. During the term of the severance payment period and the consulting
period, Mr. Williams has agreed that he will not compete or interfere with any
business conducted by the Company or its affiliates. Mr. Williams and his
dependents are also entitled to continued participation in the Company's group
medical insurance plan and the Company will pay the required premiums until Mr.
Williams attains age 62.

The 1993 amendment to Mr. Williams' employment agreement, which reduced his
base salary from $350,000 to $250,000 and eliminated the funding by the Company
of certain life insurance benefits and reimbursement for related taxable income
to Mr. Williams, also established a deferred compensation arrangement for Mr.
Williams. Under this arrangement, the Company accrues an annual amount equal to
the amount of compensation foregone by Mr. Williams determined in light of
annual percentage increases and other relevant factors, until he reaches the age
of 65. At that time, an amount equal to the amount so deferred, adjusted to
account for the then current tax rates, was to become payable to Mr. Williams
over a period of time equal to the period during which the benefit occurred.
Contemporaneously, the Company entered into split-dollar insurance funding
agreements with a trust for the benefit of Mr. Williams' children. Under the
agreement, the Company advanced the amounts necessary to pay the premiums on
life insurance covering Mr. Williams' life and owned by the trustee, but not in
excess of the amount foregone annually by

36
<PAGE> 39

Mr. Williams under the amended employment agreement. Generally, the trustee was
obligated to repay the amount so advanced commencing at Mr. Williams' retirement
or termination of employment and continuing through the period in which the
deferred compensation was to be paid to Mr. Williams. Until repayment commenced,
the Company was to have an interest in the policy equal to the advances.

The Consulting Agreement modified the Company's obligations under this
deferred compensation arrangement in several respects. First, the split-dollar
insurance funding agreements were terminated and the Company surrendered all of
its rights to be repaid premium payments previously made or to be made pursuant
to the terms of the Consulting Agreement. Second, the Company agreed to continue
to make premium payments for a period of two years. In addition, the Company
will reimburse Mr. Williams for income taxes incurred by him as a result of the
Company's surrender of its repayment rights, the continuation of premium
payments for two years and the payment of the income tax reimbursement. Third,
the Company agreed to continue to accrue the deferred compensation amounts (at
an agreed annual amount of $160,000) for a period of two years. At the end of
the two-year period (rather than age 65), the Company will begin to make
payments of this unfunded deferred retirement benefit, which payments shall be
made over the four years that the benefit accrued.

The Consulting Agreement also provides that stock options covering 45,000
shares of common stock granted to Mr. Williams pursuant to the Company's 1992
Stock Option Plan will remain vested and exercisable through January 1, 1999.
Any shares of common stock obtained by Mr. Williams upon exercise of the stock
option will be subject to the Management Subscription Agreement and the Restated
Stockholders Agreement. See "-- Management Subscription Agreements" and
"Ownership of the Company -- Restated Stockholders Agreement." In addition,
pursuant to the Consulting Agreement, the Company purchased certain shares of
Common Stock held by certain trusts for the benefit of Mr. Williams' descendants
and modified certain rights and obligations with respect to shares of Common
Stock owned by Mr. Williams under the terms of the Management Subscription
Agreement and the Restated Stockholders Agreement. See "-- Management
Subscription Agreements" and "Certain Transactions."

Mr. Gorga. Effective January 1, 1996, the Company and Mr. Gorga entered
into an amended and restated employment agreement providing for the employment
of Mr. Gorga as the President and Chief Executive Officer of the Company. The
agreement has a term of two years, subject to annual renewals unless either
party objects. Under the agreement, Mr. Gorga is entitled to an annual salary of
$325,000, subject to increase by the Board's Compensation Committee. He is
entitled to participate in Company benefit plans, including the Incentive
Compensation Plan; so long as the current Incentive Compensation Plan is in
effect, the maximum amount payable under the plan to Mr. Gorga would be 75% of
his base salary rather than the amount specified in the plan.

In the event Mr. Gorga is terminated without cause during the term of the
agreement or within six months after its expiration, the agreement provides for
the payment to him of the greater of the base salary which would accrue over the
remaining term of the agreement or one year's base salary, together with
continued health and life insurance benefits during the period in which the
payments are made. If Mr. Gorga is terminated or resigns under specified
circumstances following a change of control (as defined) that occurs during the
term of the agreement or within six months after its expiration, Mr. Gorga will
be entitled to two years' base salary from the termination or resignation and
continued health and life insurance coverage for two years. In addition, with
respect to certain change of control situations, the bonus payable to Mr. Gorga
under any incentive compensation plan then in effect, rather than being
calculated on a pro rata basis as of the termination date, would be double the
maximum amount to which Mr. Gorga otherwise would be entitled for the entire
year, regardless of the actual performance of the Company. Under certain
circumstances with respect to change of control, the severance amounts payable,
including funding for the continued benefits, would be payable contemporaneously
with the occurrence of the change of control. Payments that result in the
imposition of an excise tax penalty under section 4999 of the Internal Revenue
Code of 1986, as amended, would result in a reimbursement payment so that Mr.
Gorga's after tax situation is not affected by the additional tax. The agreement
also contains certain agreements of Mr. Gorga relating to noncompetition with
the Company. Contemporaneously with the execution of the employment agreement in
February 1996, Mr. Gorga was issued non-qualified stock options to acquire up to
40,000 shares of Company stock for an

37
<PAGE> 40

exercise price of $27.50 per share, the amount determined by the Company to be
the fair market value of the Company's shares at the time of issue, and the
Company adjusted the exercise prices of 25,000 of options already held by Mr.
Gorga to the $27.50 price level.

Mr. Ovenden. Effective January 1, 1996, the Company and Mr. Ovenden
entered into an amended and restated employment agreement providing for the
employment of Mr. Ovenden as the Executive Vice President and Chief Financial
Officer of the Company. The agreement has a term of two years, subject to annual
renewals unless either party objects. Under the agreement, Mr. Ovenden is
entitled to an annual salary of $225,000, subject to increase by the Board's
compensation committee. He is entitled to participate in Company benefit plans,
including the Incentive Compensation Plan; so long as the current Incentive
Compensation Plan is in effect, the maximum amount payable under the plan to Mr.
Ovenden would be 50% of his base salary rather than the amount specified in the
plan.

In the event Mr. Ovenden is terminated without cause during the term of the
agreement or within six months after its expiration, the agreement provides for
the payment to him of the greater of the base salary which would accrue over the
remaining term of the agreement or one year's base salary, together with
continued health and life insurance benefits during the period in which the
payments are made. If Mr. Ovenden is terminated or resigns under specified
circumstances following a change of control (as defined) that occurs during the
term of the agreement or within six months after its expiration, Mr. Ovenden
will be entitled to two years' base salary from the termination or resignation
and continued health and life insurance coverage for two years. In addition,
with respect to certain change of control situations, the bonus payable to Mr.
Ovenden under any incentive compensation plan then in effect, rather than being
calculated on a pro rata basis as of the termination date, would be double the
maximum amount to which Mr. Ovenden otherwise would be entitled for the entire
year, regardless of the actual performance of the Company. Under certain
circumstances with respect to change of control, the severance amounts payable,
including funding for the continued benefits, would be payable contemporaneously
with the occurrence of the change of control. Payments that result in the
imposition of an excise tax penalty under section 4999 of the Internal Revenue
Code of 1986, as amended, would result in a reimbursement payment so that Mr.
Ovenden's after tax situation is not affected by the additional tax. The
agreement also contains certain agreements of Mr. Ovenden relating to
noncompetition with the Company. Contemporaneously with the execution of the
employment agreement in February 1996, Mr. Ovenden was issued non-qualified
stock options to acquire up to 15,000 shares of Company stock for an exercise
price of $27.50 per share, the amount determined by the Company to be the fair
market value of the Company's shares at the time of issue.

Mr. Raffo. Mr. Anthony J. Raffo, formerly President of the Company's
Chatham Manufacturing Division and an Executive Vice President of the Company,
resigned from the Company in December 1994. In a Modification and Consulting
Agreement effective December 6, 1994, the Company and Mr. Raffo terminated his
continuing obligations under his employment agreement, except as described
below, and terminated any rights Mr. Raffo had to unvested options to acquire up
to 30,000 shares of Common Stock. Mr. Raffo agreed to provide consulting
services to the Company through December 6, 1997. In lieu of payments under the
terms of his employment agreement, Mr. Raffo is to receive a total of $350,000
during the first year, $200,000 during the second year, and $200,000 during the
third year (if elected by the Company) in a combination of consulting payments
and other payments. During the period he is consulting with the Company, Mr.
Raffo has agreed not to engage in activities that are competitive with the
Company's business under the terms of the noncompetition provisions of his
employment agreement.

MANAGEMENT SUBSCRIPTION AGREEMENTS

Pursuant to a management subscription agreement (the "Management
Subscription Agreement"), certain of the Company's officers and employees,
including Messrs. Williams and Hamilton, acquired shares of Common Stock in
December 1986. Mr. Ovenden, who acquired shares of Common Stock in 1987, is
subject to a subscription agreement substantially identical to the Management
Subscription Agreement, and is a Management Investor. The Management
Subscription Agreement and Mr. Ovenden's separate subscription agreement grant
the Company an option to purchase and each of the Management Investors an option
under

38
<PAGE> 41

certain circumstances to sell at fair market value the shares of Common Stock
owned by such Management Investor in the event of his death, incapacity or
termination of employment.

Under the Consulting Agreement with Mr. Williams, Mr. Williams waived his
rights under the Management Subscription Agreement to require the Company to
purchase his shares upon his retirement. The Consulting Agreement grants Mr.
Williams the option to sell all or a portion of the shares of Common Stock
directly owned by him to the Company in the event of an initial public offering
of Common Stock, at the same price as shares of Common Stock are being offered
to the public. In addition, the Consulting Agreement also provides Mr. Williams
with the right to participate, at any time on or prior to January 1, 1999, with
ML Capital Partners in any sale by ML Capital Partners to a third party of
securities representing more than 15% of the then-outstanding shares of Common
Stock on a fully diluted basis. If Mr. Williams exercises this right, he will be
entitled to sell shares of Common Stock in the same proportion as the shares of
Common Stock ML Capital Partners proposes to sell bear to the total number of
outstanding shares of Common Stock on a fully diluted basis at the same price
and on the same terms as ML Capital Partners sells its shares of Common Stock.

CERTAIN TRANSACTIONS

Market Making Activities. In April 1987, Merrill Lynch underwrote a public
offering of the Clinton Debentures and Clinton used the proceeds to repay a
bridge loan extended by ML & Co. The Company and Clinton Mills, Inc. agreed to
reimburse Merrill Lynch, ML & Co. and ML Capital Partners for their reasonable
out-of-pocket expenses in connection with the financing of the 1986 acquisition
of a predecessor of the Greige Fabrics Division and to indemnify them against
certain liabilities, including liabilities under the federal securities laws.
Prior to the redemption of the Clinton Debentures in 1993, Clinton maintained
the effectiveness of the registration statement pursuant to which the Clinton
Debentures were registered with the Commission to enable Merrill Lynch to make a
market in the Clinton Debentures. For a discussion of the relationship between
each of Merrill Lynch and its affiliates and the Company, see "Ownership of the
Company."

In October 1993, Merrill Lynch underwrote a public offering of the Notes.
The Company used proceeds of the Offering, together with borrowings under the
initial credit agreement, to refinance the indebtedness outstanding under the
Subsidiary Loan Agreements and to call the Clinton Debentures for redemption.
Merrill Lynch received an underwriting discount of $3,046,875 in connection with
the Offering. The Company has agreed to maintain the effectiveness of the
registration statement pursuant to which the Notes were registered with the
Commission to enable Merrill Lynch to make a market in the Notes. The Company
also agreed to indemnify Merrill Lynch against certain liabilities, including
liabilities under the federal securities laws.

Purchase of Common Stock. Pursuant to the terms of the Consulting
Agreement with Mr. Williams and the Management Subscription Agreement, the
Company in August 1995, purchased 83,000 shares of Common Stock owned by certain
trusts for the benefit of Mr. Williams' descendants (the "Trusts") at a price of
$40 per share or a total of $3.3 million. In addition, the Consulting Agreement
provides that the Trusts will have the right under certain circumstances to
receive an additional amount with respect to such shares if, on or before
January 1, 1999 (i) the Company undertakes an initial public offering of Common
Stock, (ii) the Company enters into a fundamental transaction such as a merger,
recapitalization or similar transaction, or (iii) the ML Capital Partners
affiliated stockholders agree to sell their shares of Common Stock to the
Company or a party not affiliated with ML Capital Partners and in connection
with any such transaction the shares of Common Stock are valued at a price
higher than $40 per share. If such a transaction is consummated, the Trusts will
be entitled to receive from the Company a payment equal to the difference
between the per share value of Common Stock in such transaction and $40
multiplied by 83,000 shares.

Registration Rights. All current stockholders of the Company have certain
registration rights with respect to their Common Stock. See "Ownership of the
Company."

39
<PAGE> 42

OWNERSHIP OF THE COMPANY

The following table sets forth information with respect to the beneficial
ownership of shares of Common Stock as of December 30, 1995 of all stockholders
known by the Company to be the beneficial owners of more than 5% of its
outstanding Common Stock, of each director of the Company, each Named Executive
Officer in the Summary Compensation Table, and of all directors and executive
officers as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------------------
NUMBER OF SHARES PERCENT OF TOTAL
---------------- ----------------
<S> <C> <C>
Merrill Lynch Capital Partners, Inc.(1)(2).................... 994,387 58.8%
767 Fifth Avenue, 48th Floor
New York, NY 10153
G. Thaddeus Williams(3)....................................... 142,000 8.2
333 Spring Lake Rd.
Columbia, SC 29206
Steve F. Warren(4)............................................ 120,000 7.1
1301 Gervais Street, Suite 700
Columbia, SC 29201
W. James Raleigh(5)........................................... 60,000 3.5
James A. Ovenden(6)........................................... 40,000 2.3
Joseph L. Gorga(7)............................................ 35,000 2.0
Joshua T. Hamilton(8)......................................... 16,000 *
Michael H. deHavenon.......................................... 4,081 *
Rupinder S. Sidhu............................................. -- --
Stephen M. McLean............................................. -- --
M. S. Bailey and Son Bankers, as Trustee...................... 126,698 7.5
211 North Broad Street
Clinton, SC 29325
All directors and executive officers as a group (7
persons)(5)(6)(7)(8)........................................ 155,081 8.8
</TABLE>

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

* Less than 1%
(1) Ten limited partnerships, each of which is an affiliate of ML Capital
Partners and Merrill Lynch, are record owners of 894,986 of the presently
outstanding shares: Merrill Lynch Capital Appreciation Partnership No. VII,
L.P., Merrill Lynch Capital Appreciation Partnership No. B-XVI, L.P., ML
Offshore LBO Partnership No. VII, ML Offshore LBO Partnership No. B-XVI, ML
Employees LBO Partnership No. I, L.P., ML Capital Partners Associates L.P.
No. II, Merrill Lynch Kecalp L.P. 1986, Merrill Lynch Kecalp L.P. 1989,
Merrill Lynch Kecalp L.P. 1991, and Merchant Banking L.P. No. 1. Merrill
Lynch LBO Partners No. II, L.P. ("LBO Partners II") is the general partner
of Merrill Lynch Capital Appreciation Partnership No. VII, L.P. and the
investment general partner of ML Offshore LBO Partnership No. VII. Merrill
Lynch LBO Partners No. B-III ("LBO Partners III") is the general partner of
Merrill Lynch Capital Appreciation Partnership No. B-XVI, L.P. and ML
Offshore LBO Partnership No. B-XVI. ML Capital Partners is in turn the
general partner of LBO Partners II and LBO Partners III. ML Employees LBO
Managers, Inc., a wholly-owned subsidiary of ML Capital Partners, is the
managing general partner of ML Employees LBO Partnership No. 1, L.P. ML
Capital Partners is the general partner of ML Capital Partners Associates
L.P. No. II. Kecalp, Inc., a wholly-owned subsidiary of ML&Co., is the
general partner of Merrill Lynch Kecalp L.P. 1986, Merrill Lynch Kecalp
L.P. 1989 and Merrill Lynch Kecalp L.P. 1991. Merrill Lynch MBP, Inc., an
indirect wholly-owned subsidiary of ML&Co., is the general partner of
Merchant Banking L.P. No. 1. The remaining 99,401 outstanding shares deemed
beneficially owned by ML Capital Partners are owned of record by ML IBK
Positions,

40
<PAGE> 43

Inc., an indirect wholly-owned subsidiary of ML&Co. and an affiliate of ML
Capital Partners and Merrill Lynch.
(2) Rupinder S. Sidhu, Stephen M. McLean and Michael H. deHavenon, directors of
the Company, are members of the Board of Directors of ML Capital Partners.
By virtue of their status as directors of ML Capital Partners, Messrs.
Sidhu, McLean and deHavenon may be deemed under the rules of the Commission
to be beneficial owners of 856,165 shares of Common Stock owned of record
by limited partnerships that are wholly owned by ML Capital Partners.
Messrs. Sidhu, McLean and deHavenon disclaim beneficial ownership of these
shares of Common Stock.
(3) Amounts for Mr. Williams include 45,000 shares of Common Stock issuable to
Mr. Williams pursuant to presently exercisable options.
(4) Amounts for Mr. Warren include 60,000 shares of Common Stock held by a
limited partnership in which Mr. Warren is a general partner.
(5) Amounts for Mr. Raleigh do not include 60,000 shares of Common Stock held by
a trust for the benefit of Mr. Raleigh's children, as to which Mr. Raleigh
disclaims beneficial ownership.
(6) Amounts for Mr. Ovenden include 30,000 shares issuable upon exercise of
presently exercisable options to acquire Common Stock.
(7) Amounts for Mr. Gorga represent shares issuable upon exercise of presently
exercisable options to acquire Common Stock.
(8) Amounts for Mr. Hamilton do not include 4,000 shares of Common Stock held by
a trust for the benefit of Mr. Hamilton's children, as to which Mr.
Hamilton disclaims beneficial ownership.

RESTATED STOCKHOLDERS AGREEMENT

In connection with the original issuance of Common Stock to the ML Capital
Partners affiliates, certain of the Management Investors and others upon the
organization of the Company in 1986, all stockholders entered into a
stockholders agreement with the Company, which was amended and restated in its
entirety in February 1992 (the "Restated Stockholders Agreement"). The Restated
Stockholders Agreement provides that the ML Capital Partners affiliates are
entitled to designate four of the Company's seven directors and the Management
Investors are entitled to designate three of the Company's directors. The Board
of Directors is currently comprised of six members, three of whom (Messrs.
Sidhu, McLean and deHavenon) have been designated by ML Capital Partners.
Certain significant transactions between the Company and unrelated parties
require the approval of the Board of Directors and the holders of more than
two-thirds of the outstanding shares of Common Stock. Since the ML Capital
Partners affiliates have the right to elect the majority of the Board of
Directors, the approval of the directors elected by the ML Capital Partners
affiliates and Management Investors holding approximately 8% of the outstanding
Common Stock (in addition to the ML Capital Partners affiliated stockholders)
will be required to approve significant transactions. The Restated Stockholders
Agreement also provides for certain restrictions on the transfer of shares of
Common Stock by the current stockholders and rights of first refusal in
connection with certain proposed transfers of Common Stock. Pursuant to the
Consulting Agreement, Mr. Williams' shares of Common Stock will not be subject
to these transfer restrictions if the ML Capital Partners affiliated
stockholders sell their shares of Common Stock to an unaffiliated person or
distribute their shares of Common Stock to their respective partners or
investors.

Under the Restated Stockholders Agreement, all the stockholders of the
Company have certain registration rights with respect to their Common Stock.
These rights include demand and "piggyback" registration rights. The Company is
obligated to register shares of Common Stock under the demand registration
rights if holders of more than two-thirds of the outstanding shares request
registration. The registration rights extend until February 14, 2002 or
terminate sooner upon (i) the merger or consolidation of the Company with an
unaffiliated corporation in which the Management Investors and affiliates of ML
Capital Partners own less than 65% of the surviving or resulting corporation or
(ii) the sale of substantially all the assets of the Company to an unaffiliated
person. The remaining provisions of the Restated Stockholders Agreement would
terminate under the foregoing circumstances or sooner in the event of (i) a
public offering of Common Stock at the conclusion of which at least 30% of the
outstanding shares shall have been sold to the public or (ii) the sale of 60% or
more of the shares of Common Stock owned by either the Management

41
<PAGE> 44

Investors as a group or the ML Capital Partners affiliates as a group (as fully
diluted by shares to be issued upon exercise of options).

DESCRIPTION OF BANK CREDIT FACILITIES

PRIOR CREDIT AGREEMENT

The Company's initial bank credit agreement originally provided an
unsecured revolving credit facility of up to $70.0 million, including a letter
of credit facility of up to $10.0 million until October 27, 1996, at which time
the entire amount outstanding was to mature. In December 1994, the revolving
credit agreement was increased to $92 million and extended until January 15,
1998 in anticipation of the acquisition of United Elastic Corporation on January
3, 1995. The maximum and average amounts outstanding during 1995 were $55.4
million and $45.0 million, respectively; at December 30, 1995, $30.0 million was
outstanding under this facility.

NEW CREDIT AGREEMENT

Interest Rates and Fees. Interest under the Credit Agreement is payable at
one of two specified rates, as selected by the Company, as follows: (i) the rate
announced as the base rate of the Agent Bank and (ii) a Eurodollar rate plus
1.5%. If average quarterly borrowings under the Credit Agreement exceed $40
million, or borrowing availability under the revolving credit facility falls
below $24 million, the rates available to the Company will be the base rate plus
0.25% or the Eurodollar rate plus 1.75%. The Company pays a commitment fee of
0.375% per annum on the unused portion of the revolving credit facility, payable
quarterly in arrears. The Company also pays a quarterly agency fee of $12,500 to
the Agent Bank. In addition, the Company will pay a fee on the date any letter
of credit is issued under the Credit Agreement and each anniversary date
thereafter in an amount equal to (i) 1.0% of the stated amount of any standby
letter of credit and (ii) 0.375% of the stated amount of any documentary letter
of credit.

Restrictive Covenants. The Credit Agreement contains covenants customary
for a secured revolving credit facility including, among others, covenants
restricting the incurrence of indebtedness, the creation or existence of liens,
the declaration or the payment of dividends, the repurchase or redemption of
debt and equity securities of the Company, certain transactions with related
parties, and certain corporate transactions such as sales and purchases of
assets, mergers or consolidations. Under the Credit Agreement, the Company may
incur additional senior indebtedness in an aggregate principal amount of up to
$18.0 million, which amount includes borrowings under the Wachovia Credit
Facility, without obtaining the consent of the lenders. Up to $10.0 million of
such additional senior indebtedness may be secured by purchase money liens. The
Credit Agreement also contains affirmative covenants relating to compliance with
laws, preservation of corporate existence, maintenance of insurance, payment of
taxes, maintenance of properties, delivery of financial and other information to
the lenders under the Credit Agreement and other matters.

42
<PAGE> 45

to 1 for the three months ending September 30, 1996, to not less than 1.4 to 1
for the four consecutive quarters ending on December 28, 1996, and to not less
than 1.5 to 1 for any four consecutive quarters thereafter.

WACHOVIA CREDIT FACILITY

DESCRIPTION OF THE NOTES

The Notes were issued under an indenture dated as of October 28, 1993 (the
"Indenture") between the Company and Chemical Bank, Trustee (the "Trustee"). The
Indenture is subject to and governed by the Trust Indenture Act of 1939, as
amended. The following summary of the material provisions of the Indenture does
not purport to be complete, and where reference is made to particular provisions
of the Indenture, such provisions, including the definition of certain terms,
are incorporated by reference as a part of such summaries or terms, which are
qualified in their entirety by such reference. The definitions of certain
capitalized terms used in the following summary are set forth below under
"-- Certain Definitions."

GENERAL

The Notes are unsecured senior subordinated obligations of the Company
limited to $125 million aggregate principal amount. The Notes were issued in
fully registered form, without coupons, in denominations of $1,000 and integral
multiples thereof. (Section 302) Principal of, premium, if any, and interest on
the Notes are payable, and the Notes are transferable, at the office or agency
of the Company in The City of New York maintained for such purposes, which
currently is the corporate trust office of the Trustee maintained at 450 West
33rd Street, New York, New York 10001. In addition, interest may be paid at the
option of the Company (i) by check mailed to the person entitled thereto as
shown on the security register or (ii) by transfer to an account maintained by
the payee located in the United States (Section 301). No service charge will be
made for any registration of transfer or exchange of Notes, but the Company or
the Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. (Section 305)

MATURITY, INTEREST AND PRINCIPAL

The Notes mature on October 1, 2003. Interest on the Notes accrues at the
rate of 9 1/2% per annum and is payable semiannually on April 1 and October 1 of
each year to the person in whose name the Note is registered at the close of
business on the March 15 or September 15 next preceding such interest payment
date. Interest is computed on the basis of a 360-day year comprised of twelve
30-day months. (Section 310)

43
<PAGE> 46

REDEMPTION

Optional Redemption. The Notes will be subject to redemption, at the
option of the Company, in whole or in part, at any time on or after October 1,
1998, upon not less than 30 nor more than 60 days' notice at the following
Redemption Prices (expressed as percentages of principal amount) set forth
below, plus accrued interest to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date to receive interest due on
an Interest Payment Date that is on or prior to the Redemption Date), if
redeemed during the 12-month period beginning October 1 of the years indicated:

<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
--------------------------------------------------------------------- ----------------
<S> <C>
1998................................................................. 104.750%
1999................................................................. 102.375
2000 and thereafter.................................................. 100.000
</TABLE>

In addition to the optional redemption of the Notes in accordance with the
provisions of the preceding paragraph, during the period ending October 28,
1996, the Company may, with the net proceeds of an initial public offering of
its common stock, redeem up to 35% of the original aggregate principal amount of
the Notes at the Redemption Price of 108.5% of the principal amount of the
securities redeemed, plus accrued interest to the Redemption Date (subject to
the right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date). (Section 203)

Optional Redemption upon Change of Control. Upon the occurrence of a
Change of Control (as defined below), the Notes are redeemable, in whole or in
part, at the option of the Company, upon not less than 30 nor more than 60 days'
prior notice to each Holder of Notes to be redeemed, which notice may be given
at any time within 180 days after the occurrence of a Change in Control, at a
redemption price equal to the sum of (i) the then outstanding principal amount
thereof plus (ii) accrued and unpaid interest, if any, to the redemption date
plus (iii) the Applicable Premium. (Section 203) The following definitions are
used to determine the Applicable Premium:

"Applicable Premium" is defined, with respect to a Note, as the
greater of (i) 1.0% of the then Outstanding principal amount of such Note
and (ii) the excess of (A) the present value of the required interest and
principal payments due on such Note, computed using a discount rate equal
to the Treasury Rate plus the Applicable Spread, over (B) the then
Outstanding principal amount of such Note; provided that in no event will
the Applicable Premium exceed the amount of the applicable redemption price
upon an optional redemption less 100%, at any time on or after October 1,
1998.

"Treasury Rate" is defined as the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity
(as compiled and published in the most recent Federal Reserve Statistical
Release H.15(519) which has become publicly available at least two business
days prior to the date fixed for prepayment (or, if such Statistical
Release is no longer published, any publicly available source of similar
market data)) most nearly equal to the then remaining Average Life of the
Notes; provided, however, that if the Average Life of the Notes is not
equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained
by linear interpolation (calculated to the nearest one-twelfth of a year)
from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the Average Life of the Notes
is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year
shall be used.

"Applicable Spread" is defined as 125 basis points.

A "Change of Control" is defined to mean the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
Voting Stock of the

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<PAGE> 47

Company; (b) the Company consolidates with, or merges with or into, another
Person or sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other
property, other than any such transaction where (i) the outstanding Voting
Stock of the Company is converted into or exchanged for (1) Voting Stock
(other than Redeemable Capital Stock) of the surviving or transferee
corporation or (2) cash, securities and other property in an amount that
could be paid by the Company as a Restricted Payment under the Indenture
and (ii) immediately after such transaction no "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding
Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
Voting Stock of the surviving or transferee corporation; or (c) during any
consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with any
new directors whose election by such Board of Directors or whose nomination
for election by the stockholders of the Company was approved by a vote of
66 2/3% of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority
of the Board of Directors of the Company then in office.

"Permitted Holders" means ML Capital Partners and its Affiliates and
the Management Investors.

In addition, as described below, the Company is obligated to make an offer
to purchase all outstanding Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase within 30 days after the occurrence of a Change of Control. See
"Covenants -- Change of Control." Although it is not obligated to do so, the
Company anticipates that, upon any Change of Control, it would make such offer
to purchase prior to making any decision as to whether to optionally redeem the
Notes.

The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs and the
Company is required to purchase Notes as described above. (Section 1016) The
existence of a Holder's right to require, subject to certain conditions, the
Company to repurchase its Notes upon a Change of Control may deter a third party
from acquiring the Company in a transaction that constitutes a Change of
Control.

The use of the term "all or substantially all" in Indenture provisions such
as clause (b) of the definition of "Change of Control" and under "-- Mergers,
Consolidations and Transfer of Assets" has not been interpreted under New York
law (which is the governing law of the Indenture) to represent a specific
quantitative test. As a consequence, in the event the holders of the Notes
elected to exercise their rights under the Indenture and the Company elected to
contest such election, there could be no assurance as to how a court applying
New York law would interpret the phrase. Accordingly, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of a person, which
uncertainty should be considered by prospective purchasers of Notes.

If less than all the Notes are to be redeemed, the particular Notes (or any
portion thereof that is an integral multiple of $1,000) to be redeemed shall be
selected not more than 60 days prior to the Redemption Date by the Trustee, from
the outstanding Notes not previously called for redemption, by such method as
the Trustee shall deem fair and appropriate. (Section 1104) Accordingly, the
Holders of Notes do not have a right to a prorated redemption.

SUBORDINATION

The payment of the principal of (and premium, if any, on) and interest on
the Notes is, to the extent set forth in the Indenture, subordinated in right of
payment to the prior payment in full of all Senior Indebtedness.

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<PAGE> 48

In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relating to the Company or to its creditors, as such, or
to its assets, or any liquidation, dissolution or other winding-up of the
Company, whether voluntary or involuntary and whether or not including
insolvency or bankruptcy, or any assignment for the benefit of creditors or
other marshaling of assets or liabilities of the Company (except in connection
with the consolidation or merger of the Company or its liquidation or
dissolution following the conveyance, transfer or lease of its properties and
assets substantially as an entirety upon the terms and conditions described
under "Mergers, Consolidations and Transfer of Assets" below), the holders of
Senior Indebtedness will first be entitled to receive payment in full of all
amounts due on or in respect of all Senior Indebtedness, or provision shall be
made for such payment, before the Holders of Notes will be entitled to receive
any payment or distribution of any kind or character (other than any payment or
distribution in the form of equity securities or subordinated securities of the
Company or any successor obligor with respect to the Senior Indebtedness
provided for by a plan of reorganization or readjustment that, in the case of
any such subordinated securities, are subordinated in right of payment to all
Senior Indebtedness that may at the time be outstanding to substantially the
same extent as, or to a greater extent than, the Notes are so subordinated as
provided in the Indenture (such equity securities or subordinated securities
hereinafter being "Permitted Junior Securities")) on account of principal of (or
premium, if any, on) or interest on the Notes. In the event that notwithstanding
the foregoing, the Trustee or the Holder of any Note receives any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, in respect of principal of (or premium, if any, on) or
interest on the Notes before all Senior Indebtedness is paid in full or payment
thereof provided for, then such payment or distribution (other than a payment or
distribution in Permitted Junior Securities) will be required to be paid over or
delivered forthwith to the trustee in bankruptcy, receiver, liquidator, trustee,
custodian, assignee, agent or other Person making payment or distribution of
assets of the Company for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in
full. (Section 1402)

No payment or distribution of any assets of the Company of any kind or
character (other than Permitted Junior Securities) may be made by the Company on
account of principal of (or premium, if any, on) or interest on the Notes or on
account of the purchase or redemption or other acquisition of Notes upon the
occurrence of a Payment Event of Default and receipt by the Trustee of written
notice thereof until such Payment Event of Default shall have been cured or
waived. (Section 1403(a))

No payment or distribution of any assets of the Company of any kind or
character (other than Permitted Junior Securities) may be made by the Company on
account of any principal of (or premium, if any, on) or interest on the Notes or
on account of the purchase or redemption or other acquisition of Notes for the
period specified below ("Payment Blockage Period") upon the occurrence of a
Nonpayment Event of Default and receipt by the Trustee of written notice thereof
from the Agent Bank or any other representative of a holder of Specified Senior
Indebtedness. The Payment Blockage Period will commence upon the earlier of the
dates of receipt by the Trustee or the Company of notice from the Agent Bank or
any other holder of Specified Senior Indebtedness and shall end on the earliest
of (i) 179 days thereafter, (ii) the date, as set forth in a written notice from
the Agent Bank or a representative of the Specified Senior Indebtedness to the
Company or the Trustee, on which such Nonpayment Event of Default is cured,
waived or ceases to exist or such Specified Senior Indebtedness is discharged or
(iii) such Payment Blockage Period shall have been terminated by written notice
to the Company or the Trustee from the Agent Bank or such other representative
initiating such Payment Blockage Period, after which the Company will resume
making any and all required payments in respect of the Notes, including any
missed payments. In any event, not more than one blockage period may be
commenced during any period of 360 consecutive days, and there shall be a period
of at least 181 consecutive days in each period of 360 consecutive days when no
blockage period is in effect. No Nonpayment Event of Default that existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Specified Senior Indebtedness initiating such blockage period
will be, or can be, made the basis for the commencement of a subsequent Payment
Blockage Period, unless such default has been cured or waived for a period of
not less than 90 consecutive days. In the event that, notwithstanding the
foregoing, the Company makes any payment to the Trustee or the Holder of any
Note prohibited by the subordination

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<PAGE> 49

provisions, then such payment will be required to be paid over and delivered
forthwith to the Company. (Sections 1403(b) and 1403(c))

By reason of such subordination, in the event of liquidation, receivership,
reorganization or insolvency of the Company, creditors of the Company who are
holders of Senior Indebtedness may recover more, ratably, than the Holders of
the Notes, and assets which would be otherwise be available to pay obligations
in respect of the Notes will be available only after all Senior Indebtedness has
been paid in full, and there may not be sufficient assets remaining to pay
amounts due on any or all of the Notes.

"Senior Indebtedness" means the principal of (and premium, if any, on) and
interest on (including interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law) and other amounts due
on or in connection with any Indebtedness of the Company, whether outstanding on
October 28, 1993 or thereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the same
or pursuant to which the same is outstanding expressly provides that such
Indebtedness will not be senior in right of payment to the Notes. Without
limiting the generality of the foregoing, "Senior Indebtedness" will include the
principal of (and premium, if any, on) and interest (including interest accruing
after the occurrence of an event of default or after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law) on all obligations of
every nature of the Company from time to time owed to the Banks under the Bank
Credit Agreement, including, without limitation, principal of and interest on,
and all fees related to, the revolving loans or term loans (or any combination
thereof) made pursuant to the Bank Credit Agreement, reimbursement and other
obligations owed by the Company to the Banks with respect to any letters of
credit and any obligations owed to the Banks with respect to interest rate
protection incurred to satisfy the requirements of the Bank Credit Agreement or
otherwise. Notwithstanding the foregoing, "Senior Indebtedness" will not include
(A) Indebtedness evidenced by the Notes, (B) Indebtedness of the Company that is
expressly subordinated in right of payment to any Senior Indebtedness of the
Company or the Notes, (C) Indebtedness that is represented by Redeemable Capital
Stock, (D) Indebtedness of the Company to the extent incurred in violation of
the "Limitation on Indebtedness" covenant of the Indenture and (E) Indebtedness
of the Company to any Subsidiary.

"Specified Senior Indebtedness" means (a) all Senior Indebtedness of the
Company under the Bank Credit Agreement or refinancings thereof and (b) any
other Senior Indebtedness or refinancings thereof having a principal amount of
at least $12.5 million as of any date prior to the date of determination. For
purposes of this definition, a refinancing of any Indebtedness shall be treated
as such only if it ranks or would rank pari passu with the Indebtedness
refinanced. (Section 101)

The subordination provisions described above will cease to be applicable to
the Notes upon any defeasance or covenant defeasance of the Notes as described
under "Defeasance." (Article Thirteen)

At December 30, 1995, the amount of Senior Indebtedness outstanding was
$32.4 million. The Indenture limits, but does not prohibit, the incurrence by
the Company of additional Indebtedness that is senior or pari passu in right of
payment to the Notes and prohibits the incurrence by the Company of Indebtedness
that is subordinated in right of payment to any other Indebtedness of the
Company and senior in right of payment to the Notes.

COVENANTS

The Indenture contains, among others, the following covenants:

Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, make any Restricted
Payment unless at the time of and after giving effect to the proposed Restricted
Payment, (i) no Default or Event of Default shall have occurred and be
continuing, (ii) the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the first paragraph under the
"Limitation on Indebtedness" covenant and (iii) the aggregate amount of all
Restricted Payments declared or made after the date of the Indenture (plus the
amount of Investments made

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<PAGE> 50

pursuant to clause (e)(ii)(A) under the "Limitation on Investments" covenant)
shall not exceed the sum (without duplication) of:

(A) 50% of the aggregate Consolidated Adjusted Net Income of the
Company accrued on a cumulative basis during the period beginning on
October 1, 1993 and ending on the last day of the Company's fiscal quarter
ending prior to the date of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Adjusted Net Income is a loss, minus 100%
of such loss), plus

(B) the aggregate net cash proceeds, plus the Fair Market Value of
property other than cash (as determined by the Company's Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution), received after October 28, 1993 by the Company from the
issuance or sale (other than to any of its Restricted Subsidiaries) of
shares of Qualified Capital Stock of the Company or warrants, options or
rights to purchase shares (other than issuances contemplated by clauses
(ii) and (iii) of the definition of Permitted Payments set forth in
paragraph (b) below) of Qualified Capital Stock of the Company, plus

(C) the aggregate net cash proceeds, plus the Fair Market Value of
property other than cash (as determined by the Company's Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution), received after October 28, 1993 by the Company as capital
contributions, plus

(D) the aggregate net cash proceeds received after October 28, 1993 by
the Company (other than from any of its Restricted Subsidiaries) upon the
exercise of options, warrants or rights to purchase shares of Qualified
Capital Stock of the Company, plus

(E) the aggregate net cash proceeds received after October 28, 1993 by
the Company from the issuance or sale (other than to any of its Restricted
Subsidiaries) of debt securities or shares of Redeemable Capital Stock that
have been converted into or exchanged for Qualified Capital Stock of the
Company, together with the aggregate cash received by the Company at the
time of such conversion or exchange, plus

(F) to the extent not otherwise included in the Company's Consolidated
Adjusted Net Income, the aggregate amount of principal repayments, interest
on Indebtedness, dividends, distributions or other return of capital
received by the Company or a Restricted Subsidiary from any Person (other
than the Company or any Restricted Subsidiary) in which the Company or any
of its Restricted Subsidiaries has an ownership interest, (including any
return of capital resulting from redesignation of a Unrestricted Subsidiary
as a Restricted Subsidiary) or any repayment of Indebtedness guaranteed by
the Company or a Restricted Subsidiary to the extent the incurrence of such
guarantee was an Investment pursuant to clause (e) of the "Limitation on
Investments" covenant (valued in each case as provided in the definition of
Investment) up to the amount of Investment made pursuant to clause (e) of
the "Limitation on Investments" covenant.

(b) Notwithstanding paragraph (a) above, the Company and any Restricted
Subsidiary may take the following actions (clauses (i) through (vi) being
referred to as "Permitted Payments") so long as, in the case of clauses (v) and
(vi), no Default or Event of Default has occurred and is continuing:

(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such declaration complied
with the provisions of the previous paragraph;

(ii) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or any Restricted
Subsidiary, in exchange for (including any such exchange pursuant to the
exercise of a conversion right or privilege in connection with which cash
is paid in lieu of the issuance of fractional shares or scrip) or out of
the net cash proceeds of a substantially concurrent issue and sale (other
than to a Restricted Subsidiary) of shares of Qualified Capital Stock of
the Company;

(iii) the redemption, defeasance, repurchase or acquisition or
retirement for value (each, for purposes of this clause, a "refinancing")
of any Indebtedness of the Company (other than Redeemable Capital Stock)
which is pari passu with or expressly subordinate in right of payment to
the Notes out of

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<PAGE> 51

the net cash proceeds of a substantially concurrent issue and sale of (A)
new Indebtedness of the Company or (B) shares of Qualified Capital Stock of
the Company, provided that, with respect to clause (A), any such new
Indebtedness (1) has a principal amount that does not exceed the principal
amount so refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Indebtedness
refinanced or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing, plus the amount of
expenses of the Company incurred in connection with such refinancing;
provided that for purposes of this clause, the principal amount of any
Indebtedness shall be deemed to mean the principal amount thereof or, if
such Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration thereof,
such lesser amount as of the date of determination, (2) has an Average Life
that is equal to or greater than the remaining Average Life of the Notes,
(3) has a final Stated Maturity of principal that exceeds the final Stated
Maturity of principal of the Notes, and (4) is pari passu with or expressly
subordinated in right of payment to the Notes at least to the same extent
as the Indebtedness refinanced;

(iv) the declaration or payment of any dividend or distribution on any
Capital Stock of any Restricted Subsidiary, or the purchase, redemption,
acquisition or retirement for value of any Capital Stock of any Restricted
Subsidiary, provided that such declaration, payment, purchase, redemption,
acquisition or retirement is made pro rata among all holders of such
Capital Stock of such Restricted Subsidiary;

(v) payments to repurchase the capital stock of the Company from the
Management Investors upon or occasioned by the death, disability or
involuntary or voluntary termination of any such Management Investor in an
aggregate amount not to exceed $2,000,000 in any one fiscal year plus the
aggregate amount by which such repurchases under this clause (v) in the
immediately prior fiscal year were less than $2,000,000; and

(vi) payments or other actions described in the definition of
Restricted Payment that would otherwise be Restricted Payments in an
aggregate amount not to exceed $10,000,000.

Except as provided in this paragraph (b), nothing in this covenant limits
or restricts the making of any Permitted Payment and a Permitted Payment will
not be treated as a Restricted Payment.

(c) In computing Consolidated Adjusted Net Income under clause (iii)(A) of
paragraph (a) above, the Company (1) shall use audited financial statements for
the portions of the relevant period for which such statements are available on
the date of determination and unaudited financial statements and other current
financial data based on the books and records of the Company for the remaining
portion of such period, and (2) shall be permitted to rely in good faith on the
financial statements and other financial data derived from the books and records
of the Company that are available on the date of determination. If the Company
makes a Restricted Payment which, at the time of the making of such Restricted
Payment would in the good faith determination of the Company be permitted under
the requirements of the Indenture, such Restricted Payment shall be deemed to
have been made in compliance with the Indenture notwithstanding any subsequent
adjustment made in good faith to the Company's financial statements affecting
Consolidated Adjusted Net Income. (Section 1010)

Limitation on Investments. The Company will not, and will not permit any
Restricted Subsidiary to, make any Investment in any Person, except (a)
Investments in, or Investments that result in the creation of, any Restricted
Subsidiary by the Company or any other Restricted Subsidiary or Investments in
the Company by any Restricted Subsidiary; (b) Investments made in any Cash
Equivalents or in bonds or instruments issued by an industrial development
authority the repayment of which is dependent upon payments from the Company or
any Restricted Subsidiary; (c) loans or advances to employees made in the
ordinary course of business and consistent with past practices of the Company
and its Restricted Subsidiaries in an aggregate amount not to exceed $250,000
outstanding at any one time; (d) Investments in prepaid expenses, negotiable
instruments held for collection, lease, utility, workers' compensation,
performance and other similar deposits; or Investments in stock, obligations or
securities received in settlement of debts owing to the Company or a Restricted
Subsidiary as a result of foreclosure, perfection or enforcement of any Lien, in
each case as to debt

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<PAGE> 52

that arose in the ordinary course of business of the Company or any such
Restricted Subsidiary; and (e) other Investments in an aggregate amount not
exceeding the sum of (i) $10,000,000, (ii) an amount equal to the sum of (A) the
amount permitted at such time to be made as Restricted Payments pursuant to the
provisions of paragraph (a) of the "Limitation on Restricted Payments" covenant
and (B) the amount allowed as Permitted Payments pursuant to paragraph (b)(vi)
of such covenant and (iii) an amount up to $5,000,000 for Investments in
Permitted Joint Ventures. (Section 1011)

Limitation on Indebtedness. (a) The Company will not incur, create,
assume, guarantee or in any other manner become directly or indirectly liable
for (collectively, "incur") the payment of any Indebtedness (including Acquired
Indebtedness), other than Permitted Indebtedness, unless the Company's Fixed
Charge Coverage Ratio for the four full fiscal quarters immediately preceding
the incurrence of such Indebtedness, taken as one period and after giving pro
forma effect to the incurrence of such Indebtedness (and all other Indebtedness
incurred since the end of the most recently completed fiscal quarter of the
Company preceding the date of determination) and (if applicable) the application
of the net proceeds therefrom (and from any other Indebtedness), including to
refinance other Indebtedness, as if such Indebtedness (and any such other
Indebtedness) had been incurred on the first day of such four-quarter period,
would have been greater than 2.0 to 1 for the period from the date of the
Indenture through April 28, 1995 and 2.25 to 1 for all periods thereafter.

(b) The Company will not permit any Restricted Subsidiary to incur any
Indebtedness (including any Acquired Indebtedness), other than Permitted
Subsidiary Indebtedness. (Section 1012)

Limitation on Other Senior Subordinated Indebtedness. The Company will not
incur, create, assume, guarantee or in any other manner become directly or
indirectly liable with respect to or responsible for, or permit to remain
outstanding, any Indebtedness, other than the Notes, that is subordinate or
junior in right of payment to any Senior Indebtedness unless such Indebtedness
is also pari passu with, or subordinate in right of payment to, the Notes
pursuant to subordination provisions substantially similar to those contained in
the Indenture. (Section 1013)

Limitation on Issuances and Sale of Preferred Stock by Restricted
Subsidiaries. The Company (a) will not permit any Restricted Subsidiary to
issue any Preferred Stock (other than to the Company or a Wholly owned
Restricted Subsidiary) and (b) will not permit any Person (other than the
Company or a Wholly owned Restricted Subsidiary) to own any Preferred Stock of
any Restricted Subsidiary. (Section 1014)

Limitation on Liens. (a) The Company will not create, incur, assume or
suffer to exist any Lien of any kind upon any of its property or assets, now
owned or hereafter acquired, to secure any Pari Passu Indebtedness or
Subordinated Indebtedness unless prior to or contemporaneously therewith the
Notes are secured equally and ratably, provided that (1) if such secured
Indebtedness is Pari Passu Indebtedness, the Lien securing such Pari Passu
Indebtedness shall be subordinate and junior to, or pari passu with, the Lien
securing the Notes and (2) if such secured Indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Notes at least to the same
extent as such Subordinated Indebtedness is subordinated to the Notes. The
foregoing shall not apply to any Lien securing Acquired Indebtedness of the
Company, provided that any such Lien only extends to the assets that were
subject to such Lien prior to the related acquisition by the Company and was not
created, incurred or assumed in contemplation of such transaction.

(b) The Company will not permit any Restricted Subsidiary to create, incur,
assume or suffer to exist any Lien of any kind upon any of its property or
assets, now owned or hereafter acquired, to secure any Indebtedness, other than
Permitted Subsidiary Indebtedness. (Section 1015)

Change of Control. Upon the occurrence of a Change of Control, the Company
will be obligated to make an offer to purchase (a "Change of Control Offer") and
shall, subject to the provisions described below, purchase, on a business day
(the "Change of Control Purchase Date") not more than 90 nor less than 30 days
following the occurrence of the Change of Control, all of the then outstanding
Notes at a purchase price (the "Change of Control Purchase Price") equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
Change of Control Purchase Date. The Company shall, subject to the provisions

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<PAGE> 53

described below, be required to purchase all Notes properly tendered into the
Change of Control Offer and not withdrawn. Prior to the mailing of the notice to
Holders provided for below, the Company shall have (x) obtained the requisite
consents under the Bank Credit Agreement to permit the purchase of the Notes as
provided for under this covenant or (y) terminated the commitments under and
repaid the Outstanding Indebtedness under the Bank Credit Agreement to the
extent the requisite consents thereunder have not been obtained. If a notice has
been mailed when such condition precedent has not been satisfied, the Company
shall have no obligation to (and shall not) effect the purchase of Notes until
such time as such condition precedent is satisfied. Failure to mail the notice
on the date specified below or to have satisfied the foregoing condition
precedent by the date that the notice is required to be mailed shall in any
event constitute a covenant Default under clause (e) of "-- Events of Default"
herein. The Change of Control Offer is required to remain open for at least 20
business days and until the close of business on the Change of Control Purchase
Date. (Section 1016)

In order to effect such Change of Control Offer, the Company will, not
later than the 30th day after the Change of Control, mail to each Holder of
Notes notice of the Change of Control Offer, which notice shall govern the terms
of the Change of Control Offer and shall state, among other things, the
procedures that Holders of Notes must follow to accept the Change of Control
Offer.

If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by Holders of Notes
seeking to accept the Change of Control Offer. A failure to redeem all of the
Notes tendered pursuant to a Change of Control Offer would constitute a Default
under the Indenture. The Company will not be required to make a Change of
Control Offer upon a Change of Control if a third party makes the Change of
Control Offer at the same purchase price, at the same times and otherwise in
substantial compliance with the requirements applicable to a Change of Control
Offer made by the Company and purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer.

Disposition of Proceeds of Asset Sales. The Company will not, and will not
permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company
or such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of the shares or
assets sold or otherwise disposed of and (ii) at least 75% of such consideration
consists of cash or Cash Equivalents. To the extent that the Net Cash Proceeds
of any Asset Sale are not required to be applied to prepay Senior Indebtedness
and thereby permanently reduce the commitments or amounts available to be
reborrowed under such Senior Indebtedness, as required by the terms thereof, or
are not so applied, the Company or such Restricted Subsidiary, as the case may
be, may apply the Net Cash Proceeds from such Asset Sale within 24 months of
such Asset Sale to an investment in properties and assets that replace the
properties and assets that were the subject of such Asset Sale or in properties
and assets that will be used in the business of the Company and its Restricted
Subsidiaries existing on the date of the Indenture or in any business reasonably
related thereto ("Replacement Assets") so long as the Company or such Restricted
Subsidiary has notified the Trustee in writing within 180 days of such Asset
Sale, that it has determined to apply the Net Cash Proceeds from such Asset Sale
to an investment in Replacement Assets. Any Net Cash Proceeds from any Asset
Sale as to which the Company does not so notify the Trustee within such 180-day
period or does not so invest in such Replacement Assets within such 24-month
period, or which are not used to repay Senior Indebtedness and thereby
permanently reduce the commitments of amounts available to be reborrowed under
such Senior Indebtedness (regardless of whether such repayment is required),
constitute "Excess Proceeds" subject to disposition as provided below.

When the aggregate amount of Excess Proceeds exceeds $10,000,000, the
Company shall make an offer to purchase, from all Holders of the Notes, an
aggregate principal amount of Notes equal to such Excess Proceeds, at a price in
cash equal to 100% of the outstanding principal amount thereof plus accrued and
unpaid interest, if any, to the purchase date. To the extent that the aggregate
principal amount of Notes tendered pursuant to an offer to purchase is less than
the Excess Proceeds, the Company may use such deficiency for general corporate
purposes. If the aggregate principal of Notes validly tendered and not withdrawn
by Holders thereof exceeds the Excess Proceeds, Notes to be purchased will be
selected on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset to zero.

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Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (other than a Restricted Subsidiary)
unless (i) such transaction or series of related transactions is on terms that,
in the Company's reasonable judgment in light of all circumstances, are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that could have been obtained at the time of such transaction or series of
related transactions in a comparable transaction on an arm's length basis from a
person that is not such an Affiliate, (ii) with respect to any transaction or
series of related transactions involving aggregate consideration equal to or
greater than $1,000,000 or more, but less than $5,000,000, the Company shall
have delivered an Officer's Certificate to the Trustee certifying that such
transaction or transactions are fair to the Company or its Restricted
Subsidiary, as the case may be, from a financial point of view and (iii) with
respect to any transaction or series of related transactions including aggregate
consideration equal to or greater than $5,000,000 such transaction or series of
related transactions is approved by a majority of the disinterested members of
the Board of Directors or the Company has obtained a written opinion from an
independent nationally recognized investment banking firm to the effect set
forth in the preceding clause; provided, however, that the foregoing restriction
shall not apply to (1) the payment of reasonable and customary regular fees to
directors of the Company or any Restricted Subsidiary who are not employees of
any such Persons, (2) loans or advances to officers, directors and employees of
the Company or any Restricted Subsidiary made in the ordinary course of business
and consistent with past practices of the Company and its Restricted
Subsidiaries, (3) the payment of dividends in respect of the Capital Stock of
the Company or any Restricted Subsidiary permitted under the "Limitation on
Restricted Payments" covenant, as well as any payments permitted by clause (v)
of paragraph (b) of such covenant, (4) any transaction or series of related
transactions between the Company and any Restricted Subsidiary or between
Restricted Subsidiaries and (5) the payment of fees to Merrill Lynch & Co. and
its Affiliates (excluding ML Capital Partners and its controlled Affiliates) for
consulting, investment banking or financial advisory services rendered to the
Company or any Restricted Subsidiary. For purposes of this covenant, any
transaction or series of transactions between the Company or any Restricted
Subsidiary and any Affiliate of the Company that is approved as being on the
terms required by clause (i) in the prior sentence by a majority of the
disinterested members of the Board of Directors shall be deemed to be on terms
as favorable as those that might be obtained at the time of such transaction or
series of transactions in a comparable transaction on an arm's-length basis with
an unaffiliated third party, and thus shall be permitted under this covenant
without any further action. (Section 1018)

Limitation on Payment Restrictions Affecting Restricted Subsidiaries. The
Company will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist any consensual encumbrance or restriction
(other than pursuant to law or regulation) on the ability of any Restricted
Subsidiary to (i) pay, directly or indirectly, dividends or make any other
distributions in respect of its Capital Stock or pay any Indebtedness or other
obligation owed to the Company or any Restricted Subsidiary; (ii) make loans or
advances to the Company or any Restricted Subsidiary; or (iii) transfer any of
its property or assets to the Company (other than property or assets subject to
Liens permitted under paragraph (b) of the "Limitations on Liens" covenant
described above); except, in each such case, any such consensual encumbrance or
restriction (a) pursuant to any agreement in effect on the date of the
Indenture, or (b) pursuant to any agreement, instrument or charter of or in
respect of a Restricted Subsidiary entered into prior to the date on which such
Restricted Subsidiary became a Restricted Subsidiary and outstanding on such
date and not entered into in anticipation of becoming a Restricted Subsidiary,
or (c) pursuant to an agreement effecting a renewal, refunding or extension of
any agreement, instrument or charter referred to in clause (a) or (b) above;
provided, however, that the provisions relating to such encumbrance or
restriction are no more restrictive in any material respect in the reasonable
judgment of the Board of Directors. (Section 1019)

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Provision of Financial Information. So long as any of the Notes are
outstanding, the Company will file, to the extent permitted under the Exchange
Act, with the Commission the annual reports, quarterly reports and other
documents otherwise required to be filed with the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act as if the Company were subject to such
Sections and will also provide to all Holders and file with the Trustee copies
of such reports and documents within 15 days after it files them with the
Commission or, if filing such reports and documents by the Company with the
Commission is not permitted under the Exchange Act, within 15 days after it
would otherwise have been required to file such reports and documents if
permitted, in each case at the Company's cost. (Section 1009)

Mergers, Consolidations and Transfer of Assets. The Company will not
consolidate with or merge with or into any other Person or convey, transfer or
lease its properties and assets substantially as an entirety to any Person after
the date of original issuance of the Notes, unless: (a) either (i) the Company
will be the continuing corporation or (ii) the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
that acquires by conveyance or transfer, or that leases, the properties and
assets of the Company substantially as an entirety shall be a corporation,
partnership or trust organized and validly existing under the laws of the United
States of America, any State thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture the Company's obligation for the
due and punctual payment of the principal of (and premium, if any, on) and
interest on all the Notes and the performance and observance of every covenant
of the Indenture on the part of the Company to be performed or observed; (b)
immediately thereafter, no Event of Default (and no event that, after notice or
lapse of time or both, would become an Event of Default) shall have occurred and
be continuing; (c) immediately thereafter, on a pro forma basis (including,
without limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction and the application of the
proceeds therefrom), either (i) the Company or such Person could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the first
paragraph of the "Limitation on Indebtedness" covenant or (ii) the Company's or
such Person's Fixed Charge Coverage Ratio would be equal to or greater than the
Company's Fixed Charge Coverage Ratio immediately prior to such transaction
(assuming a market rate of interest with respect to such additional
Indebtedness); (d) immediately thereafter the Company or such Person will have a
consolidated net worth, determined in accordance with generally accepted
accounting principles, consistently applied, equal to or greater than the
consolidated net worth of the Company determined in accordance with generally
accepted accounting principles, consistently applied, immediately prior to such
transaction; and (e) the Company or such Person will have delivered to the
Trustee an Officer's Certificate and Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, complies with the Indenture and that all conditions precedent
contained therein relating to such transaction have been satisfied. (Section
801)

EVENTS OF DEFAULT

The following are "Events of Default" under the Indenture:

(a) default in the payment of any interest on any Note when it becomes
due and payable, and continuance of such default for a period of 30 days;
or

(b) default in the payment of the principal of (or premium, if any,
on) any Note when due; or

(c) default in the payment of principal of (or premium, if any, on)
and interest on Notes required to be purchased pursuant to an offer to
purchase made by the Company as described under the "Change of Control" and
"Disposition of Proceeds of Asset Sales" covenants when due and payable; or

(d) failure to perform or comply with the provisions described under
"Mergers, Consolidations and Transfer of Assets"; or

(e) default in the performance, or breach, of any other covenant of
the Company in the Indenture, continued for 60 days after written notice;
or

(f) acceleration of any Indebtedness of the Company or any of its
Material Subsidiaries in an aggregate amount in excess of $10,000,000; or

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(g) final judgments or orders rendered against the Company or any
Material Subsidiary that are unsatisfied and that require the payment in
money, either individually or in an aggregate amount, that is more than
$10,000,000 over the coverage under applicable insurance policies and
either (i) commencement by any creditor of an enforcement proceeding upon
such judgment (other than a judgment that is stayed by pending appeal or
otherwise) or (ii) the occurrence of a 30-day period during which a stay of
such judgment or order, by reason of pending appeal or otherwise, was not
in effect; or

(h) the entry of a decree or order by a court having jurisdiction in
the premises (A) for relief in respect of the Company or any Material
Subsidiary in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar
law, or (B) adjudging the Company or a Material Subsidiary bankrupt or
insolvent, or approving a petition seeking reorganization, arrangement,
adjustment or composition of the Company or a Material Subsidiary under any
applicable federal or state law, or appointing under any such law a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Material Subsidiary or of a
substantial part of their consolidated assets, or ordering the winding up
or liquidation of their affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in effect
for a period of 60 consecutive days; or

(i) the commencement by the Company or any Material subsidiary of a
voluntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or any other
case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by the Company or any Material Subsidiary to the entry of a decree
or order for relief in respect thereof in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by
the Company or any Material Subsidiary of a petition or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by it under any such law to the filing of any such petition or to
the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar official)
of any of the Company or any Material Subsidiary or of any substantial part
of their consolidated assets, or the making by it of an assignment for the
benefit of creditors under any such law, or the admission by it in writing
of its inability to pay its debts generally as they become due or taking of
corporate action by the Company or any Material Subsidiary in furtherance
of any such action. (Section 501)

Subject to the provisions of the Indenture relating to the duties of the
Trustee, when an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee reasonable security or indemnity. (Section 602)
Subject to certain provisions concerning the rights of the Trustee, the Holders
of a majority in aggregate principal amount of the outstanding Notes will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee under the Indenture. (Section 512)

If an Event of Default (other than as specified in clauses (h) and (i))
shall occur and be continuing, then the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Notes may, and the Trustee upon
the request of the Holders of not less than 25% in principal amount of the
outstanding Notes shall, by notice in writing as provided in the Indenture,
declare the principal of all the Notes to be due and payable immediately. If an
Event of Default specified in clauses (h) and (i) shall occur and be continuing,
the principal on the Notes shall be due and payable immediately without any
action on the part of the Trustee or any Holder. After any such acceleration,
but before a judgment or decree based on such acceleration, the Holders of a
majority in principal amount of Outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of accelerated principal, have been cured or waived as
provided in the Indenture. (Section 502) For information with respect to waiver
of defaults, see "Modification and Waiver."

No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a

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continuing Event of Default and unless also the Holders of not less than 25% in
aggregate principal amount of the outstanding Notes shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee, and the Trustee shall not have received from the Holders
of a majority in aggregate principal amount of the outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. (Section 507) However, such limitations do not apply
to a suit instituted by a Holder of a Note for enforcement of payment of the
principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note. (Section 508)

If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 90 days after such occurrence. Except in the
case of a Default or an Event of Default in payment of principal of (or premium,
if any, on) or interest on any Notes, the Trustee may withhold the notice to the
holders of such Notes if the board of directors, the executive committee or a
committee of its trust officers determines in good faith that withholding the
notice is in the interest of the Holders; provided, that in the case of any
Default of the character specified in clause (e) above, no such notice to
Holders shall be given until at least 30 days after the occurrence thereof.

The Company is required to furnish to the Trustee annually a statement as
to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. The Company also is
required to notify the Trustee within five business days of the occurrence of
any event that is, or after notice or lapse of time or both would become, an
Event of Default. (Section 1008)

DEFEASANCE

The Company may, at its option and at any time, terminate the obligations
of the Company with respect to the outstanding Notes ("defeasance"). Such
defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding Notes, except for (i) the
rights of holders of outstanding Notes to receive payment in respect of the
principal of (and premium, if any, on) and interest on such Notes when such
payments are due, (ii) the Company's obligations to issue temporary Notes,
register the transfer or exchange of any Notes, replace mutilated, destroyed,
lost or stolen Notes and maintain an office or agency for payments in respect of
the Notes, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and (iv) the defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to terminate its obligations
with respect to certain covenants that are set forth in the Indenture, some of
which are described under "Certain Covenants" above, and any omission to comply
with such obligations shall not constitute a Default or an Event of Default with
respect to the Notes ("covenant defeasance"). (Sections 1302 and 1303)

In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of (and premium, if any,
on) and interest on the outstanding Notes to redemption or maturity; (ii) the
Company shall have delivered to the Trustee an opinion of counsel to the effect
that the holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred (in the case of defeasance, such opinion
must refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable federal income tax laws); (iii) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
insofar as clauses (h) and (i) under the first paragraph under "Events of
Default" are concerned, at any time during the period ending the 91st day after
the date of deposit; (iv) such defeasance or covenant defeasance shall not cause
the Trustee to have a conflicting interest with respect to any securities of the
Company; (v) such defeasance or covenant defeasance shall not result in a breach
or violation of, or constitute a default under, any material agreement or
instrument to which the Company is a party or by which it is bound; and (vi) the
Company shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent under the

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Indenture to either defeasance or covenant defeasance, as the case may be, have
been complied with and that no violations under agreements governing any other
outstanding Indebtedness would result. (Section 1304)

SATISFACTION AND DISCHARGE

The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money or certain United States governmental obligations
has theretofore been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust) have
been delivered to the Trustee for cancellation or (b) all Notes not theretofore
delivered to the Trustee for cancellation have become due and payable and the
Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire Indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Notes to the date of deposit
together with irrevocable instructions from the Company directing the Trustee to
apply such funds to the payment thereof at maturity or redemption, as the case
may be; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the Indenture
have been complied with. (Section 401)

MODIFICATION AND WAIVER

Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of (or the premium, if any on) or interest on, any Note, (c)
change the place, coin or currency of payment of principal of (or the premium,
if any, on) or interest on, any Note, (d) impair the right to institute suit for
the enforcement of any payment on or with respect to any Note, (e) reduce the
above-stated percentage of outstanding Notes necessary to modify or amend the
Indenture, (f) reduce the percentage of aggregate principal amount of
outstanding Notes necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults, (g) modify any provisions of
the Indenture relating to the modification and amendment of the Indenture or the
waiver of past defaults or covenants, except as otherwise specified, (h) modify
the "Limitation on other Senior Subordinated Indebtedness" covenant or any of
the provisions of the Indenture relating to the subordination of the Notes in a
manner adverse to the Holders, or (i) amend, change or modify the obligation of
the Company to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate the offer with respect to any Asset
Sale or modify any of the provisions or definitions with respect thereto.
(Section 902)

The Holders of a majority in aggregate principal amount of the outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. (Section 1020) The Holders of a majority in aggregate principal
amount of the outstanding Notes may waive any past default under the Indenture,
except a default in the payment of principal, premium, if any, or interest.
(Section 513)

THE TRUSTEE

The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein provide that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.

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The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein also contain limitations on the rights of the Trustee, should
it become a creditor of the Company to obtain payment of the claims in certain
cases or to realize on certain property received by it in respect of any such
claim as security or otherwise. The Trustee is permitted to engage in other
transactions with the Company or any Affiliate; provided, however, that if it
acquires any conflicting interest (as defined in the Indenture or in the Trust
Indenture Act), it must eliminate such conflict or resign.

CERTAIN DEFINITIONS

Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.

"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Restricted Subsidiary or (ii) assumed in connection
with the acquisition of assets from such Person, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary or such acquisition, as the case may be.

"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

"Agent Bank" means The First National Bank of Boston as agent under the
Bank Credit Agreement and any future agent under the Bank Credit Agreement.

"Asset Sale" means any conveyance, transfer, lease or other disposition
(including, without limitation, by way of merger or consolidation)
(collectively, for purposes of this definition, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (A) any Capital Stock
of any Restricted Subsidiary; (B) all or substantially all of the properties and
assets of any division or line of business of the Company or any Restricted
Subsidiary; or (C) any other properties or assets (other than transfers of cash
or property permitted by the "Limitation on Restricted Payments" covenant and
"Limitation on Investments" covenant) of the Company or any Restricted
Subsidiary other than in the ordinary course of business. For purposes of this
definition, the term "Asset Sale" shall not include any transfer of properties
and assets or Capital Stock (i) that is governed by the provisions described
under "Mergers, Consolidations and Transfer of Assets" above, (ii) of the
Company or any Restricted Subsidiary to the Company or any Wholly owned
Restricted Subsidiary, (iii) consisting of obsolete equipment, or of assets
that, in the Company's reasonable judgment, are either (x) no longer used or (y)
no longer useful in the business of the Company or its Restricted Subsidiaries,
or (iv) any transfers that, but for this clause (iv), would be Asset Sales, if
(a) the Company elects to designate such transfers as not constituting Asset
Sales and (b) after giving effect to such transfers, the aggregate Fair Market
Value of the properties or assets transferred since the date of the Indenture
pursuant to transfers so designated by the Company does not exceed $5,000,000.

"Average Life" means, with respect to any Indebtedness, as of the date of
determination, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.

"Bank Credit Agreement" means (i) the Loan Agreement dated as of October
28, 1993 between the Company and the Banks as in effect on the date of the
Indenture and as such agreement may be amended, restated, supplemented or
otherwise modified from time to time; (ii) the financing letter dated September
24, 1993 from The Wachovia Bank of South Carolina to the Company for an
uncommitted line of credit with terms to be determined at the time of borrowing
and as such financing letter may be amended, restated, supplemented or otherwise
modified from time to time; and (iii) any agreement or agreements refinancing or

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replacing either or both of such Agreement and financing letter or any
replacement agreement or agreements as the same may be amended, restated,
supplemented or otherwise modified from time to time.

"Banks" means the lenders from time to time who are parties to the Bank
Credit Agreement.

"Business Day" means any day that is not a Saturday, a Sunday or a day on
which banking institutions in the Borough of Manhattan, The City of New York,
New York are authorized or obligated by law, regulation or executive order to
close.

"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) real or
personal property that is required to be classified and accounted for as a
capital lease or obligation in accordance with generally accepted accounting
principles and, for the purposes of the Indenture, the amount of such obligation
at any date shall be the capitalized amount thereof at such date, determined in
accordance with such principles.

"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person. For purposes of the Indenture, a Person's Capital Stock that is
either unissued or held by such Person is not property or assets of such Person.

"Cash Equivalents" means (A) any evidence of Indebtedness, maturing not
more than one year after the date of acquisition, issued by the United States of
America or an instrumentality or agency thereof and guaranteed fully as to
principal, premium, if any, and interest by the United States of America, (B)
any certificate of deposit issued by, time deposit of (in either case maturing
not more than one year after the date of acquisition or deposit) or any
overnight bank deposits or bankers' acceptances at a commercial banking
institution that has combined capital and surplus of not less than $100,000,000,
whose debt is rated at the time as of which any Investment therein is made "A"
(or higher) according to Moody's or "A" (or higher) according to S&P, (C)
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company or a Subsidiary)
organized and existing under the laws of the United States of America or any
state thereof with a rating, at the time as of which any Investment therein is
made, of "P-1" (or higher) according to Moody's or "A-1" (or higher) according
to S&P and (D) any money market or other deposit accounts issued or offered by
any domestic institution in the business of accepting money market accounts or
any commercial banking institution described in clause (B) above.

"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.

"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of the Company and its Restricted Subsidiaries for such
period as determined in accordance with generally accepted accounting
principles, adjusted (i) by adding thereto (A) the amount of any depreciation
and amortization expense of the Company and its Restricted Subsidiaries for such
period resulting from the 1986 Acquisition, and (B) the amount of any expense
arising out of the non-competition agreement given by CMC Holding Corp., f/k/a
Chatham Manufacturing Company, and (ii) by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto), (b)
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any Restricted Subsidiary) in which the
Company or any of its Restricted Subsidiaries has an ownership interest, except
to the extent of the amount of dividends or interest on indebtedness actually
paid to the Company or any Restricted Subsidiary in cash by such other Person
during such period, (d) the net income (or net loss) of any Person combined with
the Company or any Restricted Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination, and (e) the net
income of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
its net income is not at the date of determination permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders.

"Consolidated Interest Expense" means, for any period, the amount which, in
conformity with generally accepted accounting principles, would be set forth
opposite the caption "interest expense" (or any like

58
<PAGE> 61

caption) on a consolidated statement of operations of the Company and its
Restricted Subsidiaries for such period plus the aggregate amount for such
period of dividends on any Redeemable Capital Stock or Preferred Stock of the
Company and its Restricted Subsidiaries. Consolidated Interest Expense shall
include accruals in respect of interest rate contracts (but shall exclude
expenses relating to the amortization of front-end fees and deferred debt costs
or other similar payments).

"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash charges of the Company and its
Restricted Subsidiaries for such period, as determined in accordance with
generally accepted accounting principles (excluding any such non-cash charge
that requires an accrual of or reserve for cash charges for any future period).

"Consolidated Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and its Restricted
Subsidiaries for such period as determined in accordance with generally accepted
accounting principles.

"Fair Market Value" means the fair market value of an asset or Redeemable
Capital Stock as determined by the Board of Directors of the Company in good
faith; provided, however, that the Board of Directors of the Company shall be
under no obligation to obtain any valuation or assessment from any investment
banker, appraiser or other third party.

"Fixed Charge Coverage Ratio" means, for any period, the ratio of (a) the
sum of Consolidated Adjusted Net Income, Consolidated Interest Expense,
Consolidated Tax Expense, Consolidated Non-cash Charges deducted in computing
Consolidated Adjusted Net Income and not included in clause (i) of the
definition of Consolidated Adjusted Net Income and one-third of the rental
payments with respect to any operating leases under which the Company or any
Restricted Subsidiary is the lessee, in each case, for such period, of the
Company and its Restricted Subsidiaries on a consolidated basis, all determined
in accordance with generally accepted accounting principles, to (b) the sum of
such Consolidated Interest Expense for such period and one-third of the rental
payments for such period with respect to any operating leases under which the
Company or any Restricted Subsidiary is the lessee; provided that (i) in making
such computation, the Consolidated Interest Expense attributable to interest on
any Indebtedness computed on a pro forma basis and (A) bearing a floating
interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of the Company, a fixed or floating rate of interest,
shall be computed by applying, at the option of the Company, either the fixed or
floating rate, and (ii) in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period.

"Guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation.

"Holder" means a Person in whose name a Note is registered in the Note
Register.

"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade accounts payable and other
accrued current liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of such
Person in connection with any letters of credit and acceptances issued under
letter of credit facilities, acceptance facilities or other similar facilities,
(ii) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade accounts payable arising in the ordinary
course of business, (iv) all Capitalized Lease

59
<PAGE> 62

Obligations of such Person, (v) all Indebtedness referred to in (but not
excluded from) clause (i), (ii), (iii) or (iv) above of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (vi) all
guarantees by such Person of Indebtedness referred to in (but not excluded from)
this definition, (vii) all Redeemable Capital Stock issued by such Person valued
at the greater of its voluntary or involuntary maximum fixed repurchase price
plus accrued and unpaid dividends, (viii) all obligations under interest rate
contracts of such Person and (ix) any amendment, supplement, modification,
deferral, renewal, extension or refinancing of any liability of the types
referred to in clauses (i) through (viii) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock that does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
Fair Market Value of such Redeemable Capital Stock.

"Investment" means any direct or indirect advance, loan, guarantee of
Indebtedness or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other securities issued by, any other
Person, excluding (i) advances to customers in the ordinary course of business
that are recorded as accounts receivable on the balance sheet of the Company or
its Restricted Subsidiaries, (ii) interest rate or currency protection
agreements entered into in the ordinary course of business or as required by any
Permitted Indebtedness; (iii) bonds, notes, debentures or other securities
received as a result of Asset Sales permitted under the "Disposition of Proceeds
of Asset Sales" covenant and dispositions of assets to the extent not prohibited
by the Indenture and (iv) split dollar insurance and similar funding
arrangements entered into in connection with employment agreements or
arrangements approved by a majority of the disinterested members of the Board of
Directors of the Company. For the purpose of making any calculations under the
Indenture (i) Investment shall include the Company's proportionate share of the
Net Worth of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary, (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at Fair Market
Value at the time of such transfer and (iii) any redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary shall be a return or
contribution of capital or both, as the case may be, in an amount equal to the
Net Worth of such Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary.

"Lien" means any mortgage, charge, pledge, lien, security interest or
encumbrance of any kind.

"Management Investors" means the former and current officers and other
members of the management of the Company who at any particular date shall
beneficially own, directly or indirectly, Voting Stock of the Company, as well
as trustees, custodians, partnerships, executors and other entities that
directly or indirectly hold such Voting Stock for the benefit of any such
officer, member of management or any of their respective family members.

"Material Subsidiary" means, at any particular time, any Restricted
Subsidiary of the Company that, together with the Subsidiaries of such
Restricted Subsidiary, (a) accounted for more than 10% of the consolidated
revenues of the Company and its Restricted Subsidiaries for the most recently
completed fiscal year of the Company or (b) was the owner of more than 10% of
the consolidated assets of the Company and its Restricted Subsidiaries as at the
end of such fiscal year, all as shown on the consolidated financial statements
of the Company and its Restricted Subsidiaries for such fiscal year.

"ML Capital Partners" means Merrill Lynch Capital Partners, Inc., a wholly
owned subsidiary of Merrill Lynch & Co., Inc.

"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the

60
<PAGE> 63

Company or any Restricted Subsidiary) net of (i) brokerage commissions and other
fees and expenses (including, without limitation, fees and expenses of legal
counsel and investment bankers) related to such Asset Sale, (ii) provisions for
all taxes payable as a result of such Asset Sale, (iii) amounts required to be
paid and that have been paid, or amounts required to be pledged and that are
pledged, to secure Indebtedness owed, to any Person (other than the Company or
any Restricted Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale (which, in the case of a Lien, is being pledged to permanently
reduce Indebtedness secured by such Lien) and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary, as the case may be, as a
reserve required in accordance with generally accepted accounting principles
consistently applied against any liabilities associated with such Asset Sale and
retained by the Company or any Restricted Subsidiary, as the case may be, after
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee; provided, however, that any amounts remaining after adjustments,
revaluations or liquidations of such reserves shall constitute Net Cash
Proceeds.

"Net Worth" means, at any date, the Fair Market Value of the consolidated
assets of any Person less all consolidated liabilities of such Person which
would appear on a consolidated balance sheet of such Person prepared as of such
date in accordance with generally accepted accounting principles consistently
applied.

"Non-payment Event of Default" means any event (other than a Payment Event
of Default), the occurrence of which entitles one or more Persons to accelerate
the maturity of any Specified Senior Indebtedness.

"Pari Passu Indebtedness" means any Indebtedness of the Company that is
pari passu in right of payment to the Notes.

"Payment Event of Default" means any default in the payment or required
prepayment of principal of (or premium, if any, on) or interest on any Specified
Senior Indebtedness when due (whether at final maturity, upon scheduled
installment, acceleration or otherwise).

"Permitted Indebtedness" means any of the following:

(i) Indebtedness of the Company under the Bank Credit Agreement in an
aggregate principal amount at any one time outstanding not to exceed
$100,000,000, less any amounts derived from Asset Sales and applied to the
permanent reduction of such Bank Credit Agreement as contemplated by the
"Disposition of Proceeds of Asset Sales" covenant;

(ii) Indebtedness of the Company under the Notes;

(iii) Indebtedness of the Company outstanding on the date of this
Indenture, other than Indebtedness pursuant to clause (i) hereof;

(iv) Indebtedness of the Company to any Wholly owned Restricted
Subsidiaries;

(v) any renewals, amendments, extensions, supplements, modifications,
deferrals, refinancings or replacements (each, for purposes of this clause, a
"refinancing") by the Company of any Indebtedness of the Company, including any
successive refinancings by the Company, so long as (A) any such new Indebtedness
shall be in a principal amount that does not exceed the principal amount (or, if
such Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination) so
refinanced, plus the amount of any premium required to be paid under the terms
of the instrument governing such Indebtedness being so refinanced or the amount
of any expenses incurred in connection therewith and premium reasonably
determined by the Company as necessary to accomplish such refinancing (it being
understood that, with respect to the refinancing of the Indebtedness permitted
to be incurred under clause (i) above, the amount of such Indebtedness
outstanding pursuant to such clause (i), together with any refinancings thereof,
shall not at any one time exceed $100,000,000) and (B) in the case of any
refinancing of Pari Passu Indebtedness or Subordinated Indebtedness, (1) such
new Indebtedness is made pari passu with or subordinate to the Notes at least to
the same extent as the Indebtedness being refinanced and (2) such new
Indebtedness has an Average

61
<PAGE> 64

Life and final Stated Maturity of principal that exceeds the Average Life and
final Stated Maturity of principal of the Notes;

(vi) interest rate contracts to the extent required by the terms of
the Indebtedness permitted by clause (i) of this definition and interest
rate cap agreements;

(vii) purchase money Indebtedness in the aggregate principal amount
outstanding at any time (together with the Indebtedness permitted by clause
(vi) of the definition of Permitted Subsidiary Indebtedness) not to exceed
$2,000,000; and

(viii) Indebtedness in addition to that permitted to be incurred
pursuant to clauses (i) through (vii) above with an aggregate principal
amount not in excess of $20,000,000 outstanding at any one time.

"Permitted Subsidiary Indebtedness" means any of the following:

(i) Indebtedness of any Restricted Subsidiary outstanding on the date
of the Indenture;

(ii) Indebtedness of any Restricted Subsidiary to any Wholly owned
Restricted Subsidiary of the Company or to the Company;

(iii) any renewals, amendments, extensions, supplements,
modifications, deferrals, refinancings or replacements (each, for purposes
of this clause, a "refinancing") by any Restricted Subsidiary of any
Permitted Subsidiary Indebtedness of such Restricted Subsidiary, including
any successive refinancings by such Restricted Subsidiary, so long as any
such new Indebtedness shall be in a principal amount that does not exceed
the principal amount (or, if such Indebtedness being refinanced provides
for an amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration thereof, such lesser amount as of the
date of determination) so refinanced, plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness being so refinanced or the amount of any premium reasonably
determined by such Restricted Subsidiary as necessary to accomplish such
refinancing (it being understood that, with respect to the refinancing of
the Permitted Subsidiary Indebtedness permitted to be incurred under clause
(vii) below, the amount of such Indebtedness outstanding pursuant to such
clause (vii), together with any refinancings thereof, shall not at any one
time exceed $10,000,000);

(iv) guarantees by Restricted Subsidiaries of Senior Indebtedness of
the Company, so long as the Notes also are guaranteed with the same
relative priority as the Notes have with respect to such Senior
Indebtedness; provided that such guarantees will provide by their terms
that they will be automatically and unconditionally released and discharged
upon the release or discharge of the guarantee of Senior Indebtedness that
resulted in the creation of such guarantee, and guarantees by Restricted
Subsidiaries of Permitted Subsidiary Indebtedness of Wholly owned
Restricted Subsidiaries of the Company;

(v) Acquired Indebtedness so long as the Company on a pro forma basis
could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the first paragraph of the "Limitation on
Indebtedness" covenant;

(vi) purchase money Indebtedness in the aggregate principal amount
outstanding at any time (together with the Indebtedness permitted by clause
(vii) of the definition of Permitted Indebtedness) not to exceed
$2,000,000; and

(vii) Indebtedness in addition to that permitted to be incurred
pursuant to clauses (i) through (vi) above with an aggregate principal
amount not in excess of $10,000,000 outstanding at any one time.

"Permitted Joint Venture" means an entity in which the Company or any
Subsidiary has an equity interest together with Casa Distex S.A. de C.V. or any
of its Affiliates, and which is formed after the date of the Indenture for the
purpose of engaging in a business (i) in which the Company or its Subsidiaries
are engaged on the date of the Indenture or (ii) which is related to a business
in which the Company or its Subsidiaries are engaged on the date of the
Indenture.

62
<PAGE> 65

"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the date of the Indenture and includes, without limitation, all classes and
series or preferred or preference stock.

"Qualified Capital Stock" means any Capital Stock of the Company other than
Redeemable Capital Stock.

"Redeemable Capital Stock" means any equity security that by its terms is
required to be redeemed prior to the final Stated Maturity of principal of the
Notes, or is redeemable at the option of the holder thereof at any time prior to
the final Stated Maturity of principal of the Notes.

"Restricted Payment" means (i) any declaration or payment of any dividend
on, or any distribution in respect of, any shares of the Company's Capital Stock
(other than dividends or distributions payable solely in Qualified Capital Stock
of the Company or in options, warrants or other rights to acquire Qualified
Capital Stock of the Company), (ii) any purchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company or any
options, warrants, or rights to purchase or acquire shares of Capital Stock of
the Company, (iii) any declaration or payment of any dividend on, or any
distribution to holders in respect of, any Capital Stock of any Restricted
Subsidiary (other than with respect to any such Capital Stock held by the
Company or any Wholly owned Restricted Subsidiary) or any purchase, redemption
or other acquisition or retirement for value, of any Capital Stock of any
Restricted Subsidiary (other than any such Capital Stock held by the Company or
any Wholly owned Restricted Subsidiary), and (iv) any principal payment on,
repurchase, redemption, defeasance, retirement or other acquisition or
retirement for value prior, in each such case, to any scheduled maturity,
repayment or sinking fund payment any Pari Passu Indebtedness or Subordinated
Indebtedness.

"Restricted Subsidiary" means any Subsidiary, whether existing on or after
the date of the Indenture, unless such Subsidiary is an Unrestricted Subsidiary
or is designated an Unrestricted Subsidiary on the date it becomes a Subsidiary.

"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon means the date specified in the instrument
evidencing or governing such Indebtedness as the fixed date on which the
principal amount of such Indebtedness or such installment of interest is due and
payable.

"Subordinated Indebtedness" means Indebtedness of the Company subordinated
in right of payment to the Notes.

"Subsidiary" means any Person a majority of the equity ownership or the
outstanding Voting Stock of which is owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries.

"Unrestricted Subsidiary" means (i) any Subsidiary that at the time of
determination will be designated an Unrestricted Subsidiary by the Board of
Directors of the Company as provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary as
an Unrestricted Subsidiary so long as (a) neither the Company nor any Restricted
Subsidiary is directly or indirectly liable for any Indebtedness of such
Subsidiary, (b) no default with respect to any Indebtedness of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity and (c) neither the Company nor any
Restricted Subsidiary has made an Investment in such Subsidiary unless such
Investment was permitted under the "Limitation on Investments" covenant;
provided, however, that with respect to clause (a) the Company or a Restricted
Subsidiary may be liable for Indebtedness of an Unrestricted Subsidiary if (x)
such liability resulted in an Investment permitted under the "Limitation on
Investments" covenant at the time of incurrence or (y) the liability is
permitted under the "Limitation on Investments" covenant at the time of
designation of such Unrestricted Subsidiary. Any such designation by the Board
of Directors of the Company shall be evidenced to the Trustee by filing a board
resolution with the Trustee giving effect to such designation. The Board of
Directors of the Company may designate any Unrestricted Subsidiary as a
Restricted Subsidiary

63
<PAGE> 66

if, immediately after giving effect to such designation, there would be no
defaults or Event of Default under the Indenture.

"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.

"Wholly owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent all of the Capital Stock or other ownership interests in such Restricted
Subsidiary, other than any director's qualifying shares mandated by applicable
law, is owned directly or indirectly by the Company.

PLAN OF DISTRIBUTION

This Prospectus is to be used by Merrill Lynch in connection with offers
and sales of the Notes in market-making transactions in the over-the-counter
market at negotiated prices related to prevailing market prices at the time of
sale. Merrill Lynch may act as principal or agent in such transactions.

Merrill Lynch is affiliated with entities that own capital stock
representing approximately 58.8% of the aggregate voting power of the capital
stock of the Company, and have the ability to elect a majority of the members of
the Company's Board of Directors. See "Ownership of the Company."

Merrill Lynch acted as underwriter in connection with the original offering
of the Notes and received an underwriting discount of $3,046,875.

EXPERTS

The consolidated financial statements and schedules of the Company as of
December 30, 1995 and December 31, 1994 and for each of the three years ended
December 30, 1995 included in this Prospectus and elsewhere in the Registration
Statement, have been audited by Arthur Andersen & Co. LLP, independent public
accountants as stated in their report appearing in this Prospectus. Such
financial statements and related schedules audited by Arthur Andersen & Co. have
been so included in reliance on such reports given upon the authority of that
firm as experts in accounting and auditing.

64
<PAGE> 67

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CMI INDUSTRIES, INC. AND SUBSIDIARIES
Reports of Independent Public Accountants........................................... F-2
Consolidated Balance Sheets as of December 31, 1994, December 30, 1995 and
(unaudited) March 30, 1996....................................................... F-3
Consolidated Statements of Operations for the years ended January 1, 1994, December
31, 1994 and December 30, 1995 and the unaudited three months ended April 1, 1995
and March 30, 1996............................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
January 1, 1994, December 31, 1994 and December 30, 1995 and the unaudited three
months ended March 30, 1996...................................................... F-5
Consolidated Statements of Cash Flows for the years ended January 1, 1994, December
31, 1994 and December 30, 1995 and the unaudited three months ended April 1, 1995
and March 30, 1996............................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>

F-1
<PAGE> 68

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
CMI Industries, Inc.:

We have audited the accompanying consolidated balance sheets of CMI
Industries, Inc. (a Delaware Corporation) and subsidiaries as of December 30,
1995 and December 31, 1994, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the three years
in the period ended December 30, 1995. 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CMI Industries, Inc. and
subsidiaries as of December 30, 1995 and December 31, 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 30, 1995, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Columbia, South Carolina
June 7, 1996

F-2
<PAGE> 69
CMI INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994, DECEMBER 30, 1995 AND
THE UNAUDITED THREE MONTHS ENDED MARCH 30, 1996

<TABLE>
<CAPTION>
MARCH 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 3,145 $ 227 $ 1,477
Receivables, net............................................ 53,693 50,684 48,427
Inventories, net............................................ 75,662 67,051 65,529
Other current assets........................................ 5,082 5,319 2,347
-------- -------- ---------
Total current assets................................ 137,582 123,281 117,780
Property, plant and equipment, net............................ 135,800 125,774 122,529
Intangible and other assets, net.............................. 8,567 8,053 7,998
-------- -------- ---------
$281,949 $257,108 $ 248,307
======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Book overdraft.............................................. $ 10,270 $ 13,226 $ 4,605
Current portion of long-term debt........................... 2,513 853 4,000
Accounts payable............................................ 17,938 13,471 14,860
Accrued expenses, including restructuring charges........... 12,722 15,189 16,669
-------- -------- ---------
Total current liabilities........................... 43,443 42,739 40,134
Long-term debt................................................ 153,962 154,245 154,511
Deferred income taxes......................................... 13,088 3,352 958
Other liabilities............................................. 9,685 14,264 14,174
-------- -------- ---------
220,178 171,861 169,643
Commitments and contingencies
Stockholders' Equity:
Common stock of $1 par value per share; 2,100,000 shares
authorized, 1,773,318 shares (1994) and 1,690,318 shares
(1995 and March 30, 1996) issued......................... 1,773 1,690 1,690
Paid-in capital............................................. 14,587 11,350 11,350
Retained earnings........................................... 45,411 29,468 25,490
-------- -------- ---------
Total stockholders' equity.......................... 61,771 42,508 38,530
-------- -------- ---------
$281,949 $257,108 $ 248,307
======== ======== =========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.

F-3
<PAGE> 70

CMI INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 1, 1994, DECEMBER 31, 1994 AND DECEMBER 30, 1995
AND THE UNAUDITED THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30, 1996

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------
MARCH
APRIL 1, 30,
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................... $370,396 $390,067 $408,636 $109,321 $ 88,580
Cost of sales............................... 318,924 343,443 367,925 95,201 83,372
-------- -------- -------- -------- --------
Gross profit................................ 51,472 46,624 40,711 14,120 5,208
Selling, general and administrative
expenses.................................. 29,360 31,433 32,704 8,861 7,760
Executive severance charges................. -- -- 4,782 -- --
Provision for restructuring and other
nonrecurring asset writeoffs.............. -- -- 12,900 -- --
-------- -------- -------- -------- --------
Operating income (loss)................... 22,112 15,191 (9,675) 5,259 (2,552)
-------- -------- -------- -------- --------
Other income (expenses):
Interest expense.......................... (10,558) (14,430) (17,174) (4,396) (3,939)
Amortization of non-compete agreement..... (2,500) (312) -- -- --
Other, net................................ 2,081 1,709 1,406 356 375
-------- -------- -------- -------- --------
Total other expenses, net......... (10,977) (13,033) (15,768) (4,040) (3,564)
Income (loss) before income taxes and
extraordinary item..................... 11,135 2,158 (25,443) 1,219 (6,116)
Income tax provision (benefit).............. 4,343 789 (9,500) 475 (2,138)
-------- -------- -------- -------- --------
Income (loss) before extraordinary item... 6,792 1,369 (15,943) 744 (3,978)
Extraordinary item -- loss on refinancing
senior subordinated debentures -- net of
tax benefit of $1,368..................... 2,139 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)................. $ 4,653 $ 1,369 $(15,943) $ 744 $ (3,978)
======== ======== ======== ======== ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

F-4
<PAGE> 71

CMI INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 1, 1994, DECEMBER 31, 1994 AND DECEMBER 30, 1995
AND THE UNAUDITED THREE MONTHS ENDED MARCH 30, 1996

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance as of January 2, 1993................... 1,773 $1,773 $14,587 $ 39,389 $ 55,749
Net income.................................... -- -- -- 4,653 4,653
----- ------ ------- -------- ---------
Balance as of January 1, 1994................... 1,773 1,773 14,587 44,042 60,402
Net income.................................... -- -- -- 1,369 1,369
----- ------ ------- -------- ---------
Balance as of December 31, 1994................. 1,773 1,773 14,587 45,411 61,771
Retirement of common stock.................... (83) (83) (3,237) -- (3,320)
Net loss...................................... -- -- -- (15,943) (15,943)
----- ------ ------- -------- ---------
Balance as of December 30, 1995................. 1,690 1,690 11,350 29,468 42,508
Net loss (unaudited).......................... -- -- -- (3,978) (3,978)
----- ------ ------- -------- ---------
Balance as of March 30, 1996 (unaudited)........ 1,690 $1,690 $11,350 $ 25,490 $ 38,530
===== ====== ======= ======== =========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

F-5
<PAGE> 72

CMI INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 1, 1994, DECEMBER 31, 1994 AND DECEMBER 30, 1995,

AND THE UNAUDITED THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30, 1996

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
-------- -------- -------- -------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ 4,653 $ 1,369 $(15,943) $ 744 $(3,978)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization.............. 20,376 20,834 23,241 5,791 6,144
(Gain) loss on disposal of equipment....... (121) 609 195 -- --
Nonrecurring asset writeoffs............... -- -- 7,852 -- --
Loss on refinancing senior subordinated
debentures.............................. 3,507 -- -- -- --
Changes in assets and liabilities:
Receivables............................. (4,601) (5,109) 8,855 (326) 2,257
Inventories............................. (2,749) (4,130) 11,516 (1,886) 1,522
Other current assets.................... (2,446) (992) 40 3,377 2,972
Intangible and other assets............. (115) (2,408) 40 (141) (73)
Payable -- book overdraft............... (824) 1,551 2,956 (4,457) (8,621)
Accounts payable........................ 1,011 531 (4,877) (801) 1,389
Accrued expenses, including
restructuring charges................. (3,674) 2,318 2,070 3,059 1,480
Deferred income taxes................... (1,364) 263 (9,736) 225 (2,394)
Unearned revenue........................ (2,360) -- -- -- --
Other liabilities....................... 2,029 (3,234) 4,579 255 (90)
-------- -------- -------- -------- ---------
Net cash provided by operating
activities....................... 13,322 11,602 30,788 5,840 608
-------- -------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of United Elastic acquisition, net of
Chesterfield disposal and cash acquired.... -- -- (20,062) (20,616) --
Cost of Clarkesville acquisition, net of cash
acquired................................... -- (11,952) -- -- --
Purchases of property, plant and equipment,
net........................................ (25,179) (28,390) (8,850) (1,909) (2,747)
-------- -------- -------- -------- ---------
Net cash used in investing
activities....................... (25,179) (40,342) (28,912) (22,525) (2,747)
-------- -------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of secured term loans............. (43,900) -- -- -- --
Net borrowings (repayments) on revolving
credit facilities.......................... (29,990) 29,129 (1,474) 15,696 3,389
Additions to capitalized debt issue costs.... (4,268) -- -- -- --
Purchase of common stock from management..... -- -- (3,320) -- --
Purchase of senior subordinated debentures... (32,594) -- -- -- --
Proceeds from issuance of senior subordinated
debentures................................. 124,035 -- -- -- --
-------- -------- -------- -------- ---------
Net cash provided by (used in) financing
activities............................ 13,283 29,129 (4,794) 15,696 3,389
-------- -------- -------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................ 1,426 389 (2,918) (989) 1,250
Cash and cash equivalents, beginning of
period..................................... 1,330 2,756 3,145 3,145 227
-------- -------- -------- -------- ---------
Cash and cash equivalents, end of period..... $ 2,756 $ 3,145 $ 227 $ 2,156 $ 1,477
======== ======== ======== ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest................................ $ 9,445 $ 12,785 $ 16,466 $ 766 $ 1,042
======== ======== ======== ======== =======
Income taxes............................ $ 9,454 $ 799 $ 932 $ 155 $ 256
======== ======== ======== ======== =======
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

F-6
<PAGE> 73

CMI INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 1, 1994, DECEMBER 31, 1994 AND DECEMBER 30, 1995

AND THE UNAUDITED THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30, 1996

(IN THOUSANDS, EXCEPT SHARE DATA)

1. DESCRIPTION OF COMPANY

CMI Industries, Inc. ("CMI," a Delaware corporation and subsequently
referred to as the "Company") is a diversified manufacturer of textile products
serving a variety of markets. On October 28, 1993, the Company merged its two
primary operating subsidiaries, Clinton Mills, Inc. and Chatham Manufacturing,
Inc. ("Chatham"), with and into the Company upon the closing of the Offering
(see note 3). The Company currently operates through two divisions: the Greige
Fabrics Division and the Finished Fabrics Division.

On January 3, 1995, the Company completed its acquisition of $21,400 of
assets of United Elastic Corporation for a purchase price of $20,600 plus the
assumption of approximately $800 of liabilities. The acquired operation consists
of a manufacturing facility located in Stuart, Virginia, which produces narrow
elasticized woven fabrics and products for sale to the intimate apparel,
swimwear and medical markets. The acquired assets are included in the Company's
financial results in 1995.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. The Company uses a 52-53 week fiscal year. There were
52 weeks in each of the years presented in the Company's accompanying statements
of operations. All significant intercompany balances and transactions have been
eliminated.

Information with respect to March 30, 1996 and the three months ended April
1, 1995 and March 30, 1996 is unaudited; however, in the opinion of management,
such information reflects all adjustments, (consisting of normal recurring
accruals) necessary to present fairly the financial position as of March 30,
1996 and the results of operations and cash flows for the three months ended
April 1, 1995 and March 30, 1996. Results of operations for interim periods are
not necessarily indicative of results for the entire year.

Use of 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. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company includes cash, demand deposits and highly liquid investments
with maturities of less than three months in cash and cash equivalents in its
consolidated financial statements. The book overdraft consists of outstanding
checks that had not been presented to a bank for payment.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or
market and include the costs of raw materials, direct labor and manufacturing
overhead.

F-7
<PAGE> 74

CMI INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Property, Plant and Equipment

Additions to property, plant and equipment are stated at cost. Depreciation
of property, plant and equipment is calculated for financial reporting purposes
using the straight-line method over the estimated useful lives of the assets.
For income tax purposes, depreciation is calculated principally by accelerated
methods. Estimated useful lives are as follows:

<TABLE>
<S> <C>
Buildings..................................................... 20 years
Land improvements............................................. 20 years
Machinery and equipment....................................... 3-10 years
</TABLE>

Intangible and Other Assets

Capitalized debt issuance costs are amortized over the remaining terms of
the respective debt using the straight-line method.

Revenue Recognition

The Company recognizes revenue when goods are shipped or when ownership is
assumed by the customers.

Line of Business and Credit Risk

The Company's line of business is the manufacturing and selling of fabrics
and other textile products for the home furnishings, apparel, furniture
upholstery, transportation upholstery, bedding and industrial markets. Export
sales are insignificant. Substantially all of the Company's accounts receivable
are due from companies in the above markets located throughout the United
States. The Company generally does not require collateral for its accounts
receivable. The Company performs ongoing credit evaluations of its customers'
financial condition and establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends and other information.

Other Income

Included in 1993, 1994 and 1995 other income are $577, $183 and $0,
respectively, of payments received for cotton purchases under a federal program
created under the Food, Agriculture, Conservation and Trade Act of 1990.

Income Taxes

The Company follows Statement of Financial Accounting Standards (SFAS) No.
109 "Accounting for Income Taxes," which requires deferred income taxes to be
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.

3. LONG-TERM DEBT

In October 1993, the Company completed a public offering ("the Offering")
of $125,000 in aggregate principal amount of 9 1/2% Senior Subordinated Notes
("Notes") due October 1, 2003. The Notes are general unsecured obligations of
the Company and are due October 1, 2003. Interest on the Notes is payable
semiannually, and the notes are redeemable at the option of the Company at any
time after October 1, 1998. Redemption prices commence at 104 3/4% of the
principal amount, declining annually to 100% of the principal amount in October
2000, plus accrued interest. The recorded balance of $124,269 at March 30, 1996,
is presented net of $731 of unamortized bond issue discount that is being
amortized over the period to maturity.

F-8
<PAGE> 75

CMI INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The latest information available indicates the fair value of the Company's Notes
was $100,000 at March 30, 1996. The fair value presented herein is not
necessarily indicative of the amounts that the Company would realize in a
current market exchange.

The Company had a credit agreement at December 30, 1995, which provided an
unsecured revolving credit facility of $92,000 due January 15, 1998 and a credit
facility from Wachovia Bank of South Carolina, which provided an unsecured,
uncommitted line of credit of $4,000. Effective March 19, 1996, the Company
replaced the unsecured revolving credit facility with a new credit agreement.
The new credit agreement provides for a revolving credit facility of up to
$80,000, including a letter of credit facility of up to $5,000. The borrowings
under the new credit agreement are secured by all inventories, all receivables,
and certain intangibles. The new credit agreement matures on January 18, 1998.

Long-term debt as of December 31, 1994, December 30, 1995 and March 30,
1996 consists of:

DECEMBER 31, DECEMBER 30, MARCH 30,
1994 1995 1996
------------ ------------ ---------
(UNAUDITED)
<S> <C> <C> <C>
Borrowings under credit agreements:
Unsecured revolving credit facility............... $ 29,814 $ 30,000 $ --
Secured revolving credit facility................. -- -- 30,242
Unsecured Wachovia Bank of SC facility............ 2,513 853 4,000
Senior subordinated notes, net...................... 124,148 124,245 124,269
-------- -------- ---------
156,475 155,098 158,511
Less current portion................................ (2,513) (853) (4,000)
-------- -------- ---------
Long-term debt...................................... $153,962 $154,245 $ 154,511
======== ======== =========
</TABLE>

The new credit agreement requires a commitment fee of 3/8 of 1% per annum
on all unused amounts and as of March 30, 1996, the Company could have borrowed
an additional $34,284 under the facility. Interest on the revolving credit
facility is based on a floating prime rate or an eurodollar rate plus 1 1/2%. At
March 30, 1996, the average interest rate on the revolving credit facility was
7.0%. The Wachovia Bank of South Carolina facility is unsecured, requires no
commitment fee and may be terminated by the bank with 100 days notice. Interest
on the Wachovia Bank of South Carolina facility accrues at an amount based on
the daily Federal Funds rate, which was 7.5% at March 30, 1996.

The credit agreements contain various restrictive covenants and conditions
requiring, among other things, minimum levels of net worth, certain interest
coverage ratios, prohibitions against certain borrowings and advances, and a
negative covenant limiting the Company's right to grant security interests or
other liens on its assets. In addition, the credit agreements and the indenture
pursuant to which the Notes were issued, contain restrictions on the Company's
ability to pay cash dividends or purchase its capital stock. Under the most
restrictive covenants, as of March 30, 1996, the Company was not authorized to
pay any cash dividends or purchase its capital stock. At March 30, 1996, the
Company was in compliance with all covenants under all credit agreements.

In January 1994, the Company entered into an interest rate swap transaction
with the First National Bank of Boston to convert from an economic perspective
$50,000 of the Company's fixed rate indebtedness at 4.535%, represented by the
Notes, to a floating rate indebtedness driven by LIBOR. Financial risk varies
during the two and one half years life of this swap agreement. The net amount to
be paid or received under this swap agreement is accrued over the term of this
Agreement as a separate component of interest expense. The floating rate was
reset at 5.434% for the final six months period beginning January 19, 1996.

As part of the Company's workers' compensation insurance agreements in
South Carolina, Alabama and Georgia, the Company has obtained letters of credit
for $750, $200 and $250. The letters of credit expire on

F-9
<PAGE> 76

CMI INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

February 10, 1997, June 30, 1996 and January 11, 1997, respectively. At March
30, 1996, the Company owed no amount under these letters of credit.

4. INCOME TAXES

Components of income tax expense (benefit) for the years ended January 1,
1994, December 31, 1994 and December 30, 1995, consisted of the following:

<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
------- ----- -------
<S> <C> <C> <C>
1993:
Current................................................... $ 4,976 $ 731 $ 5,707
Deferred.................................................. (1,190) (174) (1,364)
------- ----- -------
$ 3,786 $ 557 $ 4,343
======= ===== =======
1994:
Current................................................... $ 521 $ 5 $ 526
Deferred.................................................. 81 182 263
------- ----- -------
$ 602 $ 187 $ 789
======= ===== =======
1995:
Current................................................... $ -- $ -- $ --
Deferred.................................................. (8,650) (850) (9,500)
------- ----- -------
$(8,650) $(850) $(9,500)
======= ===== =======
</TABLE>

Alternative minimum taxes that have been paid as of December 30, 1995 and
are available indefinitely as carryforward credits for future federal income
taxes aggregated approximately $5,287. Such carryforward credits have been
considered in the determination of the net deferred income tax liability at
December 30, 1995.

Total income tax expense (benefit) differed from the amounts computed by
applying the U.S. federal income tax rate of 34 percent in 1993, 1994 and 1995
to income before income taxes and extraordinary item as a result of the
following:

<TABLE>
<CAPTION>
1993 1994 1995
------ ---- -------
<S> <C> <C> <C>
Computed "expected" tax expense............................... $3,786 $734 $(8,650)
Increase in income taxes resulting from:
State income taxes, net of federal income tax benefit....... 405 71 (840)
Other, net.................................................. 152 (16) (10)
------ ---- -------
Total income tax expense (benefit).................. $4,343 $789 $(9,500)
====== ==== =======
</TABLE>

Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to the net deferred income
tax liability at December 30, 1994, and December 30, 1995 relate to the
following:

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Plant & equipment principally due to difference in depreciation
methods.......................................................... $19,150 $19,082
Benefit of net operating loss for tax purposes..................... (1,049) (1,205)
Alternative minimum tax credits.................................... (4,596) (5,287)
Accrued expenses not currently deductible and other, net........... (417) (9,238)
------- -------
Net deferred income tax liability.................................. $13,088 $ 3,352
======= =======
</TABLE>

F-10
<PAGE> 77

CMI INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. BENEFIT PLANS

Effective December 31, 1994, the Company curtailed future benefits and
merged its two defined benefit plans, the Clinton Retirement Income Program (the
"CRIP") and the Pension Plan of Chatham Manufacturing, Inc. into the CRIP, which
covers substantially all of its associates who qualify as to age and service. In
general, the pension benefits are based on either years of service and
percentages of the average of the five highest years of compensation or total
compensation earned through December 31, 1994. The Company's funding policy is
to contribute the amounts recommended by its independent actuary, which are
determined after considering the funding status of the Company's plans, ERISA
guidelines and tax deductibility. The changes resulted in a curtailment gain of
$6,939, which reduced cost of goods sold in the accompanying 1994 statement of
operations. The curtailment of these plans did not reduce either plan assets or
vested benefits of the participants.

Effective December 30, 1995, the Company provided an early retirement
window to certain associates who were participants in the CRIP. In general,
associates offered the window were provided their age 65 benefit plus a social
security supplement until age 62, if applicable. The Company reported this
$1,299 charge as part of its provision for restructuring.

The following table sets forth the funded status of the plans and amounts
recognized in the accompanying consolidated balance sheets at January 1, 1994,
December 31, 1994, and December 30, 1995:

<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................ $ 35,394 $ 33,601 $ 36,659
Non-vested benefit obligation........................ 934 807 618
-------- -------- --------
Total accumulated benefit obligation......... $ 36,328 $ 34,408 $ 37,277
======== ======== ========
Projected benefit obligation........................... $(45,199) $(34,408) $(37,277)
Plan assets at fair value.............................. 38,849 37,142 37,305
-------- -------- --------
Plan assets (less) more than projected benefit
obligation........................................... (6,350) 2,734 28
Unrecognized net gain (loss) from past experience
different from that assumed and unrecognized effects
of changes in assumptions............................ 3,402 (1,172) 1,944
Additional cost due to early retirement window......... -- -- (1,299)
Prior service cost not recognized in prior periodic
pension
cost................................................. (906) -- --
-------- -------- --------
(Accrued pension liability) prepaid pension cost....... $ (3,854) $ 1,562 $ 673
======== ======== ========
</TABLE>

Net pension cost consists of the following components:

<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits earned during the period...... $ 1,687 $ 2,214 $ --
Interest cost on projected benefit obligation.......... 3,145 3,193 2,828
Actual return on plan assets........................... (5,266) (3,384) (3,788)
Additional expense due to early retirement window...... -- -- 1,299
Curtailment gain....................................... -- (6,939) --
Net amortization....................................... 1,706 -- 548
-------- -------- --------
Net pension expense (income)........................... $ 1,272 $ (4,916) $ 887
======== ======== ========
</TABLE>

F-11
<PAGE> 78

CMI INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The assumptions used in determining the actuarial present value of benefit
obligations and the net periodic pension costs are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Expected long-term return on assets -- both plans................... 9.0% 9.0% 9.0%
Weighted average discount rate...................................... 7.25% 8.5% 7.5%
Increase in future compensation:
Salaried employees................................................ 4.5% 0.0% 0.0%
Hourly employees.................................................. 3.0% 0.0% 0.0%
</TABLE>

The plans' assets include marketable equity securities, guaranteed interest
contracts, and corporate and government debt securities.

The Company had a contributory Profit Sharing and Retirement Savings Plan
for the employees of Chatham. The Plan provided for contributions to the Plan by
the Company as designated by the Board of Directors and voluntary contributions
by the employees from 1% to 10% of their compensation. The expense was $157 and
$178 for the periods ended January 1, 1994, and December 31, 1994, respectively.
Effective January 1, 1995, this plan was amended and restated, converting it
into The 401(k) Plan for Associates of CMI Industries, Inc., which will cover
substantially all of the Company's associates. Under the 401(k) Plan, the
Company will match 50% of employee contributions, not to exceed 2% of pay, for
all eligible and participating associates. The Company's matching contribution
totaled $1,314 for 1995.

The Company is substantially self-insured for employee health and workers'
compensation benefits. Provision for claims under these self-insured programs is
recorded based upon the Company's estimate of the aggregate liability for claims
incurred. The Company has accrued $3,210 and $2,989 for payments under these
plans at December 31, 1994 and December 30, 1995, respectively.

In connection with the acquisition of Chatham, the Company assumed
obligations under a Supplemental Executive Retirement Plan ("SERP"), which is a
non-qualified plan that provides certain current and former Chatham officers
defined pension benefits in excess of limits imposed by federal tax law. At
December 31, 1994, and December 30, 1995, the accrued SERP liability was $3,267
and $3,310, respectively, which equals the projected benefit obligation plus
deferred gains and is included in other liabilities in the accompanying balance
sheets. The expense was $162, $229 and $287 for the periods ended January 1,
1994, December 31, 1994, and December 30, 1995, respectively. An irrevocable
trust has been established to hold certain assets of the Company (life insurance
contracts with a net cash value of $1,869 at December 30, 1995) as a reserve for
the discharge of liabilities under the plan.

The 1989 CMI Industries, Inc. Non-Qualified Stock Option Plan provided for
the grant of up to 35,000 shares of common stock for $25 per share. All of the
options granted under this plan are fully vested. In 1992, Chatham's Board of
Directors adopted the Chatham Manufacturing, Inc. 1992 Non-Qualified Stock
Option Plan which provided for the grant of up to 140,000 shares of Chatham
common stock. Options for 9,000 shares vest upon the attainment of levels of
earnings as defined in the agreement or at the end of 10 years, whichever occurs
first, while 60,000 shares vested immediately, 26,000 shares were vested in
1993, and 8,000 shares were vested in 1994. Options to purchase Chatham common
stock were converted to options to purchase the Company's stock. In 1994, the
Company adopted the 1994 CMI Industries, Inc. Stock Option Plan which provided
for the grant of up to 50,000 shares of the Company's stock. Options for 2,000
shares were granted and vested immediately in 1994 pursuant to the 1994 Plan. In
1995, options for 30,000 shares were granted pursuant to the 1994 Plan, with
vesting upon the attainment of certain earnings levels as defined in the
agreement or at the end of ten years, whichever comes first. As of December 30,
1995, options to acquire 170,000 shares of the Company's common stock were
outstanding. Exercise prices of the options range

F-12
<PAGE> 79
CMI INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

from $25 to $45 per share. Management has determined that no compensation
expense should be recorded based on these options. Since the inception of these
plans, no options have been exercised.

6. RECEIVABLES, INVENTORIES, PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE AND
OTHER ASSETS

Receivables, inventories, property, plant and equipment, and intangible and
other assets at December 31, 1994, December 30, 1995 and March 30, 1996 consist
of the following:

<TABLE>
<CAPTION>
MARCH 30,
1994 1995 1996
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Receivables:
Trade.............................................. $ 54,108 $ 50,965 $ 48,375
Other.............................................. 815 1,448 1,215
-------- --------- ----------
54,923 52,413 49,590
Less allowance for doubtful accounts................. (1,230) (1,729) (1,163)
-------- --------- ----------
$ 53,693 $ 50,684 $ 48,427
======== ========= ==========
Inventories:
Raw materials...................................... $ 14,778 $ 9,872 $ 12,632
Work-in-progress................................... 24,287 22,295 21,388
Finished Goods..................................... 29,791 29,603 26,332
Supplies........................................... 6,806 5,281 5,177
-------- --------- ----------
$ 75,662 $ 67,051 $ 65,529
======== ========= ==========
Property, plant and equipment:
Land and land improvements......................... $ 3,636 $ 3,813 $ 3,697
Buildings and leasehold improvements............... 31,878 39,455 39,402
Machinery and equipment............................ 194,320 203,648 203,399
Construction in progress........................... 1,260 1,346 4,166
-------- --------- ----------
231,094 248,262 250,664
Less accumulated depreciation and amortization..... (95,294) (122,488) (128,135)
-------- --------- ----------
$135,800 $ 125,774 $ 122,529
======== ========= ==========
Intangible and other assets:
Debt issuance costs................................ $ 3,709 $ 3,314 $ 3,195
Cash value of life insurance, net of policy loans
of $2,906 at December 31, 1994, and $3,387 at
December 30, 1995 and March 30, 1996............ 1,916 1,968 1,968
Prepaid pension cost............................... 1,562 673 806
Other.............................................. 1,380 2,098 2,029
-------- --------- ----------
$ 8,567 $ 8,053 $ 7,998
======== ========= ==========
</TABLE>

Inventories and Property, plant and equipment includes assets held for sale
at December 30, 1995 with a net realizable value of $1,234.

F-13
<PAGE> 80
CMI INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities at December 31, 1994, December 30,
1995 and March 30, 1996 consist of the following:

<TABLE>
<CAPTION>
MARCH 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued interest........................................ $ 3,455 $ 3,648 $ 6,403
Accrued compensation.................................... 1,625 725 382
Environmental cleanup accrual........................... 376 337 336
Reserve for self insurance.............................. 3,210 2,989 3,164
Accrued restructuring charges........................... -- 3,748 3,479
Other................................................... 4,056 3,742 2,905
------- ------- -------
Total current accrued expenses................ $12,722 $15,189 $16,669
======= ======= =======
Accrued SERP, deferred compensation and other........... $ 6,545 $ 7,219 $ 7,490
Accrued severance liability............................. -- 3,962 3,601
Environmental cleanup accrual........................... 3,140 3,083 3,083
------- ------- -------
Total noncurrent other liabilities............ $ 9,685 $14,264 $14,174
======= ======= =======
</TABLE>

8. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

The Company leases certain office facilities and equipment under various
operating leases expiring at various dates through 2005.

Future minimum lease payments under noncancelable operating leases are as
follows at December 30, 1995:

<TABLE>
<S> <C>
1996....................................................................... $ 2,320
1997....................................................................... 1,775
1998....................................................................... 1,075
1999....................................................................... 667
2000....................................................................... 524
Thereafter................................................................. 3,674
-------
Total minimum lease payments..................................... $10,035
=======
</TABLE>

Rental expense was $2,283 for 1993, $1,717 for 1994, and $1,621 for 1995.
The majority of these leases require the Company to pay taxes, maintenance,
insurance, and certain other operating expenses applicable to the leased
property.

Environmental site evaluations have been performed which concluded that
some form of groundwater and soil remediation will be required by the Company.
In the future, the Company may also construct facilities to control flyash
disposal and runoff from a coal pile, and may perform asbestos abatement. The
Company believes that sufficient amounts are accrued as of December 30, 1995 for
the cost of these expenditures.

The Company is involved in various legal proceedings arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial condition or results of operations.

As of December 30, 1995 the Company was committed to future capital
expenditures of $1,514 and raw material purchases of $985. The Company purchases
significant amounts of cotton, its primary raw material, through commodity
contracts. At December 30, 1995, all fixed contracts were at prices which
approximated

F-14
<PAGE> 81
CMI INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

market amounts. The Company's financial results are impacted by the variability
of cotton and other raw material prices.

Under the stockholders agreement, all the stockholders of the Company have
certain registration rights with respect to their common stock. These rights
include demand and "piggyback" registration rights. The Company is obligated to
register shares of common stock under the demand registration rights if holders
of more than two-thirds of the outstanding shares request registration. The
registration rights extend until February 14, 2002 or terminate sooner upon (i)
the merger or consolidation of the Company with an unaffiliated corporation in
which the management investors and affiliates of Merrill Lynch Capital Partners,
Inc. own less than 65% of the surviving or resulting corporation or (ii) the
sale of substantially all the assets of the company to an unaffiliated person.
The remaining provisions of the stockholders agreement would terminate under the
foregoing circumstances or sooner in the event of (i) a public offering of
common stock at the conclusion of which at least 30% of the outstanding shares
shall have been sold to the public or (ii) the sale of 60% or more of the shares
of common stock owned by either the management investors as a group or the
Merrill Lynch Capital Partners, Inc. affiliates as a group (as fully diluted by
shares to be issued upon exercise of options).

9. RESTRUCTURING CHARGES AND ACCRUED SEVERANCE LIABILITY

In December 1995, the Company approved a plan to pursue restructuring
initiatives in all divisions. These initiatives are expected to be completed by
the end of the 1996 fiscal year. In the Greige Fabrics Division, the Company
will close one of its manufacturing facilities and dispose of idle equipment and
inventories. In the Finished Fabrics Division, the Company will consolidate
certain operations and also dispose of idle equipment and inventories. The
Company also downsized its corporate operations. The restructuring charges also
consist of costs for the severance and retirement of approximately 700
associates, including the termination of consulting contracts, insurance,
vacation, and related expenses. Related to this decision, the Company reported a
$12,900 charge to earnings in 1995 and has reserved for the following items:

<TABLE>
<CAPTION>
DECEMBER 30, MARCH 30,
1995 1996
------------ ---------
(UNAUDITED)
<S> <C> <C>
Restructuring items:
CRIP early retirement window................................. $ 1,299 $ 1,299
Termination of consulting contracts and other items.......... 1,345 1,190
Severance and related benefit costs.......................... 2,404 2,288
-------- -------
5,048 4,777
Other nonrecurring asset write-offs related to the
restructuring:
Inventory write-offs......................................... 2,915 2,709
Property, plant and equipment write-offs..................... 4,937 4,695
-------- -------
$ 12,900 $12,181
======== =======
</TABLE>

Included in the $12,900 of restructuring and related nonrecurring amounts
at December 30, 1995, were approximately $5,048 of incremental cash
expenditures. The Company expects to fund the early retirement amount from
assets in the Company's defined benefits plan and the balance, $3,779, from
operations or amounts available under the new credit agreement. During the first
quarter ended March 30, 1996, the Company funded $271 of cash related
restructuring items and disposed of $448 of assets related to the restructuring.

In August 1995, the former President and Chief Executive Officer retired
from the Company. In connection with the retirement, the Company repurchased the
common stock of the former officer at a cost of $3,320. The repurchase price is
subject to future adjustment based on the occurrence of certain equity
transactions. The executive severance costs reported in the Company's
accompanying 1995 statement of operations of $4,782 includes retirement
benefits, salary, life insurance, consulting fees and other items.

F-15
<PAGE> 82

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

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE
FACTS SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Company........................... 11
Use of Proceeds....................... 12
Capitalization........................ 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 23
Management............................ 31
Certain Transactions.................. 39
Ownership of the Company.............. 40
Description of Bank Credit
Facilities.......................... 42
Description of the Notes.............. 43
Plan of Distribution.................. 64
Experts............................... 64
Index to Financial Statements......... F-1
</TABLE>

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

- ------------------------------------------------------
- ------------------------------------------------------
$125,000,000

CMI INDUSTRIES, INC.

9 1/2% SENIOR
SUBORDINATED
NOTES DUE 2003
---------------------------
PROSPECTUS
---------------------------

JUNE , 1996

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 83

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Not Applicable

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

CERTIFICATE OF INCORPORATION

The Certificate of Incorporation of the Company provides for
indemnification of officers and directors as follows:

NINTH: The Corporation may, to the full extent permitted by Section
145 of the Delaware General Corporation Law, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.

TENTH: No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty by such director as a director; provided, however, that this
Article Tenth shall not eliminate or limit the liability of a director to
the extent provided by applicable law (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from
which the director derived an improper personal benefit. No amendment to or
repeal of this Article Tenth shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.

BYLAWS

The Bylaws of the Company provide for indemnification of officers and
directors as follows:

Section 5.01. General. The Corporation shall indemnify each of its
officers, directors, employees and agents (and any other person to whom the
Corporation is permitted to provide indemnification pursuant to the General
Corporation Law of the State of Delaware) to the fullest extent permitted
by Section 145 of the General Corporation Law of the State of Delaware, as
amended from time to time.

Section 5.02. Specific. Without limiting the indemnification
provisions set forth in Section 1 of this Article V:

(a) Advancement of Expenses. Expenses incurred by an officer or
director in defending a civil or criminal action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if, or to the
extent that, it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation pursuant to this Article V or as
otherwise authorized by law. Such expenses incurred by other employees
and agents may be so paid upon such terms and conditions, if any, as the
Board of Directors deems appropriate.

(b) Insurance. The Corporation, at its expense, may purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether
or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article V or under the
provisions of the General Corporation Law of the State of Delaware.

II-1
<PAGE> 84

(c) Retroactivity. The right to be indemnified or to the
reimbursement or advancement of expenses pursuant to this Article V is
intended to be retroactive and shall be available with respect to events
occurring prior to the adoption hereof.

(d) Repeal or Modification. Any repeal or modification of the
provisions of this Article V by the stockholders of the Corporation
shall not adversely affect any right or protection of a director,
officer, employee or agent of the Corporation existing at the time of
such repeal or modification.

(e) Continuation of Rights. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article V shall
continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors
and administrators of such person.

(f) Other Rights and Remedies. The indemnification and advancement
of expenses provided by, or granted pursuant to, the other paragraphs of
this Article V shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or
disinterested Directors or otherwise, both as to action in its official
capacity and as to action in another capacity while holding such office.

(g) Savings Clause. If this Article V or any portion thereof shall
be invalidated on any ground by any court of competent jurisdiction,
then the Corporation shall nevertheless indemnify each person as
provided above as to expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement with respect to any action, suit or
proceeding, whether civil, criminal, administrative or investigative,
including a grand jury proceeding and an action by the Corporation, to
the full extent permitted by any applicable portion of this Article V
that shall not have been invalidated or by any other applicable law.

DELAWARE GENERAL CORPORATION LAW

Section 145 of the General Corporation Law of the State of Delaware
provides:

(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or

II-2
<PAGE> 85

suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.

(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b)of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.

(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than quorum, or (2) if there are no
such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.

(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.

(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office.

(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.

(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.

(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.

II-3
<PAGE> 86

(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.

(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section, or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).

PURCHASE AGREEMENT

The Purchase Agreement contained provisions under which the Underwriter
agreed to indemnify the Registrant, its directors, each of its officers who
signed the Registration Statement and each person who controls the Registrant
within the meaning of the Securities Act of 1933, as amended, against certain
liabilities, including liabilities under the Securities Act of 1933. See "Item
17, Undertakings."

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On February 14, 1992, the Company purchased a minority common stock
interest in Chatham Manufacturing, Inc. ("Chatham"), a newly organized Delaware
corporation formerly known as Chatham Manufacturing Acquisition Corp. Chatham
was organized by the Company and certain affiliates of ML Capital Partners, most
of whom were not then stockholders of the Company, for the purpose of acquiring
substantially all the assets of Chatham Manufacturing Company, a North Carolina
corporation ("Old Chatham") and the assets of an affiliated business. The ML
Capital Partners affiliates purchased the majority of the $.01 par value common
stock of Chatham ("Chatham Common Stock"). Chatham consummated the asset
acquisition on February 14, 1992. In connection with the asset acquisition, the
Company entered into an exchange agreement with Chatham and the other Chatham
stockholders to provide for the exchange in certain circumstances of the shares
of Chatham Common Stock held by stockholders other than the Company for shares
of Common Stock (the "Exchange Agreement").

On November 23, 1992 certain affiliates of ML Capital Partners, who then
held in the aggregate a majority of the outstanding Chatham Common Stock,
exercised their right under the Exchange Agreement to compel the exchange of all
outstanding shares of Chatham Common Stock (other than shares held by the
Company) for shares of Common Stock. The exchange of all 550,455 outstanding
shares of Chatham Common Stock not owned by the Company for 550,455 shares of
Common Stock was consummated effective December 31, 1992. At that time, all
outstanding options to purchase Chatham Common Stock were converted into options
to purchase Common Stock. The transaction was exempt from registration under the
Securities Act pursuant to section 4(2) as a transaction by an issuer not
involving any public offering. As described above, the transaction was a
privately negotiated exchange entered into by the Company and certain affiliates
of ML Capital Partners.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

<TABLE>
<C> <C> <S>
1.1 -- Purchase Agreement dated October 22, 1993.(3)
1.2 -- Form of Letter Agreement among the Company, the Underwriter and the Qualified
Independent Underwriter.(2)
2.1 -- Asset Purchase Agreement dated December 2, 1991 by and between Chatham Manufacturing
Acquisition Corp. and Chatham Manufacturing Company (together with a list of omitted
schedules and exhibits which the Registrant agreed to furnish supplementally to the
Commission upon request), as amended by an Amendment thereto dated February 14, 1992
and modified pursuant to a Release and Settlement Agreement dated April 8, 1993.(1)
</TABLE>

II-4
<PAGE> 87

<TABLE>
<C> <C> <S>
2.2 -- Exchange Agreement dated as of February 14, 1992 by and among CMI Holdings, Inc.,
Chatham Manufacturing Acquisition Corp. and the stockholders of Chatham
Manufacturing Acquisition Corp.(1)
2.3 -- Form of Plan of Merger of Clinton Mills, Inc. and Chatham Manufacturing, Inc. with
and into CMI Industries, Inc.(2)
3.1 -- Certificate of Incorporation of CMI Industries, Inc., as amended.(8)
3.2 -- Bylaws of CMI Industries, Inc.(1)
4.1 -- Indenture between the Company and Chemical Bank, Trustee (including the form of
Note).(5)
4.2 -- Loan and Security Agreement dated as of April 14, 1989 by and among Clinton Mills,
Inc., BancBoston Financial Company, individually and as agent, and The South
Carolina National Bank ("SCNB") (including Term Note and Revolving Credit Note
executed in connection therewith), and the Supplemental Revolving Loan Agreement
dated April 14, 1989 between Clinton and SCNB (including the Supplemental Revolving
Credit Note executed in connection therewith) together with a list of omitted
schedules and exhibits which the Registrant agreed to furnish supplementally to the
Commission upon request.(1)
4.3 -- Amendment No. 1 to Loan and Security Agreement dated as of May 2, 1989 among Clinton
Mills, Inc., BancBoston Financial Company, individually and as agent, and SCNB.(1)
4.4 -- Amendment No. 1 dated as of May 19, 1989 to Supplemental Revolving Loan Agreement
between Clinton Mills, Inc. and SCNB.(1)
4.5 -- Amendment No. 2 dated as of July 17, 1989 to Loan and Security Agreement among
Clinton Mills, Inc., BancBoston Financial Company, individually and as agent, SCNB
and Citicorp North America, Inc.(1)
4.6 -- Amendment No. 2 dated as of July 17, 1989 to Supplemental Revolving Loan Agreement
between Clinton Mills, Inc. and SCNB.(1)
4.7 -- Amendment No. 3 dated as of December 19, 1989 to Loan and Security Agreement between
Clinton Mills, Inc. and BancBoston Financial Company, individually and as agent.(1)
4.8 -- Amendment No. 4 dated as of January 1, 1992 to Loan and Security Agreement among
Clinton Mills, Inc., BancBoston Financial Company, individually and as agent, and
SCNB.(1)
4.9 -- Amendment No. 5 dated as of March 6, 1992 to Loan and Security Agreement among
Clinton Mills, Inc., BancBoston Financial Company, individually and as agent, and
SCNB.(1)
4.10 -- Eurodollar Agreement dated as of December 19, 1989 between Clinton Mills, Inc. and
BancBoston Financial Company as Lender and as Agent.(1)
4.11 -- Loan and Security Agreement dated as of February 14, 1992 by and among Chatham
Manufacturing Acquisition Corp., The First National Bank of Boston, individually and
as agent, CIT Financial Corp. and NationsBank of North Carolina, N.A. (including the
Term Note and Revolving Credit Note executed in connection therewith) together with
a list of omitted schedules and exhibits which the Registrant agreed to furnish
supplementally to the Commission upon request.(1)
4.12 -- Amendment No. 1 dated as of March 16, 1993 to Loan and Security Agreement among
Chatham Manufacturing, Inc. (f/k/a Chatham Manufacturing Acquisition Corp.), The
First National Bank of Boston, individually and as agent, CIT Financial Corp. and
NationsBank of North Carolina, N.A.(1)
4.13 -- Amendment No. 2 dated as of April 22, 1993 to Loan and Security Agreement among
Chatham Manufacturing, Inc. (f/k/a Chatham Manufacturing Acquisition Corp.), The
First National Bank of Boston, individually and as agent, CIT Financial Corp. and
NationsBank of North Carolina, N.A. (including forms of the Amended Revolving Credit
Note and Equipment Note executed in connection therewith).(1)
</TABLE>

II-5
<PAGE> 88

<TABLE>
<C> <C> <S>
4.14 -- Agreement in Principle dated August 16, 1993 between CMI Industries, Inc. and The
First National Bank of Boston.(1)
4.15 -- Indenture dated as of April 1, 1987 between Clinton Mills, Inc. and Manufacturers
Hanover Trust Company, as trustee, with respect to Clinton Mills, Inc. 12% Senior
Subordinated Debentures due 1999.(1)
4.16 -- Commitment letter dated as of September 10, 1993 among The First National Bank of
Boston, NationsBank of North Carolina, N.A., The South Carolina National Bank and
CMI Industries, Inc. with letter dated September 10, 1993 from The First National
Bank of Boston and NationsBank of North Carolina, N. A.(2)
4.17 -- Credit Agreement dated October 28, 1993 among CMI Industries, Inc., The First
National Bank of Boston, individually and as agent, NationsBank of North Carolina
N.A. and The South Carolina National Bank.(3)
4.18 -- Letter dated September 24, 1993 from the South Carolina National Bank to CMI
Industries, Inc.(2)
4.19 -- Form of ISDA Master Agreement dated as of January 14, 1994 between the First
National Bank of Boston and CMI Industries, Inc. including memorandum of swap
transaction dated January 14, 1994.(5)
4.20 -- Amendment No. 1 dated September 21, 1994 to Credit Agreement dated October 28, 1993
among CMI Industries, Inc., The First National Bank of Boston, individually and as
agent, NationsBank of North Carolina N.A., and The Wachovia Bank of South
Carolina.(9)
4.21 -- Amendment No. 2 dated December 28, 1994 to Credit Agreement dated October 28, 1993
among CMI Industries, Inc., The First National Bank of Boston, individually and as
agent, NationsBank of North Carolina, N.A., and the Wachovia Bank of South
Carolina.(9)
4.22 -- Amendment No. 3 dated December 28, 1994 to Credit Agreement dated October 28, 1993
among CMI Industries, Inc., The First National Bank of Boston, individually and as
agent, NationsBank of North Carolina, N.A., and The Wachovia Bank of South
Carolina.(9)
4.23 -- Amendment No. 4 dated June 25, 1995 to Credit Agreement dated October 28, 1993 among
CMI Industries, Inc., The First National Bank of Boston, individually and as agent,
NationsBank of North Carolina, N.A., and The Wachovia Bank of South Carolina.(10)
4.24 -- Amendment No. 5 dated August 22, 1995 to Credit Agreement dated October 28, 1993
among CMI Industries, Inc. The First National Bank of Boston, individually and as
agent, NationsBank of North Carolina, N.A., and The Wachovia Bank of South
Carolina.(11)
4.25 -- Interest Rate Collar Transaction letter agreement dated February 5, 1996 between The
First National Bank of Boston and CMI Industries, Inc.(12)
4.26 -- Credit Agreement dated as of March 19, 1996 among CMI Industries, Inc., The First
National Bank of Boston, individually and as agent, NationsBank of North Carolina,
N.A., and The Wachovia Bank of South Carolina, N.A.(12)
5 -- Opinion of Sutherland, Asbill & Brennan.(4)
10.1 -- Master Lease Agreement No. 700987 dated June 22, 1984 between Citicorp Industrial
Credit, Inc. and Clinton Mills, Incorporated, a South Carolina corporation (the
"Predecessor Company") together with Rider to Master Lease Agreement dated June 22,
1984 between Citicorp Industrial Credit, Inc. and the Predecessor Company; Leasing
Schedule No. 700987-001 dated June 22, 1984 between Citicorp Industrial Credit, Inc.
and the Predecessor Company; Assignment and Assumption of CIC Master Lease Agreement
dated December 28, 1984 between the Predecessor Company and Clinton Mills, Inc., a
South Carolina corporation ("Old Clinton"), with Consent and Release dated December
28, 1984 of Citicorp Industrial Credit, Inc. attached; and letter agreement dated
December 19, 1986 among Citicorp Industrial Credit, Inc., Old Clinton and Clinton
Mills, Inc.(1)
10.2 -- Letter Agreement dated April 13, 1989 between Clinton Mills, Inc. and Citicorp North
America, Inc. (as successor to Citicorp Industrial Credit, Inc.)(1)
</TABLE>

II-6
<PAGE> 89

<TABLE>
<C> <C> <S>
10.3 -- Amendment dated February 24, 1992 to Master Lease Agreement No. 700987 dated June
22, 1984 between Citicorp North America, Inc. (as successor to Citicorp Industrial
Credit, Inc.) and Clinton Mills, Inc.(1)
10.4 -- Tax Allocation Agreement dated as of April 1, 1987 between Clinton Mills, Inc. and
CMI Industries, Inc.(1)
10.5 -- Tax Allocation Agreement dated as of October 6, 1993 between Chatham Manufacturing,
Inc. and CMI Industries, Inc.(2)
10.6 -- Commitment Letter Agreement dated December 4, 1986 among Merrill Lynch Capital
Partners, Inc., Clinton Mills, Inc., Old Clinton and CMI Industries, Inc.(1)
10.7 -- Management Subscription Agreement dated as of December 23, 1986 among CMI
Industries, Inc. and the persons listed on Schedule I thereto.(1)
10.8 -- Subscription Agreement dated as of June 1, 1987 between CMI Industries, Inc. and
James A. Ovenden.(1)
10.9 -- Subscription Agreement dated as of November 9, 1988 between CMI Industries, Inc. and
Michael H. deHavenon.(1)
10.10 -- Amendment No. 1 to Management Subscription Agreement dated as of April 14, 1989
among CMI Industries, Inc. and the persons listed on Schedule 1 thereto.(1)
10.11 -- Amendment No. 1 to Subscription Agreement dated as of April 14, 1989 between CMI
Industries, Inc. and James A. Ovenden.(1)
10.12 -- Description of CMI Industries, Inc. Incentive Compensation Program.(2)
10.13 -- CMI Holdings, Inc. 1989 (now known as CMI Industries, Inc.) Non-Qualified Stock
Option Plan.(1)
10.14 -- CMI Industries, Inc. 1992 Non-Qualified Stock Option Plan.(1)
10.15 -- Letter Employment Agreement dated December 28, 1990 between Clinton Mills, Inc. and
Joseph L. Gorga.(1)
10.16 -- Option Agreement between CMI Industries, Inc. and Joseph L. Gorga.(2)
10.17 -- Amended and Restated Stockholders Agreement dated February 14, 1992 among CMI
Industries, Inc. and its Stockholders.(1)
10.18 -- Amended and Restated Employment Agreement dated as of January 1, 1991 between
Clinton Mills, Inc. and G. Thaddeus Williams as amended effective as of July 1, 1993
by Amendment No. 1 to Amended and Restated Employment Agreement dated August 24,
1993 between Clinton Mills, Inc. and G. Thaddeus Williams.(2)
10.19 -- Employment Agreement dated December 17, 1991 between Clinton Mills, Inc. and James
A. Ovenden.(1)
10.20 -- Employment Agreement dated as of February 14, 1992 between Anthony J. Raffo and
Chatham Manufacturing Acquisition Corp. (now known as Chatham Manufacturing,
Inc.)(1)
10.21 -- Management Subscription Agreement dated February 14, 1992 by and between Chatham
Manufacturing Acquisition Corp. (now known as Chatham Manufacturing, Inc.) and
Anthony J. Raffo.(1)
10.22 -- Protected Interest Rate Agreement dated May 22, 1991 between Clinton Mills, Inc. and
The First National Bank of Boston.(1)
10.23 -- Split-Dollar Life Insurance Agreement (re: The Travelers Insurance Company Policy
No. 7304387) dated August 24, 1993 between the 1989 G. Thaddeus Williams Insurance
Trust and Clinton Mills, Inc.(2)
10.24 -- Split-Dollar Life Insurance Agreement (re: Phoenix Home Life Mutual Life Insurance
Company Policy No. 2603444) dated August 24, 1993 between the 1989 G. Thaddeus
Williams Insurance Trust and Clinton Mills, Inc.(2)
</TABLE>

II-7
<PAGE> 90

<TABLE>
<C> <C> <S>
10.25 -- Split-Dollar Life Insurance Agreement (re: Phoenix Home Life Mutual Life Insurance
Company Policy No. 2617865) dated August 24, 1993 between the 1989 G. Thaddeus
Williams Insurance Trust and Clinton Mills, Inc.(2)
10.26 -- Management Services and Option Agreement dated July 8, 1993 by and among Clinton
Mexico, Inc., Promointex S.A. de C.V., Casa Distex S.A. de C.V. and Textiles
Hercules S.A. de C.V. as amended by Amendment No. 1 thereto dated as of July 23,
1993.(3)
10.27 -- 1994 Stock Option Plan.(7)
10.28 -- Amendment No. 1 to Amended and Restated Stockholders Agreement.(7)
10.29 -- Amendment No. 1 to Employment Agreement effective January 2, 1994 between CMI
Industries, Inc. and Joseph L. Gorga.(6)
10.30 -- Amendment No. 1 to Employment Agreement dated February 28, 1994, between CMI
Industries, Inc. and Anthony J. Raffo.(6)
10.31 -- Option Agreement dated January 2, 1994 between CMI Industries, Inc. and Joseph L.
Gorga pursuant to the CMI Industries, Inc. 1992 Stock Option Plan.(9)
10.32 -- Option Agreement dated January 2, 1994 between CMI Industries, Inc. and Joseph L.
Gorga pursuant to CMI Industries, Inc. 1993 Stock Option Plan.(9)
10.33 -- Modification and Consulting Agreement dated December 6, 1994 between CMI Industries,
Inc. and Anthony J. Raffo.(9)
10.34 -- Severance and Consulting Agreement dated August 23, 1995, by and between CMI
Industries, Inc. and G. Thaddeus Williams.(11)
10.35 -- Option Agreement between CMI Industries, Inc. and Joseph L. Gorga dated January 23,
1995, pursuant to CMI Industries, Inc. 1994 Stock Option Plan(12)
10.36 -- Amended and Restated Employment Agreement dated January 1, 1996, between CMI
Industries, Inc. and Joseph L. Gorga(12)
10.37 -- Amended and Restated Employment Agreement dated January 1, 1996, between CMI
Industries, Inc. and James A. Ovenden(12)
10.38 -- Amendment No. 1 to Option Agreement between CMI Industries, Inc. and Joseph L. Gorga
dated January 31, 1996(12)
10.39 -- Option Agreement between CMI Industries, Inc. and Joseph L. Gorga dated January 31,
1996, pursuant to CMI Industries, Inc. 1992 Stock Option Plan(12)
10.40 -- Option Agreement between CMI Industries, Inc. and Joseph L. Gorga dated January 31,
1996, pursuant to the CMI Industries, Inc. 1994 Stock Option Plan(12)
10.41 -- Option Agreement between CMI Industries, Inc. and James A. Ovenden dated January 31,
1996, pursuant to the CMI Industries, Inc. 1994 Stock Option Plan(12)
12 -- Computation of Ratio of Earnings to Fixed Charges (filed with this Amendment).
16 -- Letter dated April 3, 1991 from KPMG Peat Marwick to the Securities and Exchange
Commission.(3)
21 -- Subsidiaries of CMI Industries, Inc.(12)
23.1 -- Consent and Report on Financial Statement Schedules of Arthur Andersen & Co. (filed
with this Amendment).
23.2 -- Consent and Report on Financial Statement Schedules of KPMG Peat Marwick(3)
23.3 -- Consent of Sutherland, Asbill & Brennan dated October 1993.(4)
24.1 -- Power of Attorney dated August 24, 1993 by each of James A. Ovenden, Michael H.
deHavenon, Rupinder S. Sidhu, Warner A. Fite and Stephen M. McLean appointing G.
Thaddeus Williams as his attorney-in-fact is located at page II-9 of the
Registration Statement.(1)
</TABLE>

II-8
<PAGE> 91

<TABLE>
<C> <C> <S>
24.2 -- Power of Attorney dated May 1, 1996 by each of James A. Ovenden, W. James Raleigh,
Michael H. deHavenon, Rupinder S. Sidhu and Stephen M. McLean appointing Joseph L.
Gorga as his attorney-in-fact is located at page II-17 of Post-Effective Amendment
No. 3 to the Registration Statement.(13)
25 -- Statement of Eligibility and Qualification of Chemical Bank to act as Trustee under
the Indenture on Form T-1.(3)
27 -- Financial Data Schedule(14)
</TABLE>

(b) Financial Statement Schedules:

Schedule V -- Property, Plant and Equipment

Schedule VI -- Accumulated Depreciation and Amortization of Property,
Plant and Equipment

Schedule VIII -- Valuation and Qualifying Accounts

Other prescribed financial statement schedules have been omitted either
because they are not applicable or because the information that would be
included in such schedules is included elsewhere in this Registration Statement.
- ---------------

(1) Filed as an exhibit to the Registration Statement on August 24, 1993.
(2) Filed as an exhibit to Amendment No. 1 to the Registration Statement on
October 8, 1993.
(3) Filed as an exhibit to Amendment No. 2 to the Registration Statement on
October 19, 1993.
(4) Filed as an exhibit to Amendment No. 3 to the Registration Statement on
October 22, 1993.
(5) Filed as an exhibit to the Company's quarterly report on Form 10-Q on
December 22, 1993 and incorporated herein by reference.
(6) Filed as an exhibit to the Company's annual report on Form 10-K on March
29, 1994, and incorporated herein by reference.
(7) Filed as an exhibit to the Company's quarterly report on Form 10-Q on May
16, 1994 and incorporated herein by reference.
(8) Filed as an exhibit to the Company's quarterly report on Form 10-Q on
August 16, 1994 and incorporated herein by reference.
(9) Filed as an exhibit to the Company's annual report on Form 10-K on March
31, 1995 and incorporated herein by reference.
(10) Filed as an exhibit to the Company's quarterly report on Form 10-Q on
August 15, 1995 and incorporated herein by reference.
(11) Filed as an exhibit to the Company's quarterly report on Form 10-Q on
November 14, 1995 and incorporated herein by reference.
(12) Filed as an exhibit to the Company's annual report on Form 10-K on March
29, 1996 and incorporated herein by reference.
(13) Filed as an exhibit to the Company's Post-Effective Amendment No. 3 to the
Registration Statement on May 1, 1996.

(14) Filed as an exhibit to the Company's quarterly report on Form 10-Q on May
13, 1996 and incorporated herein by reference.

II-9
<PAGE> 92

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of Regulation S-X at the start
of any delayed offering or throughout a continuous offering.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-10
<PAGE> 93

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO POST-EFFECTIVE AMENDMENT NO. 3 TO THE
REGISTRATION STATEMENT (NO. 33-67854) TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF COLUMBIA, STATE OF SOUTH
CAROLINA, ON JUNE 7, 1996.

CMI INDUSTRIES, INC.

By: /s/ JOSEPH L. GORGA
------------------------------------
Joseph L. Gorga
President and Chief Executive
Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE AMENDMENT NO. 3 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------------- -------------
<C> <S> <C>
/s/ JOSEPH L. GORGA President and Chief Executive June 7, 1996
- ----------------------------------------------- Officer, and Director
Joseph L. Gorga

/s/ JAMES A. OVENDEN Principal Financial and June 7, 1996
- ----------------------------------------------- Accounting Officer and
James A. Ovenden Director

* Director June 7, 1996
- -----------------------------------------------
W. James Raleigh

* Director June 7, 1996
- -----------------------------------------------
Rupinder S. Sidhu

* Director June 7, 1996
- -----------------------------------------------
Stephen M. McLean

* Director June 7, 1996
- -----------------------------------------------
Michael H. deHavenon

*By: /s/ JOSEPH L. GORGA June 7, 1996
- -----------------------------------------------
Joseph L. Gorga,
Attorney-in-Fact
</TABLE>

II-11
<PAGE> 94
CMI INDUSTRIES, INC. AND SUBSIDIARIES

SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED JANUARY 1, 1994, DECEMBER 31, 1994, AND DECEMBER 30,
1995

<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF ADDITIONS AT OTHER END OF
PERIOD COST RETIREMENTS CHANGES PERIOD
------------ ------------ ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
1993
Land and land improvements............... $ 3,344 $ 2 $ (42) $ 18 $ 3,322
Buildings................................ 26,636 135 (23) 407 27,155
Machinery and equipment.................. 142,738 2,673 (2,467) 20,576 163,520
Leasehold improvements................... 329 25 -- 28 382
Construction in progress................. 2,601 23,560 -- (21,029) 5,132
-------- -------- ------- -------- ---------
$175,648 $ 26,395 $(2,532) $ -- $ 199,511
======== ======== ======= ======== =========
1994
Land and land improvements............... $ 3,322 $ 803 $ (489) $ -- $ 3,636
Buildings................................ 27,155 2,849 (300) 685 30,389
Machinery and equipment.................. 163,520 11,444 (5,268) 24,624 194,320
Leasehold improvements................... 382 -- -- 1,107 1,489
Construction in progress................. 5,132 22,544 -- (26,416) 1,260
-------- -------- ------- -------- ---------
$199,511 $ 37,640 $(6,057) $ -- $ 231,094
======== ======== ======= ======== =========
1995
Land and land improvements............... $ 3,636 $ 126 $ -- $ 51 $ 3,813
Buildings................................ 30,389 5,974 -- 1,562 37,925
Machinery and equipment.................. 194,320 3,117 (1,327) 7,538 203,648
Leasehold improvements................... 1,489 -- (271) 312 1,530
Construction in progress................. 1,260 9,549 -- (9,463) 1,346
-------- -------- ------- -------- ---------
$231,094 $ 18,766 $(1,598) $ -- $ 248,262
======== ======== ======= ======== =========
</TABLE>
<PAGE> 95
CMI INDUSTRIES, INC. AND SUBSIDIARIES

SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED JANUARY 1, 1994, DECEMBER 31, 1994, AND DECEMBER 30,
1995

<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF ADDITIONS AT OTHER END OF
PERIOD COST(1) RETIREMENTS CHANGES(2) PERIOD
------------ ------------ ----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1993
Land and land improvements............... $ 148 $ 3 $ (145) $ -- $ 6
Buildings................................ 7,433 1,345 (1,088) -- 7,690
Machinery and equipment.................. 55,692 15,860 (204) -- 71,348
Leasehold improvements................... 38 18 -- -- 56
-------- -------- ------- ------ ---------
$ 63,311 $ 17,226 $(1,437) $ -- $ 79,100
======== ======== ======= ====== =========
1994
Land and land improvements............... $ 6 $ 3 $ (2) $ -- $ 7
Buildings................................ 7,690 1,454 (36) -- 9,108
Machinery and equipment.................. 71,348 18,386 (3,647) -- 86,087
Leasehold improvements................... 56 36 -- -- 92
-------- -------- ------- ------ ---------
$ 79,100 $ 19,879 $(3,685) $ -- $ 95,294
======== ======== ======= ====== =========
1995
Land and land improvements............... $ 7 $ 4 $ -- $ 193 $ 204
Buildings................................ 9,108 1,847 -- 794 11,749
Machinery and equipment.................. 86,087 20,618 (330) 3,423 109,798
Leasehold improvements................... 92 191 (73) 527 737
-------- -------- ------- ------ ---------
$ 95,294 $ 22,660 $ (403) $4,937 $ 122,488
======== ======== ======= ====== =========
</TABLE>

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

(1) Depreciation is provided for financial reporting purposes on the
straight-line method over the following estimated useful lives for the
period indicated.

<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Buildings.................................... 20 years 20 years 20 years
Land improvements............................ 20 years 20 years 20 years
Machinery and equipment...................... 3-10 years 3-10 years 3-10 years
</TABLE>

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

(2) The Company has recorded the 1995 nonrecurring write-off of property, plant
and equipment in other changes to accumulated depreciation and amortization.
<PAGE> 96
CMI INDUSTRIES, INC. AND SUBSIDIARIES

SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JANUARY 1, 1994, DECEMBER 31, 1994, AND DECEMBER 30,
1995

<TABLE>
<CAPTION>
BALANCE AT
BEGINNING BALANCE AT
OF ADDITIONS END OF
DESCRIPTION PERIOD AT COST DEDUCTIONS PERIOD
- ------------------------------------------------------- ---------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended January 1, 1994:
Allowance for doubtful accounts...................... $ 850 $ 270 $ (320) $ 800
====== ======= ====== ======
Year ended December 31, 1994:
Allowance for doubtful accounts...................... $ 800 $ 508 $ (78) $1,230
====== ======= ====== ======
Year ended December 30, 1995:
Allowance for doubtful accounts...................... $1,230 $ 1,399 $ (900) $1,729
====== ======= ====== ======
</TABLE>
<PAGE> 97

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF EXHIBITS PAGE NUMBER
- ------ ----------------------------------------------------------------------- -----------
<C> <C> <S> <C>
12 -- Computation of Ratio of Earnings to Fixed Charges
23.1 -- Consent and Report on Financial Statement Schedules of Arthur Andersen
LLP
</TABLE>

<PAGE> 1

RATIO OF EARNINGS TO FIXED CHARGES*

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR --------------------
------------------------------------------------ APRIL 1, MARCH 30,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes and
extraordinary items.......... $ 3,368 $21,457 $11,135 $ 2,158 $(25,443) $ 1,219 $(6,116)
Fixed charges:
Interest expense............... 8,786 9,580 9,919 13,895 16,599 4,251 3,799
Amortization of debt expense... 471 524 639 535 575 145 140
Interest component of rent
expense...................... 397 397 397 148 -- -- --
------- ------- ------- ------- -------- -------- ---------
Total fixed
charges............ 9,654 10,501 10,955 14,578 17,174 4,396 3,939
======= ======= ======= ======= ======== ====== =======
Income before income taxes,
extraordinary items and fixed
charges...................... 13,022 31,958 22,090 16,736 (8,269) 5,615 (2,177)
======= ======= ======= ======= ======== ====== =======
Ratio of earnings to fixed
charges...................... 1.35x 3.04x 2.02x 1.15x (0.48)x 1.28x (0.55)x
======= ======= ======= ======= ======== ====== =======
</TABLE>

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

* For purposes of calculation of earnings to fixed charges, earnings consist of
income before income taxes and extraordinary items, plus fixed charges. Fixed
charges consist of interest on all indebtedness, amortization of debt expenses
and the estimated interest component of rent expense.

<PAGE> 1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and all references to our firm included in or made a part of this
Amendment No. 1 to Post-Effective Amendment No. 3 to Form S-1 Registration
Statement (Registration No. 33-67854).

/s/ Arthur Andersen LLP

Columbia, South Carolina

June 14, 1996