10-Q

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2002
o	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 1-14330

POLYMER GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware	57-1003983
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4838 Jenkins Avenue North Charleston, South Carolina	29405
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (843) 566-7293

        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 periods that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes ý No o

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

        On August 9, 2002 there were 32,004,200 Common Shares, $.01 par value, outstanding.

POLYMER GROUP, INC.

INDEX TO FORM 10-Q

			Page
Part I. Financial Information			3
	Item 1.	Financial Statements	3
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Part II. Other Information			44
Signatures			45
Exhibit Index			46

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PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

POLYMER GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)

			June 29, 2002			December 29, 2001
			(Unaudited)
A S S E T S
Current assets:
	Cash and equivalents		$	47,784		$	28,231
	Short-term investments			14,163			18,222
	Accounts receivable, net			125,892			125,649
	Inventories			112,461			115,953
	Other			43,510			37,824
		Total current assets		343,810			325,879
Property, plant and equipment, net				694,361			711,567
Intangibles and loan acquisition costs, net				137,880			135,995
Other				57,458			58,773
		Total assets	$	1,233,509		$	1,232,214
L I A B I L I T I E S    A N D    S H A R E H O L D E R S'     (D E F I C I T)
Liabilities Not Subject to Compromise
Current liabilities:
	Accounts payable		$	31,465		$	46,384
	Accrued liabilities and other			39,524			62,403
	Short-term borrowings			9,851			12,411
	Current portion of long-term debt			489,465			1,077,017
		Total current liabilities		570,305			1,198,215
Long-term debt, less current portion				7,162			9,802
Deferred income taxes				54,499			53,106
Other non-current liabilities				18,862			19,953
Total liabilities not subject to compromise				650,828			1,281,076
Liabilities Subject to Compromise				656,368			—
		Total liabilities		1,307,196			1,281,076
Shareholders' (deficit):
	Series preferred stock—$.01 par value, 10,000,000 shares authorized, 0 shares issued and outstanding			—			—
	Common stock—$.01 par value, 100,000,000 shares authorized, 32,004,200 shares issued and outstanding at June 29, 2002 and December 29, 2001			320			320
	Non-voting common stock—$.01 par value, 3,000,000 shares authorized, 0 shares issued and outstanding			—			—
	Additional paid-in capital			243,722			243,722
	(Deficit)			(289,277	)		(241,935	)
	Accumulated other comprehensive (loss)			(28,452	)		(50,969	)
				(73,687	)		(48,862	)
		Total liabilities and shareholders' (deficit)	$	1,233,509		$	1,232,214

See accompanying notes.

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POLYMER GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands, Except Per Share Data)

			Three Months Ended						Six Months Ended
			June 29, 2002			June 30, 2001			June 29, 2002			June 30, 2001
Net sales			$	200,781		$	214,387		$	391,961		$	415,643
Cost of goods sold				163,900			178,050			326,611			348,244
Gross profit				36,881			36,337			65,350			67,399
Selling, general and administrative expenses				26,909			26,824			53,533			56,880
Special charges				1,466			—			3,634			—
Plant realignment costs				381			1,660			557			1,660
Operating income				8,125			7,853			7,626			8,859
Other expense:
	Interest expense, net (contractual interest of $27,201 and $53,582 for the three months and six months ended June 29, 2002, respectively)			17,933			25,316			43,686			50,711
	Foreign currency and other			4,654			641			7,975			2,063
				22,587			25,957			51,661			52,774
Loss before Chapter 11 reorganization expenses and income tax expense (benefit)				(14,462	)		(18,104	)		(44,035	)		(43,915	)
Chapter 11 reorganization expenses				885			—			885			—
Loss before income tax expense (benefit)				(15,347	)		(18,104	)		(44,920	)		(43,915	)
Income tax expense (benefit)				2,422			(5,069	)		2,422			(12,296	)
Net loss			$	(17,769	)	$	(13,035	)	$	(47,342	)	$	(31,619	)
Net loss per common share:
	Basic:
		Average common shares outstanding		32,004			32,004			32,004			32,004
		Net loss per common share	$	(0.56	)	$	(0.41	)	$	(1.48	)	$	(0.99	)
	Diluted:
		Average common shares outstanding		32,004			32,004			32,004			32,004
		Net loss per common share	$	(0.56	)	$	(0.41	)	$	(1.48	)	$	(0.99	)
Cash dividends per share			$	—		$	—		$	—		$	0.02

See accompanying notes.

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POLYMER GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)

				Six Months Ended
				June 29, 2002			June 30, 2001
Operating activities
	Net loss			$	(47,342	)	$	(31,619	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation and amortization expense			31,771			39,970
		Foreign currency and other			7,975			2,063
	Changes in operating assets and liabilities:
		Accounts receivable			(243	)		(8,915	)
		Inventories			3,492			6,172
		Accounts payable and accrued expenses			29,843			8,752
	Other, net				(4,000	)		(11,019	)
			Net cash provided by operating activities		21,496			5,404
Investing activities
	Purchases of property, plant and equipment				(4,428	)		(11,865	)
	Proceeds from sales of marketable securities				4,762			—
	Other				(34	)		—
			Net cash provided by (used in) investing activities		300			(11,865	)
Financing activities
	Proceeds from debt				—			52,024
	Payment of debt				(4,719	)		(20,626	)
	Dividends to shareholders				—			(640	)
	Loan acquisition costs and other, net				(7,736	)		(4,732	)
			Net cash provided by (used in) financing activities		(12,455	)		26,026
Effect of exchange rate changes on cash					10,212			(1,072	)
Net increase in cash and equivalents					19,553			18,493
Cash and equivalents at beginning of period					28,231			12,276
Cash and equivalents at end of period				$	47,784		$	30,769

See accompanying notes.

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POLYMER GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.    Nature of Operations

        Polymer Group, Inc. (the "Company"), a global manufacturer and marketer of nonwoven and oriented polyolefin products, currently operates in two business segments that include consumer and industrial and specialty. The Company is currently operating under the jurisdiction of Chapter 11 of the Bankruptcy Code and the Bankruptcy Court, and the continuation of the Company as a going concern is contingent upon, among other things, its ability to formulate a Plan which will gain approval of the requisite parties under the Bankruptcy Code and confirmation by the Bankruptcy Court and its ability to comply with the debtor-in-possession financing agreement. These matters raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements, prepared assuming the Company will continue as a going concern, do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.

Note 2.    Significant Accounting Policies

Basis of Presentation and Use of Estimates

        These interim unaudited Condensed Consolidated Financial Statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and satisfaction of liabilities in the ordinary course of business, and in accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code," ("SOP 90-7"). Accordingly, all pre-petition liabilities subject to compromise have been segregated in the unaudited Condensed Consolidated Balance Sheets and classified as Liabilities Subject to Compromise, at the estimated amount of allowable claims. Liabilities Not Subject to Compromise are separately classified as current and non-current. Revenues, expenses, realized gains and losses, and provisions for losses resulting from the reorganization are reported separately as reorganization items in the unaudited Condensed Consolidated Statements of Operations.

        The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States for interim financial information and include the accounts of the Company and its subsidiaries.

        The consolidated financial statements of the Company do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The Condensed Consolidated Balance Sheets as of June 29, 2002 and December 29, 2001 contain summarized information; as a result, such data does not include the same detail provided in the Company's Annual Report on Form 10-K. In the opinion of management, these unaudited consolidated financial statements contain all adjustments of a normal recurring nature necessary for a fair presentation. Operating results for the three months and six months ended June 29, 2002 are not necessarily indicative of the results that may be expected for fiscal 2002.

        All material intercompany accounts are eliminated in consolidation. Certain amounts previously presented in the consolidated financial statements for prior periods have been reclassified to conform to current classification. The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Investments in 20% to 50% owned affiliates are accounted for on the equity method.

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Revenue Recognition

        Revenue from product sales is recognized at the time ownership of goods transfers to the customer and the earnings process is complete. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 did not change existing accounting rules on revenue recognition but specifies how existing rules should be applied to transactions in the absence of authoritative literature. Based on the guidelines of current accounting rules and SAB 101, revenue should not be recognized until it is realized or realizable and earned.

Accounts Receivable and Concentration of Credit Risks

        The Company provides credit in the normal course of business and performs ongoing credit evaluations on certain of its customers' financial condition, but generally does not require collateral to support such receivables. The Company also establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. The allowance for doubtful accounts was approximately $13.8 million and $12.0 million at June 29, 2002 and December 29, 2001, respectively which management believes is adequate to provide for credit loss in the normal course of business, as well as losses for customers who have filed for protection under the bankruptcy law.

Inventories

        Inventories are stated at the lower of cost or market using the first-in, first-out method of accounting and, as of June 29, 2002 and December 29, 2001 consist of the following (in thousands):

	June 29, 2002		December 29, 2001
	(Unaudited)
Finished goods	$	52,584	$	50,440
Work in process		17,764		19,172
Raw materials		42,113		46,341
	$	112,461	$	115,953

Impairment Evaluation of Long-Lived Assets

        For all periods through December 29, 2001, the Company reviewed the recoverability of the carrying value of long-lived assets in accordance with Statement of Financial Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Assets to be Disposed Of" ("FAS 121"). The Company also reviewed long-lived assets for impairment whenever events or changes in circumstances indicated that the carrying amount of such assets might not be recoverable. When the future undiscounted cash flows of the operations to which the assets relate did not exceed the carrying value of the asset, the intangible assets were written down, followed by the other long-lived assets, to fair value. The Company recorded a non-cash asset impairment charge in fiscal 2001 of approximately $181.2 million related to the write-down of goodwill, contract intangibles and property, plant and equipment.

        In October 2001, the Financial Accounting Standards Board issued Statement No.144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. The statement supersedes FAS 121 and also supersedes the accounting and reporting provisions of APB Opinion No. 30 "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of

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a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," related to the disposal of a segment of a business. The statement is effective for fiscal years beginning after December 15, 2001. The adoption of FAS 144 did not have a material impact on the financial condition and operating results of the Company.

Derivatives

        The Company does not use derivative financial instruments for trading purposes. Premiums paid for purchased interest rate cap agreements are charged to expense over the rate cap period. The Company's London Interbank Offered Rate-based interest rate cap agreement provides for a notional amount of $100.0 million, which declines ratably over the rate cap term. If the rate cap exceeds 9% on each quarterly reset date, as defined in the agreement, the Company is entitled to receive an amount by which the rate cap exceeds 9%. Over the term of the agreement, such amounts have not exceeded 9%.

Income Taxes

        Deferred tax liabilities and assets are determined based upon temporary differences between the basis of certain assets and liabilities for income tax and financial reporting purposes. A valuation allowance is recognized if it is likely that some portion of a deferred tax asset will not be realized in the future.

Research and Development

        The cost of research and development is charged to expense as incurred and is included in selling, general and administrative expense in the consolidated statement of operations. The Company incurred approximately $3.8 million and $4.5 million of research and development expense during the three months ended June 29, 2002 and June 30, 2001, respectively. Year to date research and development expenses approximated $7.7 million in 2002 and $9.2 million in 2001.

Shipping and Handling Costs

        The cost of shipping and handling is charged to expense as incurred and is included in selling, general and administrative expense in the consolidated statement of operations. The Company incurred approximately $5.0 million and $5.7 million of shipping and handling costs, during the three months ended June 29, 2002 and June 30, 2001, respectively. Year to date shipping and handling costs approximated $10.3 million in 2002 and $11.5 million in 2001.

Selling and Advertising Costs

        The cost of selling and advertising is charged to expense as incurred and is included in selling, general and administrative expense in the consolidated statement of operations. The Company incurred approximately $8.5 million and $6.8 million of selling and advertising costs, during the three months ended June 29, 2002 and June 30, 2001, respectively. Year to date selling and advertising costs approximated $16.0 million in 2002 and $15.2 million in 2001.

Foreign Currency Translation

        All assets and liabilities in the balance sheets of foreign subsidiaries whose functional currency is other than the U.S. dollar are translated at quarter-end exchange rates. Translation gains and losses are not included in determining net income but are accumulated as a separate component of shareholders' equity. However, subsidiaries considered to be operating in highly inflationary countries use the U.S.

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dollar as the functional currency and translation gains and losses are included in determining net income. In addition, foreign currency transaction gains and losses are included in determining net income.

        The Company has a majority-owned subsidiary located in Argentina. The Argentine peso, which serves as the functional currency of this subsidiary, has devalued significantly against the U.S. dollar since the end of fiscal 2001 due primarily to the economic uncertainty within this geographic region. As a result of the Argentine peso devaluation, the Company recognized a foreign currency loss of approximately $0.7 million during the three months ended June 29, 2002 and $2.5 million year to date 2002, net of minority interest adjustments, related to its Argentina majority-owned subsidiary.

Comprehensive Income (Loss)

        Comprehensive income (loss) is reported in accordance with the Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes rules for the reporting and display of comprehensive income and its components. FAS 130 requires unrealized gains or losses on the Company's available for sale securities and the foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. The Company's comprehensive income (loss) approximated $3.9 million and $(15.2) million for the three months ended June 29, 2002 and June 30, 2001, respectively. Year to date comprehensive loss approximated $(24.8) million in 2002 and $(42.4) million in 2001

Net Income (Loss) Per Share

        Basic earnings per share exclude any dilutive effects of options, warrants and convertible securities and are computed using the number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if stock options were exercised and is based upon the weighted average number of common and common equivalent shares outstanding for the period. Shares under option represent common equivalent shares. The numerator for both basic and diluted earnings per share is net income (loss) applicable to common stock. During the quarters ended June 29, 2002 and June 30, 2001, the potential exercise of stock options would have an antidilutive effect on the calculation of earnings per share due to losses incurred during the first six months of 2002 and 2001. Accordingly, there is no difference in the determination of basic and diluted earnings per share. A reconciliation of the amounts included in the computation of loss per share for the three months and six

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months ended June 29, 2002 and June 30, 2001 is presented in the following table (in thousands, except per share data):

		Three Months Ended						Six Months Ended
		June 29, 2002			June 30, 2001			June 29, 2002			June 30, 2001
Basic loss per share:
	Loss available to common shareholders	$	(17,769	)	$	(13,035	)	$	(47,342	)	$	(31,619	)
	Average common shares outstanding		32,004			32,004			32,004			32,004
	Loss per share available to common shareholders	$	(0.56	)	$	(0.41	)	$	(1.48	)	$	(0.99	)
Diluted loss per share:
	Loss available to common shareholders	$	(17,769	)	$	(13,035	)	$	(47,342	)	$	(31,619	)
	Average common shares outstanding		32,004			32,004			32,004			32,004
	Effect of dilutive securities—stock options		—			—			—			—
	Average common shares outstanding—assuming dilution		32,004			32,004			32,004			32,004
	Loss per share available to common shareholders	$	(0.56	)	$	(0.41	)	$	(1.48	)	$	(0.99	)

Note 3.    Chapter 11 Proceedings

        Due to the financial impact of economic and business factors upon the Company's business, as outlined under "Note 1. Nature of Operations and Business Conditions" in its Annual Report on Form 10-K for fiscal 2001, the inability to complete asset dispositions on acceptable terms and the expiration of the waiver with respect to the leverage covenant, as of December 29, 2001 the Company was in default under the Prepetition Credit Facility (as defined herein). Because of this default, the Senior Secured Lenders exercised their right to block the payment of interest due on January 2, 2002 to the holders of the 9% Senior Subordinated Notes due 2007. These Lenders subsequently blocked the interest payment due on March 1, 2002 to the holders of 8³/4% Senior Subordinated Notes due 2008. On December 30, 2001, the Company and certain subsidiaries entered into a Forbearance Agreement with the Senior Secured Lenders (the "Forbearance Agreement"). The Senior Secured Lenders agreed not to exercise certain remedies available to them under the Prepetition Credit Facility as a result of the existing covenant defaults during the forbearance period. If certain events were to occur, the Senior Secured Lenders would have been able to exercise their remedies available to them, which included the right to declare all amounts outstanding under the Prepetition Credit Facility immediately due and payable. The Forbearance Agreement, as extended on March 15, 2002 was scheduled to end on May 15, 2002, and prevented the Company from making any additional borrowings in excess of the amounts outstanding under the revolving portion of the Prepetition Credit Facility as of December 30, 2001.

        Because the Company was unable to reduce amounts outstanding under the Prepetition Credit Facility through asset dispositions on acceptable terms, the services of Miller, Buckfire & Lewis (f/k/a Dresdner Kleinwort Wasserstein, Inc.) were retained on October 2, 2001 as the financial advisor to assist in exploring various restructuring options. From November of 2001 through February of 2002, the Company conducted extensive negotiations with several potential investors and various other constituents in an effort to establish viable restructuring options. During this same time period, some of these potential investors conducted due diligence investigations of the Company and its operations.

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        In evaluating the various restructuring options, the Company decided to maintain negotiations with CSFB Global Opportunities Investment Partners, L.P. ("GOF"), the holder of approximately 67% of the outstanding Senior Subordinated Notes (as defined herein). The Company determined that GOF afforded the highest probability of a transaction being completed with terms that provided an overall acceptable level of value to the various stakeholders. Members of the Company's senior management, GOF and their respective advisors held discussions concerning the terms of a proposed recapitalization transaction. The discussions focused primarily on the overall level of investment in the Company and the nature of that ownership. As a result of these extensive negotiations, the Company executed a term sheet with GOF on March 15, 2002 setting forth the proposed terms of a recapitalization plan, including a financial restructuring.

        The material elements of the financial restructuring included: (i) GOF contributing $50 million in cash and $394.4 million of the Senior Subordinated Notes (the "Existing Notes") currently owned by GOF (including accrued, but unpaid interest) and agreeing to provide a $25 million letter of credit in favor of the Senior Secured Lenders under an amended credit facility, all in exchange for approximately 22.4 million newly issued shares of common stock of the Company (after taking into account a 1-for-10 reverse common stock split), representing 87.5% ownership of the Company; (ii) the holders of at least 95% of the aggregate principle amount of the Existing Notes not owned by GOF exchanging their notes for either new senior subordinated notes or new senior subordinated discount notes; and (iii) the Company entering into an amended credit facility with its Senior Secured Lenders (collectively, the "Exchange Offer").

        On March 25, 2002, during the pendency of the Exchange Offer, without any prior notice, a group of creditors (the "Petitioning Creditors") holding approximately $41.3 million of the Company's outstanding Senior Subordinated Notes filed an involuntary bankruptcy petition (the "Involuntary Petition") against the Company in the United States Bankruptcy Court for the District of South Carolina (the "South Carolina Bankruptcy Court"). On April 2, 2002, the Company reached an agreement (the "Dismissal Agreement") with the Petitioning Creditors, which provided for the South Carolina Bankruptcy Court to dismiss the involuntary petition (the "Dismissal Order") subject to a twenty-day period during which parties-in-interest could object to that dismissal. The twenty-day period commenced on April 5, 2002, the day on which notice of the dismissal was published in the national edition of the Wall Street Journal. On April 26, 2002, the South Carolina Bankruptcy Court entered the Dismissal Order.

        The Dismissal Agreement also provided that the Company would seek an amendment of the Prepetition Credit Facility to permit it to file a voluntary petition for one of its wholly owned, South Carolina-registered subsidiaries in the South Carolina Bankruptcy Court. Pursuant to Amendment No. 7, dated as of April 4, 2002, the Senior Lenders agreed to amend the Prepetition Credit Facility to permit this filing. On April 23, 2002, the Debtors filed a voluntary petition for Bonlam (S.C.), Inc. ("Bonlam (S.C.)"), in the South Carolina Bankruptcy Court. The Dismissal Agreement further provided that the Company would extend the expiration of the Exchange Offer through May 15, 2002. The Company and GOF also agreed to forbear through, and including, May 15, 2002, from implementing any modifications to the Senior Subordinated Notes and the indentures governing them. The Petitioning Creditors agreed to forbear through and including, May 12, 2002 (the "Forbearance Period"), from exercising any and all remedies under the applicable indentures, the Senior Subordinated Notes or any applicable law, including any filing of an involuntary petition against any of the Debtors. During the Forbearance Period, the Company agreed (i) not to file a voluntary petition for relief under the Bankruptcy Code in a jurisdiction other than Columbia, South Carolina, and (ii) to contest any involuntary petition under the Bankruptcy Code filed in any such other jurisdiction, in each case, without the prior written consent of

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the Petitioning Creditors. GOF and the Petitioning Creditors agreed not to file an involuntary petition against the Company in any venue other than the South Carolina Bankruptcy Court.

        The Company, GOF and the Petitioning Creditors intended that the Dismissal Agreement would provide a framework for the Company and other parties, including the Petitioning Creditors, to continue to negotiate the terms of a potential restructuring of the Company through May 12, 2002. Negotiations proceeded, but the Company and Petitioning Creditors did not reach an agreement on a consensual restructuring. Meanwhile, the uncertainty created by the Involuntary Petition caused further deterioration in the Company's businesses. The Company determined that it was in the best interest of its creditors and other constituencies to seek the protections afforded by filing voluntary petitions for protection under Chapter 11 of the United States Code (the "Bankruptcy Code"). Accordingly, on May 11, 2002 (the "Filing Date" or "Petition Date"), the Company and each of its domestic subsidiaries (together with the Company, the "Debtors") filed voluntary petitions for "pre-negotiated" reorganization (the "Chapter 11 Filings" or the "Filings") under the Bankruptcy Code in the South Carolina Bankruptcy Court. The Chapter 11 Filings are being jointly administered for procedural purposes only. The Company's direct and indirect foreign subsidiaries and foreign joint venture entities did not file petitions under Chapter 11 and are not the subject of any bankruptcy proceedings. To facilitate stabilizing operations during the Chapter 11 Filings, the Debtors have secured a $125 million commitment (the "Commitment") for debtor-in-possession financing (the "DIP Facility") from a group of financial institutions, some of which are Senior Lenders (the "DIP Lenders") that will provide the Debtors sufficient liquidity to operate during the Chapter 11 Filings. JPMorgan Chase Bank is the Agent for the DIP Lenders under the DIP Facility. Pursuant to the DIP Facility, the Debtors paid certain fees to the DIP Lenders, including a structuring fee of 0.85% of the Commitment, an underwriting fee of 1.65% of the Commitment as well as certain other fees.

        To enhance the Debtors' ability to implement a restructuring and to emerge from Chapter 11 as efficiently as possible with an improved debt structure, the Debtors (a) obtained the requisite approval from a substantial majority of the Senior Lenders (the "Supporting Senior Lenders") (in the form of the Bank Term Sheet and discussed below) to restructure the Prepetition Credit Facility and (b) executed the Support Agreement, dated as of May 10, 2002, with GOF, pursuant to which GOF agreed to support a joint plan of reorganization. The Debtors paid a commitment fee to the Supporting Senior Lenders of approximately $4.3 million in consideration of their agreeing to the terms contained in the Bank Term Sheet. The Debtors agreed to file by May 24, 2002, a Chapter 11 plan of reorganization (the "Plan") and disclosure statement that were consistent with the term sheets agreed upon with each of the Supporting Senior Lenders and GOF. With the support of these substantial creditors, the Debtors are seeking to emerge from Chapter 11 in an expeditious manner. Beginning on May 23, 2002 and on other subsequent dates, GOF agreed to extend the deadline for filing such Plan and disclosure statement until June 14, 2002.

        On June 14, 2002, the Company filed the Plan with the South Carolina Bankruptcy Court. The Plan generally proposes (i) the restructuring of the Prepetition Credit Facility, including a $50 million principal reduction, (ii) the retirement of in excess of $591.5 million of the Debtors' obligations under the Senior Subordinated Notes, in exchange for the right of the holders of such Notes to receive either (x) their pro rata share of 100% of the newly issued Class A Common Stock of the reorganized Company (prior to the conversion of the preferred stock or new senior notes, each referred to below) (which shall be diluted by any conversion of the New Preferred Stock), (y) for each $1,000 in principal of existing Notes held, $120 in principal of New Junior Subordinated Notes bearing interest at 11% payable in cash or (z) for each $1,000 in principal amount of existing Senior Subordinated Notes held, $150 in principal amount of New Junior Subordinated PIK Notes, with interest at 7.5% payable in kind and 3.5% payable in cash, (iii) no

12

impairment of the Debtors' other unsecured creditors, (iv) a $50 million investment by GOF and eligible electing holders of Senior Subordinated Notes in exchange for convertible preferred stock convertible into 44% of the newly issued common stock of the reorganized Company (after giving effect to the conversion thereof and excluding PIK dividends thereon) (the "New Preferred Stock"), (v) the issuance by GOF and eligible electing holders of Senior Subordinated Notes of a $25 million letter of credit to secure the Debtors' proposed amortization payments to the Senior Lenders (which if drawn, would be evidenced by New Senior Subordinated Notes) and (vi) the retention by existing shareholders of 100% of the newly issued Class B Common Stock (which shall not be diluted by any conversion of the New Preferred Stock) and certain warrants for up to an additional 9.5% of the reorganized Company's common stock, as of the effective date of reorganization (which shall be subject to dilution by conversion of the New Preferred Stock), exercisable at specified value targets for the Company. In connection with the new investment, GOF has agreed to act as a standby purchaser to ensure that all of the shares of New Preferred Stock offered by the Company are purchased and that the new investment generates gross proceeds of $50.0 million in cash and results in $25.0 million of exit letters of credit in place. The Company shall pay GOF a fee of $500,000 for acting as standby purchaser in connection with the new investment.

        Prior to the Petition Date, the Company classified expenses related to its financial restructuring efforts as "Special charges" in the consolidated statement of operations. Such charges consist of professional and other related services that have been expensed as incurred. After the Petition Date, costs related to the Company's reorganization activities are also expensed as incurred and have been classified as "Chapter 11 reorganization expenses" in accordance with SOP 90-7. The cumulative amount of costs and expenses related to the Company's financial restructuring efforts, including pre-funded legal costs, between the fourth quarter of 2001 and the second quarter of 2002 have been approximately $7.1 million.

        Refer to Note 15. "Subsequent Event," for further discussion surrounding the Company's financial restructuring.

Note 4.    Long-Lived Assets

Property, Plant and Equipment

        Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed for financial reporting purposes on the straight-line method over the estimated useful lives of the related assets. The estimated useful lives established for building and land improvements range from 18 to 33 years, and the estimated useful lives established for machinery, equipment and other fixed assets range from 3 to 15 years. Costs of the construction of certain long-term assets include capitalized interest that is amortized over the estimated useful life of the related asset.

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        Property, plant and equipment as of June 29, 2002 and December 29, 2001, consist of the following (in thousands):

		June 29, 2002			December 29, 2001
		(Unaudited)
Cost:
	Land	$	15,689		$	15,287
	Buildings and land improvements		158,017			154,709
	Machinery, equipment and other		817,477			800,384
	Construction in progress		13,058			15,132
			1,004,241			985,512
Less accumulated depreciation			(309,880	)		(273,945	)
		$	694,361		$	711,567

        As discussed more fully under Note 6. "Business Restructuring," the Company recorded an impairment charge to property, plant and equipment of approximately $80.8 million during 2001.

Intangibles and Loan Acquisition Costs

        Intangibles and loan acquisition costs as of June 29, 2002 and December 29, 2001, consist of the following (in thousands):

		June 29, 2002			December 29, 2001
		(Unaudited)
Cost:
	Goodwill	$	121,906		$	124,756
	Proprietary technology		29,325			29,325
	Loan acquisition costs and other		47,851			42,918
			199,082			196,999
Less accumulated amortization			(61,202	)		(61,004	)
		$	137,880		$	135,995

        As discussed more fully under Note 6. "Business Restructuring," the Company recorded an impairment charge to goodwill and contract intangibles of approximately $100.4 million during 2001.

        In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 142 supersedes Accounting Principles Bulletin No. 17, "Intangible Assets." FAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition. The most significant changes made by FAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually and (4) the amortization period of intangible assets with finite lives will no longer be limited to forty years. FAS 142 is effective for fiscal years beginning after December 15, 2001. The adoption of FAS 142 did not have a material effect on the

14

Company's consolidated financial position. Amortization expense for the three months and six months ended June 29, 2002 and June 30, 2001 is presented in the following table (in thousands):

			Three Months Ended				Six Months Ended
			June 29, 2002		June 30, 2001		June 29, 2002		June 30, 2001
Amortization of:
	Goodwill		$	—	$	1,492	$	—	$	2,882
	Intangibles with finite lives			768		1,000		1,550		2,051
	Amortization included in selling, general and administrative expense			768		2,492		1,550		4,933
	Loan acquisition costs included in interest expense, net			1,758		1,193		3,499		2,135
		Total amortization expense	$	2,526	$	3,685	$	5,049	$	7,068

Note 5.    Accrued Liabilities

        Accrued liabilities as of June 29, 2002 and December 29, 2001, consist of the following:

		June 29, 2002		December 29, 2000
		(Unaudited)
Not Subject to Compromise:
	Interest payable	$	206	$	24,454
	Salaries, wages and other fringe benefits		15,410		11,573
	Other		21,070		24,240
		$	36,686	$	60,267

        Accrued interest at December 29, 2001 included interest of approximately $23.5 million on the Senior Subordinated Notes. Accrued interest at June 29, 2002 of $42.2 million on the Senior Subordinated Notes is classified as "Subject to Compromise" in the consolidated balance sheet. See Note 7. "Liabilities Subject to Compromise."

Note 6.    Business Restructuring

        The Company anticipated that the confluence of negative economic and business factors would generally subside during the latter half of 2001, particularly in the fourth quarter. However, the anticipated recovery within the Company's business did not develop as planned in the latter half of 2001; therefore, the Company undertook a comprehensive business restructuring involving manufacturing initiatives and workforce reductions. The restructuring program continued through the second quarter of 2002, thus the Company recorded a pre-tax charge of $0.4 million in the second quarter of 2002 and $0.6 million during the six months ended June 29, 2002 consisting predominantly of personnel related costs that

15

have been classified as "Plant realignment costs" in the consolidated statement of operations. A summary of the plant realignment liability is presented in the following table (in thousands):

Plant realignment liability as of December 29, 2001		$	6,242
2002 plant realignment charge:
	First Quarter		176
	Second Quarter		381
2002 cash payments and adjustments:
	First Quarter		(1,425	)
	Second Quarter		(1,164	)
Plant realignment liability as of June 29, 2002		$	4,210

        In the fourth quarter of 2001, based on a comprehensive review of the Company's long-lived assets, the Company recorded a non-cash charge of approximately $181.2 million, consisting of the write-down of goodwill and contract intangibles ($100.4 million) and machinery and equipment ($80.8 million) related to production assets within the U.S. and European Nonwovens business. Further asset write-downs may be required as part of the Company's application of "fresh-start" accounting adjustments pursuant to SOP 90-7; however, the extent of such adjustments and the amount of such write-downs is not presently determinable.

Note 7.    Liabilities Subject to Compromise

        In the Chapter 11 Filings, substantially all unsecured liabilities as of the Filing Date are subject to compromise or other treatment under the Plan which must be confirmed by the Bankruptcy Court after submission to any required vote by affected parties. Generally, all actions to enforce or otherwise effect repayment of prepetition liabilities, as well as all pending litigation against the Debtors, are stayed while the Debtors continue their business operations as debtors-in-possession. The ultimate amount of and settlement terms for liabilities subject to compromise are subject to the approved Plan and accordingly are not presently determinable. Pursuant to SOP 90-7, interest expense is reported only to the extent that it will be paid during the Chapter 11 Filings or that it is probable that it will be an allowed claim. Accordingly, no interest has been accrued on the Company's Senior Subordinated Notes after the Petition Date. The principal categories of obligations classified as liabilities subject to compromise under the Chapter 11 Filings as of June 29, 2002 are identified below (in thousands):

9% Senior Subordinated Notes, net of unamortized debt discount		$	390,982
83/4% Senior Subordinated Notes			196,500
Interest accrued on senior subordinated notes			42,186
Accounts payable			15,544
Accrued expenses and other			11,156
	Total liabilities subject to compromise	$	656,368

Note 8.    Debt

        Short-term borrowings, which are not subject to compromise, amounted to approximately $9.9 million and $12.4 million at June 29, 2002 and December 29, 2001, respectively. These amounts are composed of U.S. loans and local borrowings, principally by international subsidiaries. Debt, excluding

16

short-term borrowings, as of June 29, 2002 and December 29, 2001, consists of the following (in thousands):

	June 29, 2002		December 29, 2001
	(Unaudited)
Subject to Compromise:
Senior subordinated notes, net of unamortized debt discount of $4,018 at June 29, 2002 and $4,232 at December 29, 2001, due July 2007	$	390,982	$	390,768
Senior subordinated notes, due March 2008		196,500		196,500
Not Subject to Compromise:
Revolving Credit Facility, due June 2003		216,634		216,325
Term loans, including current portion, due December 2005 and 2006		268,060		268,060
Other		13,323		15,166
	$	1,085,499	$	1,086,819

DIP Facility—On May 13, 2002, the Debtors filed a motion seeking authority for the Company to enter into a credit facility of up to $125 million in debtor-in-possession financing with JPMorgan Chase Bank as administrative agent which was approved by the Bankruptcy Court on May 29, 2002. Under such terms, the Company, as borrower, may make revolving credit borrowings in an amount not exceeding the lesser of $125 million or the Borrowing Base (as defined in the DIP Facility). The DIP Facility will terminate and the borrowings thereunder will be due and payable upon the earliest of (i) the maturity date (i.e. May 30, 2003), (ii) the date of the substantial consummation of a plan of reorganization that is confirmed pursuant to an order by the Bankruptcy Court and (iii) the acceleration of the revolving credit loans made by any of the banks who are a party to the DIP Facility and the termination of the total commitment under the DIP Facility. The interest rate applicable to borrowings under the DIP Facility and financial covenants are customary for financings of this type. Borrowings under the DIP Facility are guaranteed by each of the Company's direct and indirect domestic subsidiaries. There were no amounts outstanding under the DIP Facility at June 29, 2002.

Prepetition Credit Facility—The Company's Credit Facility (as amended through and including Amendment No. 6 as defined below, the "Prepetition Credit Facility") provided for secured revolving credit borrowings with aggregate commitments of up to $325.0 million and aggregate term loans of $275.0 million. Subject to certain terms and conditions, a portion of the Prepetition Credit Facility may be used for letters of credit of which approximately $14.9 million was outstanding on June 29, 2002. Amendment No. 6 imposed a limit of $260.0 million under the revolving portion of the Prepetition Credit Facility for borrowings and outstanding letters of credit, with not more than $15.0 million of such revolving borrowings permitted to be outstanding in Canadian dollar equivalent borrowings. All indebtedness under the Prepetition Credit Facility is guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic subsidiaries of the Company. The Prepetition Credit Facility and the related guarantees are secured by (i) a lien on substantially all of the assets of the Company and its domestic subsidiaries, (ii) a pledge of all or a portion of the stock of the domestic subsidiaries of the Company and of certain non-domestic subsidiaries of the Company, (iii) a lien on substantially all of the assets of direct foreign borrowers (to secure direct borrowings by such borrowers), and (iv) a pledge of certain secured intercompany notes issued to the Company or one or more of its subsidiaries by non-domestic subsidiaries. Commitment fees under the Prepetition Credit Facility are generally equal to a percentage of the daily-unused amount of such commitment. The Prepetition Credit Facility contained covenants and events of default customary for financings of this type, to include leverage, fixed charge

17

coverage and net worth. The revolving portion of the Prepetition Credit Facility terminates in June 2003. The term loan portion terminates in December 2005 and December 2006. The loans are subject to mandatory prepayment out of proceeds received in connection with certain casualty events, asset sales and debt issuances.

        The interest rate applicable to borrowings under the Prepetition Credit Facility is based on, in the case of U.S. dollar denominated loans, a specified base rate or a specified Eurocurrency base rate for U.S. dollars, at the Company's option, plus a specified margin. In the event that a portion of the Prepetition Credit Facility is denominated in Dutch guilders, the applicable interest rate is based on the specified Eurocurrency base rate for Dutch guilders, plus a specified margin. In the event that a portion of the Prepetition Credit Facility is denominated in Canadian dollars, the applicable interest rate is based on the specified Canadian base rate plus a specified margin or the bankers' acceptance discount rate at the Company's option. The applicable margin for loans bearing interest based on the base rate or Canadian base rate will range from 2.75% to 3.50% and the margin for loans bearing interest on a Eurocurrency rate will range from 3.75% to 4.50%, based on the Company's ratio of total consolidated indebtedness to consolidated EBITDA calculated on a rolling four quarter basis.

        Under the terms of the Forbearance Agreement, as discussed below, with the Senior Secured Lenders, the Company is prevented from making any additional borrowings under the Prepetition Credit Facility in excess of the amounts outstanding on December 30, 2001. In addition, all borrowings under the Prepetition Credit Facility are required to be made under the base rate option. The following table provides detail on the revolving credit and term loan components of the Company's Prepetition Credit Facility at June 29, 2002 and December 29, 2001 (in thousands):

				June 29, 2002		December 29, 2001
Revolving Credit (Excluding Letters of Credit):
	Revolving Credit A (U.S. and Dutch borrowings)			$	210,000	$	210,000
	Revolving Credit B (Canadian borrowings)(1)				6,634		6,325
		Total Revolving Credit			216,634		216,325
Term Loans (all US borrowings):
	Term Loan B				121,000		121,000
	Term Loan B-1				48,560		48,560
	Term Loan C				98,500		98,500
		Total Term Loans			268,060		268,060
			Total amounts outstanding under Prepetition Credit Facility	$	484,694	$	484,385

(1)

The change in Revolving Credit B balances at June 29, 2002 over December 29, 2001 results from foreign currency translation rate differences at such dates between the Canadian dollar and U.S. dollar. The Canadian dollar equivalent of the Revolving Credit B borrowings approximates Cdn $10.1 million at June 29, 2002 and December 29, 2001.

Senior Subordinated Notes—In March 1998, the Company issued $200 million of 8³/4% Senior Subordinated Notes due 2008 (the "March 1998 Notes") in a private placement transaction pursuant to an indenture dated as of March 1, 1998. In August 1998, the Company completed its exchange of $200 million of the March 1998 Notes, Series B (the "8³/4% Senior Subordinated Notes") which have been registered for public trading for all outstanding March 1998 Notes. In July 1997, the Company issued $400 million of 9% Senior Subordinated Notes due 2007 (the "July 1997 Notes") in a private placement transaction pursuant to an indenture dated as of July 1, 1997. In October 1997, the Company

18

completed its exchange of the $400 million of July 1997 Notes, Series B (the "9% Senior Subordinated Notes"), which have been registered for public trading for all the outstanding July 1997 Notes.

        The 8³/4% Senior Subordinated Notes and the 9% Senior Subordinated Notes (collectively, the "Senior Subordinated Notes") are unsecured senior subordinated indebtedness of the Company and are subordinated in right of payment to all existing and future senior indebtedness of the Company. The Senior Subordinated Notes indenture contains several covenants, including limitations on: (i) indebtedness, certain restricted payments, liens, transactions with affiliates, dividend and other payment restrictions affecting certain subsidiaries, guarantees by certain subsidiaries, certain transactions including merger and asset sales; and (ii) certain restrictions regarding the disposition of proceeds of asset sales. In addition, in the event of certain defaults under the Prepetition Credit Facility, the Senior Secured Lenders under the Prepetition Credit Facility may exercise a right to block any payments of interest or principal on the Senior Subordinated Notes for, in general, up to 179 days during any period of 360 consecutive days. In such event, a failure by the Company to make any such required payment would be an event of default under the Senior Subordinated Notes. See "Recent Developments" below for further discussion of the Senior Subordinated Notes.

Other—The Company's China-based majority owned subsidiary ("Nanhai") has a bank facility with a financial institution in China. The facility was refinanced during July 2002 and is scheduled to mature during January 2003. At June 29, 2002, the approximate amount of outstanding indebtedness under the facility was $9.5 million. The Nanhai indebtedness is guaranteed 100% by the Company and to support this guarantee, a letter of credit has been issued by the Company's agent bank in the amount of $10.0 million. As a result of the Company's 80% majority ownership of Nanhai and full guarantee of the Nanhai bank debt, all amounts outstanding under the Nanhai bank facility are reflected in the Company's consolidated balance sheet as a current liability within the caption "Short term borrowings" at June 29, 2002. At June 29, 2002, Nanhai had cash and cash equivalents on hand of approximately $1.9 million and working capital, excluding current debt of approximately $9.3 million. Including current debt, the Nanhai working capital deficit was $0.1 million at June 29, 2002.

        The Company's Argentina-based majority owned subsidiary ("DNS") has two bank facilities denominated in U.S. dollars of approximately $9.9 million at June 29, 2002 with current maturities of approximately $3.9 million. The facilities are scheduled to mature in 2004 and 2005 respectively. The full amount of such indebtedness is reflected on the Company's consolidated balance sheet at June 29, 2002 as a result of the Company's 60% majority ownership of this subsidiary; however, the minority shareholder guarantees 40% of such indebtedness. Because of the Argentine peso devaluation against the U.S. dollar, the Company is exposed to foreign currency remeasurement losses of the U.S. dollar denominated debt at DNS because the functional currency of DNS is the Argentine peso. At June 29, 2002, DNS had cash and cash equivalents on hand of approximately $0.3 million and working capital of $5.5 million, excluding current debt. Including current debt, DNS working capital was approximately $1.6 million June 29, 2002.

Recent Developments—As of December 29, 2001 the Company was in default under the Prepetition Credit Facility. Because of this default, the Senior Secured Lenders exercised their right to block the payment of interest due January 2, 2002 to the holders of the 9% Senior Subordinated Notes and the interest payment due on March 1, 2002 to the holders of the 8³/4% Senior Subordinated Notes. The Company's failure to pay interest on the outstanding Senior Subordinated Notes prior to the expiration of the 30-day grace period constituted an event of default under such notes.

        On December 30, 2001, the Company and certain subsidiaries entered into a Forbearance Agreement pursuant to which the Senior Secured Lenders agreed not to exercise certain remedies available to them under the Prepetition Credit Facility as a result of the existing covenant defaults during the forbearance period. If certain events were to occur, the Senior Secured Lenders would be able to exercise their remedies available to them, which included the right to declare all amounts outstanding

19

under the Prepetition Credit Facility immediately due and payable. The Forbearance Agreement, as extended on March 15, 2002 was scheduled to end on May 15, 2002 and prevented the Company from making any additional borrowings in excess of the amounts outstanding under the revolving portion of the Prepetition Credit Facility as of December 30, 2001.

        On April 4, 2002, the Company entered into Amendment No. 7 to its Prepetition Credit Facility that allowed Bonlam (S.C.) to file a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code without triggering an event of default under the Prepetition Credit Facility. On April 23, 2002, Bonlam (S.C.) filed a voluntary petition as part of the agreement previously reached to dismiss the Involuntary Petition filed against the Company on March 25, 2002.

        Refer to Note 3. "Chapter 11 Proceedings" for a complete description of the events surrounding the Company's Chapter 11 Filing on May 11, 2002. Also, refer to Note 15. "Subsequent Event" for further discussion of the Company's financial restructuring.

Note 9.    Selected Financial Data of Guarantors

        Payment of the Company's senior subordinated notes is guaranteed jointly and severally on a senior subordinated basis by certain of the Company's subsidiaries. Management has determined that separate complete financial statements of the guarantors are not material to users of the financial statements. The following sets forth selected financial data of the guarantor and non-guarantor subsidiaries (in thousands):

Condensed Consolidating Selected Balance Sheet Financial Data
As of June 29, 2002

	Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries		The Company			Reclassifications and Eliminations			Consolidated
Working capital (deficit)	$	100,370	$	132,695	$	(450,391	)	$	(9,169	)	$	(226,495	)
Total assets		2,567,036		694,962		1,137,677			(3,166,166	)		1,233,509
Total debt		1,509		28,299		1,065,542			—			1,095,350
Shareholders' equity (deficit)		1,316,291		325,583		(73,687	)		(1,641,874	)		(73,687	)

Condensed Consolidating Selected Balance Sheet Financial Data
As of December 29, 2001

	Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries		The Company			Reclassifications and Eliminations			Consolidated
Working capital (deficit)	$	73,588	$	113,548	$	(1,107,400	)	$	47,928		$	(872,336	)
Total assets		2,065,267		646,405		1,090,204			(2,569,662	)		1,232,214
Total debt		1,558		30,018		1,067,654			—			1,099,230
Shareholders' equity (deficit)		896,276		298,673		(48,862	)		(1,194,949	)		(48,862	)

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Condensed Consolidating Statement of Operations Selected Financial Data
For the Six Months Ended June 29, 2002

	Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries		The Company			Reclassifications and Eliminations			Consolidated
Net sales	$	206,592		$	202,710	$	—		$	(17,341	)	$	391,961
Operating income (loss)		(11,230	)		23,302		(4,497	)		51			7,626
Interest expense, income taxes and other, net		(25,256	)		21,537		42,845			15,842			54,968
Net income (loss)		14,026			1,765		(47,342	)		(15,791	)		(47,342	)

Condensed Consolidating Statement of Operations Selected Financial Data
For the Six Months Ended June 30, 2001

	Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries		The Company			Reclassifications and Eliminations			Consolidated
Net sales	$	230,189		$	200,748	$	—		$	(15,294	)	$	415,643
Operating income (loss)		(12,280	)		20,898		(140	)		381			8,859
Interest expense, income taxes and other, net		(17,143	)		17,720		31,479			8,422			40,478
Net income (loss)		4,863			3,178		(31,619	)		(8,041	)		(31,619	)

Note 10.    Segment and Geographic Information

        The Company reports segment information in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance. Sales to The Procter & Gamble Company account for more than 10% of the Company's sales and are reported primarily in the Consumer segment. Consequently, the loss of these sales would have a material adverse effect on this segment. Generally, the Company's products can be manufactured on more than one type of production line. Accordingly, certain costs and assets attributed to each segment of the business were determined on an allocation basis. Production times have a similar relationship to net sales, thus the Company believes a reasonable basis for allocating certain costs is the percent of net sales method. As previously discussed in Note 3. "Chapter 11 Proceedings," and Note 6. "Business Restructuring," the Company recorded unusual items during the first six months of fiscal 2002 consisting of plant realignment and special charges. These charges have not been allocated to the Company's reportable business segments because the Company's management does not evaluate

21

such charges on a segment-by-segment basis. Segment operating performance is measured and evaluated before unusual or special items. Financial data by segments follows (in thousands):

		Three Months Ended						Six Months Ended
		June 29, 2002			June 30, 2001			June 29, 2002			June 30, 2001
Net sales to unaffiliated customers:
	Consumer	$	107,749		$	119,382		$	215,479		$	231,530
	Industrial and Specialty		93,032			95,005			176,482			184,113
		$	200,781		$	214,387		$	391,961		$	415,643
Operating income (loss):
	Consumer	$	11,128		$	8,049		$	16,612		$	12,446
	Industrial and Specialty		(1,156	)		1,464			(4,795	)		(1,927	)
			9,972			9,513			11,817			10,519
	Special charges		(1,466	)		—			(3,634	)		—
	Plant realignment costs		(381	)		(1,660	)		(557	)		(1,660	)
		$	8,125		$	7,853		$	7,626		$	8,859

		June 29, 2002		December 29, 2001
Identifiable assets:
	Consumer	$	625,713	$	634,642
	Industrial and Specialty		512,472		482,994
	Corporate(1)		95,324		114,578
		$	1,233,509	$	1,232,214

(1)

Consists primarily of cash and equivalents, short-term investments, loan acquisition costs and other corporate related assets.

        Geographic data for the Company's operations are presented in the following table.

		Three Months Ended				Six Months Ended
		June 29, 2002		June 30, 2001		June 29, 2002		June 30, 2001
Net sales to unaffiliated customers:
	United States	$	96,538	$	110,295	$	189,252	$	214,895
	Canada		25,228		26,223		49,432		50,166
	Europe		46,736		47,135		91,440		92,444
	Asia		6,659		5,632		12,787		10,697
	Latin America		25,620		25,102		49,050		47,441
		$	200,781	$	214,387	$	391,961	$	415,643

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		June 29, 2002		December 29, 2001
Identifiable assets:
	United States	$	706,475	$	728,688
	Canada		148,572		138,809
	Europe		212,896		188,960
	Asia		40,548		41,427
	Latin America		125,018		134,330
		$	1,233,509	$	1,232,214

Note 11.    Stock Option Plans

        The Company accounts for stock options in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") as permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). Had compensation cost been determined under the provisions of FAS 123 rather than APB 25, the Company's net (loss) would have increased by approximately $0.6 million or $0.02 per diluted share during the six months ended June 29, 2002. At June 29, 2002, 769,494 shares were exercisable and 945,307 shares were available for future grant. The following table summarizes transactions of the Company's stock option plans for the six-month period ended June 29, 2002:

		Number of Shares	Weighted Average Exercise Price
Unexercised options outstanding—December 29, 2001		2,120,576	$	2.09
Granted		—		—
	Exercised	—		—
	Forfeited	65,883		1.99
	Expired/canceled	—		—
Unexercised options outstanding—June 29, 2002		2,054,693		2.09

Note 12.    Affiliate Transactions

        The Company's corporate headquarters are housed in space leased by a shareholder of the Company from an affiliate of the shareholder. A portion of the payments and shared other expenses, primarily insurance and allocated costs, are charged to the Company. Such amounts approximated $0.3 million during the six months ended June 29, 2002. In addition, the Company leases a manufacturing facility from an affiliated entity that the Company believes is comparable to similar properties in the area. Rent expense relating to this lease approximated $0.1 million during the six months ended June 29, 2002.

Note 13.    Certain Matters

        During the first quarter of fiscal 2001, the Company exercised an option to obtain a 45% minority position in a start-up Saudi Arabian state-of-the-art nonwovens production line (the "Saudi Venture"). Over the course of 2001, the Company funded approximately $4.4 million representing its pro-rata share for the construction costs of this line in Saudi Arabia. The Company is not permitted to acquire more than a 45% interest in the Saudi Venture pursuant to Amendment No. 6. The Saudi Venture and the Company's equity stake are currently under review pending finalization of the Investment Approval Application (the "IAA") between the Company and its partner and the approval of the IAA by the Saudi Arabian government. The Company currently expects to receive the final outcome of the review during the third

23

or fourth quarter of fiscal 2002. However, in the event the Company and its partner are unable to agree on final terms of the Saudi Venture acceptable to the Company, the Saudi Venture would not be able to obtain approval of the IAA from the Saudi Arabia government. Moreover, the Company may not be able to recover its pro-rata share of construction costs funded in 2001. The Company has not guaranteed any indebtedness of the non-consolidated Saudi Venture.

        On December 19, 1997, DT Acquisition Inc. ("DTA"), a subsidiary of the Company, acquired substantially all of the outstanding common and first preferred shares of Dominion Textiles Inc., a Company organized under the laws of Canada ("Dominion"), and on January 29, 1998, DTA acquired all remaining common and first preferred shares, at which time Dominion underwent a "winding-up." All assets and liabilities of Dominion were transferred to DTA and all outstanding common shares and first preferred shares held by DTA were redeemed. Immediately thereafter, pursuant to a purchase agreement, dated October 27, 1997, the apparel fabrics business of Dominion was sold, at no gain or loss, to Galey & Lord, Inc., ("Galey") and the Company acquired the nonwovens and industrial fabrics operations. The Company and Galey finalized the acquisition cash settlement during 2000 pursuant to the Master Separation Agreement (the "MSA") dated January 29, 1998. The result of such settlement was not material to the Company's financial condition. Under the MSA, the Company and Galey are required to share in the payment of certain on-going costs, including taxes, for historical Dominion entities as required by the MSA. Because the Company originally acquired Dominion, the Company generally makes the payments and is reimbursed by Galey. On February 19, 2002, Galey and its U.S. operating subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code and began operating their businesses as debtors-in-possession. During March 2002, Galey informed the Company of its intention to reject the MSA as part of its bankruptcy proceedings. If approved by the Bankruptcy Court, Galey's contemplated rejection of the MSA would result in the Company being required to fund expenditures that should be allocated to, and paid by, Galey, which could potentially have a material adverse effect on the Company. At June 29, 2002, the amounts due from Galey for the first six months of 2002 shared cash activity pursuant to the MSA, including amounts associated with statutory tax payments, approximated $1.3 million (the "Galey Receivable"). The Company has fully reserved the Galey Receivable at June 29, 2002 due to the uncertainty of collectibility at such date. All shared cash activity prior to the first six months of 2002 relative to the MSA has been collected from Galey.

Note 14.    New Accounting Standards

        On April 30, 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds Statement No. 4, which required all gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. Upon adoption of SFAS No. 145, companies will be required to apply the criteria in Accounting Principle Board Opinion No. 30, "Reporting the Results of Operations—reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" in determining the classification of gains and losses resulting from the extinguishments of debt. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The Company is currently assessing the impact of this standard on its financial statements.

        On July 30, 2002, the FASB issued SFAS No 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company is currently assessing the impact of this standard on its financial statements.

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Note 15.    Subsequent Event

        On August 15, 2002, a hearing was held in the South Carolina Bankruptcy Court to consider, among other things, the approval of the Company's Disclosure Statement relating to the Plan of Reorganization. The judge indicated that he would approve the Disclosure Statement, and directed the parties to meet on statement language, with a hearing date of August 20, 2002, to resolve any remaining differences. The Company currently expects the Disclosure Statement to be approved at this hearing.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto contained in Part I of this report on Form 10-Q and with the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2001. In particular, this discussion should be read in conjunction with Note 3. "Chapter 11 Proceedings" in Part 1, which describes the filing by the Company and its domestic subsidiaries of voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code on May 11, 2002.

Results of Operations

        The following table sets forth the percentage relationships to net sales of certain income statement items.

		Three Months Ended				Six Months Ended
		June 29, 2002		June 30, 2001		June 29, 2002		June 30, 2001
Net sales by product category:
	Consumer	53.7	%	55.7	%	55.0	%	55.7	%
	Industrial and Specialty	46.3		44.3		45.0		44.3
		100.0		100.0		100.0		100.0
Cost of goods sold:
	Material	44.2		44.5		44.3		44.3
	Labor	8.8		8.7		8.7		8.8
	Overhead	28.6		29.9		30.3		30.7
		81.6		83.1		83.3		83.8
	Gross profit	18.4		16.9		16.7		16.2
Selling, general and administrative expenses		13.4		12.5		13.7		13.7
Special charges		0.7		—		0.9		—
Plant realignment costs		0.2		0.8		0.1		0.4
Operating income (loss)		4.1		3.6		2.0		2.1
Other expense:
	Interest expense, net	8.9		11.8		11.2		12.2
	Foreign currency and other	2.4		0.3		2.1		0.5
		11.3		12.1		13.3		12.7
Loss before Chapter 11 reorganization expenses and income tax expense (benefit)		(7.2	)	(8.5	)	(11.3	)	(10.6	)
Chapter 11 reorganization expenses		0.4		—		0.2		—
Loss before income tax expense (benefit)		(7.6	)	(8.5	)	(11.5	)	(10.6	)
Income tax expense (benefit)		1.2		(2.4	)	0.6		(3.0	)
Net loss		(8.8	)%	(6.1	)%	(12.1	)%	(7.6	)%

26

Comparison of Three Months Ended June 29, 2002 and June 30, 2001

        The following table sets forth components of the Company's net sales and operating income (loss) by segment for the three months ended June 29, 2002 and the corresponding increase/(decrease) over the comparable period in the prior year:

			Three Months Ended
			June 29, 2002			June 30, 2001			Increase/ (Decrease)			% Increase (Decrease)
			(Dollars in thousands)
Net sales:
	Consumer		$	107,749		$	119,382		$	(11,633	)	(9.7	)%
	Industrial and Specialty			93,032			95,005			(1,973	)	(2.1	)
			$	200,781		$	214,387		$	(13,606	)	(6.3	)%
Operating income (loss):
	Consumer		$	11,128		$	8,049		$	3,079		38.3	%
	Industrial and Specialty			(1,156	)		1,464			(2,620	)	(179.0	)
				9,972			9,513			459		4.8
	Plant realignment costs			(381	)		(1,660	)		1,279		77.0
	Special charges			(1,466	)		—			(1,466	)	—
		Operating income	$	8,125		$	7,853		$	272		3.5	%

Net Sales

        A reconciliation of the change in net sales between second quarter 2001 and second quarter 2002 is presented in the following table (in thousands):

Net sales—second quarter 2001		$	214,387
Change in sales due to:
	Volume		(11,156	)
	Price/mix		919
	Foreign currency		(3,369	)
Net sales—second quarter 2002		$	200,781

        Consolidated net sales were $200.8 million for the second quarter of 2002, a decrease of $(13.6) million or (6.3)% over the second quarter 2001 sales of $214.4 million. The decrease in net sales was due to a decrease in sales volume, weak foreign currencies versus the U.S. dollar and pricing pressure and product mix issues. Sales volume decreased by $11.1 million and foreign currency had a negative impact on net sales of $3.4 million. These negative factors were offset somewhat by an increase in price/mix of $0.9 million.

        Similar economic and business issues negatively impacted both the Consumer and Industrial and Specialty segments during the second quarter of fiscal 2002. Certain factors that contributed to lower than anticipated net sales in fiscal 2001 and the first quarter of 2002 continued to negatively affect net sales in the second quarter of 2002. Within the Company's Nonwovens business, lower sales volume, predominantly in the U.S. hygiene, industrial and medical markets, offset volume gains primarily within Latin America, Asia and the U.S. APEX business. The decrease in U.S. net sales due to lower selling prices and product mix issues resulted from continued pricing pressure within the Consumer markets. Additionally, Industrial and Specialty segment sales volume increases were achieved within the Oriented Polymers agriculture and specialty and coating fabric markets, but were offset somewhat by lower volumes and selling prices in other industrial sectors.

27

        Foreign currencies, predominantly in Argentina, were weaker against the U.S. dollar during the second quarter of 2002 compared to the second quarter of 2001. Further discussion of the Argentine pesos effect on the Company's results of operations is contained in the Investing and Financing Activities portion of "Liquidity and Capital Resources" in this Quarterly Report on Form 10-Q.

Operating Income

        A reconciliation of the change in operating income between second quarter 2001 and second quarter 2002 is presented in the following table (in thousands):

		Including Unusual Items			Excluding Unusual Items
Operating income—second quarter 2001		$	7,853		$	9,513
	Unusual items—plant realignment and special charges		(187	)		—
	Volume		(4,617	)		(4,617	)
	Cost savings and other initiatives related to plant realignment and business restructuring		9,327			9,327
	Lower depreciation and amortization expense		4,121			4,121
	Price / mix		919			919
	Foreign currency		(1,036	)		(1,036	)
	Higher administrative costs associated with historic Dominion entities		(31	)		(31	)
	All other		(8,224	)		(8,224	)
Operating income—second quarter 2002		$	8,125		$	9,972

        Consolidated operating income was $8.1 million for the second quarter of 2002. Excluding unusual items, which consist of plant realignment and special charges, consolidated operating income was approximately $10.0 million for the second quarter of 2002, an increase of $0.5 million or 4.8%, over operating income before unusual items of $9.5 million for the second quarter of 2001. The increase in operating income before unusual items was due to cost savings and other initiatives related to plant realignment and business restructuring of $9.3 million, lower depreciation and amortization charges of $4.1 million, higher net selling prices, predominantly in Argentina of $0.9 million, offset by volume declines of $4.6 million, weaker foreign currencies versus the U.S. dollar of $1.0 million and other items of approximately $8.2 million consisting of higher operating costs within the Oriented Polymers business and higher cost / mix in other sectors. Although operating income before unusual items increased quarter over quarter, certain of the same factors that contributed to lower net sales in the second quarter of 2002 versus 2001 also negatively affected operating earnings in the current fiscal quarter.

        As discussed in Note 3. "Chapter 11 Proceedings" and Note 4. "Business Restructuring," the Company undertook a comprehensive financial and business restructuring of its operations in the latter part of fiscal 2001 in response to a confluence of negative economic and business factors. The restructuring has continued into the first six months of 2002. Accordingly, the cash component of the restructuring has included workforce reductions and plant realignment in the Consumer and Industrial and Specialty businesses, predominantly in the U.S. and Europe. Manufacturing and operating cost savings were realized within each business segment in the second quarter of 2002 as a result of these initiatives. However, lower selling prices and volume declines predominantly in the U.S. and weak foreign currency translation rates versus the U.S. dollar in Argentina, offset the cost savings achieved in the second quarter of 2002 within the Nonwovens Consumer and Industrial and Specialty segments. Additionally, the Oriented Polymers business within the Industrial and Specialty segment produced lower operating earnings in the second quarter of 2002 versus the comparable prior year period despite increased sales levels over the prior year within this segment.

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        The restructuring program previously discussed also entailed the write down of long-lived assets, thus, non-cash depreciation and amortization expenses were lower in the second quarter of 2002 versus the same period in 2001 due to a lower depreciable fixed asset base in the U.S. and Europe and to the adoption of FAS 142 which requires that goodwill and intangibles with indefinite lives no longer be systematically amortized, but tested for impairment on at least an annual basis.

        Refer to Note 13. "Certain Matters" for a discussion of the MSA between the Company and Galey. Such costs, which were not significant during the second quarter of 2002, are quantified as a component in the Industrial and Specialty segment.

Plant Realignment and Special Charges

        The Company recorded a pre-tax charge of $0.4 million during the three months ended June 29, 2002 related to the continuation of the plant realignment and business restructuring program. The total charge in the second quarter consisted primarily of personnel costs within the Company's Oriented Polymers business.

        As part of the Company's financial restructuring, approximately $1.5 million of expenses were incurred in the second quarter of 2002, related to professional and other related services provided in connection with the Company's restructuring efforts. Refer to the discussion below surrounding "Chapter 11 Reorganization Expenses."

        The restructuring related charges have not been allocated to the Company's reportable business segments because the Company's management does not evaluate such charges on a segment-by-segment basis. Segment operating performance is measured and evaluated before unusual or special items.

Interest Expense and Other

        As of the Petition Date and in accordance with SOP 90-7, the Company discontinued accruing interest on the Senior Subordinated Notes and, as a result, interest expense decreased $7.4 million from $25.3 million in the second quarter of 2001 to $17.9 million in the second quarter of 2002. Interest on the Prepetition Credit Facility and other debt increased slightly due to debt remaining level quarter over quarter. The Company's effective borrowing rates during 2001 decreased, however, on April 11, 2001 and August 15, 2001, the Company's interest rate on its outstanding borrowings under the Prepetition Credit Facility increased by 50 basis points at each date. Additionally, the Company's effective borrowing rate for 2002 increased as a result of the default under the Prepetition Credit Facility.

        Foreign currency and other losses increased $4.0 million, from $0.6 million in the second quarter of 2001 to $4.7 million in the second quarter of 2002 due primarily to the Argentine peso devaluation, related to the remeasurement of U.S. dollar denominated debt at its Argentine majority-owned subsidiary, and to foreign currency remeasurement losses and other charges in Europe, Canada and Asia.

Chapter 11 Reorganization Expenses

        The Company incurred Chapter 11 reorganization expenses of $0.9 million during the second quarter of 2002. Such costs, consisting of professional and other related services, are expensed as incurred and are directly related to the Company's Chapter 11 reorganization efforts in accordance with SOP 90-7. Prior to the Petition Date, debt restructuring costs were expensed as incurred and classified as "Special charges" in the Consolidated Statement of Operations.

Income Taxes

        The Company incurred a pre-tax loss of $15.3 million during the three months ended June 29, 2002 that produced a potential U.S. tax benefit of $4.2 million. However, due to the uncertainty of the

29

Company's ability to realize the asset associated with the tax benefit, a valuation allowance in the amount of $4.2 million was recorded during the three months ended June 29, 2002. Additionally, the Company recognized income tax expense of $2.4 million in the second quarter of 2002 relating to income generated within its international operations. During the three months ended June 30, 2001, the Company recorded an income tax benefit of $5.1 million, representing an effective benefit rate of approximately 28%. The effective benefit rate differed from the statutory rate during the second quarter of 2001 due primarily to non-deductible charges, predominantly goodwill and to an increase in the Company's tax valuation allowance.

Net Loss

        Net loss increased $4.7 million from a loss of $(13.0) million, or $(0.41) per diluted share, in the second quarter of 2001 to a loss of $(17.8) million, or $(0.56) per diluted share, in the second quarter of 2002 as a result of the above mentioned factors.

Comparison of Six Months Ended June 29, 2002 and June 30, 2001

        The following table sets forth components of the Company's net sales and operating income (loss) by segment for the six months ended June 29, 2002 and the corresponding increase/(decrease) over the comparable period in the prior year:

			Six Months Ended
			June 29, 2002			June 30, 2001			Increase/ (Decrease)			% Increase (Decrease)
			(Dollars in thousands)
Net sales:
	Consumer		$	215,479		$	231,530		$	(16,051	)	(6.9	)%
	Industrial and Specialty			176,482			184,113			(7,631	)	(4.1	)
			$	391,961		$	415,643		$	(23,682	)	(5.7	)%
Operating income (loss):
	Consumer		$	16,612		$	12,446		$	4,166		33.5	%
	Industrial and Specialty			(4,795	)		(1,927	)		(2,868	)	(148.8	)
				11,817			10,519			1,298		12.3
	Plant realignment costs			(557	)		(1,660	)		(1,103	)	(66.4	)
	Special charges			(3,634	)		—			3,634		—
		Operating income	$	7,626		$	8,859		$	(1,233	)	(13.9	)%

Net Sales

        A reconciliation of the change in net sales between the six months ended June 30, 2001 and the six months ended June 29, 2002 is presented in the following table (in thousands):

Net sales—six months ended June 30, 2001		$	415,643
Change in sales due to:
	Volume		(6,555	)
	Price/mix		(5,806	)
	Foreign currency		(11,321	)
Net sales—six months ended June 29, 2002		$	391,961

        Consolidated net sales were approximately $392.0 million for the six months ended June 29, 2002, a decrease of $(23.7) million or (5.7)% over sales of $415.6 million during the same period in 2001. The

30

decrease in net sales was due to a decrease in sales volume, weak foreign currencies versus the U.S. dollar and pricing pressure and product mix issues. Sales volume decreased by $6.6 million and foreign currency had a negative impact on net sales of $11.3 million. Pricing pressure and product mix issues, predominantly in the U.S., negatively affected net sales by approximately $5.8 million during the six months ended June 29, 2002 versus the same period in 2001.

        Similar economic and business issues negatively impacted both the Consumer and Industrial and Specialty segments during the first half of fiscal 2002. Certain factors that contributed to lower than anticipated net sales in fiscal 2001 continued to negatively affect net sales in 2002. Within the Company's Nonwovens business, lower sales volume, predominantly in the U.S. hygiene, industrial and medical markets, offset volume gains over the prior year primarily within Europe, Latin America, Asia and the U.S. APEX business. The decrease in U.S. net sales due to lower selling prices and product mix issues resulted from continued pricing pressure within the Consumer markets. Additionally, Industrial and Specialty segment sales volume increases were achieved within the Oriented Polymers agriculture and specialty and coating fabric markets, but were offset somewhat by lower volumes and selling prices in other industrial sectors.

        Foreign currencies, predominantly in Europe, Canada and Argentina, were weaker against the U.S. dollar during the first six months of 2002 compared to the comparable period in 2001. Further discussion of the Argentine pesos effect on the Company's results of operations is contained in the Investing and Financing Activities portion of "Liquidity and Capital Resources" in this Quarterly Report on Form 10-Q.

Operating Income

        A reconciliation of the change in operating income between the six months ended June 30, 2001 and the six months ended June 29, 2002 is presented in the following table (in thousands):

		Including Unusual Items			Excluding Unusual Items
Operating income—second quarter 2001		$	8,859		$	10,519
	Unusual items—plant realignment and special charges		(2,531	)		—
	Volume		(4,201	)		(4,201	)
	Cost savings and other initiatives related to plant realignment and business restructuring		17,295			17,295
	Lower depreciation and amortization expense		8,200			8,200
	Price / mix		(5,806	)		(5,806	)
	Foreign currency		(3,422	)		(3,422	)
	Higher administrative costs associated with historic Dominion entities		(842	)		(842	)
	All other		(9,926	)		(9,926	)
Operating income—second quarter 2002		$	7,626		$	11,817

        Consolidated operating income was $7.6 million for the six months ended June 29, 2002. Excluding unusual items, which consist of plant realignment and special charges, consolidated operating income was approximately $11.8 million, an increase of $1.3 million or 12.3%, over operating income before unusual items of $10.5 million for the comparable period in 2001. The increase in operating income before unusual items was due to cost savings and other initiatives related to plant realignment and business restructuring of $17.3 million, lower depreciation and amortization charges of $8.2 million offset by volume declines of $4.2 million, lower selling prices of $5.8 million, weaker foreign currencies versus the U.S. dollar of $3.4 million and other items of approximately $10.8 million consisting of higher operating costs within the Oriented Polymers business and higher cost / mix in other sectors. Although operating income before unusual items increased year over year, certain of the same factors that

31

contributed to lower net sales during 2002 versus 2001 also negatively affected operating earnings in the current fiscal quarter.

        As discussed in Note 3. "Chapter 11 Proceedings" and Note 4. "Business Restructuring," the Company undertook a comprehensive financial and business restructuring of its operations in the latter part of fiscal 2001 in response to a confluence of negative economic and business factors. The restructuring has continued into the first six months of 2002. Accordingly, the cash component of the restructuring has included workforce reductions and plant realignment in the Consumer and Industrial and Specialty businesses, predominantly in the U.S. and Europe. Manufacturing and operating cost savings were realized within each business segment in the second quarter of 2002 as a result of these initiatives. However, lower selling prices and volume declines predominantly in the U.S. and weak foreign currency translation rates versus the U.S. dollar in Europe, Canada and Argentina, offset the cost savings achieved during 2002 within the Nonwovens Consumer and Industrial and Specialty segments. Additionally, the Oriented Polymers business within the Industrial and Specialty segment produced lower operating earnings during the first six months 2002 versus the comparable prior year period despite increased sales levels over the prior year within this segment.

        The restructuring program previously discussed also entailed the write down of long-lived assets, thus, non-cash depreciation and amortization expenses were lower during the six months ended June 29, 2002 versus the comparable period in 2001 due to a lower depreciable fixed asset base in the U.S. and Europe and to the adoption of FAS 142 which requires that goodwill and intangibles with indefinite lives no longer be systematically amortized, but tested for impairment on at least an annual basis.

        Corporately, administrative costs, excluding restructuring related charges, were approximately $2.0 million higher during the first six months of 2002 versus the comparable period in 2001 due primarily to higher costs associated with certain historic Dominion entities. Refer to Note 13. "Certain Matters" for a discussion of the MSA between the Company and Galey. Such costs, which were not significant during the second quarter of 2002, are quantified as a component in the Industrial and Specialty segment. On a year to basis in 2002, higher costs associated with the MSA have approximated $0.8 million.

Plant Realignment and Special Charges

        The Company recorded a pre-tax charge of $0.6 million during the six months ended June 29, 2002 related to the continuation of the plant realignment and business restructuring program. The total charge for the first half of 2002 consisted primarily of personnel costs.

        As part of the Company's financial restructuring, approximately $3.6 million of expenses were incurred during the six months ended June 29, 2002 related to professional and other related services provided in connection with the Company's restructuring efforts.

        The restructuring related charges have not been allocated to the Company's reportable business segments because the Company's management does not evaluate such charges on a segment-by-segment basis. Segment operating performance is measured and evaluated before unusual or special items.

Interest Expense and Other

        As of the Petition Date and in accordance with SOP 90-7, the Company discontinued accruing interest on the Senior Subordinated Notes and, as a result, interest expense decreased $7.0 million from $50.7 million during the first six months of 2001 to $43.7 million during the comparable period in 2002. Interest on the Prepetition Credit Facility and other debt increased slightly due to debt remaining level quarter over quarter. The Company's effective borrowing rates during 2001 decreased, however, on April 11, 2001 and August 15, 2001, the Company's interest rate on its outstanding borrowings under the

32

Prepetition Credit Facility increased by 50 basis points at each date. Additionally, the Company's effective borrowing rate for 2002 increased as a result of the default under the Prepetition Credit Facility.

        Foreign currency and other losses increased $5.9 million, from $2.1 million during the first six months of 2001 to approximately $8.0 million during the comparable 2002 period due primarily to the Argentine peso devaluation, related to the remeasurement of U.S. dollar denominated debt at its Argentine majority-owned subsidiary, and to foreign currency remeasurement losses and other charges in Europe, Canada and Asia.

Chapter 11 Reorganization Expenses

        The Company incurred Chapter 11 reorganization expenses of $0.9 million during the six months ended June 29, 2002. Such costs, consisting of professional and other related services, are expensed as incurred and are directly related to the Company's Chapter 11 reorganization efforts in accordance with SOP 90-7. Prior to the Petition Date, debt restructuring costs were expensed as incurred and classified as "Special charges" in the Consolidated Statement of Operations.

Income Taxes

        The Company incurred a pre-tax loss of $44.9 million during the six months ended June 29, 2002 that produced a potential U.S. tax benefit of $12.5 million. However, due to the uncertainty of the Company's ability to realize the asset associated with the tax benefit, a valuation allowance in the amount of $12.5 million has been recorded during the six months ended June 29, 2002. Additionally, the Company recognized income tax expense of $2.4 million during the first six months 2002 relating to income generated within its international operations. During the six months ended June 30, 2001, the Company recorded an income tax benefit of $12.3 million, representing an effective benefit rate of approximately 28%. The effective benefit rate differed from the statutory rate during the second quarter of 2001 due primarily to non-deductible charges, predominantly goodwill and to an increase in the Company's tax valuation allowance.

Net Loss

        Net loss increased $15.7 million from a loss of $(31.6) million, or $(0.99) per diluted share, for the first six months of 2001 to a loss of $(47.3) million, or $(1.48) per diluted share, for the first six months of 2002 as a result of the above mentioned factors.

Liquidity and Capital Resources

		June 29, 2002			December 29, 2001
		(In Thousands)
Balance sheet data:
	Cash and short-term investments	$	61,947		$	46,453
	Working capital (deficit), excluding liabilities subject to compromise		(226,495	)		(872,336	)
	Working capital, excluding current portion of long-term debt and liabilities subject to compromise		262,970			204,681
	Total assets		1,233,509			1,232,214
	Total debt		1,095,350			1,099,230
	Shareholders' (deficit)		(73,687	)		(48,862	)

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		Six Months Ended
		June 29, 2002			June 30, 2001
		(In Thousands)
Cash flow data:
	Net cash provided by operating activities	$	21,496		$	5,404
	Net cash provided by (used in) investing activities		300			(11,865	)
	Net cash provided by (used in) financing activities		(12,455	)		26,026

Operating Activities

        The Company generated cash from operations of $21.5 million during the six months ended June 29, 2002, an approximate $16.1 million increase from cash generated from operations of $5.4 million during the same period in 2001. Cash used for operations was negatively impacted during the first six months of 2002 and 2001 by continuing operating losses; however, as discussed more fully below, due to the Company's Senior Secured Lenders exercising their right to block interest payments to holders of the Company's 9% Senior Subordinated Notes and 8³/4% Senior Subordinated Notes on January 2, 2002 and March 1, 2002, respectively, cash payments for interest were approximately $26.4 million lower in the first six months of 2002 versus 2001.

        The Company had a working capital (deficit) of approximately $(226.5) million at June 29, 2002 due primarily to the reclassification of all amounts outstanding under the Company's Credit Facility to a current liability Not Subject to Compromise. Excluding the current portion of indebtedness, working capital was $263.0 million at June 29, 2002, compared to working capital, excluding current potion of indebtedness, at December 29, 2001 of $204.7 million. Accounts receivable on June 29, 2002 was $125.9 million as compared to $125.6 million on December 29, 2001, an increase of $0.2 million or approximately 0.2%. Accounts receivable represented approximately 57 days of sales outstanding at June 29, 2002 as compared to 56 days outstanding on December 29, 2001, an increase of approximately 1.8%. Inventories at June 29, 2002 were approximately $112.5 million, a decrease of $3.5 million over inventories at December 29, 2001 of $116.0 million due primarily to a $4.2 million decrease in consolidated raw materials, a $1.4 million decrease in consolidated work in process, and a $2.1 million increase in consolidated finished goods. The Company had approximately 63 days of inventory on hand at June 29, 2002 and December 29, 2001. Accounts payable, including payables subject to compromise, at June 29, 2002 was $47.0 million as compared to $46.4 million on December 29, 2001, an increase of $0.6 million or approximately 1.3%. Accounts payable represented 26 days of payables outstanding at June 29, 2002 compared to 25 days of payables outstanding on December 29, 2001. As a result of the Company's financial condition, certain suppliers have requested alternative payment provisions. However, such alternative payment provisions have not currently had a significant negative impact on the Company's liquidity.

Investing and Financing Activities

        Capital expenditures in the first six months of 2002 totaled $4.4 million, a decrease of $7.4 million from capital spending of $11.9 million in the first six months of 2001.

        Due to the financial impact of economic and business factors upon the Company's business, as outlined under "Note 1. Nature of Operations and Business Conditions" in its Annual Report on Form 10-K for fiscal 2001, the inability to complete asset dispositions on acceptable terms and the expiration of the waiver with respect to the leverage covenant, as of December 29, 2001 the Company was in default under the Prepetition Credit Facility (as defined herein). Because of this default, the Senior Secured Lenders exercised their right to block the payment of interest due on January 2, 2002 to the holders of the 9% Senior Subordinated Notes due 2007. These Lenders subsequently blocked the interest payment due on March 1, 2002 to the holders of 8³/4% Senior Subordinated Notes due 2008. On

34

December 30, 2001, the Company and certain subsidiaries entered into a Forbearance Agreement with the Senior Secured Lenders (the "Forbearance Agreement"). The Senior Secured Lenders agreed not to exercise certain remedies available to them under the Prepetition Credit Facility as a result of the existing covenant defaults during the forbearance period. If certain events were to occur, the Senior Secured Lenders would have been able to exercise their remedies available to them, which included the right to declare all amounts outstanding under the Prepetition Credit Facility immediately due and payable. The Forbearance Agreement, as extended on March 15, 2002 was scheduled to end on May 15, 2002, and prevented the Company from making any additional borrowings in excess of the amounts outstanding under the revolving portion of the Prepetition Credit Facility as of December 30, 2001.

        Because the Company was unable to reduce amounts outstanding under the Prepetition Credit Facility through asset dispositions on acceptable terms, the services of Miller, Buckfire & Lewis (f/k/a Dresdner Kleinwort Wasserstein, Inc.) were retained on October 2, 2001 as the financial advisor to assist in exploring various restructuring options. From November of 2001 through February of 2002, the Company conducted extensive negotiations with several potential investors and various other constituents in an effort to establish viable restructuring options. During this same time period, some of these potential investors conducted due diligence investigations of the Company and its operations.

        In evaluating the various restructuring options, the Company decided to maintain negotiations with CSFB Global Opportunities Investment Partners, L.P. ("GOF"), the holder of approximately 67% of the Senior Subordinated Notes (as defined herein). The Company determined that GOF afforded the highest probability of a transaction being completed with terms that provided an overall acceptable level of value to the various stakeholders. Members of the Company's senior management, GOF and their respective advisors held discussions concerning the terms of a proposed recapitalization transaction. The discussions focused primarily on the overall level of investment in the Company and the nature of that ownership. As a result of these extensive negotiations, the Company executed a term sheet with GOF on March 15, 2002 setting forth the proposed terms of a recapitalization plan, including a financial restructuring.

        The material elements of the financial restructuring included: (i) GOF contributing $50 million in cash and $394.4 million of the Senior Subordinated Notes (the "Existing Notes") currently owned by GOF (including accrued, but unpaid interest) and agreeing to provide a $25 million letter of credit in favor of the Senior Secured Lenders under an amended credit facility, all in exchange for approximately 22.4 million newly issued shares of common stock of the Company (after taking into account a 1-for-10 reverse common stock split), representing 87.5% ownership of the Company; (ii) the holders of at least 95% of the aggregate principle amount of the Existing Notes not owned by GOF exchanging their notes for either new senior subordinated notes or new senior subordinated discount notes; and (iii) the Company entering into an amended credit facility with its Senior Secured Lenders (collectively, the "Exchange Offer").

        On March 25, 2002, during the pendency of the Exchange Offer, without any prior notice, a group of creditors (the "Petitioning Creditors") holding approximately $41.3 million of the Company's outstanding Senior Subordinated Notes filed an involuntary bankruptcy petition (the "Involuntary Petition") against the Company in the United States Bankruptcy Court for the District of South Carolina (the "South Carolina Bankruptcy Court"). On April 2, 2002, the Company reached an agreement (the "Dismissal Agreement") with the Petitioning Creditors, which provided for the South Carolina Bankruptcy Court to dismiss the involuntary petition (the "Dismissal Order") subject to a twenty-day period during which parties-in-interest could object to that dismissal. The twenty-day period commenced on April 5, 2002, the day on which notice of the dismissal was published in the national edition of the Wall Street Journal. On April 26, 2002, the South Carolina Bankruptcy Court entered the Dismissal Order.

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        The Dismissal Agreement also provided that the Company would seek an amendment of the Prepetition Credit Facility to permit it to file a voluntary petition for one of its wholly owned, South Carolina-registered subsidiaries in the South Carolina Bankruptcy Court. Pursuant to Amendment No. 7, dated as of April 4, 2002, the Senior Lenders agreed to amend the Prepetition Credit Facility to permit this filing. On April 23, 2002, the Debtors filed a voluntary petition for Bonlam (S.C.), Inc. ("Bonlam (S.C.)"), in the South Carolina Bankruptcy Court. The Dismissal Agreement further provided that the Company would extend the expiration of the Exchange Offer through May 15, 2002. The Company and GOF also agreed to forbear through, and including, May 15, 2002, from implementing any modifications to the Senior Subordinated Notes and the indentures governing them. The Petitioning Creditors agreed to forbear through and including, May 12, 2002 (the "Forbearance Period"), from exercising any and all remedies under the applicable indentures, the Senior Subordinated Notes or any applicable law, including any filing of an involuntary petition against any of the Debtors. During the Forbearance Period, the Company agreed (i) not to file a voluntary petition for relief under the Bankruptcy Code in a jurisdiction other than Columbia, South Carolina, and (ii) to contest any involuntary petition under the Bankruptcy Code filed in any such other jurisdiction, in each case, without the prior written consent of the Petitioning Creditors. GOF and the Petitioning Creditors agreed not to file an involuntary petition against the Company in any venue other than the South Carolina Bankruptcy Court.

        The Company, GOF and the Petitioning Creditors intended that the Dismissal Agreement would provide a framework for the Company and other parties, including the Petitioning Creditors, to continue to negotiate the terms of a potential restructuring of the Company through May 12, 2002. Negotiations proceeded, but the Company and Petitioning Creditors did not reach an agreement on a consensual restructuring. Meanwhile, the uncertainty created by the Involuntary Petition caused further deterioration in the Company's businesses. The Company determined that it was in the best interest of its creditors and other constituencies to seek the protections afforded by filing voluntary petitions for protection under Chapter 11 of the United States Code (the "Bankruptcy Code"). Accordingly, on May 11, 2002 (the "Filing Date" or "Petition Date"), the Company and each of its domestic subsidiaries (together with the Company, the "Debtors") filed voluntary petitions for "pre-negotiated" reorganization (the "Chapter 11 Filings" or the "Filings") under the Bankruptcy Code in the South Carolina Bankruptcy Court. The Chapter 11 Filings are being jointly administered for procedural purposes only. The Company's direct and indirect foreign subsidiaries and foreign joint venture entities did not file petitions under Chapter 11 and are not the subject of any bankruptcy proceedings. To facilitate stabilizing operations during the Chapter 11 Filings, the Debtors have secured a $125 million commitment (the "Commitment") for debtor-in-possession financing (the "DIP Facility") from a group of financial institutions, some of which are Senior Lenders (the "DIP Lenders") that will provide the Debtors sufficient liquidity to operate during the Chapter 11 Filings. JPMorgan Chase Bank is the Agent for the DIP Lenders under the DIP Facility. Pursuant to the DIP Facility, the Debtors paid certain fees to the DIP Lenders, including a structuring fee of 0.85% of the Commitment, an underwriting fee of 1.65% of the Commitment as well as certain other fees.

        To enhance the Debtors' ability to implement a restructuring and to emerge from Chapter 11 as efficiently as possible with an improved debt structure, the Debtors (a) obtained the requisite approval from a substantial majority of the Senior Lenders (the "Supporting Senior Lenders") (in the form of the Bank Term Sheet and discussed below) to restructure the Prepetition Credit Facility and (b) executed the Support Agreement, dated as of May 10, 2002, with GOF, pursuant to which GOF agreed to support a joint plan of reorganization. The Debtors paid a commitment fee to the Supporting Senior Lenders of approximately $4.3 million in consideration of their agreeing to the terms contained in the Bank Term Sheet. The Debtors agreed to file by May 24, 2002, a Chapter 11 plan of reorganization (the "Plan") and disclosure statement that were consistent with the term sheets agreed upon with each of the Supporting Senior Lenders and GOF. With the support of these substantial creditors, the Debtors are seeking to emerge from Chapter 11 in an expeditious manner. Beginning on May 23, 2002 and on other subsequent dates, GOF agreed to extend the deadline for filing such Plan and disclosure statement until June 14, 2002.

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        On June 14, 2002, the Company filed the Plan with the South Carolina Bankruptcy Court. The Plan generally proposes (i) the restructuring of the Prepetition Credit Facility, including a $50 million principal reduction, (ii) the retirement of in excess of $591.5 million of the Debtors' obligations under the Senior Subordinated Notes, in exchange for the right of the holders of such Notes to receive either (x) their pro rata share of 100% of the newly issued Class A Common Stock of the reorganized Company (prior to the conversion of the preferred stock or new senior notes, each referred to below) (which shall be diluted by any conversion of the New Preferred Stock), (y) for each $1,000 in principal of existing Notes held, $120 in principal of New Junior Subordinated Notes bearing interest at 11% payable in cash or (z) for each $1,000 in principal amount of existing Senior Subordinated Notes held, $150 in principal amount of New Junior Subordinated PIK Notes, with interest at 7.5% payable in kind and 3.5% payable in cash, (iii) no impairment of the Debtors' other unsecured creditors, (iv) a $50 million investment by GOF and eligible electing holders of Senior Subordinated Notes in exchange for convertible preferred stock convertible into 44% of the newly issued common stock of the reorganized Company (after giving effect to the conversion thereof and excluding PIK dividends thereon) (the "New Preferred Stock"), (v) the issuance by GOF and eligible electing holders of Senior Subordinated Notes of a $25 million letter of credit to secure the Debtors' proposed amortization payments to the Senior Lenders (which if drawn, would be evidenced by New Senior Subordinated Notes) and (vi) the retention by existing shareholders of 100% of the newly issued Class B Common Stock (which shall not be diluted by any conversion of the New Preferred Stock) and certain warrants for up to an additional 9.5% of the reorganized Company's common stock, as of the effective date of reorganization (which shall be subject to dilution by conversion of the New Preferred Stock), exercisable at specified value targets for the Company. In connection with the new investment, GOF has agreed to act as a standby purchaser to ensure that all of the shares of New Preferred Stock offered by the Company are purchased and that the new investment generates gross proceeds of $50.0 million in cash and results in $25.0 million of exit letters of credit in place. The Company shall pay GOF a fee of $500,000 for acting as standby purchaser in connection with the new investment.

        On August 15, 2002, a hearing was held in the South Carolina Bankruptcy Court to consider, among other things, the approval of the Company's Disclosure Statement relating to the Plan of Reorganization. The judge indicated that he would approve the Disclosure Statement, and directed the parties to meet on statement language, with a hearing date of August 20, 2002, to resolve any remaining differences. The Company currently expects the Disclosure Statement to be approved at this hearing.

        In order to support working capital requirements at its majority owned subsidiary in Istanbul, Turkey ("Vateks"), the Company has deposited approximately $6.0 million with a member of its European bank syndicate who in turn has funded an approximate equivalent amount to Vateks.

        Nanhai has a bank facility with a financial institution in China. The facility was refinanced in July 2002 is scheduled to mature during January 2003. At June 29, 2002, the approximate amount of outstanding indebtedness under the facility was $9.5 million. The Nanhai indebtedness is guaranteed 100% by the Company and to support this guarantee, a letter of credit has been issued by the Company's agent bank in the amount of $10.0 million. As a result of the Company's 80% majority ownership of Nanhai and full guarantee of the Nanhai bank debt, all amounts outstanding under the Nanhai bank facility are reflected in the Company's consolidated balance sheet as a current liability within the caption "Short term borrowings" at June 29, 2002. At June 29, 2002, Nanhai had cash and cash equivalents on hand of approximately $1.9 million and working capital, excluding current debt, of approximately $9.3 million. Including current debt, the Nanhai working capital deficit was $0.1 million at June 29, 2002.

        DNS has two bank facilities denominated in U.S. dollars of approximately $9.9 million at June 29, 2002 with current maturities of approximately $3.9 million. The facilities are scheduled to mature in 2004 and 2005 respectively. The full amount of such indebtedness is reflected on the Company's consolidated balance sheet at June 29, 2002 as a result of the Company's 60% majority ownership of this subsidiary; however, the minority shareholder guarantees 40% of such indebtedness. Because of the

37

Argentine peso devaluation against the U.S. dollar, the Company is exposed to foreign currency remeasurement losses of the U.S. dollar denominated debt at DNS because the functional currency of DNS is the Argentine peso. As a result, the Company recognized foreign currency losses of approximately $0.7 million in the second quarter of 2002 and $2.5 million in the first six months of 2002, net of minority interest adjustments, related to the DNS U.S. dollar debt because of the Argentine peso devaluation. At June 29, 2002, DNS had cash and cash equivalents on hand of approximately $0.3 million and working capital of $5.5 million, excluding current debt. Including current debt, DNS working capital was approximately $1.6 million June 29, 2002.

        During the first quarter of fiscal 2001, the Company exercised an option to obtain a 45% minority position in a start-up Saudi Arabian state-of-the-art nonwovens production line (the "Saudi Venture"). Over the course of 2001, the Company funded approximately $4.4 million representing its pro-rata share for the construction costs of this line in Saudi Arabia. The Company is not permitted to acquire more than a 45% interest in the Saudi Venture pursuant to Amendment No. 6. The Saudi Venture and the Company's equity stake are currently under review pending finalization of the Investment Approval Application (the "IAA") between the Company and its partner and the approval of the IAA by the Saudi Arabian government. The Company currently expects to receive the final outcome of the review during the third or fourth quarter of fiscal 2002. However, in the event the Company and its partner are unable to agree on final terms of the Saudi Venture acceptable to the Company, the Saudi Venture would not be able to obtain approval of the IAA from the Saudi Arabia government. Moreover, the Company may not be able to recover its prorata share of construction costs funded in 2001. The Company has not guaranteed any indebtedness of the non-consolidated Saudi Venture.

        On December 19, 1997, DT Acquisition Inc. ("DTA"), a subsidiary of the Company, acquired substantially all of the outstanding common and first preferred shares of Dominion Textiles Inc., a Company organized under the laws of Canada ("Dominion"), and on January 29, 1998, DTA acquired all remaining common and first preferred shares, at which time Dominion underwent a "winding-up." All assets and liabilities of Dominion were transferred to DTA and all outstanding common shares and first preferred shares held by DTA were redeemed. Immediately thereafter, pursuant to a purchase agreement, dated October 27, 1997, the apparel fabrics business of Dominion was sold, at no gain or loss, to Galey & Lord, Inc., ("Galey") and the Company acquired the nonwovens and industrial fabrics operations. The Company and Galey finalized the acquisition cash settlement during 2000 pursuant to the Master Separation Agreement (the "MSA") dated January 29, 1998. The result of such settlement was not material to the Company's financial condition. Under the MSA, the Company and Galey are required to share in the payment of certain on-going costs, including taxes, for historical Dominion entities as required by the MSA. Because the Company originally acquired Dominion, the Company generally makes the payments and is reimbursed by Galey. On February 19, 2002, Galey and its U.S. operating subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code and began operating their businesses as debtors-in-possession. During March 2002, Galey informed the Company of its intention to reject the MSA as part of its bankruptcy proceedings. If approved by the Bankruptcy Court, Galey's contemplated rejection of the MSA would result in the Company being required to fund expenditures that should be allocated to, and paid by, Galey, which could potentially have a material adverse effect on the Company. At June 29, 2002, the amounts due from Galey for the first six months of 2002 shared cash activity pursuant to the MSA, including amounts associated with statutory tax payments, approximated $1.3 million (the "Galey Receivable"). The Company has fully reserved the Galey Receivable at June 29, 2002 due to the uncertainty of collectibility at such date. All shared cash activity prior to the first quarter of 2002 relative to the MSA has been collected from Galey.

        The Board of Directors declared a quarterly dividend of $0.02 per share during the first quarter in 2001. Amendment No. 6 to the Credit Facility prevented the Company from paying dividends on its Common Stock.

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Effect of Inflation

        Inflation generally affects the Company by increasing the cost of labor, equipment and raw materials. For a discussion of certain raw material price increases during 2001, see "Quantitative and Qualitative Disclosures About Market Risk—Raw Material and Commodity Risks."

Foreign Currency

        The Company's substantial foreign operations expose it to the risk of foreign currency exchange rate fluctuations. If foreign currency denominated revenues are greater than costs, the translation of foreign currency denominated costs and revenues into U.S. dollars will improve profitability when the foreign currency strengthens against the U.S. dollar and will reduce profitability when the foreign currency weakens. For a discussion of certain adverse foreign currency exchange rate fluctuations during the second quarter of 2002 and 2001, see "Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Rate Risk."

Critical Accounting Policies And Other Matters

        The Company's analysis and discussion of its financial condition and results of operations are based upon its consolidated financial statements that have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The Company evaluates these estimates and assumptions on an ongoing basis, including but not limited to those related to inventories, bad debts, income taxes, intangible assets, restructuring related adjustments, pension and other post retirement benefits and contingencies. Estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The results of these estimates may form the basis of the carrying value of certain assets and liabilities. Actual results, under conditions and circumstances different from those assumed, may differ from estimates. The impact and any associated risks related to estimates, assumptions, and accounting policies are discussed within Management's Discussion and Analysis of Operations and Financial Condition, as well as in the Notes to the Consolidated Financial Statements, if applicable, where such estimates, assumptions, and accounting policies affect the Company's reported and expected results.

        The Company believes the following accounting policies are critical to its business operations and the understanding of results of operations and affect the more significant judgments and estimates used in the preparation of its consolidated financial statements:

        Revenue Recognition:    Revenue from product sales is recognized at the time ownership of goods transfers to the customer and the earnings process is complete in accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 specifies how existing rules should be applied to transactions in the absence of authoritative literature. Based on the guidelines of current accounting rules and SAB 101, revenue should not be recognized until it is realized or realizable and earned.

        Foreign Currency Translation:    The Company accounts for and reports translation of foreign currency transactions and foreign currency financial statements in accordance with SFAS No. 52, "Foreign Currency Translation." All assets and liabilities in the balance sheets of foreign subsidiaries whose functional currency is other than the U.S. dollar are translated at quarter-end exchange rates. Translation gains and losses are not included in determining net income but are accumulated as a separate component of shareholders' equity. However, subsidiaries considered to be operating in highly inflationary countries use the U.S. dollar as the functional currency and translation gains and losses are included

39

in determining net income. In addition, foreign currency transaction gains and losses are included in determining net income.

        Business Combinations, Goodwill and Other Intangible Assets:    In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141 "Business Combinations" ("FAS 141") and No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is no longer permitted. FAS 141 also includes guidance on the initial recognition and measurement of goodwill and intangible assets acquired in a business combination that is completed after June 30, 2001. FAS 142 supersedes Accounting Principles Bulletin No. 17, "Intangible Assets." FAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition. The most significant changes made by FAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually and (4) the amortization period of intangible assets with finite lives will no longer be limited to forty years. FAS 142 will be effective for fiscal years beginning after December 15, 2001. The effect of adoption was not material to the Company's results of operations during the second quarter of 2002.

        Impairment of Long-Lived Assets:    For all periods through December 29, 2001, the Company reviewed the recoverability of the carrying value of long-lived assets in accordance with Statement of Financial Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Assets to be Disposed Of" ("FAS 121"). The Company also reviewed long-lived assets for impairment whenever events or changes in circumstances indicated that the carrying amount of such assets might not be recoverable. When the future undiscounted cash flows of the operations to which the assets relate did not exceed the carrying value of the asset, the intangible assets were written down, followed by the other long-lived assets, to fair value. In October 2001, the Financial Accounting Standards Board issued Statement No.144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. The statement supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"). It also supersedes the accounting and reporting provisions of APB Opinion No. 30 "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" related to the disposal of a segment of a business. The statement is effective for fiscal years beginning after December 15, 2001. The effect of adoption was not material to the Company's results of operations during the second quarter of 2002.

        Accounts Receivable and Concentration of Credit Risks:    Accounts receivable potentially expose the Company to concentration of credit risk, as defined by Statement of Financial Accounting Standards No. 105, "Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk." The Company provides credit in the normal course of business and performs ongoing credit evaluations on certain of its customers' financial condition, but generally does not require collateral to support such receivables. The Company also establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

        Income Taxes:    The Company records an income tax valuation allowance when the realization of certain deferred tax assets, net operating losses and capital loss carryforwards is not likely. These deferred tax items represent expenses recognized for financial reporting purposes, which will result in tax deductions over varying future periods. The Company has not provided U.S. income taxes for

40

undistributed earnings of foreign subsidiaries that are considered to be retained indefinitely for reinvestment. Certain judgements, assumptions and estimates may affect the carrying value of the valuation allowance and deferred income tax expense in the Company's consolidated financial statements.

Environmental

        The Company is subject to a broad range of federal, foreign, state and local laws governing regulations relating to the pollution and protection of the environment. The Company believes that it is currently in substantial compliance with environmental requirements and does not currently anticipate any material adverse effect on its operations, financial condition or competitive position as a result of its efforts to comply with environmental requirements. Some risk of environmental liability is inherent, however, in the nature of the Company's business, and there can be no assurance that material environmental liabilities will not arise.

Euro Conversion

        On January 1, 1999, member countries of the European Monetary Union began a three-year transition from their national currencies to a new common currency, the "euro". Permanent rates of exchange between members' national currency and the euro have been established and monetary, capital, foreign exchange, and interbank markets have been converted to the euro. National currencies will continue to exist as legal tender and may continue to be used in commercial transactions. Euro currency has been issued and effective July 2002, the respective national currencies were withdrawn. The Company has operations in three of the participating countries and has successfully transitioned to using both the euro and local currencies for commercial transactions. Costs of the euro conversion have not had a material impact on the results of operations or the financial condition of the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Long-Term Debt and Interest Rate Market Risk

Variable Rate Debt

        The Credit Facility permits the Company to borrow up to $600.0 million, subject in the case of borrowings under the revolving portion to the satisfaction of certain conditions, a portion of which may be denominated in Dutch guilders and in Canadian dollars. Amendment No. 6 currently limits amounts outstanding under the revolving portion of the Credit Facility (together with outstanding letters of credit) to $260 million. The variable interest rate applicable to borrowings under the Credit Facility is based on, in the case of U.S. dollar denominated loans, the base rate referred to therein or the Eurocurrency rate referred to therein for U.S. dollars, at the Company's option, plus a specified margin. In the event that a portion of the Credit Facility is denominated in Dutch guilders, the applicable interest rate is based on the applicable Eurocurrency base rate referred to therein for Dutch guilders, plus a specified margin. In the event that a portion of the Credit Facility is denominated in Canadian dollars, the applicable interest rate is based on the Canadian base rate referred to therein, plus a specified margin, of the Bankers' Acceptance discount rate referred to therein, at the Company's option. Under the Forbearance Agreement with the Senior Secured Lenders all borrowings are required to be made at the base rate. At June 29, 2002, the Company had borrowings under the Credit Facility of $484.7 million that were subject to interest rate risk. Each hypothetical 1.0% increase in interest rates would impact pretax earnings by $4.8 million. The Company has an interest rate cap agreement which limits the amount of interest expense on $100 million of this debt to a rate of 9%. The Company does not use these products for trading purposes.

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Fixed Rate Debt

        The fair market value of the Company's long-term fixed interest rate debt is also subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The estimated fair value of the Company's long-term fixed-rate debt at June 29, 2002 was approximately $116.8 million, which was less than its carrying value by approximately $474.7 million. A 100 basis points decrease in the prevailing interest rates at June 29, 2002 would result in an increase in the fair value of fixed rate debt by approximately $2.5 million. A 100 basis points increase in the prevailing interest rates at June 29, 2002 would result in a decrease in fair value of total fixed rate debt by approximately $2.5 million. Fair market values were determined from quoted market prices or based on estimates made by investment bankers.

Foreign Currency Exchange Rate Risk

        The Company manufactures, markets and distributes certain of its products in Europe, Canada, Latin America and the Far East. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency rates or weak economic conditions in the foreign markets in which the Company maintains a manufacturing or distribution presence. If foreign currency denominated revenues are greater than costs, the translation of foreign currency denominated costs and revenues into U.S. dollars will improve profitability when the foreign currency strengthens against the U.S. dollar and will reduce profitability when the foreign currency weakens. For example, during the second quarter of 2002 certain currencies of countries in which the Company conducts foreign currency denominated business, predominantly in Argentina and Canada, weakened against the U.S. dollar and had a significant impact on sales and operating income. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        For the three months ended June 29, 2002, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which the Company's sales are denominated would have decreased operating income by approximately $1.1 million. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, which are a changed dollar value of the resulting sales, changes in exchange rates also affect the volume of sales or the foreign currency sales price as competitors' products become more or less attractive. The Company's sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices.

        The Argentine peso, which serves as the functional currency of an Argentine majority-owned subsidiary of the Company, has devalued significantly against the U.S. dollar since the end of fiscal 2001 due primarily to the economic uncertainty within this geographic region. As a result of the Argentine peso devaluation, the Company recognized a foreign currency loss of approximately $0.7 million during the second quarter of 2002 and $2.5 million for the first six months of 2002, net of minority interest adjustments.

Raw Material and Commodity Risks

        The primary raw materials used in the manufacture of most of the Company's products are polypropylene and polyester fiber, polyethylene and polypropylene resin, and, to a lesser extent, rayon, tissue paper and cotton. The prices of polypropylene and polyethylene are a function of, among other things, manufacturing capacity, demand and the price of crude oil and natural gas liquids. During the second quarter and first six months of 2002 raw material prices as a percentage of sales remained level as compared to the second quarter and first six months of 2001. A significant increase in the prices of polyolefin resins that cannot be passed on to customers could have a material adverse effect on the Company's results of operations and financial condition.

42

Safe Harbor Statement

        This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, from time to time, the Company or its representatives have made or may make forward-looking statements orally or in writing. Such forward-looking statements may be included in, but not limited to, various filings made by the Company with the Securities and Exchange Commission, press releases or oral statements made with the approval of an authorized executive officer of the Company. Actual results could differ materially from those projected or suggested in any forward-looking statements as a result of a variety of factors and conditions which include, but are not limited to: the filing by the Company and its domestic subsidiaries of voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code, adverse economic conditions, demand for the Company's products, competition in the Company's markets, dependence on key customers, increases in raw material costs, the amount of capital expenditures, fluctuations in foreign currency exchange rates, the Company's substantial leverage position, the existing defaults in the Company's outstanding long-term indebtedness, the Company's Chapter 11 filings and other risks detailed in documents filed by the Company with the Securities and Exchange Commission.

43

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

        Not applicable.

ITEM 2. CHANGES IN SECURITIES

        Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        As of December 29, 2001, the Company was in default under the Credit Facility. Because of this default, the Senior Secured Lenders exercised their right to block the payment of interest due January 2, 2002 to the holders of the 9% Senior Subordinated Notes and the interest payment due on March 1, 2002 to the holders of the 8³/4% Senior Subordinated Notes. The Company's failure to pay interest on the outstanding Senior Subordinated Notes constituted an event of default under such notes. As of June 29, 2002, accrued and unpaid interest was $30.4 million and $11.8 million on the 9% Senior Subordinated Notes and 8³/4% Senior Subordinated Notes, respectively.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not applicable.

ITEM 5. OTHER INFORMATION

        Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        Not applicable

Exhibits

        Exhibits required to be filed with this report on Form 10-Q are listed in the following Exhibit Index.

Reports on Form 8-K

        On August 1, 2002, the Company filed a Form 8-K announcing that as part of the process for having the Company's Plan of Reorganization confirmed by the U.S. Bankruptcy Court in Columbia, South Carolina (the "Court"), the Company had filed a Disclosure Statement with the Court. The Company also filed certain projected financial information with the Court on August 1, 2002.

44

SIGNATURES

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

POLYMER GROUP, INC.
By:	/s/  JERRY ZUCKER Jerry Zucker Chairman, President, Chief Executive Officer and Director (Principal Executive Officer)
By:	/s/  JAMES G. BOYD James G. Boyd Executive Vice President, Chief Financial Officer, Treasurer and Director (Principal Financial Officer)

August 19, 2002

45

EXHIBIT INDEX

Exhibit Number	Document Description
10.1	Amendment No. 7 dated as of April 4, 2002, to the Amended, Restated and Consolidated Credit Agreement dated July 3, 1997 by and among Polymer Group, Inc., the Guarantors named therein, the lenders named therein and the JPMorgan Chase Bank, as agent.(1)
10.2	Revolving credit agreement and guarantee agreement, dated as of May 30, 2002, among Polymer Group, Inc, a debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy Code, the direct and indirect domestic subsidiaries of the Borrower, each of which is a debtor and debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy Code, JP Morgan Chase Bank, each of the other financial institutions from time to time party hereto and JPMorgan Chase Bank, as administrative agent for the Lenders.
10.3	Form of Indemnification Agreement dated as of May 11, 2002, among the Company and each of its directors.(2)
10.4	Form of Termination of Rights of First Refusal Agreement dated as of May 11, 2002, among the Company and Messrs. Zucker and Boyd.(2)
10.5	Form of Amendment to Change in Control Letter Agreement dated as of May 11, 2002, between the Company and Jerry Zucker.(2)
10.6	Form of Amendment to Change in Control Letter Agreement dated as of May 11, 2002, between the Company and James G. Boyd.(2)
99.1	Press release dated April 3, 2002.(3)
99.2	Press release dated May 13, 2002.(3)
99.3	Press release dated May 31, 2002.
99.4	Certain projected financial information filed with the U.S. Bankruptcy Court in Columbia, South Carolina.(4)

1.

Incorporated by reference to the respective exhibit to the Company's Form 10-K/A (Amendment No. 2), dated May 1, 2002.

2

Employee benefit related agreement.

3.

Incorporated by reference to the respective exhibit to the Company's Form 10-Q dated May 20, 2002.

4.

Incorporated by reference to the respective exhibit to the Company's Form 8-K, dated August 1, 2002.

46

QuickLinks

INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

POLYMER GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
POLYMER GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In Thousands, Except Per Share Data)
POLYMER GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands)
POLYMER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES
EXHIBIT INDEX

EX-10.2

                                                                    Exhibit 10.2

================================================================================

                     REVOLVING CREDIT AND GUARANTY AGREEMENT

================================================================================


                                      AMONG

                              POLYMER GROUP, INC.,
   A DEBTOR AND A DEBTOR-IN-POSSESSION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

                                   AS BORROWER

                                       AND

                 THE SUBSIDIARIES OF THE BORROWER NAMED HEREIN,
 EACH A DEBTOR AND A DEBTOR-IN-POSSESSION UNDER CHAPTER 11 OF THE BANKRUPTCY
                                      CODE

                                  AS GUARANTORS

                                       AND

                            THE LENDERS PARTY HERETO,

                                       AND

                              JPMORGAN CHASE BANK,

                  AS ADMINISTRATIVE AGENT, DOCUMENTATION AGENT
                              AND COLLATERAL AGENT

                          J.P. MORGAN SECURITIES INC.,
                                 AS BOOK MANAGER
                                       AND
                                  LEAD ARRANGER

================================================================================

                            DATED AS OF MAY 30, 2002

================================================================================



                                TABLE OF CONTENTS



                                                                                                PAGE
                                                                                                ----
                                                                                              
SECTION 1.   DEFINITIONS..........................................................................2
     SECTION 1.01    Defined Terms................................................................2
     SECTION 1.02    Terms Generally.............................................................21

SECTION 2.   AMOUNT AND TERMS OF CREDIT..........................................................21
     SECTION 2.01    Commitment of the Lenders...................................................21
     SECTION 2.02    Borrowing Base..............................................................22
     SECTION 2.03    Letters of Credit...........................................................22
     SECTION 2.04    Issuance....................................................................24
     SECTION 2.05    Nature of Letter of Credit Obligations Absolute.............................24
     SECTION 2.06    Making of Loans.............................................................24
     SECTION 2.07    Repayment of Loans; Evidence of Debt........................................25
     SECTION 2.08    Interest on Loans...........................................................26
     SECTION 2.09    Default Interest............................................................26
     SECTION 2.10    Optional Termination or Reduction of Commitment.............................26
     SECTION 2.11    Alternate Rate of Interest..................................................27
     SECTION 2.12    Refinancing of Loans........................................................27
     SECTION 2.13    Mandatory Prepayment; Commitment Termination; Cash Collateral...............28
     SECTION 2.14    Optional Prepayment of Loans; Reimbursement of Lenders......................28
     SECTION 2.15    Reserve Requirements; Change in Circumstances...............................30
     SECTION 2.16    Change in Legality..........................................................31
     SECTION 2.17    Pro Rata Treatment, etc.....................................................32
     SECTION 2.18    Taxes.......................................................................32
     SECTION 2.19    Certain Fees................................................................33
     SECTION 2.20    Commitment Fee..............................................................33
     SECTION 2.21    Letter of Credit Fees.......................................................33
     SECTION 2.22    Nature of Fees..............................................................33
     SECTION 2.23    Priority and Liens..........................................................34
     SECTION 2.24    Right of Set-Off............................................................35
     SECTION 2.25    Security Interest in Letter of Credit Account...............................35
     SECTION 2.26    Payment of Obligations......................................................36
     SECTION 2.27    No Discharge; Survival of Claims............................................36




                                TABLE OF CONTENTS
                                   (CONTINUED)

                                                                                              
     SECTION 2.28    Use of Cash Collateral......................................................36

SECTION 3.   REPRESENTATIONS AND WARRANTIES......................................................36
     SECTION 3.01    Organization and Authority..................................................36
     SECTION 3.02    Due Execution...............................................................37
     SECTION 3.03    Statements Made.............................................................37
     SECTION 3.04    Financial Statements........................................................37
     SECTION 3.05    Ownership...................................................................38
     SECTION 3.06    Liens.......................................................................38
     SECTION 3.07    Compliance with Law.........................................................38
     SECTION 3.08    Insurance...................................................................38
     SECTION 3.09    Use of Proceeds.............................................................39
     SECTION 3.10    Litigation..................................................................39

SECTION 4.   CONDITIONS OF LENDING...............................................................39
     SECTION 4.01    Conditions Precedent to Initial Loans and Initial Letters of Credit.........39
     SECTION 4.02    Conditions Precedent to Each Loan and Each Letter of Credit.................42

SECTION 5.   AFFIRMATIVE COVENANTS...............................................................43
     SECTION 5.01    Financial Statements, Reports, etc..........................................43
     SECTION 5.02    Corporate Existence.........................................................46
     SECTION 5.03    Insurance...................................................................46
     SECTION 5.04    Obligations and Taxes.......................................................46
     SECTION 5.05    Notice of Event of Default, etc.............................................46
     SECTION 5.06    Access to Books and Records.................................................46
     SECTION 5.07    Maintenance of Concentration Account........................................47
     SECTION 5.08    Borrowing Base Certificate..................................................47
     SECTION 5.09    Collateral Monitoring and Review............................................47
     SECTION 5.10    Business Plan...............................................................47

SECTION 6.   NEGATIVE COVENANTS..................................................................47
     SECTION 6.01    Liens.......................................................................48
     SECTION 6.02    Merger, etc.................................................................48
     SECTION 6.03    Indebtedness................................................................48



                                       ii


                                TABLE OF CONTENTS
                                   (CONTINUED)

                                                                                              
     SECTION 6.04    Capital Expenditures........................................................48
     SECTION 6.05    EBITDA......................................................................49
     SECTION 6.06    Guarantees and Other Liabilities............................................50
     SECTION 6.07    Chapter 11 Claims...........................................................50
     SECTION 6.08    Dividends; Capital Stock....................................................50
     SECTION 6.09    Transactions with Affiliates................................................50
     SECTION 6.10    Investments, Loans and Advances.............................................50
     SECTION 6.11    Disposition of Assets.......................................................51
     SECTION 6.12    Nature of Business..........................................................51

SECTION 7.   EVENTS OF DEFAULT...................................................................51
     SECTION 7.01    Events of Default...........................................................51

SECTION 8.   THE AGENT...........................................................................54
     SECTION 8.01    Administration by Agent.....................................................54
     SECTION 8.02    Advances and Payments.......................................................54
     SECTION 8.03    Sharing of Setoffs..........................................................55
     SECTION 8.04    Agreement of Required Lenders...............................................55
     SECTION 8.05    Liability of Agent..........................................................56
     SECTION 8.06    Reimbursement and Indemnification...........................................56
     SECTION 8.07    Rights of Agent.............................................................57
     SECTION 8.08    Independent Lenders.........................................................57
     SECTION 8.09    Notice of Transfer..........................................................57
     SECTION 8.10    Successor Agent.............................................................57

SECTION 9.   GUARANTY............................................................................57
     SECTION 9.01    Guaranty....................................................................57
     SECTION 9.02    No Impairment of Guaranty...................................................58
     SECTION 9.03    Subrogation.................................................................59

SECTION 10.  MISCELLANEOUS.......................................................................59
     SECTION 10.01   Notices.....................................................................59
     SECTION 10.02   Survival of Agreement, Representations and Warranties, etc..................59
     SECTION 10.03   Successors and Assigns......................................................59



                                       iii


                                TABLE OF CONTENTS
                                   (CONTINUED)

                                                                                              
     SECTION 10.04   Confidentiality.............................................................62
     SECTION 10.05   Expenses....................................................................62
     SECTION 10.06   Indemnity...................................................................62
     SECTION 10.07   CHOICE OF LAW...............................................................63
     SECTION 10.08   No Waiver...................................................................63
     SECTION 10.09   Extension of Maturity.......................................................63
     SECTION 10.10   Amendments, etc.............................................................63
     SECTION 10.11   Severability................................................................64
     SECTION 10.12   Headings....................................................................64
     SECTION 10.13   Execution in Counterparts...................................................64
     SECTION 10.14   Prior Agreements............................................................64
     SECTION 10.15   Further Assurances..........................................................65
     SECTION 10.16   WAIVER OF JURY TRIAL........................................................65



ANNEX A              Commitment Amounts

EXHIBIT A        -   Form of Interim Order
EXHIBIT B        -   Form of Security and Pledge Agreement
EXHIBIT C        -   Form of Opinion of Counsel
EXHIBIT D        -   Form of Assignment and Acceptance
EXHIBIT E        -   Form of Borrowing Base Certificate

SCHEDULE 1.01    -   Existing Agreement
SCHEDULE 3.04    -   Material Adverse Effect
SCHEDULE 3.05    -   Subsidiaries
SCHEDULE 3.06    -   Liens
SCHEDULE 3.10    -   Litigation
SCHEDULE 6.09    -   Transactions with Shareholders
SCHEDULE 6.10    -   Existing Investments
SCHEDULE 6.11    -   Sale of Marketable Securities

                                       iv


                     REVOLVING CREDIT AND GUARANTY AGREEMENT
                            DATED AS OF MAY 30, 2002

          REVOLVING CREDIT AND GUARANTY AGREEMENT, dated as of May 30, 2002,
among POLYMER GROUP, INC., a Delaware corporation (the "BORROWER"), a debtor and
debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy Code,
the direct and indirect domestic subsidiaries of the Borrower signatory hereto
(each a "GUARANTOR" and collectively, the "GUARANTORS"), each of which
Guarantors is a debtor and debtor-in-possession in a case pending under Chapter
11 of the Bankruptcy Code (the cases of the Borrower and the Guarantors, each a
"CASE" and collectively, the "CASES"), JPMORGAN CHASE BANK, a New York banking
corporation ("JPMORGAN CHASE"), each of the other financial institutions from
time to time party hereto (together with JPMorgan Chase, the "LENDERS") and
JPMORGAN CHASE BANK, as administrative agent (in such capacity, the "AGENT") for
the Lenders.

                             INTRODUCTORY STATEMENT

          On May 11, 2002, the Borrower and the Guarantors filed voluntary
petitions with the Bankruptcy Court initiating the Cases and have continued in
the possession of their assets and in the management of their business pursuant
to Sections 1107 and 1108 of the Bankruptcy Code.

          The Borrower has applied to the Lenders for a revolving credit and
letter of credit facility in an aggregate principal amount not to exceed
$125,000,000, all of the Borrower's obligations under which are to be guaranteed
by the Guarantors.

          The proceeds of the Loans will be used for general corporate purposes
of the Borrower and the Guarantors (including, but only to the extent permitted
under Section 6.10, for loans and advances to Subsidiaries not party hereto).

          To provide guarantees and security for the repayment of the Loans, the
reimbursement of any draft drawn under a Letter of Credit and the payment of the
other obligations of the Borrower and the Guarantors hereunder and under the
other Loan Documents (including, without limitation, the Obligations of the
Borrower and the Guarantors to JPMorgan Chase and its banking Affiliates
permitted by Section 6.03(vi)), the Borrower and the Guarantors will provide to
the Agent and the Lenders the following (each as more fully described herein):

     (a)  a guaranty from each of the Guarantors of the due and punctual payment
and performance of the obligations of the Borrower hereunder;

     (b)  an allowed administrative expense claim in each of the Cases pursuant
to Section 364(c)(1) of the Bankruptcy Code having joint and several
superpriority over all administrative expenses of the kind specified in Sections
503(b) and 507(b) of the Bankruptcy Code;

     (c)  a perfected first priority Lien, pursuant to Section 364(c)(2) of the
Bankruptcy Code, upon all property of the Borrower and the Guarantors'
respective estates in the Cases that is not subject to valid, perfected and
non-avoidable liens on the Filing Date, including, without limitation, all
accounts receivable, inventory, property, plant and equipment of the Borrower
and



Guarantors (excluding the Borrower's and the Guarantors' rights in respect of
avoidance actions under the Bankruptcy Code) and on all cash and cash
equivalents in the Letter of Credit Account;

     (d)  a perfected Lien, pursuant to Section 364(c)(3) of the Bankruptcy
Code, upon all property of the Borrower and the Guarantors' respective estates
in the Cases (other than the property referred to in paragraph (e) below that is
subject to the valid and perfected Liens that presently secure the Borrower's
and Guarantors' pre-petition Indebtedness under the Existing Agreement) that is
subject to valid, perfected and non-avoidable Liens in existence on the Filing
Date or that is subject to valid Liens in existence on the Filing Date that are
perfected subsequent to the Filing Date as permitted by Section 546(b) of the
Bankruptcy Code or that is subject to Permitted Liens, junior to such valid,
perfected and non-avoidable Liens; and

     (e)  perfected first priority senior priming Liens, pursuant to Section
364(d)(1) of the Bankruptcy Code, upon all property of the Borrower and the
Guarantors that is subject to (x) the existing Liens that presently secure the
Borrower's and Guarantors' pre-petition Indebtedness under or in connection with
that certain Second Amended, Restated and Consolidated Credit Agreement dated as
of July 3, 1997, as amended, among the Borrower, Chicopee Holdings B.V., PGI
Nonwovens B.V., Fabrene Inc., the secured lenders from time to time party
thereto and JPMorgan Chase Bank, as administrative agent, JPMorgan Chase Bank,
as issuing lender, and The Bank of Nova Scotia, BHF Bank, Corestates Bank, N.A.,
and First Union National Bank, each as co-agent (as amended, the "EXISTING
AGREEMENT") (but subject to any Liens to which the Liens being primed hereby are
subject on the Filing Date or become subject subsequent to the Filing Date as
permitted by Section 546(b) of the Bankruptcy Code) and (y) any Liens granted
after the Filing Date to provide adequate protection in respect of the Existing
Agreement, which first priority priming Liens in favor of the Agent and the
Lenders shall be senior in all respects to all of such existing Liens under or
in connection with the Existing Agreement, and to any Liens granted after the
Filing Date to provide adequate protection in respect thereof;

          All of the claims and the Liens granted hereunder in the Cases to the
Agent and the Lenders shall be subject to the Carve-Out to the extent provided
in Section 2.23.

          Accordingly, the parties hereto hereby agree as follows:

SECTION 1.    DEFINITIONS

     SECTION 1.01    DEFINED TERMS.

          "ABR BORROWING" shall mean a Borrowing comprised of ABR Loans.

          "ABR LOAN" shall mean any Loan bearing interest at a rate determined
by reference to the Alternate Base Rate in accordance with the provisions of
Section 2.

          "ACCOUNT" shall mean any right to payment for goods sold or leased or
for services rendered, whether or NOT earned by performance.

          "ACCOUNT DEBTOR" shall mean, with respect to any Account, the obligor
with respect to such Account.

                                        2


          "ADDITIONAL CREDIT" shall have the meaning given such term in Section
4.02(d) hereof.

          "ADJUSTED ELIGIBLE ACCOUNTS RECEIVABLE" shall mean Eligible Accounts
Receivable for the Borrower and the Guarantors minus the Dilution Reserve.

          "ADJUSTED LIBOR RATE" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the quotient of (a) the LIBOR
Rate in effect for such Interest Period divided by (b) a percentage (expressed
as a decimal) equal to 100% minus Statutory Reserves. For purposes hereof, the
term "LIBOR RATE" shall mean the rate at which dollar deposits approximately
equal in principal amount to such Eurodollar Borrowing and for a maturity
comparable to such Interest Period are offered to the principal London office of
the Agent in immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.

          "AFFILIATE" shall mean, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. For purposes of this definition, a Person (a
"CONTROLLED PERSON") shall be deemed to be "controlled by" another Person (a
"CONTROLLING PERSON") if the Controlling Person possesses, directly or
indirectly, power to direct or cause the direction of the management and
policies of the Controlled Person whether by contract or otherwise.

          "AGENT" shall have the meaning set forth in the Introduction.

          "AGREEMENT" shall mean this Revolving Credit and Guaranty Agreement,
as the same may from time to time be further amended, modified or supplemented.

          "ALTERNATE BASE RATE" shall mean, for any day, a rate per annum equal
to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD
Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. For purposes hereof, "PRIME RATE" shall mean
the rate of interest per annum publicly announced from time to time by the Agent
as its prime rate in effect at its principal office in New York City; each
change in the Prime Rate shall be effective on the date such change is publicly
announced. "BASE CD RATE" shall mean the sum of (a) the quotient of (i) the
Three-Month Secondary CD Rate divided by (ii) a percentage expressed as a
decimal equal to 100% minus Statutory Reserves and (b) the Assessment Rate.
"THREE-MONTH SECONDARY CD RATE" shall mean, for any day, the secondary market
rate for three-month certificates of deposit reported as being in effect on such
day (or, if such day shall not be a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Agent from three New York City negotiable certificate of
deposit dealers of recognized standing selected by it. "FEDERAL FUNDS

                                        3


EFFECTIVE RATE" shall mean, for any day, 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 on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Agent from three Federal funds
brokers of recognized standing selected by it. If for any reason the Agent shall
have determined (which determination shall be conclusive absent manifest error)
that it is unable to ascertain the Base CD Rate or the Federal Funds Effective
Rate or both for any reason, including the inability or failure of the Agent to
obtain sufficient quotations in accordance with the terms hereof, the Alternate
Base Rate shall be determined without regard to clause (b) or (c), or both, of
the first sentence of this definition, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate shall be effective on the effective date of such
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.

          "ASSESSMENT RATE" shall mean for any date the annual rate (rounded
upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the
Agent as the then current net annual assessment rate that will be employed in
determining amounts payable by the Agent to the Federal Deposit Insurance
Corporation (or any successor) for insurance by such Corporation (or any
successor) of time deposits made in dollars at the Agent's domestic offices.

          "ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the Agent,
substantially in the form of Exhibit D.

          "AVAILABLE MACHINERY AND EQUIPMENT" shall mean, at the time of any
determination thereof, an amount equal to 50% of the remainder of (x) the
liquidation value in place in the amount of $121,500,000 of certain machinery
and equipment owned by the Borrower and the Guarantors as of the Filing Date
LESS (y) the gross proceeds received by the Borrower and the Guarantors from
dispositions of machinery and equipment subsequent to the Filing Date.

          "BANKRUPTCY CODE" shall mean The Bankruptcy Reform Act of 1978, as
heretofore and hereafter amended, and codified as 11 U.S.C. Section 101 ET SEQ.

          "BANKRUPTCY COURT" shall mean the United States Bankruptcy Court for
the District of South Carolina or any other court having jurisdiction over the
Cases from time to time.

          "BOARD" shall mean the Board of Governors of the Federal Reserve
System of the United States.

          "BORROWER" shall have the meaning set forth in the Introduction.

          "BORROWING" shall mean the incurrence of Loans of a single Type made
from all the Lenders on a single date and having, in the case of Eurodollar
Loans, a single Interest Period

                                        4


(with any ABR Loan made pursuant to Section 2.16 being considered a part of the
related Borrowing of Eurodollar Loans).

          "BORROWING BASE" shall mean, on any date, the amount (calculated based
on the most recent Borrowing Base Certificate delivered pursuant to this
Agreement) that is equal to (a) 85% of Adjusted Eligible Accounts Receivable,
PLUS (b) 60% of Eligible Inventory of NWD and 25% of Eligible Inventory of OPD,
PLUS (c) 25% of Chemicals and Additives (not to exceed $500,000) PLUS (d)
Available Machinery and Equipment MINUS (e) the Carve-Out; PROVIDED, that (i)
the amount derived from clause (b) above shall at no time exceed the amount
derived from clause (a) above and (ii) the amount derived from clause (d) above
shall at no time exceed the lesser of $60,000,000 and 60% of the Borrowing Base
inclusive of clause (d). Borrowing Base eligibility standards may be determined
from time to time by the Agent in its sole discretion, and the Borrowing Base
shall be subject to reserves from time to time established by the Agent with any
changes in such standards and reserves to be effective five (5) days after
delivery of notice thereof to the Borrower.

          "BORROWING BASE CERTIFICATE" shall mean a certificate substantially in
the form of Exhibit E hereto (with such changes therein as may be required by
the Agent to reflect the components of and reserves against the Borrowing Base
as provided for hereunder from time to time), executed and certified as accurate
and complete by a Financial Officer of the Borrower, which shall include
appropriate exhibits and schedules as referred to therein and as provided for in
Section 5.08.

          "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
other day on which banks in the State of New York are required or permitted to
close (and, for a Letter of Credit, other than a day on which the Fronting Bank
issuing such Letter of Credit is closed); provided, however, that when used in
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits on the
London interbank market.

          "CAPITAL EXPENDITURES" shall mean, for any period, the aggregate of
all expenditures (whether ((euro)) paid in cash and not theretofore accrued or
(ii) accrued as liabilities during such period, and including that portion of
any post-petition Capitalized Lease which is capitalized on the consolidated
balance sheet of the Borrower and the Guarantors) net of cash amounts received
by the Borrower and the Guarantors from other Persons during such period in
reimbursement of Capital Expenditures made by the Borrower and the Guarantors,
excluding interest capitalized during construction, made by the Borrower and the
Guarantors during such period that, in conformity with GAAP, are required to be
included in or reflected by the property, plant, equipment or similar fixed
asset accounts reflected in the consolidated balance sheet of the Borrower and
the Guarantors (including equipment which is purchased simultaneously with the
trade-in of existing equipment owned by the Borrower or any of the Guarantors to
the extent of the gross amount of such purchase price less the book value of the
equipment being traded in at such time), but excluding expenditures made in
connection with the replacement or restoration of assets to the extent
reimbursed or financed from (x) insurance proceeds paid on account of the loss
of or the damage to the assets being replaced or restored or (y) awards of
compensation arising from the taking by condemnation or eminent domain of such
assets being replaced.

                                        5


          "CAPITALIZED LEASE" shall mean, as applied to any Person, any lease of
property by such Person as lessee which would be capitalized on a balance sheet
of such Person prepared in accordance with GAAP.

          "CARVE-OUT" shall have the meaning set forth in Section 2.23.

          "CASES" shall have the meaning set forth in the Introduction.

          "CHANGE OF CONTROL" shall mean (i) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of the
Securities and Exchange Commission thereunder as in effect on the date hereof),
of shares representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Borrower; or (ii)
the occupation of a majority of the seats (other than vacant seats) on the Board
of Directors of the Borrower by Persons who were neither (A) nominated by the
Board of Directors of the Borrower nor (B) appointed by directors so nominated.

          "CHEMICALS AND ADDITIVES" shall mean chemicals and additives, as
historically referred to by the Borrower or the Guarantors in their accounting
records, used or consumed in the production of goods to be sold by the Borrower
or the Guarantors in the ordinary course of business, such as pigments, dyes and
adhesives used in the manufacturing process but excluding certain chemicals and
additives as determined by the Agent.

          "CLOSING DATE" shall mean the date on which this Agreement has been
executed and the conditions precedent to the making of the initial Loans set
forth in Section 4.01 have been satisfied or waived, which date shall occur
promptly upon entry of the Interim Order, but not later than 10 days following
the entry of the Interim Order.

          "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.

          "COLLATERAL" shall mean the "Collateral" as defined in the Security
and Pledge Agreement.

          "COMMITMENT" shall mean, with respect to each Lender, the commitment
of each Lender hereunder in the amount set forth opposite its name on Annex A
hereto or as may subsequently be set forth in the Register from time to time, as
the same may be reduced from time to time pursuant to this Agreement.

          "COMMITMENT FEE" shall have the meaning set forth in Section 2.20.

          "COMMITMENT LETTER" shall mean that certain Commitment Letter dated
February 1, 2002, among the Agent, J.P. Morgan Securities Inc. and the Borrower.

          "COMMITMENT PERCENTAGE" shall mean at any time, with respect to each
Lender, the percentage obtained by dividing its Commitment at such time by the
Total Commitment at such time.

                                        6


          "CONSUMMATION DATE" shall mean the date of the substantial
consummation (as defined in Section 1101 of the Bankruptcy Code and which for
purposes of this Agreement shall be no later than the effective date) of a
Reorganization Plan that is confirmed pursuant to an order of the Bankruptcy
Court.

          "DILUTION PERCENTAGE" shall vary for each of the Borrower and the
Guarantors (as applicable), shall be updated monthly, and shall mean the
quotient, expressed as a percentage, of (i) the aggregate of all deductions,
including credit memos, returns, adjustments, allowances and bad-debt
write-offs, and other non-cash credits which are recorded to reduce accounts
receivable for the (12) twelve most recently ended fiscal months, divided by
(ii) the gross billings during the same (12) month period.

          "DILUTION RESERVE" shall mean an amount equal to the product of (A)
the Dilution Percentage multiplied by (B) the amount that would constitute
Eligible Accounts Receivable prior to the implementation of the Dilution
Reserve.

          "DOLLARS" and "$" shall mean lawful money of the United States of
America.

          "EBITDA" shall mean, for any period, all as determined in accordance
with GAAP, the consolidated net income (or net loss) of the Borrower and the
Guarantors or the Borrower and its Subsidiaries, as the case may be, for such
period, PLUS (a) the sum of (i) depreciation expense, (ii) amortization expense,
(iii) other non-cash expenses, (iv) consolidated federal, state and local income
tax expense, (v) gross interest expense for such period less gross interest
income for such period, (vi) extraordinary losses, (vii) any non-recurring
charge or restructuring charge, (viii) the cumulative effect of any change in
accounting principles, (ix) "Chapter 11 expenses" (or "administrative costs
reflecting Chapter 11 expenses") as shown on the Borrower's consolidated
statement of income for such period and (x) any loss on the sale of marketable
securities held by the Borrower at the time of the commencement of the Cases in
a cumulative amount not to exceed $7,000,000 LESS (b) extraordinary gains PLUS
or MINUS (c) the amount of cash received or expended in such period in respect
of any amount which, under clause (vii) above, was taken into account in
determining EBITDA for such or any prior period.

          "ELIGIBLE ACCOUNTS RECEIVABLE" shall mean, at the time of any
determination thereof, the gross outstanding balance at such time, determined in
accordance with GAAP and stated on a basis consistent with the historical
practices of the Borrower or the Guarantors (as applicable) as of the date
hereof, of Accounts of the Borrower or the Guarantors (as the case may be) less,
as applicable and without duplication, the aggregate amount of (i) all accrued
rebates, (ii) all trade discounts, (iii) all finance charges, late fees and
other fees that are unearned, (iv) all reserves for service fees and such other
fees or commissions or similar amounts that the Borrower or the Guarantors (as
applicable) have agreed to pay, (v) all cash received in respect of Accounts but
not yet applied by the Borrower or the Guarantors (as applicable) to reduce the
amount of the Accounts, (vi) the aggregate amount of all other reserves
(including the Reserve for Customers With Extended Terms) and (vii) any Account
deemed ineligible for inclusion in the calculation of the Borrowing Base
pursuant to any of clauses (a) through (q) below or otherwise deemed by the
Agent in its reasonable discretion to be ineligible for inclusion in the
calculation of the Borrowing Base as described below. Without limiting the
foregoing, to qualify as an Eligible Account Receivable, an Account shall
indicate as sole payee and as sole

                                        7


remittance party the Borrower or a Guarantor (as the case may be). Standards of
eligibility may be adjusted from time to time solely by the Agent in the
exercise of its reasonable discretion, with any changes in such standards to be
effective five (5) days after delivery of notice thereof to the Borrower. Unless
otherwise approved from time to time in writing by the Agent, no Account shall
be an Eligible Account Receivable if, without duplication:

          (a)  the Borrower or a Guarantor (as applicable) does not have sole
     lawful and absolute title to such Account; or

          (b)  it arises out of a sale made by the Borrower or a Guarantor to
     an employee, officer, agent, director, stockholder, or Affiliate of the
     Borrower or a Guarantor; or

          (c)  the Account Debtor (i) is a creditor of the Borrower or a
     Guarantor (as applicable), (ii) has or has asserted a right of set-off
     against the Borrower or a Guarantor (as applicable), including co-op
     advertising (unless such Account Debtor has entered into a written
     agreement reasonably acceptable to the Agent to waive such set-off rights)
     or (iii) has disputed its liability (whether by chargeback or otherwise) or
     made any asserted or unasserted claim with respect to the Account or any
     other Account of the Borrower or the Guarantor (as applicable) which has
     not been resolved, in each case, without duplication, to the extent of the
     amount owed by such Borrower or Guarantor (as applicable) to the Account
     Debtor, the amount of such actual or asserted right of set-off, or the
     amount of such dispute or claim, as the case may be; or

          (d)  the Account Debtor is insolvent, has an unsatisfactory credit
     standing or is the subject of any bankruptcy case or insolvency proceeding
     of any kind (other than post-petition accounts payable of an Account Debtor
     that is a debtor-in-possession under the Bankruptcy Code and acceptable to
     the Agent); or

          (e)  the Account is not payable in United States Dollars or the
     Account Debtor is either not incorporated under the laws of the United
     States of America, any state thereof or the District of Columbia or is
     located outside the United States or has its principal place of business or
     substantially all of its assets outside the United States; or

          (f)  the sale to the Account Debtor is a bill and hold sale
     agreement, guaranteed sale, sale-and-return, ship-and-return, sale on
     approval, extended terms (except for those Accounts that are subject to the
     Reserve for Customers with Extended Terms) or on consignment or other
     similar basis or made pursuant to any other agreement providing for
     repurchase or return of any merchandise which has been claimed to be
     defective or otherwise unsatisfactory; or

          (g)  the goods giving rise to such Account have not been shipped and
     title has not been transferred to the Account Debtor, or the Account
     represents a progress-billing or otherwise does not represent a completed
     sale; for purposes hereof, "progress-billing" means any invoice for goods
     sold or leased or services rendered under a contract or agreement pursuant
     to which the Account Debtor's obligation to pay such invoice is

                                        8


     conditioned upon the Borrower or the Guarantor's (as applicable) completion
     of any further performance under the contract or agreement; or

          (h)  the Account does not comply in all material respects with the
     requirements of all applicable laws and regulations, whether Federal, state
     or local, including without limitation the Federal Consumer Credit
     Protection Act, the Federal Truth in Lending Act and Regulation Z of the
     Board; or

          (i)  the Account is subject to any adverse security deposit, retainage
     or other similar advance made by or for the benefit of the Account Debtor,
     in each case to the extent thereof; or

          (j)  the Account is unpaid more than 60 days from the original due
     date, or 90 days from the original date of invoice (except for those
     Accounts that are subject to the Reserve for Customers with Extended
     Terms); or

          (k)  such Account was not paid in full, and the Borrower or Guarantor
     (as applicable) created a new receivable for the unpaid portion of the
     Account, without the agreement of the customer, including without
     limitation chargebacks, debit memos and other adjustments for unauthorized
     deductions; or

          (l)  more than 50% of all Accounts of the particular Account Debtor
     are unpaid more than 60 days from the original due date or more than 90
     days from the original invoice date (except for those Accounts that are
     subject to the Reserve for Customers With Extended Terms), in which case no
     Account of the particular Account Debtor shall be included within Eligible
     Accounts Receivable; or

          (m)  such Account (i) is not subject to a valid and perfected first
     priority Lien in favor of the Agent for the benefit of the Secured Parties,
     subject to no other Liens other than the Liens (if any) permitted by the
     Loan Documents or (ii) does not otherwise conform in all material respects
     to the representations and warranties contained in the Loan Documents
     relating to Accounts; or

          (n)  as to all or any part of such Account, a check, promissory
     note, draft, trade acceptance or other Instrument for the payment of money
     has been received, presented for payment and returned uncollected for any
     reason; or

          (o)  it has been written off the books of the Borrower or the
     Guarantors (as applicable) has been otherwise designated as uncollectible;
     or

          (p)  the Account is a non-trade Account, or relates to payments for
     interest; or

          (q)  the Account Debtor is the United States of America or any
     department, agency or instrumentality thereof, unless (A) the Company, duly
     assigns its rights to payment of such Account to the Agent pursuant to the
     Assignment of Claims Act of 1940, as amended, which assignment and related
     documents and filings shall be in form and substance reasonably
     satisfactory to the Agent or (B) the amount of such Account is less than
     10% of the gross trades account receivables.

                                        9


Notwithstanding the foregoing, all Accounts of any single Account Debtor and its
Affiliates which, in the aggregate, exceed (i) 20% of the total Eligible
Accounts Receivable of Account Debtors whose securities are rated Investment
Grade or (ii) 5% of the total Eligible Accounts Receivable of Account Debtors
whose securities are not rated Investment Grade, shall be deemed not to be
Eligible Accounts Receivable to the extent of such excess. In determining the
aggregate amount of Accounts from the same Account Debtor that are unpaid more
than 60 days from the due date or more than 90 days from the original date of
invoice pursuant to clause (l) above, there shall be excluded the amount of any
net credit balances relating to Accounts more than 60 days from the due date.

          "ELIGIBLE ASSIGNEE" shall mean (i) a commercial bank having total
assets in excess of $1,000,000,000; (ii) a finance company, insurance company or
other financial institution or fund, in each case reasonably acceptable to the
Agent, which in the ordinary course of business extends credit of the type
contemplated herein and has total assets in excess of $200,000,000; (iii) a
Lender Affiliate of the assignor Lender; and (iv) any other financial
institution satisfactory to the Borrower (but only for so long as an Event of
Default shall not have occurred and be continuing) and the Agent.

          "ELIGIBLE INVENTORY" shall mean, at the time of any determination
thereof, without duplication, the Inventory Value of the Borrower or the
Guarantors (as applicable) at the time of such determination that is not
ineligible for inclusion in the calculation of the Borrowing Base pursuant to
any of clauses (a) through (n) below, minus Inventory Reserves, minus any
Inventory otherwise deemed by the Agent in good faith to be ineligible for
inclusion in the calculation of the Borrowing Base. Without limiting the
foregoing, to qualify as "Eligible Inventory" no person other than the Borrower
or the Guarantors (as applicable) shall have any direct or indirect ownership,
interest or title to such Inventory and no person other than the Borrower or the
Guarantors (as applicable) shall be indicated on any purchase order or invoice
with respect to such Inventory as having or purporting to have an interest
therein. Standards of eligibility may be adjusted from time to time solely by
the Agent in the exercise of its reasonable judgment, with any changes in such
standards to be effective five (5) days after delivery of notice thereof to the
Borrower or the Guarantors (as applicable). Unless otherwise from time to time
approved in writing by the Agent, no Inventory shall be deemed Eligible
Inventory if, without duplication:

          (a)  the Borrower or the Guarantors do not have sole and good, valid
     and unencumbered title (subject only to Permitted Liens described in
     clauses (i), (ii) and (iii) of the definition of Permitted Liens or the
     Liens granted pursuant to the Existing Agreement) thereto; or

          (b)  it is not located in the United States; or

          (c)  except to the extent covered by the second proviso to clause (j)
     below, it is not located on property owned or leased by the Borrower or a
     Guarantor (as applicable) or, is located in a third party warehouse unless
     subject to a reasonably acceptable collateral access agreement; or

          (e)  it is supplies, packaging or shipping materials, cartons, repair
     parts, labels, demonstrations, display or miscellaneous spare parts; or

                                       10


          (f)  it is not subject to a valid and perfected first priority Lien in
     favor of the Agent for the benefit of the Secured Parties; or

          (g)  it is classified as stock in process or Work in Process by the
     Borrower or the Guarantor (as applicable); or

          (h)  it is waste film, as currently and historically defined by the
     Borrower or the Guarantor (as applicable); or

          (i)  except to the extent covered by the second proviso to clause (j)
     below, it is consigned or at a customer location but still accounted for in
     the Borrower or the Guarantor's (as applicable) perpetual inventory
     balance; or

          (j)  it is Inventory which is being processed offsite at a third party
     location, outside processor or converter, is located at the Berkeley
     Medical Resources, Inc. conversion plant, is located at the Guntown, MS
     plant (provided that the Inventory at such plant shall be included in
     Eligible Inventory only after the Agent has completed a due diligence
     review thereof with results satisfactory to the Agent), or is in-transit to
     or from the said third party location, outside processor or converter;
     PROVIDED THAT, upon the execution of a collateral access agreement, in form
     and substance satisfactory to the Agent, by Berkeley Medical Resources,
     Inc., Inventory located at the Berkeley Medical Resources, Inc. conversion
     plant shall be deemed Eligible Inventory; or

          (k)  it is seconds or thirds, damaged, scrap, defective, discontinued,
     returns, rejects or is designated by the Borrower or a Guarantor (as
     applicable) as obsolete, unmerchantable, not in good condition, return to
     vendor or otherwise unsaleable in the ordinary course of business; or

          (l)  it is in-transit to or from a foreign location, or is part of a
     bill and hold arrangement from a vendor, or is inventory on hold as
     currently and historically defined by the Borrower or a Guarantor (as
     applicable), or shipped "sale or return", or which has not yet been
     received into a facility owned or operated by the Borrower or a Guarantor;
     or

          (m)  it is Chemicals and Additives; or

          (n)  it is Raw Materials consumed in the Borrower or the Guarantor's
     (as applicable) production process but not removed from Raw Materials.

          "ENVIRONMENTAL LIEN" shall mean a Lien in favor of any Governmental
Authority for (i) any liability under federal or state environmental laws or
regulations, or (ii) damages arising from or costs incurred by such Governmental
Authority in response to a release or threatened release of a hazardous or toxic
waste, substance or constituent, or other substance into the environment.

          "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder.

                                       11


          "ERISA AFFILIATE" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Borrower or a Subsidiary of the Borrower would
be deemed to be a single employer within the meaning of Section 414(b), (c),
(m), or (o) of the Code.

          "EUROCURRENCY LIABILITIES" shall have the meaning assigned thereto in
Regulation D issued by the Board, as in effect from time to time.

          "EURODOLLAR BORROWING" shall mean a Borrowing comprised of Eurodollar
Loans.

          "EURODOLLAR LOAN" shall mean any Loan bearing interest at a rate
determined by reference to the Adjusted LIBOR Rate in accordance with the
provisions of Section 2.

          "EVENT OF DEFAULT" shall have the meaning given such term in
Section 7.

          "EXCLUDED TAXES" shall mean, with respect to the Agent, any Lender,
the Fronting Bank or any other recipient of any payment to be made by or on
account of any obligation of the Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which the Borrower is located and (c) in the case
of a Foreign Lender, any withholding tax that is imposed on amounts payable to
such Foreign Lender at the time such Foreign Lender becomes a party to this
Agreement (or designates a new lending office) or is attributable to such
Foreign Lender's failure to comply with Section 2.18(e), except to the extent
that such Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional
amounts from the Borrower with respect to such withholding tax pursuant to
Section 2.18(a).

          "EXISTING AGREEMENT" shall have the meaning set forth in the
Introduction and shall include all of the agreements granting security interests
and Liens in property and assets of the Borrower and the Guarantors to the
Existing Lenders, including without limitation, the security agreements,
mortgages and leasehold mortgages listed on Schedule 1.01 hereto, each of which
documents was executed and delivered (to the extent party thereto) by the
Borrower and the Guarantors prior to the Filing Date, as each may have been
amended or modified from time to time.

          "EXISTING LENDERS" shall mean, collectively, the lenders under the
Existing Agreement, together with any successors or assigns thereof.

          "FABPRO" shall mean Fabpro Oriented Polymers, Inc., a subsidiary of
the Borrower referred to as Fabpro and part of OPD.

          "FABRENE" shall mean Fabrene Corp. and Fabrene Group LLC, subsidiaries
of the Borrower referred to as Fabrene and part of OPD.

          "FEES" shall collectively mean the Commitment Fees, Letter of Credit
Fees and other fees referred to in Sections 2.19, 2.20 and 2.21.

                                       12


          "FILING DATE" shall mean May 11, 2002.

          "FINAL ORDER" shall have the meaning given such term in Section
4.02(d).

          "FINANCIAL OFFICER" shall mean the Chief Financial Officer, Principal
Accounting Officer, Controller or Treasurer of the Borrower.

          "FINISHED GOODS" shall mean completed goods which require no
additional processing, to be sold by the Borrower or the Guarantors (as
applicable) in the ordinary course of business.

          "FOREIGN LENDER" means any Lender that is organized under the laws of
a jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.

          "FRONTING BANK" shall mean JPMorgan Chase (or any of its banking
Affiliates) or such other Lender that is a commercial bank (which other Lender
shall be reasonably satisfactory to the Borrower and JPMorgan Chase) as may
agree with JPMorgan Chase to act in such capacity.

          "GAAP" shall mean generally accepted accounting principles applied in
accordance with Section 1.02.

          "GOVERNMENTAL AUTHORITY" shall mean any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality or any court, in each case whether of the United States or
foreign.

          "GUARANTOR" shall have the meaning set forth in the Introduction.

          "INDEBTEDNESS" shall mean, at any time and with respect to any Person,
(i) all indebtedness of such Person for borrowed money, (ii) all indebtedness of
such Person for the deferred purchase price of property or services (other than
property, including inventory, and services purchased, and expense accruals and
deferred compensation items arising, in the ordinary course of business), (iii)
all obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments (other than performance, surety and appeal bonds arising in
the ordinary course of business), (iv) all indebtedness of such Person created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), (v) all obligations of such Person
under Capitalized Leases, (vi) all reimbursement, payment or similar obligations
of such Person, contingent or otherwise, under acceptance, letter of credit or
similar facilities and all obligations of such Person in respect of (x) currency
swap agreements, currency future or option contracts and other similar
agreements designed to hedge against fluctuations in foreign interest rates and
(y) interest rate swap, cap or collar agreements and interest rate future or
option contracts; (vii) all Indebtedness referred to in clauses (i) through (vi)
above guaranteed directly or indirectly by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (A) to pay or
purchase such Indebtedness or to advance or supply funds for the

                                       13


payment or purchase of such Indebtedness, (B) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss in respect of such Indebtedness,
(C) to supply funds to or in any other manner invest in the debtor (including
any agreement to pay for property or services irrespective of whether such
property is received or such services are rendered) or (D) otherwise to assure a
creditor against loss in respect of such Indebtedness, and (viii) all
Indebtedness referred to in clauses (i) through (vii) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness.

          "INDEMNIFIED TAXES" shall mean Taxes other than Excluded Taxes.

          "INSUFFICIENCY" shall mean, with respect to any Plan, its "amount of
unfunded benefit liabilities" within the meaning of Section 4001(a)(18) of
ERISA, if any.

          "INTERIM ORDER" shall have the meaning given such term in Section
4.01(b).

          "INTEREST PAYMENT DATE" shall mean (i) as to any Eurodollar Loan, the
last day of each consecutive 30 day period running from the commencement of the
applicable Interest Period, and (ii) as to all ABR Loans, the last calendar day
of each month and the date on which any ABR Loans are refinanced with Eurodollar
Loans pursuant to Section 2.12.

          "INTEREST PERIOD" shall mean, as to any Borrowing of Eurodollar Loans,
the period commencing on the date of such Borrowing (including as a result of a
refinancing of ABR Loans) or on the last day of the preceding Interest Period
applicable to such Borrowing and ending on the numerically corresponding day (or
if there is no corresponding day, the last day) in the calendar month that is
one or three months thereafter, as the Borrower may elect in the related notice
delivered pursuant to Sections 2.06(b) or 2.12; PROVIDED, HOWEVER, that (i) if
any Interest Period would end on a day which shall not be a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless
such next succeeding Business Day would fall in the next calendar month, in
which case such Interest Period shall end on the next preceding Business Day,
and (ii) no Interest Period shall end later than the Termination Date.

          "INVENTORY" shall mean all Raw Materials, Work in Process and Finished
Goods held by the Borrower or the Guarantors (as applicable) in the normal
course of business.

          "INVENTORY RESERVES" means reserves against Inventory equal to the sum
of the following:

          (a)  a reserve for shrink, or discrepancies that arise pertaining to
     inventory quantities on hand between the Borrower or the Guarantor's (as
     applicable) perpetual inventory accounting system, and physical counts of
     the inventory which will be equal to the results of the last physical count
     with the variance expressed as a percentage, for Raw Materials and Finished
     Goods, respectively, for the Borrower or the Guarantor (as applicable); and

                                       14


          (b)  a reserve for excess or obsolete Inventory which is equal to the
     Borrower or the Guarantor's (as applicable) financial statement reserve;
     and

          (c)  with respect to any distribution center or warehouse or where any
     Inventory subject to Liens arising by operation of law is located, a
     reserve equal to three (3) months' rent at such distribution center or
     warehouse, unless such Inventory is the subject of an acceptable collateral
     access agreement or lien waiver satisfactory to the Agent; and

          (d)  a favorable variance reserve for variances in which standard
     costs are in excess of actual costs; and

          (e)  a lower of cost or market reserve which includes all Inventory
     that is sold, or valued by the Borrower or the Guarantors (as applicable)
     or as deemed appropriate by the Collateral Agent in its sole discretion,
     for less than the actual cost to produce; and

          (f)  any other reserve as deemed appropriate by the Agent in its sole
     discretion, from time to time.

          "INVENTORY VALUE" of any Inventory shall mean at the time of any
determination thereof the standard cost carried on the perpetual inventory
records of the Borrower and the Guarantors (as applicable) stated on a basis
consistent with the historical practices of the Borrower or the Guarantors (as
applicable), in Dollars, determined in accordance with the standard cost method
of accounting less (i) any markup on Inventory from an Affiliate and (ii) in the
event variances under the standard cost method (a) are capitalized, favorable
variances shall be deducted from Eligible Inventory, and unfavorable variances
shall not be added to Eligible Inventory, and (b) are expensed, a reserve shall
be determined as appropriate in order to adjust the standard cost of Eligible
Inventory to approximate actual cost.

          "INVESTMENT GRADE" shall be defined as a rating established by a third
party rating agency, equivalent to a S&P BBB- or a Moody's Baa3 or better.

          "INVESTMENTS" shall have the meaning given such term in Section 6.10.

          "JPMORGAN CHASE" shall have the meaning set forth in the Introduction.

          "LENDER AFFILIATE" shall mean, (a) with respect to any Lender, (i) an
Affiliate of such Lender or (ii) any entity (whether a corporation, partnership,
trust or otherwise) that is engaged in making, purchasing, holding or otherwise
investing in bank loans and similar extensions of credit in the ordinary course
of its business and is administered or managed by a Lender or an Affiliate of
such Lender and (b) with respect to any Lender that is a fund which invests in
bank loans and similar extensions of credit, any other fund that invests in bank
loans and similar extensions of credit and is managed by the same investment
advisor as such Lender or by an Affiliate of such investment advisor.

          "LENDERS" shall have the meaning set forth in the Introduction.

                                       15


          "LETTER OF CREDIT" shall mean any irrevocable letter of credit issued
pursuant to Section 2.03, which letter of credit shall be (i) an import
documentary or a standby letter of credit, (ii) issued for purposes that are
reasonably acceptable to the Agent, (iii) denominated in Dollars and (iv)
otherwise in such form as may be reasonably approved from time to time by the
Agent and the applicable Fronting Bank.

          "LETTER OF CREDIT ACCOUNT" shall mean the account established by the
Borrower under the sole and exclusive control of the Agent maintained at the
office of the Agent at 270 Park Avenue, New York, New York 10017 designated as
the "Polymer Letter of Credit Account" that shall be used solely for the
purposes set forth in Sections 2.03(b) and 2.13.

          "LETTER OF CREDIT FEES" shall mean the fees payable in respect of
Letters of Credit pursuant to Section 2.21.

          "LETTER OF CREDIT OUTSTANDINGS" shall mean, at any time, the sum of
(i) the aggregate undrawn stated amount of all Letters of Credit then
outstanding plus (ii) all amounts theretofore drawn under Letters of Credit and
not then reimbursed.

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

          "LOAN" shall have the meaning given such term in Section 2.01.

          "LOAN DOCUMENTS" shall mean this Agreement, the Letters of Credit, the
Security and Pledge Agreement, and any other instrument or agreement executed
and delivered to the Agent or any Lender in connection herewith.

          "LORETEX" shall mean Loretex Corporation, a subsidiary of the Borrower
referred to as Loretex and part of OPD.

          "MATURITY DATE" shall mean May 30, 2003.

          "MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, which is maintained or contributed to by (or to
which there is an obligation to contribute of) the Borrower or a Subsidiary of
the Borrower or an ERISA Affiliate, and each such plan for the five-year period
immediately following the latest date on which the Borrower, or a Subsidiary of
the Borrower or an ERISA Affiliate maintained, contributed to or had an
obligation to contribute to such plan.

          "MULTIPLE EMPLOYER PLAN" shall mean a Single Employer Plan, which (i)
is maintained for employees of the Borrower or an ERISA Affiliate and at least
one person (as defined in Section 3(9) of ERISA) other than the Borrower and its
ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower
or an ERISA Affiliate could reasonably be expected to have liability under
Section 4064 or 4069 of ERISA in the event such Plan has been or were to be
terminated.

                                       16


          "NWD" shall mean the operating division of the Borrower referred to as
the Nonwovens Division.

          "OBLIGATIONS" shall mean (a) the due and punctual payment of principal
of and interest on the Loans and the reimbursement of all amounts drawn under
Letters of Credit, and (b) the due and punctual payment of the Fees and all
other present and future, fixed or contingent, monetary obligations of the
Borrower and the Guarantors to the Lenders and the Agent under the Loan
Documents.

          "OPD" shall mean the operating division of the Borrower referred to as
the Oriented Polymers Division, including Fabrene, Loretex and Fabpro.

          "ORDERS" shall mean the Interim Order and the Final Order of the
Bankruptcy Court referred to in Sections 4.01(b) and 4.02(d).

          "OTHER TAXES" shall mean any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement.

          "PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor agency or entity performing substantially the same functions.

          "PENSION PLAN" shall mean a defined benefit plan (as defined in
Section 414(j) of the Code and Section 3(35) of ERISA) which meets and is
subject to the requirements of Section 401(a) of the Code.

          "PERMITTED INVESTMENTS" shall mean:

          (a)  direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed by
the full faith and credit of the United States of America), in each case
maturing within twelve months from the date of acquisition thereof;

          (b)  without limiting the provisions of paragraph (d) below,
investments in commercial paper maturing within six months from the date of
acquisition thereof and having, at such date of acquisition, a rating of at
least "A-2" or the equivalent thereof from Standard & Poor's Ratings Services or
of at least "P-2" or the equivalent thereof from Moody's Investors Service,
Inc.;

          (c)  investments in certificates of deposit, banker's acceptances and
time deposits (including Eurodollar time deposits) maturing within six months
from the date of acquisition thereof issued or guaranteed by or placed with (i)
any domestic office of the Agent or the bank with whom the Borrower and the
Guarantors maintain their cash management system, provided, that if such bank is
not a Lender hereunder, such bank shall have entered into an agreement with the
Agent pursuant to which such bank shall have waived all rights of setoff and
confirmed that such bank does not have, nor shall it claim, a security interest
therein or (ii) any domestic office of any other commercial bank of recognized
standing organized under the laws

                                       17


of the United States of America or any State thereof that has a combined capital
and surplus and undivided profits of not less than $250,000,000 and is the
principal banking Subsidiary of a bank holding company having a long-term
unsecured debt rating of at least "A-2" or the equivalent thereof from Standard
& Poor's Ratings Services or at least "P-2" or the equivalent thereof from
Moody's Investors Service, Inc.;

          (d)  investments in commercial paper maturing within six months from
the date of acquisition thereof and issued by (i) the holding company of the
Agent or (ii) the holding company of any other commercial bank of recognized
standing organized under the laws of the United States of America or any State
thereof that has (A) a combined capital and surplus in excess of $250,000,000
and (B) commercial paper rated at least "A-2" or the equivalent thereof from
Standard & Poor's Ratings Services or of at least "P-2" or the equivalent
thereof from Moody's Investors Service, Inc.;

          (e)  investments in repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (a)
above entered into with any office of a bank or trust company meeting the
qualifications specified in clause (c) above;

          (f)  investments in money market funds substantially all the assets
of which are comprised of securities of the types described in clauses (a)
through (e) above; and

          (g)  to the extent owned on the Filing Date, investments by the
Borrower or any Guarantor in the capital stock of any direct or indirect
Subsidiary.

          "PERMITTED LIENS" shall mean (i) Liens imposed by law (other than
Environmental Liens and any Lien imposed under ERISA) for taxes, assessments or
charges of any Governmental Authority for claims not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained in
accordance with GAAP; (ii) Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens (other than Environmental
Liens and any Lien imposed under ERISA) in existence on the Filing Date or
thereafter imposed by law and created in the ordinary course of business; (iii)
Liens (other than any Lien imposed under ERISA) incurred or deposits made in the
ordinary course of business (including, without limitation, surety bonds and
appeal bonds) in connection with workers' compensation, unemployment insurance
and other types of social security benefits or to secure the performance of
tenders, bids, leases, contracts (other than for the repayment of Indebtedness),
statutory obligations and other similar obligations or arising as a result of
progress payments under government contracts; (iv) easements (including, without
limitation, reciprocal easement agreements and utility agreements),
rights-of-way, covenants, consents, reservations, encroachments, variations and
zoning and other restrictions, charges or encumbrances (whether or not recorded)
and interest of ground lessors, which do not interfere materially with the
ordinary conduct of the business of the Borrower or any Guarantor, as the case
may be, and which do not materially detract from the value of the property to
which they attach or materially impair the use thereof to the Borrower or any
Guarantor, as the case may be; (v) purchase money Liens (including Capitalized
Leases) upon or in any property acquired or held in the ordinary course of
business to secure the purchase price of such property or to secure Indebtedness
permitted by Section 6.03(iv) solely for the purpose of financing the
acquisition of such

                                       18


property; (vi) letters of credit or deposits in the ordinary course to secure
leases; and (vii) extensions, renewals or replacements of any Lien referred to
in paragraphs (i) through (vi) above, PROVIDED that the principal amount of the
obligation secured thereby is not increased and that any such extension, renewal
or replacement is limited to the property originally encumbered thereby.

          "PERSON" shall mean any natural person, corporation, division of a
corporation, partnership, trust, joint venture, association, company, estate,
unincorporated organization or government or any agency or political subdivision
thereof.

          "PLAN" shall mean a Single Employer Plan or a Multiemployer Plan.

          "PREPAYMENT DATE" shall mean the date that is thirty (30) days after
the entry of the Interim Order by the Bankruptcy Court if the Final Order has
not been entered by the Bankruptcy Court prior to the expiration of such thirty
(30) day period.

          "PRE-PETITION AGENT" shall mean JPMorgan Chase Bank as agent for the
Existing Lenders.

          "PRE-PETITION PAYMENT" shall mean a payment (by way of adequate
protection or otherwise) of principal or interest or otherwise on account of any
pre-petition Indebtedness or trade payables or other pre-petition claims against
the Borrower or any Guarantor.

          "RAW MATERIALS" shall mean materials used or consumed in the
production of goods to be sold by the Borrower or the Guarantors (as applicable)
in the ordinary course of business, such as polypropylene and polyethylene
resins, polyester and rayon fibers, additives, chemicals, wood pulp and tissue
paper.

          "REGISTER" shall have the meaning set forth in Section 10.03(d).

          "REORGANIZATION PLAN" shall mean a plan of reorganization in any of
the Cases.

          "REQUIRED LENDERS" shall mean, at any time, Lenders holding Loans
representing in excess of 50% of the aggregate principal amount of such Loans
outstanding or, if no Loans are outstanding, Lenders having Commitments
representing in excess of 50% of the Total Commitment.

          "RESERVE FOR CUSTOMERS WITH EXTENDED TERMS" shall mean 35% of all
Fabpro Account balances with extended or special terms, as determined by the
Agent.

          "SECURITY AND PLEDGE AGREEMENT" shall have the meaning set forth in
Section 4.01(c).

          "SINGLE EMPLOYER PLAN" shall mean a single employer plan, as defined
in Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the
Borrower or an ERISA Affiliate or (ii) was so maintained and in respect of which
the Borrower could reasonably be expected to have liability under Title IV of
ERISA in the event such Plan has been or were to be terminated.

                                       19


          "STATUTORY RESERVES" shall mean on any date the percentage (expressed
as a decimal) established by the Board and any other banking authority which is
(i) for purposes of the definition of Base CD Rate, the then stated maximum rate
of all reserves (including, but not limited to, any emergency, supplemental or
other marginal reserve requirement) for a member bank of the Federal Reserve
System in New York City, for new three month negotiable nonpersonal time
deposits in dollars of $100,000 or more or (ii) for purposes of the definition
of Adjusted LIBOR Rate, the then stated maximum rate for all reserves (including
but not limited to any emergency, supplemental or other marginal reserve
requirements) applicable to any member bank of the Federal Reserve System in
respect of Eurocurrency Liabilities (or any successor category of liabilities
under Regulation D issued by the Board, as in effect from time to time). Such
reserve percentages shall include, without limitation, those imposed pursuant to
said Regulation. The Statutory Reserves shall be adjusted automatically on and
as of the effective date of any change in such percentage.

          "SUBSIDIARY" shall mean, with respect to any Person (herein referred
to as the "PARENT"), any corporation, association or other business entity
(whether now existing or hereafter organized) of which at least a majority of
the securities or other ownership or membership interests having ordinary voting
power for the election of directors is, at the time as of which any
determination is being made, owned or controlled by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.

          "SUPER-MAJORITY LENDERS" shall have the meaning given such term in
Section 10.10(b).

          "SUPERPRIORITY CLAIM" shall mean a claim against the Borrower and any
Guarantor in any of the Cases which is an administrative expense claim having
priority over any or all administrative expenses of the kind specified in
Sections 503(b) or 507(b) of the Bankruptcy Code.

          "TAXES" shall mean any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.

          "TERMINATION DATE" shall mean the earliest to occur of (i) the
Prepayment Date, (ii) the Maturity Date, (iii) the Consummation Date and (iv)
the acceleration of the Loans and the termination of the Total Commitment in
accordance with the terms hereof.

          "TERMINATION EVENT" shall mean (i) a "reportable event", as such term
is described in Section 4043(c) of ERISA (other than a "reportable event" as to
which the 30-day notice is waived under subsection .22, .23, .25, .27 or .28 of
PBGC Regulation Section 4043) or an event described in Section 4068 of ERISA and
excluding events which would not be reasonably likely (as reasonably determined
by the Agent) to have a material adverse effect on the financial condition,
operations, business, properties or assets of the Borrower and the Guarantors
taken as a whole, or (ii) the withdrawal of the Borrower or any ERISA Affiliate
from a Multiple Employer Plan during a plan year in which it was a "substantial
employer," as such term is defined in Section 4001(a)(2) of ERISA, the
incurrence of liability by the Borrower or any ERISA Affiliate under Section
4064 of ERISA upon the termination of a Multiple Employer Plan, the imposition
of Withdrawal Liability, or (iii) providing notice of intent to terminate a

                                       20


Plan pursuant to Section 4041(c) of ERISA or the treatment of a Plan amendment
as a termination under Section 4041 of ERISA, if such amendment requires the
provision of security, or (iv) the institution of proceedings to terminate a
Plan by the PBGC under Section 4042 of ERISA, or (v) any other event or
condition (other than the commencement of the Cases and the failure to have made
any contribution accrued as of the Filing Date but not paid) which would
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or the
imposition of any liability under Title IV of ERISA (other than for the payment
of premiums to the PBGC in the ordinary course).

          "TOTAL COMMITMENT" shall mean, at any time, the sum of the Commitments
at such time.

          "TYPE" when used in respect of any Loan or Borrowing shall refer to
the Rate of interest by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, "Rate" shall mean
the Adjusted LIBOR Rate and the Alternate Base Rate.

          "UNUSED TOTAL COMMITMENT" shall mean, at any time, (i) the Total
Commitment less (ii) the sum of (x) the aggregate outstanding principal amount
of all Loans and (y) the aggregate Letter of Credit Outstandings.

          "WORK IN PROCESS" shall mean incomplete or semi-finished goods which
require additional processing and are not Raw Materials or Finished Goods, to be
sold by the Borrower or the Guarantors (as applicable) in the ordinary course of
business.

          "WITHDRAWAL LIABILITY" shall have the meaning given such term under
Part I of Subtitle E of Title IV of ERISA.

     SECTION 1.02    TERMS GENERALLY. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. All references herein to Sections,
Exhibits and Schedules shall be deemed references to Sections of, and Exhibits
and Schedules to, this Agreement unless the context shall otherwise require.
Except as otherwise expressly provided herein, all terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from
time to time; PROVIDED, HOWEVER, that for purposes of determining compliance
with any covenant set forth in Section 6, such terms shall be construed in
accordance with GAAP as in effect on the date of this Agreement applied on a
basis consistent with the application used in the Borrower's audited financial
statements referred to in Section 3.04.

SECTION 2.   AMOUNT AND TERMS OF CREDIT

     SECTION 2.01    COMMITMENT OF THE LENDERS.

          (a)  Each Lender severally and not jointly with the other Lenders
agrees, upon the terms and subject to the conditions herein set forth
(including, without limitation, the provisions of Section 2.28), to make
revolving credit loans (each a "LOAN" and collectively, the

                                       21


"LOANS") to the Borrower at any time and from time to time during the period
commencing on the date hereof and ending on the Termination Date in an aggregate
principal amount not to exceed, when added to such Lender's Commitment
Percentage of the then aggregate Letter of Credit Outstandings, the Commitment
of such Lender, which Loans may be repaid and reborrowed in accordance with the
provisions of this Agreement. At no time shall the sum of the then outstanding
aggregate principal amount of the Loans PLUS the then aggregate Letter of Credit
Outstandings exceed the lesser of (i) the Total Commitment of $125,000,000, as
the same may be reduced from time to time pursuant to Sections 2.10 and 2.13 and
(ii) the Borrowing Base.

          (b)  Each Borrowing shall be made by the Lenders PRO RATA in
accordance with their respective Commitments; PROVIDED, HOWEVER, that the
failure of any Lender to make any Loan shall not in itself relieve the other
Lenders of their obligations to lend.

     SECTION 2.02    BORROWING BASE. Notwithstanding any other provision of this
Agreement to the contrary, the aggregate principal amount of all outstanding
Loans PLUS the then aggregate Letter of Credit Outstandings (in excess of the
amount of cash then held in the Letter of Credit Account pursuant to Section
2.03(b)) shall not at any time exceed the Borrowing Base and no Loan shall be
made or Letter of Credit issued in violation of the foregoing.

     SECTION 2.03    LETTERS OF CREDIT.

          (a)  Upon the terms and subject to the conditions herein set forth,
the Borrower may request a Fronting Bank, at any time and from time to time
after the date hereof and prior to the Termination Date, to issue, and, subject
to the terms and conditions contained herein, such Fronting Bank shall issue,
for the account of the Borrower or a Guarantor one or more Letters of Credit,
provided that no Letter of Credit shall be issued if after giving effect to such
issuance (i) the aggregate Letter of Credit Outstandings shall exceed
$20,000,000 or (ii) the aggregate Letter of Credit Outstandings, when added to
the aggregate outstanding principal amount of the Loans, would exceed the Total
Commitment and, PROVIDED FURTHER that no Letter of Credit shall be issued if the
Fronting Bank shall have received notice from the Agent or the Required Lenders
that the conditions to such issuance have not been met.

          (b)  No Letter of Credit shall expire later than the Maturity Date,
PROVIDED that if any Letter of Credit shall be outstanding on the Termination
Date, the Borrower shall, at or prior to the Termination Date, except as the
Agent may otherwise agree in writing, (i) cause all Letters of Credit which
expire after the Termination Date to be returned to the Fronting Bank undrawn
and marked "cancelled" or (ii) if the Borrower is unable to do so in whole or in
part, either (x) provide a "back-to-back" letter of credit to one or more
Fronting Banks in a form satisfactory to such Fronting Bank and the Agent (in
their sole discretion), issued by a bank satisfactory to such Fronting Bank and
the Agent (in their sole discretion), and in an amount equal to 105% of the then
undrawn stated amount of all outstanding Letters of Credit issued by such
Fronting Banks (LESS the amount, if any, then on deposit in the Letter of Credit
Account) and/or (y) deposit cash in the Letter of Credit Account in an amount
equal to 105% of the then undrawn stated amount of all Letter of Credit
Outstandings (LESS the amount, if any, then on deposit in the Letter of Credit
Account) as collateral security for the Borrower's reimbursement

                                       22


obligations in connection therewith, such cash to be promptly remitted to the
Borrower upon the expiration, cancellation or other termination or satisfaction
of such reimbursement obligations.

          (c)  The Borrower shall pay to each Fronting Bank, in addition to such
other fees and charges as are specifically provided for in Section 2.21 hereof,
such fees and charges in connection with the issuance and processing of the
Letters of Credit issued by such Fronting Bank as are customarily imposed by
such Fronting Bank from time to time in connection with letter of credit
transactions.

          (d)  Drafts drawn under each Letter of Credit shall be reimbursed by
the Borrower in Dollars not later than the first Business Day following the date
of draw and shall bear interest from the date of draw until the first Business
Day following the date of draw at a rate per annum equal to the Alternate Base
Rate PLUS 3.5% and thereafter on the unreimbursed portion until reimbursed in
full at a rate per annum equal to the Alternate Base Rate PLUS 5.5% (computed on
the basis of the actual number of days elapsed over a year of 365 days or 366
days in a leap year). The Borrower shall effect such reimbursement (x) if such
draw occurs prior to the Termination Date, in cash or through a Borrowing
without the satisfaction of the conditions precedent set forth in Section 4.02
or (y) if such draw occurs on or after the Termination Date, in cash. Each
Lender agrees to make the Loans described in clause (x) of the preceding
sentence notwithstanding a failure to satisfy the applicable lending conditions
thereto or the provisions of Sections 2.02 or 2.28.

          (e)  Immediately upon the issuance of any Letter of Credit by any
Fronting Bank, such Fronting Bank shall be deemed to have sold to each Lender
other than such Fronting Bank and each such other Lender shall be deemed
unconditionally and irrevocably to have purchased from such Fronting Bank,
without recourse or warranty, an undivided interest and participation, to the
extent of such Lender's Commitment Percentage, in such Letter of Credit, each
drawing thereunder and the obligations of the Borrower and the Guarantors under
this Agreement with respect thereto. Upon any change in the Commitments pursuant
to Section 10.03, it is hereby agreed that with respect to all Letter of Credit
Outstandings, there shall be an automatic adjustment to the participations
hereby created to reflect the new Commitment Percentages of the assigning and
assignee Lenders. Any action taken or omitted by a Fronting Bank under or in
connection with a Letter of Credit, if taken or omitted in the absence of gross
negligence or willful misconduct, shall not create for such Fronting Bank any
resulting liability to any other Lender.

          (f)  In the event that a Fronting Bank makes any payment under any
Letter of Credit and the Borrower shall not have reimbursed such amount in full
to such Fronting Bank pursuant to this Section, the Fronting Bank shall promptly
notify the Agent, which shall promptly notify each Lender of such failure, and
each Lender shall promptly and unconditionally pay to the Agent for the account
of the Fronting Bank the amount of such Lender's Commitment Percentage of such
unreimbursed payment in Dollars and in same day funds. If the Fronting Bank so
notifies the Agent, and the Agent so notifies the Lenders prior to 11:00 a.m.
(New York City time) on any Business Day, such Lenders shall make available to
the Fronting Bank such Lender's Commitment Percentage of the amount of such
payment on such Business Day in same day funds. If and to the extent such Lender
shall not have so made its Commitment Percentage of the amount of such payment
available to the Fronting Bank, such Lender agrees to pay to such

                                       23


Fronting Bank, forthwith on demand such amount, together with interest thereon,
for each day from such date until the date such amount is paid to the Agent for
the account of such Fronting Bank at the Federal Funds Effective Rate. The
failure of any Lender to make available to the Fronting Bank its Commitment
Percentage of any payment under any Letter of Credit shall not relieve any other
Lender of its obligation hereunder to make available to the Fronting Bank its
Commitment Percentage of any payment under any Letter of Credit on the date
required, as specified above, but no Lender shall be responsible for the failure
of any other Lender to make available to such Fronting Bank such other Lender's
Commitment Percentage of any such payment. Whenever a Fronting Bank receives a
payment of a reimbursement obligation as to which it has received any payments
from the Lenders pursuant to this paragraph, such Fronting Bank shall pay to
each Lender which has paid its Commitment Percentage thereof, in Dollars and in
same day funds, an amount equal to such Lender's Commitment Percentage thereof.

     SECTION 2.04    ISSUANCE. Whenever the Borrower desires a Fronting Bank to
issue a Letter of Credit, it shall give to such Fronting Bank and the Agent
prior written (including telegraphic, telex, facsimile or cable communication)
notice reasonably in advance of the requested date of issuance specifying the
date on which the proposed Letter of Credit is to be issued (which shall be a
Business Day), the stated amount of the Letter of Credit so requested, the
expiration date of such Letter of Credit and the name and address of the
beneficiary thereof.

     SECTION 2.05    NATURE OF LETTER OF CREDIT OBLIGATIONS ABSOLUTE. The
obligations of the Borrower to reimburse the Lenders for drawings made under any
Letter of Credit shall be unconditional and irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances,
including, without limitation (it being understood that any such payment by the
Borrower shall be without prejudice to, and shall not constitute a waiver of,
any rights the Borrower might have or might acquire as a result of the payment
by the Fronting Bank of any draft or the reimbursement by the Borrower thereof):
(i) any lack of validity or enforceability of any Letter of Credit; (ii) the
existence of any claim, setoff, defense or other right which the Borrower or any
Guarantor may have at any time against a beneficiary of any Letter of Credit or
against any of the Lenders, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction; (iii) any draft,
demand, certificate or other document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; (iv) payment by a
Fronting Bank of any Letter of Credit against presentation of a demand, draft or
certificate or other document which does not comply with the terms of such
Letter of Credit; (v) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or (vi) the fact that any Event of Default
shall have occurred and be continuing.

     SECTION 2.06    MAKING OF LOANS.

          (a)  Except as contemplated by Section 2.11, Loans shall be either ABR
Loans or Eurodollar Loans as the Borrower may request subject to and in
accordance with this Section, provided that all Loans made pursuant to the same
Borrowing shall, unless otherwise specifically provided herein, be Loans of the
same Type. Each Lender may fulfill its Commitment with respect to any Eurodollar
Loan or ABR Loan by causing any lending office of such Lender to make such Loan;
provided that any such use of a lending office shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms of this
Agreement. Each Lender

                                       24


shall, subject to its overall policy considerations, use reasonable efforts (but
shall not be obligated) to select a lending office which will not result in the
payment of increased costs by the Borrower pursuant to Section 2.15. Subject to
the other provisions of this Section and the provisions of Section 2.12,
Borrowings of Loans of more than one Type may be incurred at the same time,
provided that no more than seven (7) Borrowings of Eurodollar Loans may be
outstanding at any time.

          (b)  The Borrower shall give the Agent prior notice of each Borrowing
hereunder of at least three Business Days for Eurodollar Loans and one Business
Day for ABR Loans (subject, in the case of ABR Loans, to the last sentence of
this Section); such notice shall be irrevocable and shall specify the amount of
the proposed Borrowing (which shall not be less than $2,500,000 (and integral
multiples of $1,000,000) in the case of Eurodollar Loans and $1,000,000 (and
integral multiples of $100,000) in the case of ABR Loans) and the date thereof
(which shall be a Business Day) and shall contain disbursement instructions.
Such notice, to be effective, must be received by the Agent not later than 1:00
p.m., New York City time, on the third Business Day in the case of Eurodollar
Loans and 12:00 noon, New York City time on the first Business Day in the case
of ABR Loans, preceding the date on which such Borrowing is to be made. Such
notice shall specify whether the Borrowing then being requested is to be a
Borrowing of ABR Loans or Eurodollar Loans. If no election is made as to the
Type of Loan, such notice shall be deemed a request for Borrowing of ABR Loans.
The Agent shall promptly notify each Lender of its proportionate share of such
Borrowing, the date of such Borrowing, the Type of Borrowing or Loans being
requested and the Interest Period or Interest Periods applicable thereto, as
appropriate. On the borrowing date specified in such notice, each Lender shall
make its share of the Borrowing available at the office of the Agent at 270 Park
Avenue, New York, New York 10017, no later than 12:00 noon, New York City time,
in immediately available funds. Upon receipt of the funds made available by the
Lenders to fund any borrowing hereunder, the Agent shall disburse such funds in
the manner specified in the notice of borrowing delivered by the Borrower and
shall use reasonable efforts to make the funds so received from the Lenders
available to the Borrower no later than 2:00 p.m. New York City time.

     SECTION 2.07    REPAYMENT OF LOANS; EVIDENCE OF DEBT.

          (a)  The Borrower hereby unconditionally promises to pay to the Agent
for the account of each Lender the then unpaid principal amount of each Loan on
the Termination Date.

          (b)  Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.

          (c)  The Agent shall maintain accounts in which it shall record (i)
the amount of each Loan made hereunder, the Type thereof and the Interest Period
applicable thereto, (ii) the amount of any principal or interest due and payable
or to become due and payable from the Borrower to each Lender hereunder and
(iii) the amount of any sum received by the Agent hereunder for the account of
the Lenders and each Lender's share thereof.

                                       25


          (d)  The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall be PRIMA FACIE evidence of the existence and
amounts of the obligations recorded therein; PROVIDED that the failure of any
Lender or the Agent to maintain such accounts or any error therein shall not in
any manner affect the obligation of the Borrower to repay the Loans in
accordance with the terms of this Agreement.

          (e)  Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Borrower shall execute and deliver to such
Lender a promissory note payable to the order of such Lender (or, if requested
by such Lender, to such Lender and its registered assigns) in a form furnished
by the Agent and reasonably acceptable to the Borrower. Thereafter, the Loans
evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 10.03) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and its
registered assigns).

     SECTION 2.08    INTEREST ON LOANS.

          (a)  Subject to the provisions of Section 2.09, each ABR Loan shall
bear interest (computed on the basis of the actual number of days elapsed over a
year of 360 days or, when the Alternate Base Rate is based on the Prime Rate, a
year with 365 days or 366 days in a leap year) at a rate per annum equal to the
Alternate Base Rate plus 2.5%.

          (b)  Subject to the provisions of Section 2.09, each Eurodollar Loan
shall bear interest (computed on the basis of the actual number of days elapsed
over a year of 360 days) at a rate per annum equal, during each Interest Period
applicable thereto, to the Adjusted LIBOR Rate for such Interest Period in
effect for such Borrowing plus 3.5%.

          (c)  Accrued interest on all Loans shall be payable monthly in arrears
on each Interest Payment Date applicable thereto, on the Termination Date, after
the Termination Date on demand and (with respect to Eurodollar Loans) upon any
repayment or prepayment thereof (on the amount prepaid).

     SECTION 2.09    DEFAULT INTEREST. If the Borrower or any Guarantor, as the
case may be, shall default in the payment of the principal of or interest on any
Loan or in the payment of any other amount becoming due hereunder (including,
without limitation, the reimbursement pursuant to Section 2.03(d) of any draft
drawn under a Letter of Credit), whether at stated maturity, by acceleration or
otherwise, the Borrower or such Guarantor, as the case may be, shall on demand
from time to time pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days or when the Alternate Base
Rate is applicable and is based on the Prime Rate, a year with 365 days or 366
days in a leap year) equal to (x) in the case of Borrowings consisting of
Eurodollar Loans, the Adjusted LIBOR Rate in effect for such Borrowing PLUS 5.5%
and (y) in the case of all other amounts, the Alternate Base Rate PLUS 4.5%.

     SECTION 2.10    OPTIONAL TERMINATION OR REDUCTION OF COMMITMENT. Upon at
least two Business Days' prior written notice to the Agent, the Borrower may at
any time in whole

                                       26


permanently terminate, or from time to time in part permanently reduce, the
Unused Total Commitment. Each such reduction of the Commitments shall be in the
principal amount of $1,000,000 or any integral multiple thereof. Simultaneously
with each reduction or termination of the Commitment, the Borrower shall pay to
the Agent for the account of each Lender the Commitment Fee accrued and unpaid
on the amount of the Commitment of such Lender so terminated or reduced through
the date thereof. Any reduction of the Total Commitment pursuant to this Section
shall be applied PRO RATA to reduce the Commitment of each Lender.

     SECTION 2.11    ALTERNATE RATE OF INTEREST. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Loan, the Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower absent manifest
error) that reasonable means do not exist for ascertaining the applicable
Adjusted LIBOR Rate, the Agent shall, as soon as practicable thereafter, give
written, facsimile or telegraphic notice of such determination to the Borrower
and the Lenders, and any request by the Borrower for a Borrowing of Eurodollar
Loans (including pursuant to a refinancing with Eurodollar Loans) pursuant to
Section 2.06 or 2.12 shall be deemed a request for a Borrowing of ABR Loans.
After such notice shall have been given and until the circumstances giving rise
to such notice no longer exist, each request for a Borrowing of Eurodollar Loans
shall be deemed to be a request for a Borrowing of ABR Loans.

     SECTION 2.12    REFINANCING OF LOANS. The Borrower shall have the right, at
any time, on three Business Days' prior irrevocable notice to the Agent (which
notice, to be effective, must be received by the Agent not later than 1:00 p.m.,
New York City time, on the third Business Day preceding the date of any
refinancing), (x) to refinance (without the satisfaction of the conditions set
forth in Section 4 as a condition to such refinancing, except as set forth in
subsection (a) below) any outstanding Borrowing or Borrowings of Loans of one
Type (or a portion thereof) with a Borrowing of Loans of the other Type or (y)
to continue an outstanding Borrowing of Eurodollar Loans for an additional
Interest Period, subject to the following:

          (a)  as a condition to the refinancing of ABR Loans with Eurodollar
Loans and to the continuation of Eurodollar Loans for an additional Interest
Period, no Event of Default shall have occurred and be continuing at the time of
such refinancing;

          (b)  if less than a full Borrowing of Loans shall be refinanced, such
refinancing shall be made PRO RATA among the Lenders in accordance with the
respective principal amounts of the Loans comprising such Borrowing held by the
Lenders immediately prior to such refinancing;

          (c)  the aggregate principal amount of Loans being refinanced shall be
at least $2,500,000, PROVIDED that no partial refinancing of a Borrowing of
Eurodollar Loans shall result in the Eurodollar Loans remaining outstanding
pursuant to such Borrowing being less than $2,500,000 in aggregate principal
amount;

          (d)  each Lender shall effect each refinancing by applying the
proceeds of its new Eurodollar Loan or ABR Loan, as the case may be, to its Loan
being refinanced;

                                       27


          (e)  the Interest Period with respect to a Borrowing of Eurodollar
Loans effected by a refinancing or in respect to the Borrowing of Eurodollar
Loans being continued as Eurodollar Loans shall commence on the date of
refinancing or the expiration of the current Interest Period applicable to such
continuing Borrowing, as the case may be;

          (f)  a Borrowing of Eurodollar Loans may be refinanced only on the
last day of an Interest Period applicable thereto; and

          (g)  each request for a refinancing with a Borrowing of Eurodollar
Loans which fails to state an applicable Interest Period shall be deemed to be a
request for an Interest Period of one month.

In the event that the Borrower shall not give notice to refinance any Borrowing
of Eurodollar Loans, or to continue such Borrowing as Eurodollar Loans, or shall
not be entitled to refinance or continue such Borrowing as Eurodollar Loans, in
each case as provided above, such Borrowing shall automatically be refinanced
with a Borrowing of ABR Loans at the expiration of the then-current Interest
Period. The Agent shall, after it receives notice from the Borrower, promptly
give each Lender notice of any refinancing, in whole or part, of any Loan made
by such Lender.

     SECTION 2.13    MANDATORY PREPAYMENT; COMMITMENT TERMINATION; CASH
COLLATERAL.

          (a)  If at any time the aggregate principal amount of the outstanding
Loans PLUS the Letter of Credit Outstandings exceeds the lesser of (x) the Total
Commitment and (y) the Borrowing Base, the Borrower will within three Business
Days (i) prepay the Loans in an amount necessary to cause the aggregate
principal amount of the outstanding Loans PLUS the aggregate Letter of Credit
Outstandings to be equal to or less than the Total Commitment and/or the
Borrowing Base, as the case may be, and (ii) if, after giving effect to the
prepayment in full of the Loans, the undrawn amount of outstanding Letter of
Credit Outstandings in excess of the amount of cash held in the Letter of Credit
Account exceeds the Total Commitment and/or the Borrowing Base, as the case may
be, deposit into the Letter of Credit Account an amount equal to 105% of the
amount by which the aggregate Letter of Credit Outstandings in excess of the
amount of cash held in the Letter of Credit Account so exceeds the Total
Commitment or Borrowing Base, as the case may be.

          (b)  Upon the Termination Date, the Total Commitment shall be
terminated in full and the Borrower shall repay the Loans in full (plus any
accrued but unpaid interest and fees thereon) and, except as the Agent may
otherwise agree in writing, if any Letter of Credit remains outstanding, deposit
into the Letter of Credit Account an amount equal to 105% of the amount by which
the Letter of Credit Outstandings exceeds the amount of cash held in the Letter
of Credit Account, such cash to be remitted to the Borrower upon the expiration,
cancellation, satisfaction or other termination of such reimbursement
obligations, or otherwise comply with Section 2.03(b).

     SECTION 2.14    OPTIONAL PREPAYMENT OF LOANS; REIMBURSEMENT OF LENDERS.

          (a)  The Borrower shall have the right at any time and from time to
time to prepay any Loans, in whole or in part, (x) with respect to Eurodollar
Loans, upon at least three

                                       28


Business Days' prior written or facsimile notice to the Agent and (y) with
respect to ABR Loans on the same Business Day if written or facsimile notice is
received by the Agent prior to 12:00 noon, New York City time, and thereafter
upon at least one Business Day's prior written or facsimile notice to the Agent;
PROVIDED, HOWEVER, that (i) each such partial prepayment shall be in multiples
of $1,000,000, (ii) no prepayment of Eurodollar Loans shall be permitted
pursuant to this Section 2.14(a) other than on the last day of an Interest
Period applicable thereto unless such prepayment is accompanied by the payment
of the amounts described in clause (i) of the first sentence of Section 2.14(b),
and (iii) no partial prepayment of a Borrowing of Eurodollar Loans shall result
in the aggregate principal amount of the Eurodollar Loans remaining outstanding
pursuant to such Borrowing being less than $1,000,000. Each notice of prepayment
shall specify the prepayment date, the principal amount of the Loans to be
prepaid and in the case of Eurodollar Loans, the Borrowing or Borrowings
pursuant to which made, shall be irrevocable and shall commit the Borrower to
prepay such Loan by the amount and on the date stated therein. The Agent shall,
promptly after receiving notice from the Borrower hereunder, notify each Lender
of the principal amount of the Loans held by such Lender which are to be
prepaid, the prepayment date and the manner of application of the prepayment.

          (b)  The Borrower shall reimburse each Lender on demand for any loss
incurred or to be incurred by it in the reemployment of the funds released (i)
resulting from any prepayment (for any reason whatsoever, including, without
limitation, refinancing with ABR Loans) of any Eurodollar Loan required or
permitted under this Agreement, if such Loan is prepaid other than on the last
day of the Interest Period for such Loan (including, without limitation, any
such prepayment in connection with the syndication of the credit facility
evidenced by this Agreement) or (ii) in the event that after the Borrower
delivers a notice of borrowing under Section 2.06 in respect of Eurodollar
Loans, such Loans are not made on the first day of the Interest Period specified
in such notice of borrowing for any reason other than a breach by such Lender of
its obligations hereunder. Such loss shall be the amount as reasonably
determined by such Lender as the excess, if any, of (A) the amount of interest
which would have accrued to such Lender on the amount so paid or not borrowed at
a rate of interest equal to the Adjusted LIBOR Rate for such Loan, for the
period from the date of such payment or failure to borrow to the last day (x) in
the case of a payment or refinancing with ABR Loans other than on the last day
of the Interest Period for such Loan, of the then current Interest Period for
such Loan, or (y) in the case of such failure to borrow, of the Interest Period
for such Loan which would have commenced on the date of such failure to borrow,
over (B) the amount of interest which would have accrued to such Lender on such
amount by placing such amount on deposit for a comparable period with leading
banks in the London interbank market. Each Lender shall deliver to the Borrower
from time to time one or more certificates setting forth the amount of such loss
as determined by such Lender.

          (c)  In the event the Borrower fails to prepay any Loan on the date
specified in any prepayment notice delivered pursuant to Section 2.14(a), the
Borrower on demand by any Lender shall pay to the Agent for the account of such
Lender any amounts required to compensate such Lender for any loss incurred by
such Lender as a result of such failure to prepay, including, without
limitation, any loss, cost or expenses incurred by reason of the acquisition of
deposits or other funds by such Lender to fulfill deposit obligations incurred
in anticipation of such prepayment, but without duplication of any amounts paid
under Section

                                       29


2.14(b). Each Lender shall deliver to the Borrower from time to time one or more
certificates setting forth the amount of such loss as determined by such Lender.

          (d)  Any partial prepayment of the Loans by the Borrower pursuant to
Sections 2.13 or 2.14 shall be applied as specified by the Borrower or, in the
absence of such specification, as determined by the Agent, PROVIDED that in the
latter case no Eurodollar Loans shall be prepaid pursuant to Section 2.13 to the
extent that such Loan has an Interest Period ending after the required date of
prepayment unless and until all outstanding ABR Loans and Eurodollar Loans with
Interest Periods ending on such date have been repaid in full.

     SECTION 2.15    RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES.

          (a)  Notwithstanding any other provision herein, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender of
the principal of or interest on any Eurodollar Loan made by such Lender or any
fees or other amounts payable hereunder (other than changes in respect of Taxes,
Other Taxes and taxes imposed on, or measured by, the net income or overall
gross receipts or franchise taxes of such Lender by the national jurisdiction in
which such Lender has its principal office or in which the applicable lending
office for such Eurodollar Loan is located or by any political subdivision or
taxing authority therein, or by any other jurisdiction or by any political
subdivision or taxing authority therein other than a jurisdiction in which such
Lender would not be subject to tax but for the execution and performance of this
Agreement), or shall impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of or credit extended by such Lender (except any such reserve
requirement which is reflected in the Adjusted LIBOR Rate) or shall impose on
such Lender or the London interbank market any other condition affecting this
Agreement or the Eurodollar Loans made by such Lender, and the result of any of
the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Loan or to reduce the amount of any sum received or
receivable by such Lender hereunder (whether of principal, interest or
otherwise) by an amount deemed by such Lender to be material, then the Borrower
will pay to such Lender in accordance with paragraph (c) below such additional
amount or amounts as will compensate such Lender for such additional costs
incurred or reduction suffered.

          (b)  If any Lender shall have determined that the adoption or
effectiveness after the date hereof of any law, rule, regulation or guideline
regarding capital adequacy, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any lending office of
such Lender) or any Lender's holding company with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on such Lender's capital or on the capital of such
Lender's holding company, if any, as a consequence of this Agreement, the Loans
made by such Lender pursuant hereto, such Lender's Commitment hereunder or the
issuance of, or participation in, any Letter of Credit by such Lender to a level
below that which such Lender or such Lender's holding company could have
achieved but for

                                       30


such adoption, change or compliance (taking into account Lender's policies and
the policies of such Lender's holding company with respect to capital adequacy)
by an amount deemed by such Lender to be material (except to the extent that
such amount is reflected in the Adjusted LIBOR Rate), then from time to time the
Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender or such Lender's holding company for any such reduction
suffered.

          (c)  A certificate of each Lender setting forth such amount or amounts
as shall be necessary to compensate such Lender or its holding company as
specified in paragraph (a) or (b) above, as the case may be, shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay each Lender the amount shown as due on any such certificate delivered
to it within 10 days after its receipt of the same. Any Lender receiving any
such payment shall promptly make a refund thereof to the Borrower if the law,
regulation, guideline or change in circumstances giving rise to such payment is
subsequently deemed or held to be invalid or inapplicable.

          (d)  Failure on the part of any Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Lender's right to demand compensation with respect to such period or any
other period, PROVIDED that the Borrower shall not be required to compensate a
Lender pursuant to this Section for any increased costs or reductions incurred
more than 270 days prior to the date that such Lender notifies the Borrower of
the circumstance giving rise to such increased costs or reductions and of such
Lender's intention to claim compensation therefor. The protection of this
Section shall be available to each Lender regardless of any possible contention
of the invalidity or inapplicability of the law, rule, regulation, guideline or
other change or condition which shall have occurred or been imposed.

     SECTION 2.16    CHANGE IN LEGALITY.

          (a)  Notwithstanding anything to the contrary contained elsewhere in
this Agreement, if (x) any change after the date of this Agreement in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration thereof shall make it unlawful for a Lender to
make or maintain a Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to a Eurodollar Loan or (y) at any time any
Lender determines that the making or continuance of any of its Eurodollar Loans
has become impracticable as a result of a contingency occurring after the date
hereof which adversely affects the London interbank market or the position of
such Lender in such market, then, by written notice to the Borrower, such Lender
may (i) declare that Eurodollar Loans will not thereafter be made by such Lender
hereunder, whereupon any request by the Borrower for a Eurodollar Borrowing
shall, as to such Lender only, be deemed a request for an ABR Loan unless such
declaration shall be subsequently withdrawn; and (ii) require that all
outstanding Eurodollar Loans made by it be converted to ABR Loans, in which
event all such Eurodollar Loans shall be automatically converted to ABR Loans as
of the effective date of such notice as provided in paragraph (b) below. In the
event any Lender shall exercise its rights under clause (i) or (ii) of this
paragraph (a), all payments and prepayments of principal which would otherwise
have been applied to repay the Eurodollar Loans that would have been made by
such Lender or the

                                       31


converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.

          (b)  For purposes of this Section 2.16, a notice to the Borrower by
any Lender pursuant to paragraph (a) above shall be effective, if lawful, and if
any Eurodollar Loans shall then be outstanding, on the last day of the
then-current Interest Period, otherwise, such notice shall be effective on the
date of receipt by the Borrower.

     SECTION 2.17    PRO RATA TREATMENT, ETC. All payments and repayments of
principal and interest in respect of the Loans (except as provided in Sections
2.15 and 2.16) shall be made PRO RATA among the Lenders in accordance with the
then outstanding principal amount of the Loans and/or participations in Letter
of Credit Outstandings hereunder and all payments of Commitment Fees and Letter
of Credit Fees (other than those payable to a Fronting Bank) shall be made PRO
RATA among the Lenders in accordance with their Commitments. All payments by the
Borrower hereunder shall be (i) net of any tax applicable to the Borrower or
Guarantor and (ii) made in Dollars in immediately available funds at the office
of the Agent by 12:00 noon, New York City time, on the date on which such
payment shall be due. Interest in respect of any Loan hereunder shall accrue
from and including the date of such Loan to but excluding the date on which such
Loan is paid in full or converted to a Loan of a different Type.

     SECTION 2.18    TAXES.

          (a)  Any and all payments by or on account of any obligation of the
Borrower hereunder shall be made free and clear of, and without deduction for,
any Indemnified Taxes or Other Taxes; PROVIDED that if the Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Agent, Lender or Fronting Bank (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.

          (b)  In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.

          (c)  The Borrower will indemnify the Agent, each Lender and the
Fronting Bank, within 10 days after written demand therefor, for the full amount
of any Indemnified Taxes or Other Taxes paid by the Agent, such Lender or the
Fronting Bank, as the case may be, on or with respect to any payment by or on
account of any obligation of the Borrower hereunder (including Indemnified Taxes
or Other Taxes imposed or asserted on or attributable to amounts payable under
this Section) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate as to the amount of such payment or
liability delivered to the Borrower by a Lender or the Fronting Bank, or by the
Agent on its own behalf or on behalf of a Lender or the Fronting Bank, shall be
conclusive absent manifest error.

                                       32


          (d)  As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Agent the original or a certified copy of a receipt issued by
such Governmental Authority evidencing such payment, a copy of the return
reporting such payment or other evidence of such payment reasonably satisfactory
to the Agent.

          (e)  Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement or any other Loan Document shall
deliver to the Borrower (with a copy to the Agent), at the time or times
prescribed by applicable law, such properly completed and executed documentation
prescribed by applicable law or reasonably requested by the Borrower as will
permit such payments to be made without withholding or at a reduced rate.

     SECTION 2.19    CERTAIN FEES. The Borrower shall pay to the Agent, for the
respective accounts of the Agent and the Lenders, the fees set forth in that
certain fee letter dated February 1, 2002 among the Agent, J.P. Morgan
Securities Inc. and the Borrower at the times set forth therein.

     SECTION 2.20    COMMITMENT FEE. The Borrower shall pay to the Lenders a
commitment fee (the "COMMITMENT FEE") for the period commencing on the Closing
Date to the Termination Date or the earlier date of termination of the
Commitment, computed (on the basis of the actual number of days elapsed over a
year of 360 days) at the rate of one-half of one percent (1/2%) per annum on the
average daily Unused Total Commitment. Such Commitment Fee, to the extent then
accrued, shall be payable (x) monthly, in arrears, on the last calendar day of
each month, (y) on the Termination Date and (z) as provided in Section 2.10
hereof, upon any reduction or termination in whole or in part of the Total
Commitment.

     SECTION 2.21    LETTER OF CREDIT FEES. The Borrower shall pay with respect
to each Letter of Credit (i) to the Agent on behalf of the Lenders a fee
calculated (on the basis of the actual number of days elapsed over a year of 360
days) at the rate of (x) three and one-half percent (3 1/2%) per annum on the
daily average Letter of Credit Outstandings and (ii) to the Fronting Bank such
Fronting Bank's customary fees for issuance, amendments and processing referred
to in Section 2.03. In addition, the Borrower agrees to pay each Fronting Bank
for its account a fronting fee of one quarter of one percent (1/4%) per annum in
respect of each Letter of Credit issued by such Fronting Bank, for the period
from and including the date of issuance of such Letter of Credit to and
including the date of termination of such Letter of Credit. Accrued fees
described in clause (i) of the first sentence of this paragraph in respect of
each Letter of Credit shall be due and payable monthly in arrears on the last
calendar day of each month and on the Termination Date. Accrued fees described
in clause (ii) of the first sentence of this paragraph in respect of each Letter
of Credit shall be payable at times to be determined by the Fronting Bank, the
Borrower and the Agent.

     SECTION 2.22    NATURE OF FEES. All Fees shall be paid on the dates due,
in immediately available funds, to the Agent for the respective accounts of the
Agent and the Lenders, as provided herein and in the fee letter described in
Section 2.19. Once paid, none of the Fees shall be refundable under any
circumstances.

                                       33


     SECTION 2.23    PRIORITY AND LIENS.

          (a)  The Borrower and each of the Guarantors hereby covenants,
represents and warrants that, upon entry of the Interim Order (and the Final
Order, as applicable), the Obligations of the Borrower and the Guarantors
hereunder and under the Loan Documents and in respect of Indebtedness owing to
JPMorgan Chase Bank and its banking Affiliates permitted by Section 6.03(vi):
(i) pursuant to Section 364(c)(1) of the Bankruptcy Code, shall at all times
constitute allowed administrative expense claims in the Cases having priority
over all administrative expenses of the kind specified in Sections 503(b) or
507(b) of the Bankruptcy Code; (ii) pursuant to Section 364(c)(2) of the
Bankruptcy Code, shall at all times be secured by a perfected first priority
Lien on all unencumbered property of the Borrower and the Guarantors' respective
estates in the Cases, including, without limitation, all accounts receivable,
inventory, property, plant and equipment of the Borrower and Guarantors
(excluding the Borrower's and the Guarantors' rights in respect of avoidance
actions under the Bankruptcy Code) and on all cash maintained in the Letter of
Credit Account and any direct investments of the funds contained therein; (iii)
pursuant to Section 364(c)(3) of the Bankruptcy Code, shall be secured by a
perfected Lien upon all property of the Borrower and the Guarantors (other than
the property that is subject to existing Liens that presently secure the
obligations of the Borrower and the Guarantors under the Existing Agreement, as
to which the Lien in favor of the Agent and the Lenders will be as described in
clause (iv) of this sentence) that is subject to valid, perfected and
non-avoidable Liens in existence on the Filing Date or to valid Liens in
existence on the Filing Date that are perfected subsequent to the Filing Date as
permitted by Section 546(b) of the Bankruptcy Code or to Permitted Liens, junior
to such valid, perfected and non-avoidable Liens; and (iv) pursuant to Section
364(d)(1) of the Bankruptcy Code, shall be secured by a perfected first
priority, senior priming Lien on all of the tangible and intangible property of
the Borrower and the Guarantors (including without limitation, accounts
receivable, inventory, patents, copyrights, trademarks, tradenames and all other
intellectual property, and the capital stock of all direct subsidiaries of the
Borrower and each Guarantor and the proceeds thereof) that is subject to
existing Liens that presently secure the Borrower's and the Guarantors'
pre-petition Indebtedness under the Existing Agreement (but subject to any Liens
in existence on the Filing Date to which the Liens being primed hereby are
subject or become subject subsequent to the Filing Date as permitted by Section
546(b) of the Bankruptcy Code) and any Liens granted after the Filing Date to
provide adequate protection in respect of the Existing Agreement, senior to all
of such Liens; PROVIDED, HOWEVER, the Borrower shall not be required to pledge
to the Agent in excess of 65% of the capital stock of its foreign Subsidiaries;
subject only to (x) in the event of the occurrence and during the continuance of
an Event of Default or an event that would constitute an Event of Default with
the giving of notice or lapse of time or both, the payment of allowed and unpaid
professional fees and disbursements incurred by the Borrower, the Guarantors and
any statutory committees appointed in the Cases in an aggregate amount not in
excess of $2,000,000 (plus all unpaid professional fees and disbursements
incurred prior to the occurrence of an Event of Default or an event that would
constitute an Event of Default with the giving of notice or lapse of time or
both and reflected on the most recent Borrowing Base Certificate delivered to
the Agent to the extent allowed by the Bankruptcy Court at any time) and (y) the
payment of unpaid fees pursuant to 28 U.S.C. Section 1930 and to the Clerk of
the Bankruptcy Court (collectively, the "CARVE-OUT"), PROVIDED that, except as
otherwise provided in the Orders, no portion of the Carve-Out shall be utilized
for the payment of professional fees and disbursements incurred in connection
with any challenge to the amount, extent, priority, validity,

                                       34


perfection or enforcement of the indebtedness of the Borrower and the Guarantors
owing to the Existing Lenders or the Lenders or to the collateral securing such
indebtedness. The Lenders agree that so long as no Event of Default or event
which with the giving of notice or lapse of time or both would constitute an
Event of Default shall have occurred, the Borrower and the Guarantors shall be
permitted to pay compensation and reimbursement of expenses allowed and payable
under 11 U.S.C. Sections 328, 330 and 331, as the same may be due and payable,
and the same shall not reduce the Carve-Out.

          (b)  Subject to the priorities set forth in subsection (a) above and
to the Carve-Out, as to all real property the title to which is held by the
Borrower or any of the Guarantors, or the possession of which is held by the
Borrower or any of the Guarantors pursuant to leasehold interest and which
secures the obligations under the Existing Agreement, the Borrower and each
Guarantor hereby assigns and conveys as security, grants a security interest in,
hypothecates, mortgages, pledges and sets over unto the Agent on behalf of the
Lenders all of the right, title and interest of the Borrower and such Guarantor
in all of such owned real property and in all such leasehold interests, together
in each case with all of the right, title and interest of the Borrower and such
Guarantor in and to all buildings, improvements, and fixtures related thereto,
any lease or sublease thereof, all general intangibles relating thereto and all
proceeds thereof. The Borrower and each Guarantor acknowledges that, pursuant to
the Orders, the Liens in favor of the Agent on behalf of the Lenders in all of
such real property and leasehold instruments shall be perfected without the
recordation of any instruments of mortgage or assignment. The Borrower and each
Guarantor further agree that, upon the request of the Agent, the Borrower and
such Guarantor shall enter into separate fee and leasehold mortgages in
recordable form with respect to such properties on terms reasonably satisfactory
to the Agent.

     SECTION 2.24    RIGHT OF SET-OFF. Subject to the provisions of
Section 7.01, upon the occurrence and during the continuance of any Event of
Default, the Agent and each Lender is hereby authorized at any time and from
time to time, to the fullest extent permitted by law and without further order
of or application to the Bankruptcy Court, to set off and apply any and all
deposits (general or special, time or demand, provisional or final but excluding
deposits designated as payroll accounts and any trust accounts) at any time held
and other indebtedness at any time owing by the Agent and each such Lender to or
for the credit or the account of the Borrower or any Guarantor against any and
all of the obligations of such Borrower or Guarantor now or hereafter existing
under the Loan Documents, irrespective of whether or not such Lender shall have
made any demand under any Loan Document and although such obligations may not
have been accelerated. Each Lender and the Agent agrees promptly to notify the
Borrower and Guarantors after any such set-off and application made by such
Lender or by the Agent, as the case may be, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Lender and the Agent under this Section are in addition to other
rights and remedies which such Lender and the Agent may have upon the occurrence
and during the continuance of any Event of Default.

     SECTION 2.25    SECURITY INTEREST IN LETTER OF CREDIT ACCOUNT. Pursuant to
Section 364(c)(2) of the Bankruptcy Code, the Borrower and the Guarantors hereby
assign and pledge to the Agent, for its benefit and for the ratable benefit of
the Lenders, and hereby grant to the Agent, for its benefit and for the ratable
benefit of the Lenders, a first priority security interest, senior to all other
Liens, if any, in all of the Borrower's and the Guarantors' right, title and

                                       35


interest in and to the Letter of Credit Account and any direct investment of the
funds contained therein. Cash held in the Letter of Credit Account shall not be
available for use by the Borrower, whether pursuant to Section 363 of the
Bankruptcy Code or otherwise and shall be released to the Borrower as described
in clause (ii)(y) of Section 2.03(b).

     SECTION 2.26    PAYMENT OF OBLIGATIONS. Subject to the provisions of
Section 7.01, upon the maturity (whether by acceleration or otherwise) of any of
the Obligations under this Agreement or any of the other Loan Documents of the
Borrower and the Guarantors, the Lenders shall be entitled to immediate payment
of such Obligations without further application to or order of the Bankruptcy
Court.

     SECTION 2.27    NO DISCHARGE; SURVIVAL OF CLAIMS. Each of the Borrower and
the Guarantors agrees that (i) its obligations hereunder shall not be discharged
by the entry of an order confirming a Reorganization Plan (and each of the
Borrower and the Guarantors, pursuant to Section 1141(d)(4) of the Bankruptcy
Code, hereby waives any such discharge) and (ii) the Superpriority Claim granted
to the Agent and the Lenders pursuant to the Orders and described in Section
2.23 and the Liens granted to the Agent pursuant to the Orders and described in
Sections 2.23 and 2.25 shall not be affected in any manner by the entry of an
order confirming a Reorganization Plan.

     SECTION 2.28    USE OF CASH COLLATERAL. Notwithstanding anything to the
contrary contained herein, the Borrower shall not be permitted (i) to request a
Borrowing under Section 2.06 or request the issuance of a Letter of Credit under
Section 2.04 unless the Bankruptcy Court shall have entered the Interim Order or
(ii) to request a Borrowing under Section 2.06 unless the Borrower and the
Guarantors shall at that time have the use of all cash collateral subject to the
Orders for the purposes described in Section 3.09.

SECTION 3.   REPRESENTATIONS AND WARRANTIES

          In order to induce the Lenders to make Loans and issue and/or
participate in Letters of Credit hereunder, the Borrower and each of the
Guarantors jointly and severally represent and warrant as follows:

     SECTION 3.01    ORGANIZATION AND AUTHORITY. Each of the Borrower and the
Guarantors (i) is a corporation duly organized and validly existing under the
laws of the State of its incorporation and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which the failure to
so qualify would have a material adverse effect on the financial condition,
operations, business, properties, assets or prospects of the Borrower and the
Guarantors taken as a whole; (ii) subject to the entry by the Bankruptcy Court
of the Interim Order (or the Final Order, when applicable) has the requisite
corporate power and authority to effect the transactions contemplated hereby,
and by the other Loan Documents to which it is a party, and (iii) subject to the
entry by the Bankruptcy Court of the Interim Order (or the Final Order, when
applicable) has all requisite corporate power and authority and the legal right
to own, pledge, mortgage and operate its properties, and to conduct its business
as now or currently proposed to be conducted.

                                       36


     SECTION 3.02    DUE EXECUTION. Upon the entry by the Bankruptcy Court of
the Interim Order (or the Final Order, when applicable), the execution, delivery
and performance by each of the Borrower and the Guarantors of each of the Loan
Documents to which it is a party (i) are within the respective corporate powers
of each of the Borrower and the Guarantors, have been duly authorized by all
necessary corporate action including the consent of shareholders where required,
and do not (A) contravene the charter or by-laws of any of the Borrower or the
Guarantors, (B) violate any law (including, without limitation, the Securities
Exchange Act of 1934) or regulation (including, without limitation, Regulations
T, U or X of the Board of Governors of the Federal Reserve System), or any order
or decree of any court or Governmental Authority, (C) conflict with or result in
a breach of, or constitute a default under, any material indenture, mortgage or
deed of trust entered into after the Filing Date or any material lease,
agreement or other instrument entered into after the Filing Date binding on the
Borrower or the Guarantors or any of their properties, or (D) result in or
require the creation or imposition of any Lien upon any of the property of any
of the Borrower or the Guarantors other than the Liens granted pursuant to this
Agreement, the other Loan Documents or the Orders; and (ii) do not require the
consent, authorization by or approval of or notice to or filing or registration
with any Governmental Authority other than the entry of the Orders. Upon the
entry by the Bankruptcy Court of the Interim Order (or the Final Order, when
applicable), this Agreement has been duly executed and delivered by each of the
Borrower and the Guarantors. This Agreement is, and each of the other Loan
Documents to which the Borrower and each of the Guarantors is or will be a
party, when delivered hereunder or thereunder, will be, a legal, valid and
binding obligation of the Borrower and each Guarantor, as the case may be,
enforceable against the Borrower and the Guarantors, as the case may be, in
accordance with its terms and the Orders.

     SECTION 3.03    STATEMENTS MADE. The information that has been prepared by
or at the request of the Borrower or any Guarantor and delivered in writing by
the Borrower or any of the Guarantors to the Agent or to the Bankruptcy Court in
connection with any Loan Document, and any financial statement delivered
pursuant hereto or thereto (other than to the extent that any such statements
constitute projections), taken as a whole and in light of the circumstances in
which made, contains no untrue statement of a material fact and does not omit to
state a material fact necessary to make such statements not misleading; and, to
the extent that any such information constitutes projections, such projections
were prepared in good faith on the basis of assumptions, methods, data, tests
and information believed by the Borrower or such Guarantor to be reasonable at
the time such projections were furnished.

     SECTION 3.04    FINANCIAL STATEMENTS. The Borrower has furnished the
Lenders with copies of the audited consolidated financial statements and
schedules of the Borrower for the fiscal year ended December 29, 2001. Such
financial statements present fairly, in accordance with GAAP, the financial
condition and results of operations of the Borrower and the Guarantors on a
consolidated basis as of such date and for such period; such balance sheets and
the notes thereto disclose all liabilities, direct or contingent, of the
Borrower and the Guarantors as of the date thereof required to be disclosed by
GAAP and such financial statements were prepared in a manner consistent with
GAAP. Except as reflected on Schedule 3.04, no material adverse change in the
operations, business, properties, assets, prospects or condition (financial or
otherwise) of the Borrower and the Guarantors, taken as a whole, has occurred
from that set forth in the Borrower's consolidated financial statements for the
fiscal year ended December 29, 2001 other than those which customarily occur as
a result of events leading up to and following the

                                       37


commencement of a proceeding under Chapter 11 of the Bankruptcy Code and the
commencement of the Cases (including, without limitation, those reflected in the
financial projections heretofore made available to the Agent).

     SECTION 3.05    OWNERSHIP. Other than as set forth on Schedule 3.05, (i)
each of the Persons listed on Schedule 3.05 is a wholly-owned, direct or
indirect Subsidiary of the Borrower, and (ii) the Borrower owns no other
Subsidiaries, whether directly or indirectly. Each of the Borrower's domestic
Subsidiaries is a Guarantor.

     SECTION 3.06    LIENS. Except for Liens existing on the Filing Date as
reflected on Schedule 3.06, there are no Liens of any nature whatsoever on any
assets of the Borrower or any of the Guarantors other than: (i) Liens granted
pursuant to the Existing Agreement; (ii) Permitted Liens; (iii) other Liens
permitted pursuant to Section 6.01; and (iv) Liens in favor of the Agent and the
Lenders. Neither the Borrower nor the Guarantors are parties to any contract,
agreement, lease or instrument the performance of which, either unconditionally
or upon the happening of an event, will result in or require the creation of a
Lien on any assets of the Borrower or any Guarantor or otherwise result in a
violation of this Agreement other than the Liens granted to the Agent and the
Lenders as provided for in this Agreement.

     SECTION 3.07    COMPLIANCE WITH LAW.

          (a)  Except for matters which could not reasonably be expected to have
a material adverse effect on the financial condition, operations, business,
properties, assets or prospects of the Borrower and the Guarantors taken as a
whole (i) the operations of the Borrower and the Guarantors comply in all
material respects with all applicable environmental, health and safety statutes
and regulations, including, without limitation, regulations promulgated under
the Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 ET SEQ.);
(ii) to the Borrower's and each of the Guarantor's knowledge, none of the
operations of the Borrower or the Guarantors is the subject of any Federal or
state investigation evaluating whether any remedial action involving a material
expenditure by the Borrower or any Guarantor is needed to respond to a release
of any Hazardous Waste or Hazardous Substance (as such terms are defined in any
applicable state or Federal environmental law or regulations) into the
environment; and (iii) to the Borrower's and each of the Guarantor's knowledge,
the Borrower and the Guarantors do not have any material contingent liability in
connection with any release of any Hazardous Waste or Hazardous Substance into
the environment.

          (b)  Neither the Borrower nor any Guarantor is, to the best of its
knowledge, in violation of any law, rule or regulation, or in default with
respect to any judgment, writ, injunction or decree of any Governmental
Authority the violation of which, or a default with respect to which, would have
a material adverse effect on the financial condition, operations, business,
properties, assets or prospects of the Borrower and the Guarantors taken as a
whole.

     SECTION 3.08    INSURANCE. All policies of insurance of any kind or nature
owned by or issued to the Borrower and the Guarantors, including, without
limitation, policies of life, fire, theft, product liability, public liability,
property damage, other casualty, employee fidelity, workers' compensation,
employee health and welfare, title, property and liability insurance, are

                                       38


in full force and effect and are of a nature and provide such coverage as is
customarily carried by companies of the size and character of the Borrower and
the Guarantors.

     SECTION 3.09    USE OF PROCEEDS. The proceeds of the Loans shall be used
for general corporate purposes of the Borrower and the Guarantors (including, to
the extent  permitted under Section 6.10, for loans and advances to Subsidiaries
not party hereto).

     SECTION 3.10    LITIGATION. Other than as set forth on Schedule 3.10, there
are no unstayed actions, suits or proceedings pending or, to the knowledge of
the Borrower or the Guarantors, threatened against or affecting the Borrower or
the Guarantors or any of their respective properties, before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which is reasonably likely to be determined adversely to
the Borrower or the Guarantors and, if so determined adversely to the Borrower
or the Guarantors would have a material adverse effect on the financial
condition, business, properties, prospects, operations or assets of the Borrower
and the Guarantors, taken as a whole.

SECTION 4.   CONDITIONS OF LENDING

     SECTION 4.01    CONDITIONS PRECEDENT TO INITIAL LOANS AND INITIAL LETTERS
OF CREDIT. The obligation of the Lenders to make the initial Loans or the
Fronting Bank to issue the initial Letter of Credit, whichever may occur first,
is subject to the following conditions precedent:

          (a)  SUPPORTING DOCUMENTS. The Agent shall have received for each of
the Borrower and the Guarantors:

               (i)    a copy of such entity's certificate of incorporation, as
amended, certified as of a recent date by the Secretary of State of the state of
its incorporation;

               (ii)   a certificate of such Secretary of State, dated as of a
recent date, as to the good standing of and payment of taxes by that entity and
as to the charter documents on file in the office of such Secretary of State;
and

               (iii)  a certificate of the Secretary or an Assistant Secretary
of that entity dated the date of the initial Loans or the initial Letter of
Credit hereunder, whichever first occurs, and certifying (A) that attached
thereto is a true and complete copy of the by-laws of that entity as in effect
on the date of such certification, (B) that attached thereto is a true and
complete copy of resolutions adopted by the Board of Directors of that entity
authorizing the Borrowings and Letter of Credit extensions hereunder, the
execution, delivery and performance in accordance with their respective terms of
this Agreement, the Loan Documents and any other documents required or
contemplated hereunder or thereunder and the granting of the security interest
in the Letter of Credit Account and other Liens contemplated hereby, (C) that
the certificate of incorporation of that entity has not been amended since the
date of the last amendment thereto indicated on the certificate of the Secretary
of State furnished pursuant to clause (i) above and (D) as to the incumbency and
specimen signature of each officer of that entity executing this Agreement and
the Loan Documents or any other document delivered by it in connection herewith
or therewith (such certificate to contain a certification by another officer of
that entity as to the incumbency and signature of the officer signing the
certificate referred to in this clause (iii)).

                                       39


          (b)  INTERIM ORDER. At the time of the making of the initial Loans or
at the time of the issuance of the initial Letters of Credit, whichever first
occurs, the Agent and the Lenders shall have received satisfactory evidence of
the entry of an order of the Bankruptcy Court in substantially the form of
Exhibit A (the "INTERIM ORDER") approving the Loan Documents and granting the
Superpriority Claim status and senior priming and other Liens described in
Section 2.23 which Interim Order (i) shall have been entered, with the consent
or non-objection of a preponderance (as determined by the Agent) of the Existing
Lenders, upon an application or motion of the Borrower reasonably satisfactory
in form and substance to the Agent, on such prior notice to such parties
(including the Existing Lenders) as may in each case be reasonably satisfactory
to the Agent, (ii) shall authorize extensions of credit in amounts not in excess
of $25,000,000 in the aggregate, (iii) shall approve the payment by the Borrower
of all of the Fees referred to in Section 2.19, (iv) shall be in full force and
effect, (v) shall have authorized the use by the Borrower and the Guarantors of
any cash collateral in which any Existing Lender under the Existing Agreement
may have an interest and shall have provided, as adequate protection for the use
of such cash collateral and the priming contemplated hereby, for (A) the monthly
payment of current interest and letter of credit fees (including the payment on
the Closing Date of any such interest and fees that are accrued and unpaid as of
the Filing Date) at the rates at which such interest and fees were being paid
pursuant to the Existing Agreement for the period immediately prior to the
Filing Date (the payments described in this clause to be without prejudice to
the rights of any Existing Lender to assert a claim for the payment of
additional interest and letters of credit fees calculated at any other
applicable rates of interest (including, without limitation, at any default
rates), or on any other basis, set forth in the Existing Agreement or to the
rights of the Borrower to contest such assertion), (B) a superpriority claim as
contemplated by Section 507(b) of the Bankruptcy Code immediately junior to the
claims under Section 364(c)(1) of the Bankruptcy Code held by the Agent and the
Lenders (without the requirement to file any motion or pleading or to make any
demand), (C) a Lien on substantially all of the assets of the Borrower and the
Guarantors having a priority immediately junior to the priming and other Liens
granted in favor of the Agent and the Lenders hereunder and under the other Loan
Documents, (D) the payment on a current and monthly basis of the fees and
disbursements of respective professionals (including, but not limited to, the
fees and disbursements of counsel and internal and third-party consultants,
including financial consultants, and auditors) for the Pre-Petition Agent
(including the payment on the Closing Date or as soon thereafter as is
practicable of any unpaid pre-petition fees and expenses) and the continuation
of the payment to the Pre-Petition Agent on a current basis of the
administration fees that are provided for under the Existing Agreement, (E)
pending the entry of the Final Order, the receipt of a weekly budget showing the
Borrower's use of cash collateral in which any Existing Lender under the
Existing Agreement may have an interest, (F) reasonable access during normal
business hours by Alvarez and Marsal ("A&M"), or any successor advisor as the
representative of the Pre-Petition Agent, to all documentation, places of
business, officers, consultants and employees of the Borrower, (G) receipt of
such financial information concerning the Borrower and the Guarantors' cash
flow, business plan and other aspects of its operations as A&M or such successor
may reasonably request from time to time, all without material disruption to the
operation of the business of any of the Borrower or the Guarantors, and (H) the
receipt of all financial statements, borrowing base certificates and other
reports that are furnished to the Lenders and such other protection as agreed
between the Borrower, the Guarantors and the Existing Lenders; and (vi) shall
not have been vacated, stayed, reversed, modified or amended in

                                       40


any respect; and, if the Interim Order is the subject of a pending appeal in any
respect, neither the making of such Loans nor the issuance of such Letter of
Credit nor the performance by the Borrower or any of the Guarantors of any of
their respective obligations hereunder or under the Loan Documents or under any
other instrument or agreement referred to herein shall be the subject of a
presently effective stay pending appeal.

          (c)  SECURITY AND PLEDGE AGREEMENT. The Borrower and each of the
Guarantors shall have duly executed and delivered to the Agent a Security and
Pledge Agreement in substantially the form of Exhibit B (the "SECURITY AND
PLEDGE AGREEMENT").

          (d)  FIRST DAY ORDERS. All of the "first day orders" entered by the
Bankruptcy Court at the time of the commencement of the Cases shall be
reasonably satisfactory in form and substance to the Agent.

          (e)  OPINION OF COUNSEL. The Agent and the Lenders shall have received
the favorable written opinion of counsel to the Borrower and the Guarantors
reasonably acceptable to the Agent, dated the date of the initial Loans or the
issuance of the initial Letter of Credit, whichever first occurs, substantially
in the form of Exhibit C.

          (f)  PAYMENT OF FEES. The Borrower shall have paid to the Agent the
then unpaid balance of all accrued and unpaid Fees due under and pursuant to
this Agreement and the letter referred to in Section 2.19.

          (g)  CORPORATE AND JUDICIAL PROCEEDINGS. All corporate and judicial
proceedings and all instruments and agreements in connection with the
transactions among the Borrower, the Guarantors, the Agent and the Lenders
contemplated by this Agreement shall be reasonably satisfactory in form and
substance to the Agent, and the Agent shall have received all information and
copies of all documents and papers, including records of corporate and judicial
proceedings, which the Agent may have reasonably requested in connection
therewith, such documents and papers where appropriate to be certified by proper
corporate, governmental or judicial authorities.

          (h)  INFORMATION. The Agent shall have received such information
(financial or otherwise) as may be reasonably requested by the Agent and shall
have discussed the Borrower's business plan heretofore delivered to the Agent
with the Borrower's management and shall be reasonably satisfied with the nature
and substance of such discussions.

          (i)  BUSINESS PLAN. The Agent shall have received from the Borrower
the Borrower's business plans, consolidated and by division, for the period
ending on the Maturity Date and such business plans shall be satisfactory in
form and substance to the Agent (and the Agent acknowledges that it has
heretofore received such business plans).

          (j)  COMPLIANCE WITH LAWS. The Borrower and the Guarantors shall have
granted the Agent access to and the right to inspect all reports, audits and
other internal information of the Borrower and the Guarantors relating to
environmental matters, and any third party verification of certain matters
relating to compliance with environmental laws and regulations reasonably
requested by the Agent, and the Agent shall be reasonably satisfied that the
Borrower and the Guarantors are in compliance in all material respects with all
applicable

                                       41


environmental laws and regulations and the Borrower has made adequate provision
for the costs of maintaining such compliance.

          (k)  UCC SEARCHES. The Agent shall have received UCC searches
(including tax liens and judgments) conducted in the jurisdictions in which the
Borrower and the Guarantors conduct business (dated as of a date reasonably
satisfactory to the Agent), reflecting the absence of Liens and encumbrances on
the assets of the Borrower and the Guarantors other than Liens granted or
permitted under the Existing Agreement and such other Liens as may be reasonably
satisfactory to the Agent.

          (l)  CLOSING DOCUMENTS. The Agent shall have received all documents
required by Section 4.01 reasonably satisfactory in form and substance to the
Agent.

     SECTION 4.02    CONDITIONS PRECEDENT TO EACH LOAN AND EACH LETTER OF
CREDIT. The obligation of the Lenders to make each Loan and of the Fronting Bank
to issue each Letter of Credit, including the initial Loan and the initial
Letter of Credit, is subject to the following conditions precedent:

          (a)  NOTICE. The Agent shall have received a notice with respect to
such borrowing or issuance, as the case may be, as required by Section 2.

          (b)  REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement and the other Loan Documents shall be
true and correct in all material respects on and as of the date of each
Borrowing or the issuance of each Letter of Credit hereunder with the same
effect as if made on and as of such date except to the extent such
representations and warranties expressly relate to an earlier date.

          (c)  NO DEFAULT. On the date of each Borrowing hereunder or the
issuance of each Letter of Credit, no Event of Default or event which upon
notice or lapse of time or both would constitute an Event of Default shall have
occurred and be continuing.

          (d)  ORDERS. The Interim Order shall be in full force and effect and
shall not have been stayed, reversed, modified or amended in any respect without
the prior written consent of the Agent, the Required Lenders and the
Pre-Petition Agent, PROVIDED, that at the time of the making of any Loan or the
issuance of any Letter of Credit the aggregate amount of either of which, when
added to the sum of the principal amount of all Loans then outstanding and the
Letter of Credit Outstandings, would exceed the amount authorized by the Interim
Order (collectively, the "ADDITIONAL CREDIT"), the Agent and each of the Lenders
shall have received satisfactory evidence of the entry of an order of the
Bankruptcy Court in substantially the form of the Interim Order (with only such
modifications thereto as are satisfactory in form and substance to the Agent)
(the "FINAL ORDER") which, in any event, shall have been entered by the
Bankruptcy Court no later than thirty (30) days after the entry of the Interim
Order and at the time of the extension of any Additional Credit the Final Order
shall be in full force and effect, and shall not have been vacated, stayed,
reversed, modified or amended in any respect without the prior written consent
of the Agent, and the Required Lenders and the Pre-Petition Agent; and if either
the Interim Order or the Final Order is the subject of a pending appeal in any
respect, neither the making of the Loans nor the issuance of any Letter of
Credit nor the performance by the

                                       42


Borrower or any Guarantor of any of their respective obligations under any of
the Loan Documents shall be the subject of a presently effective stay pending
appeal.

          (e)  PAYMENT OF FEES. The Borrower shall have paid to the Agent and
the Pre-Petition Agent the then unpaid balance of all accrued and unpaid Fees
then payable under and pursuant to this Agreement, the Orders and the letter
referred to in Section 2.19.

          (f)  BORROWING BASE CERTIFICATE. The Agent shall have received the
timely delivery of the most recent Borrowing Base Certificate (dated no more
than seven (7) days prior to the making of a Loan or the issuance of a Letter of
Credit) required to be delivered hereunder.

The request by the Borrower for, and the acceptance by the Borrower of, each
extension of credit hereunder shall be deemed to be a representation and
warranty by the Borrower that the conditions specified in this Section have been
satisfied or waived at that time.

SECTION 5.   AFFIRMATIVE COVENANTS

          From the date hereof and for so long as any Commitment shall be in
effect or any Letter of Credit shall remain outstanding (in a face amount in
excess of the amount of cash then held in the Letter of Credit Account, or in
excess of the face amount of back-to-back letters of credit delivered, in each
case pursuant to Section 2.03(b)), or any amount shall remain outstanding or
unpaid under this Agreement, the Borrower and each of the Guarantors agree that,
unless the Required Lenders shall otherwise consent in writing, the Borrower and
each of the Guarantors will:

     SECTION 5.01    FINANCIAL STATEMENTS, REPORTS, ETC. In the case of the
Borrower and the Guarantors, deliver to the Agent and each of the Lenders:

          (a)  on or before April 23, 2002 for the fiscal year ended December
30, 2001 and within 90 days after the end of each subsequent fiscal year, the
Borrower's consolidated balance sheet and related statement of income and cash
flows, showing the financial condition of the Borrower and its Subsidiaries on a
consolidated basis as of the close of such fiscal year and the results of their
respective operations during such year, the consolidated statement of the
Borrower to be audited for the Borrower and the Subsidiaries by Ernst & Young
LLP or other independent public accountants of recognized national standing and
accompanied by an opinion of such accountants (which shall not be qualified in
any material respect other than with respect to the Cases or a going concern
qualification) and to be certified by a Financial Officer of the Borrower to the
effect that such consolidated financial statements fairly present the financial
condition and results of operations of the Borrower and the Subsidiaries on a
consolidated basis in accordance with GAAP;

          (b)  within 45 days after the end of each of the first three fiscal
quarters, the Borrower's consolidated balance sheets and related statements of
income and cash flows, showing the financial condition of the Borrower and its
Subsidiaries on a consolidated basis as of the close of such fiscal quarter and
the results of their operations during such fiscal quarter and the then elapsed
portion of the fiscal year, each certified by a Financial Officer as fairly
presenting the financial condition and results of operations of the Borrower and
its Subsidiaries on a consolidated basis in accordance with GAAP, subject to
normal year-end audit adjustments;

                                       43


          (c)  commencing with the first fiscal month following the Closing
Date, as soon as practicable, but in no event later than 30 days after the end
of each fiscal month of the Borrower (unless such monthly fiscal period ends at
the end of a fiscal quarter, in which case the financial statements required to
be delivered pursuant to this clause (c) may be delivered within 45 days after
the end of such fiscal month) (i) monthly unaudited balance sheets of the
Borrower and its Subsidiaries and related statements of earnings and cash flows
of the Borrower and its Subsidiaries for the prior fiscal month, each certified
by a Financial Officer of the Borrower and (ii) a monthly report detailing
professional fees and expenses that have been billed and paid or billed but
unpaid to date, the accumulated "hold-back" of professional fees and expenses to
date, material adverse events or changes (if any) and material litigation (if
any);

          (d)  (i) concurrently with any delivery of financial statements under
(a) and (b) above, a certificate of the Financial Officer certifying such
statements (A) certifying that no Event of Default or event which upon notice or
lapse of time or both would constitute an Event of Default has occurred, or, if
such an Event of Default or event has occurred, specifying the nature and extent
thereof and any corrective action taken or proposed to be taken with respect
thereto and (B) setting forth computations in reasonable detail satisfactory to
the Agent demonstrating compliance with the provisions of Sections 6.04, 6.05
and 6.10 and (ii) concurrently with any delivery of financial statements under
(a) above, a certificate (which certificate may be limited to accounting matters
and disclaim responsibility for legal interpretations) of the accountants
auditing the consolidated financial statements delivered under (a) above
certifying that, in the course of the regular audit of the business of the
Borrower and its Subsidiaries, such accountants have obtained no knowledge that
an Event of Default has occurred and is continuing, or if, in the opinion of
such accountants, an Event of Default has occurred and is continuing, specifying
the nature thereof and all relevant facts with respect thereto;

          (e)  as soon as possible, and in any event when the Borrower's and the
Guarantor's statement of financial affairs and schedules of asset and
liabilities are required to be filed with the Bankruptcy Court (but no later
than 45 days after the Closing Date or such later date to which the Bankruptcy
Court extends the filing thereof), a consolidated PRO FORMA balance sheet of the
Borrower's and the Guarantors' financial condition as of the Filing Date;

          (f)  not later than 5:00 p.m. New York time on the first Thursday
following the Filing Date and on each Thursday thereafter, the Borrower's and
the Subsidiaries' forecast of cash receipts and disbursements for the ensuing
13-week period together with a reconciliation of such forecasted cash flows to
actual results;

          (g)  promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by it
with the Securities and Exchange Commission, or any governmental authority
succeeding to any of or all the functions of said commission, or with any
national securities exchange, as the case may be;

          (h)  as soon as available and in any event (A) within 30 days after
the Borrower or any of its ERISA Affiliates knows or has reason to know that any
Termination Event described in clause (i) of the definition of Termination Event
with respect to any Single Employer Plan of the Borrower or such ERISA Affiliate
has occurred and (B) within 10 days

                                       44


after the Borrower or any of its ERISA Affiliates knows or has reason to know
that any other Termination Event with respect to any such Plan has occurred, a
statement of a Financial Officer of the Borrower describing the full details of
such Termination Event and the action, if any, which the Borrower or such ERISA
Affiliate is required or proposes to take with respect thereto, together with
any notices required or proposed to be given to or filed with or by the
Borrower, the ERISA Affiliate, the PBGC, a Plan participant or the Plan
administrator with respect thereto;

          (i)  promptly and in any event within 10 days after receipt thereof by
the Borrower or any of its ERISA Affiliates from the PBGC copies of each notice
received by the Borrower or any such ERISA Affiliate of the PBGC's intention to
terminate any Single Employer Plan of the Borrower or such ERISA Affiliate or to
have a trustee appointed to administer any such Plan;

          (j)  if requested by the Agent, promptly and in any event within 30
days after the filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with
respect to each Single Employer Plan of the Borrower or any of its ERISA
Affiliates;

          (k)  within 10 days after notice is given or required to be given to
the PBGC under Section 302(f)(4)(A) of ERISA of the failure of the Borrower or
any of its ERISA Affiliates to make timely payments to a Plan, a copy of any
such notice filed and a statement of a Financial Officer of the Borrower setting
forth (A) sufficient information necessary to determine the amount of the lien
under Section 302(f)(3), (B) the reason for the failure to make the required
payments and (C) the action, if any, which the Borrower or any of its ERISA
Affiliates proposed to take with respect thereto;

          (l)  promptly and in any event within 10 days after receipt thereof by
the Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor, a copy of
each notice received by the Borrower or any ERISA Affiliate concerning (A) the
imposition of Withdrawal Liability by a Multiemployer Plan, (B) the
determination that a Multiemployer Plan is, or is expected to be, in
reorganization within the meaning of Title IV of ERISA, (C) the termination of a
Multiemployer Plan within the meaning of Title IV of ERISA, or (D) the amount of
liability incurred, or which may be incurred, by the Borrower or any ERISA
Affiliate in connection with any event described in clause (A), (B) or (C)
above;

          (m)  promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of the Borrower or any
Guarantor, or compliance with the terms of any material loan or financing
agreements as the Agent, at the request of any Lender, may reasonably request;
and

          (n)  furnish to the Agent and its counsel promptly after the same is
available, copies of all pleadings, motions, applications, judicial information,
financial information and other documents filed by or on behalf of the Borrower
or any of the Guarantors with the Bankruptcy Court in the Cases, or distributed
by or on behalf of the Borrower or any of the Guarantors to any official
committee appointed in the Cases.

                                       45


     SECTION 5.02    CORPORATE EXISTENCE. Preserve and maintain in full force
and effect all governmental rights, privileges, qualifications, permits,
licenses and franchises necessary or desirable in the normal conduct of its
business except (i)(A) if in the reasonable business judgment of the Borrower it
is no longer necessary for the Borrower and the Guarantors to preserve and
maintain such rights, privileges, qualifications, permits, licenses and
franchises, and (B) such failure to preserve the same could not, in the
aggregate, reasonably be expected to have a material adverse effect on the
operations, business, properties, assets, prospects or condition (financial or
otherwise) of the Borrower and the Guarantors, taken as a whole, and (ii) as
otherwise permitted in connection with sales of assets permitted by Section
6.11.

     SECTION 5.03    INSURANCE. (a) Keep its insurable properties insured at all
times, against such risks, including fire and other risks insured against by
extended coverage, as is customary with companies of the same or similar size in
the same or similar businesses; and maintain in full force and effect public
liability insurance against claims for personal injury or death or property
damage occurring upon, in, about or in connection with the use of any properties
owned, occupied or controlled by the Borrower or any Guarantor, as the case may
be, in such amounts (giving effect to self-insurance) and with such deductibles
as are customary with companies of the same or similar size in the same or
similar businesses and in the same geographic area; and (b) maintain such other
insurance or self insurance as may be required by law.

     SECTION 5.04    OBLIGATIONS AND TAXES. With respect to the Borrower and
each Guarantor, pay all its material obligations arising after the Filing Date
promptly and in accordance with their terms and pay and discharge promptly all
material taxes, assessments and governmental charges or levies imposed upon it
or upon its income or profits or in respect of its property arising after the
Filing Date, as well as all material lawful claims for labor, materials and
supplies or otherwise arising after the Filing Date which, if unpaid, would
become a Lien or charge upon such properties or any part thereof, before the
same shall become in default; provided, however, that the Borrower and each
Guarantor shall not be required to pay and discharge or to cause to be paid and
discharged any such obligation, tax, assessment, charge, levy or claim so long
as the validity or amount thereof shall be contested in good faith by
appropriate proceedings (if the Borrower and the Guarantors shall have set aside
on their books adequate reserves therefor).

     SECTION 5.05    NOTICE OF EVENT OF DEFAULT, ETC. Promptly give to the Agent
notice in writing of any Event of Default or the occurrence of any event or
circumstance which with the passage of time or giving of notice or both would
constitute an Event of Default.

     SECTION 5.06    ACCESS TO BOOKS AND RECORDS. Maintain or cause to be
maintained at all times true and complete books and records in a manner
consistent with GAAP of the financial operations of the Borrower and the
Guarantors; and provide the Agent and its representatives access to all such
books and records during regular business hours, in order that the Agent may
upon reasonable prior notice examine and make abstracts from such books,
accounts, records and other papers for the purpose of verifying the accuracy of
the various reports delivered by the Borrower or the Guarantors to the Agent or
the Lenders pursuant to this Agreement or for otherwise ascertaining compliance
with this Agreement; and at any reasonable time and from time to time during
regular business hours, upon reasonable notice, permit the Agent and any

                                       46


agents or representatives (including, without limitation, appraisers) thereof to
visit the properties of the Borrower and the Guarantors and to conduct
examinations of and to monitor the Collateral held by the Agent.

     SECTION 5.07    MAINTENANCE OF CONCENTRATION ACCOUNT. Continue to maintain
with the Agent an account or accounts to be used by the Borrower and the
Guarantors as their principal concentration account for day-to-day operations
conducted by the Borrower and the Guarantors.

     SECTION 5.08    BORROWING BASE CERTIFICATE. Furnish to the Agent as soon as
available and in any event (a) prior to the making of the initial Loans or the
issuance of the initial Letter of Credit and thereafter on or before Thursday of
each week, a weekly Borrowing Base Certificate, which weekly Borrowing Base
Certificate shall reflect (i) the accounts receivable updated as of the last day
of the immediately preceding week (and in the case of the first Borrowing Base
Certificate so delivered, as of the Filing Date) and (ii) Inventory, as of the
end of the immediately preceding month, which shall be updated as of the
fifteenth (15th) day of each month, with supporting documentation to be received
no later than one Business Day thereafter (including, without limitation, the
documentation described on Schedule 1 to Exhibit E); (b) if requested by the
Agent at any other time when the Agent reasonably believes that the then
existing Borrowing Base Certificate is materially inaccurate, as soon as
reasonably available but in no event later than five (5) Business Days after
such request, a Borrowing Base Certificate showing the Borrowing Base as of the
date of the last Borrowing Base Certificate delivered pursuant to clause (i)
above, with supporting documentation to be received no later than one Business
Day thereafter (including, without limitation, the documentation described on
Schedule 1 to Exhibit E), and (c) such other supporting documentation and
additional reports with respect to the Borrowing Base as the Agent shall
reasonably request.

     SECTION 5.09    COLLATERAL MONITORING AND REVIEW. At any time upon the
reasonable request of the Agent or the Required Lenders through the Agent,
permit the Agent or professionals (including, without limitation, internal and
third party consultants, accountants and appraisers) retained by the Agent or
its professionals to conduct evaluations and appraisals of (i) the Borrower's
practices in the computation of the Borrowing Base and (ii) the assets included
in the Borrowing Base, and pay the reasonable fees and expenses in connection
therewith (including, without limitation, the reasonable and customary fees and
expenses associated with the Agent's Collateral Agent Services Group as set
forth in the Fee Letter referred to in Section 2.19). In connection with any
collateral monitoring or review and appraisal relating to the computation of the
Borrowing Base, the Borrower shall make such adjustments to the Borrowing Base
as the Agent shall reasonably require based upon the terms of this Agreement and
results of such collateral monitoring, review or appraisal.

     SECTION 5.10    BUSINESS PLAN. Make its senior officers available to
discuss the Borrower's  business plans,  consolidated and by division (a copy of
which has  heretofore  been delivered to the Agent and the Lenders in accordance
with  Section  4.01(i)),  with the Agent  and/or the  Lenders  upon the  Agent's
reasonable request.

                                       47


SECTION 6.   NEGATIVE COVENANTS

          From the date hereof and for so long as any Commitment shall be in
effect or any Letter of Credit shall remain outstanding (in a face amount in
excess of the amount of cash then held in the Letter of Credit Account, or in
excess of the face amount of back-to-back letters of credit delivered, in each
case pursuant to Section 2.03(b)) or any amount shall remain outstanding or
unpaid under this Agreement, unless the Required Lenders shall otherwise consent
in writing, the Borrower and each of the Guarantors will not (and will not apply
to the Bankruptcy Court for authority to):

     SECTION 6.01    LIENS. Incur, create, assume or suffer to exist any Lien on
any asset of the Borrower or the Guarantors, now owned or hereafter acquired by
the Borrower or any of such Guarantors, other than (i) Liens which were existing
on the Filing Date as reflected on Schedule 3.06 hereto and Liens granted
pursuant to the Existing Agreement; (ii) Liens in favor of the Existing Lenders
as adequate protection granted pursuant to the Orders, which Liens are junior to
the Liens contemplated hereby in favor of the Agent and the Lenders, PROVIDED
that the Interim Order and the Final Order provide that the holder of such
junior Liens shall not be permitted to take any action to foreclose with respect
to such junior Liens so long as any amounts shall remain outstanding hereunder
or any Commitment shall be in effect; (iii) Permitted Liens; (iv) Liens in favor
of the Agent and the Lenders; and (v) Liens securing purchase money Indebtedness
or Capitalized Leases permitted by Section 6.03(iv).

     SECTION 6.02    MERGER, ETC. Consolidate or merge with or into another
Person (except that any Guarantor may merge or consolidate with any other
Guarantor).

     SECTION 6.03    INDEBTEDNESS. Contract, create, incur, assume or suffer to
exist any Indebtedness, except for (i) Indebtedness under the Loan Documents;
(ii) Indebtedness incurred prior to the Filing Date (including existing
Capitalized Leases); (iii) intercompany Indebtedness between the Borrower and
the Guarantors, (iv) Indebtedness incurred subsequent to the Filing Date secured
by purchase money Liens or Capitalized Leases to the extent permitted by Section
6.04 in an aggregate amount not to exceed $5,000,000; (v) Indebtedness arising
from Investments among the Borrower, the Guarantors and foreign subsidiaries
that are permitted hereunder; and (vi) Indebtedness owed to JPMorgan Chase or
any of its banking Affiliates in respect of any overdrafts and related
liabilities arising from treasury, depository and cash management services or in
connection with any automated clearing house transfers of funds.

     SECTION 6.04    CAPITAL EXPENDITURES.

          (a)  Make Capital Expenditures of the Borrower and the Guarantors for
each fiscal quarter ending on the date listed below in an aggregate amount in
excess of the amount listed below opposite such date, PROVIDED that if the
amount of the actual Capital Expenditures that are made during any fiscal
quarter is less than such amount, 50% of the unused portion thereof may be
carried forward to and made only during the immediately following fiscal
quarter:



                          Fiscal Quarter Ending        Capital Expenditure
                          ---------------------        -------------------
                                                        
                          June 29, 2002                    $2,100,000
                          September 28, 2002               $2,800,000


                                       48


                              
                          December 28, 2002                $3,500,000
                          March 30, 2003                   $3,300,000

                          

          (b)  Make Capital Expenditures of the Borrower and its Subsidiaries
               taken as a whole for each fiscal quarter ending on the date
               listed below in an aggregate amount in excess of the amount
               listed below opposite such date, PROVIDED that if the amount of
               the actual Capital Expenditures that are made during any fiscal
               quarter is less than such amount, 50% of the unused portion
               thereof may be carried forward to and made only during the
               immediately following fiscal quarter:



                          Fiscal Quarter Ending        Capital Expenditure
                          ---------------------        -------------------
                                                        
                          June 29, 2002                    $ 8,800,000
                          September 28, 2002               $10,000,000
                          December 28, 2002                $10,000,000
                          March 30, 2003                   $10,000,000


     SECTION 6.05   EBITDA.

          (a)  Permit cumulative EBITDA for the Borrower and the Guarantors for
each period beginning on May 1, 2002 and ending on the last day of each fiscal
month set forth below to be less than the amount appearing opposite such month:



                          Period Ending                       EBITDA
                          --------------                   -----------
                                                        
                          May 2002                         $   650,000
                          June 2002                        $ 1,350,000
                          July 2002                        $ 2,500,000
                          August 2002                      $ 3,500,000
                          September 2002                   $ 4,300,000
                          October 2002                     $ 5,500,000
                          November 2002                    $ 6,500,000
                          December 2002                    $ 7,400,000
                          January 2003                     $ 8,400,000
                          February 2003                    $ 9,100,000
                          March 2003                       $ 9,600,000
                          April 2003                       $10,500,000


          (b)  Permit cumulative EBITDA for the Borrower and its Subsidiaries
taken as a whole for each period beginning on May 1, 2002 and ending on the last
day of each fiscal month set forth below to be less than the amount appearing
opposite such month:



                          Period Ending                      EBITDA
                          --------------                   -----------
                                                        
                          May 2002                         $ 5,050,000
                          June 2002                        $10,100,000
                          July 2002                        $16,400,000


                                       49


                              
                          August 2002                      $21,500,000
                          September 2002                   $28,000,000
                          October 2002                     $35,100,000
                          November 2002                    $40,700,000
                          December 2002                    $46,100,000
                          January 2003                     $52,700,000
                          February 2003                    $57,900,000
                          March 2003                       $62,700,000
                          April 2003                       $69,500,000

                          

          (c)  Permit EBITDA of the Borrower and the Guarantors, or for the
Borrower and its Subsidiaries taken as a whole, to be negative for any fiscal
month.

     SECTION 6.06    GUARANTEES AND OTHER LIABILITIES. Purchase or repurchase
(or agree, contingently or otherwise, so to do) the Indebtedness of, or assume,
guarantee (directly or indirectly or by an instrument having the effect of
assuring another's payment or performance of any obligation or capability of so
doing, or otherwise), endorse or otherwise become liable, directly or
indirectly, in connection with the obligations, stock or dividends of any
Person, except (i) for any guaranty of Indebtedness or other obligations of the
Borrower or Guarantor if such person could have incurred such Indebtedness or
obligations under this Agreement and (ii) by endorsement of negotiable
instruments for deposit or collection in the ordinary course of business.

     SECTION 6.07    CHAPTER 11 CLAIMS. Incur, create, assume, suffer to exist
or permit any other Super-Priority Claim which is PARI PASSU with or senior to
the claims of the Agent and the Lenders against the Borrower and the Guarantors
hereunder, except for the Carve-Out.

     SECTION 6.08    DIVIDENDS; CAPITAL STOCK. Declare or pay, directly or
indirectly, any dividends or make any other distribution or payment, whether in
cash, property, securities or a combination thereof, with respect to (whether by
reduction of capital or otherwise) any shares of capital stock (or any options,
warrants, rights or other equity securities or agreements relating to any
capital stock), or set apart any sum for the aforesaid purposes, PROVIDED that
any Guarantor may pay dividends to the Borrower and to any other Guarantor that
is its direct parent.

     SECTION 6.09    TRANSACTIONS WITH AFFILIATES. Sell or transfer any property
or assets to, or otherwise engage in any other material transactions with, any
of its Affiliates (other than the Borrower and the Guarantors) or its
shareholders, except for (i) transactions that are entered into in the ordinary
course of business at prices and on terms and conditions not less favorable to
the Borrower or such Guarantor than could be obtained on an arm's-length basis
from unrelated third parties and (ii) transactions described on Schedule 6.09.

     SECTION 6.10    INVESTMENTS, LOANS AND ADVANCES. Purchase, hold or acquire
any capital stock, evidences of indebtedness or other securities of, make or
permit to exist any loans or advances to, or make or permit to exist any
investment in, any other Person (all of the foregoing, "INVESTMENTS"), except
for (i) ownership by the Borrower of the capital stock of each of the
Subsidiaries listed on Schedule 3.05, (ii) Permitted Investments, (iii) advances
and loans among the Borrower and the Guarantors in the ordinary course of
business, (iv) existing

                                       50


Investments described on Schedule 6.10 hereto, and (v) other loans and advances
to foreign subsidiaries of the Borrower in an aggregate amount not to exceed
$10,000,000 at any one time outstanding.

     SECTION 6.11    DISPOSITION OF ASSETS. Sell or otherwise dispose of any
assets (including, without limitation, the capital stock of any subsidiary)
except for (i) sales of inventory, fixtures and equipment in the ordinary course
of business, (ii) dispositions of surplus, obsolete or damaged equipment no
longer used in production, (iii) sales of marketable securities held by the
Borrower at the time of the commencement of the Cases described in Schedule 6.11
hereto and (iv) sales in arm's length transactions, at fair market value and for
cash in an aggregate amount not to exceed $500,000.

     SECTION 6.12    NATURE OF BUSINESS. Modify or alter in any material manner
the nature and type of its business as conducted at or prior to the Filing Date
or the manner in which such business is conducted (except as required by the
Bankruptcy Code), it being understood that asset sales permitted by Section 6.11
shall not constitute such a material modification or alteration.

SECTION 7.   EVENTS OF DEFAULT

     SECTION 7.01    EVENTS OF DEFAULT. In the case of the happening of any of
the following events and the continuance thereof beyond the applicable period of
grace if any (each, an "EVENT OF DEFAULT"):

          (a)  any material representation or warranty made by the Borrower or
any Guarantor in this Agreement or in any Loan Document or in connection with
this Agreement or the credit extensions hereunder or any material statement or
representation made in any report, financial statement, certificate or other
document furnished by the Borrower or any Guarantors to the Lenders under or in
connection with this Agreement, shall prove to have been false or misleading in
any material respect when made or delivered; or

          (b)  default shall be made in the payment of any (i) Fees, interest on
the Loans or other amounts payable hereunder when due (other than amounts set
forth in clause (ii) hereof), and such default shall continue unremedied for
more than two (2) Business Days or (ii) principal of the Loans or reimbursement
obligations or cash collateralization in respect of Letters of Credit, when and
as the same shall become due and payable, whether at the due date thereof
(including the Prepayment Date) or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise; or

          (c)  default shall be made by the Borrower or any Guarantor in the due
observance or performance of any covenant, condition or agreement contained in
Section 6 hereof; or

          (d)  default shall be made by the Borrower or any Guarantor in the due
observance or performance of any other covenant, condition or agreement to be
observed or performed pursuant to the terms of this Agreement, any of the Orders
or any of the other Loan Documents and such default shall continue unremedied
for more than ten (10) days; or

                                       51


          (e)  any of the Cases shall be dismissed or converted to a case under
Chapter 7 of the Bankruptcy Code or the Borrower or any Guarantor shall file a
motion or other pleading seeking the dismissal of any of the Cases under Section
1112 of the Bankruptcy Code or otherwise; a trustee under Chapter 7 or Chapter
11 of the Bankruptcy Code, a responsible officer or an examiner with enlarged
powers relating to the operation of the business (powers beyond those set forth
in Section 1106(a)(3) and (4) of the Bankruptcy Code) under Section 1106(b) of
the Bankruptcy Code shall be appointed in any of the Cases and the order
appointing such trustee, responsible officer or examiner shall not be reversed
or vacated within 30 days after the entry thereof; or an application shall be
filed by the Borrower or any Guarantor for the approval of any other
Super-Priority Claim (other than the Carve-Out) in any of the Cases which is
PARI PASSU with or senior to the claims of the Agent and the Lenders against the
Borrower or any Guarantor hereunder, or there shall arise or be granted any such
PARI PASSU or senior Super-Priority Claim; or

          (f)  the Bankruptcy Court shall enter an order or orders granting
relief from the automatic stay applicable under Section 362 of the Bankruptcy
Code to the holder or holders of any security interest to permit foreclosure (or
the granting of a deed in lieu of foreclosure or the like) on any assets of the
Borrower or any of the Guarantors which have a value in excess of $1,000,000 in
the aggregate; or

          (g)  a Change of Control shall occur; or

          (h)  the Borrower shall fail to deliver a certified Borrowing Base
Certificate when due and such default shall continue unremedied for more than
three (3) Business Days; or

          (i)  any material provision of any Loan Document shall, for any
reason, cease to be valid and binding on the Borrower or any of the Guarantors,
or the Borrower or any of the Guarantors shall so assert in any pleading filed
in any court; or

          (j)  an order of the Bankruptcy Court shall be entered reversing,
staying for a period in excess of 10 days, vacating or (without the written
consent of the Agent) otherwise amending, supplementing or modifying any of the
Orders in a manner that is adverse to the Lenders as determined by the Agent or
terminating the use of cash collateral by the Borrower or the Guarantors
pursuant to the Orders; or

          (k)  any judgment or order as to a post-petition liability or debt for
the payment of money in excess of $2,000,000 not covered by insurance shall be
rendered against the Borrower or any of the Guarantors and the enforcement
thereof shall not have been stayed; or

          (l)  any non-monetary judgment or order with respect to a
post-petition event shall be rendered against the Borrower or any of the
Guarantors which does or would reasonably be expected to (i) cause a material
adverse change in the financial condition, business, prospects, operations or
assets of the Borrower and the Guarantors taken as a whole on a consolidated
basis, (ii) have a material adverse effect on the ability of the Borrower or any
of the Guarantors to perform their respective obligations under any Loan
Document, or (iii) have a material adverse effect on the rights and remedies of
the Agent or any Lender under any Loan Document, and

                                       52


there shall be any period of 10 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or

          (m)  except as permitted by the Orders or as otherwise agreed to by
the Agent, the Borrower or the Guarantors shall make any Pre-Petition Payment
other than Pre-Petition Payments authorized by the Bankruptcy Court (x) in
accordance with "first day" orders reasonably satisfactory to the Agent
(including not in excess of $10,000,000 in respect of certain critical vendors
and service providers), (y) in connection with the assumption of executory
contracts and unexpired leases and (z) in respect of accrued payroll and related
expenses and employee benefits as of the Filing Date;

          (n)  any Termination Event described in clauses (iii) or (iv) of the
definition of such term shall have occurred and shall continue unremedied for
more than 10 days and the sum (determined as of the date of occurrence of such
Termination Event) of the Insufficiency of the Plan in respect of which such
Termination Event shall have occurred and be continuing and the Insufficiency of
any and all other Plans with respect to which such a Termination Event
(described in such clauses (iii) or (iv)) shall have occurred and then exist is
equal to or greater than $5,000,000; or

          (o)  (i) the Borrower or any ERISA Affiliate thereof shall have been
notified by the sponsor or trustee of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan, (ii) the Borrower or such ERISA
Affiliate does not have reasonable grounds, in the opinion of the Agent, to
contest such Withdrawal Liability and is not in fact contesting such Withdrawal
Liability in a timely and appropriate manner, and (iii) the amount of such
Withdrawal Liability specified in such notice, when aggregated with all other
amounts required to be paid to Multiemployer Plans in connection with Withdrawal
Liabilities (determined as of the date of such notification), exceeds $5,000,000
allocable to post-petition obligations or requires payments exceeding $500,000
per annum in excess of the annual payments made with respect to such
Multiemployer Plans by the Borrower or such ERISA Affiliate for the plan year
immediately preceding the plan year in which such notification is received; or

          (p)  the Borrower or any ERISA Affiliate thereof shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is
in reorganization or is being terminated, within the meaning of Title IV of
ERISA, if as a result of such reorganization or termination the aggregate annual
contributions of the Borrower and its ERISA Affiliates to all Multiemployer
Plans that are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the plan
years that include the date hereof by an amount exceeding $5,000,000; or

          (q)  the Borrower or any ERISA Affiliate shall have committed a
failure described in Section 302(f)(1) of ERISA (other than the failure to make
any contribution accrued and unpaid as of the Filing Date) and the amount
determined under Section 302(f)(3) of ERISA is equal to or greater than
$5,000,000; or

          (r)  it shall be determined (whether by the Bankruptcy Court or by any
other judicial or administrative forum) that the Borrower or any Guarantor is
liable for the payment of

                                       53


claims arising out of any failure to comply (or to have complied) with
applicable environmental laws or regulations the payment of which will have a
material adverse effect on the financial condition, business, properties,
operations, assets or prospects of the Borrower and the Guarantors, taken as a
whole, and the enforcement thereof shall not have been stayed;

then, and in every such event and at any time thereafter during the continuance
of such event, and without further order of or application to the Bankruptcy
Court, the Agent may, and at the request of the Required Lenders, shall, by
notice to the Borrower (with a copy to counsel for the Official Creditors'
Committee appointed in the Cases, to counsel for the Pre-Petition Agent and to
the United States Trustee for the District of South Carolina), take one or more
of the following actions, at the same or different times (provided, that with
respect to clause (iv) below and the enforcement of Liens or other remedies with
respect to the Collateral under clause (v) below, the Agent shall provide the
Borrower (with a copy to counsel for the Official Creditors' Committee in the
Cases, to counsel for the Pre-Petition Agent and to the United States Trustee
for the District of South Carolina) with five (5) Business Days' written notice
prior to taking the action contemplated thereby and provided, further, that upon
receipt of notice referred to in the immediately preceding clause with respect
to the accounts referred to in clause (iv) below, the Borrower may continue to
make ordinary course disbursements from such accounts (other than the Letter of
Credit Account) but may not withdraw or disburse any other amounts from such
accounts): (i) terminate forthwith the Total Commitment; (ii) declare the Loans
then outstanding to be forthwith due and payable, whereupon the principal of the
Loans together with accrued interest thereon and any unpaid accrued Fees and all
other liabilities of the Borrower accrued hereunder and under any other Loan
Document, shall become forthwith due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived by the Borrower and the Guarantors, anything contained herein or in any
other Loan Document to the contrary notwithstanding; (iii) require the Borrower
and the Guarantors upon demand to forthwith deposit in the Letter of Credit
Account cash in an amount which, together with any amounts then held in the
Letter of Credit Account, is equal to the sum of 105% of the then Letter of
Credit Outstandings (and to the extent the Borrower and the Guarantors shall
fail to furnish such funds as demanded by the Agent, the Agent shall be
authorized to debit the accounts of the Borrower and the Guarantors maintained
with the Agent in such amount five (5) Business Days after the giving of the
notice referred to above); (iv) set-off amounts in the Letter of Credit Account
or any other accounts maintained with the Agent and apply such amounts to the
obligations of the Borrower and the Guarantors hereunder and in the other Loan
Documents; and (v) exercise any and all remedies under the Loan Documents and
under applicable law available to the Agent and the Lenders.

SECTION 8.   THE AGENT

     SECTION 8.01    ADMINISTRATION BY AGENT. The general administration of
the Loan Documents shall be by the Agent. Each Lender hereby irrevocably
authorizes the Agent, at its discretion, to take or refrain from taking such
actions as agent on its behalf and to exercise or refrain from exercising such
powers under the Loan Documents as are delegated by the terms hereof or thereof,
as appropriate, together with all powers reasonably incidental thereto
(including the release of Collateral in connection with any transaction that is
expressly permitted by the Loan Documents). The Agent shall have no duties or
responsibilities except as set forth in this Agreement and the remaining Loan
Documents.

                                       54


     SECTION 8.02    ADVANCES AND PAYMENTS.

          (a)  On the date of each Loan, the Agent shall be authorized (but not
obligated) to advance, for the account of each of the Lenders, the amount of the
Loan to be made by it in accordance with its Commitment hereunder. Should the
Agent do so, each of the Lenders agrees forthwith to reimburse the Agent in
immediately available funds for the amount so advanced on its behalf by the
Agent, together with interest at the Federal Funds Effective Rate if not so
reimbursed on the date due from and including such date but not including the
date of reimbursement.

          (b)  Any amounts received by the Agent in connection with this
Agreement (other than amounts to which the Agent is entitled pursuant to
Sections 2.19, 8.06, 10.05 and 10.06), the application of which is not otherwise
provided for in this Agreement shall be applied, first, in accordance with each
Lender's Commitment Percentage to pay accrued but unpaid Commitment Fees or
Letter of Credit Fees, and second, in accordance with each Lender's Commitment
Percentage to pay accrued but unpaid interest and the principal balance
outstanding and all unreimbursed Letter of Credit drawings. All amounts to be
paid to a Lender by the Agent shall be credited to that Lender, after collection
by the Agent, in immediately available funds either by wire transfer or deposit
in that Lender's correspondent account with the Agent, as such Lender and the
Agent shall from time to time agree.

     SECTION 8.03    SHARING OF SETOFFS. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower, including, but not limited to, a secured claim under Section 506
of the Bankruptcy Code or other security or interest arising from, or in lieu
of, such secured claim and received by such Lender under any applicable
bankruptcy, insolvency or other similar law, or otherwise, obtain payment in
respect of its Loans as a result of which the unpaid portion of its Loans is
proportionately less than the unpaid portion of the Loans of any other Lender
(a) it shall promptly purchase at par (and shall be deemed to have thereupon
purchased) from such other Lender a participation in the Loans of such other
Lender, so that the aggregate unpaid principal amount of each Lender's Loans and
its participation in Loans of the other Lenders shall be in the same proportion
to the aggregate unpaid principal amount of all Loans then outstanding as the
principal amount of its Loans prior to the obtaining of such payment was to the
principal amount of all Loans outstanding prior to the obtaining of such payment
and (b) such other adjustments shall be made from time to time as shall be
equitable to ensure that the Lenders share such payment pro-rata, provided that
if any such non-pro-rata payment is thereafter recovered or otherwise set aside
such purchase of participations shall be rescinded (without interest). The
Borrower expressly consents to the foregoing arrangements and agrees that any
Lender holding (or deemed to be holding) a participation in a Loan may exercise
any and all rights of banker's lien, setoff (in each case, subject to the same
notice requirements as pertain to clause (iv) of the remedial provisions of
Section 7.01) or counterclaim with respect to any and all moneys owing by the
Borrower to such Lender as fully as if such Lender held a Note and was the
original obligee thereon, in the amount of such participation.

     SECTION 8.04    AGREEMENT OF REQUIRED LENDERS. Upon any occasion requiring
or permitting an approval, consent, waiver, election or other action on the part
of the Required Lenders, action shall be taken by the Agent for and on behalf or
for the benefit of all Lenders

                                       55


upon the direction of the Required Lenders, and any such action shall be binding
on all Lenders. No amendment, modification, consent, or waiver shall be
effective except in accordance with the provisions of Section 10.10.

     SECTION 8.05    LIABILITY OF AGENT.

          (a)  The Agent when acting on behalf of the Lenders, may execute any
of its respective duties under this Agreement by or through any of its
respective officers, agents, and employees, and neither the Agent nor its
directors, officers, agents, employees or Affiliates shall be liable to the
Lenders or any of them for any action taken or omitted to be taken in good
faith, or be responsible to the Lenders or to any of them for the consequences
of any oversight or error of judgment, or for any loss, unless the same shall
happen through its gross negligence or willful misconduct. The Agent and its
respective directors, officers, agents, employees and Affiliates shall in no
event be liable to the Lenders or to any of them for any action taken or omitted
to be taken by them pursuant to instructions received by them from the Required
Lenders or in reliance upon the advice of counsel selected by it. Without
limiting the foregoing, neither the Agent, nor any of its respective directors,
officers, employees, agents or Affiliates shall be responsible to any Lender for
the due execution, validity, genuineness, effectiveness, sufficiency, or
enforceability of, or for any statement, warranty, or representation in, this
Agreement, any Loan Document or any related agreement, document or order, or
shall be required to ascertain or to make any inquiry concerning the performance
or observance by the Borrower of any of the terms, conditions, covenants, or
agreements of this Agreement or any of the Loan Documents.

          (b)  Neither the Agent nor any of its respective directors, officers,
employees, agents or Affiliates shall have any responsibility to the Borrower or
the Guarantors on account of the failure or delay in performance or breach by
any Lender or by the Borrower or the Guarantors of any of their respective
obligations under this Agreement or any of the Loan Documents or in connection
herewith or therewith.

          (c)  The Agent, in its capacity as Agent hereunder, shall be entitled
to rely on any communication, instrument, or document reasonably believed by
such person to be genuine or correct and to have been signed or sent by a person
or persons believed by such person to be the proper person or persons, and such
person shall be entitled to rely on advice of legal counsel, independent public
accountants, and other professional advisers and experts selected by such
person.

     SECTION 8.06    REIMBURSEMENT AND INDEMNIFICATION. Each Lender agrees (i)
to reimburse the Agent for such Lender's Commitment Percentage of any expenses
and fees incurred for the benefit of the Lenders under this Agreement and any of
the Loan Documents, including, without limitation, counsel fees and compensation
of agents and employees paid for services rendered on behalf of the Lenders, and
any other expense incurred in connection with the operations or enforcement
thereof, not reimbursed by the Borrower or the Guarantors and (ii) to indemnify
and hold harmless the Agent and any of its directors, officers, employees,
agents or Affiliates, on demand, in the amount of its proportionate share, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against it
or any of them in any way relating to or arising out of this Agreement or any

                                       56


of the Loan Documents or any action taken or omitted by it or any of them under
this Agreement or any of the Loan Documents to the extent not reimbursed by the
Borrower or the Guarantors (except such as shall result from their respective
gross negligence or willful misconduct).

     SECTION 8.07    RIGHTS OF AGENT. It is understood and agreed that JPMorgan
Chase shall have the same rights and powers hereunder (including the right to
give such instructions) as the other Lenders and may exercise such rights and
powers, as well as its rights and powers under other agreements and instruments
to which it is or may be party, and engage in other transactions with the
Borrower or any Guarantor, as though it were not the Agent of the Lenders under
this Agreement.

     SECTION 8.08    INDEPENDENT LENDERS. Each Lender acknowledges that it has
decided to enter into this Agreement and to make the Loans hereunder based on
its own analysis of the transactions contemplated hereby and of the
creditworthiness of the Borrower and the Guarantors and agrees that the Agent
shall bear no responsibility therefor.

     SECTION 8.09    NOTICE OF TRANSFER. The Agent may deem and treat a Lender
party to this Agreement as the owner of such Lender's portion of the Loans for
all purposes, unless and until a written notice of the assignment or transfer
thereof executed by such Lender shall have been received by the Agent.

     SECTION 8.10    SUCCESSOR AGENT. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint a successor
Agent, which shall be reasonably satisfactory to the Borrower. If no successor
Agent shall have been so appointed by the Required Lenders and shall have
accepted such appointment, within 30 days after the retiring Agent's giving of
notice of resignation, the retiring Agent may, on behalf of the Lenders, appoint
a successor Agent, which shall be a commercial bank organized under the laws of
the United States of America or of any State thereof and having a combined
capital and surplus of a least $100,000,000, which shall be reasonably
satisfactory to the Borrower. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 8 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent under
this Agreement.

SECTION 9.   GUARANTY

     SECTION 9.01    GUARANTY.

          (a)  Each of the Guarantors unconditionally and irrevocably guarantees
the due and punctual payment by the Borrower of the Obligations. Each of the
Guarantors further agrees that the Obligations may be extended or renewed, in
whole or in part, without notice to or further assent from it, and it will
remain bound upon this guaranty notwithstanding any extension or renewal of any
of the Obligations. The Obligations of the Guarantors shall be joint and
several.

                                       57


          (b)  Each of the Guarantors waives presentation to, demand for payment
from and protest to the Borrower or any other Guarantor, and also waives notice
of protest for nonpayment. The Obligations of the Guarantors hereunder shall not
be affected by (i) the failure of the Agent or a Lender to assert any claim or
demand or to enforce any right or remedy against the Borrower or any other
Guarantor under the provisions of this Agreement or any other Loan Document or
otherwise; (ii) any extension or renewal of any provision hereof or thereof;
(iii) any rescission, waiver, compromise, acceleration, amendment or
modification of any of the terms or provisions of any of the Loan Documents;
(iv) the release, exchange, waiver or foreclosure of any security held by the
Agent for the Obligations or any of them; (v) the failure of the Agent or a
Lender to exercise any right or remedy against any other Guarantor; or (vi) the
release or substitution of any Guarantor or any other Guarantor.

          (c)  Each of the Guarantors further agrees that this guaranty
constitutes a guaranty of payment when due and not just of collection, and
waives any right to require that any resort be had by the Agent or a Lender to
any security held for payment of the Obligations or to any balance of any
deposit, account or credit on the books of the Agent or a Lender in favor of the
Borrower or any other Guarantor, or to any other Person.

          (d)  Each of the Guarantors hereby waives any defense that it might
have based on a failure to remain informed of the financial condition of the
Borrower and of any other Guarantor and any circumstances affecting the ability
of the Borrower to perform under this Agreement.

          (e)  Each Guarantor's guaranty shall not be affected by the
genuineness, validity, regularity or enforceability of the Obligations or any
other instrument evidencing any Obligations, or by the existence, validity,
enforceability, perfection, or extent of any collateral therefor or by any other
circumstance relating to the Obligations which might otherwise constitute a
defense to this Guaranty. Neither of the Agent, nor any of the Lenders makes any
representation or warranty in respect to any such circumstances or shall have
any duty or responsibility whatsoever to any Guarantor in respect of the
management and maintenance of the Obligations.

          (f)  Subject to the provisions of Section 7.01, upon the Obligations
becoming due and payable (by acceleration or otherwise), the Lenders shall be
entitled to immediate payment of such Obligations by the Guarantors upon written
demand by the Agent, without further application to or order of the Bankruptcy
Court.

     SECTION 9.02    NO IMPAIRMENT OF GUARANTY. The obligations of the
Guarantors hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason, including, without limitation, any
claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense or set-off, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
Obligations. Without limiting the generality of the foregoing, the obligations
of the Guarantors hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Agent or a Lender to assert any claim or demand
or to enforce any remedy under this Agreement or any other agreement, by any
waiver or modification of any provision thereof, by any default, failure or
delay, willful or otherwise, in the performance of the Obligations, or by any
other act or thing

                                       58


or omission or delay to do any other act or thing which may or might in any
manner or to any extent vary the risk of the Guarantors or would otherwise
operate as a discharge of the Guarantors as a matter of law, unless and until
the Obligations are paid in full.

     SECTION 9.03    SUBROGATION. Upon payment by any Guarantor of any sums to
the Agent or a Lender hereunder, all rights of such Guarantor against the
Borrower arising as a result thereof by way of right of subrogation or
otherwise, shall in all respects be subordinate and junior in right of payment
to the prior final and indefeasible payment in full of all the Obligations. If
any amount shall be paid to such Guarantor for the account of the Borrower, such
amount shall be held in trust for the benefit of the Agent and the Lenders and
shall forthwith be paid to the Agent and the Lenders to be credited and applied
to the Obligations, whether matured or unmatured.

SECTION 10.  MISCELLANEOUS

     SECTION 10.01   NOTICES. Notices and other communications provided for
herein shall be in writing (including facsimile communication) and shall be
mailed, transmitted by facsimile or delivered to the Borrower or any Guarantor
at 4838 Jenkins Road, North Charleston, South Carolina 29405, Attention: Jim
Boyd and to a Lender or the Agent to it at its address set forth on Annex A, or
such other address as such party may from time to time designate by giving
written notice to the other parties hereunder. All notices and other
communications given to any party hereto in accordance with the provisions of
this Agreement shall be deemed to have been given on the fifth Business Day
after the date when sent by registered or certified mail, postage prepaid,
return receipt requested, if by mail; or when receipt is acknowledged, if by any
facsimile equipment of the sender; in each case addressed to such party as
provided in this Section 10.01 or in accordance with the latest unrevoked
written direction from such party; PROVIDED, HOWEVER, that, in the case of
notices to the Agent, notices pursuant to the preceding sentence with respect to
change of address and pursuant to Section 2 shall be effective only when
received by the Agent.

     SECTION 10.02   SURVIVAL OF AGREEMENT, REPRESENTATIONS AND WARRANTIES, ETC.
All warranties, representations and covenants made by the Borrower or any
Guarantor herein or in any certificate or other instrument delivered by it or on
its behalf in connection with this Agreement shall be considered to have been
relied upon by the Lenders and shall survive the making of the Loans herein
contemplated regardless of any investigation made by any Lender or on its behalf
and shall continue in full force and effect so long as any amount due or to
become due hereunder is outstanding and unpaid and so long as the Commitments
have not been terminated. All statements in any such certificate or other
instrument shall constitute representations and warranties by the Borrower and
the Guarantors hereunder with respect to the Borrower.

     SECTION 10.03   SUCCESSORS AND ASSIGNS.

          (a)  This Agreement shall be binding upon and inure to the benefit of
the Borrower, the Agent and the Lenders and their respective successors and
assigns. Neither the Borrower nor any of the Guarantors may assign or transfer
any of their rights or obligations hereunder without the prior written consent
of all of the Lenders. Each Lender may sell

                                       59


participations to any Person in all or part of any Loan, or all or part of its
Commitment, in which event, without limiting the foregoing, the provisions of
Section 2.15 shall inure to the benefit of each purchaser of a participation
(provided that such participant shall look solely to the seller of such
participation for such benefits and the Borrower's and the Guarantors'
liability, if any, under Sections 2.15 and 2.18 shall not be increased as a
result of the sale of any such participation) and the pro rata treatment of
payments, as described in Section 2.17, shall be determined as if such Lender
had not sold such participation. In the event any Lender shall sell any
participation, such Lender shall retain the sole right and responsibility to
enforce the obligations of the Borrower and each of the Guarantors relating to
the Loans, including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement (provided that such
Lender may grant its participant the right to consent to such Lender's execution
of amendments, modifications or waivers which (i) reduce any Fees payable
hereunder to the Lenders, (ii) reduce the amount of any scheduled principal
payment on any Loan or reduce the principal amount of any Loan or the rate of
interest payable hereunder or (iii) extend the maturity of the Borrower's
obligations hereunder). The sale of any such participation shall not alter the
rights and obligations of the Lender selling such participation hereunder with
respect to the Borrower.

          (b)  Each Lender may assign to one or more Lenders or Eligible
Assignees all or a portion of its interests, rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment and
the same portion of the related Loans at the time owing to it), PROVIDED,
HOWEVER, that (i) other than in the case of an assignment to a Lender Affiliate
of such assignor Lender, or to another Lender, the Agent and the Fronting Bank
must give their respective prior written consent to such assignment, which
consent will not be unreasonably withheld, (ii) the aggregate amount of the
Commitment and/or Loans of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Agent) shall, unless otherwise agreed to in
writing by the Agent, in no event be less than $1,000,000 or the remaining
portion of such Lender's Commitment and/or Loans, if less and (iii) the parties
to each such assignment shall execute and deliver to the Agent, for its
acceptance and recording in the Register (as defined below), an Assignment and
Acceptance with blanks appropriately completed, together with a processing and
recordation fee of $3,500 (for which the Borrower shall have no liability). Upon
such execution, delivery, acceptance and recording, from and after the effective
date specified in each Assignment and Acceptance, which effective date shall be
within ten Business Days after the execution thereof (unless otherwise agreed to
in writing by the Agent), (A) the assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder and (B) the Lender thereunder shall, to
the extent provided in such Assignment and Acceptance, 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).

          (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 the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such Lender
assignor makes no representation or warranty and assumes no responsibility with

                                       60


respect to any statements, warranties or representations made in or in
connection with this Agreement or any of the other Loan Documents or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any of the other Loan Documents; (ii) such Lender assignor
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Borrower or any Guarantor or the performance
or observance by the Borrower or any Guarantor of any of its obligations under
this Agreement or any of the other Loan Documents or any other instrument or
document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement and the other Loan Documents, together with
copies of the financial statements referred to in Section 3.04 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 Lender
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 this Agreement; (v) 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
thereto, together with such powers as are reasonably incidental hereof; and (vi)
such assignee agrees that it will perform in accordance with their terms all
obligations that by the terms of this Agreement are required to be performed by
it as a Lender.

          (d)  The Agent shall maintain at its office a copy of each Assignment
and Acceptance delivered to it and a register for the recordation of the names
and addresses of the Lenders and the Commitments of, and principal amount of the
Loans owing to, each Lender from time to time (the "REGISTER"). The entries in
the Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Guarantors, the Agent and the Lenders shall treat each Person the
name of which 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 the assignee thereunder together with the fee payable in
respect thereto, the Agent shall, if such Assignment and Acceptance has been
completed with blanks appropriately filled and consented to by the Agent and the
Fronting Bank (to the extent such consent is required hereunder), (i) accept
such Assignment and Acceptance, (ii) record the information contained therein in
the Register and (iii) give prompt written notice thereof to the Borrower
(together with a copy thereof). No assignment shall be effective for purposes of
this Agreement unless it has been recorded in the Register as provided in this
paragraph.

          (f)  Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
10.03, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower or any of the Guarantors
furnished to such Lender by or on behalf of the Borrower or any of the
Guarantors; provided that prior to any such disclosure, each such assignee or
participant or proposed assignee or participant shall agree in writing to be
bound by the provisions of Section 10.04.

                                       61


          (g)  The Borrower hereby agrees, to the extent set forth in the
Commitment Letter, to actively assist and cooperate with the Agent in the
Agent's efforts to sell participations herein (as described in Section 10.03(a))
and assign to one or more Lenders or Eligible Assignees a portion of its
interests, rights and obligations under this Agreement (as set forth in Section
10.03(b)).

     SECTION 10.04   CONFIDENTIALITY. Each Lender agrees to keep any information
delivered or made available by the Borrower or any of the Guarantors to it
confidential from anyone other than persons employed or retained by such Lender
who are or are expected to become engaged in evaluating, approving, structuring
or administering the Loans; provided that nothing herein shall prevent any
Lender from disclosing such information (i) to any of its Affiliates or to any
other Lender, provided such Affiliate agrees to keep such information
confidential to the same extent required by the Lenders hereunder, (ii) upon the
order of any court or administrative agency, (iii) upon the request or demand of
any regulatory agency or authority, (iv) which has been publicly disclosed other
than as a result of a disclosure by the Agent or any Lender which is not
permitted by this Agreement, (v) in connection with any litigation to which the
Agent, any Lender, or their respective Affiliates may be a party to the extent
reasonably required, (vi) to the extent reasonably required in connection with
the exercise of any remedy hereunder, (vii) to such Lender's legal counsel and
independent auditors, and (viii) to any actual or proposed participant or
assignee of all or part of its rights hereunder subject to the proviso in
Section 10.03(f). Each Lender shall use reasonable efforts to notify the
Borrower of any required disclosure under clauses (ii) and (v) of this Section.

     SECTION 10.05   EXPENSES. Whether or not the transactions hereby
contemplated shall be consummated, the Borrower and the Guarantors agree to pay
all reasonable and documented out-of-pocket expenses incurred by the Agent
(including but not limited to the reasonable fees and disbursements of Morgan,
Lewis & Bockius LLP, special counsel for the Agent, any other counsel that the
Agent shall retain and any internal or third-party appraisers, consultants and
accountants advising the Agent and J.P. Morgan Securities Inc.) in connection
with the preparation, execution, delivery and administration of this Agreement
and the other Loan Documents, the making of the Loans and the issuance of the
Letters of Credit, the perfection of the Liens contemplated hereby, the
syndication of the transactions contemplated hereby, the reasonable and
customary costs, fees and expenses (including, without limitation, internally
allocated charges and expenses relating to the Agent's initial and ongoing
Borrowing Base examinations as set forth in the Fee Letter referred to in
Section 2.19) of the Agent in connection with its monthly and other periodic
field examinations, monitoring of assets (including reasonable and customary
internal collateral monitoring fees as set forth in the Fee Letter referred to
in Section 2.19) and publicity expenses, and, following the occurrence of an
Event of Default, all reasonable out-of-pocket expenses incurred by the Lenders
and the Agent in the enforcement or protection of the rights of any one or more
of the Lenders or the Agent in connection with this Agreement or the other Loan
Documents, including but not limited to the reasonable fees and disbursements of
any counsel for the Lenders or the Agent. Such payments shall be made on the
date of the Interim Order and thereafter on demand upon delivery of a statement
setting forth such costs and expenses. Whether or not the transactions hereby
contemplated shall be consummated, the Borrower and the Guarantors agree to
reimburse the Agent and J.P. Morgan Securities Inc. for the expenses set forth
in the Commitment Letter and the reimbursement provisions thereof are hereby
incorporated herein by reference. The

                                       62


obligations of the Borrower and the Guarantors under this Section shall survive
the termination of this Agreement and/or the payment of the Loans.

     SECTION 10.06   INDEMNITY. The Borrower and each of the Guarantors agree to
indemnify and hold harmless the Agent, J.P. Morgan Securities Inc. and the
Lenders and their directors, officers, employees, agents and Affiliates (each an
"INDEMNIFIED PARTY") from and against any and all expenses, losses, claims,
damages and liabilities incurred by such Indemnified Party arising out of claims
made by any Person in any way relating to the transactions contemplated hereby,
but excluding therefrom all expenses, losses, claims, damages, and liabilities
to the extent that they are determined by the final judgment of a court of
competent jurisdiction to have resulted from the gross negligence or willful
misconduct of such Indemnified Party. The obligations of the Borrower and the
Guarantors under this Section shall survive the termination of this Agreement
and/or the payment of the Loans.

     SECTION 10.07   CHOICE OF LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK AND (TO THE EXTENT APPLICABLE) THE BANKRUPTCY CODE.

     SECTION 10.08   NO WAIVER. No failure on the part of the Agent or any of
the Lenders to exercise, and no delay in exercising, any right, power or remedy
hereunder or any of the other Loan Documents shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law.

     SECTION 10.09   EXTENSION OF MATURITY. Should any payment of principal of
or interest or any other amount due hereunder become due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, in the case of principal, interest shall be payable
thereon at the rate herein specified during such extension.

     SECTION 10.10   AMENDMENTS, ETC.

          (a)  No modification, amendment or waiver of any provision of this
Agreement or the Security and Pledge Agreement, and no consent to any departure
by the Borrower or any Guarantor therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Required Lenders, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given; PROVIDED, HOWEVER, that no such modification or
amendment shall without the written consent of (1) the Super-majority Lenders
release any of the Liens granted to the Agent hereunder, under the Orders or
under any other Loan Document, or release any of the Guarantors, (2) the Lender
affected thereby (x) increase the Commitment of a Lender (it being understood
that a waiver of an Event of Default shall not constitute an increase in the
Commitment of a Lender), or (y) reduce the principal amount of any Loan or the
rate of interest payable thereon, or extend any date for the payment of interest
hereunder or reduce any Fees payable hereunder or extend the final maturity of
the Borrower's obligations hereunder or (3) all of the Lenders (i) amend or
modify any provision of

                                       63


this Agreement which provides for the unanimous consent or approval of the
Lenders, (ii) amend this Section 10.10 or the definition of Required Lenders,
(iii) amend or modify the Superpriority Claim status of the Lenders contemplated
by Section 2.23 or (iv) release all or substantially all of the Liens granted to
the Agent hereunder, under the Orders or under any other Loan Document, or
release all or substantially all of the Guarantors. No such amendment or
modification may adversely affect the rights and obligations of the Agent or any
Fronting Bank hereunder or JPMorgan Chase Bank in the capacity referred to in
Section 6.03(vi) without its prior written consent. No notice to or demand on
the Borrower or any Guarantor shall entitle the Borrower or any Guarantor to any
other or further notice or demand in the same, similar or other circumstances.
Each assignee under Section 10.03(b) shall be bound by any amendment,
modification, waiver, or consent authorized as provided herein, and any consent
by a Lender shall bind any Person subsequently acquiring an interest on the
Loans held by such Lender. No amendment to this Agreement shall be effective
against the Borrower or any Guarantor unless signed by the Borrower or such
Guarantor, as the case may be.

          (b)  Notwithstanding anything to the contrary contained in Section
10.10(a), in the event that the Borrower requests that this Agreement be
modified or amended in a manner which would require the unanimous consent of all
of the Lenders and such modification or amendment is agreed to by the
Super-majority Lenders (as hereinafter defined), then with the consent of the
Borrower and the Super-majority Lenders, the Borrower and the Super-majority
Lenders shall be permitted to amend the Agreement without the consent of the
Lender or Lenders which did not agree to the modification or amendment requested
by the Borrower (such Lender or Lenders, collectively the "MINORITY LENDERS") to
provide for (w) the termination of the Commitment of each of the Minority
Lenders, (x) the addition to this Agreement of one or more other financial
institutions (each of which shall be an Eligible Assignee), or an increase in
the Commitment of one or more of the Super-majority Lenders, so that the Total
Commitment after giving effect to such amendment shall be in the same amount as
the Total Commitment immediately before giving effect to such amendment, (y) if
any Loans are outstanding at the time of such amendment, the making of such
additional Loans by such new financial institutions or Super-majority Lender or
Lenders, as the case may be, as may be necessary to repay in full the
outstanding Loans of the Minority Lenders immediately before giving effect to
such amendment and (z) such other modifications to this Agreement as may be
appropriate. As used herein, the term "SUPER-MAJORITY LENDERS" shall mean, at
any time, Lenders holding Loans representing at least 66-2/3% of the aggregate
principal amount of the Loans outstanding, or if no Loans are outstanding,
Lenders having Commitments representing at least 66-2/3% of the Total
Commitment.

     SECTION 10.11   SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

     SECTION 10.12   HEADINGS. Section headings used herein are for convenience
only and are not to affect the construction of or be taken into consideration in
interpreting this Agreement.

                                       64


     SECTION 10.13   EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which shall constitute an original, but
all of which taken together shall constitute one and the same instrument.

     SECTION 10.14   PRIOR AGREEMENTS. This Agreement represents the entire
agreement of the parties with regard to the subject matter hereof and the terms
of any letters and other documentation entered into between the Borrower or a
Guarantor and any Lender or the Agent prior to the execution of this Agreement
which relate to Loans to be made hereunder shall be replaced by the terms of
this Agreement (except as otherwise expressly provided herein with respect to
the Commitment Letter and the fee letter referred to therein, including without
limitation the Borrower's agreements to actively assist the Agent in the
syndication of the transactions contemplated hereby referred to in Section
10.03(g) and with respect to interest rates and Commitment Fees and including
also the provisions of Section 2.19).

     SECTION 10.15   FURTHER ASSURANCES. Whenever and so often as reasonably
requested by the Agent, the Borrower and the Guarantors will promptly execute
and deliver or cause to be executed and delivered all such other and further
instruments, documents or assurances, and promptly do or cause to be done all
such other and further things as may be necessary and reasonably required in
order to further and more fully vest in the Agent all rights, interests, powers,
benefits, privileges and advantages conferred or intended to be conferred by
this Agreement and the other Loan Documents.

     SECTION 10.16   WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE GUARANTORS,
THE AGENT AND EACH LENDER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY OF
THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.

                                       65


          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and the year first written.

                                         BORROWER:

                                         POLYMER GROUP, INC.

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

                                         GUARANTORS:



                                         PGI POLYMER, INC.
                                         PGI EUROPE, INC.
                                         CHICOPEE, INC.
                                         FIBERTECH GROUP, INC.
                                         TECHNETICS GROUP, INC.
                                         FIBERGOL CORPORATION
                                         FABRENE CORP.
                                         FABRENE GROUP LLC
                                         PNA CORP.
                                         FNA POLYMER CORP.
                                         FNA ACQUISITION, INC.
                                         LORETEX CORPORATION
                                         DOMINION TEXTILE (USA) INC.
                                         POLY-BOND INC.
                                         FABPRO ORIENTED POLYMERS, INC.
                                         PRISTINE BRANDS CORPORATION
                                         POLYIONIX SEPARATION TECHNOLOGIES, INC.
                                         BONLAM (S.C.), INC.

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

                                         PGI ASSET MANAGEMENT COMPANY
                                         PGI SERVICING COMPANY

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



                                         JPMORGAN CHASE BANK,
                                           INDIVIDUALLY AND AS AGENT

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



                                         GENERAL ELECTRIC CAPITAL
                                         CORPORATION

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



                                         SATELLITE ASSET MANAGEMENT

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



                                         MIDDENBANK CURACAO NV

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



                                         MASSACHUSETTS MUTUAL LIFE
                                         INSURANCE COMPANY
                                         BY: DAVID L. BABSON & COMPANY INC.

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



                                         BILL AND MELINDA GATES FOUNDATION
                                         BY: DAVID L. BABSON & COMPANY INC.

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



                                     ANNEX A

                                       to

                     REVOLVING CREDIT AND GUARANTY AGREEMENT

                            Dated as of May 30, 2002



                                                          COMMITMENT         COMMITMENT
Lender                                                      AMOUNT           PERCENTAGE
- ------                                                    -----------        ----------
                                                                         
JPMorgan Chase Bank                                    $   79,000,000          63.20%
270 Park Avenue
New York, New York 10017
Attn: Ms. Norma C. Corio
      Managing Director

General Electric Capital Corporation                   $   15,500,000          12.40%
60 Long Ridge Road
Stamford, Connecticut 06927
Attn: Ms. Karen Wold

Satellite Senior Income Fund, LLC                      $   15,500,000          12.40%
c/o Satellite Asset Management L.P..
10 East 50th Street
New York, New York 10022
Attn: Mr. Gene Ko

Middenbank Curacao NV                                  $   10,000,000           8.00%
1325 Avenue of the Americas
New York, NY 10019
Attn: Mr. Gregory Eng




                                                                      
Massachusetts Mutual Life Insurance Company            $    1,000,000           0.80%
c/o David L. Babson & Company Inc.
1500 Main Street, 11th Floor
Springfield, Massachusetts 01115
Attn: Mr. Frank Lucchessi

Bill and Melinda Gates Foundation                      $    4,000,000           3.20%
c/o David L. Babson & Company Inc.
1500 Main Street, 11th Floor
Springfield, Massachusetts 01115
Attn: Mr. Frank Lucchessi

Total                                                  $  125,000,000       100.0000%
                                                       ==============       ========





                                                                Exhibit A to the
                                                            Revolving Credit and
                                                              Guaranty Agreement

                              FORM OF INTERIM ORDER



                                                                Exhibit B to the
                                                            Revolving Credit and
                                                              Guaranty Agreement

                      FORM OF SECURITY AND PLEDGE AGREEMENT



                                                                Exhibit C to the
                                                            Revolving Credit and
                                                              Guaranty Agreement

                           FORM OF OPINION OF COUNSEL



                                                                Exhibit D to the
                                                            Revolving Credit and
                                                              Guaranty Agreement

                        FORM OF ASSIGNMENT AND ACCEPTANCE



                                                                Exhibit E to the
                                                            Revolving Credit and
                                                              Guaranty Agreement

                      [FORM OF BORROWING BASE CERTIFICATE]



                                 [SCHEDULE 1.01]

                              [EXISTING AGREEMENT]


                        [TO BE SATISFACTORY TO THE AGENT]



                                  SCHEDULE 3.04

                             Material Adverse Effect


                        [TO BE SATISFACTORY TO THE AGENT]



                                  SCHEDULE 3.05

                                  Subsidiaries


                        [TO BE SATISFACTORY TO THE AGENT]



                                  SCHEDULE 3.06

                                      Liens


                        [TO BE SATISFACTORY TO THE AGENT]



                                  SCHEDULE 3.10

                                   Litigation


                        [TO BE SATISFACTORY TO THE AGENT]



                                  SCHEDULE 6.09

                          Transaction with Shareholders


                        [TO BE SATISFACTORY TO THE AGENT]



                                  SCHEDULE 6.10

                              Existing Investments


                        [TO BE SATISFACTORY TO THE AGENT]



                                  SCHEDULE 6.11

                          Sale of Marketable Securities


                        [TO BE SATISFACTORY TO THE AGENT]

EX-10.3

                                                                   Exhibit 10.3


                               POLYMER GROUP, INC.

                            INDEMNIFICATION AGREEMENT


                  THIS AGREEMENT is made as of this 11th day of May, 2002, by
and between Polymer Group, Inc., a Delaware corporation (the "Corporation"), and
_________________ (the "Indemnitee").

                  WHEREAS, Indemnitee currently serves as a director or an
officer of the Corporation, or both, or as a director of another enterprise at
the request of the Corporation, and, as such, may be subjected to claims, suits
or proceedings arising as a result of such service;

                  WHEREAS, as an inducement to Indemnitee to continue to serve
as such director or officer, the Corporation has agreed to indemnify Indemnitee
against expenses and costs incurred by Indemnitee in connection with any such
claims, suits or proceedings, in accordance with, and to the fullest extent
authorized by, the General Corporation Law of the State of Delaware as it may be
in effect from time to time (the "Delaware Law");

                  WHEREAS, the parties desire to set forth the terms and
conditions of such indemnification.

                  NOW, THEREFORE, in consideration of the promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

                  Section 1. AGREEMENT TO INDEMNITY. The Corporation hereby
agrees to indemnify, keep indemnified and hold harmless, Indemnitee (which shall
include any legal representatives of such person) to the fullest extent
authorized by the Delaware Law, including, without limitation, Section 145(f)
thereof, and other applicable law as in effect from time to time, from and
against any expenses (including expenses of investigation and preparation and
reasonable fees and disbursements of counsel, accountants and other experts),
judgments, fines, liability, losses and amounts paid in settlement, actually and
reasonably incurred by Indemnitee in connection with any threatened, pending or
completed action, suit, claim or proceeding (hereinafter, a "proceeding"),
whether civil, criminal, administrative or investigative, by reason of the fact
that Indemnitee is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation, partnership, joint venture, trust or
other enterprise, and whether or not the cause of such proceeding occurred
before or after the date of this Agreement. Notwithstanding the foregoing, but
except as provided in Section 8 hereof, the Corporation shall indemnify the
Indemnitee in connection with a proceeding (or part thereof) initiated by the
Indemnitee only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation. For purposes of this Agreement, the terms
"corporation," "other enterprise," "fines" and "serving at the request of the
Corporation" shall have the meanings provided in Section 145 of the Delaware
Law.

                  Section 2. PROCEDURE FOR INDEMNIFICATION. Any indemnification
under Section 1 of this Agreement or advance of expenses under Section 5 of this
Agreement shall be made




promptly, and in any event within 15 days, upon the written request of the
Indemnitee. If a determination by the Corporation that the Indemnitee is
entitled to indemnification pursuant to this Agreement is required, and the
Corporation fails to respond within 30 days to a written request for indemnity,
the Corporation shall be deemed to have approved the request. If the Corporation
denies a written request for indemnification or advancement of expenses, in
whole or in part, or if payment in full pursuant to such request is not made
within 15 days after response (or deemed response) by the Corporation, the right
to indemnification or advances as granted by this Agreement shall be enforceable
by the Indemnitee in any court of competent jurisdiction. The Indemnitee's costs
and expenses incurred in connection with successfully establishing his or her
right to indemnification, in whole or in part, in any such action shall also be
indemnified by the Corporation, in accordance with Section 8 of this Agreement.
It shall be a defense by the Corporation to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under applicable law for the
Corporation to indemnify the Indemnitee for the amount claimed, but the burden
of proving such defense shall be on the Corporation and the Indemnitee shall be
presumed to have acted in accordance with such standard unless it shall be
determined that the Indemnitee has not met such standard. Neither the failure of
the Corporation to have made a determination prior to the commencement of any
such action that indemnification of the Indemnitee is proper because the
applicable standard of conduct has been met, nor an actual determination by the
Corporation, shall be a defense to such action or create a presumption that the
Indemnitee has not met the applicable standard of conduct. Determinations
required to be made pursuant to this Agreement shall be made by any of the
following, the final identification of which shall be at the sole discretion of
Indemnitee, to be made after request by the Corporation: (i) the Board of
Directors of the Corporation, by a majority vote of a quorum consisting of
directors who are not parties to the proceeding, (ii) independent legal counsel
in a written opinion, which counsel shall be acceptable to the Indemnitee and
such quorum of the Board of Directors, or (iii) a court of competent
jurisdiction.

                  Section 3. NOTICE TO CORPORATION. Indemnitee shall notify the
Corporation in writing of any matter with respect to which Indemnitee intends to
seek indemnification hereunder as soon as reasonably practicable following the
receipt by Indemnitee of written notice thereof, provided that delay in
notifying the Corporation shall not constitute a waiver by Indemnitee of his or
her rights hereunder.

                  Section 4. INDEMNITEE TO CONTROL DEFENSE. Indemnitee shall
control the defense (including the selection of qualified counsel) of any
proceeding against him or her which may give rise to a right of indemnification
hereunder, PROVIDED, however that (a) if the insurance carrier which shall have
supplied any D&O Coverage (as defined in Section 6 hereof) shall be willing to
conduct such defense without any reservation as to coverage, then unless on
written application by Indemnitee concurred in by the Board of Directors of the
Corporation, Indemnitee and the Board of Directors deem it undesirable, such
insurance carrier shall select counsel to conduct such defense; and (b) in any
case involving two or more defendants who are entitled to indemnification by the
Corporation, separate counsel may be used by Indemnitee only to the extent
necessary to avoid conflicts of interest.

                  Section 5. EXPENSES. In the event of any proceeding against
Indemnitee which may give rise to a right of indemnification pursuant to this
Agreement, following written request to the Corporation by Indemnitee, the
Corporation shall advance to Indemnitee amounts equal to


                                       2


reasonable expenses incurred by Indemnitee in defending such proceeding in
advance of the final disposition thereof upon receipt of (i) an undertaking by
or on behalf of Indemnitee to repay such amount if it shall ultimately be
determined by final judgment of a court of competent jurisdiction that he or she
is not entitled to be indemnified by the Corporation hereunder, in reasonably
customary form and (ii) satisfactory documentation as to the amount of such
expenses. Indemnitee's written certification together with a copy of the
statement paid or to be paid by Indemnitee shall constitute satisfactory
documentation for purposes of subparagraph (ii) hereof absent manifest error.

                  Section 6. INSURANCE. The Corporation shall use all reasonable
efforts to provide Indemnitee with Directors and Officers insurance coverage
("D&O Coverage") providing to Indemnitee coverage no less advantageous than that
currently in effect for directors and officers of the Corporation generally. In
the event such coverage is not available to the Corporation at reasonable cost,
the Corporation shall so notify the Board of Directors as promptly as reasonably
practicable and shall obtain the best coverage then available in the insurance
industry for such cost. The Indemnitee shall not settle any matter for which he
has sought or intends to seek indemnification hereunder without first attempting
to obtain any approval required with respect to such settlement by the insurance
carrier of any applicable D&O Coverage. If the Indemnitee seeks such approval
but such approval is not granted by such insurance carrier, the Indemnitee shall
be entitled to indemnification from the Corporation to the fullest extent
provided by such D&O Coverage or to the fullest extent otherwise provided by
this Agreement, whichever shall be greater. The provision of D&O Coverage by an
insurance carrier at the expense of the Corporation or the failure to so provide
D&O Coverage shall in no way limit or diminish the obligation of the Corporation
to indemnify Indemnitee as provided elsewhere in this Agreement, which
obligation shall be absolute, provided that any amounts actually recovered by
Indemnitee from the insurance carrier providing D&O Coverage shall be applied in
reduction of amounts otherwise owing by the Corporation by reason of its
indemnification under this Agreement.

                  Section 7. SETTLEMENT. Neither the Corporation nor Indemnitee
shall settle or compromise any proceeding covered by this Agreement without
first obtaining written consent to such settlement or compromise from the other,
which consent in no event shall be unreasonably withheld.

                  Section 8. COLLECTION COSTS. In the event Indemnitee is
required to bring any action to enforce rights or to collect amounts due under
this Agreement and is successful in such action, the Corporation shall reimburse
Indemnitee for all of Indemnitee's reasonable fees and expenses (including
reasonable fees and disbursements of counsel) in bringing and pursuing such
action.

                  Section 9. NATURE OF RIGHT. All agreements and obligations of
the Corporation contained herein shall continue during the period Indemnitee is
a director or officer of the Corporation or is or was serving at the request of
the Corporation as a director of another corporation, partnership, joint
venture, trust or other enterprise and shall continue thereafter so long as
Indemnitee shall be subject to any possible claim or threatened, pending or
completed proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that Indemnitee was a director or officer of the
Corporation or serving in any other capacity referred to herein. The
indemnification rights and the rights to payment of expenses granted to
Indemnitee under this Agreement shall not be deemed exclusive of, or in
limitation of, any rights to which Indemnitee may be or hereafter become
entitled under any statute or agreement, the Corporation's


                                       3


Certificate of Incorporation or By-laws, a vote of stockholders or disinterested
directors, or otherwise. The amounts to which Indemnitee is entitled under this
Agreement in connection with a proceeding shall be reduced by the amount of any
other indemnification or reimbursement of such liability and expense to such
person in connection with the same proceeding.

                  Section 10. SUCCESSORS AND ASSIGNS. The rights granted to
Indemnitee hereunder shall inure to the benefit of Indemnitee, his personal
representative, heirs, executors, administrators and beneficiaries, and this
Agreement shall be binding upon the Corporation, its successors and assigns.

                  Section 11. AMENDMENT AND WAIVER. The provisions of this
Agreement may be amended and waived only with the prior written consent of the
Corporation and the Indemnitee.

                  Section 12. MISCELLANEOUS. This Agreement and the rights and
obligations of the parties hereunder shall be governed by the internal laws, and
not the laws of conflict, of the State of Delaware. To the extent permitted by
applicable law, the parties hereby waive any provision of law which renders any
provision in this Agreement unenforceable in any respect. Whenever possible,
each provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision shall be held to
be prohibited by or invalid under applicable law, such provision shall be deemed
amended to accomplish the objectives of the provision as originally written to
the fullest extent permitted by law and all other provisions shall remain in
full force and effect. The captions used in this Agreement are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit, characterize or affect in any way any of the provisions of this
Agreement, and all of the provisions of this Agreement shall be enforced and
construed as if no captions had been used in this Agreement. This Agreement may
be executed in two or more counterparts, each of which shall be deemed to be an
original, and all of which together shall constitute one and the same
instrument.

                                 * * * * * * * *



                                       4


                  IN WITNESS WHEREOF, the parties hereto have executed this
indemnification Agreement as of the date first above written.

                                            POLYMER GROUP, INC.



                                            By:
                                               ---------------------------------

                                            Its:
                                                --------------------------------



                                            ------------------------------------
                                            Indemnitee








                                       5

EX-10.4

                                                                    Exhibit 10.4


                       NOTICE OF TERMINATION OF AGREEMENT



                  Pursuant to Section 3 of the Agreement, dated June 24, 1994
between Polymer Group, Inc., a Delaware corporation (the "Company"), and Jerry
Zucker and James G, Boyd, regarding, among other things, certain rights of first
refusal of the Company which relate to potential business opportunities, the
Company hereby terminates the Agreement in its entirety as of the date hereof .

                  Dated this 11th day of May, 2002.



                                            POLYMER GROUP, INC.


                                            By:___________________________
                                            Name: ________________________
                                            Its: ___________________________


Acknowledged:


_____________________________
Jerry Zucker


_____________________________
James G. Boyd

EX-10.5

                                                                    Exhibit 10.5


     AMENDMENT TO CHANGE OF CONTROL LETTER AGREEMENT

     This Amendment to Change of Control Letter Agreement, dated as of May 11,
2002 (this "Amendment"), by and between Polymer Group, Inc., a Delaware
corporation (the "Company"), and Jerry Zucker ("Executive") amends that certain
letter agreement, dated May 22, 1998, between the Company and Executive (the
"Original Agreement"). Except as otherwise indicated herein, capitalized terms
used herein are defined in the Original Agreement.

     NOW, THEREFORE, the parties hereto herby agree as follows:

1.   AMENDMENT TO ORIGINAL AGREEMENT. The Original Agreement is hereby amended
     to add thereto Section 8.5 as follows:

     8.5  If it is determined that any payments hereunder, either separately or
          in conjunction with any other payments, benefits and entitlements
          received by Executive hereunder, would constitute an "excess parachute
          payment" within the meaning of Section 280G of the Internal Revenue
          Code of 1986, as amended (the "Code"), and thereby be subject to the
          excise tax imposed by Section 4999 of the Code (the "Excise Tax"),
          then in such event, PGI shall be obligated to pay to Executive
          promptly following such determination and upon notice thereof a
          "gross-up" payment in an amount equal to the amount of such Excise
          Tax, plus all federal and state income or other taxes with respect to
          the payment of the amount of such Excise Tax, including all such taxes
          (including any additional Excise Tax) with respect to any such
          gross-up payment.

2.   CONTINUING EFFECT OF ORIGINAL AGREEMENT. Except as expressly amended
     hereby, all of the provisions of the Original Agreement are ratified and
     confirmed and remain in full force and effect.

3.   GOVERNING LAW. All issues and questions concerning the construction,
     validity, enforcement and interpretation of this Amendment shall be
     governed by, and construed in accordance with, the laws of the State of
     South Carolina, without giving effect to any choice of law or conflict of
     law rules or provisions (whether of the State of South Carolina or any
     other jurisdiction) that would cause the application of the laws of any
     jurisdiction other than the State of South Carolina.

4.   COUNTERPARTS. This Amendment may be executed simultaneously in two or more
     counterparts (including by means of telecopied signature
     pages), any one of which need not contain the signatures of more than one
     party, but all such counterparts taken together shall constitute one and
     the same instrument.

Dated this 11th day of May, 2002.


POLYMER GROUP, INC.

By:___________________________                     _____________________________
Name: ________________________                     Jerry Zucker
Its: _________________________

EX-10.6

                                                                    Exhibit 10.6


                 AMENDMENT TO CHANGE OF CONTROL LETTER AGREEMENT

     This Amendment to Change of Control Letter Agreement, dated as of May 11,
2002 (this "Amendment"), by and between Polymer Group, Inc., a Delaware
corporation (the "Company"), and James G. Boyd ("Executive") amends that certain
letter agreement, dated May 22, 1998, between the Company and Executive (the
"Original Agreement"). Except as otherwise indicated herein, capitalized terms
used herein are defined in the Original Agreement.

     NOW, THEREFORE, the parties hereto herby agree as follows:

1.   AMENDMENT TO ORIGINAL AGREEMENT. The Original Agreement is hereby amended
     to add thereto Section 8.5 as follows:

     8.5  If it is determined that any payments hereunder, either separately or
          in conjunction with any other payments, benefits and entitlements
          received by Executive hereunder, would constitute an "excess parachute
          payment" within the meaning of Section 280G of the Internal Revenue
          Code of 1986, as amended (the "Code"), and thereby be subject to the
          excise tax imposed by Section 4999 of the Code (the "Excise Tax"),
          then in such event, PGI shall be obligated to pay to Executive
          promptly following such determination and upon notice thereof a
          "gross-up" payment in an amount equal to the amount of such Excise
          Tax, plus all federal and state income or other taxes with respect to
          the payment of the amount of such Excise Tax, including all such taxes
          (including any additional Excise Tax) with respect to any such
          gross-up payment.

2.   CONTINUING EFFECT OF ORIGINAL AGREEMENT. Except as expressly amended
     hereby, all of the provisions of the Original Agreement are ratified and
     confirmed and remain in full force and effect.

3.   GOVERNING LAW. All issues and questions concerning the construction,
     validity, enforcement and interpretation of this Amendment shall be
     governed by, and construed in accordance with, the laws of the State of
     South Carolina, without giving effect to any choice of law or conflict of
     law rules or provisions (whether of the State of South Carolina or any
     other jurisdiction) that would cause the application of the laws of any
     jurisdiction other than the State of South Carolina.

4.   COUNTERPARTS. This Amendment may be executed simultaneously in two or more
     counterparts (including by means of telecopied signature pages), any one of
     which need not contain the signatures of more than one party, but all such
     counterparts taken together shall constitute one and the same instrument.

Dated this 11th day of May, 2002.


POLYMER GROUP, INC.

By:___________________________                     _____________________________
Name: ________________________                     James G. Boyd
Its: _________________________

EX-99.3

                                                                    Exhibit 99.3


[LOGO]                                                       POLYMER GROUP, INC.
                                                                   P.O. BOX 5069
                                                        N. CHARLESTON, SC  29405
                                                       CONTACT:  ROBERT JOHNSTON
                                                                    843-566-7293


- --------------------------------------------------------------------------------
                       PGI INVESTOR RELATIONS NEWS RELEASE
- --------------------------------------------------------------------------------

            POLYMER GROUP, INC. RECEIVES FINAL COURT APPROVAL FOR ITS
                           $125 MILLION DIP FACILITY


FOR IMMEDIATE RELEASE

FRIDAY, MAY 31, 2002

[NORTH CHARLESTON, SOUTH CAROLINA] -- Polymer Group, Inc. (OTCBB: PMGPQ)
announced today that it received final approval from the U.S. Bankruptcy Court
in Columbia, South Carolina to access its $125 million debtor-in-possession
(DIP) facility.

On May 11, 2002, Polymer Group, Inc. and 20 domestic subsidiaries filed
voluntary petitions for a "pre-negotiated" reorganization under Chapter 11 of
the U.S. Bankruptcy Code. In conjunction with the Chapter 11 filing, the Company
received commitments for up to $125 million in debtor-in-possession (DIP)
financing from a group of lenders led by JPMorgan Chase that will be used to
fund post-petition operating expenses and to meet supplier and employee
obligations. The Company had already received prior approvals from the court,
which included among others, approvals to continue to pay employee wages and
benefits, pay suppliers for post-petition delivery of goods and services and to
continue ordinary customer programs and practices.

As part of the "pre-negotiated" reorganization, the Company has a commitment for
up to $75 million from CSFB Global Opportunities Partners, L.P., a New
York-based investment fund, and holder of more than two-thirds in principal
amount of the Company's outstanding Senior Subordinated Notes.




Polymer Group, Inc., the world's third largest producer of nonwovens, is a
global, technology-driven developer, producer and marketer of engineered
materials. With the broadest range of process technologies in the nonwovens
industry, PGI is a global supplier to leading consumer and industrial product
manufacturers. The Company employs approximately 4,000 people and operates 25
manufacturing facilities throughout the world. Polymer Group, Inc. is the
exclusive manufacturer of Miratec(R) fabrics, produced using the Company's
proprietary advanced APEX(R) laser and fabric forming technologies. The Company
believes that Miratec(R) has the potential to replace traditionally woven and
knit textiles in a wide range of applications. APEX(R) and Miratec(R) are
registered trademarks of Polymer Group, Inc.

Except for historical information contained herein, the matters set forth in
this press release are forward-looking statements that involve certain risks and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. Factors that may cause actual
results to differ from those indicated in forward-looking statements can
include, but are not limited to, the following: (i) the filing of the voluntary
petitions under Chapter 11 of the U.S. Bankruptcy Code by the Company and its
domestic subsidiaries; (ii) increased competition in markets in which the
Company competes, (iii) increased costs, (iv) changes in conditions of the
general economy, and (v) the Company's substantial leverage position. Investors
and other readers are directed to consider the risks and uncertainties discussed
in documents filed by Polymer Group, Inc. with the Securities and Exchange
Commission, including the Company's 2001 Annual Report on Form 10-K.

For further information, please contact:

         Robert Johnston or
         Dennis Norman
         Polymer Group, Inc.
         P.O. Box 5069
         North Charleston, SC 29405
         Telephone  No.:   (843) 566-7293
         Web:              www.polymergroupinc.com
         E-mail:           johnstonr@pginw.com