-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Y+rHNzPSiBuma3q5nCtB2bXj7hkJiIIxMRa4kT4d/2mzKs4DWJU4fyTl/Vvs0BKP tBrx3zDax84K1NCzHzODMQ== 0000806624-94-000012.txt : 19941202 0000806624-94-000012.hdr.sgml : 19941202 ACCESSION NUMBER: 0000806624-94-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940702 FILED AS OF DATE: 19940930 DATE AS OF CHANGE: 19940903 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELTA WOODSIDE INDUSTRIES INC /SC/ CENTRAL INDEX KEY: 0000806624 STANDARD INDUSTRIAL CLASSIFICATION: 2211 IRS NUMBER: 570535180 STATE OF INCORPORATION: SC FISCAL YEAR END: 0628 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10095 FILM NUMBER: 94551218 BUSINESS ADDRESS: STREET 1: 233 N MAIN ST STREET 2: HAMMOND SQUARE STE 200 CITY: GREENVILLE STATE: SC ZIP: 29601 BUSINESS PHONE: 8038791580 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 2,1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-10095 DELTA WOODSIDE INDUSTRIES, INC. (Exact name of registrant as specified in its charter) South Carolina 57-0535180 (State of Incorporation) (I.R.S. Employer Identification No.) 233 N. Main Street, Hammond Square, Suite 200 Greenville, South Carolina 29601 (Address of principal executive offices) (Zip code) 803/232-8301 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, Par Value $.01 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Title of each class None 1 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Exhibit Index at Page No.__19 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( 229.405 of this chapter) is not contained herein, and will not be contained, to be best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10- K or any amendment to this Form 10-K [ ]. The aggregate market value of the voting stock held by non- affiliates of the registrant as of September 7, 1994 was : Common Stock, $.01 par value - $170,101,772 The number of shares outstanding of each of the registrant's classes of Common Stock, as of September 7, 1994 was: Common Stock, par value $.01 24,305,122 shares DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's Annual Report to shareholders for the fiscal year ended July 2, 1994 are incorporated by reference into Parts I and II. Portions of the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A for the annual shareholders' meeting to be held on November 10, 1994, are incorporated by reference into Part III. 2 Part I Item 1. BUSINESS General Delta Woodside Industries, Inc. ("Delta Woodside" or the "Company") is a South Carolina corporation with its principal executive offices located at 233 North Main Street, Hammond Square, Suite 200, Greenville, South Carolina 29601 (telephone number: 803-232-8301). All references herein to Delta Woodside or the Company refer to Delta Woodside Industries, Inc., its subsidiaries and its predecessor, Delta Woodside Industries, Inc., a Delaware corporation (which was incorporated in 1986), unless the context otherwise indicates. The Company manufactures and markets woven and knitted fabrics and apparel. The Company's textile segment produces a range of cotton, synthetic and blended fabrics, woven and knit, which are sold for the ultimate production of apparel, home furnishings and other products. The Company's apparel segment produces woven and knit apparel, including the "Duck Head" (Reg. trademark) line of casualwear marketed primarily in the Southeastern United States to department stores and specialty apparel retailers. The Company also operates 36 retail apparel outlet stores that sell primarily closeout and irregular "Duck Head" products and other woven and knit casualwear produced by the "Duck Head" division and other manufacturers. The Company also manufactures and distributes physical fitness equipment under the "Nautilus" (Reg. trademark) name. In June 1994, the Company sold its office products business. The Company has operations in 15 states and Costa Rica and employs approximately 8,100 employees. Products, Marketing and Manufacturing The Company conducts its textile fabrics operations through the Delta Mills Marketing (woven fabrics) and Stevcoknit (knitted fabrics) divisions. It conducts its woven and its knit apparel operations through the "Duck Head" and "Delta Apparel" (Reg. trademark) divisions. Certain retail sales of "Duck Head" and other manufacturers' products are made through the "Duck Head" Retail outlet stores. Each division has its own management and employees and operates independently of the other divisions. Inter-segment sales in fiscal 1994, fiscal 1993 and 1992 accounted for no more than approximately 4%, 3% and 3%, respectively, of the total sales of any segment. Fabrics produced by Delta Woodside are either woven or knitted and are manufactured from cotton, wool or synthetic fibers or from synthetic filament yarns. Cotton and wool are purchased from numerous suppliers. Synthetic fiber and synthetic filament yarns are purchased from a smaller number of competitive suppliers. 4 The Company sells its woven fabrics primarily to numerous apparel manufacturers and apparel and fabric resellers, including Levi, Haggar and Farah and private label apparel manufacturers for J. C. Penney, Sears and other retailers. The Company's knitted fabrics are sold for production of apparel for ultimate sales to catalogue companies, as well as to other branded and private label manufacturers. Apparel products are sold primarily to department and specialty retailers under the Company's "Duck Head" label, to private label apparel resellers and to screen printers. Textile Segment The textile segment manufactures and markets woven and knitted fabrics to manufacturers of apparel and home furnishings and other products. The Company's net sales of woven fabrics were $288.6 million, $325.1 million and $336.9 million and the Company's net sales of knit fabrics were $102.8 million, $119.9 million and $135.9 million, during fiscal 1994, 1993 and 1992, respectively. Delta Mills Marketing Company (Woven Fabrics). Delta Mills Marketing Company produces finished and unfinished woven fabrics used in the production of apparel, home furnishings and other products. "Finished" fabric refers to fabric which has been treated by washing, bleaching, dyeing and applying certain chemical finishes. Finished apparel fabric is ready to be cut and sewn into garments and is typically sold to manufacturers of apparel. Unfinished fabric, commonly referred to as "greige" (pronounced "gray") goods, is typically sold to converters who subsequently finish the fabric and sell it to manufacturers of apparel, home furnishings and other products. Through fiscal 1990, the Company's finished and unfinished woven fabric businesses operated as separate divisions under the names "Delta Mills Marketing Company" and "Woodside Mills, Inc." The two businesses together now comprise Delta Mills Marketing Company. Item 1 (Continued) Finished Woven Fabrics. The Company's finished woven fabrics operation, through 7 of its plants, manufactures medium- weight woven fabrics sold in a finished state for use in the manufacture of men's and women's apparel and professional uniforms. Finished woven fabrics produced by the division are primarily sold directly to major apparel manufacturers. The division's marketing efforts focus on four primary apparel manufacturing groups: women's apparel, including fashion apparel; men's apparel; career apparel and uniforms; and military 5 and other government uniforms and apparel. The division also engages in commission finishing, whereby it finishes fabric for converters. The finished woven fabrics operation sells and distributes its fabrics through Delta Mills Sales Company, a marketing office based in New York City, with sales personnel also operating from Atlanta, Chicago, Dallas, Los Angeles, San Francisco and London. Approximately 65% of the division's finished woven fabrics are made from cotton or cotton/synthetic blends, while approximately 35% are made from spun synthetics, including varying blends of rayon, polyester and wool. Finished woven fabrics are principally woven according to projected sales based on strong indications from major customers, but finished according to specific purchase orders. The division's production of cotton and cotton/synthetic blend finished woven fabrics is largely integrated, with the division performing most of its own spinning and substantially all of its own weaving and finishing. The production of spun synthetic finished woven fabrics is fully integrated, with various plants in the division involved in spinning, weaving and finishing. With its printing capability, the Company believes that the division is the only substantially vertically integrated producer of camouflage military fabrics in the United States. The Company expects that its finished woven all cotton facilities will run at or near full capacity during fiscal 1995. However, woven synthetic and greige goods facilities are not expected to run full schedules for at least the first half of fiscal 1995. Unfinished Woven Fabrics. The division, through the three plants included in its Woodside operation, produces a variety of unfinished light-weight woven fabrics sold for ultimate use in manufacturing apparel such as blouses, dresses and pajamas, and in manufacturing home furnishings, including draperies, curtains and comforters, and in medical and industrial products. The Woodside operation sells its products primarily to converters who arrange for the dyeing, printing and finishing of the fabric before ultimately selling the fabric to apparel, home furnishing and other manufacturers. Woodside's marketing and sales are also performed by Delta Mills Sales Company, through its offices in New York City and additional sales personnel in the Boston, Massachusetts area. The Company sells to more than 150 converters and other customers. Woodside's operations are designed to allow for changes in production to different items in its various product lines, thus allowing it to respond to shifts in market demand. Orders generally are received three to six months in advance, with products generally made to customer specifications. Fabrics sold by the Woodside operation include 100% cotton, polyester/cotton blends, 100% polyester, 100% rayon, polyester/rayon blends, textured polyester and other "semifancy" fabrics of more complicated construction. The Woodside operation also produces acetate fabrics used for apparel linings, surgical 6 tapes and other industrial and home furnishing uses. Woodside's operations are largely integrated. All of the operation's plants weave fabrics and one of the plants spins some of the yarn used to manufacture these fabrics. The Woodside operation currently is operating at less than full production capacity. Stevcoknit (Knitted Fabrics). Stevcoknit, through its 5 plants, spins yarn, knits and finishes a wide range of circular knit fabrics for use in the manufacture of knit apparel, and also provides yarn to the Company's apparel segment. Stevcoknit products are marketed to numerous apparel manufacturers through marketing staffs employed by Stevcoknit Marketing Company in New York City and Los Angeles, with sales personnel also located in North Carolina, Dallas and San Francisco. To further promote sales of Stevcoknit's fabrics to apparel manufacturers, the marketing staff of Stevcoknit Marketing Company also contacts major retailers of products manufactured from the division's knitted fabrics. Discussions with these retailers provide information relating to fabric quality and trends in style and color. In addition to its sales to apparel manufacturers, the division also sells prepared for print fabrics to converters through a broker. Certain knitting operations are scheduled according to projected sales, but most knitting and finishing of the fabrics are performed to specific customer orders. The operations within the knitted fabrics operation are largely integrated. Various plants are equipped to perform all stages of the manufacturing process, from carding the raw fiber stock, to dyeing and finishing the final fabric product. The fabrics produced by this segment are manufactured by using Item 1 (Continued) 100% cotton, polyester/cotton blends and 100% polyester. The Company believes that its knit textile facilities will run at or near full capacity during fiscal 1995. Apparel Segment The apparel segment produces and markets both woven apparel and knit apparel. The segment's products include the "Duck Head" line of men's and boys' casualwear, which includes pants, shorts and shirts. The knit apparel business includes T-shirts and sweatshirts which are sold under the labels of "Duck Head", "Delta Apparel", and various private labels. "Duck Head" Division. The division produces a line of men's and boys' casual apparel, sold under the "Duck Head" label, including pants, shorts, shirts, skirts and accessories. This division also sells a relatively small amount of men's and boys' woven workwear, sportswear and casualwear under the private labels of its customers. In fiscal 1994 the division began licensing various other categories of apparel and accessories. 7 "Duck Head" labeled products are primarily marketed by sales staff employed by Duck Head Marketing Company to regional and national retailers with stores in the South and South Atlantic regions. The "Duck Head" trademark has been associated with apparel for many decades, but has traditionally been marketed primarily to a Southeastern customer base. The Company acquired the brand in February 1989. The division sells its "Duck Head" products primarily to regional and national department store chains as well as specialty apparel retailers and through Company-operated outlet stores. The division currently displays "Duck Head" products in "Duck Head" specialty departments within some department stores. The "specialty department" display format permits the presentation of an entire line of clothing in a dedicated section of a store's clothing department, and has been increasingly used in department stores by the major national clothing brands. The Company believes that these specialty department displays will continue to increase recognition of the "Duck Head" name and logo and expand consumer acceptance of the line. Gross sales of "Duck Head" labeled products were approximately $130.4 million in fiscal 1992, $137.3 million in fiscal 1993, and $95.4 million in fiscal 1994. "Duck Head" Apparel operates a total of 9 facilities located in Georgia, Tennessee and Costa Rica. The division purchases the fabrics used in its products from a number of producers. "Duck Head" is now acquiring less than one-half of its finished products from other companies throughout the world. This outside production takes the form of sewing fabric parts cut at "Duck Head" facilities, cutting and sewing with fabric and patterns supplied by "Duck Head", or providing finished garments made to "Duck Head" specifications. The division maintains a staff of quality specialists who consistently monitor work in process at outside companies. The Company believes that there is ample capacity among outside contractors worldwide to meet its future production requirements. The majority of the products is warehoused in the division's leased facilities. "Duck Head" labeled apparel items are generally required to be inventoried to permit quick shipment and to level production schedules, and customer private label apparel items are generally made only to order. The division's products are manufactured primarily from 100% cotton. The division's marketing office is based in Winder, Georgia with regional sales managers and sales personnel located throughout the country. "Delta Apparel". "Delta Apparel", which is headquartered in Duluth, Georgia, operates a total of 9 facilities and produces knitted T-shirts and sweatshirts. The division markets its products primarily to companies that screen print shirts for resale, and to department stores and other clothing stores for resale under the customer's private labels or under the Company's "Delta Apparel" label. 8 The division's knit apparel marketing is performed by sales personnel of Delta Apparel Marketing Company with sales personnel located throughout the country. Sales personnel call directly on the retail trade, contacting department stores and the mass markets such as discount houses. This operation utilizes independent sales representatives to sell to screen printing companies. Some knit apparel items are required to be inventoried to permit quick shipment and to level production schedules. Special fashion knit apparel items and customer private label knit apparel styles generally are made only to order. Of the yarn used by the Company's knit apparel operation, approximately one-third is produced by Stevcoknit with the remainder purchased from outside vendors; the knit apparel operation is otherwise largely vertically integrated. The business manufactures its own knitted fabrics, utilizing Item 1 (Continued) knitting, dyeing and finishing processes, and cuts and sews its finished knitted fabrics into apparel. The fabrics used by the division are either polyester/cotton blends or 100% cotton. Retail Apparel. The Company has 36 outlet stores in 13 states that sell principally closeout and irregular "Duck Head" products. These stores also sell a small amount of apparel items manufactured by other companies. Fitness Equipment "Nautilus" Fitness Equipment. Nautilus produces weight resistance and aerobic equipment for the institutional, medical and home markets. The current product line in the weight resistance category is called the "Next Generation", which consists of 40 individual machines that exercise the various muscle groups. Nautilus also produces an exclusive line of 25 weight resistance machines for women called "Nautilus for Women". As a supplement to the weight resistance line, Nautilus produces five versions of a multi-station machine that serves those markets that have space and budget limitations. Nautilus currently produces, for the institutional market, five aerobic machines, two recumbent bikes, two stairclimbers and a treadmill. Nautilus historically has been focused on the institutional market. During the last six months Nautilus has launched a concerted effort to penetrate the home and medical market. Nautilus historically targets health clubs, the public sector, YMCAs and similar institutions and the medical, amenity and corporate markets. In fiscal 1995, Nautilus plans to enter the consumer market in the strength and aerobic areas, as well as expand its efforts in the medical markets to the areas of diagnosis (exercise components with the ability to measure the 9 strength of a particular muscle and muscle group) and rehabilitation. The manufacturing operations at Nautilus are vertically integrated, including metal fabrication, upholstery, and a vacuum formed and injection molded plastics process. Raw material is inventoried, but finished machines are generally manufactured against customer orders. All manufacturing is done in Independence, Virginia. The Company believes that the manufacturing operation is currently operating at approximately 75% of present capacity. Competition The cyclical nature of the textile and apparel industries, characterized by rapid shifts in fashion, consumer demand and competitive pressures, results in both price and demand volatility. The demand for any particular product varies from time to time based largely upon changes in consumer preferences and general economic conditions affecting the textile and apparel industries, such as consumer expenditures for nondurables. The textile and apparel industries are also cyclical because the supply of particular products changes as competitors enter or leave the market. The cyclical nature of the various businesses in which the Company operates was a contributing factor to the business downturn experienced by the Company in fiscal 1994 and 1993 and the varying manner in which each division's results in one fiscal year differs from its results in another fiscal year. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." The Company sells primarily to domestic customers and competes with numerous competitors, both domestic and foreign. The principal competitive factors are price, service, delivery time, quality and flexibility, with the significance of each factor depending upon the product involved. The Company's competitive position varies among the different goods produced. There are several major domestic competitors in the finished cotton and cotton/polyester blend woven fabrics area, none of which dominates the market. The Company believes that it has a strong competitive position with respect to the manufacture of spun synthetic slack-weight and skirt-weight woven fabrics, as well as wrinkle-resistant all cotton sportswear fabrics. The woven fabrics' Woodside operation is a major supplier of both polyester/rayon print cloth used in home furnishings and women's blouses and acetate fabric used in apparel linings and surgical tapes. There are several major domestic competitors in the Company's acetate linings business and its unfinished cotton and cotton/polyester blend print cloth business, but no company dominates any of these businesses. The knitted fabrics business in which Stevcoknit competes is highly competitive with several large competitors. However, the 10 significant vertical integration of Stevcoknit's manufacturing operations Item 1 (Continued) and its experience in performing the more complicated manufacturing techniques required in the production of 100% cotton fabrics provide the Company with certain competitive advantages. The industry, nevertheless, remains highly competitive. The apparel segment competes with numerous domestic and foreign manufacturers of branded and private label apparel. Foreign competition has been an increasingly significant factor in the apparel manufacturing industry, particularly with respect to items that require labor-intensive production, such as shirts and jackets, and high cost luxury items. Although domestic apparel companies must compete to some extent on a price basis with foreign competition, the Company's management believes that domestic apparel companies can best compete by selling branded products, by manufacturing off-shore, by offering product flexibility, by responding quickly to changes in consumer demand and by providing more timely deliveries. The latter characteristics permit retailers to reduce their inventory costs and lower the risk that product availability will not match consumer demand. The Company's operations are oriented toward providing its apparel segment and the customers of its textile segment with all or some of these competitive advantages. The Company believes that it and its domestic customers can address quality control problems more easily than can manufacturers and distributors of foreign products. Furthermore, the customers of foreign suppliers generally face letter of credit fees, and occasionally face delivery delays and claims resolution difficulties. Nautilus competes in the institutional fitness market which is fragmented and highly competitive. Nautilus competes with several national and local companies. The fitness equipment industry generally competes for business on price, quality, specifications and service. Management of the Company believes that Nautilus has a strong competitive position because of its high name recognition in markets and its reputation for high quality, durable equipment. The Company believes that several aspects of its operations may mitigate some of the problems posed by competition within the domestic textile and apparel industries. The variety of the Company's products offers some degree of protection against the cyclical nature of the business of individual products. Management of the Company believes that the percentage of its production cost attributable to labor is comparable to that of its competitors. Other competitive strengths include: the ability to produce special fabrics such as textured blends; the 11 modern equipment in several of its plants; and the Company's achievement of substantial vertical integration in its various divisions. Employees The Company has approximately 8,100 employees. The Company's employees are not represented by unions. The Company believes that its relations with its employees are good. Environmental and Regulatory Matters Delta Woodside is subject to federal, state and local environmental laws and regulations concerning, among other things, wastewater discharges, storm water flows, air emissions, ozone depletion and solid waste disposal. Delta Woodside's plants generate very small quantities of hazardous waste which are either recycled or disposed of off-site. Most of its plants are required to possess one or more discharge permits. The subsidiary which conducts the finished woven fabrics operations is subject to a Consent Order with the South Carolina Department of Health and Environmental Control dated September 26, 1985, which was executed prior to Delta Woodside's acquisition of the business. Pursuant to the Consent Order, which arose from a determination that several private drinking wells in the area of two of the subsidiary's plants had been contaminated, the subsidiary has discontinued the operation near these plants of a large spray field into which waste water sludge had been disposed and has placed into operation for such purpose a new and larger spray field. Delta Woodside expects that any continuing expenditures to comply with the Consent Order will be immaterial in amount. Some of the Company's plants have been unable to comply with the acute toxicity limits contained in the National Pollutant Discharge Elimination System (NPDES) permits held by the Company. With respect to certain such plants in North Carolina, the Company has signed a Special Order by Consent with the North Carolina Department of Environmental Health and Natural Resources (DEHNR) which will require the plants to achieve compliance with the acute toxicity limits by July 1995. By a March 1992 letter, the Natural Resources Defense Council notified the Company of its intent to institute a "citizens' suit" under the Clean Water Act for certain alleged NPDES violations in North Carolina. No such suit has been initiated to date. By reason of the Special Order, the Company Item 1 (Continued) believes that any such suit, and compliance with the Special Order, would not have a material adverse impact on the Company. With respect to certain South Carolina plants, the Company is working with 12 the appropriate state agency in developing a corrective action plan for addressing the toxicity issue. The Company is examining several courses of action to achieve compliance with its NPDES permits and does not believe that the matter will have a material adverse impact on the Company. Generally, the environmental rules applicable to the Company are becoming increasingly stringent. The Company incurs capital and other expenditures in each year that are aimed at achieving compliance with current and future environmental standards. The Company does not expect that the amount of such expenditures will have a material adverse effect on its operations or financial condition. There can be no assurance, however, that changes in federal, state or local regulations, changes in regulatory policy or the discovery of currently unknown problems or conditions will not require substantial additional expenditures. Similarly, the extent of Delta Woodside's liability, if any, for past failures to comply with laws, regulations and permits applicable to its operations cannot be determined. Information contained under the subheading "Environmental Matters" in Management's Discussion and Analysis of Results of Operations and Financial Condition--Liquidity and Sources of Capital incorporated into Item 7 of this Form 10-K is incorporated herein by reference. Industry Segment Information Segment information in Note G of the Company's consolidated financial statements for the fiscal year ended July 2, 1994 is incorporated herein by reference. Other Information concerning order backlogs in Management's Discussion and Analysis of Results of Operations and Financial Condition - "Results of Operations, Consolidated Company Results, Fiscal 1994 versus Fiscal 1993" incorporated into Item 7 of this Form 10-K is incorporated herein by reference. 13 Item 2. PROPERTIES The following table provides a description of Delta Woodside's production and warehouse facilities. Approximate Square Approximate Location Utilization Footage Acreage Textile Segment Beattie Plant, Fountain Inn, SC (9) spin/weave 390,000 112 Furman Plant, Fountain Inn, SC (9) weave 116,000 21 Haynsworth Plant, Anderson, SC (9) weave 155,000 16 Distribution Center, Greenville, SC (9) warehouse 88,000 12 Estes Plant, Piedmont, SC (9) spin/weave 332,000 114 Greer Plant, Greer SC (9) weave 255,000 10 Delta 3 Plant, Wallace, SC (9) dye/finish 555,000 527 Cypress Plant, Pamplico, SC (9) spin 144,000 4 Pamplico Plant, Pamplico, SC (9) spin/weave 275,000 520 Delta 2 Plant, Wallace, SC (9) dye/finish 347,000 295 Catawba Plant, Maiden, NC spin 115,000 34 Fayetteville Plant, Fayetteville, NC (7) unused 238,000 15 Carter Plant, Wallace, NC dye/finish 485,000 72 Greensboro Plant, Greensboro, NC knit 195,000 10 Holly Plant, Wallace, NC knit/finish 224,000 3 Edgefield Plant, Edgefield, SC (4) unused 129,000 21 Rainsford Plant, Edgefield, SC spin 296,000 43 Mickel Plant, Spartanburg, SC spin 207,000 14 Apparel Segment Maiden Plant, Maiden NC knit/dye finish/cut 305,000 45 Washington Plant, Washington, GA sew 129,800 6 Sandersville Plant, Sandersville, GA sew 27,000 5 Knoxville Plant, Knoxville, TN (2) distribution 550,000 21 Decatur Plant, Decatur, TN (2) sew 75,000 11 Tellico Plains Plant, Tellico Plains, TN (8) sew 100,000 17 Sparta Plant, Sparta, GA (1) sew 21,000 2 Baldwin Plant, Baldwin, GA (8) press/ distribution 148,000 24 Monroe #3, Monroe, GA cut 52,000 7 Monroe #2, Monroe, GA sew/ distribution 93,000 8 Winder Plant, Winder, GA (3)(8) warehouse/ retail 119,000 3 Jellico Plant, Jellico, TN sew 56,000 5 Harmony Plant, San Jose, Costa Rica sew 14,000 San Jose Plant, San Jose, Costa Rica (1) sew 60,000 6 Jupiter Plant, San Jose, Costa Rica sew 25,000 Ashburn Plant, Ashburn, GA (1) sew 43,000 7 Winder, GA warehouse 10,000 Various (5) warehouse Various (6) stores Fitness Equipment Division Independence, VA manufacturing 254,000 54 Independence, VA (1) manufacturing 30,000 14 Galax, VA (1) manufacturing 40,000 Item 2 (Continued _____________ (1) Leased facility. (2) "Duck Head" Outlet Stores lease a portion of the facility for retail sales. (3) Approximately 40,000 square feet are currently not used. (4) The knitted fabrics operation closed this facility during fiscal 1992. (5) The apparel segment leases certain additional warehouse space from time to time. Approximately 226,000 square feet is leased currently with leases expiring through November 1994. (6) The "Duck Head" Outlet Stores Operation leases 36 facilities in 13 states, which leased space is Approximately 130,000 square feet. These leases expire at various dates through 1998. (7) The knitted fabrics operation closed this facility during fiscal 1993. (8) These locations will be closed in fiscal 1995. (9) Title to these facilities are held by the county under a fee-in- lieu arrangement. Except as noted above all of the above production and warehouse facilities are owned by Delta Woodside and its subsidiaries, subject in certain cases to various outstanding mortgages and security interests. The apparel segment's Sparta plant, Sparta, Georgia and San Jose plant in San Jose, Costa Rica are leased on a month-to-month basis, and the Ashburn Plant in Ashburn, Georgia has a lease which expires `in February 1999. The lease of the Tellico Plains Plant has expired and the Company is in the process of acquiring the facility for a nominal price. The fitness division leases manufacturing capacity in Independence, Virginia which lease expires in July 1998. Delta Woodside leases corporate and division administrative offices in Greenville, South Carolina. The lease on the corporate offices expires December 1997 and leases on the administrative offices expire in 2008. Sales offices are leased in Charlotte, New York, Chicago, Raleigh, Newport Beach, San Francisco and Los Angeles with leases expiring through February 1998. At the date of execution of this Form 10-K, the Company believes that its finished woven all cotton plants and its knit textile plants are operating virtually at full production capacity while its finished woven synthetic and unfinished woven fabrics operations are operating at slightly less than full production capacity. Various factors affect the relative use by the Company's apparel segment of its own facilities and outside contractors in the various apparel production phases. This segment is currently using all its internal productive capacity. The fitness equipment operation is operating at approximately 75% of its production capacity as a result of new building space in excess of current volume. 16 Item 3. LEGAL PROCEEDINGS In its Form 8-K, dated January 11, 1994, and Forms 10-Q for the fiscal quarters ended January 1, 1994 and April 2, 1994, the Company has previously reported the award on November 24, 1993 by a jury in the Circuit Court of Montgomery County, Alabama (the "Circuit Court"), of $29,056,000 to a former Duck Head independent sales representative (Ken Hoots) and two of his salesmen (Terry Long and Bill Pace) against a subsidiary of the Company in a suit captioned "Ken Hoots, Terry Long and Bill Pace v. Duck Head Apparel Company Inc. et. al. (the "Hoots Suit"). The Hoots Suit commenced on March 17, 1993. After a hearing, the Circuit Court judge reduced the verdict to $22,852,000 and entered judgment against the Company's subsidiary on March 28, 1994 as follows: (a) $852,000 to the plaintiffs on their claim of breach of contract respecting alleged unpaid commissions, (b) $4,000,000 to Ken Hoots, $2,000,000 to Terry Long, and $1,000,000 to Bill Pace for mental anguish on their claim for fraud, and (c) $15,000,000 to the plaintiffs as punitive damages on their claim of fraud. The Company believes that the verdict is fundamentally unjust and intends vigorously to seek its reversal on appeal. On April 9, 1994, the Company's subsidiary filed a notice of appeal of judgment with the Alabama Supreme Court. In order to prevent execution of the judgment during the appellate process, the Company has guaranteed payment of the final adjudicated award and posted bond in the amount of $28,565,000. The Company is seeking recovery of a portion of the award under certain of its insurance policies. At this time, however, there is no assurance that any portion of the award will be recovered by the Company through insurance. Alabama law permits the plaintiffs to recover interest at the rate of 12% per annum on the amount of the final adjudicated award from the date the original judgment was entered (November 24, 1993) until the date that any final adjudicated award is paid to the plaintiffs. The Company made a charge to income during fiscal 1994 to establish reserves which it feels are sufficient in order to cover payment of any final adjudicated award. A lawsuit with allegations similar to those in the Hoots Suit is pending against a subsidiary of the Company in the United States District Court for Western District of Kentucky brought by an individual (Donnie Cecil) who previously served as an 17 independent sales representative for the Duck Head division. The suit was filed on October 1, 1993. The amount of damages claimed in the suit has not yet been determined, and the ultimate impact of the suit on the Company is as yet unknown. In addition to those actions noted above, from time to time the Company and its subsidiaries are defendants in legal actions arising if the normal course of its business, including product liability claims. The Company believes that, as a result of its legal defenses, insurance arrangements and indemnification provisions with parties believed by the Company to be financially capable, none of these actions, if decided adversely, should have a material adverse effect on its results of operations or financial condition taken as a whole. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the Company's 1994 fiscal year. 18 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The material under the heading "Common Stock Market Prices and Dividends" on the inside front cover of the Company's annual shareholders' report for the year ended July 2, 1994 is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA The material under the heading "Selected Financial Data" on page 1 of the Company's annual shareholders' report for the year ended July 2, 1994 is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The material under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 4 through 11 (exclusive of graphs) of the Company's annual shareholders' report for the year ended July 2, 1994 is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements included on pages 15 through 28 of the Company's annual shareholders' report for the year ended July 2, 1994 are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company filed a Form 8-K on August 25, 1994 reporting a change in accountants. 19 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is incorporated herein by reference from the portions of the definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to 120 days following the end of the Company's fiscal year under the headings "Election of Directors", "Executive Officers", and "Stock Ownership of Principal Shareholders and Management". Item 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference from the portions of the definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to 120 days following the end of the Company's fiscal year under the headings "Management Compensation" and "Compensation Committee Interlocks and Insider Participation". Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference from the portion of the definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to 120 days following the end of the Company's fiscal year under the heading "Stock Ownership of Principal Shareholders and Management". Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference from the portion of the definitive Proxy Statement to be filed with the Securities and Exchange Commission on or 20 prior to 120 days following the end of the Company's fiscal year under the heading "Related Party Transactions". 21 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) Financial Statements and Financial Statement Schedules The response to this portion of Item 14 is set forth on page F-2 included herein, which response is incorporated herein by reference. (3) Listing of Exhibits:* 3.1 Articles of Incorporation of the Company, as amended through February 5, 1989: Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4 of RSI Corporation and Porter Brothers, Inc., File No. 33-30247 (the "Form S-4"). 3.1.1 Articles of Amendment to Articles of Incorporation of the Company: Incorporated by reference to Exhibit 3.1.2 to the Form S-4. 3.1.2 Articles of Merger of Harper Brothers, Inc. into RSI Corporation: Incorporated by reference to Exhibit 4.1.1 to the Registration Statement of the Company on Form S-8, File No. 33-33116 (the "1990 Form S-8"). 3.1.3 Articles of Merger of Delta Woodside Industries, Inc., a Delaware corporation, into RSI Corporation: Incorporated by reference to Exhibit 4.1.2 to the 1990 Form S-8. 3.1.4 Articles of Merger of Duncan Office Supplies, Inc., into Delta Woodside Industries, Inc: Incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the quarterly period ended December 29, 1990 (the "December 1990 10-Q"). 3.1.5 Articles of Amendment to the Articles of Incorporation of Delta Woodside Industries, Inc., filed with the South Carolina Secretary of State on November 15, 1991: Incorporated by reference to Exhibit 4.6 to the Form 10-Q of the Company for the quarterly period ended December 28, 1991. 3.2 By-laws of the Company, as amended: Incorporated by reference to Exhibit 3.1.1 to the Form S-4. 3.2.1 Amendments to By-laws of the Company: Incorporated by reference to Exhibit 3.2 to the December 1990 10-Q. 22 3.2.2 Amendment to By-laws of the Company, adopted as of June 29, 1992: Incorporated by reference to Exhibit 3.2.2 to the Company's Form 10-K for the fiscal year ended June 27, 1992 (the "1992 10-K"). 4.1 See Exhibits 3.1, 3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5, 3.2, 3.2.1. and 3.2.2. 4.1.1 Specimen of Certificate for the Company's Common Stock: Incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-3, File No. 33-42710 (the "Form S-3"). Item 14 (Continued) 4.2.1 Credit Agreement dated as of June 24, 1992 among Delta Woodside Industries, Inc., the Lenders named therein, and The First National Bank of Boston, as Agent (with exhibits and schedules omitted) together with forms of Promissory Note, Subsidiary Guaranty, Contribution Agreement and certain other documents: Incorporated by reference to Exhibit 4.2.1 to the 1992 10-K. The Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule, exhibit or annex to the Credit Agreement or any of its amendments upon request of the Commission. This Credit Agreement, as amended, terminated as of September 7, 1994. 4.2.2 Amendment No. 1 dated as of September 1993 to Credit Agreement dated as of June 24, 1992: Incorporated by reference to Exhibit 4.2.2 to the Form 10-K of the Company for the fiscal year ended July 3, 1993. 4.2.3 Waiver and Amendment No. 2 to Credit Agreement (excluding Annex 1 and Annex 2): Incorporated by reference to Exhibit 4.2.4 to the Form 10-Q of the Company for the quarterly period ended January 1, 1994. 4.2.4 Waiver and Amendment No. 3 to Credit Agreement: Incorporated by reference to Exhibit 4.2.4 to the Form 10-Q of the Company for the quarterly period ended April 2, 1994. 4.3 Credit Agreement dated as of September 7, 1994 among Delta Woodside Industries, Inc., the Lenders named therein, and NationsBank of North Carolina, N.A., as Agent (with exhibits and schedules omitted) together with forms of Promissory Note, 23 Subsidiary Guaranty and certain other documents. The Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule or exhibit to the Credit Agreement upon request of the Commission. 4.4 The Company hereby agrees to furnish to the Commission upon request of the Commission a copy of any instrument with respect to long-term debt not being registered in a principal amount less than 10% of the total assets of the Company and its subsidiaries on a consolidated basis. 10.1 Lease, dated December 27, 1987 by and between Hammond Square, Ltd. and the Company: Incorporated by reference to Exhibit 10.10 to Registration Statement No. 33-22563 on Form S-4 of Delta Woodside Industries, Inc., a Delaware corporation ("Registration Statement No. 33- 22563"). 10.2** Delta Woodside Deferred Compensation Plan for Key Employees: Incorporated by reference to Exhibit 10.6 to the Form 10-Q of the Company for the quarterly period ended December 30, 1989. 10.3** Incentive Stock Award Plan effective July 1, 1990: Incorporated by reference to Exhibit 10.1 to the Form 10-Q of the Company for the fiscal quarter ended March 31, 1990. 10.4.1** Stock Option Plan effective as of July 1, 1990: Incorporated by reference to Exhibit 10.11 to the Company's Form 10-K for the fiscal year ended June 30, 1990. 10.4.2** Amendment No. 1 to Stock Option Plan: Incorporated by reference to Exhibit 10.1 to the December 1990 10-Q. Item 14 (Continued) 10.4.3** Amendment to Stock Option Plan: Incorporated by reference to Exhibit 10.9.2 to the Company's Form 10-K for the fiscal year ended June 29, 1991 (the "1991 10-K"). 10.5 Stock Transfer Restrictions and Right of First Refusal Agreement between the Company and E. Erwin Maddrey, II: Incorporated by reference to Exhibit 10.2 to the December 1990 10-Q. 10.6 Stock Transfer Restrictions and Right of First Refusal Agreement between the Company and Bettis C. Rainsford: Incorporated by reference to Exhibit 10.3 to the December 1990 10-Q. 24 10.7** Summary of Delta Woodside Industries, Inc., Director Charitable Giving Program: Incorporated by reference to Exhibit 10.11 to the 1992 10-K. 10.8.1** Directors Stock Acquisition Plan: Incorporated by reference to Exhibit 10.14 to the 1991 10-K. 10.8.2** Amendment of Director Stock Acquisition Plan, dated April 30, 1992: Incorporated by reference to Exhibit 10.12.2 to the 1992 10-K. 10.9 See Exhibits 4.2.1, 4.2.2, 4.2.3,4.2.4 and 4.3. 13 Annual Report to Shareholders of the Company for the fiscal year ended July 2, 1994. 22 Subsidiaries of the Company. 23 Consent of independent auditors. 27 Financial Data Schedule * All reports previously filed by the Company with the Commission pursuant to the Exchange Act, and the rules and regulations promulgated thereunder, exhibits of which are incorporated to this Report by reference thereto, were filed under Commission File Number 1-10095. ** This is a management contract or compensatory plan or arrangement. (b) Reports on Form 8-K The Company did not file any report on Form 8-K during the fourth quarter of the fiscal year ended July 2, 1994. (c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules The response to this portion of Item 14 is submitted as a separate section of this report. 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DELTA WOODSIDE INDUSTRIES,INC. 8/30/94 /s/ E. Erwin Maddrey,II Date E. Erwin Maddrey,II President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ C. C. Guy 9/7/94 /s/ E. Erwin Maddrey, II 8/30/94 C. C. Guy Date E.Erwin Maddrey, II Date Director President and Chief Executive Officer /s/ James F. Kane 9/12/94 /s/ Bettis C.Rainsford 9/26/94 James F. Kane Date Bettis C. Rainsford Date Director Executive Vice President, Chief Financial Officer and Treasurer /s/ Max Lennon 9/16/94 /s/ Douglas J.Stevens 8/29/94 Max Lennon Date Douglas J. Stevens Date Director Controller and Assistant Secretary /s/ Buck A. Mickel 9/20/94 Buck A. Mickel Date Director /s/ Buck Mickel 9/20/94 Buck Mickel Date Director 27 ANNUAL REPORT ON FORM 10-K ITEM 14(a) (1) and (2), (c) and (d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS FINANCIAL STATEMENT SCHEDULES YEAR ENDED JULY 2, 1994 DELTA WOODSIDE INDUSTRIES, INC. GREENVILLE, SOUTH CAROLINA F-1 FORM 10-K--ITEM 14(a)(1) AND (2) DELTA WOODSIDE INDUSTRIES, INC. LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of Delta Woodside Industries, Inc. and subsidiaries included in the Annual Report of the Registrant to its shareholders for the Year ended July 2, 1994 are incorporated by reference in Item 8: Consolidated balance sheets--July 2, 1994 and July 3, 1993. Consolidated statements of operations--Years ended July 2, 1994, July 3, 1993, and June 27, 1992. Consolidated statements of shareholders' equity--Years ended July 2, 1994, July 3, 1993 and June 27, 1992. Consolidated statements of cash flows--Years ended July 2, 1994, July 3, 1993 and June 27, 1992. Notes to consolidated financial statements--July 2,1994. The following consolidated financial statement schedules of Delta Woodside Industries, Inc. are included in Item 14(d): Schedule V - Property, plant and equipment Schedule VI - Accumulated depreciation, depletion and amortization of property, plant and equipment Schedule VIII - Valuation and qualifying accounts Schedule IX - Short-term borrowings Schedule X - Supplementary income statement information All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. Columns omitted from schedules filed have been omitted because the information is not applicable. F-2
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT DELTA WOODSIDE INDUSTRIES, INC. COL. A COL. B COL. C COL. D COL. E COL.F Balance at Other CLASSIFICATION Beginning of Additions at Changes-Add Balance at end of Period Cost Retirements (Deduct) Describe of Period Year Ended July 2, 1994: Land and land improvements $ 5,149,000 $ 213,000 $ (44,000) $ 5,318,000 Buildings 59,782,000 5,274,000(1)(7) (559,000) 64,497,000 Machinery and equipment 171,900,000 22,088,000(1) (2,721,000) 191,267,000 Furniture and fixtures 5,984,000 1,237,000 (278,000) 6,943,000 Leasehold improvements 2,903,000 167,000 (553,000) 2,517,000 Construction in progress 8,397,000 877,000(4) (3,000) 9,271,000 Totals $254,115,000 $ 29,856,000 $(4,158,000)(6) $279,813,000 Year Ended July 3, 1993: Land and land improvements $ 3,763,000 $ 1,419,000 $ ( 33,000) $ 5,149,000 Buildings 47,189,000 14,033,000(2) (1,440,000) 59,782,000 Machinery and equipment 127,214,000 48,201,000(2) (3,515,000) 171,900,000 Furniture and fixtures 3,572,000 2,692,000 (280,000) 5,984,000 Leasehold improvements 1,824,000 1,079,000 2,903,000 Construction in progress 20,078,000 (11,681,000)(2)(4) 8,397,000 Totals $203,640,000 $ 55,743,000(5) $(5,268,000) $254,115,000
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT DELTA WOODSIDE INDUSTRIES, INC. COL. A COL. B COL. C COL. D COL. E COL.F Balance at Other CLASSIFICATION Beginning of Additions at Changes-Add Balance at end of Period Cost Retirements (Deduct) Describe of Period Year Ended June 27, 1992: Land and land improvements $ 3,825,000 $ 38,000 $ (100,000) $ 3,763,000 Buildings 41,796,000 5,602,000(3) (209,000) 47,189,000 Machinery & equipment 105,664,000 24,495,000(3) (2,945,000) 127,214,000 Furniture and fixtures 3,047,000 565,000 (40,000) 3,572,000 Leasehold improvements 1,700,000 124,000 1,824,000 Construction in progress 7,986,000 12,092,000(3)(4) 20,078,000 Totals $164,018,000 $42,916,000 $ (3,294,000) $203,640,000 __________ NOTES: (1) Includes $13,079,000 and $6,626,000 for plant modernization in the knitted fabrics division and the woven fabrics division, respectively. (2) Includes $9,026,000 and $31,143,000 for building and machinery and equipment for the open-end yarn plant in the knitted fabrics operations. (3) Includes $19,390,000 in loom projects for the woven fabrics operations and $18,323,000 for the open-end yarn plant in the knitted fabrics operations. (4) Includes $864,000, $1,694,000, and $6,610,000 of purchases payable for the years ended July 2, 1994, July 3, 1993, and June, 27, 1992 respectively. (5) Includes assets acquired through a business acquisition of $6,168,000 during the year ended July 3, 1993. (6) Includes the sale of the office product division effective June 4, 1994. SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT DELTA WOODSIDE INDUSTRIES, INC. COL. A COL. B COL. C COL. D COL. E COL.F Balance at Other CLASSIFICATION Beginning of Additions at Changes-Add Balance at end of Period Cost Retirements (Deduct) Describe of Period (7) The annual provisions for depreciation have been computed principally in accordance with the following range of rates. Buildings and land improvements 3% to 7% Machinery and equipment 7% to 33% Furniture and fixtures 10% to 25% Leasehold improvements 5% to 20%
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT DELTA WOODSIDE INDUSTRIES, INC. COL. A COL. B COL. C COL. D COL. E COL. F Balance at Additions Other DESCRIPTION Beginning of Charged to Cost Changes-Add Balance at end of Period and Expenses Retirements (Deduct) Describe of Period Year Ended July 2, 1994: Buildings and land improvements $14,019,000 $ 2,898,000 $ (127,000) $1,992,000 $18,782,000 Machinery and equipment 51,206,000 17,178,000 (2,134,000) 66,250,000 Furniture and fixtures 2,649,000 1,091,000 (165,000) 149,000 3,724,000 Leasehold improvements 1,095,000 177,000 (246,000) 1,026,000 Totals $68,969,000 $21,344,000 $(2,672,000) $2,141,000(1) $89,782,000 Year Ended July 3, 1993: Buildings and land improvements $11,427,000 $ 2,636,000 $ (44,000) $14,019,000 Machinery and equipment 40,250,000 13,211,000 (2,255,000) 51,206,000 Furniture and fixtures 1,770,000 886,000 (7,000) 2,649,000 Leasehold improvements 738,000 357,000 1,095,000 Totals $54,185,000 $17,090,000 $(2,306,000) $68,969,000
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT DELTA WOODSIDE INDUSTRIES, INC. COL. A COL. B COL. C COL. D COL. E COL. F Balance at Additions Other DESCRIPTION Beginning of Charged to Cost Changes-Add Balance at end of Period and Expenses Retirements (Deduct) Describe of Period Year Ended June 27, 1992: Buildings and land improvements $ 9,165,000 $ 2,294,000 $ (32,000) $11,427,000 Machinery and equipment 32,409,000 10,700,000 (2,859,000) 40,250,000 Furniture and fixtures 1,247,000 534,000 (11,000) 1,770,000 Leasehold improvements 555,000 183,000 738,000 Totals $43,376,000 $13,711,000 $(2,902,000) $54,185,000 (1) Writedowns of property, plant and equipment in connection with the restructuring charge.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS DELTA WOODSIDE INDUSTRIES, INC. COL. A COL. B COL. C COL. D COL. E ADDITIONS Balance at DESCRIPTION Beginning (1) (2) Deductions Balance at End of Period Charged to Costs Charged to Other -Describe of Period and Expenses Accounts-Describe Year Ended July 2, 1994: Deducted from asset accounts: Allowance for doubtful accounts and sales allowances $5,537,000 $3,886,000 $(1,658,000)(2) $4,490,000(1) $3,275,000 Year Ended July 3, 1993: Deducted from asset accounts: Allowance for doubtful accounts and sales allowances $5,413,000 $2,025,000 $353,000(2) $2,254,000(1) $5,537,000
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS DELTA WOODSIDE INDUSTRIES, INC. COL. A COL. B COL. C COL. D COL. E ADDITIONS Balance at DESCRIPTION Beginning (1) (2) Deductions Balance at End of Period Charged to Costs Charged to Other -Describe of Period and Expenses Accounts-Describe Year Ended June 27, 1992: Deducted from asset accounts: Due from factor $ 95,000 $ (39,000) $ 56,000 Allowance for doubtful accounts and sales allowances 2,277,000 3,389,000 $1,774,000 2,027,000(1) $5,413,000 Totals $2,372,000 $3,350,000 $1,774,000(2) $2,083,000 $5,413,000 __________ NOTES: (1) Uncollectible accounts written off. (2) Net change in sales allowances charged to income as a reduction of sales.
SCHEDULE IX--SHORT-TERM BORROWINGS DELTA WOODSIDE INDUSTRIES, INC. COL. A COL. B COL. C COL. D COL. E COL. F Weighted Maximum Amount Average Amount Weighted Average CATEGORY OF AGGREGATE Balance at End Average Outstanding Outstanding Interest Rate SHORT-TERM BORROWINGS of Period Interest During the During the During the Rate Period Period(5) Period(4) Year Ended July 2, 1994: Notes payable to banks: Line of credit (1) $ -0- 0% $ 41,364,000 $ 23,162,000 4.1% Year Ended July 3, 1993: Notes payable to banks: Line of credit $ -0- 0% $ 12,087,000 $ 3,568,000 3.8% Year Ended June 27, 1992: Notes payable to banks: Line of Credit secured (2)(3) $ -0- 0% $114,023,000 $ 47,310,000 7.7% SCHEDULE IX--SHORT-TERM BORROWINGS DELTA WOODSIDE INDUSTRIES, INC. COL. A COL. B COL. C COL. D COL. E COL. F Weighted Maximum Amount Average Amount Weighted Average CATEGORY OF AGGREGATE Balance at End Average Outstanding Outstanding Interest Rate SHORT-TERM BORROWINGS of Period Interest During the During the During the Rate Period Period(5) Period(4) NOTES: (1) The line of credit ($10,347,000) was refinanced with a long-term credit facility on September 7, 1994. (2) The line of credit was converted to a long-term credit facility on June 24, 1992. (3) Line of credit secured by assigned receivables of certain subsidiaries of the Company. (4) The weighted average interest rate during the period was computed by dividing actual interest expense by average short-term debt outstanding. (5) The average amount outstanding during the period was computed by averaging the month-end outstanding principal balances.
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION DELTA WOODSIDE INDUSTRIES, INC. COL. A COL. B ITEM CHARGED TO COSTS AND EXPENSES ______________Year Ended________________ July 2, July 3, June 27, 1994__ 1993__ 1992__ Maintenance and repairs $24,064,000 $24,341,000 $21,517,000 Advertising $ 7,036,000 $ 7,021,000 $ 2,943,000 _______________ NOTE: The amounts for amortization of intangible assets, pre-operating costs and similar deferrals, taxes (other than payroll and income taxes) and royalties for the years ended July 2, 1994, July 3, 1993 and June 27, 1992 are not presented as such amounts are less than 1% of net sales. F-12 EXHIBIT INDEX 4.3 Credit Agreement dated as of September 7, 1994 among Delta Woodside Industries, Inc., the Lenders named therein, and NationsBank of North Carolina, N.A., as Agent (with exhibits and schedules omitted) together with forms of Promissory Note, Subsidiary Guaranty and certain other documents. The Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule or exhibit to the Credit Agreement upon request of the Commission. 13 Annual Report to Shareholders of the Company for the fiscal year ended July 2, 1994. 22 Subsidiaries of the Company. 23 Consent of independent auditors. 27 Financial Data Schedule EX-4 2 [Execution Copy] CREDIT AGREEMENT Dated as of September 7, 1994 Among DELTA WOODSIDE INDUSTRIES, INC., the Borrower, the Lenders parties hereto, NATIONSBANK OF NORTH CAROLINA, N.A., as the Agent, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION and THE BANK OF NEW YORK, as Co-Agents ## TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS 1 Section 1.1. Definitions. 1 Section 1.2. General 26 ARTICLE 2 REVOLVING CREDIT FACILITY 27 Section 2.1. Committed Loans 27 Section 2.2. Making Committed Loans 28 Section 2.3. Notice and Manner of Borrowing or Conversion or Continuation of Committed Loan 29 Section 2.4. Duration of Interest Periods; Number of Committed Loans 31 Section 2.5. Repayment 32 Section 2.6. Interest Rates and Payments of Interest with respect to Committed Loans 32 Section 2.7. Committed Loan Notes 32 Section 2.8. Competitive Loan Subfacility 33 Section 2.9. Swingline Loan Subfacility 36 Section 2.10. Extension of Commitments 38 ARTICLE 3 LETTER OF CREDIT FACILITY 39 Section 3.1. Letters of Credit 39 Section 3.2. Purchase and Sale of Participations 39 Section 3.3. Unreimbursed Draws Under Letters of Credit 40 Section 3.4. Sharing of Payments and Risk 42 Section 3.5. Administration of Letters of Credit and Credit Documents 43 Section 3.6. Exoneration 44 Section 3.7. Cash Collateral; Supporting Letters of Credit 45 ARTICLE 4 DEFAULT INTEREST RATE; PREPAYMENTS; GENERAL PROVISIONS 46 Section 4.1. Default Interest Rate 46 Section 4.2. Conversion/Continuation 47 Section 4.3. Reduction of Commitments 47 Section 4.4. Prepayments. 48 Section 4.5. Changed Circumstances 49 Section 4.6. Interest Rate Determination 51 Section 4.7. Manner of Payment 52 Section 4.8. Payments Not at End of Interest Period; Failure to Borrow 53 Section 4.9. Computation of Interest and Fees 54 Section 4.10. Termination of Agreement 54 Section 4.11. Ratable Treatment 54 Section 4.12. Sharing of Payments, etc. 55 Section 4.13. U.S. Taxes 55 Section 4.14. Loan Account 57 Section 4.15. Fees 58 ARTICLE 5 CONDITIONS PRECEDENT 59 Section 5.1. Conditions Precedent to Initial Loans 59 Section 5.2. Conditions Precedent to Each Loan 61 ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE BORROWER 62 Section 6.1. Representations and Warranties 62 Section 6.2. Survival of Representations and Warranties, etc. 68 ARTICLE 7 AFFIRMATIVE COVENANTS 68 Section 7.1. Preservation of Corporate Existence and Similar Matters 69 Section 7.2. Compliance with Applicable Law 69 Section 7.3. Maintenance of Property 69 Section 7.4. Conduct of Business 69 Section 7.5. Insurance 69 Section 7.6. Payment of Taxes and Claims 70 Section 7.7. Accounting Methods and Financial Records 70 Section 7.8. Visits and Inspections 70 Section 7.9. Use of Proceeds 70 Section 7.10. Subsidiary Guaranties 71 ARTICLE 8 INFORMATION 71 Section 8.1. Financial Statements 71 Section 8.2. Accountants' Certificate 72 Section 8.3. Officer's Certificate 72 Section 8.4. Copies of Other Reports 72 Section 8.5. Notice of Litigation and Other Matters 73 Section 8.6. ERISA 74 Section 8.7. Other Information 74 Section 8.8. Accuracy of Information 74 ARTICLE 9 NEGATIVE COVENANTS 75 Section 9.1. Financial Ratios 75 Section 9.2. Indebtedness for Money Borrowed 75 Section 9.3. Guaranties 75 Section 9.4. Investments; Business Units 76 Section 9.5. Capital Expenditures 76 Section 9.6. Restricted Dividend Payments. 77 Section 9.7. Merger, Consolidation and Sale of Assets 77 Section 9.8. Transactions with Affiliates 78 Section 9.9. Liens 78 Section 9.10. Plans 78 Section 9.11. Sales and Leasebacks 78 Section 9.12. Issuance of Stock by Subsidiaries 78 Section 9.13. Additional Restrictions 79 Section 9.14. Special Provisions Regarding International Apparel Marketing Corporation 79 Section 9.15. Limitation on Foreign Operations 79 ARTICLE 10 DEFAULT 79 Section 10.1. Events of Default 79 Section 10.2. Remedies 83 ARTICLE 11 AGENT AND CO-AGENTS 84 Section 11.1. Grant of Authority 84 Section 11.2. Action on Instructions 84 Section 11.3. Responsibility of the Agent 85 Section 11.4. Representations by the Lenders 86 Section 11.5. Expenses and Indemnification 86 Section 11.6. Rights of the Bank 86 Section 11.7. Right to Resign 87 Section 11.8. Co-Agents 87 ARTICLE 12 MISCELLANEOUS 87 Section 12.1. Notices 87 Section 12.2. Expenses 88 Section 12.3. Stamp and Other Taxes 88 Section 12.4. Setoff 89 Section 12.5. Litigation 89 Section 12.6. Consent to Advertising and Publicity 90 Section 12.7. Reversal of Payments 90 Section 12.8. Injunctive Relief 90 Section 12.9. Accounting Matters 91 Section 12.10. Assignment 91 Section 12.11. Amendments 96 Section 12.12. Performance of Borrower's Duties 96 Section 12.13. Indemnification 97 Section 12.14. All Powers Coupled with Interest 97 Section 12.15. Survival 97 Section 12.16. Titles and Captions 97 Section 12.17. Severability of Provisions 98 Section 12.18. Governing Law 98 Section 12.19. Counterparts 98 Section 12.20. Reproduction of Documents 98 Section 12.21. Confidentiality 98 Section 12.22. Entire Agreement 99 EXHIBITS AND SCHEDULES EXHIBIT A FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT B FORM OF COMMITTED LOAN NOTE EXHIBIT C FORM OF COMPETITIVE LOAN NOTE EXHIBIT D FORM OF SUBSIDIARY GUARANTY EXHIBIT E FORM OF SWINGLINE LOAN NOTE EXHIBIT F FORM OF COMPETITIVE BID REQUEST EXHIBIT G FORM OF CONFIRMATION OF NOTICE OF BORROWING EXHIBIT H FORM OF CONFIRMATION OF NOTICE OF CONVERSION/CONTINUATION EXHIBIT I FORM OF OPINION OF COUNSEL FOR BORROWER AND SUBSIDIARIES EXHIBIT J FORM OF OPINION OF COUNSEL FOR AGENT Schedule 1.1 Existing Letters of Credit Schedule 6.1(b) Subsidiaries Schedule 6.1(d) Compliance with Laws Schedule 6.1(e) Business Schedule 6.1(f) Governmental Approvals Schedule 6.1(g) Title to Properties Schedule 6.1(h) Existing Liens Schedule 6.1(i) Existing Indebtedness and Guaranties Schedule 6.1(j) Litigation Schedule 6.1(k) Patents and Trademarks Schedule 6.1(p) ERISA CREDIT AGREEMENT Dated as of September 7, 1994 DELTA WOODSIDE INDUSTRIES, INC., a South Carolina corporation, hereby agrees with each of the Lenders parties hereto, NATIONSBANK OF NORTH CAROLINA, N.A., a national banking association, as agent for the Lenders, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association, and THE BANK OF NEW YORK, a New York banking corporation, as co-agents for the Lenders, as follows: ARTICLE DEFINITIONS Section Definitions. For the purposes of this Agreement: "Acquire" or "Acquisition", as applied to any Business Unit or Investment, means the acquiring or acquisition of such Business Unit or Investment by purchase, exchange, issuance of stock or other securities, or by merger, reorganization or any other method. "Affiliate" means, with respect to a Person, any other Person that (a) directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such given Person, (b) directly or indirectly beneficially owns or holds 5% or more of any class of voting stock of such Person, or (c) 50% or more of the voting stock of which is directly or indirectly beneficially owned or held by such Person or a Subsidiary of such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. "Agent" means the Bank, acting in its capacity as agent for the Lenders pursuant to the terms of Article 11, and any successor Agent appointed pursuant to Section 11.7. "Agent's Office" means the office of the Agent designated from time to time pursuant to Section 12.1(c). "Agreement" means and includes this Agreement and all amendments, modifications and supplements thereto. "Agreement Date" means the date as of which this Agreement is dated. "Alabama Judgment" means the judgment entered on November 24, 1993 by the Circuit Court of Montgomery County, Alabama in the Alabama Litigation as modified by the acceptance of Remittitur dated March 31, 1994. "Alabama Letter of Credit" means that certain standby Letter of Credit in the original Stated Amount of $28,565,000 to be issued by the Bank on the Effective Date in accordance with the terms of Section 3.1, for the account of Alchem in favor of The Aetna Casualty and Surety Company, as beneficiary, in order to secure the bonding obligations of Alchem in connection with the Alabama Judgment, which Letter of Credit shall have an expiration date of May 18, 1995 (subject to extension as provided therein). "Alabama Litigation" means the case styled Hoots v. Duck Head Apparel Company, Inc., Case No. CV-92-561-PR filed in the Circuit Court of Montgomery County, Alabama on March 17, 1992, and all appeals therefrom and retrials or new trials thereof. "Alchem" means Alchem Capital Corporation, a Delaware corporation and Wholly Owned Subsidiary of the Borrower, and its successors and assigns. "Applicable Law" means all applicable provisions of constitutions, statutes, rules, regulations and orders of all governmental bodies and of all orders and decrees of all courts and arbitrators, including, without being limited to, applicable provisions of Environmental Laws. "Applicable Lending Office" means, (i) with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance or a Competitive Loan, and such Lender's Eurodollar Lending Office in the case of a Eurodollar Advance, and (ii) with respect to the Swingline Lender, the Swingline Lender's Domestic Lending Office. "Applicable Margin" means, at any time, the applicable margin corresponding to the ratio described below in effect as of the most recent Rate Measurement Date: Interest Coverage Ratio Leverage Ratio Applicable Margin Greater than or equal to 1.15:1.00 0.75% Greater than or equal to 3.00:1.00 Less than 1.15:1.00, but greater than or equal to 1.00:1.00 0.50% Less than 1.00:1.00 0.25% Less than 3.00:1.00 Greater than or equal to 1.15:1.00 0.75% Less than 1.15:1.00 0.50% The Applicable Margin as of the Effective Date and until the first Applicable Margin Change Date is 0.50%. Thereafter, determination of the appropriate Applicable Margin based on the Interest Coverage Ratio and the Leverage Ratio shall be made as of each Rate Measurement Date. The Interest Coverage Ratio and the Leverage Ratio in effect as of a Rate Measurement Date shall establish the Applicable Margin that shall be effective as of the date designated by the Agent as the Applicable Margin Change Date with respect to such Rate Measurement Date. The Agent shall determine the Applicable Margin as of each Rate Measurement Date occurring after the Effective Date and shall promptly notify the Borrower and the Lenders of the Applicable Margin so determined and of the Applicable Margin Change Date. Such determinations by the Agent of the Applicable Margin shall be conclusive absent manifest error. "Applicable Margin Change Date" means, with respect to any Rate Measurement Date, a date designated by the Agent that is not more than five (5) Business Days after receipt by the Agent of the Required Financial Information for such Rate Measurement Date. "Application" means the Borrower's application for and reimbursement agreement in respect of a Letter of Credit, which may be on any form customarily used by the Issuer of such Letter of Credit, subject to the provisions of Section 3.1. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit A hereto. "Authorized Officer" means the President, the Executive Vice President, the Chief Financial Officer, any Vice President, or the Treasurer of a Person or any other officer designated as an "Authorized Officer" by the Board of Directors (or equivalent governing body) of such Person. "Bank" means NationsBank of North Carolina, N.A., and its successors and assigns. "Base Rate" means the greater of (i) the rate of interest announced from time to time by the Bank at its principal office in Charlotte, North Carolina as its "prime" rate as in effect at such time, and (ii) the Federal Funds Effective Rate (rounded upwards, if necessary, to the next 1/8 of 1%) plus 1/2 of 1%, per annum. "Base Rate Advance" means a Committed Advance bearing interest determined with reference to the Base Rate. "Borrower" means Delta Woodside Industries, Inc., a South Carolina corporation, and its successors and assigns. "Business Day" means (i) for all purposes other than as covered by clause (ii) below, any day other than a Saturday, Sunday or legal holiday on which banks in Charlotte, North Carolina and New York, New York are open for the conduct of a substantial part of their commercial banking business; and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Advances, any day that is a Business Day described in clause (i) and that is also a day for trading by and between banks in U.S. Dollar deposits in the London interbank market. "Business Unit" means the assets constituting the business or a division or operating unit thereof of any Person. "Capital Expenditures" means, with respect to any Person, all expenditures made and liabilities incurred for the acquisition of assets (other than assets which constitute a Business Unit or an Investment) which are not, in accordance with GAAP, treated as expense items for such Person in the year made or incurred or as a prepaid expense applicable to a future year or years. "Capitalized Lease" means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. "Capitalized Lease Obligation" means Indebtedness represented by obligations under a Capitalized Lease and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Collateral" means collateral consisting of cash or Permitted Investments of the types referred to in Section 3.7 in which the Agent, for the benefit of itself as Agent, the Issuers, as applicable, and the Lenders, has a first priority Lien. "Change of Control" means the occurrence of any of the following events: (i) any Person or two or more Persons acting in concert (other than E. Erwin Maddrey, II, Bettis C. Rainsford and/or Micco Corporation) shall have acquired beneficial ownership, directly or indirectly, of, or shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of, control over, Voting Stock of the Borrower (or other securities convertible into such Voting Stock) representing 35% or more of the combined voting power of all Voting Stock of the Borrower, or (ii) during any period of up to 24 consecutive months, commencing after the Agreement Date, individuals who at the beginning of such 24 month period were directors of the Borrower (together with any new director whose election by the Borrower's Board of Directors or whose nomination for election by the Borrower's shareholders was approved by a vote of at least two- thirds of the directors then still in office who either were 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 directors of the Borrower then in office. As used herein, "beneficial ownership" shall have the meaning provided in Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934. "Co-Agents" means a collective reference to Bank of America National Trust and Savings Association, a national banking association and The Bank of New York, a New York banking corporation, and their respective successors and assigns. "Commitment" means, as to each Lender, the amount set forth opposite such Lender's name on the signature pages hereof under the caption "Commitment" (or, if such Lender has entered into one or more Assignments and Acceptances, set forth for such Lender in the Register maintained by the Agent pursuant to Section 12.10(d)), as such amount may be reduced pursuant to Section 4.3 or 10.2. "Commitment Percentage" of any Lender at any time means the product of (i) the amount of such Lender's Commitment at such time divided by the amount of the Facility at such time, multiplied by (ii) 100. "Committed Advance" means an advance by a Lender to the Borrower pursuant to Sections 2.1 and 2.2 and refers to a Base Rate Advance or a Eurodollar Advance (each a "Type" of Committed Advance). "Committed Loan" means a borrowing by the Borrower pursuant to Sections 2.1 and 2.2, consisting of Committed Advances of the same Type made on the same day by the Lenders. "Committed Loan Note" means any of the promissory notes made by the Borrower payable to the order of a Lender evidencing the obligation of the Borrower to pay the aggregate unpaid principal amount of all Committed Advances constituting part of Committed Loans and payments pursuant to Section 3.3(c)(ii) and subject to Section 3.3(c)(iii)(B) made to it or for its benefit by such Lender (and any promissory note or notes that may be issued from time to time in substitution, renewal, extension, replacement or exchange therefor, whether payable to the same or different Lenders, whether issued in connection with a Person becoming a Lender after the Agreement Date or otherwise) substantially in the form of Exhibit B hereto, with all blanks properly completed, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or refinanced. "Competitive Bid" means an offer by a Lender to make a Competitive Loan pursuant to the terms of Section 2.8. "Competitive Bid Rate" means, as to any Competitive Bid made by a Lender in accordance with the provisions of Section 2.8, the fixed rate of interest offered by the Lender making such Competitive Bid. "Competitive Bid Request" means a request by the Borrower for Competitive Bids in accordance with the provisions of Section 2.8. "Competitive Loan" means a borrowing by the Borrower made by a Lender in its discretion pursuant to Section 2.8. "Competitive Loan Note" means any of the promissory notes made by the Borrower payable to the order of a Lender evidencing the obligation of the Borrower to pay the aggregate unpaid principal amount of all Competitive Loans made to it or for its benefit by such Lender (and any promissory note or notes that may be issued from time to time in substitution, renewal, extension, replacement or exchange therefor, whether payable to the same or different Lenders, whether issued in connection with a Person becoming a Lender after the Agreement Date or otherwise) substantially in the form of Exhibit C hereto, with all blanks properly completed, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or refinanced. "Consolidated", when used with reference to any accounting terms relating to a Person, shall mean the sum of all applicable items relating to such Person and its Subsidiaries, as consolidated in accordance with GAAP after the elimination of intercompany items. "Consolidated Subsidiaries", when used with reference to any Person, means the Subsidiaries of such Person whose accounts are at the time in question in accordance with GAAP consolidated with those of such Person. "Current Assets" means, with respect to any Person, (i) the aggregate amount of assets of such Person which should properly be classified as current assets in accordance with GAAP, after deducting adequate reserves in each case where a reserve is appropriate in accordance with GAAP, plus (ii) all accounts receivable of such Person against which Indebtedness for Money Borrowed of such Person has been offset (with the result that neither such accounts receivable nor such Indebtedness appears on the balance sheet of such Person) for financial reporting purposes. "Current Liabilities" means, with respect to any Person, (i) the aggregate amount of all Indebtedness of such Person which should properly be classified as current liabilities on the balance sheet of such Person in accordance with GAAP, plus (ii) all Indebtedness for Money Borrowed (not constituting Funded Indebtedness) which has been offset against such Person's accounts receivable, as described in clause (ii) of the definition "Current Assets." "Current Maturities" means, with respect to any Person, current maturities of all items which would be classified as long-term debt (including the portion of Capitalized Leases so categorized) of such Person as of the date in question, determined in accordance with GAAP. "Default" means any of the events specified in Section 10.1 which with the passage of time or giving of notice or both would constitute an Event of Default. "Depreciation and Amortization Expense" means total depreciation and amortization expense of a Person for the period in question, determined in accordance with GAAP. "Dollar", "dollar", "U.S. Dollar" and "$" means freely transferrable United States dollars. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" on the signature pages hereof, or such other office of such Lender as such Lender may from time to time specify in writing to the Borrower and the Agent as its Domestic Lending Office. "Effective Date" means the later of: (a) the Agreement Date, and (b) the first date on which all of the conditions set forth in Article 5 shall have been fulfilled. "Eligible Assignee" means (i) a Lender, (ii) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of five billion dollars, or (iii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having total assets in excess of five billion dollars (or the equivalent in other currencies), provided that such bank is acting through a branch or agency located in the United States; and, provided further, that each such entity described in the foregoing clauses (i), (ii) and (iii) is consented to by each of the Agent and the Borrower, such consent not to be unreasonably withheld or delayed. "Environmental Laws" means all federal, state, local and foreign laws now or hereafter in effect relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, or land), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, removal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes, and any and all regulations issued, entered or promulgated thereunder; such laws and regulations include but are not limited to the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq., as amended; the Comprehensive Environmental Response, Compensation and Liability Act, 15 U.S.C. 2601 et seq., as amended; the Clean Air Act, 46 U.S.C. 7401 et seq., as amended; and state and federal environmental cleanup programs. "ERISA" means the Employee Retirement Income Security Act of 1974, as in effect from time to time. "Eurocurrency Liability" has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Advance" means a Committed Advance bearing interest at a rate determined with reference to the Eurodollar Rate. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" on the signature pages hereof (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify in writing to the Borrower and the Agent as its Eurodollar Lending Office. "Eurodollar Rate" means for the Interest Period for each Eurodollar Advance comprising part of the same Committed Loan, a rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum if such average is not such a multiple) of the rates per annum at which deposits in U.S. Dollars are offered to each of the Reference Banks by prime banks in the London interbank market at 11:00 a.m. (London time) (or as soon thereafter as is practicable), in each case two Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of such Reference Bank's Eurodollar Advance comprising part of such Committed Loan and for a period approximately equal to such Interest Period. The Eurodollar Rate for the Interest Period for each Eurodollar Advance comprising part of the same Committed Loan shall be determined by the Agent on the basis of the applicable rates furnished to and received by the Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 4.6. "Eurodollar Reserve Percentage" of any Lender for the Interest Period for any Eurodollar Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period. "Event of Default" means any of the events specified in Section 10.1, provided that any requirement for notice or lapse of time or any other condition has been satisfied. "Existing Credit Agreement" means that certain Credit Agreement dated as of June 24, 1992, as amended from time to time thereafter, among the Borrower, the lenders parties thereto and The First National Bank of Boston, as agent for such lenders. "Existing Guaranties" means the Guaranties outstanding on the Agreement Date to the extent set forth on Schedule 6.1(i). "Existing Indebtedness" means Indebtedness for Money Borrowed issued and outstanding on the Agreement Date to the extent set forth on Schedule 6.1(i) and any renewals, extensions or refundings thereof, but not any increases in principal amount thereof outstanding on the date of such renewal, extension or refunding. "Existing Letter of Credit" means each letter of credit issued by a Lender and outstanding as of the Agreement Date and more fully described on Schedule 1.1 hereto. "Existing Liens" means the Liens outstanding on the Agreement Date to the extent set forth on Schedule 6.1(h), but only to the extent that the same relate to Existing Indebtedness. "Facility" means, on any date, an amount equal to the aggregate amount of the Commitments of all Lenders on such date. "Factoring Agreement" means each agreement between the Borrower or any of its Subsidiaries and BNY Financial Corporation ("BNY Financial") or any other Person approved by the Majority Lenders (each of BNY Financial and each such other Person, in such capacity, a "Factor"), providing for credit, collection and application services to be performed by a Factor with respect to accounts receivable of the Borrower or any of such Subsidiaries, as applicable, and/or for the purchase by a Factor, subject to the terms thereof, of some or all of such accounts receivable, and which may grant to a Factor a security interest in the factored accounts receivable and related property of the Borrower or any of such Subsidiaries, as applicable; provided, however, that no such agreement shall require or permit a Factor to make loans or advances to the Borrower or any of its Subsidiaries secured by such accounts receivable or related property. "Federal Funds Effective Rate" means for any day, the interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent. "Financial Officer" of any Person means the Chief Financial Officer, Treasurer or Controller of such Person. "Fiscal Quarter" means each period of approximately 90 days beginning on the Sunday following the last day of the immediately preceding Fiscal Quarter and ending on the Saturday nearest March 31, June 30, September 30 or December 31 in each calendar year. "Fiscal Year" means each period of approximately 365 days beginning on the Sunday following the Saturday nearest to June 30 in one calendar year and ending on the Saturday nearest to June 30 in the next succeeding calendar year and when preceded by numbers indicating a calendar year, means the Fiscal Year ending during such calendar year. "Fixed Charge Coverage Ratio" means, as of any date of determination, the ratio of (i) Consolidated Net Income of the Borrower and its Consolidated Subsidiaries (before Consolidated Interest Expense, Consolidated Income Tax Expense and Consolidated Depreciation and Amortization Expense) minus Consolidated Income Tax Expense minus Consolidated Capital Expenditures, in each case for the Fiscal Year then ended to (ii) Consolidated Interest Expense for the Fiscal Year then ended plus Consolidated Current Maturities (excluding any principal amount of the Loans and the Letter of Credit Obligations so categorized) as of the last day of the Fiscal Year then ended. "Funded Indebtedness" means Indebtedness for Money Borrowed having a maturity of more than 12 months from the date of the most recent Consolidated balance sheet of the Borrower and its Consolidated Subsidiaries or having a maturity of less than 12 months from the date of such Consolidated balance sheet but by its terms being renewable or extendable beyond 12 months from the date of such Consolidated balance sheet at the option of the Person liable thereon. "GAAP" means generally accepted accounting principles consistently applied and maintained throughout the period indicated and consistent with the prior financial practice of the Borrower as reflected on the financial statements referred to in Section 6.1(n); provided, however, that, in the event that changes shall be mandated by the Financial Accounting Standards Board or any similar accounting authority of comparable standing, or shall be recommended by the Borrower's certified public accountants, such changes shall be included in GAAP only from and after such date as the Borrower, the Agent and the Majority Lenders shall have amended this Agreement to the extent necessary to reflect any such changes in the financial covenants set forth in Article 9. "Governmental Approvals" means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all governmental bodies, whether federal, state or local, and all agencies thereof, including, without being limited to, all such authorizations, consents, approvals, licenses, exemptions, registrations, filings and reports related to the environment, the production, treatment, release, storage, handling and disposal of toxic, hazardous or other substances, and similar matters. "Guaranteed Obligations" means any and all of the obligations of each Subsidiary Guarantor arising under its Subsidiary Guaranty. "Guaranty", "Guaranteed" or to "Guarantee" as applied to any obligation of another Person shall mean and include (a) a guaranty (other than by endorsement of negotiable instruments for collection in the ordinary course of business), directly or indirectly, in any manner, of any part or all of such obligation of such other Person, and (b) an agreement, direct or indirect, contingent or otherwise, and whether or not constituting a guaranty, the practical effect of which is to assure to or for the benefit of a third party the payment or performance (or payment of damages in the event of nonperformance) of any part or all of such obligation of such other Person whether by (i) purchase of securities or obligations, (ii) the purchase, sale or lease (as lessee or lessor) of property or the purchase or sale of services primarily for the purpose of enabling the obligor with respect to such obligation to make any payment or performance (or payment of damages in the event of nonperformance) of or on account of any part or all of such obligation, or to assure the owner of such obligation against loss, (iii) the supplying of funds to or in any other manner investing in the obligor with respect to such obligation, (iv) repayment of amounts drawn down by beneficiaries of letters of credit, or (v) the supplying of funds to or investing in a Person on account of all or any part of such Person's obligation under a Guaranty of any obligation or indemnifying or holding harmless, in anyway, such Person against any part or all of such obligation. "Income Tax Expense" means total income tax liability of a Person to federal, state and local governments for the period in question, determined in accordance with GAAP. "Indebtedness" as applied to a Person means, without duplication, (a) all items (except items of minority interests, excess of assigned value of net assets acquired over cost, capital stock, additional paid-in capital or retained earnings, or of general contingency or deferred tax reserves) which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined, (b) all obligations (including, during the noncancellable term of any lease (other than an Operating Lease) in the nature of a title retention agreement, all future payment obligations under such lease discounted to their present value in accordance with GAAP) secured by any Lien to which any property or asset owned or held by such Person is subject, whether or not the obligation secured thereby shall have been assumed, (c) all obligations of other Persons which such Person has Guaranteed, including, but not limited to, all obligations of such Person consisting of recourse liability with respect to accounts receivable sold or otherwise disposed of by such Person (other than pursuant to a Factoring Agreement), and (d) in the case of the Borrower (without duplication) the Loans and unreimbursed drawings under Letters of Credit and in the case of the Subsidiary Guarantors the Guaranteed Obligations with respect thereto. "Intercompany Indebtedness" means Indebtedness for Money Borrowed owed by the Borrower to any Subsidiary of the Borrower or by any Subsidiary Guarantor to the Borrower or any other Subsidiary Guarantor. "Interest Coverage Ratio" means, as of any date of determination, the ratio of (i) Consolidated Net Income of the Borrower and its Consolidated Subsidiaries (before Consolidated Interest Expense and Consolidated Income Tax Expense) for the Fiscal Quarter then ended to (ii) Consolidated Interest Expense of the Borrower and its Consolidated Subsidiaries for the Fiscal Quarter then ended. "Interest Expense" means total interest expense on Indebtedness of a Person during the period in question, determined in accordance with GAAP. "Interest Payment Date" means, (i) with respect to any Base Rate Advance, the first day of each January, April, July and October, commencing on October 1, 1994 and the date when such Base Rate Advance is due (whether on the Termination Date, by reason of acceleration or otherwise) and (ii) with respect to any Eurodollar Advance, Competitive Loan or Swingline Loan, the last day of the Interest Period for such Eurodollar Advance, Competitive Loan or Swingline Loan and the date when such Eurodollar Advance, Competitive Loan or Swingline Loan is due (whether on the Termination Date, by reason of acceleration or otherwise), and, in addition, where the applicable Interest Period for any Eurodollar Advance is more than 3 months, then also on the date 3 months from the beginning of the Interest Period, and each 3 months thereafter. "Interest Period" means (a) with respect to each Eurodollar Advance, the period commencing on the date of the making or continuation of or conversion to such Eurodollar Advance and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable Notice of Borrowing or Conversion/Continuation; (b) with respect to each Competitive Loan, a period commencing on the date of the making of such Competitive Loan and ending on the date specified in the applicable Competitive Bid whereby the offer to make such Competitive Loan was extended (such ending date in any event not to be less than 7 nor more than 90 days from the date of borrowing); and (c) with respect to each Swingline Loan, a period commencing on the date of the making of such Swingline Loan and ending on the date agreed to by the Borrower and the Swingline Lender in accordance with the provisions of Section 2.9(c) (such ending date in any event to be not more than 7 days from the date of borrowing); provided, that: (i) any Interest Period that would otherwise end on a day that is not a Business Day shall, subject to the provisions of clause (iii) below, be extended to the next succeeding Business Day unless, in the case of Eurodollar Advances, such Business Day falls in the next calendar month, in which case such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period applicable to a Eurodollar Advance that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (iii) below, end on the last Business Day of a calendar month; (iii) no Interest Period shall end after the Termination Date; and (iv) notwithstanding clause (iii) above, no Interest Period applicable to a Eurodollar Advance shall have a duration of less than one month; and if any applicable Interest Period would be for a shorter period, such Interest Period shall not be available hereunder. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time. "Investment" means, with respect to any Person (an "Investor"): (a) any share of capital stock, evidence of Indebtedness or other security issued by any other Person, (b) any loan, advance or extension of credit to, or contribution to the capital of, any other Person, (c) any Guaranty of the obligations of any other Person (other than any Subsidiary Guaranty), (d) any other investment in any other Person, (e) any commitment to make an Investment, and (f) any option to make an Investment, the consideration for which exceeds $100; provided, that if the Investor is the Borrower or any Subsidiary of the Borrower and any of the foregoing results in any other Person becoming a Subsidiary of the Investor or of the Borrower or in the Acquisition by the Borrower or any of its Subsidiaries of a Business Unit, such Investment shall be subject to the other provisions of this Agreement applicable to Acquisitions of Business Units, rather than the provisions of this Agreement applicable to Investments. "Issuer" means any Lender, in its capacity as the issuer of a Letter of Credit. "Lender" means each of the Persons listed as a "Lender" on the signature pages hereof, each of their respective successors and each Eligible Assignee that shall become a party hereto pursuant to Section 12.10. "Letter of Credit" means (i) each letter of credit, whether a documentary letter of credit or a standby letter of credit issued by an Issuer pursuant to an Application and with the prior written consent of the Agent, which consent shall not be unreasonably withheld, in each case for the account of the Borrower and which names the Borrower, or at the request of the Borrower, a Subsidiary Guarantor, as the account party, and (ii) each Existing Letter of Credit. "Letter of Credit Facility" means, at any time, Letters of Credit in an aggregate Stated Amount not to exceed $25,000,000, plus, until the Alabama Letter of Credit has been fully drawn, has expired in accordance with its terms or otherwise been terminated and returned to the Bank, an amount equal to the then Stated Amount of the Alabama Letter of Credit. "Letter of Credit Obligations" means, as of any date, the sum of (i) the aggregate Stated Amount of all Letters of Credit outstanding on such date, plus (ii) the aggregate amount of all unreimbursed drawings under Letters of Credit on such date (including as unreimbursed, any drawings reimbursed pursuant to Section 3.3(b) or (c) and subject to the provisions of Section 3.3(c)(iii)(B)). For purposes of clause (i) of this definition, each documentary Letter of Credit shall be deemed to be outstanding from the date of issuance thereof until and including the earlier of (A) the date which is 30 days after the stated expiration date of such Letter of Credit and (B) the date on which such Letter of Credit is fully drawn or returned to the applicable Issuer for cancellation by the beneficiary thereof. "Leverage Ratio" means, as of any date of determination, the ratio of Consolidated Indebtedness (including Consolidated Indebtedness for Money Borrowed which has been offset against amounts owing under accounts receivable, but excluding the aggregate Stated Amount of Letters of Credit outstanding on such date) of the Borrower and its Consolidated Subsidiaries to Consolidated Tangible Net Worth of the Borrower and its Consolidated Subsidiaries, in each case as of such date. "Lien" as applied to the property of any Person means: (a) any mortgage, deed to secure debt, deed of trust, lien, pledge, charge, lease constituting a Capitalized Lease Obligation, conditional sale or other title retention agreement, or other security interest, security title or encumbrance of any kind in respect of any property of such Person, or upon the income or profits therefrom, (b) any arrangement, express or implied, under which any property of such Person is transferred, sequestered or otherwise identified for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to the payment of the general, unsecured creditors of such Person, (c) any Indebtedness which is unpaid more than 30 days after the same shall have become due and payable and which if unpaid might by law (including but not limited to bankruptcy and insolvency laws), or otherwise, be given any priority whatsoever over general unsecured creditors of such Person, and (d) the filing of, or any agreement to give, any financing statement under the Uniform Commercial Code of any State or its equivalent in any jurisdiction, other than any such financing statement filed by a lessor of personal property under an Operating Lease and that states on its face that it is filed in respect of leased property. "Loan" means any Committed Loan, Competitive Loan or Swingline Loan. "Loan Documents" means collectively this Agreement, the Notes, the Subsidiary Guaranties, the Applications and each of the other documents, instruments and agreements referred to herein or contemplated hereby. "Majority Lenders" means, at any time, Lenders which are then in compliance with their material obligations hereunder (as determined by the Agent) and holding in the aggregate more than 50% of (i) the aggregate Commitments or (ii) if the Commitments have been terminated, the aggregate outstanding principal amount of the Loans and Letter of Credit Obligations. "Materially Adverse Effect" means, with respect to any Person, a materially adverse effect upon such Person's business, assets, liabilities, financial condition, results of operations or business prospects. "Money Borrowed" means, as applied to Indebtedness, (a) Indebtedness for money borrowed, including, without limitation, in the case of the Borrower (without duplication) the Loans and unreimbursed drawings under Letters of Credit and in the case of the Subsidiary Guarantors the Guaranteed Obligations with respect thereto, (b) Indebtedness, whether or not in any such case the same was for money borrowed (but excluding accounts payable incurred in the ordinary course of business), (i) represented by notes payable, and drafts accepted, that represent extensions of credit, (ii) constituting obligations evidenced by bonds, debentures, notes or similar instruments, or (iii) upon which interest charges are customarily paid or that was issued or assumed as full or partial payment for property, (c) Purchase Money Indebtedness, (d) Indebtedness that constitutes a Capitalized Lease Obligation, and (e) Indebtedness that is such by virtue of clause (c) of the definition thereof, but only to the extent that the obligations Guaranteed are obligations that would constitute Indebtedness for Money Borrowed. "Multiemployer Plan" has the meaning set forth in Section 4001(a)(3) of ERISA, as amended or revised from time to time. "Net Amount" means, with respect to any Investments (a) made by any Person, the gross amount of all such Investments minus the aggregate amount of all cash received and the fair value, at the time of receipt by such Person, of all property received as payments of principal or premiums, returns of capital, liquidating dividends or distributions, proceeds of sale or other dispositions with respect to such investments, (b) committed to be made by any Person, the gross amount such Person is committed to pay in connection with the consummation thereof and (c) as to which any Person holds an option, the gross amount paid for such option. "Net Disposition Proceeds" means the gross "cash proceeds" received by the Borrower or any of its Subsidiaries from the sale or disposition of any of its respective assets (excluding (i) sales of inventory in the ordinary course of business, (ii) sales of accounts pursuant to a Factoring Agreement and (iii) sales or dispositions of assets (not constituting a substantial part of the assets of any Person) if, in any case covered by this clause (iii), neither the book value of such assets nor the cash proceeds received on the sale or other disposition of such assets exceeds $100,000) less (a) necessary or incidental reasonable selling expenses incurred in connection therewith, (b) taxes (if any) estimated in good faith to be payable as a result of such sale or disposition, and (c) any amounts thereof paid by the Borrower or its selling Subsidiary, or set aside for such payment, as certified by the Borrower to the Agent by an instrument in form and substance acceptable to the Agent, to purchase property of a similar type, in replacement of the assets so sold or disposed of and to be used in the business of the Borrower or such Subsidiary. For purposes of this definition, "cash proceeds" means (without duplication) the sum of (i) cash, (ii) an amount equal to the value of readily marketable securities and (iii) the principal amount of any promissory note, received at any time by the Borrower or the selling Subsidiary in consideration of such sale. Net Disposition Proceeds shall be deemed to be received for purposes of this Agreement (i) in the case of cash, when paid to the recipient, (ii) in the case of readily marketable securities, when delivered to the recipient in form for transfer, (iii) when evidenced by a promissory note (x) secured by a valid, perfected first priority security interest in or first mortgage lien on the assets so sold or disposed of, when payments of principal are received thereunder and (y) not secured as provided in clause (x), when payments of principal would have been received thereunder if such principal were required to be repaid in substantially equal consecutive annual installments over a period of three years commencing on the date of delivery of such note or, if earlier, when payments of principal are actually received thereunder, and (iv) in the case of any amounts set aside pursuant to clause (c) above and not paid to purchase property within six months of the date on which such amounts would otherwise be deemed to be received hereunder, the last day of such six-month period. "Net Income" means, as applied to any Person, the net income (or net loss) of such Person for the period in question after giving effect to deduction of or provision for all operating expenses, all taxes and reserves (including reserves for deferred taxes) and all other proper deductions, all determined in accordance with GAAP, provided that there shall be excluded: (a) the net income (or net loss) of any Person accrued, prior to the date it becomes a Subsidiary of, or is merged into or consolidated with, the Person whose Net Income is being determined or a Subsidiary of such Person, (b) the net income (or net loss) of any Person (other than a Subsidiary) in which the Person whose Net Income is being determined or any Subsidiary of such Person has an ownership interest, except, in the case of net income, to the extent that any such income has actually been received by such Person or such Subsidiary in the form of cash dividends or similar distributions, (c) any restoration of any contingency reserve, except to the extent that provision for such reserve was made out of income during such period, (d) any net gains or losses on the sale or other disposition, not in the ordinary course of business, of Investments, Business Units and other capital assets, provided that there shall also be excluded any related charges for taxes thereon, (e) any net gain arising from the collection of the proceeds of any insurance policy (provided that amounts received under policies of business interruption insurance shall not be excluded), (f) any write-up of any asset, and (g) any other extraordinary item. "Net Worth" means, with respect to any Person, such Person's total shareholders' equity (including capital stock, additional paid-in capital and retained earnings, after deducting treasury stock) and minority interests which would appear as such on a balance sheet of such Person prepared in accordance with GAAP. "Note" means any Committed Loan Note, Competitive Loan Note or Swingline Loan Note. "Notice of Borrowing" has the meaning specified in Section 2.3(a). "Notice of Conversion/Continuation" has the meaning specified in Section 2.3(e). "Obligations" means, in each case whether now in existence or hereafter arising, (a) the principal of, and interest and premium, if any, on, the Loans, (b) any fees payable by the Borrower with respect to the Facility, (c) all obligations under each Application, including, without limitation, reimbursement of drawings and payment of fees and charges as provided therein, and all obligations of the Borrower under each Letter of Credit, including, without limitation, all obligations to provide Cash Collateral under Section 3.7, and (d) all indebtedness, liabilities, obligations, covenants and duties of the Borrower to the Agent or the Lenders, of every kind, nature and description, direct or indirect, absolute or contingent, due or not due, contractual or tortious, liquidated or unliquidated, in respect of indemnities, and whether or not evidenced by any note, and whether or not for the payment of money, under or in respect of this Agreement, any Note or any other Loan Document. "Operating Lease" means any lease (other than a lease constituting a Capitalized Lease Obligation) of real or personal property. "PBGC" means the Pension Benefit Guaranty Corporation and any successor agency. "Permitted Indebtedness for Money Borrowed" means (a) Indebtedness for Money Borrowed of the Borrower represented by the Loans and the Notes or arising under the Letters of Credit or the related Applications, (b) the Guaranteed Obligations, (c) Intercompany Indebtedness, (d) Existing Indebtedness, (e) Indebtedness for Money Borrowed owed by International Apparel Marketing Corporation to the Borrower or any Subsidiary Guarantor the aggregate principal amount of which outstanding at any time does not exceed $1,000,000, (f) other Indebtedness for Money Borrowed of the Borrower or any of its Subsidiaries the aggregate principal amount of which outstanding at any time does not exceed $10,000,000, and (g) Guaranties of any Indebtedness for Money Borrowed described in any of clauses (a) through (f) above. provided, however, that the aggregate outstanding principal amount of all Permitted Indebtedness for Money Borrowed shall not exceed at any time an amount equal to $280,000,000 minus the aggregate amount of all reductions in the Commitments from time to time pursuant to Section 4.3. "Permitted Investments" means: (a) Investments of the Borrower or any of its Subsidiaries in: (i) negotiable certificates of deposit, time deposits and banker's acceptances issued by a Lender or any Affiliate of a Lender or by any United States bank or trust company having capital, surplus and undivided profits in excess of $100,000,000, (ii) short-term corporate obligations rated Prime- 1 by Moody's Investors Service or A-1 by Standard & Poor's Corporation, (iii) any direct obligation of the United States of America or any agency or instrumentality thereof which has a remaining maturity at the time of purchase of not more than two years and repurchase agreements relating to the same, (iv) sales on credit in the ordinary course of business, or (v) notes, accepted in the ordinary course of business, evidencing overdue accounts payable arising in the ordinary course of business; (b) Investments of the Borrower or any of its Subsidiaries, consisting of the capital stock of or capital contributions to any Wholly Owned Subsidiary that is a Subsidiary Guarantor; (c) Guaranties permitted pursuant to Section 9.3 and Investments constituting Intercompany Indebtedness; and (d) any other Investment of the Borrower or any Subsidiary consented to by the Majority Lenders. "Permitted Liens" means: (a) Liens securing taxes, assessments and other governmental charges or levies (excluding any Lien imposed pursuant to any of the provisions of ERISA) or the claims of materialmen, mechanics, carriers, warehousemen or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business, but in all cases only if payment shall not at the time be required to be made in accordance with Section 7.6, (b) Liens consisting of deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, obligations under workers' compensation, unemployment insurance or similar legislation or obligations to utilities, (c) Liens constituting encumbrances in the nature of zoning restrictions, easements, and rights or restrictions of record on the use of real property, which do not materially detract from the value of such property as used by the Borrower or any of its Subsidiaries, as applicable, or impair the use thereof in the business of the Borrower or any Subsidiary, (d) Liens existing on property of any Person at the time such Person becomes a Subsidiary of the Borrower, but only if the obligation secured by any such Lien is not in default and such Lien is and remains confined to the property subject thereto at the time such Person becomes a Subsidiary, (e) Liens affecting accounts receivable and related property, created or existing in favor of a Factor pursuant to a Factoring Agreement, but only to the extent of the applicable factored accounts receivable and related property, (f) Existing Liens, (g) Permitted Purchase Money Liens, (h) Liens of an Issuer on goods or documents securing reimbursement obligations with respect to a Letter of Credit issued to insure the payment for such goods or documents, (i) Liens created solely by the filing or recording of any judgment in public records or by an attempt to execute on any judgment, provided that in either such case no Event ofDefault has occurred and is continuing under Section 10.1(j) with respect to such judgment, and (j) Liens in favor of the Agent for the benefit of the Lenders or the Lenders and the Issuers, on Cash Collateral and proceeds thereof. "Permitted Purchase Money Indebtedness" means Purchase Money Indebtedness of the Borrower or any of its Subsidiaries incurred after the Agreement Date, including any Capitalized Lease Obligation constituting Purchase Money Indebtedness, (a) which is secured by a Purchase Money Lien, (b) the aggregate principal amount of which does not exceed the lesser of (i) the cost (including the principal amount of such Indebtedness, whether or not assumed) of the property subject to such Lien, and (ii) the fair value of such property at the time of its acquisition, and (c) which, when the principal amount thereof is aggregated with the principal amount of all other Indebtedness for Money Borrowed of the Borrower and all of its Subsidiaries at the time outstanding, does not constitute a breach of the provisions of Section 9.2. "Permitted Purchase Money Lien" means a Purchase Money Lien securing Permitted Purchase Money Indebtedness. "Person" means an individual, corporation, partnership, association, trust or unincorporated organization, or a government or any agency or political subdivision thereof. "Plan" means an employee benefit plan maintained for employees of the Borrower or any Subsidiary that is covered by Title IV of ERISA, including such plans as may be established after the Agreement Date. "Purchase Money Indebtedness" means the following, other than Indebtedness for trade payables incurred in the ordinary course of business, (a) Indebtedness created to secure the payment of all or any part of the purchase price of any property, (b) any Indebtedness incurred at the time of or within 10 days prior to or after the acquisition of any property for the purpose of financing all or any part of the purchase price thereof, and (c) any renewals, extensions or refinancings thereof, but not any increases in the principal amounts thereof outstanding at the time. "Purchase Money Lien" means a Lien securing Purchase Money Indebtedness but only if such Lien shall at all times be confined solely to the property (and proceeds thereof, to the extent provided in the security agreement creating such Lien) the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien. "Rate Measurement Date" means the last day of each Fiscal Quarter occurring after the Effective Date. "Reference Banks" means the Bank, Bank of America National Trust and Savings Association and The Bank of New York. "Register" has the meaning specified in Section 12.10(d). "Reportable Event" has the meaning set forth in Section 4043(b) of ERISA, but shall not include a Reportable Event as to which the provision for 30 days' notice to the PBGC is waived under applicable regulations. "Required Financial Information" means, with respect to the applicable Rate Measurement Date, (i) the financial statements of the Borrower required to be delivered pursuant to Section 8.1 for the Fiscal Year or Fiscal Quarter ending as of such Rate Measurement Date, and (ii) the certificate of the President or the Financial Officer of the Borrower required by Section 8.3 to be delivered with the financial statements described in clause (i) above. "Restricted Dividend Payment" means any dividend, distribution or payment on or with respect to any shares of the capital stock of the Borrower or any Subsidiary (other than dividends payable solely in shares of its capital stock and other than dividends, distributions and payments made to the Borrower or to a Wholly Owned Subsidiary of the Borrower), but excluding any such payment on account of the purchase, redemption or other acquisition or retirement of any shares of capital stock of the Borrower or any Subsidiary. "Revolving Credit Facility" means, on any date, an amount equal to the amount of the Facility on such date, less the Letter of Credit Obligations on such date (other than any portion thereof attributable to unreimbursed drawings which are to be reimbursed by a Committed Loan to be made on such date). "Significant Subsidiary" means each Subsidiary of the Borrower other than any Subsidiary of the Borrower having total assets of less than $1,000,000 and not designated a Significant Subsidiary by the Borrower (which excluded Subsidiaries on the Agreement Date include only International Apparel Marketing Corporation and Harper Brothers, Inc.), provided that the aggregate total assets of all Subsidiaries excluded from the definition "Significant Subsidiary" shall not exceed $10,000,000. "Stated Amount" means at any time, as to any Letter of Credit, the maximum amount available to be drawn at such time under such Letter of Credit, assuming all conditions to drawings thereunder have been satisfied. "Subsidiary" (a) when used to determine the relationship of a Person to another Person, means a Person of which an aggregate of 50% or more of the stock of any class or classes or 50% or more of other ownership interests is owned of record or beneficially by such other Person, or by one or more Subsidiaries of such other Person, or by such other Person and one or more Subsidiaries of such Person, (i) if the holders of such stock, or other ownership interests, (A) are ordinarily, in the absence of contingencies, entitled, as such holders, to vote for the election of a majority of the directors (or other individuals performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency, or (B) are entitled, as such holders, to vote for the election of a majority of the directors (or individuals performing similar functions) of such Person, whether or not the right so to vote exists by reason of the happening of a contingency, or (ii) in the case of such other ownership interests, if such ownership interests constitute a majority voting interest, and (b) when used with respect to a Plan, ERISA, the PBGC or a provision of the Internal Revenue Code pertaining to employee benefit plans, also means any corporation, trade or business (whether or not incorporated) which is under common control with the Borrower or any Subsidiary and is treated as a single employer with the Borrower or any Subsidiary under Section 414(b) or (c) of the Internal Revenue Code and the regulations thereunder. (c) Unless the context otherwise requires, each reference herein to a Subsidiary shall mean and be a reference to a Subsidiary of the Borrower. "Subsidiary Guarantor" means each Subsidiary of the Borrower which has executed and delivered a Subsidiary Guaranty. "Subsidiary Guaranty" means each Guaranty of a Subsidiary Gurarator, in substantially the form of Exhibit D, in favor of the Agent for its benefit and the benefit of the Lenders, pursuant to Section 5.1(b)(vi) or Section 7.10. "Swingline Facility" means, at any time, Swingline Loans in an aggregate outstanding principal amount not to exceed $15,000,000. "Swingline Lender" means the Bank, or, if the Bank shall no longer be the Agent, such Lender which shall become the Agent hereunder in accordance with the provisions of Section 11.7. "Swingline Loan" means a borrowing by the Borrower made by the Swingline Lender pursuant to Section 2.9. "Swingline Loan Note" means the promissory note made by the Borrower payable to the order of the Swingline Lender evidencing the obligation of the Borrower to pay the aggregate unpaid principal amount of all Swingline Loans made to it or for its benefit (and any promissory note or notes that may be issued from time to time in substitution, renewal, extension, replacement or exchange therefor) substantially in the form of Exhibit E hereto, with all banks properly completed, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or refinanced. "Tangible Net Worth" means, as applied to any Person, the Net Worth of such Person at the time in question, after deducting therefrom the amount of all intangible items reflected therein, including all unamortized debt discount and expense, unamortized research and development expense, unamortized deferred charges, goodwill (net of any excess of assigned value of net assets acquired over cost), patents, trademarks, service marks, trade names, copyrights, unamortized excess cost of investment in Subsidiaries over equity at dates of acquisition, and all similar items which should properly be treated as intangibles in accordance with GAAP. "Termination Date" means September 30, 1997 or such later date as may be established pursuant to Section 2.10 or such earlier date on which the Commitments shall have been reduced to zero in accordance with the terms hereof. "Termination Event" means (a) a Reportable Event, or (b) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, or (c) the institution of proceedings to terminate a Plan by the PBGC under Section 4042 of ERISA, or the appointment of a trustee to administer any Plan. "Unfunded Vested Accrued Benefits" means with respect to any Plan at any time, the amount (if any) by which (a) the present value of all vested nonforfeitable benefits under such Plan exceeds (b) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan. "Variable CD Rate" means, for any day a rate per annum (rounded upwards to the nearest whole multiple of 1/16 of 1% per annum if such rate is not such a multiple) equal to the rate obtained (a) by dividing (i) the rate of interest determined by the Swingline Lender to be the rate for 30-day domestic certificates of deposit published for the immediately preceding business day by the Board of Governors of the Federal Reserve System (or any successor) by (ii) a percentage equal to 100% minus the applicable CD Reserve Percentage, and adding thereto (b) the applicable CD Assessment Rate. As used herein, (A) "CD Reserve Percentage" means the percentage applicable to the rate of interest described in clause (a) above under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding $1,000,000,000 with respect to liabilities consisting of or including (among other liabilities) U.S. dollar non-personal time deposits in the United States with a maturity of 30 days and (B) "CD Assessment Rate" means the annual assessment rate estimated by the Swingline Lender to be applicable for determining the then current annual assessment payable by the Swingline Lender to the Federal Deposit Insurance Corporation (or any successor) for insuring U.S. dollar deposits of the Swingline Lender in the United States. "Voting Stock" means, with respect to any Person, capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency. "Wholly Owned Subsidiary" when used to determine the relationship of a Subsidiary to a Person or Persons means a Subsidiary all of the issued and outstanding shares (other than directors' qualifying shares) of the capital stock of which shall at the time be owned by such Person or Persons or one or more of such Person's Wholly Owned Subsidiaries or by such Person or Persons and one or more of its respective Wholly Owned Subsidiaries. Section General. (a) All terms of an accounting nature not specifically defined herein shall have the meanings ascribed thereto by GAAP. (b) The terms accounts, chattel paper, contract rights, documents, equipment, instruments, general intangibles and inventory, as and when used in this Agreement, shall have the meanings given those terms in the Uniform Commercial Code as in effect from time to time in the State of North Carolina. (c) Unless otherwise specified, a reference in this Agreement to a particular section or subsection or exhibit or schedule is a reference to that section or subsection of or exhibit or schedule to this Agreement. (d) Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. (e) Whenever a period is described herein as extending from a day or date to or until a later day or date, "from" means "from and including" such first day or date and "to" and "until" each means "to but excluding" such later day or date. ARTICLE Revolving Credit Facility Section Committed Loans. Upon the terms and subject to the conditions of, and in reliance upon the representations and warranties made under, this Agreement, each Lender severally and not jointly agrees to make Committed Advances to the Borrower from time to time, on any Business Day from and after the Effective Date until the Termination Date, up to an aggregate principal amount at any time outstanding equal to such Lender's Commitment Percentage of the Revolving Credit Facility at such time; provided, however, the sum of the principal amounts of Committed Loans outstanding plus Competitive Loans outstanding plus Swingline Loans outstanding shall not exceed at any time the Revolving Credit Facility. Each Committed Loan comprised of (i) Base Rate Advances shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) Eurodollar Advances shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof, and shall consist of Committed Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender's Commitment, the principal amount of any Committed Advance which is prepaid pursuant to Section 4.4(b) may be reborrowed in accordance with the terms of this Section 2.1. Each Lender is hereby authorized to, and prior to any transfer of its Committed Loan Note each Lender shall, endorse the date and amount of each Committed Advance made by such Lender to the Borrower and each repayment of principal of each Committed Advance on the schedule annexed to and constituting a part of such Committed Loan Note, which endorsement shall constitute prima facie evidence of the accuracy of the information so endorsed; provided, that a Lender's failure so to endorse any Committed Loan Note held by it shall not affect the Borrower's Obligations hereunder. Section Making Committed Loans. (a) Requests. Committed Loans shall be requested by delivery of a Notice of Borrowing, given in the manner specified in Section 2.3(a), by the Borrower to the Agent and deemed requested as provided in Section 2.3(b), 2.3(c) and 2.3(d). (b) Disbursement of Committed Loans. Promptly following receipt of a Notice of Borrowing, the Agent shall notify each Lender by telephone (confirmed by telecopier or telex), telecopier or telex of the date and amount of the Committed Loan, the Type of Committed Advances comprising such Committed Loan, and, in the case of Eurodollar Advances, the applicable interest rate under Section 2.6(b) and the Interest Period for such Committed Advances. Not later than 11:00 a.m. (Charlotte, North Carolina time) on the date specified for any Committed Loan, each Lender shall make available for the account of its Applicable Lending Office its ratable portion of such Committed Loan in immediately available funds to the Agent at the Agent's Office. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article 5, the Agent will, and the Borrower hereby irrevocably authorizes the Agent to, disburse the proceeds of the Committed Advances made in respect of each such Committed Loan requested by it pursuant to this Section 2.2, in lawful money of the United States of America in immediately available funds, by making such funds available to the Borrower at the Agent's Office or by wire transfer to such account of the Borrower as the Borrower may instruct the Agent from time to time. (c) Assumption by Agent. Unless the Agent shall have received notice from a Lender prior to the date of any Committed Loan that such Lender will not make available to the Agent such Lender's ratable portion of such Committed Loan, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Committed Loan in accordance with Section 2.2(b) and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent such Lender shall not have so made such ratable portion available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together, with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to the Committed Advances comprising such Committed Loan and (ii) in the case of such Lender, at theFederal Funds Effective Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Committed Advance as part of such Committed Loan for purposes of this Agreement and the Borrower's obligation under this Section 2.2(c) to repay such Committed Advance shall terminate. The failure of any Lender to make the Committed Advance to be made by it as part of any Committed Loan shall not relieve any other Lender of its obligation, if any, hereunder to make its Committed Advance on the date of such Committed Loan, or relieve any Lender of its obligation, if any, hereunder to make its Committed Advance as part of any subsequent Committed Loan, but no Lender shall be responsible for the failure of any other Lender to make the Committed Advance to be made by such other Lender as part of any Committed Loan. Section Notice and Manner of Borrowing or Conversion or Continuation of Committed Loan. (a) Whenever the Borrower desires to obtain a Committed Loan hereunder pursuant to Section 2.3(a), the Borrower shall notify the Agent (which notice shall be irrevocable) by telex, telegraph, telecopy or telephone not later than 10:00 a.m. (Charlotte, North Carolina time) on the date one Business Day before the day on which the requested Committed Loan is to be made as a Committed Loan comprised of Base Rate Advances, and not later than 10:00 a.m. (Charlotte, North Carolina time) on the date three Business Days before the day on which the requested Committed Loan is to be made as a Committed Loan comprised of Eurodollar Advances. Each such notice (a "Notice of Borrowing") shall specify (i) the effective date (which shall be a Business Day) and amount of each Committed Loan requested, (ii) the Type of Committed Advances comprising such Committed Loan, and (iii) if such Committed Loan is to be comprised of Eurodollar Advances, the duration of the applicable Interest Period, and shall be immediately followed by a written confirmation thereof by the Borrower in substantially the form of Exhibit G hereto, provided that if such written confirmation differs in any material respect from the action taken by the Agent, the records of the Agent shall control absent manifest error. (b) The receipt by the Agent of notification from an Issuer pursuant to Section 3.3(c)(i) to the effect that a drawing has been made under a Letter of Credit and that the Borrower and, if applicable, the Subsidiary Guarantor named therein as the account party have failed to reimburse the Issuer in accordance with the terms of the related Application, either by means of a Swingline Loan as contemplated by Section 3.3(b) or otherwise, shall be deemed to be a Notice of Borrowing in respect of a Committed Loan consisting of Base Rate Advances, in the amount of the unreimbursed drawing, to be made as of the date such drawing was paid, without regard to the times of notice and disbursement set forth in Section 2.3(a), but subject to the provisions of Section 3.3(c)(ii). (c) The failure of the Borrower to notify the Agent of its intention to repay any Competitive Loan on the last day of the Interest Period applicable thereto pursuant to Section 2.8(g) prior to 12:00 noon (Charlotte, North Carolina time) on the last day of such Interest Period shall be deemed to be a Notice of Borrowing in respect of a Committed Loan consisting of Base Rate Advances, in the amount of such maturing Competitive Loan, to be made as of the last day of the Interest Period for such Competitive Loan, without regard to the times of notice and disbursement set forth in Section 2.3(a). (d) A demand from the Swingline Lender for repayment of Swingline Loans pursuant to Section 2.9(b)(iv) shall be deemed to be a Notice of Borrowing in respect of a Committed Loan consisting of Base Rate Advances, in the amount of such Swingline Loans, to be made as of the date of demand for repayment of the Swingline Loans by the Swingline Lender, without regard to the times of notice and disbursement set forth in Section 2.3(a), but subject to the provisions of Section 2.9(b)(iv). (e) Whenever the Borrower desires, subject to the provisions of Section 4.2, to convert an outstanding Committed Loan into a Committed Loan comprised of Committed Advances of a different Type provided for in this Agreement or to continue an outstanding Committed Loan for a subsequent Interest Period, the Borrower shall notify the Agent (which notice shall be irrevocable) by telex, telegraph, telecopy or telephone not later than 10:00 a.m. (Charlotte, North Carolina time) on the date one Business Day before the day on which a proposed conversion of a Committed Loan into, or a continuation of a Committed Loan as, a Committed Loan comprised of Base Rate Advances is to be effective and three Business Days before the day on which a proposed conversion of a Committed Loan into, or continuation of a Committed Loan as, a Committed Loan comprised of Eurodollar Advances is to be effective (and if the Committed Loan to be continued is comprised of Eurodollar Advances, such effective date shall be the last day of the Interest Period for such Committed Advances). Each such notice (a "Notice of Conversion/Continuation") shall (i) identify the Committed Loan to be converted or continued, including the Type of Committed Advances comprising such Committed Loan, the aggregate outstanding principal balance thereof and, in the case of a Committed Loan comprised of Eurodollar Advances, the last day of the Interest Period therefor, (ii) specify the effective date of such conversion or continuation, (iii) specify the principal amount of such Committed Loan to be converted or continued and, if converted, the Type of Committed Advance into which conversion of such principal amount or specified portions thereof is to be made and (iv) in the case of any conversion into or continuation as Eurodollar Advances, the Interest Period to be applicable to each Type of Committed Advance comprising each such converted or continued Committed Loan, and shall be immediately followed by a written confirmation thereof by such Borrower substantially in the form of Exhibit H hereto, provided that if such written confirmation differs in any material respect from the action taken by the Agent, the records of the Agent shall control absent manifest error. The Agent shall promptly notify each of the Lenders of its receipt of any Notice of Conversion/Continuation pursuant to this Section 2.3(e). (f) Subject to the terms and conditions of this Agreement, the Agent shall cause each Committed Loan to be made available to the Borrower on the effective date specified therefor in the manner provided in Section 2.2(b); provided that if such Committed Loan is to be made on a day on which the Borrower is to repay all or any part of an outstanding Committed Loan, the Agent shall apply the proceeds of such new Committed Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by the Agent to the Borrower. Section Duration of Interest Periods; Number of Committed Loans. (a) Subject to the provisions of the definition of "Interest Period", the duration of each Interest Period applicable to the Committed Advances comprising a Committed Loan shall be as specified in the applicable Notice of Borrowing or Notice of Conversion/Continuation. The Borrower may elect a subsequent Interest Period to be applicable to any Committed Loan by giving a Notice of Conversion/Continuation with respect to such Committed Loan in accordance with Section 2.3(e). (b) If the Agent does not receive a notice of election pursuant to Section 2.3(e) of duration of a subsequent Interest Period for a Committed Loan comprised of Eurodollar Advances within the applicable time limits specified in said Section 2.3(e), or if, when such notice must be given, a Default or Event of Default exists, the Borrower shall be deemed to have elected to convert such Committed Loan in whole into a Committed Loan comprised of Base Rate Advances on the last day of the then current Interest Period therefor. (c) Notwithstanding the foregoing, the Borrower may not select an Interest Period (i) that would end, but for the provisions of the definition "Interest Period," after the Termination Date, or (ii) which, when added to the number of Interest Periods then applicable, would result in there being, at any one time (and treating all Committed Loans comprised of Base Rate Advances as a single Committed Loan) more than ten Committed Loans outstanding. Section Repayment. The principal amount of all Committed Advances shall be repaid by the Borrower in full on the Termination Date, together with accrued and unpaid interest thereon to such date. Section Interest Rates and Payments of Interest with respect to Committed Loans. (a) Each Base Rate Advance shall bear interest on the outstanding principal amount thereof, for the period from the date such Committed Advance is made until the principal amount thereof is paid or converted to a Committed Advance of a different Type, at a rate per annum equal to the Base Rate, which rate shall change contemporaneously with any change in the Base Rate. Such interest shall be payable on each Interest Payment Date in respect of such Base Rate Advance outstanding from and after the immediately preceding Interest Payment Date to such Interest Payment Date, and upon any prepayment of the principal amount of such Base Rate Advance or conversion of the principal amount (or any portion thereof) into a Committed Advance of a different Type, on the principal amount so prepaid or converted. (b) (i) Each Eurodollar Advance shall bear interest on the outstanding principal amount thereof, for each Interest Period applicable thereto, at a rate per annum equal to the Eurodollar Rate plus the Applicable Margin. Such interest shall be payable on each Interest Payment Date in respect of such Eurodollar Advance. (ii) Additional interest on the unpaid principal amount of each Eurodollar Advance of each Lender shall also be payable from the date of such Eurodollar Advance until such principal amount is paid in full, so long as such Lender shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, at an interest rate per annum equal at all times to the remainder obtained by subtracting (A) the Eurodollar Rate for the Interest Period for such Eurodollar Advance from (B) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such Eurodollar Advance. Such additional interest shall be determined by such Lender and notified to the Borrower through the Agent. Section Committed Loan Notes. The Committed Advances made by each Lender to the Borrower and the obligation of the Borrower to repay such Committed Advances shall be evidenced by, and be repayable in accordance with the terms of, a single Committed Loan Note, made by the Borrower payable to the order of such Lender. Subject to the provisions of Section 12.10, each such Committed Loan Note shall be dated the Agreement Date and be duly and validly executed and delivered by the Borrower. Section Competitive Loan Subfacility. (a) Competitive Loans. The Borrower may, from and after the Effective Date until the Termination Date subject to satisfaction of the conditions to borrowing set forth in Section 5.2, request and each Lender may, in its sole discretion, agree to make Competitive Loans to the Borrower; provided, however, the sum of the principal amounts of Committed Loans outstanding plus Competitive Loans outstanding plus Swingline Loans outstanding shall not at any time exceed the Revolving Credit Facility. Each Competitive Loan shall be not less than $1,000,000 in the aggregate and in integral multiples of $500,000 in excess thereof. (b) Competitive Bid Requests. The Borrower may solicit Competitive Bids by delivery of a Competitive Bid Request substantially in the form of Exhibit F to the Agent by 12:00 noon (Charlotte, North Carolina time) on a Business Day not less than three (3) nor more than ten (10) Business Days prior to the date of a requested Competitive Loan advance. Each Competitive Bid Request (i) shall specify (A) the effective date of the requested Competitive Loan (which shall be a Business Day), (B) the amount of the requested Competitive Loan and (C) the applicable Interest Periods requested, and (ii) shall be accompanied by payment to the Agent for its own account of a fee of $1,500. The Agent shall notify the Lenders of its receipt of a Competitive Bid Request and the contents thereof and invite the Lenders to submit Competitive Bids in response thereto. No more than five (5) Competitive Bid Requests (e.g., the Borrower may request Competitive Bids for no more than five (5) different Interest Periods at a time) shall be submitted at any one time. (c) Competitive Bid Procedure. Each Lender may, in its sole discretion, make one or more Competitive Bids to the Borrower in response to a Competitive Bid Request. Each Competitive Bid must be received by the Agent not later than 10:00 a.m. (Charlotte, North Carolina time) on the proposed date of a Competitive Loan; provided, however, that should the Agent, in its capacity as a Lender, desire to submit a Competitive Bid it shall notify the Borrower of its Competitive Bid and the terms thereof not later than 9:30 a.m. (Charlotte, North Carolina time) on the proposed date of a Competitive Loan. A Lender may offer to make all or part of the requested Competitive Loan and may submit multiple Competitive Bids in response to a Competitive Bid Request. The Competitive Bid shall specify (i) the particular Competitive Bid Request as to which the Competitive Bid is submitted, (ii) the minimum (which shall be not less than $1,000,000 and in integral multiples of $500,000 in excess thereof) and maximum principal amounts of the requested Competitive Loan or Loans which such Lender is willing to make, and (iii) the applicable interest rate or rates and Interest Period or Periods therefor. A Competitive Bid submitted by a Lender in accordance with the provisions hereof shall be irrevocable. The Agent shall promptly notify the Borrower of all Competitive Bids made and the terms thereof. The Agent shall send a copy of each of the Competitive Bids to the Borrower for its records as soon as practicable. (d) Acceptance of Competitive Bids. The Borrower may, in its sole and absolute discretion, subject only to the provisions of this subsection (d), accept or refuse any Competitive Bid offered to it. To accept a Competitive Bid, the Borrower shall give written notification of its acceptance of any or all such Competitive Bids to the Agent by 11:00 a.m. (Charlotte, North Carolina time) on the proposed date of Competitive Loan; provided, however, (i) the failure by the Borrower to give timely notice of its acceptance of a Competitive Bid shall be deemed to be a refusal thereof, (ii) the Borrower may accept Competitive Bids for a particular Interest Period only in ascending order of rates, (iii) the aggregate amount of Competitive Bids accepted by the Borrower shall not exceed the principal amount specified in the Competitive Bid Request, (iv) if the Borrower shall accept a bid or bids made at a particular Competitive Bid Rate, but the amount of such bid or bids shall cause the total amount of bids to be accepted by the Borrower to be in excess of the amount specified in the Competitive Bid Request, then the Borrower shall accept a portion of such bid or bids in an amount equal to the amount specified in the Competitive Bid Request less the amount of all other Competitive Bids accepted with respect to such Competitive Bid Request, which acceptance in the case of multiple bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such bid at such Competitive Bid Rate, and (v) no bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $1,000,000 and integral multiples of $500,000 in excess thereof, except that where a portion of a Competitive Bid is accepted in accordance with the provisions of clause (iv) of this Section 2.8(d), then in a minimum principal amount of $100,000 and integral multiples thereof (but not in any event less than the minimum amount specified in the Competitive Bid), and in calculating the pro rata allocation of acceptances of portions of multiple bids at a particular Competitive Bid Rate pursuant to clause (iv) of this Section 2.8(d), the amounts shall be rounded to integral multiples of $100,000 in a manner which shall be in the discretion of the Borrower. A notice of acceptance of a Competitive Bid given by the Borrower in accordance with the provisions hereof shall be irrevocable. The Agent shall, not later than 12:00 noon (Charlotte, North Carolina time) on the proposed date ofCompetitive Loan, notify each bidding Lender whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate), and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Loan in respect of which its bid has been accepted. In addition, the Agent shall, upon the request of any Lender, provide such Lender with information regarding the range of Competitive Bids submitted by the Lenders in connection with any Competitive Bid Request. (e) Funding of Competitive Loans. Each Lender which is to make a Competitive Loan shall make its Competitive Loan available to the Agent by 2:00 P.M. (Charlotte, North Carolina time) on the date specified in the Competitive Bid Request by deposit in dollars of immediately available funds at the office of the Agent in Charlotte, North Carolina, or at such other address as the Agent may designate in writing. The Agent shall, by 3:00 p.m. (Charlotte, North Carolina time) on the same day, upon fulfillment of the applicable conditions set forth in Article 5, credit the amount so received to the general deposit account of the Borrower with the Agent. (f) Competitive Loan Notes. The Competitive Loans made by each Lender to the Borrower and the obligation of the Borrower to repay such Competitive Loans shall be evidenced by, and be repayable in accordance with the terms of, a single Competitive Loan Note, made by the Borrower payable to the order of such Lender. Subject to the provisions of Section 12.10, each such Competitive Loan Note shall be dated the Agreement Date and be duly and validly executed and delivered by the Borrower. (g) Repayment of Competitive Loans. The principal amount of each Competitive Loan shall be payable on the last day of the Interest Period applicable thereto; provided, however, unless the Borrower shall give notice to the Agent otherwise, the Borrower, subject to the provisions of Section 5.2, shall be deemed to have submitted a Notice of Borrowing as contemplated pursuant to Section 2.3(c), effective on the last day of such Interest Period, with respect to a Committed Loan comprised solely of Base Rate Advances in the amount of a maturing Competitive Loan, the proceeds of which will be used to repay such Competitive Loan. The Agent, in turn, shall promptly notify each Lender of such deemed Notice of Borrowing. (h) Interest on Competitive Loans. Subject to the provisions of Section 4.1, each Competitive Loan shall bear interest at the Competitive Bid Rate applicable thereto. Interest on Competitive Loans shall be payable in arrears on each applicable Interest Payment Date. Section Swingline Loan Subfacility. (a) Swingline Commitment. The Swingline Lender, in its individual capacity, agrees to make Swingline Loans to the Borrower from and after the Agreement Date until the Termination Date (including, without limitation, in connection with reimbursement of drawings of Letters of Credit as contemplated by Section 3.3(b)) subject to satisfaction of the conditions to borrowing set forth in Section 5.2; provided, however, (i) the aggregate principal amount of Swingline Loans outstanding at any time shall not exceed the Swingline Facility and (ii) the sum of the principal amounts of Committed Loans outstanding plus Competitive Loans outstanding plus Swingline Loans outstanding shall not exceed at any time the Revolving Credit Facility. Swingline Loans may be repaid and reborrowed in accordance with the provisions hereof. (b) Swingline Loans. (i) General Terms. Swingline Loans shall be provided by the Swingline Lender to the Borrower on terms and in a manner mutually acceptable to the Swingline Lender and the Borrower. Each Swingline Loan shall bear interest at a rate determined pursuant to Section 2.9(c) and shall have such maturity date as the Swingline Lender and the Borrower shall agree (subject to the terms of the definition of "Interest Period" set forth in Section 1.1 and to the terms of Section 2.9(b)(iv)). (ii) Minimum Amounts. Each Swingline Loan shall be in a minimum principal amount mutually acceptable to the Swingline Lender and the Borrower. (iii) Swingline Loan Note. The Swingline Loans made by the Swingline Lender to the Borrower and the obligation of the Borrower to repay such Swingline Loans shall be evidenced by, and be repayable in accordance with the terms of, a single Swingline Loan Note, made by the Borrower payable to the order of the Swingline Lender. The Swingline Loan Note shall be dated the Agreement Date and be duly and validly executed and delivered by the Borrower. (iv) Repayment of Swingline Loans. The principal amount of each Swingline Loan shall be payable on the earlier of (A) the maturity date agreed to by the Swingline Lender and the Borrower with respect to such Swingline Loan (which maturity date shall not be a date more than seven (7) Business Days from the date of advance thereof) or (B) the Termination Date; provided, however, that the Swingline Lender may, at any time, in its sole discretion, by written notice to the Borrower and the Lenders, demand repayment of its Swingline Loans, and such demand shall be deemed to have been given one (1) Business Day prior to the Termination Date and on the date of the occurrence of any Event of Default described in Section 10.1(g) or (h) and upon acceleration of the indebtedness hereunder and the exercise of remedies in accordance with the provisions of Section 10.2. Any such demand (or deemed demand) for repayment of the Swingline Loans shall be deemed to constitute a Notice of Borrowing as contemplated pursuant to Section 2.3(d), effective on the date of such demand (or deemed demand), with respect to a Committed Loan comprised solely of Base Rate Advances in the aggregate principal amount of all outstanding Swingline Loans. The Agent, in turn, shall promptly notify each Lender of such deemed Notice of Borrowing. Each Lender shall pay to the Agent, for the account of the Swingline Lender's Domestic Lending Office or such other office as the Swingline Lender may instruct, an amount equal to such Lender's Commitment Percentage (determined before giving effect to any termination of the Commitments pursuant to Section 10.2) of the aggregate principal amount of all such outstanding Swingline Loans, in immediately available funds, on the date demand for repayment of the Swingline Loans is made (or deemed made as provided above) by the Swingline Lender if notice of such demand (or deemed demand) is given by the Swingline Lender to the Lenders at or prior to 12:00 noon (Charlotte, North Carolina time) or, if notice of such demand (or deemed demand) is given by the Swingline Lender to the Lenders after 12:00 noon (Charlotte, North Carolina time), then not later than 12:00 noon (Charlotte, North Carolina time) on the next Business Day, together with interest on such amount at the Federal Funds Effective Rate for each day from and including the date of the giving of notice of such demand (or deemed demand) by the Swingline Lender to the Lenders to but excluding the date of payment by such Lender. If the applicable conditions to borrowing set forth in Section 5.2 are satisfied, each such payment by a Lender pursuant to this Section 2.9(b)(iv) shall constitute a Committed Advance which is a Base Rate Advance by such Lender under the Revolving Credit Facility as of the date of demand for repayment of the Swingline Loans was made (or deemed made as provided above) by the Swingline Lender, and each Lender hereby irrevocably agrees to make its Committed Advance of each Committed Loan in connection with any such demand for repayment of the Swingline Loans by the Swingline Lender in the amount, in the manner and on the date specified above notwithstanding (I) the amount of such Committed Loan may not comply with the minimum amount for Committed Loans otherwise required hereunder or (II) failure of any such request or deemed request for such Committed Loan to be made by the time otherwise required under Section 2.3. If the applicable conditions to borrowing set forth in Section 5.2 are not satisfied, each such payment by a Lender pursuant to this Section 2.9(b)(iv) shall constitute the purchase of participations by such Lender in the then outstanding Swingline Loans; provided, however, that all interest payable on the Swingline Loans shall be for the account of the Swingline Lender until the date as of which any such participation is purchased. Each Lender acknowledges and agrees that its obligation to pay an amount equal to its Commitment Percentage of the principal amount of all outstanding Swingline Loans upon demand (or deemed demand) for repayment thereof by the Swingline Lender as provided above shall at all times and in all events be absolute, unconditional and irrevocable and in each case shall be made without counterclaim, deduction or set-off by such Lender. Without limiting the generality of the foregoing, each Lender's obligation to pay its ratable share of the principal amount of all outstanding Swingline Loans upon any demand (or deemed demand) for repayment thereof by the Swingline Lender as provided above shall not be affected by: (a) any failure or inability of the Borrower to satisfy the applicable conditions to borrowing set forth in Section 5.2, (b) any lack of validity or enforceability of this Agreement or any of the other Loan Documents, (c) the occurrence of any Default or Event of Default, or (d) the Agent's failure to notify the Lenders of the issuance of any Letter of Credit. The Borrower hereby irrevocably instructs the Agent to disburse the proceeds of any Committed Advances or any payments for participations made as provided above in this Section 2.9(b)(iv) to the Swingline Lender. Proceeds of Committed Advances made pursuant this Section 2.9(b)(iv) shall be applied to the repayment of the Swingline Loans. (c) Interest on Swingline Loans. Subject to the provisions of Section 4.1, Swingline Loans shall bear interest at a per annum rate equal to, at the Borrower's election, either (i) a rate equal to the Variable CD Rate (which rate shall change contemporaneously with any change in the Variable CD Rate) plus the Applicable Margin or (ii) such other rate as may be quoted by the Swingline Lender to the Borrower in the sole discretion of the Swingline Lender and accepted by the Borrower at or promptly following the time of such quote. Interest on Swingline Loans shall be payable in arrears on each applicable Interest Payment Date. Section Extension of Commitments. The Borrower may request that the Termination Date be extended for successive periods of one year, by notice to the Agent given not later than 14 months (nor earlier than 15 months) prior to the then effective Termination Date. The Agent will promptly notify each Lender of any such request and, if such extension request is agreed to in writing by all Lenders, will use reasonable efforts to notify the Borrower that such extension has been approved not later than 13 months prior to the then effective Termination Date. ARTICLE LETTER OF CREDIT FACILITY Section Letters of Credit. The Bank, subject to satisfaction of the conditions to borrowing set forth in Section 5.2, shall issue the Alabama Letter of Credit, and, in addition, any Lender in its sole discretion may, with the consent of the Agent, which consent shall not be unreasonably withheld, issue, at any time after the Effective Date until the date five Business Days prior to the Termination Date subject to satisfaction of the conditions to borrowing set forth in Section 5.2, a Letter of Credit for the account of the Borrower or a Subsidiary Guarantor, naming the Borrower or such Subsidiary Guarantor as the account party, provided that (i) the Letter of Credit Obligations at any time outstanding shall not exceed the Letter of Credit Facility, (ii) the Letter of Credit Obligations at any time outstanding with respect to all Letters of Credit other than the Alabama Letter of Credit shall not exceed $25,000,000, (iii) the sum of the principal amounts of Committed Loans outstanding plus Competitive Loans outstanding plus Swingline Loans outstanding shall not exceed at any time the Revolving Credit Facility (in each case, after giving effect to issuance of any requested Letter of Credit), and (iv) no Letter of Credit shall have a stated expiration date later than the first to occur of (x) the fifth Business Day prior to the Termination Date in effect on the date of issuance of such Letter of Credit and (y) except for the Alabama Letter of Credit, the first anniversary of the date of issuance of such Letter of Credit. Each Application shall provide for the unconditional obligation, without regard to any defense or claim or counterclaim against the beneficiary of the related Letter of Credit of the Borrower or Subsidiary Guarantor the account party thereon, to reimburse on demand the Issuer of such Letter of Credit for any amount drawn under such Letter of Credit and, in respect of standby Letters of Credit, for fees consistent with Section 4.15(c). The Borrower hereby agrees with each Issuer, for its benefit and for the benefit of the Agent and the Lenders, that the Borrower shall be obligated to perform the reimbursement and other payment Obligations of each Subsidiary Guarantor named as the account party in any Letter of Credit, not as a guarantor or surety, but as a primary obligor under the related Application to the same extent as the Subsidiary Guarantor named therein. Section Purchase and Sale of Participations. Subject to the terms and conditions of this Agreement, effective the date of issuance of each Letter of Credit (or, as to each Existing Letter of Credit, effective the Effective Date), the Issuer thereof hereby sells to each Lender, and each Lender hereby purchases from such Issuer, an undivided participating interest equal to its Commitment Percentage in all of such Issuer's right, title and interest in and to such Letter of Credit and such Issuer's obligations thereunder, together with all of such Issuer's right, title and interest in and to the related Application (but excluding certain fees and payments referred to in Section 3.4). Each Lender acknowledges and agrees that its obligation to pay an amount equal to its Commitment Percentage of all draws under each Letter of Credit as hereinafter provided shall at all times and in all events be absolute, unconditional and irrevocable and in each case shall be made without counterclaim, deduction or setoff by such Lender. Without limiting the generality of the foregoing, each Lender's obligation to pay its ratable share of any drawing under a Letter of Credit to the Agent for the account of the Issuer thereof shall not be affected by: (a) any failure or inability of the Borrower to satisfy the applicable conditions to borrowing set forth in Section 5.2, (b) any lack of validity or enforceability of this Agreement or any of the other Loan Documents, (c) any draft, certificate or any other document presented under the Letter of Credit upon which payment has been made in good faith and according to its terms proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect, (d) the surrender or impairment of any collateral or any other security for the reimbursement obligation of the Borrower under such Letter of Credit, (e) the occurrence of any Default or Event of Default, or (f) the Agent's failure to notify the Lenders of the issuance of any Letter of Credit. Section Unreimbursed Draws Under Letters of Credit. (a) Each Issuer shall promptly notify the Agent upon the occurrence of any drawing under a Letter of Credit of the date and amount of such drawing, the remaining amount, if any, available to be drawn under such Letter of Credit, and whether the amount of such drawing has been reimbursed to the Issuer by the Borrower or the Subsidiary Guarantor named as the account party therein. (b) Each notice from an Issuer pursuant to subsection (a) above to the effect that a drawing has not been reimbursed in full shall constitute a request by the Borrower for a Swingline Loan from the Swingline Lender in the unreimbursed amount of such drawing, unless the sum of the unreimbursed amount of such drawing plus the principal amount of all outstanding Swingline Loans (prior to giving effect to a Swingline Loan relating to the unreimbursed amount of such drawing) exceeds the Swingline Facility. Any Swingline Loan made in order to reimburse the Issuer for the unreimbursed amount of a drawing under any Letter of Credit as contemplated by this subsection (b) shall be on such terms as are mutually acceptable to the Swingline Lender and the Borrower and shall be subject to all other terms, conditions and limitations set forth in Section 2.9, including, without limitation, satisfaction of the conditions to borrowing set forth in Section 5.2. (c) (i) If the unreimbursed amount of a drawing under any Letter of Credit is not, for any reason, reimbursed to the Issuer with proceeds of a Swingline Loan pursuant to subsection (b) above, each notice pursuant to subsection (a) above from an Issuer to the effect that a drawing has not been reimbursed in full shall constitute a Notice of Borrowing as contemplated pursuant to Section 2.3(b) with respect to a Committed Loan comprised solely of Base Rate Advances in the unreimbursed amount of such drawing. The Agent, in turn, shall promptly notify each Lender of its receipt of such deemed Notice of Borrowing. (ii) Each Lender shall pay to the Agent, for the account of such Issuer's Domestic Lending Office or such other office as such Issuer may instruct, an amount equal to such Lender's Commitment Percentage (determined before giving effect to any termination of the Commitments pursuant to Section 10.2) of such unreimbursed drawing, in immediately available funds, on the date notice is given by the Agent if such notice is given at or prior to 12:00 noon (Charlotte, North Carolina time) or, if notice is given after 12:00 noon (Charlotte, North Carolina time), then not later than 12:00 noon (Charlotte, North Carolina time) on the next succeeding Business Day, together with interest on such amount at the Federal Funds Effective Rate for each day from and including the date of such drawing to but excluding the date of payment by such Lender. (iii) (A) If the applicable conditions to borrowing set forth in Section 5.2 are satisfied, each such payment by a Lender pursuant to Section 3.3(c)(ii) shall constitute a Committed Advance which is a Base Rate Advance by such Lender under the Revolving Credit Facility as of the date the unreimbursed drawing was paid by the Issuer, or (B) if the applicable conditions to borrowing set forth in Section 5.2 are not satisfied, each such payment pursuant to Section 3.3(c)(ii) shall constitute Obligations, payable on demand by the Borrower, and shall bear interest at the rate set forth in Section 4.1 from the date on which the unreimbursed drawing was paid by the Issuer until such Obligations are paid in full. (d) The Borrower hereby irrevocably instructs the Agent to disburse the proceeds of any Swingline Loans, Committed Advances or payments made pursuant to subsections (b) or (c), as the case may be, to the applicable Issuer, on behalf of the Borrower, to be applied to the reimbursement obligation under the related Letter of Credit and Application, but only the making of Swingline Loans or Committed Advances shall be deemed to satisfy the Borrower's reimbursement obligation to the Issuer under such Letter of Credit and Application; provided, that the Issuer's rights and remedies in respect of any collateral for the Borrower's Obligations under the Application shall remain unaffected by any payments under Section 3.3(c)(ii) that are subject to Section 3.3(c)(iii)(B), subject to the requirements of Section 3.4; and provided, further, that any amounts paid to the Agent for the account of the Lenders for application to demand Obligations arising pursuant to Section 3.3(c)(iii)(B) shall also reduce, dollar-for-dollar, any claim for reimbursement by the Issuer of such Letter of Credit under the Application. Section Sharing of Payments and Risk. (a) Each Issuer shall remit to the Agent, for the ratable account of the Lenders for application to the Obligations (and, if applicable, specifically for application to the demand Obligations arising under Section 3.3(c)(iii)(B)) all monies received by such Issuer as payments under or proceeds of collateral securing any Application or Letter of Credit, other than (x) documentation, negotiation, cable, amendment and other similar fees and charges, if any, customarily imposed by such Issuer in connection with the issuance of similar letters of credit and (y) the portion of any standby Letter of Credit fee expressly provided in Section 4.15(c) to be retained by the Issuer; provided, however, that the Issuer may receive and retain any amounts paid to it by or on behalf of the Borrower or the named account party in reimbursement of drawings under a Letter of Credit if and to the extent that no payments under Section 3.3(b) or (c)(ii) have been made by the Lenders in respect of such reimbursement obligation prior to the receipt thereof by the Issuer. Such monies shall include, without limitation, but subject to the preceding sentence, fees paid by the Borrower or the named account party under an Application for a standby Letter of Credit and payments by the Borrower or the named account party to the Issuer in reimbursement for drafts or drawings paid by such Issuer under a Letter of Credit, and shall be remitted by the Issuer in the same type of funds received by the Issuer, on the day of the Issuer's receipt thereof if received on or prior to 12:00 noon (Charlotte, North Carolina time) or, if received after 12:00 noon (Charlotte, North Carolina time), then not later than 12:00 noon (Charlotte, North Carolina time) on the next succeeding Business Day. (b) Each Lender shall share ratably in all risks associated with any Applications and Letters of Credit (including, without limitation, the risk that any fee associated with a Letter of Credit is not paid when due) to the extent of its participation hereunder. An Issuer shall have no obligation to pay any Lender such Lender's share of any payments under or relating to an Application or Letter of Credit until such Issuer actually receives payment thereof. At the time an Issuer receives any funds for application to payment of any amounts (other than the fees specified above payable to the Issuer only or amounts in reimbursement of drawings in respect of which no payments under Section 3.3(b) or (c)(ii) have been made) under or relating to such Application or Letter of Credit, whether through payment by the Borrower, from any other obligor thereunder, offset, counterclaim or otherwise (but excluding payments made by the Lenders), such Issuer will pay to the Agent, for the ratable account of the Lenders, such amount in the same type of funds received by the Issuer. If an Issuer is ever required for any reason to refund any such payment, each Lender agrees to refund to the Agent, for the account of such Issuer, promptly upon such Issuer's request, such Lender's ratable share of such payment, together with such Lender's ratable share of interest or penalties, if any, payable by the Issuer in connection with the refund made by the Issuer. In the event that an Issuer is not reimbursed by the Borrower in respect of any drawing under a Letter of Credit issued by such Issuer and with regard to which it has been determined by a final, unappealable decision of a court having jurisdiction in the matter that the Borrower is not required to reimburse the Issuer, then the Issuer shall refund to each Lender any amount previously paid by such Lender to the Issuer with respect to such unreimbursed drawing. Section Administration of Letters of Credit and Credit Documents. As between each Issuer, the Lenders and the Agent: (a) (i) After the issuance of a Letter of Credit, no Issuer will reduce any principal, interest or fees reimbursable or payable under the related Application or postpone any date fixed for the payment of such principal, interest or fees without the prior written consent of all of the Lenders and no Issuer will increase the Stated Amount of any Letter of Credit without the consent of the Agent, which consent shall not be unreasonably withheld, and (ii) subject to the provisions of Section 3.5(a)(i), an Issuer may change, modify, waive or amend the terms of any Letter of Credit or Application so long as such Letter of Credit or Application, as amended, complies with the requirements of Section 3.1; provided, however, that if any Default or Event of Default shall have occurred and be continuing, no Issuer will, without the prior written consent of all of the Lenders, change, modify, waive or amend the terms of any Letter of Credit or Application, except (A) to the extent to which such Issuer is specifically required to do so by the terms thereof, or (B) to waive immaterial nonconformity of documents presented as a condition to draws. (b) An Issuer shall have no duty (i) to exercise any right, power, remedy or privilege granted to it under or relating to a Letter of Credit or Application, (ii) to ascertain whether any default under such Application has occurred and is continuing or otherwise to inquire into the performance or observance on the part of the Borrower or named account party of any term, covenant, condition or agreement to be performed or observed by it, or (iii) to take or not to take any action under or relating to a Letter of Credit or Application (other than as specifically required to do so by the terms thereof). (c) An Issuer shall not be obligated (i) to extend or otherwise amend or modify a Letter of Credit (except to the extent such Issuer is specifically required to do so by the terms thereof) or any payment terms relating to any principal, interest or fees reimbursable under an Application; or (ii) to execute any amendment or modification of a Letter of Credit or Application to the extent such amendment or modification would have an adverse effect on the Issuer. (d) Each Issuer will notify the Agent promptly of its issuance of each approved Letter of Credit, including the named account party, Stated Amount, expiration date, name of the beneficiary, and type (whether standby or documentary) of such Letter of Credit, and the Agent will notify all Lenders not less frequently than quarterly of the Letters of Credit outstanding from time to time. Section Exoneration. (a) It is understood and agreed that each Lender has made and shall continue to make its own credit determinations and analyses to enter into the transactions contemplated hereby based upon such information as such Lender may deem sufficient and not based on any statements or representations by an Issuer or the Agent. It is understood and agreed that the sales of participations to the Lenders in Letters of Credit and related Applications, collateral and other Obligations are made without recourse to any Issuer and that no Issuer makes any representation or warranty of any kind to any Lender and shall not be responsible to any Lender for (i) the due execution, legality, validity, enforceability, genuineness, sufficiency or collectability of any Application, (ii) any representation, warranty or statement made in or in connection with any Application, (iii) the financial condition or creditworthiness of the Borrower or any named account party, (iv) the performance of or compliance with any of the terms or provisions of any Application on the part of the Borrower or any named account party or of any Letter of Credit on the part of the beneficiary thereof, or (v) inspecting any of the property, books or records of the Borrower or any named account party. (b) No Issuer nor any of its officers, directors, employees, agents or attorneys shall be liable for any mistake, error of judgment or action taken or omitted to be taken in connection with a Letter of Credit or an Application, except for its or their own gross negligence or willful misconduct. An Issuer may consult with legal counsel (including counsel for the Borrower, the named account party, if different, and the beneficiary under the applicable Letter of Credit), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it (x) in accordance with the advice of its counsel or (y) except as may be otherwise provided in the Letter of Credit or related Application, in connection with the applicable Letter of Credit or Application pursuant to any notice, consent, certificate or other writing received by such Issuer and believed by it in good faith to be genuine. An Issuer shall incur no liability under or in respect of an Application or Letter of Credit or any document relating thereto, to any other Lender or, except as may be otherwise provided in the Letter of Credit or related Application, to the Borrower or other named account party, by acting upon any notice, consent, certificate or other instrument or writing (which may be by facsimile, telegram, cable or telex) believed by it in good faith to have been delivered or made by an authorized Person. An Issuer and its subsidiaries and affiliates may engage in any kind of banking or trust business with any obligor under an Application without liability or obligation to account to the Lenders therefor, except as set forth herein. Section Cash Collateral; Supporting Letters of Credit. If, notwithstanding the provisions of Section 3.1, any Letter of Credit is outstanding when this Agreement is terminated (including, without limitation, any termination of the Commitments pursuant to Section 10.2) or when an Event of Default shall have occurred and be continuing, then on or prior to such Termination Date or on demand by the Agent after the occurrence and during the continuation of such Event of Default, the Borrower shall deposit with the Agent, for the benefit of the Issuer and for the ratable benefit of the Lenders, with respect to each Letter of Credit then outstanding, Cash Collateral in an amount equal to the sum of the Stated Amount of such Letter of Credit, plus the amount of any unreimbursed drawings thereunder, plus the amount of any fees, charges, and other amounts which may become payable to such Issuer under such Letter of Credit or the related Application for application to the reimbursement and other Obligations of the Borrower thereunder. The Borrower may, so long as no Event of Default has occurred and is continuing, in lieu of making such deposit of Cash Collateral with respect to any such Letter of Credit, arrange for the issuance of a standby letter of credit, naming the Issuer of such Letter of Credit as the beneficiary, and otherwise in form and substance reasonably satisfactory to such Issuer, or make such other arrangements with such Issuer as shall, in any event, cause such Issuer to repurchase from each Lender such Lender's participation in such Letter of Credit and release the Agent and each Lender from any and all obligation in respect of such Letter of Credit, by a written instrument in form and substance reasonably satisfactory to the Agent and each Lender, and cause such instrument to be delivered to the Agent and each Lender, duly executed by such Issuer. At the Borrower's request, but subject to the Agent's reasonable approval, the Agent shall invest any Cash Collateral consisting of cash or any proceeds of Cash Collateral consisting of cash in Permitted Investments of the types described in clauses (i), (ii) and (iii) of paragraph (a) of the definition thereof, and any commissions, reasonable expenses and penalties reasonably incurred by the Agent in connection with any investment and redemption of such Cash Collateral shall be Obligations and may be paid out of the proceeds of any earnings received by the Agent from the investment of such Cash Collateral or out of such cash itself. The Agent makes no representation or warranty as to, and shall not be responsible for, the rate of return, if any, earned on any investment of any Cash Collateral. Any earnings on such Cash Collateral shall be held as additional Cash Collateral on the terms set forth in this Section 3.7. If, after all Letters of Credit outstanding on the Termination Date have expired and all reimbursement Obligations of the Borrower thereunder and under the related Applications have been paid in full, any other Obligations remain unpaid, any remaining Cash Collateral may be applied to pay such Obligations in such order as the Agent may determine, and any Cash Collateral remaining after the indefeasible payment in full of all Obligations shall promptly be paid to the Borrower or to whomever may be legally entitled thereto. ARTICLE DEFAULT INTEREST RATE; PREPAYMENTS; GENERAL PROVISIONS Section Default Interest Rate. Any amount of principal of any Loan which is not paid when due (whether at maturity, by reason of acceleration or otherwise) and, to the extent permitted by Applicable Law, overdue interest and fees or any other amounts payable hereunder or under the Notes shall bear interest from and including the due date thereof until paid, compounded daily and payable on demand, at a rate per annum equal to (i) if such due date occurs prior to the end of the Interest Period for such Loan, 2% above the interest rate applicable to such Loan for such Interest Period until the expiration of such Interest Period, and thereafter, 2% above the Base Rate, and (ii) in all other cases, 2% above the rate then applicable to Base Rate Advances. Section Conversion/Continuation. Provided that no Default or Event of Default shall have occurred and be continuing, the Borrower may convert or continue all or any part (subject to the restrictions applicable to Committed Loans comprised of each Type of Committed Advance as set forth in Section 2.1 and to the provisions of Sections 2.4 and 4.5) of any outstanding Committed Loan comprised of Committed Advances of one Type (a) into a Committed Loan or Committed Loans comprised of Committed Advances of any other Type provided for in this Agreement or (b) as a Committed Loan or Committed Loans comprised of Committed Advances of the same Type, in the same aggregate principal amount, on any Business Day (which, in the case of a conversion or continuation of a Committed Loan comprised of Eurodollar Advances, shall be the last day of the Interest Period applicable to such Committed Advances), upon notice (which notice shall be irrevocable) given in accordance with Section 2.3(e). Competitive Loans and Swingline Loans may not be converted or continued. Section Reduction of Commitments. (a) Voluntary Reductions. The Borrower shall have the right, upon at least three Business Days' notice to the Agent, to terminate in whole or permanently reduce ratably in part the unused portions of the Commitments of the Lenders, provided that each partial reduction shall be in the aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof. The Agent shall promptly notify each of the Lenders of its receipt of any notice pursuant to this Section 4.3(a). (b) Mandatory Reductions. (i) The Commitments of the Lenders automatically shall be reduced ratably on the first to occur of (A) the date that the Alabama Letter of Credit is fully drawn, (B) the expiration date of the Alabama Letter of Credit and (C) the date that the Alabama Letter of Credit is returned to the Bank for cancellation, such reduction to be in an amount (rounded downwards, if necessary, to the nearest whole multiple of $500,000) equal to the undrawn amount of the Alabama Letter of Credit as of such date. (ii) The Commitments of the Lenders automatically shall be reduced ratably by an amount equal to the amount of any prepayment of principal of the Committed Loans made pursuant to Section 4.4(a)(ii). Section Prepayments. (a) Mandatory. (i) If at any time the sum of the principal amounts of Committed Loans outstanding plus Competitive Loans outstanding plus Swingline Loans outstanding shall exceed the Revolving Credit Facility, then the Borrower shall prepay so much of the Loans as shall be necessary to eliminate such excess, together with accrued and unpaid interest on the principal amount prepaid to the date of prepayment. (ii) If at any time on or after the Agreement Date the Borrower or any of its Subsidiaries shall receive Net Disposition Proceeds (other than in connection with the sale by the Borrower prior to the Agreement Date of the Harper Brothers Business Unit) which in the aggregate exceed $25,000,000, then the Borrower shall promptly prepay the Loans by an amount equal to such excess, together with accrued and unpaid interest on the principal amount prepaid to the date of prepayment. (iii) Amounts prepaid pursuant to clauses (i) and (ii) above shall be applied first to the Swingline Loans (first to Swingline Loans bearing interest at a rate based on the Variable CD Rate and then to Swingline Loans bearing interest at a fixed rate (in chronological order of the occurrence of the last days of the Interest Periods applicable thereto)), second to the Committed Loans (first to Base Rate Advances and then to Eurodollar Advances (in chronological order of the occurrence of the last days of the Interest Periods applicable thereto)) and third to the Competitive Loans (in chronological order of the occurrence of the last days of the Interest Periods applicable thereto). (b) Optional. (i) The principal amount of each Committed Loan comprised of Base Rate Advances may be prepaid, in whole or from time to time in part, together with accrued and unpaid interest on the principal amount prepaid to the date of prepayment, by the Borrower, at any time, without premium or penalty, on not less than one Business Day's prior notice to the Agent specifying the Committed Loan to be prepaid, the date of prepayment and the principal amount to be prepaid, and if such notice is given, such prepayment shall be made on the date specified in such notice. The Agent shall promptly notify each of the Lenders of its receipt of any notice pursuant to this Section 4.4(b)(i). The principal amount of each Committed Loan comprised of Eurodollar Advances may be prepaid, in whole or in part by the Borrower, without premium or penalty, on the last day of the Interest Period applicable to such Committed Advances, upon notless than three Business Day's notice, to the Agent, specifying the Committed Loan to be prepaid, the last day of the Interest Period applicable to the Committed Advances comprising such Committed Loan and the principal amount to be prepaid, and if such notice is given, such prepayment shall be made on the last day of the Interest Period specified in such notice. Amounts prepaid on the Committed Loans pursuant to this Section 4.4(b)(i) may be reborrowed in accordance with the provisions hereof. (ii) The principal amount of each Swingline Loan bearing interest at a rate based on the Variable CD Rate may be prepaid, in whole or from time to time in part, together with accrued and unpaid interest on the principal amount prepaid to the date of prepayment, by the Borrower, at any time, without premium or penalty, on not less than one Business Day's prior notice to the Agent specifying the Swingline Loan to be prepaid, the date of prepayment and the principal amount to be prepaid, and if such notice is given, such prepayment shall be made on the date specified in such notice. Except as otherwise provided in Section 2.9(b)(iv) and Section 4.4(a), Swingline Loans bearing interest at a fixed rate may not be prepaid. Amounts prepaid on the Swingline Loans pursuant to this Section 4.4(b)(ii) may be reborrowed in accordance with the provisions hereof. (iii) Except as otherwise provided in Section 4.4(a), Competitive Loans may not be prepaid. Section Changed Circumstances. (a) If the introduction of or any change in or in the interpretation of (in each case, after the date hereof) any law or regulation makes it unlawful, or any central bank or other governmental authority asserts, after the date hereof, that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Advances or to fund or maintain Eurodollar Advances hereunder, the Agent shall notify the Borrower of such event and the right of the Borrower to select Eurodollar Advances for any subsequent Committed Loan or in connection with any subsequent conversion of any Committed Loan shall be suspended until such Lender shall notify the Agent that the circumstances causing such suspension no longer exist or such Lender shall cease to be a party hereto, and the Borrower shall forthwith prepay in full all Eurodollar Advances then outstanding, with interest accrued thereon, unless the Borrower, within three Business Days of such notice from the Agent, requests the conversion of all Eurodollar Advances then outstanding into Base Rate Advances in accordance with Sections 2.3(e) and 4.2; provided, that if the date of such repayment or proposed conversion is not the last day of the Interest Period applicable to such Eurodollar Advances, the Borrower shall also pay any amount due pursuant to Section 4.8. (b) If the Majority Lenders shall, at least one Business Day before the date of any requested Committed Loan or the date of any conversion or continuation of any existing Committed Loan (each such Committed Loan requested to be made, or as such Committed Loan is to be converted or continued, a "Pending Committed Loan"), notify the Agent that the Eurodollar Rate for Eurodollar Advances comprising such Pending Committed Loan will not adequately reflect the cost to such Majority Lenders of making or funding their respective Eurodollar Advances, as the case may be, for such Pending Committed Loan, the right of the Borrower to select Eurodollar Advances for such Pending Committed Loan, any subsequent Committed Loan or in connection with any subsequent conversion or continuation of any Committed Loan shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Committed Advance comprising each Pending Committed Loan and each such subsequent Committed Loan requested to be made, continued or converted shall be made or continued as, or converted into, a Base Rate Advance or, upon notice given in accordance with Section 2.3(a) or 2.3(e), as applicable, a Committed Advance of the Type, if any, as to which the Majority Lenders shall not have given the notice provided in this subparagraph (b). (c) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements included in the Eurodollar Reserve Percentage) in or in the interpretation of, in each case after the date hereof, any law or regulation (except to the extent such introduction, change or interpretation affects taxes measured by net income) or (ii) the compliance with any guideline or request (except to the extent such guideline or request affects taxes measured by net income) from any central bank or other governmental authority (whether or not having the force of law) made after the date hereof, there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Advances (other than as separately provided for in Section 4.5(d)), then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost; provided, that no Lender shall be entitled to demand, nor shall the Borrower be obligated to pay, any such amount attributable to a period more than 90 days prior to the date of such demand. (d) If (x) the adoption of or change in, after the date hereof, any law, rule, regulation or guideline regarding capital requirements for banks or bank holding companies, or any change, after the date hereof, in the interpretation or application thereof by any governmental authority charged with the interpretation or administration thereof, or (y) compliance by such Lender with any guideline, request or directive, made or promulgated after the date hereof, of any such entity regarding capital adequacy (whether or not having the force of law), has the effect of reducing the return on a Lender's capital as a consequence of its Commitments hereunder, its maintaining its Committed Advances or other Loans hereunder, or its obligations pursuant to Article 3 in respect of Letters of Credit, to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy immediately before such adoption, change or compliance and assuming the full utilization of such Lender's capital immediately before such adoption, change or compliance) by any amount deemed by such Lender to be material, then such Lender shall promptly after its determination of such occurrence notify the Borrower and the Agent thereof. The Borrower agrees to pay to the Agent, for the account of such Lender, as an additional fee from time to time, on demand by such Lender, such amount as such Lender certifies to be the amount that will compensate it for such reduction in connection with its Commitments hereunder or its obligations pursuant to Article 3 in respect of Letters of Credit; provided, that no Lender shall be entitled to demand, nor shall the Borrower be obligated to pay, any such amount attributable to a period more than 90 days prior to the date of such demand. (e) Before giving any notice pursuant to Section 4.5(a) or making any demand pursuant to Section 4.5(c) or (d) each Lender agrees to use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for such notice or demand, or reduce the amount of such increased cost or reduction in return and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (f) A certificate of the Lender claiming compensation under Section 4.5(c) or (d) shall be conclusive in the absence of manifest error. Such certificate shall set forth the nature of the occurrence giving rise to such compensation, the additional amount or amounts to be paid to it hereunder and the method by which such amounts were determined. In determining such amount, a Lender may use any reasonable averaging and attribution methods. Section Interest Rate Determination. (a) Each Reference Bank agrees to furnish to the Agent timely information for the purpose of determining each Eurodollar Rate, as applicable. If any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks; provided, however, that if fewer than two Reference Banks furnish timely information to the Agent for determining the Eurodollar Rate for Eurodollar Advances comprising any Committed Loan requested or as to which a Notice of Conversion/Continuation has been given, the right of the Borrower to select Eurodollar Advances for such Committed Loan or for any subsequent Committed Loan or to request any subsequent conversion to or continuation of Eurodollar Advances comprising any Committed Loan shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Eurodollar Advance comprising any such Committed Loan shall be or become a Base Rate Advance. (b) The Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.6, and the applicable rate, if any, furnished by each Reference Bank for the purpose of determining the applicable interest rate under Section 2.6(b)(i). Section Manner of Payment. (a) Each payment (including prepayments) by the Borrower on account of the principal of or interest on any Loans or of any other of the Obligations payable to the Agent or to the Agent for the account of any or all Lenders under this Agreement or any Note shall be made not later than 10:00 a.m. (Charlotte, North Carolina time) on the date specified for payment under this Agreement to the Agent at the Agent's Office, in Dollars, in immediately available funds, and shall be made without any setoff, counterclaim or deduction whatsoever. The Borrower shall, at the time it makes any payment under this Agreement or any Note, specify to the Agent the Loans or other Obligations to which such payment is to be applied (and in the event it fails so to specify, or if an Event of Default has occurred and is continuing, the Agent may distribute such payment to the Lenders in such manner as the Majority Lenders or, failing receipt by the Agent of instructions from the Majority Lenders, the Agent may determine to be appropriate, subject to the provisions of Section 4.11 hereof). Any payment received after such time but before 2:00 p.m. (Charlotte, North Carolina time) on such day shall be deemed a payment on such date for the purposes of Section 10.1, but for all other purposes shall be deemed to have been made on the next succeeding Business Day. (b) The Borrower hereby irrevocably authorizes the Agent, each Lender and each Affiliate of each Lender to charge any account of the Borrower maintained with the Agent, such Lender or Affiliate with such amounts (whether in U.S. Dollars or the equivalent in other currencies) as may be necessary from time to time to pay any Obligations (whether or not owed to the Agent or such Lender) which are not paid when due. Section Payments Not at End of Interest Period; Failure to Borrow. If for any reason: (i) any payment of principal with respect to any Eurodollar Advance or Competitive Loan of any Lender or any Swingline Loan bearing interest at a fixed rate is made on any day other than the last day of the Interest Period applicable thereto, or, (ii) after (A) having given a Notice of Borrowing pursuant to Section 2.3(a) with respect to any Committed Loan to be comprised of Eurodollar Advances, (B) having accepted a Competitive Bid pursuant to Section 2.8(d) with respect to any Competitive Loan or (C) having given a notice of borrowing pursuant to Section 2.9(b)(i) with respect to any Swingline Loan bearing interest at a fixed rate, such Committed Loan, Competitive Loan or Swingline Loan, as the case may be, is not made due to the Borrower's failure to fulfill the applicable conditions set forth in Article 5, then the Borrower shall pay to the Agent, for the account of each affected Lender, an amount computed pursuant to the following formula: L = (R - T) x P x D 360 L = amount payable to such Lender R = interest rate for the applicable Eurodollar Advance, Competitive Loan or Swingline Loan T = effective interest rate per annum at which any readily marketable bonds or other obligations of the United States, selected at the Agent's reasonable discretion, maturing on or near the last day of the then applicable or requested Interest Period for the applicable Eurodollar Advance, Competitive Loan or Swingline Loan and in approximately the same amount as the applicable Eurodollar Advance, Competitive Loan or Swingline Loan, can be purchased by the Agent on the day of such payment of principal or failure to borrow P = the amount of principal paid or the amount of the requested Eurodollar Advance, Competitive Loan or Swingline Loan D = the number of days remaining in the Interest Period as of the date of such payment or the number of days in the requested Interest Period The Borrower shall pay such amount upon presentation by the Agent of a statement setting forth the amount and the Agent's calculation thereof pursuant hereto, which statement shall be deemed true and correct absent manifest error. Section Computation of Interest and Fees. Interest and fees payable hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed. If any payment required by this Agreement becomes due on a day that is not a Business Day such payment shall be made on the next succeeding Business Day, and such extension shall be included in computing payments of interest (at the rate applicable on such due date) or facility fee, as the case may be, provided, that if the due date for any payment of principal of any of the Obligations is extended by operation of law, interest shall be payable on such amount of principal for the period of such extension, at the applicable rate set forth in Section 4.1, to the extent permitted by Applicable Law, but in no event at a rate less than the rate applicable to such Obligations on the original due date. Interest shall accrue from and include the date of advance, but exclude the date of payment. Section Termination of Agreement. The Borrower shall have the right, at any time, to terminate this Agreement upon not less than three Business Days' prior written notice to the Agent, which notice shall specify the effective date of such termination. On the date specified in such notice, such termination shall be effected, provided, that the Borrower shall, on or prior to such date, (a) pay to the Agent for the account of the Lenders, in immediately available funds, an amount equal to the outstanding principal amount of all Loans, together with (i) accrued interest thereon, (ii) accrued fees payable pursuant to Section 4.15(b) from the date such fees were last paid through the effective date of termination, (iii) any amounts payable pursuant to Section 12.2 or 12.13, (iv) any amounts payable pursuant to Section 4.5 or 4.8 and (v) any and all other amounts owing to the Agent or any Lender under this Agreement or any Note, and (b) satisfy its Obligations under Section 3.7. Section Ratable Treatment. Each Committed Loan, all payments in respect of participations pursuant to Section 2.9(b)(iv) and all payments pursuant to Section 3.3(c)(ii) shall be made ratably by the Lenders on the basis of their respective Commitments. Each repayment or prepayment of principal and each payment of interest on each Committed Loan or any Obligations in which the Lenders have purchased ratable participations pursuant to Section 2.9(b)(iv) or Section 3.3(c)(iii)(B) and each payment of fees pursuant to Section 4.15(a) or 4.15(b) shall be made to the Agent for the account of the Lenders, in immediately available funds, and shall be distributed by the Agent to the Lenders in like funds ratably (other than amounts payable pursuant to Section 2.6(b)(ii), 4.5(c), 4.5(d) or 4.8) for the account of their respective Applicable Lending Offices, and each payment of any other amount payable to any Lender hereunder or under the Notes or to any Issuer hereunder, shall be made to the Agent in immediately available funds and shall be distributed by the Agent, in like funds, to such Lender for the account of its Applicable Lending Office or to such Issuer, in each case to be applied in accordance with the terms of this Agreement. With respect to Competitive Loans, if the Borrower fails to specify the particular Competitive Loan or Loans as to which any payment or other amount should be applied and it is not otherwise clear as to the particular Competitive Loan or Loans to which such payment or other amounts relate, or any such payment or other amount is to be applied to Competitive Loans without regard to any such direction by the Borrower, then each payment or prepayment of principal on Competitive Loans and each payment of interest or other amount on or in respect of Competitive Loans, shall be allocated pro rata among the relevant Lenders in accordance with the then outstanding amounts of their respective Competitive Loans. Section Sharing of Payments, etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of setoff, receipt of payment under any Subsidiary Guaranty, or otherwise) on account of the Obligations owing to it (other than pursuant to Section 2.6(b)(ii), 4.5(c), 4.5(d) or 4.8) in excess of its ratable share of payments on account of the Obligations obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Obligations owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchases shall be rescinded and each other Lender shall repay to the purchasing Lender the purchase price received by it to the extent of its Commitment Percentage of such recovery together with an amount equal to such other Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 4.12 may, to the fullest extent permitted by law, exercise all its rights of payment (including any right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. Nothing contained in this Section 4.12 shall or shall be deemed (A) to prevent any Issuer from receiving monies from the Borrower or a Subsidiary Guarantor and applying such monies to the Borrower's outstanding reimbursement obligation under any Letter of Credit issued by such Issuer and in respect of which no Swingline Loan pursuant to Section 3.3(b) and no Committed Loan or other payment by the Lenders pursuant to Section 3.3(c)(ii) has been made or (B) to prevent the Swingline Lender from receiving monies from the Borrower or a Subsidiary Guarantor and applying such monies to the Borrower's outstanding Swingline Loans in respect of which no Committed Loan or other payment by the Lenders pursuant to Section 2.9(b)(iv) has been made. Section U.S. Taxes. (a) The Borrower agrees to pay to each Lender that is not a U.S. Person (a "Foreign Lender") such additional amounts as are necessary in order that the net payment of any amount due to such Foreign Lender hereunder, after deduction for or withholding in respect of any U.S. Taxes imposed with respect to such payment (or in lieu thereof, payment of such U.S. Taxes by such Foreign Lender), will not be less than the amount stated herein to be then due and payable, provided that the foregoing obligation to pay such additional amounts shall not apply: (i) to any payment to any Foreign Lender hereunder unless such Foreign Lender is, on the Agreement Date (or on the date it becomes a Lender as provided in Section 12.10) and on the date of any change in the Applicable Lending Office of such Foreign Lender, entitled to submit either a Form 1001 (relating to such Foreign Lender and entitling it to a complete exemption from withholding on all interest to be received by it hereunder in respect of the Obligations) or a Form 4224 (relating to all interest to be received by such Foreign Lender hereunder in respect of the Obligations); and any Foreign Lender that is, on the Agreement Date (or on the date that it becomes a Lender as provided in Section 12.10) and on the date of any change in its Applicable Lending Office, entitled to submit a Form 1001 or a Form 4224 will submit such Form in duplicate to the Borrower, with a copy to the Agent at such time; or (ii) to any U.S. Tax imposed solely by reason of the failure by such Foreign Lender to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity, or connections with the United States of America of such Foreign Lender if such compliance is required by statute or regulation of the United States of America as a precondition to relief or exemption from such U.S. Taxes; and provided further that the Borrower shall have no obligation to pay additional amounts to any Foreign Lender pursuant to this Section 4.13 with respect to any payment to such Foreign Lender made prior to the date that the Borrower has been notified by such Foreign Lender that payments to such Foreign Lender hereunder are or have become subject to deduction for or withholding in respect of any U.S. Taxes. For the purposes of this Section 4.13(a), (1) "Form 1001" shall mean Form 1001 (Ownership, Exemption, or Reduced Rate Certificate) of the Department of the Treasury of the United States of America, (2) "Form 4224" shall mean Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States) of the Department of the Treasury of the United States of America (or in relation to either such Form such successor and related forms as may from time to time be adopted by the relevant taxing authorities of the United States of America to document a claim to which such Form relates), (3) "U.S. Person" shall mean a citizen, national or resident of the United States of America, a corporation, partnership or other entity created or organized in or under any laws of the United States of America or any state thereof or the District of Columbia, or any estate or trust that is subject to Federal income taxation regardless of the source of its income and (4) "U.S. Taxes" shall mean any present or future tax, assessment or other charge or levy imposed by or on behalf of the United States of America that is not imposed on U.S. Persons. (b) Within thirty (30) days after paying any amount to the Agent or any Foreign Lender from which it is required by law to make any deduction or withholding, and within thirty (30) days after it is required by law to remit such deduction or withholding to any relevant taxing or other authority, the Borrower shall deliver to the Agent for delivery to such Foreign Lender evidence reasonably satisfactory to such Foreign Lender of such deduction, withholding or payment (as the case may be). Section Loan Account. (a) Each Lender shall open and maintain on the books of its Applicable Lending Offices a separate loan account in the name of the Borrower. Each such loan account shall show as debits thereto such Lender's Loans made for the account of such Applicable Lending Office to the Borrower under this Agreement, any amounts paid other than as Loans by such Lender to or for the account of the Swingline Lender pursuant to Section 2.9(b)(iv) or to or for the account of any Issuer pursuant to Section 3.3(c)(iii)(B), and, as credits thereto, all payments received by such Lender and applied to principal of such Loans or such other payments, so that the aggregate balance of the loan accounts of the Borrower at all times reflects the principal amount outstanding from such Lender to the Borrower. (b) The Agent shall maintain on its books a control account for the Borrower in which shall be recorded (i) the amount of each disbursement made hereunder to or for the account of the Borrower, (ii) the Stated Amount of each outstanding Letter of Credit, (iii) the amount of any principal or interest due or to become due from the Borrower hereunder, (iv) the amount of any sum received by the Agent hereunder in respect of principal or interest from the Borrower and each Lender's ratable share thereof, and (v) the amount of each payment received by any Issuer from the Borrower or any Subsidiary Guarantor in reimbursement of a payment by such Issuer under any Letter of Credit issued by it. (c) The entries made in the accounts pursuant to paragraphs (a) and (b) shall be prima facie evidence, in the absence of manifest error, of the existence and amounts of theObligations of the Borrower therein recorded and in the case of discrepancy between such accounts, in the absence of manifest error, the accounts maintained pursuant to paragraph (b) shall be controlling. Section Fees. (a) Upfront Fee. The Borrower shall pay to the Agent for the account of each Lender on the Agreement Date, in consideration of the Commitments of the Lenders, an upfront fee in accordance with the terms of a separate letter agreement between the Borrower and the Agent. (b) Facility Fee. The Borrower agrees to pay a facility fee on the average daily amount of each Lender's Commitment (whether used or unused) from (a) the Effective Date in the case of each Lender a party hereto on such date and (b) the effective date specified in the Assignment and Acceptance pursuant to which it becomes a Lender in the case of each other Lender, until the Termination Date at the rate of 0.25% per annum, such facility fee to be payable in arrears on the first day of each January, April, July and October, commencing on October 1, 1994, and on the Termination Date. (c) Letter of Credit Fees. The Borrower shall pay to each Issuer, for such Issuer's own account, in connection with each Letter of Credit issued by such Issuer, all documentation, negotiation, cable, amendment and other similar fees and charges customarily imposed by such Issuer in connection with its issuance of similar letters of credit. If, in connection with the issuance of any documentary Letter of Credit, the Borrower shall be liable to the Issuer for any additional fees not in the nature of reimbursement of expenses incurred or compensation for services performed in administering such Letter of Credit, such fees shall be paid by the Borrower to the Agent for the ratable account of the Lenders. If any standby Letter of Credit (including without limitation the Alabama Letter of Credit) shall be issued, the Borrower shall pay to the Issuer thereof a per annum fee equal to the Applicable Margin plus 0.125% on the daily Stated Amount of any such standby Letter of Credit, payable in arrears on the first day of each January, April, July and October, commencing on October 1, 1994, and on the Termination Date, and the Issuer shall remit to the Agent, for the ratable account of the Lenders (net of such Issuer's Commitment Percentage thereof), the excess of such fee over 0.125% per annum on the Stated Amount of such Letter of Credit for the applicable period; provided, however, the Lenders shall not be entitled to any such fee in respect of a standby Letter of Credit which is an Existing Letter of Credit if such fee has been deemed to be earned during the period prior to the Effective Date (it being understood and agreed by each of the Lenders that any such fee in respect of a standby Letter ofCredit which is an Existing Letter of Credit shall be deemed to be earned evenly throughout the period for which it is paid regardless of when it was paid). (d) Agent Fee. In connection with and in consideration of the ongoing administration of the Facility, the Borrower shall pay to the Agent for its account alone, a fee in accordance with the terms of a separate letter agreement between the Borrower and the Agent. ARTICLE CONDITIONS PRECEDENT Section Conditions Precedent to Initial Loans. The obligations of the Lenders to make the initial Loan or Loans hereunder are subject to the conditions precedent that (a) no action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain, or prohibit, or to obtain substantial damages in respect of, or which is related to or arises out of, this Agreement, or the consummation of the transactions contemplated hereby, or which may have a Materially Adverse Effect on the Borrower or on the Borrower and its Subsidiaries taken as a whole and (b) the Agent shall have received on or before the day of such initial Loan or Loans the following, each dated the Agreement Date (or such recent date as may be acceptable to the Agent), in form and substance satisfactory to the Agent and, as applicable, in sufficient copies (except for the Notes) for each Lender: (i) The Notes to the order of the respective Lenders. (ii) Copies of the certificate or articles of incorporation and by-laws of the Borrower and each Subsidiary Guarantor as in effect on the Effective Date, certified by an Authorized Officer of the Borrower or such Subsidiary Guarantor, as the case may be. (iii) Certified copies of all corporate action, including stockholder approval, if necessary, taken by the Borrower and each Subsidiary Guarantor to authorize the execution, delivery and performance of this Agreement and the Loan Documents to which it is a party and the borrowings and guaranty of the Obligations under this Agreement and the Subsidiary Guaranties. (iv) Certificates of incumbency and specimen signatures with respect to each of the officers of the Borrower and each Subsidiary Guarantor authorized to execute and deliver this Agreement and the Loan Documents on its behalf or any certificate or instrument to be delivered in connection with this Agreement or to request borrowings or Letters of Credit under this Agreement. (v) A certificate evidencing the existence, and where the same may be obtained, the good standing of the Borrower and each Subsidiary Guarantor in the jurisdiction of its incorporation and, if different, the jurisdiction(s) in which its chief executive office and/or principal place of business is located. (vi) A Subsidiary Guaranty, duly executed and delivered by each Significant Subsidiary of the Borrower. (vii) Copies of all the financial statements referred to in Section 6.1(n) and meeting the requirements thereof. (viii) A favorable opinion of Wyche, Burgess, Freeman & Parham, P.A., counsel for the Borrower and each Subsidiary Guarantor which is incorporated in either South Carolina or Delaware, substantially in the form of Exhibit I and opining as to such other matters in connection with this Agreement as the Agent or any Lender may reasonably request. (ix) For each jurisdiction (other than the State of South Carolina and other than Costa Rica) in which any Subsidiary Guarantor is incorporated, a favorable opinion of counsel licensed to practice law in such state and satisfactory to the Agent and its counsel, in a form reasonably acceptable to the Agent and its counsel. (x) An opinion of Moore & Van Allen, PLLC, special counsel for the Agent, substantially in the form of Exhibit J hereto. (xi) Copies of each of the other Loan Documents duly executed by the parties thereto, together with evidence satisfactory to the Agent of the due authorization and binding effect of each such Loan Document on such party. (xii) A certification from the principal officers of the Borrower and any Subsidiary as to such factual matters as shall be requested by the Agent. (xiii) A Consolidated balance sheet and the related Consolidated statements of income and cash flow of the Borrower and its Consolidated Subsidiaries as at April 2, 1994 for the nine-month period ended on such date and the related consolidating balance sheets and statements of income of the Borrower and each of its Consolidated Subsidiaries as of such date and for the portion of the Fiscal Year ended on such date. (xiv) Payment, for the account of each Lender, of the upfront fee described in Section 4.15(a). (xv) Such other documents and instruments as any Lender, acting through the Agent, may reasonably request. Section Conditions Precedent to Each Loan. The obligations of the Lenders to make any Loans (including the initial Loan or Loans) shall be subject to the further conditions precedent that: (a) (i) in the case of any Committed Loan, the Agent shall have received in accordance with the provisions of Section 2.3(a), 2.3(b), 2.3(c) or 2.3(d) a Notice of Borrowing with respect to such Committed Loan; (ii) in the case of any Competitive Loan, the applicable Lender or Lenders shall have received an appropriate notice of acceptance of its related Competitive Bid; and (iii) in the case of any Swingline Loan, the Swingline Lender shall have received an appropriate notice of borrowing in accordance with the provisions of Section 2.9(b)(i) (any Notice of Borrowing for a Committed Loan described in clause (i) above, any notice of acceptance of a Competitive Bid described in clause (ii) above and any notice of borrowing for a Swingline Loan described in clause (iii) above hereinafter being referred to in this Section 5.2 as a "Credit Request"). (b) each Person which has become a Significant Subsidiary since the Effective Date, shall have duly executed and delivered a Subsidiary Guaranty in substantially the form of Exhibit D. (c) on the date of such Credit Request and of the making of the related Loan the following statements shall be true and the Agent shall have received for the account of each Lender a certificate signed by a duly authorized officer of the Borrower, dated the date of such Loan, stating that (and each of the giving of the applicable Credit Request and the acceptance by the Borrower of the proceeds of the related Loan shall constitute a representation and warranty by the Borrower that on the date of such Loan such statements are true): (i) all of the representations and warranties of the Borrower made or deemed to be made under this Agreement are true and correct as of the date of such Loan, both with and without giving effect to the Loans to be made at such time and the application of the proceeds thereof, (ii) no Default or Event of Default exists, and (iii) a Subsidiary Guaranty has been duly executed and delivered, and the conditions precedent set forth in Section 5.1(b)(ii), (iii), (iv), (v), (viii) and (ix) have been satisfied, by each Significant Subsidiary of the Borrower, and (d) the Agent shall have received such other approvals, opinions or documents as any Lender through the Agent may reasonably request. ARTICLE REPRESENTATIONS AND WARRANTIES OF THE BORROWER Section Representations and Warranties. The Borrower represents and warrants to the Agent and to each Lender as follows: (a) Organization; Power; Qualification. Each of the Borrower and each of its Subsidiaries is a corporation, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its properties and to carry on its business as now being and proposed to be conducted hereafter and is duly qualified and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization except for jurisdictions where failure to be so qualified or authorized will not have a Materially Adverse Effect on the Borrower and its Subsidiaries, taken as a whole. (b) Subsidiaries. Schedule 6.1(b) correctly sets forth as of the Agreement Date the name of each Subsidiary of the Borrower, its jurisdiction of incorporation, the name of its immediate parent or parents, and the percentage of its issued and outstanding securities owned by the Borrower or any other Subsidiary of the Borrower and indicating whether such Subsidiary is a Consolidated Subsidiary. Except as set forth on Schedule 6.1(b), as of the Agreement Date, (i) no Subsidiary has issued any outstanding securities convertible into shares of such Subsidiary's capital stock or any outstanding options, warrants or other rights to acquire any shares or securities convertible into such shares, (ii) the outstanding stock and securities of each such Subsidiary are owned by the Borrower or a Wholly Owned Subsidiary of the Borrower, or by the Borrower and one or more of its Wholly Owned Subsidiaries, free and clear of all Liens, warrants, options and rights of others of any kind whatsoever, and (iii) the Borrower has no Subsidiaries. The outstanding stock of the Borrower and each of its Subsidiaries has been duly and validly issued and is fully paid and nonassessable by the issuer. (c) Authorization of Agreement and Loan Documents. The Borrower and each of its Subsidiaries has the right and power, and has taken all necessary corporate action to authorize it, to execute, deliver and perform this Agreement and each of the Loan Documents to which it is a party in accordance with their respective terms. This Agreement and each of the Loan Documents have been, or will be, duly executed and delivered by the duly authorized officers of the Borrower and each Subsidiary a party thereto and each is, or when executed and delivered will be, a legal, valid and binding obligation of the Borrower and each Subsidiary a party thereto, enforceable in accordance with its terms. (d) Compliance of Agreement and Loan Documents with Laws, etc. Except as disclosed in Schedule 6.1(d), the execution, delivery and performance of this Agreement and each of the Loan Documents in accordance with their respective terms and the borrowings hereunder do not and will not, by the passage of time, the giving of notice or otherwise, (i) require any Governmental Approval or violate any Applicable Law relating to the Borrower or any Subsidiary, (ii) conflict with, result in a breach of or constitute a default under the articles or certificate of incorporation or by-laws of the Borrower or any of its Subsidiaries, any material indenture, agreement or other instrument to which any of the Borrower or any of its Subsidiaries is a party or by which it or any of its property may be bound or any Governmental Approval relating to any of the Borrower or any of its Subsidiaries, or (iii) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by any of the Borrower or any of its Subsidiaries. (e) Business. As of the Agreement Date, the Borrower is a holding company and conducts no active business other than providing management services to its subsidiaries. The business of each of the Subsidiaries of the Borrower as of the Agreement Date is as described on Schedule 6.1(e). (f) Compliance with Law; Governmental Approvals. Except as set forth in Schedule 6.1(f), each of the Borrower and each of its Subsidiaries (i) has all Governmental Approvals, including permits relating to Environmental Laws, required by any Applicable Law for it to conduct its business, each of which is in full force and effect, is final and not subject to review on appeal and is not the subject of anypending or threatened attack by direct or collateral proceeding, and (ii) is in compliance with each Governmental Approval applicable to it and in compliance with all other Applicable Law, including all Environmental Laws, relating to the Borrower or such Subsidiary, as the case may be, except for any Governmental Approvals the absence of which and instances of noncompliance which would not, singly or in the aggregate, cause a Default or Event of Default or have a Materially Adverse Effect on the Borrower and its Subsidiaries, taken as a whole, and in respect of which adequate reserves where a reserve is appropriate in accordance with GAAP have been established on the books of the Borrower or such Subsidiary, as appropriate. (g) Titles to Properties. Except as set forth in Schedule 6.1(g), each of the Borrower and each of its Subsidiaries has good, marketable and legal title to, or a valid leasehold interest in, its real properties and valid and legal title to all machinery and equipment and material items of other personal property and assets, except those which have been disposed of in the ordinary course of business or in a manner not in violation of this Agreement or which are subject to Capitalized Leases. (h) Liens. None of the properties and assets of any of the Borrower or any of its Subsidiaries is subject to any Lien, except Permitted Liens. No financing statement under the Uniform Commercial Code of any State constituting a Lien and which names the Borrower or any Subsidiary as debtor is currently filed in any State or other jurisdiction and neither the Borrower nor any of its Subsidiaries has signed any such financing statement or any security agreement authorizing any secured party thereunder to file any such financing statement on or after the Agreement Date, except to perfect or protect Permitted Liens. (i) Indebtedness and Guaranties. Schedule 6.1(i) is a complete and correct listing of all (i) Indebtedness for Money Borrowed (other than Intercompany Indebtedness and other than Indebtedness owed by International Apparel Marketing Corporation to the Borrower or any Subsidiary) and (ii) Guaranties of Indebtedness for Money Borrowed of each of the Borrower and each of its Subsidiaries as of the Effective Date and after the application of the proceeds of the Loans to be made on the Effective Date. Each of the Borrower and each such Subsidiary has performed and is in compliance in all material respects with all of the terms of any such Indebtedness for Money Borrowed and Guaranties of Indebtedness for Money Borrowed involving a principal amount outstanding in excess of $2,500,000, and all instruments and agreements relating thereto, and no default or event of default, or event or condition which with notice or lapse of time or both would constitute such a default or event of default, exists with respect to any such Indebtedness for Money Borrowed or Guaranty of Indebtedness for Money Borrowed. (j) Litigation. Except as set forth on Schedule 6.1(j), there are no actions, suits or proceedings pending (nor, to the knowledge of the Borrower, are there any actions, suits or proceedings threatened, nor is there any basis therefor) against or in any other way relating adversely to or affecting any of the Borrower or any of its Subsidiaries or any of its or their property in any court or before any arbitrator of any kind or before or by any governmental body except actions, suits or proceedings which will not singly or in the aggregate have a Materially Adverse Effect on the Borrower and its Subsidiaries, taken as a whole, and there are no strikes or walkouts in progress relating to any labor contracts to which the Borrower or any of its Subsidiaries is a party which, singly or in the aggregate, will have a Materially Adverse Effect on the Borrower and its Subsidiaries, taken as a whole. (k) Patents. The Borrower and its Subsidiaries own or possess all material patents, patent rights or licenses, patent applications, trademarks, trademark rights, trade names, trade name rights, copyrights and rights with respect to the foregoing which are required to conduct the business of the Borrower and its Subsidiaries as now and presently planned to be conducted without conflict with the rights of others and Schedule 6.1(k) is a list of certain patents and trademarks owned by the Borrower or its Subsidiaries as of the Agreement Date, including all such material patents and trademarks used by the Borrower or any Subsidiary in the conduct of its business. (l) Tax Returns and Payments. All material federal, state and other tax returns of each of the Borrower and its Subsidiaries required by law to be filed have been duly filed, and all material federal, state and other taxes, assessments and other governmental charges or levies upon the Borrower or its Subsidiaries and their property, income, profits and assets which are due and payable have been paid, except any such nonpayment which is at the time permitted under Section 7.6. The charges, accruals and reserves on the books of each of the Borrower and each of its Subsidiaries in respect of federal and state taxes are in the judgment of the Borrower, and in accordance with GAAP, adequate, and the Borrower knows of no reason to anticipate any additional assessments which, singly or in the aggregate, might have a Materially Adverse Effect on the Borrower and its Subsidiaries, taken as a whole. (m) Burdensome Provisions. Neither the Borrower nor any Subsidiary is a party to any indenture, agreement, lease orother instrument, or subject to any charter or corporate restriction, Governmental Approval or Applicable Law, compliance with the terms of which might have a Materially Adverse Effect on the Borrower and its Subsidiaries, taken as a whole, nor, except to the extent permitted pursuant to Section 9.13, is the Borrower or any Subsidiary subject to any contractual restrictions which limit the amount of dividends payable by any Subsidiary. (n) Financial Statements. The Borrower has furnished to the Lenders and the Agent copies of the Consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as at April 2, 1994 and of the related Consolidated statements of income and cash flow for the portion of the 1994 Fiscal Year ended on such date. Such Consolidated financial statements are complete and correct in all material respects, and present fairly in accordance with GAAP the Consolidated financial position of the Borrower and its Consolidated Subsidiaries as at their date and the results of operations of the Borrower and its Consolidated Subsidiaries for the portion of the Fiscal Year ended on such date. Except as disclosed or reflected in such balance sheet or the notes relating thereto as at such date, and except as disclosed in writing to the Lenders and the Agent prior to the Agreement Date, as of the Effective Date the Borrower and its Consolidated Subsidiaries have no material liabilities, contingent or otherwise, and there are no material unrealized or anticipated losses of the Borrower or its Consolidated Subsidiaries. (o) Adverse Change. Since the date of the latest annual or quarterly financial statements received by the Agent and the Lenders pursuant to Section 8.1 (or, prior to receipt by the Agent and the Lenders of the first financial statements pursuant to Section 8.1 since the date of the financial statements described in Section 6.1(n)), (i) no material adverse change in the business, assets, liabilities, financial condition, results of operations or business prospects of the Borrower and its Subsidiaries, taken as a whole, has occurred, and (ii) no event has occurred or failed to occur which has had, or is likely to have, a Materially Adverse Effect on the Borrower and its Subsidiaries, taken as a whole. (p) ERISA. Schedule 6.1(p) is a complete and correct listing of all Plans of the Borrower and its Subsidiaries in effect on the Agreement Date. Each Plan of the Borrower and its Subsidiaries is in compliance with ERISA in all material respects. No material liability to the PBGC or to a Multi- employer Plan has been, or is expected by the Borrower or any Subsidiary to be, incurred by the Borrower or such Subsidiary. (q) Absence of Defaults. Neither the Borrower nor any Subsidiary is in default under its articles of incorporation or certificate of incorporation or by-laws and no event has occurred, which has not been remedied, cured or waived, (i) which constitutes a Default or an Event of Default, or (ii) which constitutes, or which with the passage of time or giving of notice or both would constitute, a default or event of default by the Borrower or any Subsidiary under any material agreement (other than this Agreement) or judgment, decree or order to which the Borrower or any Subsidiary is a party or by which the Borrower or any Subsidiary or any of their respective properties may be bound, except, in the case only of any such agreement, for alleged defaults which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves where a reserve is appropriate in accordance with GAAP have been established on the books of the Borrower or such Subsidiary, as the case may be, and except for defaults that have been disclosed and consented to by the Majority Lenders. (r) Accuracy and Completeness of Information. All written information, reports and other papers and data furnished by the Borrower or any of its Subsidiaries to the Agent or any Lender, were or will be, at the time the same were or are so furnished, complete and correct in all material respects, to the extent necessary to give the recipient a true and accurate knowledge of the subject matter. As of the Effective Date, no fact is known to the Borrower which has had, or may in the future have (so far as the Borrower can foresee), a Materially Adverse Effect upon the Borrower and its Subsidiaries, taken as a whole, which has not been set forth in the financial statements referred to in Section 6.1(n) or in such information, reports or other papers or data or otherwise disclosed in writing to the Agent and each Lender prior to the Agreement Date. No document furnished or written statement made by the Borrower or any of its Subsidiaries to the Agent or any Lender in connection with the negotiation, preparation or execution of this Agreement or any of the Loan Documents contains or will contain any untrue statement of a fact material to the creditworthiness of the Borrower or any Subsidiary or omits or will omit to state a material fact necessary in order to make the statement contained therein not misleading. (s) Solvency. In each case after giving effect to the Indebtedness represented by the Loans and the Letter of Credit Obligations outstanding and to be incurred and the transactions contemplated by this Agreement and each of the Subsidiary Guaranties and assuming full utilization of the Commitments, each of the Borrower and each Subsidiary Guarantor is solvent, having assets of a fair salable value which exceeds the amount required to pay its debts, and each of the Borrower and each of the Subsidiary Guarantors is able to and anticipates that it will be able to meet its debts as they mature and has adequate capital to conduct the business in which it is, or proposes to be, engaged. (t) Federal Regulations. Neither the Borrower nor any Subsidiary is engaged or will engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" (as each of the quoted terms is defined or used in Regulations G and U of the Board of Governors of the Federal Reserve System). Following the application of the proceeds of each Loan hereunder, not more than 25% of the value of the assets of the Borrower only, or of the Consolidated assets of the Borrower and its Consolidated Subsidiaries, will be margin stock. (u) Investment Company Act. Neither the Borrower nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company" (as each of the quoted terms is defined or used in the Investment Company Act of 1940, as amended). Section Survival of Representations and Warranties, etc. All representations and warranties set forth in this Article 6 and all statements contained in any certificate, financial statement, opinion or other instrument delivered by or on behalf of the Borrower or any of its Subsidiaries pursuant to or in connection with this Agreement or any of the Loan Documents (including but not limited to any such made in or in connection with any amendment thereto) shall constitute representations and warranties made under this Agreement. All representations and warranties made under this Agreement shall be made or deemed to be made at and as of the Agreement Date, at the Effective Date and at and as of the date of making each Loan or issuance of each Letter of Credit. All representations and warranties made or deemed to be made under this Agreement shall survive and not be waived by the execution and delivery of this Agreement, any investigation made by or on behalf of the Agent or any Lender, or any borrowing hereunder. ARTICLE AFFIRMATIVE COVENANTS Until the Commitments have been terminated and all the Obligations have been paid in full, unless the Majority Lenders shall otherwise consent in writing, the Borrower will, and will cause each of its Subsidiaries to: Section Preservation of Corporate Existence and Similar Matters. Except as otherwise permitted pursuant to Section 9.7, preserve and maintain its corporate existence, rights, franchises, licenses and privileges in the jurisdiction of its incorporation and qualify and remain qualified as a foreign corporation and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization except where the failure to maintain such corporate existence, rights, franchises, licenses, privileges, qualification or authorization would not, either singly or in the aggregate, have a Materially Adverse Effect on the Borrower and its Subsidiaries, taken as a whole. Section Compliance with Applicable Law. Comply with all Applicable Law, the failure to comply with which would have a Materially Adverse Effect on the Borrower and its Subsidiaries, taken as a whole. Section Maintenance of Property. Protect and preserve all properties, including copyrights, patents, trade names and trademarks, material to its business and maintain in good repair, working order and condition in all material respects all tangible properties, and from time to time make or cause to be made all needed and appropriate repairs, renewals, replacements and additions to such properties, necessary for the conduct of its business, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. Section Conduct of Business. At all times carry on its business in an efficient manner and engage only in businesses in substantially the same fields as the businesses conducted on the Agreement Date; provided, that the Borrower and any Subsidiary may engage in one or more businesses unrelated to those engaged in on the Agreement Date so long as, at the time such unrelated business is proposed to be first engaged in (including the date of Acquisition by the Borrower or any Subsidiary of a Business Unit engaged in such an unrelated business), the revenues or net sales (as appropriate) of such unrelated business and all other unrelated businesses, as projected by the Borrower for the Borrower's next following full Fiscal Year as certified to the Agent and the Lenders by a Financial Officer of the Borrower, do not, in the aggregate, exceed 20% of the Consolidated revenues of the Borrower and its Consolidated Subsidiaries for such full Fiscal Year, as projected by the Borrower and certified to the Agent and the Lenders by a Financial Officer of the Borrower. Section Insurance. Maintain insurance with responsible insurance companies against such risks and in such amounts as is customarily maintained by similar businesses or as may be required by Applicable Law, and from time to time deliver to the Agent or any Lender upon its request a detailed list of the insurance then in effect, stating the names of the insurance companies, the amounts and rates of the insurance, the dates of the expiration thereof and the properties and risks covered thereby. Section Payment of Taxes and Claims. Pay or discharge when due (a) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any properties belonging to it, and (b) all lawful claims of materialmen, mechanics, carriers, warehousemen and landlords for labor, materials, supplies and rentals which, if unpaid, might become a Lien on any of its properties; except that this Section 7.6 shall not require the payment or discharge of any such tax, assessment, charge, levy or claim which is being contested in good faith by appropriate proceedings and for which adequate reserves where a reserve is appropriate in accordance with GAAP have been established on the appropriate books. Section Accounting Methods and Financial Records. Maintain a system of accounting, and keep such books, records and accounts (which shall be true and complete), as may be required by or as may be necessary to permit the preparation of financial statements in accordance with GAAP. Section Visits and Inspections. Permit representatives of the Agent and any Lender from time to time, as often as may be reasonably requested, but only during normal business hours, to (a) visit and inspect its properties, (b) inspect and make extracts from its relevant books and records, including but not limited to management letters prepared by independent accountants, and (c) discuss with its principal officers, and its independent accountants, its business, assets, liabilities, financial condition, results of operations and business prospects. Section Use of Proceeds. (a) Use the proceeds of the Loans (i) to refinance existing Indebtedness of the Borrower under the Existing Credit Agreement and (ii) for working capital and general business purposes of the Borrower and the Subsidiary Guarantors and to effect Acquisitions and other Investments permitted under Section 9.4, and (b) not use any part of such proceeds for any purpose which would involve a violation of Regulation G or U or T or X of the Board of Governors of the Federal Reserve System, or for any other purpose prohibited by Applicable Law or by the terms and conditions of this Agreement. Section Subsidiary Guaranties. Cause any Person which becomes a Significant Subsidiary of the Borrower after the Effective Date forthwith to execute and deliver a Subsidiary Guaranty and comply with the conditions precedent contained in Section 5.1(b)(ii), (iii), (iv), (v), (viii) and (ix). ARTICLE INFORMATION Until the Commitments have been terminated and all the Obligations have been paid in full, unless the Majority Lenders shall otherwise consent in writing, the Borrower will furnish to the Agent and the Lenders the following: Section Financial Statements. (a) Quarterly Financial Statements. Within 45 days after the close of each of the first three Fiscal Quarters of each Fiscal Year, Consolidated and consolidating balance sheets of the Borrower and its Consolidated Subsidiaries as at the end of such Fiscal Quarter and the related Consolidated and consolidating statements of income and cash flow of the Borrower and its Consolidated Subsidiaries for such Fiscal Quarter and for the portion of the Fiscal Year through the end of such Fiscal Quarter, in each case, reflecting the operations of the Borrower and such Consolidated Subsidiaries and setting forth (other than in consolidating statements of cash flow) in comparative form the figures for the corresponding periods of the previous Fiscal Year, all of which shall be certified by the President or a Financial Officer of the Borrower to be, in his opinion, complete and correct and to present fairly, in accordance with GAAP, subject to year-end audit adjustments, the Consolidated financial position of the Borrower and its Consolidated Subsidiaries as at the date thereof and the results of operations for such period. (b) Audited Year-End Statements. Within 90 days after the end of each Fiscal Year, Consolidated and consolidating balance sheets of the Borrower and its Consolidated Subsidiaries as at the end of such Fiscal Year and the related Consolidated and consolidating statements of income, retained earnings and cash flow of the Borrower and its Consolidated Subsidiaries for such Fiscal Year, in each case setting forth in comparative form the figures as at the end of and for the previous Fiscal Year, certified, in the case of such Consolidated (but not consolidating) balance sheets and statements, by Ernst & Young, KPMG Peat Marwick or other independent certified public accountants of recognized national standing, whose certificates shall be in scope and substance reasonably satisfactory to the Majority Lenders and who shall have authorized the Borrower to deliver such financial statements and certifications thereof to the Lenders pursuant to this Agreement. Section Accountants' Certificate. Together with the financial statements referred to in Section 8.1(b), the Borrower shall deliver a certificate of such accountants addressed to the Lenders (a) stating that in making the examination necessary for the certification of such financial statements, nothing has come to its attention to lead it to believe that any Default or Event of Default exists and, in particular, it has no knowledge of any Default or Event of Default or, if such is not the case, specifying such Default or Event of Default and its nature, and (b) having attached the calculations required to be prepared by the Borrower pursuant to Section 8.3(a)(i), (ii) and (iii) for the Fiscal Year covered by such financial statements and reviewed by such accountants. Section Officer's Certificate. At the time the financial statements are furnished pursuant to Section 8.1, the Borrower shall also furnish a certificate of its President or a Financial Officer substantially in the form of Exhibit K: (a) setting forth as at the end of such Fiscal Quarter or Fiscal Year, as the case may be, (i) the calculations required to establish whether or not the Borrower was in compliance with the requirements of Sections 9.1, 9.5 and 9.6, and, (ii) the outstanding Net Amount of all Investments (other than Permitted Investments) made by the Borrower or any Subsidiary Guarantor since the Agreement Date and (iii) the aggregate purchase price of all Acquisitions of any Business Units made by the Borrower or any Subsidiary Guarantor since the Agreement Date; and (b) stating that, based on an examination sufficient to enable him to make an informed statement, no Default or Event of Default exists, or, if such is not the case, specifying such Default or Event of Default and its nature, when it occurred, whether it is continuing and the steps being taken by the Borrower with respect to such event. Section Copies of Other Reports. (a) Promptly upon receipt thereof, copies of all reports, if any, submitted to any of the Borrower or any of its Subsidiaries or their respective Boards of Directors by their independent public accountants (in their capacity as auditors), including without limitation any management report. (b) As soon as practicable, copies of all such financial statements and reports as the Borrower shall send to its stockholders and of all registration statements (other than registration statements on Form S-8) and all regular or periodic reports which any of the Borrower or any of its Subsidiaries shall file with the Securities and Exchange Commission or any successor commission. (c) From time to time and promptly upon each request, such data, certificates, reports, statements, documents or further information regarding the business, assets, liabilities, financial condition, results of operations or business prospects of the Borrower and its Subsidiaries as any Lender through the Agent may reasonably request and that the Borrower has or without unreasonable expense can obtain. The rights of the Agent and the Lenders under this Section 8.4(c) are in addition to and not in derogation of their rights under any other provision of this Agreement. (d) If requested by any Lender, the Borrower will furnish to such Lender statements in conformity with the requirements of Federal Reserve Form G-3 or U-1 referred to in Regulation G or U of the Board of Governors of the Federal Reserve System. Section Notice of Litigation and Other Matters. Prompt notice of: (a) to the extent the Borrower is aware of the same, the commencement of all proceedings and investigations by or before any governmental or nongovernmental body and all actions and proceedings in any court or before any arbitrator against or in any other way relating adversely to or adversely affecting the Borrower, any of its Subsidiaries or any of their respective properties, assets or businesses, which are reasonably likely, singly or in the aggregate, to cause a Default or an Event of Default or have a Materially Adverse Effect on the Borrower and its Subsidiaries, taken as a whole; (b) any amendment of the articles or certificate of incorporation or by-laws of the Borrower or any Subsidiary; (c) any change in the business, assets, liabilities, financial condition, results of operations or business prospects of the Borrower or any Subsidiary which has had or may have any Materially Adverse Effect on the Borrower and its Subsidiaries, taken as a whole, and any change in the chief executive officers of the Borrower or any Subsidiary Guarantor; and (d) any Default or Event of Default or any event which constitutes or which with the passage of time or giving of notice or both would constitute a default or event of default by the Borrower or any Subsidiary under any material agreement other than this Agreement to which the Borrower or such Subsidiary is a party or by which the Borrower or such Subsidiary or any of its respective properties may be bound, describing such Default or Event of Default or other event and the action the Borrower has taken or proposes to take with respect thereto. Section ERISA. As soon as possible and in any event within 30 days after the Borrower knows, or has reason to know, that: (a) any Termination Event with respect to a Plan has occurred or will occur, or (b) the aggregate present value of the Unfunded Vested Accrued Benefits under all Plans has increased to an amount in excess of $1.00, or (c) the Borrower or any Subsidiary is in "default" (as defined in Section 4219(c) (5) of ERISA) with respect to payments to a Multiemployer Plan required by reason of its complete or partial withdrawal (as described in Section 4203 or 4205 of ERISA) from such Plan, a certificate of the President or a Financial Officer of the Borrower or such Subsidiary setting forth the details of such of the events described in clauses (a) through (c) as applicable and the action which is proposed to be taken with respect thereto, together with any notice or filing which may be required by the PBGC or other agency of the United States government with respect to such of the events described in clauses (a) through (c) as is applicable. Section Other Information. In addition to the other notices required hereunder, the Borrower will give the Agent prompt written notice (with sufficient copies for each Lender) of (a) any change from the information set forth on Schedule 6.1(b), (b) the nature of any business entered into by the Borrower or any Subsidiary after the Agreement Date that is not in substantially the same fields as the businesses conducted by the Borrower and its Subsidiaries as of the Agreement Date, and (c) the establishment of any Plan after the Agreement Date. Section Accuracy of Information. All written information, reports, statements and other papers and data furnished to the Agent by or at the direction of the Borrower or any Subsidiary, whether pursuant to this Article 8 or any other provision of this Agreement, or any of the Loan Documents, shall be, at the time the same is so furnished, complete and correct in all material respects to the extent necessary to give the Agent and the Lenders true and accurate knowledge of the subject matter. ARTICLE NEGATIVE COVENANTS Until all the Commitments have been terminated and all the Obligations have been paid in full, unless the Majority Lenders shall otherwise consent in writing, the Borrower will not, nor will it permit any Subsidiary to, directly or indirectly: Section Financial Ratios. Permit: (a) Minimum Consolidated Tangible Net Worth. Consolidated Tangible Net Worth of the Borrower and its Consolidated Subsidiaries as of the end of any Fiscal Quarter (i) occurring after the Agreement Date to be less than $240,000,000 and (ii) as at and after the first day of each Fiscal Year beginning after the Agreement Date to be less than $10,000,000 greater than the amount required hereunder immediately prior to such first day. (b) Leverage Ratio. The Leverage Ratio as of the end of any Fiscal Quarter occurring after the Agreement Date to be greater than 1.50 to 1.00. (c) Consolidated Current Ratio. The ratio of the Consolidated Current Assets of the Borrower and its Consolidated Subsidiaries, to the Consolidated Current Liabilities (excluding any principal amount of the Loans and the Letters of Credit Obligations so categorized and the current portion of Funded Indebtedness) of the Borrower and its Consolidated Subsidiaries as of the end of any Fiscal Quarter occurring after the Agreement Date to be less than 2.50 to 1.00. (d) Interest Coverage Ratio. The Interest Coverage Ratio as of the end of any Fiscal Quarter occurring after the Agreement Date to be less than 2.50 to 1.00. (e) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio as of the end of any Fiscal Year occurring after the Agreement Date to be less than 1.25 to 1.00. Section Indebtedness for Money Borrowed. On or after the Effective Date, create, assume, or otherwise become or remain obligated in respect of, or permit or suffer to exist or to be created, assumed or incurred or to be outstanding, any Indebtedness for Money Borrowed other than Permitted Indebtedness for Borrowed Money. Section Guaranties. After the Effective Date, become or remain liable with respect to any Guaranty of any obligation of any other Person, except for (i) Existing Guaranties, (ii) the Subsidiary Guaranties, (iii) Guaranties permitted by Section 9.2 and (iv) in the case of the Borrower, Guaranties in respect of obligations of its Consolidated Subsidiaries (A) to trade or similar creditors, incurred by such Subsidiaries in the ordinary course of their respective businesses, (B) in connection with contracts with their respective customers entered into in the ordinary course of their respective businesses and (C) under leases of property used by such Subsidiaries in their respective businesses. Section Investments; Business Units. Acquire, after the Agreement Date, any Business Unit or Investment or, after such date, permit any Investment to be outstanding, except that this Section 9.4 shall not apply to: (i) Permitted Investments, (ii) other Investments made by the Borrower or any Subsidiary Guarantor, provided that (A) the aggregate Net Amount of all such Investments shall not exceed, on a Consolidated basis, $25,000,000 at any time, and (B) after giving effect thereto, the unused portion of the Revolving Credit Facility (at the time of, and after giving effect to, the Acquisition of such Investment) shall be equal to or greater than $15,000,000, or (iii) Acquisitions of one or more Business Units by the Borrower or any Subsidiary Guarantor after the Agreement Date, the aggregate purchase price of which, on a Consolidated basis, does not exceed $25,000,000, provided that, after giving effect thereto, the unused portion of the Revolving Credit Facility (at the time of, and after giving effect to, the making of such Acquisition) shall be equal to or greater than $15,000,000. As used in this Section 9.4, "purchase price" for any Acquisition means the total consideration for such Acquisition, including (without duplication) the amount of any payment made in cash or by delivery of a promissory note of the Borrower or any Subsidiary, the fair market value, as determined in good faith by the Board of Directors of the Borrower, of any property other than cash or notes transferred by the Borrower or the acquiring Subsidiary Guarantor in connection with such Acquisition, the face amount of any Indebtedness assumed or guaranteed by the Borrower or any Subsidiary in connection with such Acquisition, and the market value of any equity security issued or transferred by the Borrower or any Subsidiary in connection with such Acquisition (or, if any such equity security does not have a readily determinable market value, the fair value thereof as determined in good faith by the Board of Directors of the Borrower). Section Capital Expenditures. Make or incur any Capital Expenditure, except that this Section 9.5 shall not apply to Capital Expenditures of the Borrower or any Subsidiary in any Fiscal Year which, together with all other Capital Expenditures by the Borrower and its Consolidated Subsidiaries made during such Fiscal Year, would not exceed, in the aggregate, an amount equal to the sum of $50,000,000, plus (for any Fiscal Year occurring after Fiscal Year 1995) up to $10,000,000 of the unused portion (if any) of permitted Capital Expenditures for the immediately preceding Fiscal Year (without inclusion of amounts carried forward from any prior Fiscal Year). Section Restricted Dividend Payments. Declare or make any Restricted Dividend Payment unless (i) no Default or Event of Default has occurred and is continuing on the date of such declaration and (ii) the aggregate amount of all dividends constituting Restricted Dividend Payments declared during any Fiscal Year does not exceed the Permitted Annual Dividend Amount for such Fiscal Year. "Permitted Annual Dividend Amount" for any Fiscal Year means, as to each declaration of cash dividends made during such Fiscal Year, an amount equal to the lesser of (i) $25,000,000, or (ii) an amount equal to the sum of (A) 50% of the Consolidated Net Income of the Borrower and its Consolidated Subsidiaries for the immediately preceding Fiscal Year (but without taking into account any net loss for such period), plus (B) $25,000,000 (as such amount may be reduced and/or replenished from time to time as hereinafter described, the "Dividend Basket"), provided that, the Dividend Basket shall be reduced from time to time by the aggregate amount of the excess, if any, of all cash dividends declared after the Agreement Date and prior to the date of such declaration over the applicable amounts in respect of each such dividend declaration computed pursuant to clause (A) above, and provided further that, the Dividend Basket shall be replenished from time to time by the sum of the excesses, if any, of the applicable amounts computed pursuant to clause (A) above for each Fiscal Year (commencing with Fiscal Year 1995) over the amount of all cash dividends declared during such Fiscal Year, provided further still that, the Dividend Basket shall not exceed $25,000,000 at any time. Section Merger, Consolidation and Sale of Assets. Merge or consolidate with any other Person or sell, lease or transfer or otherwise dispose of, directly or indirectly, in a single transaction or a series of transactions, all or a substantial portion of the assets of the Borrower or any Subsidiary Guarantor to the extent that the cash proceeds (as defined in the definition "Net Disposition Proceeds" in Section 1.1) of all such assets of the Borrower and all Subsidiary Guarantors disposed of after the Agreement Date would exceed $25,000,000; provided, however, that this Section 9.7 shall not apply to any (x) sales, leases, transfers or other dispositions of assets between the Borrower and any Subsidiary Guarantor or between Subsidiary Guarantors, (y) sales, leases, transfers or other dispositions of assets in the ordinary course of business, or (z) merger, consolidation or liquidation of any Subsidiary with or into the Borrower or any Subsidiary Guarantor, provided in each case, that immediately after giving effect thereto no Default or Event of Default shall have occurred and be continuing, that in the case of any merger to which the Borrower is a party, the Borrower is the surviving corporation, and that in the case of any merger, consolidation or liquidation to which a Subsidiary Guarantor and any Subsidiary not a Subsidiary Guarantor are parties, such Subsidiary Guarantor is the surviving corporation and has a Net Worth immediately following consummation of such merger, consolidation or liquidation equal to or greater than its Net Worth immediately prior to such merger, consolidation or liquidation, as certified to the Agent by a Financial Officer of such Subsidiary Guarantor. Section Transactions with Affiliates. Effect any transaction giving rise to Intercompany Indebtedness on terms other than ordinary business terms or any other transaction with any Affiliate (other than with the Borrower or a Subsidiary Guarantor) on a basis less favorable to the Borrower or such Subsidiary than would be the case if such transaction had been effected with a Person not an Affiliate. Section Liens. Create, assume or permit or suffer to exist or to be created or assumed any Lien on any of its property or assets, real, personal or mixed, tangible or intangible, other than Permitted Liens. Section Plans. Permit, or take any action which would result in, the aggregate present value of the Unfunded Vested Accrued Benefits under all Plans of the Borrower and any of its Subsidiaries to exceed $2,500,000. Section Sales and Leasebacks. Enter into any arrangement with any Person providing for its leasing from such Person of real or personal property which has been or is to be sold or transferred, directly or indirectly, by the Borrower or any of its Subsidiaries to such Person. Section Issuance of Stock by Subsidiaries. Except as permitted by Section 9.7, issue, sell or otherwise dispose of any shares of any class of its capital stock (either directly or indirectly by issuance of rights or options for, or securities convertible into, such shares), other than directors' qualifying shares, to any Person other than the Borrower or any Subsidiary of the Borrower, provided, that this Section 9.12 shall not apply to any such issuance, sale or disposition by the Borrower, directly or indirectly, of shares of its capital stock. Section Additional Restrictions. Create, consent or agree to or permit any Subsidiary to create any restrictions on any such Subsidiary's ability to pay dividends or to repay Intercompany Indebtedness other than any such restrictions (i) applicable to a Person, or its stock, at the time such Person becomes a Subsidiary of the Borrower and not placed thereon by or with the consent of the Borrower in contemplation of such acquisition directly or indirectly by the Borrower or (ii) resulting from compliance by any Subsidiary with any financial covenant contained in any agreement to which it is a party evidencing Existing Indebtedness. Section 9.14. Special Provisions Regarding International Apparel Marketing Corporation. Permit International Apparel Marketing Corporation to have total assets of $1,000,000 or more. Section 9.15. Limitation on Foreign Operations. Permit at any time those of its Subsidiaries which are not incorporated or organized under the laws of any state of the United States or the District of Columbia to have assets which in the aggregate constitute more than 10% of the total assets of the Borrower and its Consolidated Subsidiaries at such time, as determined in accordance with GAAP. ARTICLE DEFAULT Section Events of Default. Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any governmental or nongovernmental body: (a) Default in Payment. The Borrower shall fail to pay any principal of any Loan or any Obligation arising under Section 3.3(c)(iii)(B) when and as due (whether at maturity, on demand, by reason of acceleration or otherwise) or any interest on any Loan or any such other Obligation within two Business Days after the same is due. (b) Other Payment Default. The Borrower shall fail to pay, when and as due (whether at maturity, by reason of acceleration or otherwise), any amount of any Obligation (other than as described in Section 10.1(a)), and such default shall continue for a period of five Business Days after written notice thereof has been given to the Borrower by the Agent on behalf of the Lenders. (c) Misrepresentation. Any representation or warranty made or deemed to be made by the Borrower under this Agreement or any Loan Document, or by any Subsidiary Guarantor under any Loan Document to which it is a party, or any amendment hereto or thereto, shall prove to have been incorrect or misleading in any material respect when made. (d) Default in Performance. The Borrower shall fail to perform or observe any term, covenant, condition or agreement contained in (i) Article 9 (other than Section 9.4, 9.5 or 9.8) or Section 7.1 (insofar as it requires the preservation of the corporate existence of the Borrower or any Significant Subsidiary), 7.9 or 8.6, (ii) this Agreement (other than a default in the performance or observance of which is dealt with specifically elsewhere in this Section 10.1) and such default shall continue for a period of 15 days after written notice thereof has been given to the Borrower by the Agent. (e) Indebtedness Cross-Default. (i) The Borrower or any Subsidiary shall fail to pay when due and payable the principal of or interest on any Indebtedness for Money Borrowed (other than the Loans or any of the other Obligations or pursuant to the Subsidiary Guaranties, as the case may be) which is outstanding in a principal amount in excess of $2,500,000, or (ii) the maturity of any Indebtedness for Money Borrowed of any Subsidiary (other than the Loans or any of the other Obligations or pursuant to the Subsidiary Guaranties, as the case may be) which is outstanding in a principal amount in excess of $2,500,000 shall have been (A) accelerated in accordance with the provisions of any indenture, contract or instrument providing for the creation of or concerning such Indebtedness or (B) required to be prepaid prior to the stated maturity thereof. (f) Other Cross-Defaults. The Borrower or any Subsidiary shall default in the payment when due, or in the performance or observance, of any material obligation or condition of any contract or lease material to the Borrower and its Subsidiaries, taken as a whole (other than under the Loan Documents or relating to Indebtedness for Money Borrowed), unless, but only as long as, the existence of any such default is being contested by the Borrower or such Subsidiary in good faith by appropriate proceedings and adequate reserves in respect thereof where a reserve is appropriate in accordance with GAAP have been established on the books of the Borrower or such Subsidiary. (g) Voluntary Bankruptcy Proceeding. The Borrower or any Significant Subsidiary (or other Subsidiary, obligations of which are Guaranteed by the Borrower or any Subsidiary Guarantor) shall (i) commence a voluntary case under the federal bankruptcy laws (as now or hereafter in effect), (ii) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, debt reorganization, winding up or composition for adjustment of debts, (iii) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under such bankruptcy laws or other laws, (iv) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of a substantial part of its property, domestic or foreign, (v) admit in writing its inability to pay its debts as they become due, (vi) make a general assignment for the benefit of creditors, or (vii) take any formal corporate action for the purpose of effecting any of the foregoing. (h) Involuntary Bankruptcy Proceeding. A case or other proceeding shall be commenced against the Borrower or any Significant Subsidiary (or other Subsidiary, obligations of which are Guaranteed by the Borrower or any Subsidiary Guarantor) in any court of competent jurisdiction seeking (i) relief under the federal bankruptcy laws (as now or hereafter in effect) or under any other laws, domestic or foreign, relating to bankruptcy, insolvency, debt reorganization, winding up or adjustment of debts, or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Borrower or any Subsidiary or of all or any substantial part of the assets, domestic or foreign, of the Borrower or any Subsidiary, and such case or proceeding shall continue undismissed or unstayed for a period of 30 consecutive calendar days, or an order granting the relief requested in such case or proceeding against the Borrower or any Subsidiary (including, but not limited to, an order for relief under such federal bankruptcy laws) shall be entered. (i) Litigation. The Borrower or any Subsidiary shall challenge or contest in any action, suit or proceeding in any court or before any arbitrator or governmental body the validity or enforceability of this Agreement or any Loan Document. (j) Judgment. A judgment or order for the payment of money shall be entered against the Borrower or any Subsidiary by any court which, when added to all other unsatisfied judgments or orders against the Borrower and all Subsidiaries, would exceed $2,500,000 in amount and such judgment or order shall continue undischarged and unstayed for 30 days. (k) Attachment. A warrant or writ of attachment or execution or similar process shall be issued against any property of the Borrower or any Subsidiary which warrant, writ or similar process, when added to all other outstanding warrants, writs or similar process against the Borrower and all Subsidiaries, would exceed $2,500,000 in value and such warrant, writ or similar process shall continue undischarged and unstayed for 30 days. (l) ERISA. (i) Any Termination Event with respect to a Plan shall occur that, after taking into account the excess, if any, of (A) the fair market value of the assets of any other Plan with respect to which a Termination Event occurs on the same day (but only to the extent that such excess is the property of the Borrower or any Subsidiary) over (B) the present value on such day of all vested nonforfeitable benefits under such other Plan, results in an Unfunded Vested Accrued Benefit in excess of $2,500,000, or (ii) any Plan shall incur an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA) for which a waiver has not been obtained in accordance with the applicable provisions of the Code and ERISA, or (iii) the Borrower or any Subsidiary is in "default" (as defined in Section 4219(c) (5) of ERISA) with respect to payments to a Multiemployer Plan resulting from the Borrower's or any Subsidiary's complete or partial withdrawal (as described in Section 4203 or 4205 of ERISA) from such plan. (m) Change in Management. If E. Erwin Maddrey, II ceases to serve actively as the President and Chief Executive Officer of the Borrower or Bettis C. Rainsford ceases to serve actively as the Executive Vice President and Chief Financial Officer of the Borrower. (n) Failure of Agreements. Any material provision of this Agreement, any Note, any Subsidiary Guaranty or of any other Loan Document after delivery thereof hereunder, shall for any reason cease to be valid and binding on the Borrower or any Subsidiary a party thereto, or the Borrower or any Subsidiary (or any Person on behalf of the Borrower or any Subsidiary) shall so state in writing, including by any written denial or disaffirmance of any Subsidiary's Obligations under the Subsidiary Guaranty to which such Subsidiary is a party. (o) Ownership Change. There shall occur a Change of Control. (p) Material Adverse Change. Since the date of the latest annual or quarterly financial statements required to be delivered to the Agent and each Lender pursuant to Section 8.1 (or, prior to delivery of the first financial statements pursuant to Section 8.1, since the date of the financial statements described in Section 6.1(n)), (i) there shall occur a material adverse change in the business, assets, liabilities, financial condition, results of operations or business prospects of the Borrower and its Subsidiaries, taken as a whole, or (ii) an event has occurred or failed to occur which has had a Materially Adverse Effect on the Borrower and its Subsidiaries, taken as a whole. Section Remedies. (a) Automatic Acceleration and Termination of Facilities. Upon the occurrence of an Event of Default specified in Section 10.1(g) or 10.1(h), (i) the principal of and the interest on the Loans at the time outstanding, and all other Obligations owed to the Agent and the Lenders under this Agreement or any of the Loan Documents, including, without being limited to, amounts to be deposited as Cash Collateral pursuant to Section 3.7 upon termination of this Agreement, shall thereupon become due and payable without presentment, demand, protest, or other notice of any kind, all of which are expressly waived by the Borrower, anything in this Agreement or any of the Loan Documents to the contrary notwithstanding, and (ii) the Commitments and the obligation of each Lender to make Committed Advances, of the Swingline Lender to make Swingline Loans and of the Bank toissue the Alabama Letter of Credit shall immediately terminate. (b) Other Remedies. If any Event of Default, other than as specified in Section 10.1(g) or 10.1(h), shall have occurred and be continuing, the Agent shall at the request, or may with the consent, of the Majority Lenders (i) declare the principal of and interest on the Loans and the Notes at the time outstanding, and all other Obligations owed to the Agent and any of the Lenders under this Agreement or any of the Loan Documents, including, without being limited to, amounts to be deposited as Cash Collateral pursuant to Section 3.7 upon termination of this Agreement, to be forthwith due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Borrower, anything in this Agreement or the Loan Documents to the contrary notwithstanding, and (ii) terminate the Commitments and the obligation of each Lender to make Committed Advances, of the Swingline Lender to make Swingline Loans and of the Bank to issue the Alabama Letter of Credit, and the same shall thereupon be terminated. ARTICLE AGENT AND CO-AGENTS Section Grant of Authority. Each Lender and each holder of a Note by its acceptance thereof hereby appoints and authorizes the Agent to take such action and exercise such powers hereunder as are specifically delegated to the Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Section Action on Instructions. The Agent shall in all cases (including, without limitation, enforcement or collection of any Notes) be fully protected in acting or refraining from acting under this Agreement and any of the Loan Documents upon written instructions of the Majority Lenders, and such instructions and any action taken or any failure to act pursuant thereto shall be binding on all the Lenders, all holders of the Notes and their respective successors and assigns. The Agent shall not have any duty to any Lender to exercise any right, power or remedy under this Agreement or any of the Loan Documents or to take any affirmative action hereunder or thereunder unless directed to do so by the Majority Lenders. The Agent shall not be required to take any action under Article 10, nor shall any other provision of this Agreement be deemed to impose a duty on the Agent to take any action, if the Agent has been advised by legal counsel that such action is contrary to the terms of this Agreement or is otherwise contrary to any Applicable Law; provided, however, that if the Agent fails or refuses to act in accordance with the direction of the Majority Lenders based on such advice of counsel, such advice shall be in writing and a copy thereof shall be delivered to each Lender. The Agent will forward to each Lender copies or, where appropriate, originals of the documents delivered to the Agent pursuant to Section 5.1. The Agent agrees to give each Lender prompt notice of each notice given to it by the Borrower or any Subsidiary pursuant to the terms of this Agreement or any other Loan Document, and to provide to any Lender, upon such Lender's request therefor, a copy of any such notice. Section Responsibility of the Agent. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken under or in connection with this Agreement or any of the Loan Documents, except for its or their gross negligence or willful misconduct. Without limiting the generality of the foregoing, the Agent: (a) shall not be responsible to the Borrower, any Subsidiary Guarantor or any other Person as a result of any failure or delay in performance by, or any breach by, any Issuer of its obligations in respect of any Letter of Credit or hereunder or any Lender of any of its obligations under this Agreement, the Notes or any of the other Loan Documents, (b) shall not be responsible to any Lender or the holder of any Note or any Issuer as a result of any failure or delay in performance by, or any breach by, the Borrower or any Subsidiary Guarantor of any of its obligations under this Agreement, the Notes, the Subsidiary Guaranties or any of the Loan Documents, (c) shall not be responsible to any Lender for any statements, representations or warranties in this Agreement or any of the Loan Documents or for the validity, effectiveness, enforceability or sufficiency of this Agreement or any of the Loan Documents or any document or instrument delivered in connection with the transactions contemplated by this Agreement, including, without limitation, any documents that may be delivered pursuant to Article 5, (d) shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, provisions or conditions of this Agreement, the Notes, the Subsidiary Guaranties or any of the Loan Documents on the part of any of the Borrower or any Subsidiary, (e) shall be entitled to rely upon any writing, statement or notice or any telegraphed, telexed or teletyped message believed by it in good faith to be genuine and to have been signed or sent by the proper Person, (f) may consult with counsel and shall be fully protected in any action taken or omitted to be taken in accordance with the advice or opinion of such counsel, (g) may employ agents and attorneys-in-fact and shall not be liable for the default or misconduct of any such selected by the Agent with reasonable care, and (h) may treat the payee of a Note as the holder thereof until it receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent. Section Representations by the Lenders. Each Lender hereby represents and warrants to each other Lender, the Agent and the Borrower that its decision to enter into this Agreement and to make its Committed Advances and Competitive Loans and acquire participations in any Letters of Credit and Swingline Loans was made on the basis of its own credit judgment and in making such decision it did not rely upon any representation by the Agent or any other Lender as to the credit worthiness or financial position of the Borrower or any Subsidiary. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. Section Expenses and Indemnification. To the extent that the Borrower fails to do so (and without limiting the Obligations of the Borrower), each Lender and each subsequent holder of a Note, by its acceptance thereof, agrees to reimburse the Agent upon demand in proportion to the respective Commitment Percentage of each Lender, or, in the case of any such subsequent holder, in proportion that the outstanding balance of such holder's Notes bears to the total balance outstanding under all Notes, and to indemnify and hold the Agent harmless in such proportion against any and all losses, liabilities or expenses incurred by the Agent arising out of or in connection with the administration of this Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers and duties hereunder and of taking any action hereunder, provided that neither the Lenders nor any holder of any Note shall be liable for any portion of such losses, liabilities or expenses incurred by the Agent as a result of the Agent's gross negligence or willful misconduct. Section Rights of the Bank. The Bank and any Affiliate of the Bank may accept deposits from, lend money to, and generally engage in any kind of lending, banking or trust business with, the Borrower and any of its Subsidiaries and Affiliates as if it were not the Agent or such Affiliate. Section Right to Resign. The Agent may resign at any time by giving 30 days written notice thereof to each Lender and the Borrower. Upon any such resignation, the Majority Lenders shall have the right to appoint a successor Agent and if no successor Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after any such notice of resignation, then the retiring entity may, on behalf of the Lenders, appoint a successor Agent. Each successor Agent shall be a Lender (acting exclusively through a United States branch), if any Lender shall be willing to serve, or a commercial bank organized under the laws of the United States of America or any State thereof having a combined capital and surplus of at least $100,000,000 and shall be acceptable to the Borrower in its reasonable judgment. After any such resignation, the provisions of this Article 11 shall continue in effect for the benefit of the retiring entity with respect to any actions taken or omitted by it while acting as Agent. Section 11.8. Co-Agents. The Co-Agents, in their respective capacities as such, shall have no rights, powers, duties or obligations under this Agreement or any of the other Loan Documents. ARTICLE MISCELLANEOUS Section Notices. (a) Method of Communication. Except as otherwise specifically provided in this Agreement, all notices and other communications provided for hereunder shall be in writing. Notices in writing shall be delivered personally (including by courier) or sent by certified or registered mail postage prepaid or by telegraph or telex or telecopier and shall be effective in the case of personal delivery, when delivered against a receipt therefor, in the case of mailing, on the third Business Day after mailing, in the case of telegraph, on the day after delivery to the telegraph office, in the case of telex, upon transmittal, answerback received and in the case of telecopy, when transmitted and transmission is confirmed, provided that notices to the Agent shall be effective only when actually received by the Agent. (b) Addresses for Notices. Notices to any party shall be sent to it at the following addresses, or any other address of which all the other parties are notified in writing If to the Borrower: Delta Woodside Industries, Inc. 233 N. Main Street Suite 200 Hammond Square Greenville, South Carolina 29601 Attention: President With copies to: Bettis C. Rainsford P. 0. Box 388 108-1/2 Courthouse Square Edgefield, South Carolina 29824 Eric B. Amstutz, Esq. Wyche, Burgess, Freeman & Parham, P.A. P.O. Box 728 44 E. Camperdown Way Greenville, South Carolina 29602 If to the Agent: NationsBank of North Carolina, N.A. NationsBank Corporate Center 100 North Tryon Street NC1-007-08-11 Charlotte, North Carolina 28255 Attn: E. Phifer Helms If to a Lender: To such Lender at the address of its Domestic Lending Office on the signature pages hereof (c) Agent's Office. The Agent hereby designates its office located at NationsBank Corporate Center, 100 North Tryon Street, NC1-007-08-11, Charlotte, North Carolina 28255, Attn: E. Phifer Helms, or any subsequent office which shall have been specified for such purpose by written notice to the parties, as the office to which payments due are to be made and at which Loans will be disbursed. Section Expenses. The Borrower agrees to pay on demand all reasonable costs and expenses incurred by the Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement, the Notes, the Subsidiary Guaranties and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of counsel for and other advisors retained by the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities under this Agreement, and all costs and expenses, if any (including, without limitation, reasonable fees and expenses of counsel), of the Agent and each of the Lenders in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement, the Notes and the other documents to be delivered hereunder. Section Stamp and Other Taxes. The Borrower shall pay any and all stamp, registration, recordation and similar taxes, fees or charges and shall indemnify the Agent and the Lenders against any and all liabilities with respect to or resulting from any delay in the payment or omission to pay any such taxes, fees or charges, which may be payable or determined to be payable in connection with the execution, delivery, performance or enforcement of this Agreement and any of the Loan Documents or the perfection of any rights thereunder. Section Setoff. In addition to any rights now or hereafter granted under Applicable Law and not by way of limitation of any such rights, upon and after the occurrence of any Default or Event of Default, each Lender is hereby authorized by the Borrower at any time or from time to time, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by such Lender or any Affiliate of the Lender to or for the credit or the account of the Borrower against and on account of the Obligations irrespective or whether or not (a) the Agent shall have made any demand under this Agreement or any of the Loan Documents, or (b) the Agent shall have declared any or all of the Obligations to be due and payable as permitted by Section 10.2 and although such Obligations shall be contingent or unmatured. Each Lender acknowledges, for the benefit of each other Lender, that the provisions of Section 4.12 shall apply to amounts obtained by any Lender by reason of its exercise of any rights pursuant to this Section 12.4. Section Litigation. THE BORROWER, THE AGENT AND THE LENDERS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST THE BORROWER ARISING OUT OF THIS AGREEMENT, OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN THE BORROWER, THE AGENT AND ANY LENDER OF ANY KIND OR NATURE, PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR THE LOAN DOCUMENTS OR TO ANY MATTER ARISING THEREFROM. THE BORROWER AND THE AGENT AND THE LENDERS HEREBY AGREE THAT THE FEDERAL COURT OF THE WESTERN DISTRICT OF NORTH CAROLINA OR, AT THE ELECTION OF THE MAJORITY LENDERS, ANY COURT IN WHICH THE AGENT SHALL, AT THE DIRECTION OF THE MAJORITY LENDERS, INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY AND IS LOCATED IN A JURISDICTION WHICH HAS A REASONABLE RELATIONSHIP TO THE TRANSACTION SURROUNDING THE NEGOTIATION, EXECUTION, ENFORCEMENT OR PERFORMANCE OF THIS AGREEMENT, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE BORROWER, THE AGENT AND ANY LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR THE LOAN DOCUMENTS OR TO ANY MATTER ARISING THEREFROM. THE BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS, HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREEING THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO THE BORROWER AT ITS ADDRESS SET FORTH ABOVE. SHOULD THE BORROWER FAIL TO APPEAR OR ANSWER ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THIRTY (30) DAYS AFTER ITS RECEIPT THEREOF (OR SUCH SHORTER PERIOD AS MAY BE PRESCRIBED BY APPLICABLE RULES OF CIVIL PROCEDURE), IT SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED AGAINST IT AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY APPROPRIATE JURISDICTION. Section Consent to Advertising and Publicity. The Borrower hereby agrees that the Agent may, after consulting with the Borrower, issue and disseminate to the public information describing the credit accommodation entered into pursuant to this Agreement, including the names and addresses of the Borrower and its Affiliates, the amount, interest rate, maturity, collateral, and a general description of the Borrower's and each of its Subsidiary's business; provided, however, that publication or dissemination of such information other than through a "tombstone" type advertisement shall not be made without the Borrower's prior consent. Section Reversal of Payments. Subject to the provisions of Section 4.7(a), the Agent and each Lender shall have the continuing and exclusive right to apply, reverse, and re-apply any and all payments to any portion of the Obligations. To the extent the Borrower or any Subsidiary Guarantor makes a payment or payments to the Agent on behalf of the Lenders or to a Lender or the Agent, which payment(s) or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the Obligations or part thereof intended to be satisfied shall be revived and continued in full force and effect, as if such payment or proceeds had not been received by the Agent or such Lender. Section Injunctive Relief. The Borrower recognizes that, in the event the Borrower fails to perform, observe or discharge any of its Obligations or liabilities under this Agreement, any remedy of law may prove to be inadequate relief to the Lenders; therefore, the Borrower agrees that the Agent, on behalf of the Lenders, if the Agent so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. Section Accounting Matters. All financial and accounting calculations, measurements and computations made for any purpose relating to this Agreement, including without limitation all computations utilized by the Borrower in complying with any covenant contained herein, shall, unless there is an express written direction by the Majority Lenders to the contrary which is consented to by the Borrower, be performed in accordance with GAAP. Section Assignment. (a) All the provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that the Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of all the Lenders, nor may any Lender assign or transfer any of its rights or obligations hereunder or under any Note other than in accordance with the provisions of this Section 12.10; provided, that, notwithstanding any other provision of this Agreement, any Lender may at any time assign all or any portion of its rights under this Agreement and the Notes held by such Lender to a United States Federal Reserve Bank as collateral in accordance with Regulation A of the Board of Governors of the Federal Reserve System as in effect from time to time and the applicable operating circular of such Federal Reserve Bank. (b) (i) Notwithstanding the provisions of Section 4.4(b), the Borrower may, at any time following a notice by a Lender pursuant to Section 4.5(a) or a demand by a Lender pursuant to Section 2.6(b)(ii), 4.5(c), 4.5(d) or 4.13, demand, upon at least three Business Days' notice to such Lender and the Agent, that such Lender assign in accordance with the instructions of the Borrower and, if so demanded, such Lender shall assign, to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, and a corresponding portion of its rights and obligations under the Letter of Credit Facility, the Swingline Facility, the Committed Advances, Competitive Loans and other Obligations owing to it and the Notes held by it); provided, however, that (i) each such assignment shall be to an Eligible Assignee (and if to one or more Lenders, ratably to all Lenders (subject to each Lender's consent as to the assignment to it) or on such other basis as the Agent and the Majority Lenders (before giving effect to such assignment) shall agree), (ii) each such assignment made as a result of a demand by the Borrower pursuant to this Section 12.10(b)(i) shall be arranged by the Borrower after consultation with the Agent and shall be either an assignment of all of the rights and obligations of theassigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments which together effect an assignment of all of the rights and obligations of the assigning Lender under this Agreement, (iii) no Lender shall be obligated to make any such assignment as a result of a demand by the Borrower pursuant to this Section 12.10(b)(i) unless and until such Lender shall have received one or more payments from either the Borrower or one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Obligations owing to such Lender, together with accrued interest thereon and accrued fees with respect thereto to the date of payment of such principal amount, and (iv) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with the Notes subject to such assignment and a processing and recordation fee of $2,500. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least three Business Days after the execution thereof, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (ii) Each Lender may, with the prior written consent of the Borrower and the Agent, which consent shall not be unreasonably withheld or delayed, assign, to one or more banks or other entities a portion of its rights and obligations under this Agreement (which shall include a portion of its Commitment, and a corresponding portion of its rights and obligations under the Letter of Credit Facility, the Swingline Facility, the Committed Advances owing to it and the Committed Note held by it and which may include all or a portion of the Competitive Loans owing to it); provided, however, that (A) each such assignment shall be to an Eligible Assignee, (B) the minimum amount of any such assignment shall be $10,000,000 (or, as to any original Lender, if less, an amount equal to 50% of such Lender's Commitment as of the Effective Date, as the same may have been reduced pursuant to Section 4.3), (C) such Lender shall retain for its own account at least 50% of its original Commitment hereunder, and (D) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with the Notes subject to such assignment and a processing and recordation fee of $2,500. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least three Business Days after the execution thereof, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement. (c) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Subsidiary Guarantor or the performance or observance by the Borrower or any Subsidiary Guarantor of any of its Obligations under this Agreement, any Subsidiary Guaranty, any Letter of Credit or related Application, or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 6.1(n), each Subsidiary Guaranty and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that, subject to the acceptance rights of the Agent and the Borrower, it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by theterms of this Agreement are required to be performed by it as a Lender. (d) The Agent shall maintain at the Agent's Office a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans, reimbursement obligations with respect to Letters of Credit, obligations with respect to participations in Swingline Loans and all other Obligations owing from the Borrower to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Notes subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit A hereto and the required fee is tendered, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent, in exchange for delivery to it of the surrendered Note or Notes, (A) a new Committed Loan Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder (such new Committed Loan Notes to be in an aggregate principal amount equal to the principal amount of the surrendered Committed Loan Note of the assigning Lender) and (B) a new Competitive Loan Note to the order of such Eligible Assignee in an amount equal to the then current amount of the Facility. Each of such new Notes shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit B hereto and/or Exhibit C hereto, as applicable. (f) Each Lender may sell participations to one or more banks or other entities in or to a portion of its rights and obligations under this Agreement (including, without limitation, a portion of its Commitment, its rights and obligations under the Letter of Credit Facility, the Swingline Facility, the Committed Advances, Competitive Loans and other Obligations owing to it and the Notes held by it); provided, however, that (i) except in connection withthe sale of a participation in the Competitive Loans or Competitive Loan Note of any Lender the purchaser of each participation shall be a United States commercial bank or a Wholly Owned Subsidiary of such a bank or of a corporation of which such a bank is a Wholly Owned Subsidiary, (ii) such Lender's obligations under this Agreement (including, without limitation, its Commitment hereunder) shall remain unchanged, (iii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and the exercise of such Lender's rights and remedies hereunder, other than any such exercise which would (x) increase the amount of its Commitment, (y) reduce the principal of or interest on any Note subject to such participation, or any facility or other fee, payable to such Lender after the date of sale of such participation, or (z) postpone any date fixed for the payment to such Lender of principal of or interest on any Note subject to such participation, or any facility or other fee, shall not be subject to the consent of the purchaser of such participation, (iv) the minimum amount of principal of Committed Advances or Commitment subject to each such participation shall be $5,000,000 (or, if less, an amount equal to 50% of such Lender's Commitment), (v) each Lender shall at all times retain for its own account an interest in its rights and obligations hereunder equal to at least 50% of its Commitment as of the Effective Date, as the same may have been reduced pursuant to Section 4.3, (vi) each purchaser of a participation shall be prohibited from selling any interest in such participation, (vii) such Lender shall remain the holder of any such Notes for all purposes of this Agreement, and (viii) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Notwithstanding the foregoing provisions of this Section 12.10(f), each Lender may sell one participation in its rights and obligations under this Agreement to a United States commercial bank which is a Wholly Owned Subsidiary of the same Person of which such Lender is a Wholly Owned Subsidiary, which participation need not comply with the requirements of clauses (i), (iv) and (v) above, but shall otherwise comply with the provisions of this Section 12.10(f). (g) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 12.10, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information relating to the Borrower or any Subsidiary received by it from such Lender on substantially the terms set forth in Section 12.21. Section Amendments. No amendment or waiver of any provision of this Agreement, the Notes or any Subsidiary Guaranty, nor consent to any departure by the Borrower or any Subsidiary party hereto or thereto therefrom, shall in any event be effective unless the same shall be in writing and, in the case of this Agreement and the Notes, signed by the Majority Lenders and, in the case of an amendment, by the Borrower, or in the case of any Subsidiary Guaranty, consented to by the Majority Lenders and signed in accordance with the terms thereof, and then such waiver or consent shall be effective only in the specified instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders and, in the case of an amendment, by the Borrower (or by the Subsidiary party to the relevant Loan Document, as the case may be), do any of the following: (a) waive any of the conditions specified in Section 5.1 or 5.2, (b) increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other Obligations payable hereunder or under any of the other Loan Documents, (e) release any Subsidiary Guarantor from its obligations under its Subsidiary Guaranty, other than in accordance with the terms thereof or as a result of a transaction permitted pursuant to Section 9.7, (f) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans and Letter of Credit Obligations, or the number of Lenders, which shall be required for the Lenders or any of them to take any action hereunder or (g) amend this Section 12.11; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement or any Note or any other Loan Document. Notwithstanding the foregoing terms of Section 12.11, including, without limitation, the terms of subsections (c) and (d) above, any Lender may agree with the Borrower (i) to change the interest rate applicable to any Competitive Loan owing to such Lender and (ii) subject to the terms of the definition of "Interest Period" set forth in Section 1.1 and to the limitation that none of the Obligations shall be due and payable later than the Termination Date, to postpone any date fixed for any payment of principal of, or interest on, the Competitive Loans owing to such Lender. Section Performance of Borrower's Duties. (a) The Borrower's Obligations under this Agreement and each of the Loan Documents shall be performed by the Borrower at its sole cost and expense. (b) If the Borrower shall fail to do any act or thing which it has covenanted to do under this Agreement or any of the Loan Documents, the Agent on behalf of the Lenders may (but shall not be obligated to) do the same or cause it to be done either in the name of the Agent or the Lenders or in the name and on behalf of the Borrower and the Borrower hereby irrevocably authorizes the Agent so to act. Section Indemnification. The Borrower agrees to reimburse the Agent and each Lender for all costs and expenses incurred (including reasonable counsel fees and disbursements) and to indemnify and hold the Agent and each Lender harmless from and against all losses suffered by the Agent or any Lender (except to the extent arising out of the Agent's or such Lender's gross negligence or willful misconduct) in connection with (i) the exercise by the Agent or any Lender of any right or remedy granted to it under this Agreement or any of the Loan Documents, (ii) any claim, and the prosecution or defense thereof, arising out of or in any way connected with this Agreement or any of the Loan Documents (except any claim asserted only by a Lender or the Agent against a Lender or the Agent), and (iii) the collection or enforcement of the Obligations or any of them. Section All Powers Coupled with Interest. All authorizations granted to the Agent and the Lenders and any Persons designated by the Agent or any Lender pursuant to any provisions of this Agreement or any of the Loan Documents shall be deemed coupled with an interest and shall be irrevocable so long as any of the Obligations remain unpaid or unsatisfied. Section Survival. Notwithstanding any termination of this Agreement, (a) until all Obligations have been irrevocably paid in full or otherwise satisfied, the Agent on behalf of the Lenders shall retain all rights under this Agreement and each of the Loan Documents as fully as though this Agreement had not been terminated, and (b) without regard to payment of principal of and interest on the Committed Advances, the indemnities to which the Agent and the Lenders are entitled under the provisions of this Article 12 and any other provision of this Agreement and the Loan Documents shall continue in full force and effect and shall protect the Agent and the Lenders against events arising after such termination as well as before. Section Titles and Captions. Titles and captions of Articles, Sections and subsections in this Agreement are included for convenience only, and neither limit nor amplify the provisions of this Agreement. Section Severability of Provisions. Any provision of this Agreement or any Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. Section Governing Law. This Agreement and the Notes shall be construed in accordance with and governed by the laws of the State of North Carolina. Section Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and shall be binding upon all parties, their successors and assigns, and all of which taken together shall constitute one and the same agreement. Section Reproduction of Documents. This Agreement, each of the Loan Documents and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by the Agent or the Lenders and (c) financial statements, certificates and other information previously or hereafter furnished to the Agent or the Lenders, may be reproduced by the Agent or the Lenders by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and such Person may destroy any original document so produced. Each party hereto stipulates that, to the extent permitted by Applicable Law, any such reproduction shall be as admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original shall be in existence and whether or not such reproduction was made by such Lender in the regular course of business), and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. Section Confidentiality. Each Lender and the Agent agrees (on behalf of itself and each of its Affiliates, directors, officers, employees, and representatives) to use reasonable precautions to keep confidential, in accordance with its customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, any non-public information supplied to it by the Borrower or any Subsidiary pursuant to this Agreement (collectively the "Confidential Information"), provided that nothing herein shall limit disclosure of any such information (i) to the extent required by statute, rule, regulation, or judicial process, (ii) to counsel for any of the Lenders or the Agent, solely in their capacities as such, (iii) to examiners, auditors or accountants, solely in their capacities as such, of such Lender or the Agent, (iv) to the Agent or any other Lender, or by any Lender to any Affiliate of such Lender, (v) filed by the Borrower with any governmental agency, which information is available to the public or available for inspection by the public, (vi) in accordance with the provisions of Section 12.10(g) or (vii) where necessary in any litigation between or among the parties hereto arising out of this Agreement or any other Loan Document. Section Entire Agreement. This Agreement and the other Loan Documents contain the entire agreement among the parties hereto with respect to the transactions contemplated hereby and thereby, and supersede all prior arrangements or understandings with respect thereto, written or oral. [Remainder of page intentionally left blank] ## IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers in several counterparts all as of the day and year first written above. BORROWER: DELTA WOODSIDE INDUSTRIES, INC. By: /s/ Bettis C. Rainsford____ Title: Executive Vice President AGENT: NATIONSBANK OF NORTH CAROLINA, N.A. By: /s/ E. Phifer Helms_______ Title: Senior Vice President CO-AGENTS: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Jennifer Williams______ Title: Vice President THE BANK OF NEW YORK By: /s/ Gregory Batson_________ Title: Assistant Vice President ## LENDERS: Commitment NATIONSBANK OF NORTH CAROLINA, N.A. $50,000,000 By: /s/ E. Phifer Helms_______ Title: Senior Vice President Domestic Lending Office: NationsBank Corporate Center 100 North Tryon Street NC1-007-08-11 Charlotte, NC 28255 Attn: Mr. E. Phifer Helms Telecopier: 704-386-1270 Eurodollar Lending Office: Domestic Lending Office Commitment BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION $40,000,000 By: /s/ Jennifer Williams______ Title: Vice President Domestic Lending Office: Bank of America National Trust and Savings Association 1850 Gateway Boulevard Concord, California 94520 Attn: Jennifer Williams Telecopier: 510-675-7531 [with a copy to: Bank of America National Trust and Savings Association 1230 Peachtree Street, Suite 3600 Atlanta, Georgia 30309 Attn: Mr. Wayne Riess Telecopier: 404-249-6938] Eurodollar Lending Office: Domestic Lending Office Commitment THE BANK OF NEW YORK $30,000,000 By: /s/ Gregory Batson_________ Title: Assistant Vice President Domestic Lending Office: The Bank of New York 22nd Floor - Southern Division One Wall Street New York, New York 10286 Attn: Mr. Greg Batson Telecopier: 212-635-6434 Eurodollar Lending Office: Domestic Lending Office Commitment FIRST UNION NATIONAL BANK OF SOUTH CAROLINA $30,000,000 By: /s/ Charles P. Cecil_______ Title: Senior Vice President Domestic Lending Office: First Union National Bank of South Carolina 1 Insignia Plaza Greenville, South Carolina 29602 Attn: Mr. Chuck Cecil Telecopier: 803-255-8357 Eurodollar Lending Office: Domestic Lending Office Commitment WACHOVIA BANK OF SOUTH CAROLINA $30,000,000 By: /s/ Thomas F. Snider_____ Title: VP Domestic Lending Office: Wachovia Bank of South Carolina Corporate Banking 15 South Main Street Greenville, South Carolina 29601 Attn: Mr. Tom Snider Telecopier: 803-239-6894 Eurodollar Lending Office: Domestic Lending Office Commitment CHASE MANHATTAN BANK, N.A. $25,000,000 By: /s/ Jo Meer_______________ Title: Vice President Domestic Lending Office: Chase Manhattan Bank 1 Chase Manhattan Plaza 29th Floor New York, New York 10005 Attn: Ms. Jo Meer Telecopier: 212-768-9514 [with a copy to: Chase Manhattan Bank 1411 Broadway, 4th Floor New York, New York 10018 Attn: Ms. Jo Meer Telecopier: 212-768-9514] Eurodollar Lending Office: Domestic Lending Office Commitment THE BANK OF NOVA SCOTIA $25,000,000 By: /s/ W. E. Zarrett______ Title: Reltaionship Manager Domestic Lending Office: The Bank of Nova Scotia 600 Peachtree Street, Suite 2700 Atlanta, Georgia 30308 Attn: Mr. Bill Zarrett Telecopier: 404-888-8998 Eurodollar Lending Office: Domestic Lending Office Commitment PNC BANK, NATIONAL ASSOCIATION $25,000,000 By: /s/ Jim Fink______________ Title: VP Domestic Lending Office: PNC Bank, National Association 5th and Wood Street, 2nd Floor Pittsburgh, Pennsylvania 15222 Attn: Mr. Jim Fink Telecopier: 412-762-6484 Eurodollar Lending Office: Domestic Lending Office Commitment NATIONAL WESTMINSTER BANK USA $20,000,000 By: /s/ Kurt Pohmer___________ Title: AVP Domestic Lending Office: National Westminster Bank USA 350 Fifth Avenue New York, New York 10018 Attn: Mr. Kurt Pohmer Telecopier: 212-290-1654 Eurodollar Lending Office: Domestic Lending Office FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT A that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (iii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; (iv) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Subsidiary Guarantor or the performance or observance by the Borrower or any Subsidiary Guarantor of any of its respective obligations under the Credit Agreement, any Subsidiary Guaranty, any Letter of Credit or related Application or any other instrument or document furnished pursuant thereto; and (v) attaches the Committed Loan Note referred to in paragraph 1 above and requests that the Agent (A) exchange such Committed Loan Note for a new Committed Loan Note as set forth on Schedule 1 hereto and (B) cause a new Competitive Note to be delivered to the Assignee as contemplated by Section 12.10(e) of the Credit Agreement. 4. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 6.1(n) thereof, each Subsidiary Guaranty and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that, subject to the consent rights of the Agent and the Borrower, it is an Eligible Assignee; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender; [and] (vi) specifies as its Domestic Lending Office (and address for notices) and Eurodollar Lending Office the offices set forth beneath its name on the signature pages hereof [and (vii) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement and the Notes or such other documents as are necessary to indicate that all such payments are subject to such taxes at a rate reduced by an applicable tax treaty]. ***. If the Assignee is organized under the laws of a FORM OF ASSIGNMENT AND ACCEPTANCE jurisdiction outside the United States** 5. The effective date for this Assignment and Acceptance shall be ____________, 199_ (the "Assignment Effective Date"). **42. See Section 12.10. Such date shall be at least three Business Days after the execution of this Assignment and Acceptance** Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent. 6. Upon such acceptance and recording, as of the Assignment Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent of the interest assigned pursuant to this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of the interest assigned pursuant to this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 7. Upon such acceptance and recording, from and after the Assignment Effective Date, the Agent shall make all payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Assignment Effective Date directly between themselves. 8. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of North Carolina. FORM OF ASSIGNMENT AND ACCEPTANCE IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be duly executed by their respective duly authorized officers as of the day and year first above written. [NAME OF ASSIGNOR] By: Title: [NAME OF ASSIGNEE] By: Title: Domestic Lending Office (and address for notices): [Address] Eurodollar Lending Office: [Address] Accepted this _____ day of __________, 19__. DELTA WOODSIDE INDUSTRIES, INC. By:_____________________________ Title: NATIONSBANK OF NORTH CAROLINA, N.A. By:______________________________ Title: FORM OF ASSIGNMENT AND ACCEPTANCE SCHEDULE 1 to Assignment and Acceptance Notes Note Date Type Principal Amount Payee FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT B FORM OF COMMITTED LOAN NOTE $_________ ___________, 199_ FOR VALUE RECEIVED, DELTA WOODSIDE INDUSTRIES, INC., a South Carolina corporation (the "Borrower"), hereby promises to pay to ______________________ (the "Bank"), at the office of NationsBank of North Carolina, N.A., as Agent (the "Agent"), at One NationsBank Plaza, NC1-007-08-11, Charlotte, North Carolina 28255 (or at such other place or places as the holder hereof may designate), at the times set forth in the Credit Agreement dated as of September __, 1994, among the Borrower, the Agent, the Bank and certain other lenders (as it may be amended, modified, extended or restated from time to time, the "Credit Agreement"; all capitalized terms not otherwise defined herein shall have the meanings set forth in the Credit Agreement), but in no event later than the Termination Date, in Dollars and in immediately available funds, the principal amount of _______________________ ($__________) or, if less than such principal amount, the aggregate unpaid principal amount of all Committed Advances made by the Bank to the Borrower pursuant to the Credit Agreement, and to pay interest from the date hereof on the unpaid principal amount hereof, in like money, at said office, on the dates and at the rates determined in accordance with Sections 2.6 and 4.1 of the Credit Agreement. If payment of all sums due hereunder is accelerated under the terms of the Credit Agreement, this Committed Loan Note and all other indebtedness of the Borrower to the Bank shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Committed Loan Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees. All borrowings evidenced by this Committed Loan Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on Schedule A attached hereto and incorporated herein by reference, or on a continuation thereof which shall be attached hereto and made a part hereof; provided, however, that any failure to endorse such information on such schedule or continuation thereof shall not in any manner affect the Borrower's Obligations under the Credit Agreement. FORM OF ASSIGNMENT AND ACCEPTANCE IN WITNESS WHEREOF, the Borrower has caused this Committed Loan Note to be duly executed by its duly authorized officer as of the day and year first above written. DELTA WOODSIDE INDUSTRIES, INC. By_____________________________ Title__________________________ FORM OF ASSIGNMENT AND ACCEPTANCE SCHEDULE A TO THE COMMITTED LOAN NOTE EXECUTED IN FAVOR OF _____________________________________ DATED ___________, 199_ Date Person Making Notation Amount Interest Period Rate Payments Principal Interest Bala of N FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT C FORM OF COMPETITIVE LOAN NOTE $275,000,000 ___________, 199_ FOR VALUE RECEIVED, DELTA WOODSIDE INDUSTRIES, INC., a South Carolina corporation (the "Borrower"), hereby promises to pay to ______________________ (the "Bank"), at the office of NationsBank of North Carolina, N.A., as Agent (the "Agent"), at One NationsBank Plaza, NC1-007-08-11, Charlotte, North Carolina 28255 (or at such other place or places as the holder hereof may designate), at the times set forth in the Credit Agreement dated as of September __, 1994, among the Borrower, the Agent, the Bank and certain other lenders (as it may be amended, modified, extended or restated from time to time, the "Credit Agreement"; all capitalized terms not otherwise defined herein shall have the meanings set forth in the Credit Agreement), but in no event later than the Termination Date, in Dollars and in immediately available funds, the principal amount of TWO HUNDRED SEVENTY-FIVE MILLION DOLLARS ($275,000,000) or, if less than such principal amount, the aggregate unpaid principal amount of all Competitive Loans made by the Bank to the Borrower pursuant to the Credit Agreement, and to pay interest from the date hereof on the unpaid principal amount hereof, in like money, at said office, on the dates and at the rates determined in accordance with Sections 2.8(h) and 4.1 of the Credit Agreement. If payment of all sums due hereunder is accelerated under the terms of the Credit Agreement, this Competitive Loan Note and all other indebtedness of the Borrower to the Bank shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Competitive Loan Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees. All borrowings evidenced by this Competitive Loan Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on Schedule A attached hereto and incorporated herein by reference, or on a continuation thereof which shall be attached hereto and made a part hereof; provided, however, that any failure to endorse such information on such schedule or continuation thereof shall not in any manner affect the Borrower's Obligations under the Credit Agreement. FORM OF ASSIGNMENT AND ACCEPTANCE IN WITNESS WHEREOF, the Borrower has caused this Competitive Loan Note to be duly executed by its duly authorized officer as of the day and year first above written. DELTA WOODSIDE INDUSTRIES, INC. By_____________________________ Title__________________________ FORM OF ASSIGNMENT AND ACCEPTANCE SCHEDULE A TO THE COMPETITIVE LOAN NOTE EXECUTED IN FAVOR OF _____________________________________ DATED __________, 199_ Date Person Making Notation Amount Interest Period Rate Payments Principal Interest Bala of N FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT D FORM OF SUBSIDIARY GUARANTY THIS GUARANTY AGREEMENT, dated as of _____________, 199_ (the "Guaranty Agreement"), is given by __________________, a ______________ corporation (the "Guarantor"), in connection with that certain Credit Agreement dated as of September __, 1994 (as amended from time to time, the "Credit Agreement") among Delta Woodside Industries, Inc., a South Carolina corporation (herein with its successors called the "Borrower"), various financial institutions parties thereto (the "Lenders") and NationsBank of North Carolina, N.A., as Agent for such Lenders. Terms defined in the Credit Agreement are, unless otherwise defined herein, used herein as defined in the Credit Agreement. W I T N E S S E T H : WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to provide the Borrower with certain credit facilities, including Committed Loans, Competitive Loans and Swingline Loans and Letters of Credit, in an aggregate principal amount outstanding of up to $275,000,000; and WHEREAS, the Guarantor is a direct or indirect Subsidiary of the Borrower and the Borrower is required pursuant to Section 5.1 or Section 7.10 of the Credit Agreement to cause the Guarantor to enter into this Guaranty Agreement. NOW, THEREFORE, to induce the Lenders to make available the credit facilities described above pursuant to the Credit Agreement and in consideration of the premises, the Guarantor hereby agrees as follows: 1. Guaranty of Payment. The Guarantor hereby irrevocably and unconditionally guarantees to the Agent and the Lenders the prompt payment, when due, by acceleration or otherwise, of the Guaranteed Obligations. For purposes of this Guaranty Agreement, "Guaranteed Obligations" means any and all indebtedness of the Borrower or any other Subsidiary Guarantor to the Agent or the Lenders under the Credit Agreement, the Notes, the Subsidiary Guaranties or any other of the Loan Documents including, without limitation, all principal, interest and fees and any and all reimbursement obligations and other indebtedness arising on account of drawings under Letters of Credit plus any and all other indebtedness of the Borrower or any other Subsidiary Guarantor to the Agent or any Lender under the Loan Documents, whether existing now or arising hereafter, as such Guaranteed Obligations may be modified, extended or renewed from time to time. The guaranty of the Guarantor as set forth in this section FORM OF ASSIGNMENT AND ACCEPTANCE is a guaranty of payment and not of collection. Notwithstanding any provision to the contrary contained herein or in the Loan Documents, the liability of the Guarantor with respect to the Guaranteed Obligations shall not exceed the Maximum Obligated Amount (as hereinafter defined). For the purposes hereof: "Adjusted Net Worth" means, as of any date of determination thereof, the excess of (i) the amount of the "present fair saleable value" of the assets of the Guarantor as of such date of determination, over (ii) the amount of all "liabilities, contingent or otherwise", of the Guarantor as of such date of determination, as such quoted terms are determined in accordance with applicable Federal and state laws governing determinations of the insolvency of debtors. In determining Adjusted Net Worth for the purposes of calculating the Maximum Obligated Amount in respect of any Extension of Credit, the liabilities to be used in such determination pursuant to clause (ii) of the preceding sentence shall in any event include the liabilities of the Guarantor hereunder in respect of all Extensions of Credit other than the Extension of Credit in respect of which such calculation is being made; "Extension of Credit" means any Loan advanced under the Credit Agreement and any Letter of Credit issued under the Credit Agreement (and obligations to make advances thereunder); "Maximum Obligated Amount" means, as of any date of determination thereof, the sum of (i) with respect to each Extension of Credit (or portion thereof) which is used (or the proceeds of which are used) to make a Direct Transfer to the Guarantor, the outstanding amount of such Extension of Credit (or such portion thereof) as of such date, plus (ii) with respect to each Extension of Credit (or portion thereof) which is not used (or the proceeds of which are not used) to make a Direct Transfer to the Guarantor, the lesser of (a) the outstanding amount of all such Extensions of Credit (or such portions thereof) as of the earlier of the date that enforcement is sought against the Guarantor with respect to the Guaranteed Obligations hereunder or the date of the commencement of a case under the U.S. Bankruptcy Code in which the Guarantor is a debtor, or (b) 95% of the Adjusted Net Worth of the Guarantor at the time of each such Extension of Credit; and "Direct Transfer" means (i) all loans, advances or capital contributions made to or for the direct benefit of, or letters of credit issued for the account of or direct benefit of, the Guarantor with any Extension of Credit (or with any proceeds thereof), (ii) all debt securities or other obligations of the Guarantor acquired from the Guarantor, retired by the Guarantor or collateralized by the Guarantor with any Extension of Credit FORM OF ASSIGNMENT AND ACCEPTANCE (or with any proceeds thereof), (iii) the fair market value of all property acquired with any Extension of Credit (or with any proceeds thereof) and transferred, absolutely and not as collateral, to the Guarantor and (iv) all equity securities of the Guarantor acquired from the Guarantor with any Extension of Credit (or with any proceeds thereof). 2. Release of Collateral, Parties Liable, etc. The Guarantor agrees that the whole or any part of the security now or hereafter held for the Guaranteed Obligations may be exchanged, compromised, released or surrendered from time to time; that neither the Agent nor the Lenders (in their respective capacities as such) shall have any obligation to protect, perfect, secure or insure any security interests, liens or encumbrances now or hereafter held for the Guaranteed Obligations or the properties subject thereto; that the time or place of payment of the Guaranteed Obligations may be changed or extended, in whole or in part, to a time certain or otherwise, and may be renewed or accelerated, in whole or in part; that the Borrower or any other Subsidiary Guarantor may be granted indulgences generally; that any of the provisions of the Loan Documents, or any of them, or any other documents executed in connection with this transaction, may be modified, amended or waived; that any party liable for the payment thereof may be granted indulgences or released; and that any deposit balance for the credit of the Borrower or any other Subsidiary Guarantor or any other party liable for the payment of the Guaranteed Obligations or liable upon any security therefor may be released, in whole or in part, at, before and/or after the stated, extended or accelerated maturity of the Guaranteed Obligations, all without notice to or further assent by the Guarantor, who shall remain bound hereon, notwithstanding any such exchange, compromise, surrender, extension, renewal, acceleration, modification, indulgence or release. 3. Waiver of Rights. The Guarantor expressly waives: (a) notice of acceptance of this Guaranty Agreement by the Agent and the Lenders and of all extensions of credit to the Borrower by the Agent or any Lender; (b) presentment and demand for payment of any of the Guaranteed Obligations; (c) protest and notice of dishonor or of default to the Guarantor or to any other party with respect to the Guaranteed Obligations or with respect to any security therefor; (d) notice of the Agent or any Lender obtain- ing, amending, substituting for, releasing, waiving or modifying any security interest, liens, or encumbrances now or hereafter securing the Guaranteed Obligations, or the Agent's or any Lender's subordinating, compromising, discharging or releasing such security interests, liens or encumbrances; (e) all other notices to which the Guarantor might otherwise be entitled; (f) demand for payment under this Guaranty Agreement; and (g) any right to assert against the Agent or any Lender, as a defense, counterclaim, set-off, or cross- claim any defense (legal or equitable), set-off, counterclaim or claim which the Guarantor may now or hereafter have against the Agent or any Lender or the FORM OF ASSIGNMENT AND ACCEPTANCE Borrower or any other Subsidiary Guarantor, but such waiver shall not prevent the Guarantor from asserting against the Agent, any Lender, the Borrower or any other Subsidiary Guarantor in a separate action, any claim, action, cause of action, or demand that the Guarantor might have, whether or not arising out of this Guaranty Agreement. 4. Primary Liability of Guarantor. The Guarantor agrees that this Guaranty Agreement may be enforced by the Agent and the Lenders without the necessity at any time of resorting to or exhausting any other security or collateral and without the necessity at any time of having recourse to the Notes, any other Subsidiary Guaranty or any collateral now or hereafter securing the Guaranteed Obligations or otherwise, and the Guarantor hereby waives the right to require the Agent and the Lenders to proceed against the Borrower, any other Subsidiary Guarantor or any other person (including a co-guarantor) or to require the Agent and the Lenders to pursue any other remedy or enforce any other right. Without limiting the generality of the foregoing, the Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. Sections 26-7 through 26-9, inclusive. In addition, the Guarantor hereby waives and renounces any and all rights it has or may have for subrogation, indemnity, reimbursement or contribution against the Borrower or any other Subsidiary Guarantor for amounts paid under this Guaranty Agreement. This waiver is expressly intended to prevent the existence of any claim in respect of such reimbursement by the Guarantor against the estate of the Borrower or of any other Subsidiary Guarantor within the meaning of Section 101 of the Bankruptcy Code, and to prevent the Guarantor from being deemed a "creditor" of the Borrower or any other Subsidiary Guarantor in respect of such reimbursement within the meaning of Section 547(b) of the Bankruptcy Code in the event of a subsequent case involving the Borrower or any such other Subsidiary Guarantor. The Guarantor further agrees that nothing contained herein shall prevent the Agent or the Lenders from suing on the Notes or on any other Subsidiary Guaranty or foreclosing their security interest in or lien on any collateral now or hereafter securing the Guaranteed Obligations or from exercising any other rights available to them under the Notes, any other Subsidiary Guaranty, or any other instrument of security if neither the Borrower, the other Subsidiary Guarantors nor the Guarantor timely perform the obligations of the Borrower or such other Subsidiary Guarantors, as the case may be thereunder, and the exercise of any of the aforesaid rights and the completion of any foreclosure proceedings shall not constitute a discharge (except to the extent of any payment received which irrevocably reduces the amount of the Guaranteed Obligations) of the Guarantor's obligations hereunder; it being the purpose and intent of the Guarantor that its obligations hereunder shall be absolute, independent and unconditional under any and all circumstances. Neither the Guarantor's obligations under this Guaranty Agreement nor any remedy for the enforcement thereof shall be impaired, modified, changed or released in any manner whatsoever by an FORM OF ASSIGNMENT AND ACCEPTANCE impairment, modification, change, release or limitation of the liability of the Borrower or any other Subsidiary Guarantor, by reason of the Borrower's or any other Subsidiary Guarantor's bankruptcy or insolvency or by reason of the invalidity or unenforceability of all or any portion of the Guaranteed Obligations. The Guarantor acknowledges that the term "Guaranteed Obligations" as used herein includes any payments made by the Borrower or any other Subsidiary Guarantor to the Agent or any Lender and subsequently recovered by the Borrower or such other Subsidiary Guarantor or a trustee for the Borrower or such other Subsidiary Guarantor pursuant to the Borrower's or such other Subsidiary Guarantor's bankruptcy or insolvency and that the guaranty of the Guarantor hereunder shall be reinstated to the extent of such recovery. 5. Attorneys' Fees and Costs of Collection. If at any time or times hereafter the Agent or the Lenders employ counsel to pursue collection, to sue for enforcement of the terms hereof or of the Notes or of any other Subsidiary Guaranty, or to file a petition, complaint, answer, motion or other pleading in any suit or proceeding relating to this Guaranty Agreement or the Notes or any other Subsidiary Guaranty, then in such event, all of the reasonable attorneys' fees relating thereto shall be an addi- tional liability of the Guarantor to the Agent and the Lenders, payable on demand. 6. Security Interests and Setoff. As security for the Guarantor's obligations hereunder, the Guarantor agrees that (a) in the event the Guarantor fails to pay its obligations hereunder when due and payable under this Guaranty Agreement, any of the Guarantor's assets of any kind, nature or description (including, without limitation, deposit accounts) in the possession, control or custody of the Agent or any Lender may, without notice to the Guarantor, be reduced to cash or the like and applied by the Agent or such Lender in reduction or payment of the Guarantor's obligations hereunder; (b) all outstanding security interests, liens and encumbrances heretofore, now and at any time or times hereafter granted by the Guarantor to the Agent or any Lender shall also secure the Guarantor's obligations hereunder; and (c) after any of the Guaranteed Obligations have become due and payable as the result of the occurrence of an Event of Default under the Credit Agreement, the Agent and each Lender shall have the right, immediately and without further action by them, to set off against the Guaranteed Obligations all money owed by the Agent or such Lender in any capacity to the Guarantor, whether or not due, and the Agent or such Lender shall be deemed to have made a charge against any such money immediately upon the occurrence of such obligation becoming due even though such charge is made or entered on the books of the Agent or such Lender subsequent thereto. 7. Term of Guaranty; Warranties. This Guaranty Agreement shall continue in full force and effect until the Guaranteed Obligations are fully and indefeasibly paid, performed and FORM OF ASSIGNMENT AND ACCEPTANCE discharged. This Guaranty Agreement covers the Guaranteed Obligations whether presently outstanding or arising subsequent to the date hereof including all amounts advanced by the Agent or any Lender in stages or installments. The Guarantor warrants and represents to the Agent and the Lenders (i) that the Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of its state of incorporation, (ii) that the Guarantor has all requisite corporate power and authority to execute, deliver and perform this Guaranty Agreement, (iii) that the execution, delivery and performance of this Guaranty Agreement by the Guarantor do not violate or constitute a breach of any material agreement or instrument by which the Guarantor or its properties or assets are bound or of any material provision of law, any order of any court or other agency of government or the corporate charter or certificate of incorporation or bylaws of the Guarantor, (iv) that this Guaranty Agreement is binding upon and enforceable against the Guarantor, in accordance with its terms, (v) that, except as disclosed in Schedule 6.1(j) to the Credit Agreement, there is no litigation, claim, action or proceeding pending, or, to the best knowledge of the Guarantor, threatened, against the Guarantor which would materially adversely affect the financial condition of the Guarantor or its ability to fulfill its obligations hereunder, and (vi) that no consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of the Guarantor is required as a condition to the execution, delivery or performance by the Guarantor, or for the validity or enforceability, of this Guaranty Agreement. This Guaranty Agreement is binding on and enforceable against the Guarantor and its successors and assigns. 8. Further Representations and Warranties. The Guarantor agrees that the Agent and the Lenders will have no obligation to investigate the financial condition or affairs of the Borrower or any other Subsidiary Guarantor for the benefit of the Guarantor nor to advise the Guarantor of any fact respecting, or any change in, the financial condition or affairs of the Borrower or of any other Subsidiary Guarantor which might come to the knowledge of the Agent or any Lender at any time, whether or not the Agent or any Lender knows or believes or has reason to know or believe that any such fact or change is unknown to the Guarantor or might (or does) materially increase the risk of the Guarantor as guarantor or might (or would) affect the willingness of the Guarantor to continue as guarantor with respect to the Guaranteed Obligations. 9. Additional Liability of Guarantor. If the Guarantor is or becomes liable for any indebtedness owing by the Borrower or any other Subsidiary Guarantor to the Agent or any Lender by endorsement or otherwise other than under this Guaranty Agreement, such liability shall not be in any manner impaired or reduced hereby but shall have all and the same force and effect it would have had if this Guaranty Agreement had not existed and the Guarantor's liability hereunder shall not be in any manner FORM OF ASSIGNMENT AND ACCEPTANCE impaired or reduced thereby. 10. Cumulative Rights. All rights of the Agent and each Lender hereunder or otherwise arising under any documents executed in connection with or as security for the Guaranteed Obligations are separate and cumulative and may be pursued separately, successively or concurrently, or not pursued, without affecting or limiting any other right of the Agent or any Lender and without affecting or impairing the liability of the Guarantor hereunder. 11. Pronouns; Severability. The pronouns used in this instrument shall be construed as masculine, feminine or neuter as the occasion may require. 12. Agent and Lender Assigns. This Guaranty Agreement is intended for and shall inure to the benefit of the Agent and each Lender and each and every person who shall from time to time be or become the owner or holder of any of the Guaranteed Obligations, and each and every reference herein to "Agent" or "Lender" shall include and refer to each and every successor or assignee of the Agent or any Lender at any time holding or owning any part of or interest in any part of the Guaranteed Obligations. This Guaranty Agreement shall be transferable and negotiable with the same force and effect, and to the same extent, that the Guaranteed Obligations are transferable and negotiable, it being understood and stipulated that upon assignment or transfer by the Agent or any Lender of any of the Guaranteed Obligations the legal holder or owner of the Guaranteed Obligations (or a part thereof or interest therein thus transferred or assigned by the Agent or any Lender) shall (except as otherwise stipulated by the Agent or any such Lender in its assignment) have and may exercise all of the rights granted to the Agent or such Lender under this Guaranty Agreement to the extent of that part of or interest in the Guaranteed Obligations thus assigned or transferred to said person. The Guarantor expressly waives notice of transfer or assignment of the Guaranteed Obligations, or any part thereof, or of the rights of the Agent or any Lender hereunder. Failure to give notice will not affect the liabilities of the Guarantor hereunder. 13. Application of Payments. The Agent and any Lender may apply any payments received by them from any source against that portion of the Guaranteed Obligations (principal, interest, court costs, attorneys' fees or other) in such priority and fashion as they may deem appropriate in conformity with the Credit Agreement. 14. Notices. Any notice shall be conclusively deemed to have been received by any party hereto and be effective on the day on which delivered to such party at the address set forth below or such other address as such party shall specify to the other party in writing, or if sent prepaid by certified or registered mail on the third Business Day after the day on which FORM OF ASSIGNMENT AND ACCEPTANCE mailed, addressed to such party at such address: FORM OF ASSIGNMENT AND ACCEPTANCE a. if to the Guarantor: c/o Delta Woodside Industries, Inc. 233 N. Main Street Suite 200 Hammond Square Greenville, South Carolina 29601 Attention: President with copies to: Bettis C. Rainsford P.O. Box 388 108-1/2 Courthouse Square Edgefield, South Carolina 29824 Eric B. Amstutz, Esq. Wyche, Burgess, Freeman & Parham, P.A. P.O. Box 728 44 E. Camperdown Way Greenville, South Carolina 29602 b. if to the Agent and/or the Lenders: c/o NationsBank of North Carolina, N.A. NationsBank Corporate Center, 8th Floor 100 North Tryon Street NC1-007-08-11 Charlotte, North Carolina 28255 Attention: E. Phifer Helms This section shall not be construed in any way to affect or impair any waiver of notice or demand herein provided or to require giving of notice or demand to or upon the Guarantor in any situation or for any reason. 15. Headings. The headings herein are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Guaranty Agreement nor the intent of any provisions hereof. 16. Severability. In the event any one or more of the provisions contained in this Guaranty Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 17. Net Payments. All payments made by the Guarantor hereunder will be made without setoff or counterclaim. All payments by the Guarantor hereunder shall be made free and clear of and without deduction or withholding for any present or future license, registration or other fees, taxes or other amounts for FORM OF ASSIGNMENT AND ACCEPTANCE or on account of levies, imposts, duties, deductions, withholdings or other charges of whatsoever nature, imposed, levied, collected, withheld or assessed by any governmental or taxing authority (other than the United States of America or any state thereof or the District of Columbia), excluding income and franchise taxes imposed on a Lender by a jurisdiction under which such Lender is organized or operating in connection with the Credit Agreement or any political subdivision thereof (the "Taxes"). If the Guarantor shall be required to withhold or deduct Taxes from any sum payable hereunder, (i) the sum payable shall be increased as may be necessary so that the amount received is equal to the sum which would have been received had no withholdings or deductions been made, (ii) the Guarantor shall make such necessary withholdings or deductions and (iii) the Guarantor shall pay the full amount withheld or deducted to the relevant authority according to applicable law so that the Lenders shall not be required to make any deduction or payment of Taxes. 18. Entire Agreement. The Guaranty Agreement constitutes the entire contract among the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Guaranty Agreement. 19. Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial; Arbritration. (a) This Guaranty Agreement shall be deemed to be a contract made under, and for all purposes shall be construed in accordance with, the internal laws and judicial decisions of the State of North Carolina. Each of the Guarantor, the Agent and the Lenders agree that any dispute arising out of this Guaranty Agreement shall be subject to the jurisdiction of both the state and federal courts in North Carolina. For that purpose, the Guarantor hereby submits to the jurisdiction and venue of the state and federal courts of North Carolina and agrees not to raise as a defense that such courts are not a convenient forum. The Guarantor further agrees to accept service of process out of any of the beforementioned courts in any such dispute by registered or certified mail, return receipt requested, addressed to the Guarantor. (b) THE GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS GUARANTY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. [(c)(i)(A) Without limiting the generality of subsections (a) and (b) above, the Guarantor agrees that any controversy or claim with respect to the Guarantor arising out of or relating to this Guaranty Agreement may, at the option of the Agent and the Lenders, be settled immediately by submitting the same to binding arbitration in the City of Charlotte, North Carolina (or such other place as the parties may agree) in accordance with the Commercial Arbitration Rules then obtaining of the American FORM OF ASSIGNMENT AND ACCEPTANCE Arbitration Association. Upon the request and submission of any controversy or claim for arbitration hereunder, the Agent shall give the Guarantor not less than 45 days written notice of the request for arbitration, the nature of the controversy or claim, and the time and place set for arbitration. The Guarantor agrees that such notice is reasonable to enable the Guarantor sufficient time to prepare and present its case before the arbitration panel. Judgment on the award rendered by the arbitration panel may be entered in any court in which any action could have been brought or maintained pursuant to subparagraph (C) below, including without limitation any court of the State of North Carolina or any Federal court sitting in the State of North Carolina. The expenses of arbitration shall be paid by the non- prevailing party(ies). (B) The provisions of subparagraph (A) above are intended to comply with the requirements of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"). To the extent that any provisions of such subparagraph (A) are not consistent with or fail to conform to the requirements set out in the Convention, such subparagraph (A) shall be deemed amended to conform to the requirements of the Convention. (C) The Guarantor hereby specifically consents and submits to the jurisdiction of the courts of the State of North Carolina and courts of the United States located in the State of North Carolina for purposes of entry of a judgment or arbitration award entered by the arbitration panel. (D) The Guarantor hereby irrevocably appoints the President of the Nautilus division of Nautilus International, Inc., with an address on the date hereof at 9800 West Kincey Avenue, Suite 150, Huntersville, NC 28078 (the "North Carolina Process Agent"), as process agent in its name, place and stead to receive and forward service of any and all writs, summonses and other legal process in any suit, action or proceeding brought in the State of North Carolina, agrees that such service in any such suit, action or proceeding may be made upon the North Carolina Process Agent and agrees to take all such action as may be necessary to continue said appointment in full force and effect or to appoint another agent so that the Guarantor will at all times have an agent in the State of North Carolina for service of process for the above purposes. (ii) The guarantee of the Guarantor pursuant to this Guaranty Agreement is (in part) an international transaction in which payment of dollars in Charlotte, North Carolina, is of the essence, and dollars shall be the currency of account in all events. The payment obligation of the Guarantor shall not be discharged by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on prompt conversion to dollars and transfer to Charlotte, North Carolina, under normal banking FORM OF ASSIGNMENT AND ACCEPTANCE procedures does not yield the amount of dollars in Charlotte, North Carolina due hereunder. In the event that any payment by the Guarantor, whether pursuant to a judgment or otherwise, upon conversion and transfer does not result in payment of such amount of dollars in Charlotte, North Carolina, the Agent and the Lenders shall have a separate cause of action against the Guarantor for the additional amount necessary to yield the amount due and owing to the Agent and the Lenders hereunder.] ***. For use if the Guarantor is not organized or incorporated under the laws of any of the United States or the District of Columbia. * IN WITNESS WHEREOF, the Guarantor has caused this Guaranty Agreement to be duly executed by its duly authorized officer as of the date first above written. [NAME OF GUARANTOR] By____________________________ Title: ACCEPTED: NATIONSBANK OF NORTH CAROLINA, N.A., as Agent for the Lenders By__________________________________ Title: FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT E FORM OF SWINGLINE LOAN NOTE $15,000,000 September __, 1994 FOR VALUE RECEIVED, DELTA WOODSIDE INDUSTRIES, INC., a South Carolina corporation (the "Borrower"), hereby promises to pay to NationsBank of North Carolina, N.A. (the "Swingline Lender"), at the office of NationsBank of North Carolina, N.A., as Agent (the "Agent"), at One NationsBank Plaza, NC1-007-08-11, Charlotte, North Carolina 28255 (or at such other place or places as the holder hereof may designate), at the times set forth in the Credit Agreement dated as of September __, 1994, among the Borrower, the Agent, the Swingline Lender and certain other lenders (as it may be amended, modified, extended or restated from time to time, the "Credit Agreement"; all capitalized terms not otherwise defined herein shall have the meanings set forth in the Credit Agreement), but in no event later than the Termination Date, in Dollars and in immediately available funds, the principal amount of FIFTEEN MILLION DOLLARS ($15,000,000) or, if less than such principal amount, the aggregate unpaid principal amount of all Swingline Loans made by the Swingline Lender to the Borrower pursuant to the Credit Agreement, and to pay interest from the date hereof on the unpaid principal amount hereof, in like money, at said office, on the dates and at the rates determined in accordance with Sections 2.9(c) and 4.1 of the Credit Agreement. If payment of all sums due hereunder is accelerated under the terms of the Credit Agreement, this Swingline Loan Note and all other indebtedness of the Borrower to the Swingline Lender shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Swingline Loan Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees. All borrowings evidenced by this Swingline Loan Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on Schedule A attached hereto and incorporated herein by reference, or on a continuation thereof which shall be attached hereto and made a part hereof; provided, however, that any failure to endorse such information on such schedule or continuation thereof shall not in any manner affect the Borrower's Obligations under the Credit Agreement. FORM OF ASSIGNMENT AND ACCEPTANCE IN WITNESS WHEREOF, the Borrower has caused this Swingline Loan Note to be duly executed by its duly authorized officer as of the day and year first above written. DELTA WOODSIDE INDUSTRIES, INC. By_____________________________ Title__________________________ FORM OF ASSIGNMENT AND ACCEPTANCE SCHEDULE A TO THE SWINGLINE LOAN NOTE EXECUTED IN FAVOR OF NATIONSBANK OF NORTH CAROLINA, N.A. DATED SEPTEMBER __, 1994 Date Person Making Notation Amount Interest Period Rate Payments Principal Interest Bal of FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT F FORM OF COMPETITIVE BID REQUEST NationsBank of North Carolina, N.A., as Agent for the Lenders referred to below NationsBank Corporate Center, 6th Floor NC1-007-08-11 Charlotte, North Carolina 28255 Attn: E. Phifer Helms Dear Sirs: The undersigned, Delta Woodside Industries, Inc., refers to the Credit Agreement, dated as of September __, 1994 (as amended from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among the undersigned, certain Lenders parties thereto and NationsBank of North Carolina, N.A., as Agent for said Lenders, and hereby gives you notice pursuant to Section 2.8(b) of the Credit Agreement that the undersigned hereby requests a Competitive Loan under the Credit Agreement, and in that connection sets forth below the information relating to such borrowing (the "Proposed Competitive Loan") as required by Section 2.8(b) of the Credit Agreement: (1) Date of Proposed Competitive Loan (which is a Business Day) _________________________ (2) Principal Amount of Proposed Competitive Loan _________________________ (3) Interest Period or Periods and the last day or days thereof _________________________ As to each Proposed Competitive Loan, the undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of such Proposed Competitive Loan: (A) the representations and warranties contained in Section 6.1 of the Credit Agreement are true and correct, before and after giving effect to such Proposed Competitive Loan and to the application of the proceeds therefrom, as though made on and as of such date; (B) no event has occurred and is continuing, or would result from such Proposed Competitive Loan or from the application of the proceeds therefrom, which constitutes a Default or Event of Default; and FORM OF ASSIGNMENT AND ACCEPTANCE (C) a Subsidiary Guaranty has been duly executed and delivered, and the conditions precedent set forth in Sections 5.1(b)(ii), (iii), (iv), (v), (viii) and (ix) of the Credit Agreement have been satisfied, by each Significant Subsidiary of the Borrower. Very truly yours, DELTA WOODSIDE INDUSTRIES, INC. By: Name: Title: FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT G FORM OF CONFIRMATION OF NOTICE OF BORROWING NationsBank of North Carolina, N.A., as Agent for the Lenders parties to the Credit Agreement referred to below 100 North Tryon Street NC1-007-08-11 Charlotte, North Carolina 28255 [Date] Attention: E. Phifer Helms Gentlemen: The undersigned, Delta Woodside Industries, Inc., refers to the Credit Agreement, dated as of September __, 1994 (as amended from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among the undersigned, certain Lenders parties thereto and NationsBank of North Carolina, N.A., as Agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.3(a) of the Credit Agreement that the undersigned hereby requests a Committed Loan under the Credit Agreement, and in that connection sets forth below the information relating to such borrowing (the "Proposed Committed Loan") as required by Section 2.3(a) of the Credit Agreement: (1) The Business Day of the Proposed Committed Loan is __________________, 199__. (2) The Type of Committed Advances comprising the Proposed Committed Loan is [Base Rate Advances] [Eurodollar Advances]. (3) The aggregate amount of the Proposed Committed Loan is $_________________. (4) The Interest Period for each Eurodollar Advance made as part of the Proposed Committed Loan is _____ month(s). As to the Proposed Committed Loan, the undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Committed Loan: (A) the representations and warranties contained in Section 6.1 of the Credit Agreement are true and correct, before and after giving effect to the Proposed Committed Loan and to the application of the proceeds therefrom, as FORM OF ASSIGNMENT AND ACCEPTANCE though made on and as of such date; (B) no event has occurred and is continuing, or would result from such Proposed Committed Loan or from the application of the proceeds therefrom, which constitutes a Default or Event of Default; and (C) a Subsidiary Guaranty has been duly executed and delivered, and the conditions precedent set forth in Sections 5.1(b)(ii), (iii), (iv), (v), (viii) and (ix) of the Credit Agreement have been satisfied, by each Significant Subsidiary of the Borrower. Very truly yours, DELTA WOODSIDE INDUSTRIES, INC. By: Name: Title: FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT H FORM OF CONFIRMATION OF NOTICE OF CONVERSION/CONTINUATION NationsBank of North Carolina, N.A., as Agent for the Lenders parties to the Credit Agreement referred to below 100 North Tryon Street NC1-007-08-11 Charlotte, North Carolina 28255 [Date] Attention: E. Phifer Helms Gentlemen: The undersigned, Delta Woodside Industries, Inc., refers to the Credit Agreement, dated as of September __, 1994 (as amended from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among the undersigned, certain Lenders parties thereto and NationsBank of North Carolina, N.A., as Agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.3(e) of the Credit Agreement that the undersigned hereby requests [the conversion] [the continuation] of Committed Advances [of one Type] comprising a Committed Loan (the "Existing Committed Loan") [into Committed Advances of another Type available under the Credit Agreement] and in that connection sets forth below the information relating to such [conversion] [continuation] (the "Proposed [Conversion] [Continuation]") as required by Section 2.3(e) of the Credit Agreement: (1) The Type of Advances comprising the Existing Committed Loan is [Base Rate Advances] [Eurodollar Advances]. (2) [The last day of the Interest Period applicable to the Eurodollar Advances comprising the Existing Committed Loan is _____________, 199_,] [which is the date of the Proposed Continuation] [and] [the Business Day of the Proposed Conversion is ____________, 199__.] ***. Both dates in item (2) should be stated and must be the same if an Existing Loan comprised of Eurodollar Advances is being converted to a Loan comprised of Base Rate Advances. If the Existing Loan is comprised of Base Rate Advances, only the date of the Proposed Conversion should be stated** FORM OF ASSIGNMENT AND ACCEPTANCE (3) The aggregate outstanding principal amount of the Committed Advances comprising the Existing Committed Loan is $____________. (4) The Committed Advances comprising the Existing Committed Loan are to be [converted into] [continued as] [Base Rate Advances] [Eurodollar Advances] [in their entirety] [to the extent of $________________ of the principal amount thereof] [and [converted into] [continued as] [Base Rate Advances] [Eurodollar Advances] to the extent of $____________ of the principal amount thereof]. (5) The Interest Period for each Committed Advance [converted into] [continued as] Eurodollar Advances is ____ month(s). As to each Proposed [Conversion] [Continuation] of any Committed Advances [into] [as] Eurodollar Advances, the Borrower hereby represents and warrants that as of the date hereof no Default or Event of Default has occurred and is continuing. Very truly yours, DELTA WOODSIDE INDUSTRIES, INC. By: Name: Title: FORM OF ASSIGNMENT AND ACCEPTANCE ## EXHIBIT K FORM OF OFFICER'S COMPLIANCE CERTIFICATE For the Fiscal Quarter/Year ended _________________, 19__. I, ______________________, _______________________ of Delta Woodside Industries, Inc. (the "Borrower"), hereby certify that, with respect to that certain Credit Agreement dated as of FORM OF ASSIGNMENT AND ACCEPTANCE September 7, 1994 (as the same may be amended, modified, extended or restated from time to time, the "Credit Agreement"; all of the defined terms in the Credit Agreement are incorporated herein by reference) among the Borrower, the Lenders party thereto and NationsBank of North Carolina, N.A., as Agent: a. As of the date hereof, based on an examination sufficient to enable me to make an informed statement, no Default or Event of Default exists [or, if such is not the case, a description specifying any such Default or Event of Default and its nature, when it occurred, whether it is continuing and the steps being taken by the Borrower with respect thereto shall be provided on a separate page]; and b. Delivered herewith are detailed calculations demonstrating (i) compliance [or non-compliance] by the Borrower with the requirements of Sections 9.1, 9.5 and 9.6 of the Credit Agreement as of the end of the fiscal period referred to above, (ii) the outstanding Net Amount of all Investments (other than Permitted Investments) made by the Borrower or any Subsidiary Guarantor since the Agreement Date as of the end of the fiscal period referred to above and (iii) the aggregate purchase price of all Acquisitions of any Business Units made by the Borrower or any Subsidiary Guarantor since the Agreement Date through the end of the fiscal period referred to above. This ______ day of ___________, 199_. [Corporate Seal] ________________________________ [Title] Delta Woodside Industries, Inc. EX-13 3 CONTENTS Common Stock Market Prices and Dividends.............................................Inside Front Cover Selected Financial Data..................................................1 Letter to Shareholders.................................................2-3 Management's Discussion and Analysis............................................................4-11 Operations by Industry Segment............................................................12-13 Report of Ernst & Young LLP.............................................14 Consolidated Financial Statements.........................................................15-28 Corporate Directory.... .................................Inside Back Cover COMMON STOCK MARKET PRICES AND DIVIDENDS The Common Stock of the Company is listed on the New York Stock Exchange under the symbol DLW. The stock transfer agent for Delta Woodside Industries, Inc. is First Union National Bank of North Carolina, Shareholder Services Group, Two First Union Center, Charlotte, North Carolina 28288-1154. The following table presents a two-year history of the high and low stock sales prices for the Common Stock, as reported by the New York Stock Exchange composite tape, and cash dividends declared per share:
1994 1993 FISCAL QUARTERS: High Low High Low First Quarter $ 11 7/8 $ 10 1/4 $ 18 3/8 $ 12 3/4 Second Quarter 11 3/8 10 3/8 16 11 1/2 Third Quarter 12 1/2 9 3/4 16 3/4 12 1/2 Fourth Quarter 12 1/4 10 7/8 14 7/8 11 1/8 Cash Dividends Declared 1994 1993 First Quarter $.10 $ .10 Second Quarter .10 .10 Third Quarter .10 .10 Fourth Quarter .10 .10
Fiscal Year: The Company's operations are based on a fifty-two or fifty-three week fiscal year ending on the Saturday closest to June 30. As of September 8, 1994 there were approximately 2,283 holders of record of the Company's Common Stock. Dividend payments depend upon the Company's earnings, financial condition, capital requirements and other relevant factors. The most restrictive of the Company's loan covenants in the new loan facility described in Note D requires a certain minimum tangible net worth. Under this loan covenant at July 2, 1994, retained earnings of approximately $7.6 million are available for dividends during fiscal 1995. SELECTED FINANCIAL DATA In Thousands, Except Ratios, Percentages, Number of Shareholders and Per Share Data
OPERATIONS (3) 1994(1) 1993(2) 1992 1991 1990 1989 1988 1987 Net Sales $613,776 $686,239 $5705,037 $590,019 $500,894 $569,052 $488,568 $417,461 Cost of Goods Sold 514,840 564,352 563,827 480,396 427,788 470,265 409,231 343,623 Gross Profit 98,936 121,887 141,210 109,623 73,106 98,787 79,337 73,838 Operating Profit (Loss) Excluding Litigation, Restructuring and Plant Closing Charges 21,582 55,863 80,628 61,374 37,591 69,245 54,349 49,102 Litigation Charge 27,096 Restructuring and Plant Closing Charges 9,199 2,265 Operating Profit (Loss) (14,713) 55,863 80,628 61,374 35,326 69,245 54,349 49,102 Corporate Expense 3,300 3,278 3,802 2,140 2,249 3,009 2,002 1,167 Earnings (Loss) Before Interest and Taxes (18,013) 52,585 76,826 59,234 33,077 66,513 54,209 46,993 Interest Expense 8,639 7,775 11,479 22,115 25,768 20,929 12,685 12,939 Income (Loss) Before Income Taxes (25,930) 45,172 65,801 37,543 8,029 45,940 41,705 34,238 Income Tax Expense (Benefit) (8,633) 16,968 25,786 13,600 2,020 15,643 13,850 12,667 Income (Loss) Before Cumulative Effect of Accounting Change (17,297) 28,204 40,015 23,943 6,009 30,297 27,855 21,571 Cumulative Effect of Accounting Change -- Income Taxes (2) (875) Net Income (Loss) (17,297) 27,329 40,015 23,943 6,009 30,297 27,855 21,571 FINANCIAL DATA (3) Cash Flow (Net Income (Loss) plus depreciation and amortization) (10) 9,596 46,148 54,843 39,041 19,263 40,025 32,421 24,908 Capital Expenditures/Capital Leases 29,856 49,575 42,916 15,793 19,250 46,048 32,141 7,924 Depreciation and Amortization (10) 26,893 18,819 14,828 15,098 13,254 9,728 4,566 3,337 Working Capital 241,950 262,111 266,356 105,498 71,967 78,726 60,811 63,602 Long-Term Debt and Capital Leases 161,948 130,464 110,414 71,189 85,704 88,791 35,254 38,832 Funded Debt (4)(7) 162,812 132,200 112,133 188,352 227,097 223,397 118,528 115,732 Shareholders' Equity (5) 284,877 336,249 318,781 172,647 127,575 127,169 86,462 59,015 Capital Employed (6) 447,689 468,449 430,914 360,999 354,672 350,566 204,990 174,747 Total Assets (7) 567,003 573,946 524,756 434,424 414,497 331,066 177,300 149,116 FINANCIAL RATIOS (3) Net Sales divided by Inventory 3.0 3.5 4.0 4.3 3.5 4.4 6.3 5.8 Net Sales divided by Accounts Receivable 5.2 4.9 4.3 4.2 4.5 4.6 4.9 4.5 Net Sales divided by Capital Employed 1.4 1.5 1.6 1.6 1.4 1.6 2.4 2.4 Operating Income (Loss) as % of Capital Employed (3.9) 11.3 17.9 16.5 9.5 19.1 26.5 27.0 Current Ratio 3.5 4.1 4.4 1.6 1.4 1.7 2.2 2.2 Interest Coverage (2.1) 6.8 6.7 2.7 1.3 3.2 4.3 3.6 Gross Profit as % of Sales 16.1 17.8 20.0 18.6 14.6 17.4 16.2 17.7 Pre-Tax Income (Loss) as % of Sales (4.2) 6.6 9.3 6.4 1.6 8.1 8.5 8.2 Net Income (Loss) as % of Sales (2.8) 4.0 5.7 4.1 1.2 5.3 5.7 5.2 Net Income (Loss) as % of Beginning Equity (5.1) 8.6 23.2 18.8 4.7 35 47 245 COMMON STOCK DATA (PER SHARE) (3)(8) Net Income (Loss) (.70) 1.03 1.62 1.27 .32 1.65 1.60 1.36 Dividends .40 .40 .35 .30 .30 .20 .05 -- Book Value 11.75 12.72 12.07 8.17 6.76 6.82 4.97 3.41 Price Range (9) -- High 121/2 183/8 251/4 141/8 177/8 161/2 141/4 161/2 -- Low 93/4 111/8 131/2 35/8 61/2 83/4 51/4 97/8 Weighted Average Shares Outstanding 24,550 26,421 24,670 18,879 18,733 18,338 17,385 15,840 Approximate Number of Shareholders 2,221 2,340 2,255 2,062 2,575 1,475 1,250 1,300 012 OPERATIONS (3) 1986 1985 Net Sales $141,810 $94,428 Cost of Goods Sold 118,909 80,534 Gross Profit 22,901 13,894 Operating Profit (Loss) Excluding Litigation, Restructuring and Plant Closing Charges Litigation Charge Restructuring and Plant Closing Charges Operating Profit (Loss) 15,027 9,889 Corporate Expense 138 117 Earnings (Loss) Before Interest and Taxes 14,889 9,772 Interest Expense 5,197 5,240 Income (Loss) Before Income Taxes 9,983 4,594 Income Tax Expense (Benefit) 4,724 2,219 Income (Loss) Before Cumulative Effect of Accounting Change 5,259 2,375 Cumulative Effect of Accounting Change -- Income Taxes (2) Net Income (Loss) 5,259 2,375 FINANCIAL DATA (3) Cash Flow (Net Income (Loss) plus depreciation and amortization) (10) 7,494 4,479 Capital Expenditures/Capital Leases 2,478 1,789 Depreciation and Amortization (10) 2,235 2,104 Working Capital 8,808 4,205 Long-Term Debt and Capital Leases 21,530 19,086 Funded Debt (4)(7) 48,263 40,007 Shareholders' Equity (5) 8,803 3,544 Capital Employed (6) 57,066 43,551 Total Assets (7) 56,736 43,537 FINANCIAL RATIOS (3) Net Sales divided by Inventory 8.2 6.6 Net Sales divided by Accounts Receivable 4.6 4.9 Net Sales divided by Capital Employed 2.5 2.2 Operating Income (Loss) as % of Capital Employed 26.6 22.6 Current Ratio 1.4 1.2 Interest Coverage 2.9 1.9 Gross Profit as % of Sales 16.1 14.7 Pre-Tax Income (Loss) as % of Sales 7.0 4.9 Net Income (Loss) as % of Sales 3.7 2.5 Net Income (Loss) as % of Beginning Equity 148 203 COMMON STOCK DATA (PER SHARE) (3)(8) Net Income (Loss) .35 .16 Dividends -- -- Book Value .59 .24 Price Range (9) -- High -- -- -- Low -- -- Weighted Average Common Shares Outstanding 15,000 15,000 Approximate Number of Shareholders N/A N/A
012 (1) During fiscal 1994, the Company recorded litigation and restructuring charges of $27,096,000 and $9,199,000, respectively. (2) During fiscal 1993, the Company changed its method of accounting for income taxes. See Note F. (3) Financial data reflect the following major business additions from their respective dates of acquisition: (i) a portion of the knit apparel operation acquired on March 30, 1985; (ii) a portion of the knit apparel operation acquired on September 30, 1985; (iii) the major portion of the woven fabrics operation and the major portion of the knitted fabrics operation acquired at the beginning of fiscal 1987; (iv) a portion of the knitted fabrics operation acquired on December 27, 1986; (v) a portion of the knit apparel operation and a portion of the woven apparel operation acquired on September 7, 1988; (vi) a portion of the woven apparel operation (including the "Duck Head" label) acquired on February 1, 1989; and (vii) Nautilus International and a portion of the affiliated license products company acquired January 20, 1993. (4) Funded Debt includes long-and short-term debt, capital leases and offset factor borrowings. See Note 6. (5) Shareholders' Equity at June 27, 1992 and June 29, 1991 includes approximately $113 million and $25.5 million of net proceeds from sales of Common Stock in October 1991 and June 1991, respectively. (6) Capital Employed includes shareholders' equity and funded debt. (7) Prior to fiscal 1990 the Company offset certain assigned receivables and borrowings relating to its former factor agreements. Had these items not been offset, the Company's accounts receivable and notes payable at the end of the 1989, 1988, 1987 and 1986 fiscal years would have each been increased by approximately $79.4 million, $73.6 million, $64.7 million and $16.2 million, respectively. (8) Per share data and weighted average common shares outstanding for fiscal 1987, 1986 and 1985 give retroactive effect to the issuance of 15,000,000 shares of Common Stock relating to the reorganization of companies under common control effective November 25, 1986. The number of shares outstanding at July 2, 1994, July 3, 1993, and June 27, 1992 for financial reporting purposes was 24,245,733, 26,436,886, and 26,400,371, respectively. (9) The Company's Common Stock began trading publicly in February 1987. (10) Depreciation and amortization include certain writedowns of property and equipment. 1 TO OUR FELLOW SHAREHOLDERS (Photo of E. Erwin Maddrey, II) E. ERWIN MADDREY, II To Our Fellow Shareholders: Fiscal 1994 began with most of our markets suffering from weak retail demand which began to steadily improve as the year progressed. The weakness started during our 1993 fiscal year and continued into 1994. It was only towards the end of our fiscal year that we began to feel improved demand. As a result of the lower demand through the major part of fiscal 1994, our sales dropped 11% to $614 million from the prior year level. This weakness in demand was caused by the continuing uncertainty of consumer confidence that has kept apparel retailers' buying habits very cautious. During the year, in light of the soft economic conditions, we made an in-depth analysis of all of our businesses and determined that we should sell our office products division. We also decided that some restructuring was necessary in our apparel businesses. During fiscal 1994 we took a restructuring charge of $9.2 million. Also, in the second quarter, we received the unexpected news that an Alabama jury had awarded a former sales representative of the Company and two of his assistants $29 million in a suit over commissions. This award was later reduced to $23 million by the trial judge. We believe that this award is unjustifiable and have appealed it to the Alabama Supreme Court. We recorded a litigation reserve for the entire amount in the second quarter of fiscal 1994. Because of the poor demand in the first part of the year, the restructuring charge, and the litigation reserve, we reported a loss of $17 million for the year. Our businesses are better and we are looking forward to our 1995 fiscal year. Our textile fabrics operation has two parts -- a woven division and a knit division. The woven division, which produces bottom weight fabrics for the casual pants and dress pants markets as well as a variety of other finished and unfinished fabrics, had mixed results during the year. Demand on the casual side was very strong and those plants have run full. However, the demand for casual products has decreased the demand for dress pants, and that part of the business, as well as our unfinished fabrics facilities, have run curtailed operating schedules. We have embarked on a major expansion and modernization program in this division which will result in increased capacity for casual fabrics and lower costs for all of the fabrics made by this division. We expect increased production early in fiscal 1996 which will allow our woven fabrics division to further improve its important position in the domestic casual pants market. We have completed the modernization of our knit fabrics division. Over the last few years, we have reduced this division's manufacturing facilities from eight to five. Today, the five plants are producing more pounds than the eight did. The extensive machinery changes that we went through to reach this point were very disruptive and expensive and caused this division to be unprofitable in 1994. Now, with these changes behind us and lower cost manufacturing capacity in place, we expect this division to become a significant profit contributor. Our knit apparel division suffered from poor demand in the T-shirt and sweatshirt markets during the first half of the year. In the last half, demand returned to more normal levels and our operations improved as running schedules increased. 2 Since the purchase of Duck Head in 1989 we have been trying to catch up with demand for the product. Because some of our systems were not able to handle the increased volume, we began experiencing delivery problems in fiscal 1992 and did a poor job servicing our customers. We lost some customers because of this, and we have shrunk this business back to a more manageable level. As we become confident in our systems, we will begin to grow again. A major element is a new distribution center to replace several smaller distribution centers. This will be built during calendar 1995. We have been pleased with the growth of Nautilus' core commercial business. We are beginning to test market a consumer line. Hopefully, this will allow us to begin participating in the much larger consumer market. During 1994, we spent $30 million on capital expenditures. In 1995, we plan to spend $45 million on new capital programs. The major items will be the acceleration of the Delta Mills expansion and modernization program and the Duck Head distribution center. In June, we completed the sale of our office products division, Harper Brothers, to Denver based Corporate Express, Inc. Our analysis of our business led us to conclude that Harper Brothers would be better owned by someone in the office products business. Fiscal 1994 was a tough year and, frankly, one that we are glad to have behind us. We are pleased with the condition of our businesses today and are looking forward to the better results that better markets bring. (Photo of Bettis C. Rainsford) BETTIS C. RAINSFORD (Signature of E. Erwin Maddrey, II) E. Erwin Maddrey, II President and Chief Executive Officer (Signature of Bettis C. Rainsford) Bettis C. Rainsford Executive Vice President, Treasurer and Chief Financial Officer 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS CONSOLIDATED COMPANY RESULTS FISCAL 1994 VERSUS FISCAL 1993 Consolidated net sales for the fiscal year ended July 2, 1994 (52 weeks) were $613,776,000, a decrease of $72,463,000 from the prior year's $686,239,000 (53 weeks). Net sales in fiscal 1994 decreased in both the textile and apparel segments as compared with net sales in fiscal 1993. Consolidated gross profit margin for fiscal 1994 decreased to 16% compared to 18% in fiscal 1993. Gross margins in fiscal 1994 were impacted by disruption costs associated with the consolidation of the Company's knit finishing plants, by low prices on the sale of closeout apparel merchandise, and by cotton costs rising more rapidly than prices in the January-June 1994 period. (Net Sales bar chart appears here--see appendix) Consolidated selling, general, and administrative expense for fiscal 1994 was $82.2 million, or 13% of sales, compared to $73.4 million, or 11% of sales, incurred in fiscal 1993. In fiscal 1994, the Company charged income for $27.1 million to establish a reserve for a judgment entered by an Alabama court in connection with a jury award made on November 24, 1993 in favor of a former independent sales representative of a subsidiary of the Company and two of his assistants (the "Alabama litigation"), interest costs on that judgment, and related legal expenses in connection with the appeals process. The appeal is now before the Alabama Supreme Court. The Company believes that this charge to fiscal 1994 income fully reserves future costs associated with this action. In view of weak market conditions and the Company's poor performance in the July to December 1993 period, the Company made certain restructuring decisions at the end of its second fiscal quarter. One of these decisions was to dispose of its Harper Brothers office products distribution division by sale or liquidation. The Company hoped that it would be able to find a qualified buyer who was experienced in the office supply business so that the employees in that division would not be displaced. The Company was successful in finding such a buyer, a subsidiary of Corporate Express, Inc., and the sale of Harper Brothers was completed as of June 4, 1994. The restructuring charge, as adjusted, for this decision was $3.2 million. The Company had been working on plans to convert its former spinning plant building in Edgefield, South Carolina into an outlet mall. Plans were drawn, cleanup work had been started, but after several months of research were completed, in December 1993 the decision was made to abandon this plan and write off the assets involved. The restructuring charge for this decision was $1.3 million. The Company's branded apparel business incurred operating losses in the July to December 1993 period for the first time since it was acquired in February 1989. The Company decided to close its girls and juniors branded apparel line, including liquidating this line's inventory, and focus on its core young mens business. The restructuring charge for this decision was $1.3 million. At the same time, the decision was made to consolidate the branded apparel distribution operations from several geographically scattered warehouses into a central distribution and office complex to be constructed in calendar 1995. The restructuring charge for this decision was $1.1 million. The remainder of the restructuring charges to pre-tax income incurred in the second quarter of fiscal 1994 involved several smaller projects, principally those relating to the consolidation of the physical facilities of the knit textile division. These restructuring decisions included write-downs of $1.6 million of goodwill and $2.1 of property plant and equipment. At July 2, 1994, $2.4 million remain in accrued liabilities related 4 primarily to leases on vacant facilities and other future costs of the restructuring plan. Net interest expense totalled $7.9 million during fiscal 1994 as compared to $7.4 million incurred in fiscal 1993. The Company's outstanding debt at July 2, 1994 was $162.8 million compared with $132.2 million at July 3, 1993. During the first six months of fiscal 1994, the Company repurchased 2.3 million shares of its Common Stock for approximately $25.3 million. Net losses for the year ended July 2, 1994 were $17.3 million compared with net income of $27.3 million for the prior fiscal year. If the charges taken in fiscal 1994 for the Alabama litigation and restructuring were excluded, a fiscal 1994 net income of approximately $5.7 million would have resulted. Total Company inventories increased to $203.8 million at July 2, 1994 compared to $198.3 million at the end of fiscal 1993, an increase of 3%. Consolidated order backlogs totalled $151.5 million at July 2, 1994, a decrease of $10.6 million, or 7%, from total backlogs at July 3, 1993. Order backlogs for woven textiles and branded apparel were lower, and backlogs for knitted textiles and apparel were higher, at the end of fiscal 1994 as compared to fiscal 1993. The Company believes that order backlogs are generally indicative of future sales. Order intake and billings of the Company's unfinished woven fabrics (griege goods) softened considerably during the second half of fiscal 1994, and they remain very soft. Sales of finished all-cotton woven fabrics remain strong, but sales of synthetic fiber woven fabrics are weak due to low levels of women's wear activity at retail. As noted above, both the knitted textile and knitted apparel operations are working off higher order backlogs than a year ago, although recent signs indicate that the T-shirt pipeline is refilling. The Company's results are highly dependent on retail activity in its product categories. So far in calendar 1994, growth in sales of durable goods has outpaced sales growth for soft goods. The Company is unable to predict when consumers will move more of their purchases into the soft goods sector. FISCAL 1993 VERSUS FISCAL 1992 Consolidated net sales for the fiscal year ended July 3, 1993 (53 weeks) were $686,239,000, a decrease of $18,798,000 from the prior year's (52 weeks) record high of $705,037,000. Net sales in fiscal 1993 decreased in the Company's textile segment and increased in the apparel segment as compared with net sales in fiscal 1992. Net sales in fiscal 1993 in the Company's other businesses increased due to the acquisition of Nautilus International, Inc. in January 1993. Nautilus' sales of $7.8 million for five months beginning February 1993 are included in the Company's consolidated results for fiscal 1993. (Net Income (Loss) bar chart appears here--see appendix) Consolidated gross profit margin for fiscal 1993 decreased to 18% compared to 20% achieved in the prior fiscal year. Gross margins in fiscal 1993 were adversely impacted by lower prices for knit textiles and apparel, lower prices for unfinished woven fabrics, and higher unit sales of apparel at closeout prices. Consolidated selling, general, and administrative expense for fiscal 1993 was $73.4 million, or 11% of sales, compared to $64.2 million, or 9% of sales, incurred in fiscal 1992. These expenses were flat in the textile segment but were higher in the Company's apparel segment in fiscal 1993 as compared to the prior fiscal year. In addition, about one half of the increased selling, general, and administrative expense increase over fiscal 1992 was attributable to the inclusion of Nautilus in the Company's consolidated results for the year ended July 3, 1993. Interest expense decreased by $3.7 million from the prior year to the current year. The Company's borrowing costs decreased along with the general decline in interest rates. The Company's outstanding debt at July 3, 1993 was $132.2 million compared with $112.1 million at the beginning of fiscal 1993. During fiscal 1993, about $20.5 million of the Company's revolving line of credit was used in connection with the acquisition of 100% of the stock of Nautilus International, Inc. and 70% of the stock of Apparel Marketing Corporation. During fiscal 1993 the Company adopted FASB Statement 109, "Accounting for Income Taxes." The cumulative effect on prior years of adopting 5 the Statement resulted in a charge of $875,000, or $.04 per share. Net income for fiscal year 1993 was $27.3 million compared to $40.0 million earned in fiscal year 1992, a decrease of 32%. Net income for the year ended July 3, 1993 includes approximately $1.5 million arising from a gain related to the fire at one of the Company's Nautilus plants at Independence, Virginia on March 13, 1993. Total Company inventories increased to $198.3 million at July 3, 1993 from $177.6 million at June 27, 1992, an increase of 12%. Inventory levels in all the Company's segments increased in fiscal 1993, due principally to weakness in the woven greige goods markets and to lower than anticipated apparel sales in the first six months of calendar 1993. Nautilus' inventories at the end of fiscal 1993 were $2.9 million. DIVISION RESULTS TEXTILE SEGMENT FISCAL 1994 VERSUS FISCAL 1993 The Company's textile segment consists of finished woven and knitted textile fabrics sold principally to manufacturers of apparel products. The Company also sells greige goods to fabric converters for various end uses, including pocketing, linings, and lightweight apparel. (Net Income as a % of Sales bar chart appears here--see appendix) Net sales in this segment decreased from $444.9 million in the fiscal year ended July 3, 1993 to $391.4 million in the fiscal year ended July 2, 1994. Net sales of knitted textiles were down 14% from fiscal 1993, due to the lower number of units sold, to lower unit sales prices, and to disruptions in the Company's knit fabric finishing operations resulting from the combining of two finishing plants into one during the year. Average prices in all knit fabric categories during the first three quarters of fiscal 1994 decreased from levels of the prior year, but began to return toward prior year levels during the last fiscal quarter of 1994. Sales of woven textiles were 11% lower in fiscal 1994 than in fiscal 1993. Higher sales of all cotton finished fabric (1% increase) were more than offset by a sharp decline in sales of synthetic fiber finished fabrics (19% decrease) and greige goods (24% decrease). Gross profit margins in the textile segment declined from 13% in fiscal 1993 to 12% in fiscal 1994. While gross profit margins in woven textiles were equal in fiscal 1994 to those of the prior year, margins in knitted textiles were 4.4 percentage points lower. The drop in knitted textile margins was due to the lower unit selling prices noted above, and to high unfavorable manufacturing variances associated with the disruption caused by the finishing plants' consolidation. Selling, general and administrative costs in the textile segment were slightly higher in fiscal 1994 than in fiscal 1993 in dollars. As a percent of net sales, these costs were 6.1% in fiscal 1994 as compared to 5.2% in fiscal 1993. (Shareholders' Equity bar chart appears here--see appendix) Operating profits in the textile segment decreased $15.1 million, or 43%, from fiscal 1993 to fiscal 1994. The lower volume and lower gross margins discussed above were the principal contributors to this decrease. During fiscal 1994, the textile segment contributed 64% of the Company's consolidated net sales and 46% of the Company's consolidated gross profit. Textile segment inventories increased by $8.2 million from the end of fiscal 1993 to the end of fiscal 1994. The major part of this increase was in woven greige goods inventory. 6 The textile segment's capital expenditures totalled approximately $18.3 million for the fiscal year ended July 2, 1994. The major portion of this amount was for the knitted textile plant consolidation project and knitted fabric finishing equipment. Also included were initial expenditures for the woven textile long-term modernization project. The Company expects that its knit textile facilities and its woven all-cotton facilities will run at or near full capacity during fiscal 1995. However, woven synthetic and greige goods facilities are not expected to run full schedules for at least the first half of fiscal 1995. Cotton prices increased sharply in the second half of fiscal 1994. Although some textile fabric prices have increased, the Company has not yet passed its total cotton cost increases to its customers. Profits of the textile segment are sensitive to the amount of its manufacturing capacity utilized, to the cost and availability of raw materials, and to the mix of goods produced. FISCAL 1993 VERSUS 1992 Net sales in the textile segment decreased from $472.8 million in the fiscal year ended June 27, 1992 to $444.9 million in the fiscal year ended July 3, 1993. Net sales of knitted textiles were down 12% to $119.9 million and net sales of woven fabrics decreased 4% to $325.1 million from fiscal 1992 to fiscal 1993. Sales of knitted textiles were affected adversely by prices which were 13% lower, on average, in fiscal 1993 than in fiscal 1992. Unit sales of knitted fabrics increased by 3%. Sales of woven camouflage and other military-type fabrics sold primarily to the U.S. Defense Department contractors decreased to $23.6 million in fiscal 1993 from $63.6 million in fiscal 1992, but the sales shortfall in this area was more than offset by increases in sales of finished woven fabrics to manufacturers of men's and women's apparel. Sales of unfinished woven textiles were very weak for the first six months of fiscal 1993, resulting in a year to year decline of 24% in the greige goods area. On balance, sales increases of woven finished textiles were more than offset by decreased sales of greige goods. Gross profit margins in the textile segment declined from 16% in fiscal 1992 to 13% in fiscal 1993. The principal cause of this decline was the lower prices for knitted fabrics referred to above. In addition, profit margins for unfinished woven fabrics were significantly lower in fiscal 1993 than in the prior fiscal year. Another factor contributing to the gross profit margin decline was related to the rapid growth during the fiscal year in demand for the Company's woven and dyed all cotton sportswear fabrics. Some of the Company's woven fabrics spinning and weaving plants found it difficult to meet quality expectations for all cotton dyed fabrics. As a result, off quality losses were higher in fiscal 1993 than in fiscal 1992. The Company began long term capital projects to address this issue. Selling, general and administrative costs in the textile segment were about the same in fiscal 1993 as in the prior fiscal year. However, as a percent of net sales, these costs were 5.2% for the year ended July 3, 1993 as compared to 4.9% in the year ended June 27, 1992. Operating profits in the textile segment decreased $18.3 million, or 35%, in fiscal 1993 compared to the prior year. The lower prices for knitted fabrics and lower demand for woven greige goods were the principal causes of the decline in operating profits. During fiscal 1993, the textile segment contributed 65% of the Company's consolidated net sales and 47% of the Company's consolidated gross profit. Inventories in the textile segment increased by less than $1 million from the end of fiscal 1992 to the end of fiscal 1993. Inventories of knit textiles and finished woven textiles decreased. Inventories of woven greige goods increased. (Earnings (Loss) Per Share bar chart appears here--see appendix) Capital expenditures in the textile segment were about $34.4 million during the fiscal year ended July 3, 1993. The major part of these expenditures was in the knitted textile area, including the completion of the Rainsford yarn plant in Edgefield, SC. During the year, the Company closed its two older knit yarn plants in North Carolina. All of the Company's internally produced yarn for knitting now comes from its two modern yarn plants in Spartanburg and Edgefield, SC. 7 APPAREL SEGMENT FISCAL 1994 VERSUS FISCAL 1993 The Company's apparel segment consists of woven and knit branded apparel and knit apparel sold to screen printers and private label accounts. Net sales in this segment decreased by $31.1 million to $178.7 million from fiscal 1993 to fiscal 1994. Sales of branded apparel decreased significantly and sales of non-branded knit apparel increased slightly. Sales of branded apparel in fiscal 1994 decreased 26% to $95 million as compared to sales in fiscal 1993, with both unit sales and average unit price being lower in the same comparative period. Sales of non-branded knit apparel increased 3% to $84 million as compared to sales in fiscal 1993, with unit sales being higher and average unit price being slightly lower in the same comparative period. Although consumer demand for its "Duck Head" branded apparel remains good, the Company believes that the delivery problems encountered by its retailer customers during the rapid growth of the brand in the preceding two fiscal years were the principal cause of lower sales in the latest fiscal year. The Company has developed and will install what it believes are better planning and distribution systems to materially improve its orders shipped to orders received ratio. In addition, the Company has decided to build a new, central distribution and office center for the "Duck Head" products. A site has been selected, and construction will begin in fiscal 1995 and is expected to be completed in early fiscal 1996. The number of Duck Head retail outlet stores increased from 33 at the beginning of fiscal 1994 to 36 at present. Gross profit margins decreased from 26% in fiscal 1993 to 20% in fiscal 1994. A gross margin increase in knit apparel was more than offset by decreased gross margins in branded apparel and outlet store operations. A significant amount of branded apparel inventories which were carried into fiscal 1994 were sold at closeout prices and additional reserves were established during fiscal 1994 for future closeout inventory sales. The apparel segment represented 29% of the Company's fiscal 1994 consolidated net sales and 36% of the Company's fiscal 1994 gross profit. The apparel segment's selling, general, and administrative expenses in fiscal 1994 were $37.1 million as compared to $35.1 million in fiscal 1993. These expenses were 21% of net sales in fiscal 1994 as compared to 17% for fiscal 1993. Knit apparel selling expenses increased significantly due to efforts to merchandise and sell a new line of "Nautilus" knit apparel, and the greater number of outlet stores required additional expenses. Other income and expense in the apparel segment included $30.0 million of charges taken to establish reserves for the Alabama case and certain restructuring items. Fiscal 1994 operating losses for the apparel segment totalled $31.3 million, including the $30.0 million of other expenses noted above, as compared to operating profits of $18.9 million in fiscal 1993. Inventories in the apparel segment at July 2, 1994 totalled $110.3 million, compared to $110.0 million at July 3, 1993. Branded apparel inventories fell slightly and non-branded knit apparel inventories rose slightly during fiscal 1994. Capital expenditures in the apparel segment were $3.8 million during fiscal 1994. These repre- sented improvements in the knitting, fabric finishing, and sewing facilities in this segment. The apparel segment's operating results are highly dependent on orders from retailers, and from screen printers who supply finished product to retailers. Generally, when retail sales of apparel are strong, the Company's apparel segment benefits. The Company cannot be certain when (or if) retail sales of its product categories will return to growth levels similar to those of the Spring of 1992. This segment's operating results are also dependent upon the utilization of its owned manufacturing facilities. The Company believes that the internal capacity utilization by its apparel segment will be satisfactory in fiscal 1995. A law suit with allegations similar to those in the Alabama case refered to above is pending in the United States District Court for the Western District of Kentucky brought by an individual who previously served as an independent sales representative for the Duck Head division. The amount of damages claimed in this suit has not yet been determined. FISCAL 1993 VERSUS FISCAL 1992 Net sales in the apparel segment increased slightly to $209.8 million for the year ended July 3, 1993 from $206.8 million in the prior fiscal year. Net sales of woven apparel fell 3% from the fiscal 1992 level while net sales of knit apparel increased by 9%. Gross sales of "Duck Head" labeled products were approximately the same in fiscal 1993 as in fiscal 1992. Knit apparel sales were higher in fiscal 1993 than in fiscal 1992 in both the screen printing and private label areas. Apparel sales for fiscal 1993 were impacted adversely by generally sluggish retail apparel sales from January to June 1993. The Duck Head retail outlet operation opened 11 new stores during fiscal 1993, bringing the total at fiscal year end 8 to 33 stores with total sales more than twice those in fiscal 1992. Gross profit margins in the apparel segment decreased to 26% in fiscal 1993 from 28% in fiscal 1992. Excess inventories of knitted T-shirts throughout the industry depressed prices for these products. Lower than anticipated "in season" sales led to higher levels of closeout sales than in the prior fiscal year. "In season" sales of branded apparel were depressed both by the poor spring weather, which led to very low levels of reorders for spring season merchandise, and by generally sluggish retail apparel sales throughout the country. Selling, general and administrative expenses increased to $35.1 million in fiscal 1993 from $29.6 million in fiscal 1992. These costs were 17% of net sales in fiscal 1993 as compared to 14% in fiscal 1992. Higher advertising costs for the "Duck Head" brand and costs associated with operating the additional retail outlet stores were the major factors that caused these increased costs. The combination of lower gross profit margins and higher selling, general and administrative costs as described above led to a 30% decrease in operating earnings from the apparel segment in fiscal 1993 as compared to fiscal 1992. The apparel segment represented 31% of the Company's fiscal 1993 consolidated net sales and 44% of the Company's fiscal 1993 gross profit. Inventories in the apparel segment were $110.0 million at July 3, 1993 as compared to $90.9 million at June 27, 1992. The major increase occurred in finished goods inventories of branded apparel, caused by products that had been acquired in anticipation of higher sales than actually occurred. Capital expenditures in the apparel segment were $10.9 million during fiscal 1993. Capital expenditures included improvements in the Maiden, North Carolina knitting and finishing plant as well as improvements in the segment's sewing plants in the United States and Costa Rica. (Funded Debt to Equity Ratio bar chart appears here--see appendix) LIQUIDITY AND SOURCES OF CAPITAL During fiscal 1994, the Company financed its operations, capital expenditures, dividends, and acquisitions primarily through cash generated from operations and borrowings under its bank credit facility. The Company generated cash flows from its operations of $32.8 million, $62.7 million, and $9.6 million for the 1994, 1993, and 1992 fiscal years, respectively. During these periods, cash generated from operations, and from sales of the Company's Common Stock, has been used primarily to reduce debt, finance capital expenditures, including equipment purchases, pay dividends, acquire 100% of the stock of Nautilus International, Inc., and of Armonia Textil S.A. (Costa Rica) and its related assets, and 70% of the stock of Apparel Marketing Corporation, and repurchase approximately 2.3 million shares of the Company's Common Stock. During fiscal 1994, cash used by investing activities included $30.5 million for purchases of property, plant, and equipment. Fiscal 1994 cash used in financing activities of $4.5 million resulted primarily from net increases in bank debt of $32.3 million offset by $9.8 million paid in dividends and $25.3 million used to repurchase the Company's Common Stock. The repurchase of shares resulted in a lower weighted average shares outstanding for fiscal 1994 as compared to fiscal 1993. The lower number of shares outstanding resulted in a proportional increase in the loss per share. In addition, borrowings to finance the repurchase resulted in additional interest expense. As of July 2, 1994, the Company had working capital of $242 million, as compared to $262 million at July 3, 1993. Net accounts receivable were $22.9 million lower, and inventories were $5.5 million higher at the end of fiscal 1994 as compared to balances at the end of fiscal 1993. In addition, current deferred tax assets were $11.3 million higher, influenced primarily by the Alabama litigation. On September 7, 1994, the Company obtained a $275 million long-term Revolving Loan Facility (the "Credit Facility"). The Credit Facility has a limit of $25 million for the purpose of issuing letters of credit, and a separate $29 million limit for the letter of credit issued in connection with the Alabama litigation (the "Alabama L/C"). Upon termination of the Alabama L/C, whether by a drawing or otherwise, this letter of credit facility will expire and the total Credit Facility will be reduced by the amount of the undrawn and expired portion of the Alabama L/C. The new Credit Facility will mature on September 30, 1997, with a provision for one year extensions and (if the extension is made) on each anniversary of the 9 termination date thereafter, such extension to be available only if consented to by all of the lenders. The Company's initial interest rate is LIBOR plus .50% per annum, but the Credit Facility contains provisions that may increase or decrease the spread over LIBOR depending upon certain financial ratios achieved by the Company. The Credit Facility is an unsecured general obligation of the Company. The Company has used the proceeds of the Credit Facility to refinance the bank debt that existed under its previous credit facilities and to provide ongoing working capital financing needs. At July 2, 1994, borrowings under the Company's loan facilities totaled $160.4 million at a weighted average interest rate of 5.18% per annum as compared to 3.7% at July 3, 1993. Availability under the new Credit Facility is reduced by outstanding letters of credit, which at July 2, 1994 aggregated approximately $14.3 million. Certain conditions apply to the Company's ability to borrow under its Credit Facility, including continued compliance with financial covenants. See Note D of the accompanying financial statements for a description of loan covenants. The Company spent approximately $29.9 million in capital expenditures during fiscal 1994. Of this amount, approximately $18 million was spent in the textile segment with the major expenditures being for consolidation of knitted fabric manufacturing facilities and weaving machines for the woven fabrics business as the beginning of its major, long term modernization project. Approximately $4 million was spent in the apparel segment, and approximately $7 million was spent in the Company's fitness equipment business, largely to rebuild facilities that were destroyed by fire in March of 1993. During fiscal 1995, the Company plans to spend approximately $45 million for capital improvements and new equipment. The majority of this amount is expected to be spent in continuing the woven fabrics modernization program. The Company also expects to begin construction of a new, centralized distribution center for its branded apparel division in fiscal 1995. The Company believes that its equipment and facilities are generally adequate to allow it to remain competitive with its principal competitors. The Company's Board of Directors authorized a plan to repurchase up to five million shares of the Company's outstanding Common Stock at prices and at times at the discretion of the Company's top management. During fiscal 1994, the Company repurchased and retired approximately 2.3 million shares at a total cost of approximately $25.3 million. These purchases were funded by use of the Company's revolving credit line. The Company currently has approximately 24.2 million shares outstanding. The Company believes that cash flow generated by its operations and funds available under its existing credit lines should be sufficient to service its bank debt, to satisfy its day-to-day working capital needs, to fund its planned capital expenditures and to continue the payment of dividends. ENVIRONMENTAL MATTERS The Company's Nautilus business has been named as a "potentially responsible party" ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with respect to three sites in North Carolina, South Carolina, and Mississippi. To the Company's knowledge, all of the transactions with these sites were conducted by a corporation (the "Selling Corporation") whose assets were sold in 1990 pursuant to the terms of an order of the United States Bankruptcy Court to another corporation, the stock of which was subsequently acquired by the Company in January 1993. At the North Carolina site, the Company's information is that there are over 1,400 PRPs and the Selling Corporation is listed as a "de minimis" party. The Company's most recent information indicates that the Selling Corporation's share of the costs of the surface removal action (the removal of drums, equipment and materials) for this site will be immaterial. The Company does not currently have information respecting the soil and groundwater cleanup costs that may be incurred with respect to this site. At the South Carolina site, there are over 700 PRPs, and the Selling Corporation has been listed as an "insolvent" party and would appear to qualify as a "de minimis" party. The site's PRP group has completed a surface removal action, the Selling Corporation's part of which is immaterial. The PRP group is investigating soil and groundwater contamination at the site, but there is currently insufficient information available to estimate the cost of remediating that contamination. At the Mississippi site, the PRP Group is in the process of performing a surface removal action and is investigating soil and groundwater contamination, both at the site and in the surrounding area. The Company's latest information is that the Selling Corporation is ranked 11th out of a total of over 300 PRPs in contributions of material to the site, and, based on volume, the Selling Corporation contributed approximately 3% of the site's material. To the Company's knowledge, latest estimates of costs to clean up the site range up to $4 million. Trichloroethane, one of the substances delivered by the Selling Corporation to the site, has been found in the site's groundwater and at nearby residential drinking water wells. Although no assurance can be provided, the Company believes that it is shielded from liability 10 at these three sites by the order of the United States Bankruptcy Court pursuant to which the Selling Corporation sold its assets to the corporation subsequently acquired by the Company. The Company, therefore, has denied any responsibility at the sites and has declined to participate as a member of the respective PRP groups. Accordingly, the Company has not provided for any reserves for costs or liabilities attributable to the Selling Corporation. INCOME TAXES The effective income tax rates for the 1994, 1993 and 1992 fiscal years were 33.3%, 39.5%, and 39%, respectively. As of June 28, 1992, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109, "Accounting For Income Taxes" (see Note F of the accompanying consolidated financial statements). The cumulative effect of adopting Statement 109 as of June 28, 1992 was to decrease fiscal 1993 net income by approximately $875,000, which is reflected in the effective rate above for that year. The Company made income tax payments of approximately $2,350,000, $20,171,000 and $19,678,000 during the 1994, 1993 and 1992 fiscal years, respectively. In fiscal 1992, the Company utilized alternative minimum tax credits of $4.4 million generated in fiscal years 1989, 1990 and 1991 to reduce its fiscal 1992 tax liability. In addition, the Company utilized in fiscal 1992 $225,000 of business credit carryforwards which were acquired in the Stanwood acquisition. During fiscal 1993, the IRS concluded its audit of the Company's consolidated tax returns for fiscal years 1988 and 1989 with no material adjustments. Prior to its acquisition by the company, O'Bryan Brothers Inc. (which owned the "Duck Head" trademarks) had established for income tax purposes the basis of customer lists in the amount of $3.6 million. The IRS had audited this matter for years prior to inclusion in the consolidated federal income tax return of the Company and had originally disallowed the deduction of this basis. During fiscal 1994, the IRS and the Company agreed to settle this issue which resulted in approximately $149,000 of tax due. This tax settlement has been considered in the above effective tax rate for 1994. In fiscal 1994, the Company paid alternative minimum tax ("AMT") of approximately $2 million. To the extent that the Company pays AMT, it can later apply the AMT previously paid as a credit against future regular tax liabilities. At July 2, 1994, the Company had net operating loss ("NOL") carryforwards of $11.1 million for income tax purposes that expire in fiscal years 1995 through 2003. Approximately, $1.9 million of these carryforwards is attributable to a company acquired in 1986. This carryover will expire in fiscal years ending in 1995 and 1996. The remaining carryover of approximately $9.2 million was generated by a subsidiary of Stanwood Corporation, which was acquired by the Company during its 1989 fiscal year. The total net operating loss carryforward of the Stanwood group at the time of acquisition amounted to $10.9 million of which $1.7 million was utilized by the Company in its fiscal 1991 tax return. In addition to net operating loss carryforwards, at the time of acquisition, Stanwood Corporation had general business credit carryforwards which totalled $835,000 and expire June 1999 through June 2003. The business credit carryforward at the end of fiscal 1994 from this acquisition was approximately $610,000. Although the Tax Reform Act of 1986 placed annual limitations on utilizing NOLs and tax credits from companies which have changed ownership, this should not impact the Company's ability to ultimately utilize the carryovers. The maximum annual usage of the Stanwood NOL is limited by applicable provisions of the Internal Revenue Code to approximately $1 million per year. The Company expects to utilize the Stanwood NOL prior to the expiration dates of June 2002 and June 2003. The Company has recognized cumulative deferred tax assets of approximately $28 million, arising principally from litigation accruals, basis differences between the recorded value for financial reporting purposes and tax basis of fixed assets, net operating loss and general business credit carryforwards of acquired companies and book accruals which will be future tax deductions. Such deferred tax assets have been reduced by a valuation allowance of approximately $3.9 million. The valuation allowance will be adjusted from time to time as the tax benefits are realized. Although the Company's business is cyclical, its history of generating taxable income indicates it is likely that the Company will be able to realize its deferred tax assets. Although the Company believes that it has been, and will continue to be, entitled to utilize the NOLs, credit carryovers and basis differences described above, no assurance can be given that the IRS will not be able to successfully challenge any such items on the grounds that they were not validly incurred for Federal income tax purposes or that their use is restricted by various tax provisions. 11 OPERATIONS BY INDUSTRY SEGMENT The Company operates principally in two segments: textiles and apparel. The textile segment's principal products are woven and knitted fabrics for apparel and home furnishings manufacturers. The apparel segment is the manufacturer of the "Duck Head" brand of casualwear, completed T-shirts, fleece goods and sportswear, and includes a retail apparel business. The apparel segment sells primarily to department stores and other apparel retailers. The Company also manufactures and sells Nautilus fitness equipment primarily to the institutional market.
July 2, July 3, June 27, 1994 1993 1992 Net Sales: Textiles Unaffiliated customers....................................................... $391,401,000 $444,921,000 $472,766,000 Intersegment................................................................. 15,660,000 12,331,000 12,433,000 407,061,000 457,252,000 485,199,000 Apparel, including retail stores: Unaffiliated customers....................................................... 178,681,000 209,789,000 206,796,000 Intersegment................................................................. 1,000 178,681,000 209,790,000 206,796,000 Fitness equipment, office products and other Unaffiliated customers....................................................... 43,694,000 31,529,000 25,475,000 Intersegment................................................................. 1,474,000 1,269,000 976,000 45,168,000 32,798,000 26,451,000 Intersegment Eliminations...................................................... (17,134,000) (13,601,000) (13,409,000) Total...................................................................... $613,776,000 $686,239,000 $705,037,000 Gross Profit: Textiles....................................................................... $ 45,355,000 $ 57,075,000 $ 75,924,000 Apparel, including retail stores............................................... 35,846,000 53,523,000 56,950,000 Fitness equipment, office products and other................................... 17,735,000 11,289,000 8,336,000 Total...................................................................... $ 98,936,000 $121,887,000 $141,210,000 Operating Profit (Loss): Textiles....................................................................... $ 19,606,000 $ 34,655,000 $ 52,990,000 Apparel, including retail stores............................................... (31,327,000) 18,900,000 27,032,000 Fitness equipment, office products and other................................... (2,992,000) 2,308,000 606,000 Total Operating Profit (Loss).............................................. (14,713,000) 55,863,000 80,628,000 Interest expense............................................................... (8,639,000) (7,775,000) (11,479,000) Corporate expense.............................................................. (3,300,000) (3,278,000) (3,802,000) Interest Income................................................................ 722,000 362,000 454,000 Income (Loss) Before Income Taxes.......................................... $(25,930,000) $ 45,172,000 $ 65,801,000 Identifiable Assets: Textiles....................................................................... $314,378,000 $331,036,000 $320,164,000 Apparel, including retail stores............................................... 195,370,000 203,166,000 193,736,000 Fitness equipment, office products and other................................... 55,811,000 38,124,000 9,536,000 Corporate...................................................................... 1,444,000 1,620,000 1,320,000 Total...................................................................... $567,003,000 $573,946,000 $524,756,000 Depreciation and amortization: Textiles....................................................................... $ 16,552,000 $ 13,087,000 $ 10,414,000 Apparel, including retail stores............................................... 6,210,000 4,649,000 3,844,000 Fitness equipment, office products and other................................... 3,669,000 669,000 328,000 Corporate...................................................................... 462,000 414,000 242,000 Total...................................................................... $ 26,893,000 $ 18,819,000 $ 14,828,000 Capital expenditures: Textiles....................................................................... $ 18,334,000 $ 34,446,000 $ 37,753,000 Apparel, including retail stores............................................... 3,844,000 10,941,000 4,745,000 Fitness equipment, office products and other................................... 7,659,000 3,611,000 212,000 Corporate...................................................................... 19,000 577,000 206,000 Total...................................................................... $ 29,856,000 $ 49,575,000 $ 42,916,000
12 The textile segment sells to the apparel segment at a rate approximately 1% over cost. All other intersegment sales are at prices comparable to unaffiliated customers sales. Intersegment operating profit related to the intersegment sales is not significant. Operating profit is total revenue less operating expenses, excluding interest expense, corporate expense and interest income. Included in 1993 operating profit is a net gain on an involuntary conversion in the fitness equipment division. (See Note K). During fiscal 1994 the apparel segment recognized a charge of $27 million in connection with a law suit, and the textile, apparel and office products and other divisions recorded restructuring charges of $1,700,000, $2,900,000, and $4,600,000, respectively. Depreciation and amortization include certain writedowns of property and equipment Identifiable assets are those assets that are used in the operations of each segment. Amounts shown for corporate assets consist principally of corporate office equipment, deferred loan costs and certain life insurance policies. (See Note H). Capital expenditures include related accounts payable of $1,010,000, $1,694,000 and $6,610,000 for the 1994, 1993 and 1992 fiscal years, respectively. 13 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS BOARD OF DIRECTORS AND SHAREHOLDERS DELTA WOODSIDE INDUSTRIES, INC. We have audited the accompanying consolidated balance sheets of Delta Woodside Industries, Inc. as of July 2, 1994 and July 3, 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended July 2, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Delta Woodside Industries, Inc. at July 2, 1994 and July 3, 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended, in conformity with generally accepted accounting principles. (Signature of Ernst & Young LLP) Greenville, South Carolina August 17, 1994, except for the third paragraph of Note D, as to which the date is September 7, 1994. 14 CONSOLIDATED BALANCE SHEETS Delta Woodside Industries, Inc.
JULY 2, 1994 July 3, 1993 ASSETS CURRENT ASSETS Cash and cash equivalents........................................................ $ 2,077,000 $ 3,730,000 Accounts receivable: Factor -- Note C.............................................................. 55,440,000 70,985,000 Customers..................................................................... 64,921,000 74,491,000 120,361,000 145,476,000 Less allowances for doubtful accounts and returns............................. 3,275,000 5,537,000 117,086,000 139,939,000 Inventories -- Note A Finished goods................................................................ 112,101,000 111,372,000 Work in process............................................................... 69,402,000 63,027,000 Raw materials and supplies.................................................... 22,300,000 23,865,000 203,803,000 198,264,000 Deferred income taxes............................................................ 12,028,000 713,000 Prepaid expenses and other current assets........................................ 1,942,000 3,615,000 TOTAL CURRENT ASSETS 336,936,000 346,261,000 PROPERTY, PLANT AND EQUIPMENT, at cost -- Notes D and J Land and land improvements.................................................... 5,318,000 5,149,000 Buildings..................................................................... 64,497,000 59,782,000 Machinery and equipment....................................................... 191,267,000 171,900,000 Furniture and fixtures........................................................ 6,943,000 5,984,000 Leasehold improvements........................................................ 2,517,000 2,903,000 Construction in progress...................................................... 9,271,000 8,397,000 279,813,000 254,115,000 Less accumulated depreciation................................................. 89,782,000 68,969,000 190,031,000 185,146,000 EXCESS OF COST OVER ASSIGNED VALUE OF NET ASSETS ACQUIRED, less accumulated amortization of $3,965,000 (1994) and $4,030,000 (1993).......................... 28,164,000 31,169,000 OTHER ASSETS....................................................................... 11,872,000 11,370,000 $567,003,000 $573,946,000
See notes to consolidated financial statements. 15
JULY 2, 1994 July 3, 1993 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable........................................................... $ 46,712,000 $ 62,374,000 Accrued employee compensation.................................................... 6,806,000 8,049,000 Litigation accrual -- Note J..................................................... 25,594,000 Accrued and sundry liabilities................................................... 15,010,000 11,991,000 Current portion of long-term debt -- Note D...................................... 864,000 1,736,000 TOTAL CURRENT LIABILITIES 94,986,000 84,150,000 LONG-TERM DEBT -- Note D........................................................... 161,948,000 130,464,000 DEFERRED INCOME TAXES -- Note F.................................................... 18,808,000 17,595,000 OTHER LIABILITIES AND DEFERRED CREDITS -- Note H................................... 6,384,000 5,488,000 SHAREHOLDERS' EQUITY -- Notes D, E and H Common Stock -- par value $.01 a share -- authorized 50,000,000 shares, issued and outstanding 24,246,000 shares (1994) and 26,437,000 shares (1993)......... 242,000 264,000 Additional paid-in capital....................................................... 162,114,000 186,381,000 Retained earnings................................................................ 122,521,000 149,604,000 284,877,000 336,249,000 COMMITMENTS AND CONTINGENCIES -- Notes D and J $567,003,000 $573,946,000
See notes to consolidated financial statements. 16 CONSOLIDATED STATEMENTS OF OPERATIONS Delta Woodside Industries, Inc
Year Ended JULY 2, 1994 July 3, 1993 June 27, 1992 Net sales...................................................... $613,776,000 $686,239,000 $705,037,000 Cost of goods sold............................................. 514,840,000 564,352,000 563,827,000 Gross profit................................................... 98,936,000 121,887,000 141,210,000 Selling, general and administrative expenses................... 82,223,000 73,404,000 64,204,000 Litigation charge -- Note J.................................... 27,096,000 Restructuring charge -- Note J................................. 9,199,000 (19,582,000 ) 48,483,000 77,006,000 Other (expense) income: Interest expense............................................. (8,639,000 ) (7,775,000 ) (11,479,000 ) Interest income.............................................. 722,000 362,000 454,000 Other -- Note K.............................................. 1,569,000 4,102,000 (180,000 ) (6,348,000 ) (3,311,000 ) (11,205,000 ) INCOME (LOSS) BEFORE INCOME TAXES (25,930,000 ) 45,172,000 65,801,000 Income tax expense (benefit) -- Note F......................... (8,633,000 ) 16,968,000 25,786,000 Income (loss) before cumulative effect of accounting change.... (17,297,000 ) 28,204,000 40,015,000 Cumulative effect of change in the method of accounting for income taxes -- Note F....................................... (875,000 ) NET INCOME (LOSS) $(17,297,000 ) $ 27,329,000 $ 40,015,000 Earnings (loss) per share of Common Stock before cumulative effect of accounting change.................................. $ (.70 ) $ 1.07 $ 1.62 Cumulative effect of change in the method of accounting for income taxes -- Note F....................................... (.04 ) Earnings (loss) per share of Common Stock...................... $ (.70 ) $ 1.03 $ 1.62 Weighted average number of shares outstanding........................................ 24,550,000 26,421,000 24,670,000
See notes to consolidated financial statements. 17 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Delta Woodside Industries, Inc
Prepaid Additional Contribution Total Common Stock Paid-In Retained To Retirement Shareholders' Shares Amount Capital Earnings Plan Equity Balance at June 29, 1991................ 21,129,150 $211,000 $ 71,403,000 $101,665,000 $ (632,000) $172,647,000 Incentive Stock Award Plan Shares issued Note E................ 74,343 1,000 343,000 344,000 Stock Option Plan, shares issued -- Note E.............................. 17,874 136,000 136,000 Tax benefits of stock plans........... 72,000 72,000 Issuance of Common Stock in public offering -- Note E.................. 5,175,000 52,000 113,239,000 113,291,000 Net income for the year ended June 27, 1992....................... 40,015,000 40,015,000 Cash dividends paid -- $.35 a share........................ (8,836,000) (8,836,000) Allocation of shares of Common Stock (65,970) in Retirement Plan -- Note H................................... 403,000 632,000 1,035,000 Other................................. 4,004 77,000 77,000 Balance at June 27, 1992................ 26,400,371 264,000 185,673,000 132,844,000 -0- 318,781,000 Incentive Stock Award Plan Shares issued Note E................ 2,502 37,000 37,000 Stock Option Plan, shares issued -- Note E.............................. 33,188 265,000 265,000 Tax benefits of stock plans........... 262,000 262,000 Net income for the year ended July 3, 1993........................ 27,329,000 27,329,000 Cash dividends paid -- $.40 a share........................ (10,569,000) (10,569,000) Other................................. 825 144,000 144,000 Balance at July 3, 1993................. 26,436,886 264,000 186,381,000 149,604,000 -0- 336,249,000 INCENTIVE STOCK AWARD PLAN SHARES ISSUED NOTE E................ 82,309 1,000 666,000 667,000 STOCK OPTION PLAN, SHARES ISSUED -- NOTE E.................... 22,188 194,000 194,000 TAX BENEFITS OF STOCK PLANS........... 144,000 144,000 PURCHASE AND RETIREMENT OF COMMON STOCK -- NOTE E..................... (2,295,650) (23,000) (25,271,000) (25,294,000) NET LOSS FOR THE YEAR ENDED JULY 2, 1994........................ (17,297,000) (17,297,000) CASH DIVIDENDS PAID -- $.40 A SHARE........................ (9,786,000) (9,786,000) BALANCE AT JULY 2, 1994 24,245,733 $242,000 $162,114,000 $122,521,000 $ -0- $284,877,000
See notes to consolidated financial statements. 18 CONSOLIDATED STATEMENTS OF CASH FLOWS Delta Woodside Industries, Inc
Year Ended JULY 2, 1994 July 3, 1993 June 27, 1992 OPERATING ACTIVITIES Net income (loss)............................................ $ (17,297,000) $ 27,329,000 $ 40,015,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.............................................. 21,344,000 17,090,000 13,711,000 Amortization.............................................. 1,859,000 1,729,000 1,117,000 Reduction in excess of cost over assigned value of net assets acquired........................................ 1,549,000 Writedown of property and equipment....................... 2,141,000 Provision for losses on accounts receivable............................................. 3,886,000 2,025,000 3,350,000 Provision for deferred income taxes....................... (10,810,000) 2,398,000 2,143,000 Losses (gains) on disposition of property and equipment.......................................... 113,000 (2,916,000) 173,000 Compensation under stock plans............................ 1,005,000 317,000 1,518,000 Deferred compensation..................................... 928,000 1,126,000 1,206,000 Other..................................................... 708,000 753,000 (127,000) Changes in operating assets and liabilities net of effects from business acquisitions: Accounts receivable.................................... 17,635,000 23,600,000 (25,736,000) Inventories............................................ (6,265,000) (17,217,000) (39,505,000) Other current assets................................... 1,610,000 (1,785,000) 156,000 Litigation accrual..................................... 25,594,000 Accounts payable and accrued expenses............................................ (11,183,000) 8,255,000 11,621,000 NET CASH PROVIDED BY OPERATING ACTIVITIES 32,817,000 62,704,000 9,642,000 INVESTING ACTIVITIES Acquisitions of businesses, net of cash acquired............................................. (1,565,000) (20,194,000) Property, plant and equipment: Purchases................................................. (30,525,000) (54,409,000) (36,246,000) Proceeds of dispositions.................................. 698,000 5,878,000 219,000 Sale of business............................................. 2,102,000 Other........................................................ (697,000) (280,000) (473,000) NET CASH USED BY INVESTING ACTIVITIES (29,987,000) (69,005,000) (36,500,000)
19
Year Ended JULY 2, 1994 July 3, 1993 June 27, 1992 FINANCING ACTIVITIES Proceeds from revolving lines of credit...................... $ 33,000,000 $ 194,000,000 $259,871,000 Repayments on revolving lines of credit...................... (11,000,000) (172,640,000) (315,500,000) Net borrowings on short term line of credit.................. 10,347,000 Scheduled principal payments of long-term debt............... (1,781,000) (1,692,000) (13,802,000) Principal prepayments of long-term debt...................... (7,500,000) Net proceeds from sale of Common Stock....................... 113,291,000 Repurchase and retirement of shares of Common Stock.......... (25,294,000) Dividends paid............................................... (9,786,000) (10,569,000) (8,836,000) Other........................................................ 31,000 82,000 (173,000) NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (4,483,000) 9,181,000 27,351,000 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... (1,653,000) 2,880,000 493,000 Cash and cash equivalents at beginning of year......................................................... 3,730,000 850,000 357,000 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,077,000 $ 3,730,000 $ 850,000
See notes to consolidated financial statements. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Delta Woodside Industries, Inc. NOTE A -- SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Delta Woodside Industries, Inc. (the "Company") and its subsidiaries (all of which are wholly-owned, except for Apparel Marketing Corporation which is 70% owned). All significant intercompany balances and transactions have been eliminated. Certain amounts for the 1993 fiscal year end have been reclassified to conform to the 1994 presentation. INVENTORIES: Inventories are stated at the lower of cost or market. As of July 2, 1994 and July 3, 1993, cost for certain inventories of the apparel segment are determined under the last-in, first-out (LIFO) method representing 35% and 32%, respectively, of the cost of consolidated inventories. The balance of the cost of consolidated inventories is determined under the first-in, first-out (FIFO) method. If the inventories of the apparel segment had been determined by the FIFO method, they would have been approximately the same as the reported amounts. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated on the basis of cost. Depreciation is computed by the straight-line method for financial reporting based on estimated useful lives of three to thirty-two years, and by accelerated methods for income tax reporting. REVENUE RECOGNITION: Sales are recorded upon shipment or designation of specific goods for later shipment at customers' request with related risk of ownership passing to such customers. AMORTIZATION: Amortization is computed using the straight-line method. The excess of cost over assigned value of net assets acquired relating to certain business combinations is being amortized to expense over periods of 5, 15 or 40 years. The excess of assigned value of net assets acquired over cost relating to other business combinations is being amortized to income over 5 and 40 years. Loan acquisition costs are being amortized over 3 years. Other intangible assets are being amortized over periods of 3 to 40 years. INCOME TAXES: The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which required a change from the deferred method to the liability method of accounting for income taxes. Under the liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under SFAS No. 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Under the deferred method, deferred taxes were recognized using the tax rate applicable to the year of the calculation and were not adjusted for subsequent changes in tax rates. The Company adopted SFAS 109 in the first quarter of fiscal 1993 and reported the cumulative effect on the change in method of accounting for income taxes as of the beginning of the 1993 fiscal year. Net income was reduced by $875,000 as a result of the cumulative effect adjustment resulting from the change in accounting for income tax expense. CASH EQUIVALENTS: The Company considers all highly liquid investments of three months or less when purchased to be cash equivalents. EARNINGS PER COMMON SHARE: Per share data are computed based on the weighted average number of shares of Common Stock outstanding during each period. Unallocated shares in the Company's Retirement Plan are not considered outstanding. FISCAL YEAR: The Company's operations are based on a fifty-two, fifty-three week fiscal year ending on the Saturday closest to June 30. The 1994 and 1992 fiscal years consist of 52 weeks, whereas the 1993 fiscal year was 53 weeks. 21 NOTE B -- ACQUISITION OF BUSINESSES On January 20, 1993, the Company acquired all of the outstanding stock of Nautilus International, Inc., parent company of Nautilus Acquisition Corporation, a manufacturer of fitness equipment. Concurrent with this acquisition, the Company acquired 70% of the stock of Apparel Marketing Corporation which owns the apparel and related accessory licensing rights to the Nautilus name. These acquisitions have been accounted for by the purchase method of accounting, and the accompanying consolidated financial statements include the operations of the acquired businesses from the dates of their respective acquisitions. The total purchase price for the stock acquired in these two transactions was approximately $9.1 million. An additional $11.4 million was paid to retire indebtedness of Nautilus. The total cost of the acquisitions amounted to approximately $20.5 million. The cost exceeded the fair value of net assets acquired by approximately $4.9 million, which has been recorded as goodwill and is being amortized over 40 years for Nautilus International and 5 years for Apparel Marketing Corporation. The following unaudited pro forma summary presents the consolidated results of operations as if the acquisitions had occurred as of the beginning of the periods presented.
1993 1992 (In thousands, except per share amounts) Net sales.......................... $697,802 $723,840 Net income before cumulative effect adjustment of income taxes....... 27,665 39,289 Net income......................... 26,790 39,289 Earnings per share before cumulative effect adjustment of income taxes.................. 1.05 1.59 Earnings per share................. 1.01 1.59
In addition, the Company acquired certain other immaterial businesses during both fiscal 1994 and 1993. NOTE C -- ACCOUNTS RECEIVABLE The woven fabrics operation assigns a substantial portion of its trade accounts receivable to a bank under a factor agreement. The assignment of these receivables is primarily without recourse, provided that customer orders are approved by the bank prior to shipment of goods, up to a maximum for each individual account. At July 2, 1994 the Company had no significant concentrations of credit risk, since substantially all of the Company's accounts receivable are due from many companies that produce apparel, home furnishings and other products and from department stores and specialty apparel retailers located throughout the United States. The Company generally does not require collateral for its accounts receivable. 22 NOTE D -- LONG-TERM DEBT, CREDIT ARRANGEMENTS AND LEASES Long-term debt consists of:
July 2, 1994 July 3, 1993 Long-term revolving credit facility (5.2% at July 2, 1994), with interest payable monthly refinanced................................................................................. $150,005,000 $128,005,000 Short-term note payable -- refinanced........................................................ 10,347,000 Industrial Revenue Bond payable monthly, through 2001 at 72% of a bank's base rate........... 1,535,000 1,775,000 Notes, payable in varying annual amounts, through 1996 at rates varying from 6% to 10%.................................................................................. 148,000 371,000 Capital leases payable monthly or annually................................................... 777,000 2,049,000 162,812,000 132,200,000 Less current portion......................................................................... 864,000 1,736,000 $161,948,000 $130,464,000
Certain property, plant and equipment with a net book value of approximately $13,882,000 is collateral for certain long-term debt of $1,551,000 at July 2, 1994. At July 2, 1994 the company had an unsecured revolving credit facility for $175 million and two additional bank credit lines that aggregated $75 million. The Company's loan covenants generally limited the Company's total indebtedness to $225 million, plus an amount required to fund the Alabama jury award. See Note J. At July 2, 1994 outstanding letters of credit of $14,332,000 issued to certain suppliers and not included in the accompanying financial statements reduced the unused portion of the facility to $50,316,000. Interest on the short term facility was based on a bank's floating CD rate. On September 7, 1994 the Company obtained a $275 million unsecured Revolving Loan Facility. The new Credit Facility has a limit of $25 million for the purpose of issuing letters of credit and a separate limit of $29 million for the letter of credit issued in connection with certain litigation. The new Credit Facility will mature on September 30, 1997, with a provision for one year extensions. The Company's initial interest rate is LIBOR plus .5%, but the Credit Facility contains provisions that may increase or decrease the spread over LIBOR depending upon certain financial ratios achieved by the Company. The Company used the proceeds of the new Credit Facility to refinance its revolving credit facility and a note payable, accordingly, these have been classified as long-term. The new long-term revolving credit facility contains various restrictive covenants requiring minimum tangible net worth and certain other minimum financial ratios. The agreement also restricts additional indebtedness, dividends and capital expenditures. The Company is permitted, absent a default, to pay cash dividends up to $25 million. At July 2, 1994 the minimum tangible net worth requirement under the new credit facility would have limited available dividends to $7.6 million. Total interest expense incurred by the Company was $8,639,000, $8,005,000 and $11,807,000 in the 1994, 1993 and 1992 fiscal years, respectively, of which approximately $230,000 and $328,000 was capitalized in fiscal 1993 and 1992, respectively. Total interest paid during the 1994, 1993 and 1992 fiscal years was $8,275,000, $9,012,000 and $12,234,000, respectively. Rent expense relating to operating leases was approximately $5,617,000 (1994), $5,235,000 (1993) and $4,292,000 (1992). Future minimum payments under noncancelable operating leases with initial terms of one year or more for the five fiscal years ended after July 2, 1994 are: $3,783,000 (1995), $2,889,000 (1996), $2,563,000 (1997), $1,896,000 (1998) and $1,319,000 (1999). Assets recorded under capital leases are included in property, plant and equipment. Amortization of leased assets is included in depreciation. Aggregate principal maturities of all long-term debt and minimum payments under capital leases are as follows:
Long-term Capital Fiscal Year Ending In debt leases 1995...................... $ 285,000 $621,000 1996...................... 340,000 63,000 1997...................... 239,000 50,000 1998...................... 160,591,000 50,000 1999...................... 239,000 47,000 Later Years............... 341,000 64,000 $162,035,000 895,000 Amounts representing interest.................... (118,000) Present value of minimum lease payments (including current portion of $579,000)........ $777,000
23 NOTE E -- SHAREHOLDERS' EQUITY During the first six months of fiscal 1994 the Company repurchased 2,296,000 shares of Common Stock for $25.3 million. In October 1991, the Company sold 5,175,000 shares of Common Stock in a public offering resulting in net proceeds of $113 million. Proceeds from the sale of Common Stock were used to reduce debt under the Company's lines of credit. Registration costs of $404,000 were charged to additional paid-in capital. Had the October 1991 sale of Common Stock and corresponding repayment of borrowings occurred as of the beginning of the 1992 fiscal year, unaudited pro forma earnings per share for fiscal 1992 would have been $1.59. During fiscal 1991 the shareholders approved a new Incentive Stock Award Plan and a Stock Option Plan. Each of the plans gives the Company the right to grant awards or options for up to 300,000 shares of Common Stock to employees. The Board of Directors intends to seek authorization to award additional shares under the Incentive Stock Award Plan in the annual shareholders' meeting in the Fall of 1995. Transactions under the Stock Option Plan are as follows:
Available Prices Outstanding Exercisable for Grant June 29, 1991....................................................... $ 4.00 195,500 104,500 Granted........................................................... 8.81-9.94 39,500 (39,500) Became exercisable................................................ 4.00 47,625 Exercised......................................................... 4.00 (17,874) (17,874) Cancelled......................................................... 4.00 (17,750) 17,750 June 27, 1992....................................................... 4.00-9.94 199,376 29,751 82,750 Granted........................................................... 7.00-7.68 16,000 (16,000) Became exercisable................................................ 4.00-9.94 52,792 Exercised......................................................... 4.00-9.94 (33,188) (33,188) Cancelled......................................................... 4.00-9.19 (5,500) 5,500 July 3, 1993........................................................ 4.00-9.94 176,688 49,355 72,250 Granted........................................................... 5.44 20,000 (20,000) Became exercisable................................................ 4.00-9.94 69,959 Exercised......................................................... 4.00-9.94 (22,188) (22,188) Cancelled......................................................... 4.00-9.94 (35,374) 35,374 July 2, 1994........................................................ 4.00-9.94 139,126 97,126 87,624
The average exercise price for all options outstanding was $5.13 per share at July 2, 1994. These options expire on various dates beginning November 17, 1995 and ending on December 12, 1997. The options generally become exercisable in equal amounts on the first through fourth anniversaries of the date of grant and remain exercisable until the fifth anniversary of the date of grant. The excess of the fair market value over the exercise price at the date of grant is recognized as compensation expense over the period during which the options become exercisable. Related compensation expense was $232,000, $186,000 and $110,000 during fiscal 1994, 1993 and 1992, respectively. Under the 1991 Incentive Stock Award Plan, awards for the right to purchase for $.01 per share up to 260,581 shares, 4,164 shares and 14,303 shares were granted to certain management and key employees during fiscal 1994, 1993 and 1992, respectively. The shares granted during fiscal 1994 in excess of shares available are contingent upon shareholder approval. Generally, each award vests based in part on service and in part on achievement of certain performance goals over a three-year period. Compensation expense for the service portion is based on the market price of the stock on the date of award. Compensation expense for the performance portion is based on the prevailing market price of the stock. Tax benefits arising from the difference in market value between the date of grant and the date of issuance of common stock are recorded as an adjustment to additional paid-in capital. Compensation expense for the Company's incentive stock award plan including related tax assistance was $1,111,000, $561,000 and $971,000 for the fiscal years 1994, 1993 and 1992, respectively. Shares available for grant were 113,813, and 113,937 at July 3, 1993 and June 27, 1992, respectively. During November 1991 the shareholders authorized the Board of Directors to issue up to 10,000,000 shares of preferred stock with a maximum aggregate par value of $250,000,000. The Board of Directors was also authorized to establish the particular terms including dividend rates, conversion prices, voting rights, redemption prices and similar matters. 24 NOTE F -- INCOME TAXES Effective June 28, 1992 the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109, "Accounting for Income Taxes." As permitted under the new rules, prior years' financial statements were not restated. The cumulative effect of adopting Statement 109 as of June 28, 1992 was to decrease fiscal 1993 net income by approximately $875,000. The Company paid alternative minimum tax ("AMT") of approximately $2 million for fiscal 1994 since its AMT liability was greater than its regular tax liability. To the extent that the Company pays AMT, it can later apply the AMT previously paid as a credit against regular tax liabilities. The Company expects to utilize future AMT credits as taxable income increases and current temporary differences reverse. At July 2, 1994, the Company has net operating loss carryforwards of $11.1 million for income tax purposes that expire in years 1995 through 2003. Those carryforwards resulted from the Company's 1986 acquisition of certain companies from J.P. Stevens & Co., Inc. and from the 1988 acquisition of Stanwood Corporation. In addition to net operating loss carryforwards, at the time of acquisition, Stanwood Corporation had general business credit carryforwards which totalled $835,000. The Company utilized $225,000 of these general business credit carryforwards in its fiscal 1992 federal income tax return. The remaining business credit carryforwards will expire in fiscal years ending 1999 through 2003. The Company expects the net operating loss remaining from the Stanwood acquisition of $9.2 million and general business credit carryforwards of $610,000 will be utilized prior to the expiration of the carryforward periods. For financial reporting purposes, a valuation allowance of $3.5 million was recognized in fiscal 1993 to offset the deferred tax assets recorded related to those carryforwards. When realized, the tax benefits for a portion of those items will be applied to reduce goodwill related to business acquisitions. During fiscal 1994 the valuation allowance increased by $286,000 for the tax effect of Apparel Marketing's current year net operating loss, and by $86,000 for the increase in tax rates. Deferred income taxes reflect the net tax effects of temporary differences between the financial statement amounts and amounts used for income tax purposes. Deferred income taxes also reflect the increase in the federal tax rate from 34% to 35%. Significant components of the Company's deferred tax assets and liabilities are as follows: 012
1994 1993 Assets Litigation accrual............ $10,316,000 Net operating loss carryforward................ 4,971,000 $ 3,793,000 Inventory..................... 4,147,000 1,775,000 Tax credit carryforward....... 2,560,000 610,000 Deferred compensation......... 2,010,000 2,205,000 Stock compensation accruals... 810,000 Accrued vacation.............. 551,000 633,000 Workers' compensation......... 320,000 508,000 Allowance for doubtful accounts.................... 235,000 559,000 Other......................... 2,068,000 419,000 Subtotal...................... 27,988,000 10,502,000 Valuation allowance........... (3,925,000) (3,553,000) Deferred tax assets........... $24,063,000 $ 6,949,000 Liabilities Depreciation.................. 22,838,000 17,580,000 Inventory -- LIFO basis difference.................. 3,509,000 2,994,000 Intangibles................... 2,364,000 2,731,000 Other......................... 2,132,000 526,000 Deferred tax liabilities...... 30,843,000 23,831,000 Net deferred tax liabilities......... $ 6,780,000 $16,882,000
Significant components of the provision for income taxes are as follows:
Deferred Liability Method Method 1994 1993 1992 Current: Federal income taxes.......................................................... $ 2,029,000 $11,980,000 $18,892,000 State income taxes............................................................ 148,000 2,590,000 4,751,000 Total current............................................................... 2,177,000 14,570,000 23,643,000 Deferred: Federal income taxes (benefits)............................................... (9,593,000) 1,901,000 1,846,000 State income taxes (benefits)................................................. (1,217,000) 497,000 297,000 Total deferred.............................................................. (10,810,000) 2,398,000 2,143,000 Total provision................................................................. $ (8,633,000) $16,968,000 $25,786,000
25 NOTE F -- INCOME TAXES (CONTINUED) The components of the provision for deferred income taxes for the year ended June 27, 1992 are as follows:
1992 Depreciation.................................................................................................. $2,639,000 Health claims accrued......................................................................................... 1,032,000 Inventory..................................................................................................... (256,000) Deferred compensation......................................................................................... (644,000) Amortization of intangibles................................................................................... (149,000) Allowance for doubtful accounts............................................................................... (456,000) Contingent liabilities........................................................................................ (46,000) Other......................................................................................................... 23,000 $2,143,000
The reconciliation of income tax expense (benefit) computed at the Federal statutory tax rate:
1994 1993 1992 Income tax expense (benefit) at statutory rates.................................. $(9,076,000) $15,358,000 $22,372,000 State taxes (benefits), net of federal benefit................................... (695,000) 1,951,000 3,332,000 Permanent differences............................................................ 1,576,000 (341,000) (320,000) State NOL benefits............................................................... (736,000) Other............................................................................ 298,000 402,000 $(8,633,000) $16,968,000 $25,786,000
The Company made income tax payments of approximately $2,350,000, $20,171,000, and $19,678,000 during the 1994, 1993 and 1992 fiscal years, respectively. NOTE G -- OPERATIONS BY INDUSTRY SEGMENT Industry segment information for the Company presented on pages 12 and 13 of this Annual Report is an integral part of these financial statements. NOTE H -- EMPLOYEE BENEFIT PLANS Under the terms of the Delta Woodside Industries Employee Retirement Plan, the Board of Directors has the discretion to authorize contributions from time to time to the Retirement Plan of cash or a maximum of 504,790 shares of the Company's Common Stock. A trustee holds the assets of the Retirement Plan for the benefit of the participants who may withdraw amounts or shares only upon retirement, death, disability or other termination of employment. All employees of the Company who are at least 21 years of age with one year of service participate in the Retirement Plan. Amounts allocated to participant accounts generally vest over a five-year period. Each participant has the right to direct the trustee as to the manner in which shares held are to be voted. The Retirement Plan qualifies as an Employee Stock Ownership Plan ("ESOP") under the Internal Revenue Code as a defined contribution plan. The Company's 1994, 1993 and 1992 contributions allocated to participants were $363,000, $1,581,000 and $2,303,000, respectively. The 1994 and 1993 contributions were made in cash and the 1992 contribution included both cash contributions and allocations of stock purchased with excess funds the Retirement Plan received from terminated defined benefit plans the Company acquired in a business acquisition in fiscal 1989. The Company maintains a 401(k) employee savings and investment plan for employees meeting certain eligibility requirements. The Company made no contributions to the plan for any year presented. In April 1989, the Company established a 501(c)(9) trust, the Delta Woodside Employee Benefit Plan and Trust ("Trust"). The Trust collects both employer and employee contributions from the Company and makes disbursements for health claims and other qualified benefits. The Company has a Deferred Compensation Plan which permits certain management employees to defer a portion of their compensation. Deferred compensation accounts are credited with interest and are distributable after retirement, disability or employment termination. As of July 2, 1994 and July 3, 1993, the total liability amounted to $4,428,000 and $3,496,000, respectively. The Company insured the lives of certain management employees to assist in funding of the deferred compensation liability. The Company is the owner and beneficiary of the insurance policies. NOTE I -- AFFILIATED PARTY TRANSACTIONS The Company leases its corporate and other office space from a corporation whose stock is owned one-third each by the president and a vice president of the Company. Additional office space and retail store space is leased from the executive vice president. Certain of these leases are on a monthly basis with others expiring in 1997. Under the leases, the Company made payments of approximately $292,000, $226,000, and $137,000 for the 1994, 1993 and 1992 fiscal years, respectively. 26 NOTE J -- COMMITMENTS AND CONTINGENCIES During fiscal 1995 the Company plans to spend approximately $45 million for capital improvements and new equipment. About three-quarters of this amount is expected to be incurred in the continuation of the modernization program for the woven fabrics division of the Company's textile segment. The remainder of the fiscal 1995 capital expenditures are planned to include the start of construction on the "Duck Head" central distribution center, and various other projects across all of the Company's business segments. The Company believes that its facilities and equipment are adequate to allow it to remain competitive with its primary competitors. In fiscal 1994, the Company charged income for $27.1 million to establish a reserve for a judgment entered by an Alabama court in connection with a jury award made on November 24, 1993 in favor of a former independent sales representative of a subsidiary of the Company and two of his assistants, interest costs on that judgement, and related legal expenses in connection with the appeals process. The appeal is now before the Alabama Supreme Court. During fiscal 1994, the Company made certain decisions regarding its operations which resulted in a restructuring charge. These decisions included restructuring charges of $3.2 million for the sale of the office products business, $1.3 million to abandon plans to develop a spinning plant building and $2.4 million in the apparel segment to discontinue a women's line of apparel and consolidate distribution operations. These restructuring decisions include write-downs of $1.6 million of goodwill and $2.1 of property plant and equipment. At July 2, 1994, $2.4 million remain in accrued liabilities related primarily to leases on vacant facilities and other future costs of the restructuring plan. Prior to its acquisition by the Company, O'Bryan Brothers, Inc. had established for income tax purposes the basis of customer lists in the amount of $3.6 million. The Internal Revenue Service had audited this matter for the years prior to inclusion in the consolidated federal tax return of the Company and had disallowed the deduction of this basis. The full amount of the customer list was deducted by June 29, 1991. The Company appealed the disallowance. In April, 1994, the Internal Revenue Service offered a choice between two options to the Company in an attempt to settle this case. The Company could also have chosen to remain in the appeals process. After analyzing its options, the Company chose one of the settlement options offered by the Internal Revenue Service. The effect of choosing this option had no material effect on the Company's results. The Company's Nautilus business has been named as a "potentially responsible party" under the Comprehensive Environmental Response, Compensation, and Liability Act with respect to three hazardous waste sites. To the Company's knowledge, all of the transactions with these sites were conducted by a corporation whose assets were sold in 1990 pursuant to the terms of an order of the United States Bankruptcy Court to another corporation, the stock of which was subsequently acquired by the Company in January 1993. The Company, therefore, has denied any responsibility at the sites and has declined to participate in any settlements. Accordingly, the Company has not provided for any reserves for costs or liabilities attributable to the previous corporation. At two sites the previous company is listed as a "de minimis" party. At the third site the previous company is ranked eleventh out of a total of over 300 potentially responsible parties based on the company's volume of contribution of about 3%. Latest estimates of the cost to clean up the site range up to $4 million. Although there is uncertainty as to several legal issues, the Company believes that it has certain defenses to liability at these sites. Based on the information currently known to it, the Company does not believe that the potential liabilities arising from these three sites will have a materially adverse impact on the Company. A law suit with allegations similar to those in the Alabama case refered to above is pending in the United States District Court for the Western District of Kentucky brought by an individual who previously served as an independent sales representative for the Duck Head division. The amount of damages claimed in this suit has not yet been determined. From time to time the Company and its subsidiaries are defendants in legal actions involving claims arising in the normal course of business, including product liability claims. The Company believes that, as a result of legal defenses, insurance arrangements and indemnification provisions with parties believed to be financially capable, none of these actions should have a material effect on its operations or financial condition. 27 NOTE K -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of quarterly results of operations for the years ended July 2, 1994 and July 3, 1993:
Quarter Ended October 2 January 1 April 2 July 2 (In thousands, except per share data) 1994 Net sales.......................................................... $146,426 $ 149,344 $155,194 $162,812 Gross profit....................................................... 24,369 17,989 28,156 28,422 Net income (loss).................................................. 1,794 (31,995) 6,581 6,323 Earnings (loss) per share of Common Stock.......................... .07 (1.31) .27 .26
Quarter Ended September 26 December 26 March 27 July 3 (In thousands, except per share data) 1993 Net sales.......................................................... $152,884 $ 162,716 $176,412 $194,227 Gross profit....................................................... 29,872 26,623 34,501 30,891 Income: Before cumulative effect of change in accounting for income taxes.......................................................... $ 7,305 $ 6,100 $ 9,340 $ 5,459 Cumulative effect adjustment..................................... (875) Net income....................................................... $ 6,430 $ 6,100 $ 9,340 $ 5,459 Earnings per share of Common Stock Before cumulative effect of change in accounting for income taxes.......................................................... $ .28 $ .23 $ .35 $ .21 Cumulative effect adjustment..................................... (.04) Net income....................................................... $ .24 $ .23 $ .35 $ .21
During the second quarter of fiscal 1994 the Company recorded charges of $33 million for a lawsuit and $12.7 million for restructuring. The litigation charge was reduced to $27.1 million during the third quarter and the restructuring charge was reduced to $9.2 million during the fourth quarter due principally to a change in estimate related to the sale of the office products business. Included in the fourth quarter of fiscal 1993 is a pretax gain of $2,487,000 arising from insurance proceeds related to a fire at the Nautilus plant in March 1993. The Company made certain adjustments in the fourth quarter of fiscal 1994 resulting from changes in estimates that were material to the results of operations. The aggregate effect of the adjustments after applicable income taxes was an increase in net income of $2,432,000. 28 CORPORATE DIRECTORY OPERATING COMPANIES OF DELTA WOODSIDE INDUSTRIES, INC. DELTA MILLS MARKETING COMPANY 1071 Avenue of the Americas New York, NY 10018 STEVCOKNIT FABRICS COMPANY P.O. Box 1500 Greer, SC 29652 DUCK HEAD APPAREL COMPANY P.O. Box 688 89 East Athens Street Winder, GA 30680 DELTA APPAREL COMPANY 3355 Breckinridge Boulevard Suite 100 Duluth, GA 30136 DUCK HEAD RETAIL OPERATIONS 233 N. Main St., Suite 250 Greenville, SC 29601 APPAREL MARKETING CORP. 80 West 40th Street, Suite 80 New York, New York 10018 NAUTILUS INTERNATIONAL 9800 West Kincey Avenue Huntersville Business Park, Suite 150 Huntersville, NC 28078 CORPORATE OFFICERS E. ERWIN MADDREY, II President and Chief Executive Officer BETTIS C. RAINSFORD Executive Vice President, Treasurer and Chief Financial Officer JANE H. GREER Vice President and Secretary DOUGLAS J. STEVENS Controller and Assistant Secretary BRENDA L. JONES Assistant Secretary 012 BOARD OF DIRECTORS * C. C. GUY** President RSI Holdings, Inc. * DR. JAMES F. KANE** Dean Emeritus, College of Business University of South Carolina * DR. MAX LENNON** President and Chief Executive Officer Eastern Foods, Inc. E. ERWIN MADDREY, II President and Chief Executive Officer Delta Woodside Industries, Inc. BUCK A. MICKEL** Vice President, RSI Holdings, Inc. BUCK MICKEL** Chairman of the Board and Chief Executive Officer RSI Holdings, Inc. BETTIS C. RAINSFORD Executive Vice President, Treasurer and Chief Financial Officer Delta Woodside Industries, Inc. * Member Audit Committee ** Member Compensation Committee FORM 10-K Upon written request, the Company will furnish without charge to any Delta Woodside Shareholder a copy of the Company's Annual Report on Form 10-K for the fiscal year ended July 2, 1994 including financial statements and schedules, but excluding exhibits. Requests should be directed to Jane H. Greer, Vice President and Secretary, Delta Woodside Industries, Inc., 233 North Main Street, Hammond Square, Suite 200, Greenville, South Carolina 29601. ANNUAL MEETING The Annual Meeting of Shareholders of Delta Woodside Industries, Inc. will be held on Thursday, November 10, 1994, at 10:30 a.m., at the Dorothy Gunter Theater of the Peace Center, 101 West Broad Street, Greenville, South Carolina. DELTA WOODSIDE INDUSTRIES, INC. 233 N. Main Street Hammond Square, Suite 200 Greenville, SC 29601 (803) 232-8301 ***************************************************************************** APPENDIX On Page 2 a photo of E. Erwin Maddrey, II appears where indicated. On Page 3 a photo of Bettis C. Rainsford, and signatures of E. Erwin Maddrey, II and Bettis C. Rainsford appears where indicated. On Page 4 a bar graph appears where indicated. Plot points are listed below: NET SALES FISCAL YEARS ENDED JUNE OR JULY (IN THOUSANDS OF DOLLARS) 1989 1990 1991 1992 1993 1994 569,052 500,894 590,019 705,037 686,239 613,776 On Page 5 a bar graph appears where indicated. Plot points are listed below: NET INCOME (LOSS) FISCAL YEARS ENDED JUNE OR JULY (IN THOUSANDS OF DOLLARS) 1989 1990 1991 1992 1993 1994 30,297 6,009 23,943 40,015 27,329 (17,297) On Page 6 two bar graphs appear where indicated. Plot points are listed below: NET INCOME AS A % OF SALES FISCAL YEARS ENDED JUNE OR JULY 1989 1990 1991 1992 1993 1994 5.3 1.2 4.1 5.7 4.0 -2.8 SHAREHOLDERS' EQUITY FISCAL YEARS ENDED JUNE OR JULY (IN THOUSANDS OF DOLLARS) 1989 1990 1991(1) 1992(2) 1993 1994 127,169 127,575 172,647 318,781 336,249 284,877 (1) 1991 Common Stock Offering Proceeds: $25,497 (2) 1992 Common Stock Offering Proceeds: $113,291 On Page 7 a bar graph appears where indicated. Plot points are listed below: EARNINGS (LOSS) PER SHARE FISCAL YEARS ENDED JUNE OR JULY DOLLARS PER SHARE 1989 1990 1991 1992 1993 1994 1.65 .32 1.27 1.62 1.03 -.70 1898 Weighted Average Shares Outstanding--18,288,000 1990 Weighted Average Shares Outstanding--18,733,000 1990 Weighted Average Shares Outstanding--18,879,000 1990 Weighted Average Shares Outstanding--24,670,000 1990 Weighted Average Shares Outstanding--26,421,000 1990 Weighted Average Shares Outstanding--24,550,000 On Page 9 a bar graph appears where indicated. Plot points are listed below: FUNDED DEBT TO EQUITY RATIO* FISCAL YEARS ENDED JUNE OR JULY 1989 1990 1991 1992 1993 1994 1.8 to 1 1.8 to 1 1.1 to 1 0.4 to 1 0.4 to 1 0.6 to 1 *For purposes of this chart only, funded debt includes long- and short-term debt, capital leases and offset factor borrowings. On Page 14 the signature of Ernst & Young LLP appears where indicated. EX-23 4 SUBSIDIARIES OF REGISTRANT Jurisdiction % Of of Stock Owned Other Names Under Name of Subsidiary Incorporation By Parent Which Do Business Alchem Capital Corporation DE 100% owned by Delta Woodside Industries, Inc. Delta Mills, Inc. DE 100% owned by Delta Mills Marketing by Alchem Capital Company; Stevcoknit Corporation Fabrics Company; Woodside Mills Delta Merchandising, SC 100% owned by Duck Head Retail Inc. Alchem Capital Operations Corporation Duck Head Apparel TN 100% owned by Delta Apparel Company, Inc. Alchem Capital Maiden Corporation Delta Consolidated NY 100% owned by Delta Mills Sales Co. Corporation Alchem Capital Stevcoknit Marketing Corporation Co. Nautilus Marketing Co. Delta Apparel Marketing Co. Duck Head Marketing Co. Cargud, Sociedad Costa Rica 100% owned by Anonima Duck Head Apparel Company, Inc. Armonia Textil, S.A. Costa Rica 100% owned by Cargud, Sociedad Anonima Nautilus VA 100% owned by International, Inc. Alchem Capital Corporation Nautilus Direct, Inc. NC 100% owned by Nautilus Internationl, Inc. International Apparel NY 70% owned by Alchem Capital Marketing, Corporation. Corporation Harper Brothers, Inc. SC 100% owned by Alchem Capital Corporation EX-23 5 EXHIBIT 23--Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K)of Delta Woodside Industries, Inc. of our report dated August 17, 1994, except for the third paragraph of Note D, as to which the date is September 7, 1994, included in the 1994 Annual Report to Shareholders of Delta Woodside Industries,Inc. Our audits also included the financial statement schedules of Delta Woodside Industries, Inc. listed in the Index at Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-38930) pertaining to the Delta Woodside Industries, Inc. Stock Option Plan and in the Registration Statement (Form S-8 No. 33-38931) pertaining to the Delta Woodside Industries, Inc. Incentive Stock Award Plan, of our report dated August 17 1994, except for the third paragraph of Note D, as to which the date is September 7, 1994, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedules included in this Annual Report (Form 10-K) of Delta Woodside Industries, Inc. ERNST & YOUNG LLP Greenville, South Carolina September 29, 1994 -----END PRIVACY-ENHANCED MESSAGE-----