-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TyTpbhgh4vUzni8+S4RH3TK3AHZlapFXDtvClr0/OpOjzUR4SR0BbSzAYIUnj71l dNtNJARdYEjgBfZiQy5jLg== 0000950168-98-003600.txt : 19981118 0000950168-98-003600.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950168-98-003600 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLUMA INC CENTRAL INDEX KEY: 0000829044 STANDARD INDUSTRIAL CLASSIFICATION: KNIT OUTERWEAR MILLS [2253] IRS NUMBER: 561541893 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12763 FILM NUMBER: 98753029 BUSINESS ADDRESS: STREET 1: 801 FIELDCREST RD CITY: EDEN STATE: NC ZIP: 27288 BUSINESS PHONE: 9106354000 10-Q 1 PLUMA, INC. 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998........................... OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from.................to........................... Commission file number.......333-18755..................................... ............................................Pluma, Inc.......... (Exact name of registrant as specified in its charter) North Carolina 56-1541893 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) .................................................................. (Address of principal executive offices) (Zip Code) ............801 Fieldcrest Road, Eden, North Carolina 27289................ (Registrant's telephone number, including area code) ..............................(336) 635-4000................................ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ...... No........ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date 8,109,152 shares of common stock, no par value, as of November 14, 1998.
PLUMA, INC. INDEX TO FORM 10-Q - ------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements Balance Sheets - September 30, 1998 and December 31, 1997 3 Statements of Operations - Three Months and Nine Months Ended September 30, 1998 and 1997 4 Statements of Cash Flows - Nine Months Ended September 30, 1998 and 1997 5 Notes to Financial Statements 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-10 PART II - OTHER INFORMATION Item 2. Changes in Security 8 Item 6. Exhibits and Reports on Form 8-K 10
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PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PLUMA, INC. BALANCE SHEETS - -------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) SEPTEMBER 30, DECEMBER 31, 1998 1997 ASSETS Current assets: Cash $ 2,563,866 $ 1,875,992 Accounts receivable (less allowance - 1998, $1,734,356; 1997, $2,353,577) 39,047,472 32,001,332 Refundable income taxes 4,676,055 1,952,796 Other receivables -- 1,906,178 Deferred income taxes 1,251,001 1,539,385 Inventories 69,555,782 51,177,900 Other current assets 818,357 1,168,663 ------------ ------------ Total current assets 117,912,533 91,622,246 ------------ ------------ Property, plant and equipment: Land 929,689 929,689 Land improvements 719,699 719,699 Buildings and improvements 17,042,915 16,663,608 Machinery and equipment 42,848,548 36,420,561 Construction in process 9,343,301 4,762,235 ------------ ------------ Total property, plant and equipment 70,884,152 59,495,792 Less accumulated depreciation 24,667,198 21,496,857 ------------ ------------ Property, plant and equipment, net 46,216,954 37,998,935 ------------ ------------ Other assets: Goodwill (less accumulated amortization - 1998, $1,333,840; 1997, $26,655 33,524,461 34,831,646 Other 2,570,554 1,533,840 ------------ ------------ Total other assets 36,095,015 36,365,486 ------------ ------------ Total $200,224,502 $165,986,667 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt 109,393,000 44,117,982 Accounts payable 22,120,728 12,057,069 Accrued expenses 5,923,435 2,472,458 ------------ ------------ Total current liabilities 137,437,163 58,647,509 ------------ ------------ Long-term debt -- 40,000,000 ------------ ------------ Deferred income taxes 4,428,823 3,671,301 ------------ ------------ Commitments and contingencies Shareholders' equity: Preferred stock, no par value, 1,000,000 shares authorized Common stock, no par value, 15,000,000 shares authorized, shares issued and outstanding - 1998, 8,109,152; 1997, 8,109,152 36,849,127 36,849,127 Retained earnings 21,509,389 26,818,730 ------------ ------------ Total shareholders' equity 58,358,516 63,667,857 ------------ ------------ Total $200,224,502 $165,986,667 ============ ============
The accompanying notes are an integral part of these statements. 3
PLUMA, INC. STATEMENTS OF OPERATIONS - ---------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) (UNAUDITED) THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997 1998 1997 Net sales $ 54,608,997 $ 38,965,527 $ 144,865,133 $ 99,477,525 Cost of goods sold 51,639,967 34,068,210 133,250,402 84,714,875 ------------- ------------- ------------- ------------- Gross profit 2,969,030 4,897,317 11,614,731 14,762,650 Selling, general and administrative expenses 4,750,727 1,738,339 13,768,792 7,043,811 ------------- ------------- ------------- ------------- Income (loss) from operations (1,781,697) 3,158,978 (2,154,061) 7,718,839 ------------- ------------- ------------- ------------- Other income (expenses): Interest expense (2,151,012) (519,051) (5,481,849) (1,697,223) Amortization of goodwill (435,728) -- (1,307,185) -- Other income 108,431 158,139 595,073 407,878 ------------- ------------- ------------- ------------- Total other expenses, net (2,478,309) (360,912) (6,193,961) (1,289,345) ------------- ------------- ------------- ------------- Income (loss) before income taxes (4,260,006) 2,798,066 (8,348,022) 6,429,494 ------------- ------------- ------------- ------------- Income taxes (benefit) (1,550,642) 1,029,688 (3,038,681) 2,366,054 ------------- ------------- ------------- ------------- Net income (loss) $ (2,709,364) $ 1,768,378 $ (5,309,341) $ 4,063,440 ============= ============= ============= ============= Earnings per common share - basic and diluted $ (.33) $ .22 $ (.65) $ .55 ============= ============= ============= ============= Weighted average number of shares outstanding 8,109,152 8,109,152 8,109,152 7,366,625 ============= ============= ============= =============
The accompanying notes are an integral part of this statement. 4
PLUMA, INC. STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------------------------ (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (5,309,341) $ 4,063,440 Adjustments to reconcile net income to net cash used in operating activities: Provision for depreciation 3,328,491 3,018,571 Provision for amortization 1,382,188 Other, net (45,278) (1,162) Increase in accounts receivable (5,139,962) (18,615,617) Increase in deferred income taxes 1,045,906 305,680 Increase in inventories (18,377,882) (984,971) (Increase) decrease in other current assets 350,306 344,065 Increase in accounts payable 10,063,659 2,268,856 (Increase) decrease in refundable income taxes (2,723,259) (691,437) Increase in accrued expenses 3,450,977 806,308 ------------ ------------ Net cash used in operating activities (11,974,195) (9,486,267) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (11,556,132) (8,814,148) Other, net (1,056,817) (218,320) ------------ ------------ Net cash used in investing activities (12,612,949) (9,032,468) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of subordinated debt (849,640) (849,640) Proceeds from issuance of long term debt 26,124,658 0 Net repayments of revolving loan (10,266,437) Net proceeds from sale of common stock 29,626,577 Payment of dividends (144,451) Net cash provided by financing activities 25,275,018 18,366,049 ------------ ------------ Net increase (decrease) in cash 687,874 (152,686) Cash, beginning of period 1,875,992 291,488 ------------ ------------ Cash, end of period $ 2,563,866 $ 138,802 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of amounts capitalized) $ 4,708,255 $ 1,889,717 Income taxes $ 57,500 $ 2,751,811 Cash received during the period for: Income taxes $ 1,400,829 -
The accompanying notes are an integral part of this statement. 5 PLUMA, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1998 - ------------------------------------------------------------------------------- 1. ACCOUNTING POLICIES The accompanying unaudited financial statements of Pluma, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim periods. In the opinion of management, these financial statements include all adjustments, including all normal recurring accruals, necessary for a fair presentation of the financial position at September 30, 1998 and December 31, 1997, the results of operations for the three months and nine months ended September 30, 1998 and 1997 and cash flows for the nine months ended September 30, 1998 and 1997. The operating results for the three months and nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the full year ending December 31, 1998. In December 1997, the Company purchased certain assets and assumed liabilities of Stardust Corporation ("Stardust") and Frank L. Robinson Company ("FLR)". The acquisitions have been accounted for as purchases. Accordingly, the assets, liabilities, revenues and expenses of the acquired businesses are included in the financial statements as of December 31, 1997, and for the three months and nine months ended September 30, 1998. 2. INVENTORIES Inventories consist of the following: (UNAUDITED) SEPTEMBER 30, DECEMBER 31, 1998 1997 At FIFO cost: Raw materials $ 1,653,181 $ 1,429,371 Work-in-progress 11,167,268 6,077,538 Finished goods 61,682,367 45,885,484 Production supplies 1,114,864 953,147 -------------- --------------- 75,617,680 54,345,540 Excess of FIFO over LIFO cost (3,587,439) (1,846,435) -------------- --------------- 72,030,241 52,499,105 Excess of cost over market (2,474,459) (1,321,205) -------------- --------------- $ 69,555,782 $ 51,177,900 ============== =============== 3. CAPITAL STOCK On January 28, 1997, the Board of Directors declared a 0.736-for-one reverse common stock split for shareholders of record on February 3, 1997. All references in the accompanying financial statements to the number of common shares and per share amounts reflect the reverse stock split. 6 In March 1997, the Company completed its initial public offering of 2,500,000 shares of Common Stock at $12.00 per share. The $26,400,000 net proceeds were used to reduce debt. In April 1997, the Underwriters' over-allotment option for 293,300 shares of Common Stock at $12.00 per share was exercised. The $3,300,000 net proceeds were used to reduce debt. 4. STOCK OPTIONS In May 1995, the Company adopted the 1995 Stock Option Plan in which 515,200 shares of the Company's Common Stock may be issued. The exercise price of the options may not be less than the fair value of the Common Stock on the date of grant. The options granted become exercisable at such time or times as shall be determined by the Compensation Committee of the Board of Directors (the "Committee"). The Committee may at any time accelerate the exercisability of all or any portion of any stock option. These options expire, if not exercised, ten years from the date of grant. Participants in the Plan may be independent contractors or employees of independent contractors, full or part-time officers and other employees of the Company, or independent directors of the Company. In April 1996 and October 1995, the Company granted 32,384 and 379,776 options, respectively, to purchase Common Stock at an exercise price of $13.077 per share of which 181,352 and 180,763 options are exercisable as of September 30, 1998 and December 31, 1997, respectively. Forfeited options were 40,627 as of September 30, 1998 and 31,795 as of December 31, 1997. Expired options were 6,477 shares as of September 30, 1998 and 589 shares as of December 31, 1997. The remaining 183,704 options become exercisable on the anniversary dates of the grants as follows: YEAR SHARES 1998 54,759 1999 61,236 2000 61,234 2001 6,475 ---------- 183,704 ========== The Company applies APB Opinion No. 25 and related interpretations in accounting for the 1995 Stock Option Plan. Accordingly, no compensation cost has been recognized since the exercise price approximates the fair value of the stock price at the grant dates. Had compensation cost been determined based on the fair value at the grant date consistent with the method of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", the Company's net income and earnings per share would have been effected for the three months and nine months ended September 30, 1998 and 1997 as indicated below:
Three Months Nine Months Ended June 30, Ended June 30, 1998 1997 1998 1997 Net Income: As reported $ (2,709,364) $ 1,768,378 $ (5,309,341) $ 4,063,440 Pro forma $ (2,737,554) $ 1,717,064 $ (5,396,291) $ 3,909,499 Earnings per Share: As reported $ (.33) $ .22 $ (.65) $ .55 Pro forma $ (.34) $ .21 $ (.67) $ .53
7 5. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") which changes the method of computing and presenting earnings per share. SFAS 128 requires the presentation of basic earnings per share and diluted earnings per share ("EPS") on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average shares of outstanding common stock. The calculation of diluted earnings per share is similar to basic earnings per share except that the denominator includes dilutive common stock equivalents such as stock options and warrants. SFAS 128 is effective for financial statements for periods ending after December 15, 1997 and early adoption is not permitted. Outstanding options to purchase shares of common stock were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market prices of the common shares during the three months and nine months ended September 30, 1998 and 1997. Accordingly, there were no differences in the numerators and denominators used in the basic EPS and diluted EPS computations. 6. LONG-TERM DEBT In April 1998, the Company replaced its existing debt with a $115.0 million syndicated credit facility (the "Syndicated Credit Facility"). The Syndicated Credit Facility permits revolving loans of up to $70.0 million (the "Revolving Loan") and term loans of up to $45.0 million (the "Term Loans"). Any amounts outstanding under the Revolving Loans mature in April, 2003. Term Loan borrowings will be due in specified quarterly installments beginning in April, 1999 with a final maturity in January, 2003. Among the various provisions, limitations and restrictions contained in the Syndicated Credit Facility, the Company must meet specified consolidated net worth, leverage ratio, fixed charge coverage ration, funded debt to total capitalization ratio and consolidated earnings before the effect of interest expense, income taxes depreciation and amortization requirements. Under the Syndicated Credit Facility, the Company is restricted in the amount of its capital expenditures, indebtedness to certain other parties, payment of dividends, or redemption of its stock that would create an event of default, unless a waiver is obtained, any unpaid principal and accrued interest may be declared immediately due and payable. The Syndicated Credit Facility may be terminated at any time upon the occurrence of an event of default. The Company retains the right to remedy certain events of default within 30 days after notice. The Company was not in compliance with certain covenants and had not obtained the respective waivers as of September 30, 1998. Accordingly, all debt as of September 30, 1998 has been classified as current. 7. NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Comprehensive Income" ("SFAS 130"), which established standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. This statement divides comprehensive income into net income and other comprehensive income. For the three months and nine months ended September 30, 1998 and 1997, the Company had no items of other comprehensive income. 8 In June 1997, SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information", was issued, establishing standards for the way public enterprises report information about operating segments in annual financial statements. This statement also requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. The Company will be required to apply the provisions of this statement beginning with the annual report issued for the year ending December 31, 1998. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion and analysis should be read in conjunction with the financial statements and related notes of this Quarterly Report on Form 10-Q and in conjunction with the Company's 1997 Annual Report. RESULTS OF OPERATIONS (UNDAUDITED) (UNDAUDITED) THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 1998 1997 1998 1997 Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 94.6 87.4 92.0 85.2 ------ ----- ---- ---- Gross profit 5.4 12.6 8.0 14.8 Selling, general and administrative expenses 8.7 4.5 9.5 7.0 ------ ----- --- --- Income (loss) from operations (3.3) 8.1 (1.5) 7.8 Other expenses, net 4.5 0.9 4.3 1.3 --- --- --- --- Income (loss) before income taxes (7.8) 7.2 (5.8) 6.5 Income taxes (benefit) (2.8) 2.7 (2.1) 2.4 ----- --- ------ --- Net income (loss) (5.0)% 4.5% (3.7)% 4.1% --- --- --- --- Three Months and Nine Months Ended September 30, 1998 ("1998"), Compared to Three Months and Nine Months Ended September 30, 1997 ("1997") NET SALES Net sales for the nine months ended September 30, 1998 were $144.9 million, an increase of $45.4 million, or 45.6%, over net sales of $99.5 million for the first nine months of 1997. This increase in net sales was attributable to the inclusion of sales from FLR and Stardust which were acquired by the Company in December of 1997. This increase in sales, however, was lower than anticipated due to a short supply of specific inventory styles. This shortage of inventory was due, in part, to problems associated with system design and procedural aspects of the SAP management information system which is currently being implemented by the Company. Additionally, sales from FLR and Stardust were lower than anticipated due to a temporary supply disruption of inventory that occurred during the second quarter of 1998. GROSS MARGINS Gross margins declined to 5.4% and 8.0% for the third quarter and first nine months of 1998, respectively, from 12.6% and 14.8% in the comparable periods of 1997. The decline was the result of lower fabric yield, a shift in product mix, and an increase in supplies expense. Fabric yield was adversely impacted due to problems associated with system design and procedural aspects of the SAP management information system which is currently being implemented by the Company. Steps have been or are being taken to correct this problem. Orders for product shifted to a higher percentage of larger sized goods during the first nine months of 1998 relative to the same period in 1997. Due to a competitive market environment, the Company is not always able to offset the higher production costs associated with larger sized product with higher selling prices. Supplies expense increased as the Company provided manufacturing and shipping supplies to a greater number of outside contractors during the first nine months of 1998 than had been utilized in the same period of 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") For the first nine months, SG&A expenses increased 95.5% to $13.8 million in 1998 from $7.0 million in 1997. SG&A as a percent of sales for 1998 was 9.5% compared to 7.0% in 1997. This increase in SG&A expense is primarily attributable to the inclusion of expenses from FLR and Stardust in the first nine months of 1998. OTHER EXPENSES, NET Other expenses, net, increased 586.7% to $2.5 million in the third quarter of 1998 and 380.4% to $6.2 million in the first nine months of 1998. This increase was due to an increase in interest expense and amortization expense associated with the acquisitions made in December of 1997. INCOME TAXES The effective tax rate was 36.4% in 1998 and 36.8% 1997. LIQUIDITY AND CAPITAL RESOURCES PRINCIPAL SOURCES OF LIQUIDITY Principal sources of liquidity have been net proceeds from the Company's initial public offering and bank financing. In March 1997, the Company completed its initial public offering of 2,500,000 shares of common stock at $12.00 per share. Upon the exercise of an overallotment option in April 1997, the Company issued an additional 293,300 shares at $12.00 per share. The $29.6 million in net proceeds from the issuance of Common Stock was used to reduce debt. The company entered into a $115.0 million syndicated credit facility (the "Syndicated Credit Facility") in April, 1998. The Syndicated Credit Facility permits revolving loans of up to $70.0 million (the "Revolving Loans") and term loans of up to $45.0 million (the "Term Loans"). Any amounts outstanding under the Revolving Loans mature in April, 2003. Term Loan borrowings will be due in specified quarterly installments beginning in April, 1999 with a final maturity in January, 2003. The Syndicated Credit Facility has been amended by the First Amendment to Credit Agreement and Waiver entered into as of August 27, 1998, the Second Amendment to Credit Agreement entered into as of September 30, 1998, and the Third Amendment to Credit Agreement entered into as of November 16, 1998 (the "Credit Agreement Amendments"). The provisions of the Credit Agreement Amendments include, among other things, the addition of up to $4.0 million to the Company's calculated borrowing base under the Revolving Loans. The $4.0 million addition to the Company's calculated borrowing base provided in the Third Amendment to Credit Agreement expires on November 30, 1998. Among the various provisions, limitations and restriction contained in the Syndicated Credit Facility, the Company must meet specified consolidated net worth, leverage ratio, fixed charge coverage ratio, funded debt to total capitalization ratio and consolidated earnings before the effect of interest expense, income taxes, depreciation and amortization requirements. Under the Syndicated Credit Facility, the Company is restricted in the amount of its capital expenditures, indebtedness to certain other parties, payment of dividends, or redemption of its stock that would create an event of default. In the event of default, unless a waiver is obtained, any unpaid principal and accrued interest may be declared immediately due and payable. The Syndicated Credit Facility may be terminated at any time upon the occurrence of an event of default. The Company retains the right to remedy certain events of default with 30 days after notice. The Company was not in compliance with certain covenants and had not obtained waivers as of September 30, 1998. As of September 30, 1998, the Company was required to have a consolidated net worth greater than or equal to $62.5 million, a fixed charge coverage ratio of no less than 1.50 to 1.0, and consolidated earnings before the effect of interest expense, income taxes, depreciation and amortization greater than or equal to $20 million. As of September 30, 1998, the Company had a consolidated net worth of $58.4 million, a fixed charge coverage ratio of (0.37) to 1, and consolidated earnings before the effect of interest expense, income taxes, depreciation and amortization of $12.5 million. The lenders party to the Syndicated Facility have agreed to forbear exercising their rights and remedies arising from the Company's covenant violations until December 31, 1998 and to continue to make available to the Company the loans provided under the Syndicated Credit Facility. CASH FLOWS FROM OPERATING ACTIVITIES For the nine months ended September 30, 1998 and 1997, net cash used in operating activities totaled $12.0 million and $9.5 million, respectively. Accounts receivable, net increased $5.1 million from December 31, 1997 to September 30, 1998 due to increased sales volume and the seasonality of activewear shipments. Inventories increased $18.4 million from December 31, 1997 to September 30, 1998 in order to support shipments due in the next six months. These uses of cash were offset primarily by an increase in accounts payable of $10.1 million. CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures were $11.6 million for the nine months ended September 30, 1998. These capital expenditures were primarily to enhance manufacturing and management information systems capabilities. CASH FLOWS FROM FINANCING ACTIVITIES For the nine months ended September 30, 1998, the Company had net borrowings of $25.3 million to help meet working capital and capital expenditure financing needs. Forward Looking Statements Information in this form 10-Q may contain certain forward looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, the actual costs of operating the Company's business, actual operating performance, the ability to maintain large client contracts or to enter into new contracts and the level of demand for the Company's product. Additional factors that could cause actual results to differ are discussed in the Company's recent filings with the Securities and Exchange Commission. PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITY On January 28, 1997, the Board of Directors declared a 0.736-for-one reverse Common Stock split for shareholders of record on February 3, 1997. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits Exhibit Number Filed Herewith (*) 6.1 First Amendment to Credit Ageement 6.2 Second Amendment to Credit Agreement 6.3 Third Amendment to Credit Agreement 6.4 Forbearance Agreement 6.5 Cash Collateral Security Agreement 11.1 Computation of Earnings per Share * b. Reports on Form 8-K None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Pluma, Inc. ----------------------------------- R. Duke Ferrell, Jr. President, Chief Executive Officer and Director ----------------------------------- Forrest H. Truitt II Executive Vice President, Treasurer and Chief Financial Officer 9 EX-6 2 EXHIBIT 6.1 FIRST AMENDMENT TO ------------------ CREDIT AGREEMENT AND WAIVER --------------------------- THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER (hereinafter, the "Amendment") is entered into as of August 27, 1998 among PLUMA, INC., a North Carolina corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on behalf of the Lenders (the "Agent"). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings given to them in the Credit Agreement. RECITALS -------- WHEREAS, the Borrower, the Agent and the Lenders are parties to that certain Credit Agreement dated as of April 23, 1998 (as amended, modified, supplemented, extended or restated from time to time, the "Credit Agreement"); WHEREAS, Events of Default currently exist under the Credit Agreement (the "Existing Defaults") as a result of the failure of the Credit Parties to comply as of the fiscal quarter ending June 30, 1998 with the terms of Section 7.11(b) of the Credit Agreement, Section 7.11(d) of the Credit Agreement and Section 7.11(e) of the Credit Agreement; WHEREAS, the Borrower has requested that the Lenders provide a limited waiver of the Existing Defaults and continue to make available to the Borrower the Loans provided under the Credit Agreement; and WHEREAS, the Lenders are willing to provide a limited waiver of the Existing Defaults and continue to make available to the Borrower the Loans, based upon and subject to the terms and conditions specified in this Amendment and, in connection therewith, the Required Lenders have directed the Agent to execute this Amendment. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Reaffirmation of Existing Debt. The Credit Parties acknowledge and confirm (a) that the Agent, on behalf of the Lenders, has a valid and enforceable first priority perfected security interest in the Collateral, (b) that the Borrower's obligation to repay the outstanding principal amount of the Loans and reimburse the Issuing Lender for any drawing on a Letter of Credit is unconditional and not subject to any offsets, defenses or counterclaims, (c) that the Agent and the Lenders have performed fully all of their respective obligations under the Credit Agreement and the other Credit Documents, and (d) by entering into this Amendment, the Lenders do not waive (except for the limited waiver of the Existing Defaults) or release any term or condition of the Credit Agreement or any of the other Credit Documents or any of their rights or remedies under such Credit Documents or applicable law or any of the obligations of any Credit Party thereunder. 2. Limited Waiver. The Borrower acknowledges that it is not in compliance with the financial covenants contained in Section 7.11(b), Section 7.11(d) and Section 7.11(e) of the Credit Agreement (the "Existing Defaults"). The Lenders hereby waive the Existing Defaults for the period from June 30, 1998 through September 29, 1998, subject to the terms and conditions set forth herein. This limited waiver shall not modify or affect (a) the Borrower's obligation to comply with Section 7.11(b), Section 7.11(d) and Section 7.11(e) on and at all times after September 30, 1998 and (b) the Borrower's obligation to comply fully with any other duty, term, condition or covenant contained in the Credit Agreement and the other Credit Documents. Nothing herein contained shall be deemed to constitute a waiver of any rights or remedies the Agent or any Lender may have under the Credit Agreement or any other Credit Documents or under applicable law. 3. New Definition. The following definition is hereby added to Section 1.1 of the Credit Agreement: "NEW CONSULTANT" SHALL HAVE THE MEANING PROVIDED SUCH TERM IN SECTION 7.19 HEREOF. 4. Amended Definitions. ------------------- (a) The definition of "Applicable Percentage" set forth in Section 1.1 of the Credit Agreement is amended and restated in its entirety to read as follows: "APPLICABLE PERCENTAGE" MEANS, FOR PURPOSES OF CALCULATING (I) THE APPLICABLE INTEREST RATE FOR ANY REVOLVING LOAN OR ANY TERM LOAN, (A) FOR EURODOLLAR LOANS, 3.75% THROUGH AND INCLUDING SEPTEMBER 21, 1998 AND 3.50% AT ALL TIMES AFTER SEPTEMBER 21, 1998 AND (B) FOR BASE RATE LOANS, 1.00% THROUGH AND INCLUDING SEPTEMBER 21, 1998 AND .75% AT ALL TIMES AFTER SEPTEMBER 21, 1998, (II) THE APPLICABLE RATE OF THE UNUSED FEE FOR ANY DAY FOR PURPOSES OF SECTION 3.5(B), .375% AND (C) THE APPLICABLE RATE FOR THE LETTER OF CREDIT FEE FOR ANY DAY, 3.50%. (b) The definition of "Borrowing Base" set forth in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85% OF ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH CASE AS SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE DELIVERED TO THE AGENT AND THE LENDERS IN ACCORDANCE WITH THE TERMS OF SECTION 7.1(C) AND (C) DURING THE PERIOD (I) FROM AND INCLUDING AUGUST 27, 1998 THROUGH AND INCLUDING SEPTEMBER 11, 1998, $4,000,000, (II) FROM AND INCLUDING SEPTEMBER 12, 1998 THROUGH AND INCLUDING SEPTEMBER 21, 1998, $2,000,000, AND (III) AFTER SEPTEMBER 21, 1998, $0. 2 5. Minimum Amounts. Section 2.1(b)(ii) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(II) MINIMUM AMOUNTS. EACH EURODOLLAR LOAN THAT IS A REVOLVING LOAN SHALL BE IN A MINIMUM AGGREGATE PRINCIPAL AMOUNT OF $2,000,000 AND INTEGRAL MULTIPLES OF $500,000 IN EXCESS THEREOF (OR THE REMAINING AMOUNT OF THE REVOLVING COMMITTED AMOUNTS, IF LESS) AND EACH BASE RATE LOAN THAT IS A REVOLVING LOAN SHALL BE IN A MINIMUM AGGREGATE PRINCIPAL AMOUNT OF $500,000 AND INTEGRAL MULTIPLES OF $100,000 IN EXCESS THEREOF (OR THE REMAINING AMOUNT OF THE REVOLVING COMMITMENT, IF LESS). 6. Voluntary Prepayments. Section 3.3(a) of the Credit Agreement is hereby amended to provide that partial prepayments of Loans (other than Swingline Loans) shall be in a minimum principal amount of $2,000,000 and integral multiples of $100,000 in excess thereof. 7. Year 2000 Compliance. A new Section 6.25 is hereby added to the Credit Agreement and shall read as follows: 6.25 YEAR 2000 COMPLIANCE. -------------------- EACH CREDIT PARTY HAS (I) INITIATED A REVIEW AND ASSESSMENT OF ALL AREAS WITHIN ITS AND EACH OF ITS SUBSIDIARIES' BUSINESS AND OPERATIONS THAT COULD REASONABLY BE EXPECTED TO BE ADVERSELY AFFECTED BY THE "YEAR 2000 PROBLEM" (THAT IS, THE RISK THAT COMPUTER APPLICATIONS USED BY SUCH CREDIT PARTY OR ANY OF ITS SUBSIDIARIES MAY BE UNABLE TO RECOGNIZE AND PERFORM PROPERLY DATE-SENSITIVE FUNCTIONS INVOLVING CERTAIN DATES PRIOR TO AND ANY DATE AFTER DECEMBER 31, 1999), (II) DEVELOPED A PLAN AND TIMELINE FOR ADDRESSING THE YEAR 2000 PROBLEM ON A TIMELY BASIS, AND (III) TO DATE, IMPLEMENTED THAT PLAN IN ACCORDANCE WITH THE TIMETABLE. BASED ON THE FOREGOING, EACH CREDIT PARTY BELIEVES THAT ALL COMPUTER APPLICATIONS THAT ARE MATERIAL TO ITS AND ANY OF ITS SUBSIDIARIES' BUSINESS AND OPERATIONS ARE REASONABLY EXPECTED ON A TIMELY BASIS TO BE ABLE TO PERFORM PROPERLY DATE-SENSITIVE FUNCTIONS FOR ALL DATES BEFORE AND AFTER JANUARY 1, 2000 (THAT IS, BE "YEAR 2000 COMPLIANT"), EXCEPT TO THE EXTENT THAT A FAILURE TO DO SO COULD NOT REASONABLY BE EXPECTED TO HAVE MATERIAL ADVERSE EFFECT. 8. Financial Statements. Section 7.1(b) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: (B) MONTHLY FINANCIAL STATEMENTS. AS SOON AS AVAILABLE, AND IN ANY EVENT WITHIN 30 DAYS AFTER THE CLOSE OF EACH CALENDAR MONTH (I) A CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT OF THE CONSOLIDATED PARTIES, AS OF THE END OF SUCH CALENDAR MONTH, TOGETHER WITH RELATED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS AND OF CASH FLOWS FOR SUCH CALENDAR MONTH IN EACH CASE SETTING FORTH IN COMPARATIVE FORM CONSOLIDATED FIGURES FOR THE CORRESPONDING PERIOD OF THE PRECEDING FISCAL YEAR AND (II) A CONSOLIDATING BALANCE SHEET AND INCOME 3 STATEMENT OF THE BORROWER AND ITS MATERIAL SUBSIDIARIES, AS OF THE END OF SUCH CALENDAR MONTH, TOGETHER WITH RELATED CONSOLIDATING STATEMENTS OF OPERATIONS AND RETAINED EARNINGS AND OF CASH FLOWS FOR SUCH CALENDAR MONTH, IN EACH CASE SETTING FORTH IN COMPARATIVE FORM CONSOLIDATING FIGURES FOR THE CORRESPONDING PERIOD OF THE PRECEDING FISCAL YEAR, ALL SUCH FINANCIAL INFORMATION DESCRIBED ABOVE TO BE IN REASONABLE FORM AND DETAIL AND REASONABLY ACCEPTABLE TO THE AGENT, AND ACCOMPANIED BY A CERTIFICATE OF THE CHIEF FINANCIAL OFFICER OF THE BORROWER TO THE EFFECT THAT SUCH MONTHLY FINANCIAL STATEMENTS FAIRLY PRESENT IN ALL MATERIAL RESPECTS THE FINANCIAL CONDITION OF THE CONSOLIDATED PARTIES OR THE BORROWER AND ITS MATERIAL SUBSIDIARIES, AS APPLICABLE, AND HAVE BEEN PREPARED IN ACCORDANCE WITH GAAP, SUBJECT TO CHANGES RESULTING FROM AUDIT AND NORMAL YEAR-END AUDIT ADJUSTMENTS. THE BORROWER ACKNOWLEDGES AND AGREES THAT SUCH MONTHLY FINANCIAL STATEMENTS SHALL BE USED TO TEST THE FINANCIAL COVENANTS CONTAINED IN SECTION 7.11. 9. Borrowing Base Certificate. The following sentence is hereby added at the end of Section 7.1(e) of the Credit Agreement and shall read as follows: FURTHERMORE, THE BORROWER AGREES TO PROVIDE ON EACH BUSINESS DAY TO THE AGENT AND EACH OF THE LENDERS A BORROWING BASE CERTIFICATE AS OF SUCH BUSINESS DAY SUBSTANTIALLY IN THE FORM OF EXHIBIT 7.1(E)(II) AND CERTIFIED BY THE CHIEF FINANCIAL OFFICER OF THE BORROWER TO BE TRUE AND CORRECT AS OF THE DATE THEREOF. 10. PLAN OF ACTION; CASH FORECAST. NEW SECTIONS 7.1(O) AND 7.1(P) ARE HEREBY ADDED TO THE CREDIT AGREEMENT AND SHALL READ AS FOLLOWS: (O) PLAN OF ACTION. ON OR BEFORE SEPTEMBER 21, 1998, THE BORROWER SHALL PROVIDE THE AGENT WITH A DETAILED REPORT (IN FORM AND SUBSTANCE SATISFACTORY TO THE AGENT) OUTLINING ITS PLAN OF ACTION (INCLUDING A TIMETABLE FOR SUCH PLAN) FOR THOSE MATTERS IDENTIFIED ON SCHEDULE 7.1(O) ATTACHED HERETO. (P) CASH FORECAST. THE BORROWER WILL DELIVER EVERY OTHER WEEK (BY NO LATER THAN WEDNESDAY OF SUCH WEEK) TO THE AGENT AND EACH OF THE LENDERS A CASH FORECAST SUBSTANTIALLY IN THE FORM OF EXHIBIT 7.1(P). THE PARTIES HERETO AGREE THAT THE BORROWER'S CASH FORECAST AS OF AUGUST 24, 1998 IS AS ATTACHED HERETO AS EXHIBIT 7.1(P). 11. Audit/Inspections. The last sentence of Section 7.10 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: THE CREDIT PARTIES AGREE THAT THE AGENT, AND ITS REPRESENTATIVES, MAY CONDUCT A QUARTERLY AUDIT OF THE COLLATERAL, AT THE EXPENSE OF THE BORROWER. IT IS UNDERSTOOD AND AGREED THAT THE FIRST SUCH AUDIT SHALL BE CONDUCTED IN SEPTEMBER, 1998. 4 12. Business Consultant. A new Section 7.19 is hereby added to the Credit Agreement and shall read as follows: 7.19 BUSINESS CONSULTANT. THE BORROWER HAS PREVIOUSLY RETAINED NORELLI AND COMPANY ("N&C") AS A BUSINESS AND FINANCIAL CONSULTANT FOR THE BORROWER. IMMEDIATELY UPON OBTAINING APPROVAL FROM ITS BOARD OF DIRECTORS, THE BORROWER WILL MAKE AVAILABLE TO THE LENDERS FROM TIME TO TIME APPROPRIATE REPRESENTATIVES OF N&C TO REVIEW AND DISCUSS WITH THE LENDERS THE RECOMMENDATIONS THAT HAVE BEEN MADE BY N&C TO THE BORROWER (INCLUDING MAKING AVAILABLE TO THE LENDERS COPIES OF ALL WRITTEN MATERIALS PROVIDED BY N&C TO THE BORROWER). THE LENDERS MAY ELECT TO ENGAGE, AT THE EXPENSE OF THE BORROWER, A THIRD PARTY EXPERT TO REVIEW ON BEHALF OF THE LENDERS THE INFORMATION PREPARED BY N&C. THE BORROWER COVENANTS AND AGREES THAT, IF REQUESTED BY THE REQUIRED LENDERS, THE BORROWER WILL IMMEDIATELY HIRE AN ADDITIONAL BUSINESS CONSULTANT SATISFACTORY TO THE AGENT IN THE AGENT'S REASONABLE DISCRETION (THE "NEW CONSULTANT"). THE EXACT SCOPE OF THE NEW CONSULTANT'S SERVICES SHALL BE AGREED UPON BY THE BORROWER AND THE NEW CONSULTANT, BUT MUST BE SATISFACTORY TO THE AGENT IN THE AGENT'S REASONABLE DISCRETION. IF REQUIRED TO BE RETAINED PURSUANT TO THE TERMS HEREOF THE BORROWER SHALL CAUSE THE NEW CONSULTANT (I) TO MEET PERIODICALLY WITH THE AGENT AT ITS REASONABLE REQUEST TO REPORT UPON THE NEW CONSULTANT'S FINDINGS AND RECOMMENDATIONS AND (II) TO MEET WITH THE LENDERS TO REPORT ON THE NEW CONSULTANT'S FINDINGS AND RECOMMENDATIONS. THE BORROWER SHALL PAY ALL COSTS ASSOCIATED WITH ITS RETENTION OF THE NEW CONSULTANT. THE BORROWER SHALL NOT TERMINATE THE NEW CONSULTANT'S SERVICES, OR DENY THE NEW CONSULTANT ACCESS TO INFORMATION NECESSARY TO PERFORM ITS SERVICES WITHIN THE SCOPE OF ITS ENGAGEMENT, PRIOR TO THE EXPIRATION OF SUCH ENGAGEMENT. ALL REPORTS AND INFORMATION PROVIDED BY N&A AND/OR THE NEW CONSULTANT TO THE AGENT OR THE LENDERS SHALL BE SUBJECT TO THE CONFIDENTIALITY PROVISIONS OF SECTION 11.15 HEREOF. 13. Exhibit 7.1(e)(ii). New Exhibits 7.1(e)(ii) and 7.1(p) are hereby added to the Credit Agreement and shall read as Exhibit 7.1(e)(ii) and Exhibit 7.1(p) attached hereto. 14. Schedule 7.1(o). A new Schedule 7.1(o) is hereby added to the Credit Agreement and shall read as Schedule 7.1(o) attached hereto. 15. Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of each of the following conditions: (a) The Agent shall have received original duly executed counterparts of this Amendment duly executed by the Credit Parties and the Agent. (b) Payment by the Borrower (i) to the Agent for the pro rata benefit of the Lenders an amendment fee in an amount equal to $115,000 and (ii) of all other costs and expenses heretofore incurred by the Agent, including without limitation legal fees and expenses, in connection with the negotiation, administration, amendment and enforcement of any of the Credit Documents. 5 (c) The Agent shall have received such other documents and information as it deems reasonably necessary. 16. Miscellaneous. ------------- (a) The term "Credit Agreement" as used in each of the Credit Documents shall hereafter mean the Credit Agreement as amended by this Amendment. Except as herein specifically agreed, the Credit Agreement, and the obligations of the Credit Parties thereunder and under the other Credit Documents, are hereby ratified and confirmed and shall remain in full force and effect according to their terms. (b) The Borrower hereby represents and warrants as follows: (i) It has taken all necessary action to authorize the execution, delivery and performance of this Amendment. (ii) This Amendment has been duly executed and delivered by the Borrower and constitutes the Borrower's legal, valid and binding obligations, enforceable in accordance with its terms, except as such enforceability may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). (iii) No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by the Borrower of this Amendment. (c) The Borrower represents and warrants to the Lenders that (i) except for the representation contained in Section 6.2(a) with respect to matters previously disclosed to the Lenders, the representations and warranties of the Credit Parties set forth in Section 6 of the Credit Agreement are true and correct as of the date hereof and (ii) no unwaived event has occurred and is continuing which constitutes a Default or an Event of Default. (d) This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by telecopy shall be effective as an original and shall constitute a representation that an executed original shall be delivered. (e) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. 6 Each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. PLUMA, INC. By:_____________________________________________ Name: __________________________________________ Title: _________________________________________ NATIONSBANK, N.A., as Agent for and on behalf of the Lenders By: ____________________________________________ Name: __________________________________________ Title: _________________________________________ EX-6 3 EXHIBIT 6.2 SECOND AMENDMENT TO ------------------- CREDIT AGREEMENT ---------------- THIS SECOND AMENDMENT TO CREDIT AGREEMENT (hereinafter, the "Amendment") is entered into as of September 30, 1998 among PLUMA, INC., a North Carolina corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on behalf of the Lenders (the "Agent"). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings given to them in the Credit Agreement. RECITALS -------- WHEREAS, the Borrower, the Agent and the Lenders are parties to that certain Credit Agreement dated as of April 23, 1998, as amended by that certain First Amendment to Credit Agreement and Waiver between the Borrower and the Agent for and on behalf of the Lenders dated as of August 27, 1998 (as further amended, modified, supplemented, extended or restated from time to time, the "Credit Agreement"); WHEREAS, the parties desire to amend certain terms of the Credit Agreement as set forth herein. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Amended Definitions. The Credit Agreement is hereby amended in the following respects: (a) The definition of "Applicable Percentage" set forth in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "APPLICABLE PERCENTAGE" MEANS, FOR PURPOSES OF CALCULATING (I) THE APPLICABLE INTEREST RATE FOR ANY REVOLVING LOAN OR ANY TERM LOAN, (A) FOR EURODOLLAR LOANS, 3.75% THROUGH AND INCLUDING OCTOBER 30, 1998 AND 3.50% AT ALL TIMES AFTER OCTOBER 30, 1998 AND (B) FOR BASE RATE LOANS, 1.00% THROUGH AND INCLUDING OCTOBER 30, 1998 AND .75% AT ALL TIMES AFTER OCTOBER 30, 1998, (II) THE APPLICABLE RATE OF THE UNUSED FEE FOR ANY DAY FOR PURPOSES OF SECTION 3.5(B), .375% AND (C) THE APPLICABLE RATE FOR THE LETTER OF CREDIT FEE FOR ANY DAY, 3.50%. (b) The definition of "Borrowing Base" set forth in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85% OF ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH CASE AS SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE DELIVERED TO THE AGENT AND THE LENDERS IN ACCORDANCE WITH THE TERMS OF SECTION 7.1(C) AND (C) DURING THE PERIOD (I) FROM AND INCLUDING AUGUST 27, 1998 THROUGH AND INCLUDING OCTOBER 30, 1998, $4,000,000 AND (II) AFTER OCTOBER 30, 1998, $0. 2. Deposit Account. A new Section 7.20 is hereby added to the Credit Agreement and shall read as follows: 7.20 DEPOSIT ACCOUNT --------------- THE CREDIT PARTIES SHALL ESTABLISH WITH THE AGENT AND PLEDGE TO THE AGENT FOR THE BENEFIT OF THE LENDERS A DEPOSIT ACCOUNT (THE "DEPOSIT ACCOUNT") AS COLLATERAL SECURITY FOR THE CREDIT PARTY OBLIGATIONS PURSUANT TO A CASH COLLATERAL SECURITY AGREEMENT IN FORM AND SUBSTANCE SATISFACTORY TO THE AGENT. EACH OF THE CREDIT PARTIES HEREBY AGREES THAT IT WILL CAUSE EACH ACCOUNT DEBTOR OBLIGATED TO PAY A RECEIVABLE TO DIRECT PAYMENT OF SUCH RECEIVABLE TO THE DEPOSIT ACCOUNT. THE CREDIT PARTIES FURTHER AGREE THAT THE AGENT SHALL APPLY THE FUNDS IN THE DEPOSIT ACCOUNT TO PAYMENT OF THE LOANS. 3. Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of each of the following conditions: (a) The Agent shall have received original duly executed counterparts of this Amendment duly executed by the Credit Parties and the Agent. (b) Payment by the Borrower of all other costs and expenses heretofore incurred by the Agent, including without limitation legal fees and expenses, in connection with the negotiation, administration, amendment and enforcement of any of the Credit Documents. (c) The Agent shall have received such other documents and information as it deems reasonably necessary. 4. Miscellaneous. ------------- (a) The term "Credit Agreement" as used in each of the Credit Documents shall hereafter mean the Credit Agreement as amended by this Amendment. Except as herein specifically agreed, the Credit Agreement, and the obligations of the Credit Parties thereunder and under the other Credit Documents, are hereby ratified and confirmed and shall remain in full force and effect according to their terms. (b) The Borrower hereby represents and warrants as follows: (i) It has taken all necessary action to authorize the execution, delivery and performance of this Amendment. 2 (ii) This Amendment has been duly executed and delivered by the Borrower and constitutes the Borrower's legal, valid and binding obligations, enforceable in accordance with its terms, except as such enforceability may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). (iii) No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by the Borrower of this Amendment. (c) The Borrower represents and warrants to the Lenders that (i) except for the representation contained in Section 6.2(a) with respect to matters previously disclosed to the Lenders, the representations and warranties of the Credit Parties set forth in Section 6 of the Credit Agreement are true and correct as of the date hereof and (ii) no unwaived event has occurred and is continuing which constitutes a Default or an Event of Default. (d) This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by telecopy shall be effective as an original and shall constitute a representation that an executed original shall be delivered. (e) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. [Remainder of page intentionally left blank] 3 Each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. PLUMA, INC. By: ___________________________________________ Name: __________________________________________ Title:__________________________________________ NATIONSBANK, N.A., as Agent for and on behalf of the Lenders By: ____________________________________________ Name: __________________________________________ Title: _________________________________________ EX-6 4 EXHIBIT 6.3 THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT (hereinafter, the "Amendment") is entered into as of November 16, 1998 among PLUMA, INC., a North Carolina corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on behalf of the Lenders (the "Agent"). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings given to them in the Credit Agreement. RECITALS WHEREAS, the Borrower, the Agent and the Lenders are parties to that certain Credit Agreement dated as of April 23, 1998, as amended by that certain First Amendment to Credit Agreement and Waiver between the Borrower and the Agent for and on behalf of the Lenders dated as of August 27, 1998 and by that certain Second Amendment to Credit Agreement between the Borrower and the Agent for and on behalf of the Lenders dated as of September 30, 1998 (as further amended, modified, supplemented, extended or restated from time to time, the "Credit Agreement"); WHEREAS, the Borrower and the Agent are parties to that certain Forbearance Agreement dated as of the date hereof (the "Forbearance Agreement"); WHEREAS, in accordance with and as a condition precedent to the Forbearance Agreement, the parties desire to amend certain terms of the Credit Agreement as set forth herein. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Reaffirmation of Existing Debt. The Credit Parties acknowledge and confirm (a) that the Agent, on behalf of the Lenders, has a valid and enforceable first priority perfected security interest in the Collateral subject only to certain Permitted Liens, (b) that the Borrower's obligation to repay the outstanding principal amount of the Loans and reimburse the Issuing Lender for any drawing on a Letter of Credit is unconditional and not subject to any offsets, defenses or counterclaims, (c) that the Agent and the Lenders have performed fully all of their respective obligations under the Credit Agreement and the other Credit Documents, and (d) by entering into this Amendment, the Lenders do not waive or release any term or condition of the Credit Agreement or any of the other Credit Documents or any of their rights or remedies under such Credit Documents or applicable law or any of the obligations of any Credit Party thereunder. 2. Amendments. The Credit Agreement is hereby amended in the following respects: (a) The definition of "Applicable Percentage" set forth in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "APPLICABLE PERCENTAGE" MEANS, FOR PURPOSES OF CALCULATING (I) THE APPLICABLE INTEREST RATE FOR ANY REVOLVING LOAN OR ANY TERM LOAN, (A) FOR EURODOLLAR LOANS, 3.75% FROM OCTOBER 31, 1998 AND THEREAFTER AND (B) FOR BASE RATE LOANS, 1.00% FROM OCTOBER 31, 1998 AND THEREAFTER, (II) THE APPLICABLE RATE OF THE UNUSED FEE FOR ANY DAY FOR PURPOSES OF SECTION 3.5(B), .375% AND (III) THE APPLICABLE RATE FOR THE LETTER OF CREDIT FEE FOR ANY DAY, 3.50%. (b) The definition of "Borrowing Base" set forth in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85% OF ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH CASE AS SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE DELIVERED TO THE AGENT AND THE LENDERS IN ACCORDANCE WITH THE TERMS OF SECTION 7.1(C) AND (C) DURING THE PERIOD (I) FROM AND INCLUDING NOVEMBER 16, 1998 THROUGH AND INCLUDING DECEMBER 31, 1998, $1,000,000 AND (II) AFTER DECEMBER 31, 1998, $0. (c) The definition of "New Consultant" contained in Section 1.1 of the Credit Agreement is deleted in its entirety. (d) The following definitions are hereby added to Section 1.1 of the Credit Agreement: "BORROWER'S CONSULTANTS" MEANS N&C, PWC AND TSG. "N&C" SHALL HAVE THE MEANING PROVIDED SUCH TERM IN SECTION 7.19 HEREOF. "PWC" SHALL HAVE THE MEANING PROVIDED SUCH TERM IN SECTION 7.19 HEREOF. "TSG" SHALL HAVE THE MEANING PROVIDED SUCH TERM IN SECTION 7.19 HEREOF. (e) Section 7.1(f) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: (F) ANNUAL BUSINESS PLAN AND BUDGETS. AT LEAST 30 DAYS PRIOR TO THE END OF EACH FISCAL YEAR OF THE BORROWER, AN ANNUAL BUSINESS PLAN AND BUDGET OF THE CONSOLIDATED PARTIES CONTAINING, AMONG OTHER THINGS, PRO FORMA FINANCIAL STATEMENTS FOR THE NEXT FISCAL YEAR; PROVIDED, HOWEVER, THAT THE ANNUAL BUSINESS PLAN AND BUDGET OF THE CONSOLIDATED PARTIES FOR FISCAL YEAR 1999: (I) SHALL NOT BE DUE UNTIL DECEMBER 21, 1998 AND (II) SHALL BE PREPARED WITH THE MATERIAL ASSISTANCE OF PWC. 2 (f) Section 7.1(p) of the Credit Agreement is hereby amended and restated in its entirety and shall read as follows: (P) CASH FLOW FORECASTS. COMMENCING ON MONDAY, NOVEMBER 16, 1998, AND CONTINUING ON A ROLLING BASIS ON THURSDAY OF EACH WEEK THEREAFTER, DETAILED CASH FLOW PROJECTIONS FOR THE THEN UPCOMING THIRTEEN WEEKS, EACH IN FORM ACCEPTABLE TO THE AGENT. THROUGH AT LEAST THE THIRTEEN WEEK CASH FLOW PROJECTION DUE THURSDAY, DECEMBER 31, 1998, SUCH PROJECTIONS SHALL BE PREPARED BY OR WITH THE MATERIAL ASSISTANCE OF PWC. (g) A new Section 7.1(q) is hereby added to the Credit Agreement and shall read as follows: (Q) CASH FLOW RECONCILIATIONS. COMMENCING ON THURSDAY, NOVEMBER 19, 1998, AND CONTINUING ON THURSDAY OF EACH WEEK THEREAFTER, A TRUE AND ACCURATE RECONCILIATION REPORT, REFLECTING A DETAILED COMPARISON BETWEEN THE CONSOLIDATED PARTIES' ACTUAL CASH FLOW COMPUTATIONS THROUGH THE END OF THE PREVIOUS WEEK AND THAT PROJECTED FOR SUCH WEEK IN THE MOST RECENT CASH FLOW PROJECTION INCLUDING SUCH PERIOD PROVIDED TO THE AGENT IN ACCORDANCE WITH SECTION 7.1(P) HEREOF. THROUGH AT LEAST THE RECONCILIATION REPORT DUE THURSDAY, DECEMBER 31, 1998, SUCH RECONCILIATION REPORTS SHALL BE PREPARED BY OR WITH THE MATERIAL ASSISTANCE OF PWC. (h) Section 7.19 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 7.19 CONSULTANTS. THE BORROWER PREVIOUSLY HAS RETAINED NORELLI AND COMPANY ("N&C") AND PRICEWATERHOUSE COOPERS, L.L.P.("PWC") AS BUSINESS AND FINANCIAL CONSULTANTS FOR THE BORROWER, AND BORROWER PREVIOUSLY HAS RETAINED THE STEPHENS GROUP ("TSG") AS A MANAGEMENT INFORMATION CONSULTANT. THE BORROWER SHALL MAKE AVAILABLE TO THE LENDERS FROM TIME TO TIME APPROPRIATE REPRESENTATIVES OF THE BORROWER'S CONSULTANTS TO REVIEW AND DISCUSS WITH THE LENDERS THE RECOMMENDATIONS AND/OR REPORTS THAT HAVE BEEN MADE BY ANY OF THE BORROWER'S CONSULTANTS TO AND/OR ON BEHALF OF THE BORROWER (INCLUDING MAKING AVAILABLE TO THE LENDERS COPIES OF ALL WRITTEN MATERIALS PROVIDED BY ANY OF THE BORROWER'S CONSULTANTS TO THE BORROWER). THE LENDERS MAY ELECT TO ENGAGE, AT THE EXPENSE OF THE BORROWER, A THIRD PARTY EXPERT TO REVIEW ON BEHALF OF THE LENDERS THE INFORMATION PREPARED BY ANY OF THE BORROWER'S CONSULTANTS. THE BORROWER SHALL CAUSE THE BORROWER'S CONSULTANTS, AS THE AGENT MAY REQUEST, (I) TO MEET PERIODICALLY WITH THE AGENT TO REPORT UPON THE BORROWER'S CONSULTANTS' FINDINGS, REPORTS AND RECOMMENDATIONS AND (II) TO MEET WITH THE LENDERS TO REPORT ON THE BORROWER'S CONSULTANTS' FINDINGS, REPORTS AND RECOMMENDATIONS. THE BORROWER SHALL PAY ALL COSTS ASSOCIATED WITH ITS RETENTION OF THE BORROWER'S CONSULTANTS. THE BORROWER SHALL NOT TERMINATE ANY OF THE BORROWER'S CONSULTANTS' SERVICES, OR DENY ANY OF THE BORROWER'S CONSULTANTS ACCESS TO 3 INFORMATION NECESSARY TO PERFORM ITS SERVICES WITHIN THE SCOPE OF ITS ENGAGEMENT, PRIOR TO THE EXPIRATION OF SUCH ENGAGEMENT. ALL REPORTS AND INFORMATION PROVIDED BY THE BORROWERS' CONSULTANTS TO THE AGENT OR THE LENDERS SHALL BE SUBJECT TO THE CONFIDENTIALITY PROVISIONS OF SECTION 11.15 HEREOF. 3. Miscellaneous. (a) The term "Credit Agreement" as used in each of the Credit Documents shall hereafter mean the Credit Agreement as amended by this Amendment. Except as herein specifically agreed, the Credit Agreement, and the obligations of the Credit Parties thereunder and under the other Credit Documents, are hereby ratified and confirmed and shall remain in full force and effect according to their terms. (b) The Borrower hereby represents and warrants as follows: (i) It has taken all necessary action to authorize the execution, delivery and performance of this Amendment. (ii) This Amendment has been duly executed and delivered by the Borrower and constitutes the Borrower's legal, valid and binding obligations, enforceable in accordance with its terms, except as such enforceability may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). (iii) No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by the Borrower of this Amendment. (c) The Borrower represents and warrants to the Lenders that (i) except for the representation contained in Section 6.2(a) with respect to matters previously disclosed to the Lenders, the representations and warranties of the Credit Parties set forth in Section 6 of the Credit Agreement are true and correct as of the date hereof and (ii) other than the Acknowledged Events of Default (as defined in the Forbearance Agreement) no unwaived event has occurred and is continuing which constitutes a Default or an Event of Default. (d) This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by telecopy shall be effective as an original and shall constitute a representation that an executed original shall be delivered. 4 (e) The Borrower hereby releases the Agent, the Lenders, and the Agent's and the Lenders' respective officers, employees, representatives, agents, counsel and directors from any and all actions, causes of action, claims, demands, damages and liabilities of whatever kind or nature, in law or in equity, now known or unknown, suspected or unsuspected to the extent that any of the foregoing arises from any action or failure to act on or prior to the date hereof. (f) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. Each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. PLUMA, INC., A NORTH CAROLINA CORPORATION By: ________________ Name: ______________ Title: ______________ NATIONSBANK, N.A., as Agent for and on behalf of the Lenders By:______________ Name:____________ Title: __________ 5 EX-6 5 EXHIBIT 6.4 FORBEARANCE AGREEMENT THIS FORBEARANCE AGREEMENT (hereinafter, this "Forbearance Agreement") is entered into as of November 16, 1998 between PLUMA, INC., a North Carolina corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on behalf of the Lenders (the "Agent"). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings given to them in the Credit Agreement (defined below). RECITALS WHEREAS, the Borrower, the Agent and the Lenders are parties to that certain Credit Agreement dated as of April 23, 1998, as amended by that certain First Amendment to Credit Agreement and Waiver between the Borrower and the Agent for and on behalf of the Lenders dated as of August 27, 1998 and by that certain Second Amendment to Credit Agreement between the Borrower and the Agent for and on behalf of the Lenders dated as of September 30, 1998 (as further amended, modified, supplemented, extended or restated from time to time, the "Credit Agreement"); WHEREAS, the following Events of Default exist under the Credit Agreement (collectively as the "Acknowledged Events of Default"): (1) as of the fiscal quarter ended September 30, 1998, the Consolidated Parties have failed to maintain the minimum Fixed Charge Coverage Ratio required by Section 7.11(b) of the Credit Agreement, (2) as of the fiscal quarter ended September 30, 1998, the Consolidated Parties have failed to maintain the minimum Consolidated Net Worth required by Section 7.11(d) of the Credit Agreement, and (3) as of the fiscal quarter ended September 30, 1998, the Consolidated Parties have failed to maintain the minimum Consolidated EBITDA required by Section 7.11(e) of the Credit Agreement. WHEREAS, the Borrower has requested that the Lenders waive the Acknowledged Events of Default, and the Lenders have refused that request. WHEREAS, the Borrower now has asked the Lenders to: (1) forbear exercising its rights and remedies arising from the Acknowledged Events of Default until December 31, 1998 (the "Forbearance Termination Date") and continue to make available to the Borrower the Loans provided under the Credit Agreement and (2) release the Robinson Indemnity Receivables (defined below). The Agent, on behalf of the Lenders, has agreed to do so, but only upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Forbearance. The Agent hereby agrees, for and on behalf of the Lenders, that it shall, subject to the terms and conditions set forth herein, forbear exercising its and their rights and remedies arising exclusively as a result of the Acknowledged Events of Default until the Forbearance Termination Date; provided, however, that the Agent shall be free to exercise any or all of its rights and remedies arising on account of the Acknowledged Events of Default at any time after the occurrence of a Forbearance Default (defined below). 2. Amendment to Credit Agreement. Simultaneously with the execution of this Forbearance Agreement, the Borrower shall execute and deliver to the Agent, on behalf of the Lenders, a Third Amendment to Credit Agreement (the "Third Amendment") in form and substance acceptable to Agent. 3. Assignment of Cash Collateral Account. Simultaneously with the execution of this Forbearance Agreement, the Borrower, pursuant to Section 7.20 of the Credit Agreement, shall execute and deliver to the Agent, on behalf of the Lenders, an Assignment of Cash Collateral Account (the "Cash Collateral Security Agreement") in form and substance acceptable to Agent. 4. Consultant Authorization Letters. On or before November 16, 1998, the Borrower shall have executed and delivered to each of the Borrower's Consultants an authorization letter in substantially the form of that attached hereto as Exhibit C, with copies thereof delivered to the Agent. 5. Inventory Appraisal. The Borrower hereby acknowledges that the Agent has given the Borrower reasonable notice that the Agent intends to exercise its rights under Section 7.10 of the Credit Agreement to appoint an independent appraiser to visit Borrower's facilities and appraise the Borrower's inventory during normal business hours on any business days between the date hereof and the Forbearance Termination Date as may be chosen by the Agent. 6. Forbearance Defaults. Nothing set forth herein or contemplated hereby is intended to constitute an agreement by the Agent or the Lenders to forbear the exercise of any of the rights and remedies available to the Agent and/or the Lenders under the Credit Agreement and the other Credit Documents (all of which rights and remedies are hereby expressly reserved by the Agent, on behalf of the Lenders) upon and after the occurrence of a Forbearance Default. The term "Forbearance Default" shall mean the existence or occurrence of any or all of: (a) any Default or Event of Default under the Credit Agreement or any other Credit Document other than the Acknowledged Events of Default or (b) a breach by the Borrower of any term of this Forbearance Agreement. The Agent, on behalf of the Lenders, shall be free to exercise any or all of its rights and remedies arising on account of any Default or Event of Default under the Credit Agreement or any other Credit Document upon the earlier of: (x) the occurrence of a Forbearance Default or (y) the Forbearance Termination Date. 2 7. Conditions Precedent. As conditions precedent to the effectiveness of this Forbearance Agreement, on or before the date hereof: (a) The Agent shall have received original duly executed counterparts of this Forbearance Agreement duly executed by the Credit Parties and the Agent; (b) The Borrower shall have executed and delivered to the Agent the Third Amendment; (c) The Borrower shall have executed and delivered to the Agent the Assignment of Cash Collateral Account; and (d) The Borrower shall have delivered to the Agent an opinion of counsel to the Borrower in form and substance satisfactory to the Agent as to the due authorization, execution, delivery and enforceablility of this Forbearance Agreement, the Third Amendment and the Assignment of Cash Collateral Agreement. 8. Release. The Borrower hereby releases the Agent, the Lenders, and the Agent's and the Lenders' respective officers, employees, representatives, agents, counsel and directors from any and all actions, causes of action, claims, demands, damages and liabilities of whatever kind or nature, in law or in equity, now known or unknown, suspected or unsuspected to the extent that any of the foregoing arises from any action or failure to act on or prior to the date hereof. 9. Expenses. Upon demand therefor, the Borrower shall pay all out-of-pocket expenses incurred by the Agent in connection with the negotiation, drafting and execution of this Forbearance Agreement and the exhibits hereto, including without limitation reasonable fees and expenses of the Agent's counsel. 10. Borrower's Representations. The Borrower hereby represents and warrants as follows: (a) The Borrower has taken all necessary action to authorize the execution, delivery and performance of this Forbearance Agreement. (b) This Forbearance Agreement has been duly executed and delivered by the Borrower and constitutes the Borrower's legal, valid and binding obligations, enforceable in accordance with its terms, except as such enforceability may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). 3 (c) No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by the Borrower of this Forbearance Agreement. 11. Counterparts. This Forbearance Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of this Forbearance Agreement by telecopy shall be effective as an original and shall constitute a representation that an executed original shall be delivered. 12. GOVERNING LAW. THIS FORBEARANCE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY.] 4 Each of the parties hereto has caused a counterpart of this Forbearance Agreement to be duly executed and delivered as of the date first above written. PLUMA, INC., A NORTH CAROLINA CORPORATION By: _____________________ Name: ___________________ Title: NATIONSBANK, N.A., as Agent for and on behalf of the Lenders By:_____________________ Name:___________________ Title:__________________ 5 EX-6 6 EXHIBIT 6.5 CASH COLLATERAL SECURITY AGREEMENT THIS CASH COLLATERAL ACCOUNT SECURITY AGREEMENT (this Agreement) is made as of the ___ day of November, 1998, by PLUMA, INC., a North Carolina corporation (the "Borrower"), and the Borrower's Subsidiaries (collectively with the Borrower, the "Pledgors") to NATIONSBANK, N.A., as agent (together with its successors and assigns, in such capacity, the "Agent") for the Lenders under the Credit Agreement referenced below. RECITALS 1. A $115 million credit facility has been extended to the Borrower pursuant to that certain Credit Agreement dated as of April 23, 1998 (as amended and modified, the "Credit Agreement") among the Borrower, the Borrower's Subsidiaries identified therein, the Lenders identified therein and NationsBank, N.A., as Agent. Terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement. 2. The Lenders have required and the Pledgors have agreed to execute this Agreement with the Agent pursuant to Section 7.20 of the Credit Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I Creation of Security Interest Section 1.1 To secure the prompt payment and performance in full when and as due, whether by lapse of time or otherwise, of the Credit Party Obligations, the Pledgors hereby assign, mortgage, convey, pledge, hypothecate and deliver to the Agent, for the benefit of the Lenders, and hereby grant to the Agent, for the benefit of the Lenders, a security interest in all right, title and interest of the Pledgors in and to: (a) that certain deposit account no. 004112747930 maintained in the name of the Agent, and any and all certificates or instruments purchased with funds deposited in such account, and all renewals of such instruments and certificates and replacements therefor, whether in the form of certificates of deposit or other instruments, notes, securities or accounts (including without limitation money market instruments and accounts) and any other cash and non-cash proceeds of the principal amount of the foregoing, including interest and dividends thereon (all of the foregoing is collectively referred to as the "Account"); and (b) all proceeds of the Account, including without limitation interest or dividends on the Account or said certificates, instruments, notes, securities or accounts (the Account and the proceeds thereof being hereinafter referred to as the "Collateral"). Section 1.2 The Pledgors shall execute and deliver to the Agent concurrently with the execution of this Assignment, and at any time or times hereafter at the request of the Agent, all assignments, conveyances, assignment statements, financing statements, renewal financing statements, security agreements, affidavits, notices and all other agreements, instruments and documents that Agent may reasonably request, and will execute all necessary endorsements in order to perfect and maintain the security interests and liens granted herein by the Pledgors to the Agent and in order to fully consummate all of the transactions contemplated herein and under the Credit Documents. In furtherance of the foregoing, the Pledgors hereby appoint the Agent as its attorney-in-fact for the purpose of making any of the foregoing endorsements and executing any such financing statements, documents and agreements. The foregoing power of attorney shall be a power coupled with an interest and shall be irrevocable until payment in full of the Credit Party Obligations. ARTICLE II Priority of Security Interests Section 2.1 The Pledgors warrant and represent that the pledge and security interest created in Section 1.1 hereof is a first priority security interest in favor of the Agent, for the benefit of the Lenders, and shall constitute at all times a valid and perfected security interest in and upon all of the Collateral and that said security interest in said Collateral shall not become subordinate or junior to the security interests, liens or claims of any other person, firm or corporation, including the United States or any department, agency or instrumentality thereof, or any state, county or local governmental agency. The Pledgors shall not grant (without the prior written approval of the Agent) a security interest in or permit a lien or encumbrance upon the Collateral to anyone except the Agent as long as all or any portion of the Credit Party Obligations remain unsatisfied. The Pledgors further covenant and agree that they shall cause all account debtors to direct payment on all Receivables to the Account. ARTICLE III Default Section 3.1 An Event of Default shall exist under the terms of this Assignment upon the existence of an Event of Default under the terms of the Credit Agreement. In addition, an Event of Default shall exist under this Assignment upon (i) the failure of the Pledgors to comply with the terms and conditions of this Assignment; or (ii) the existence or incurrence of any lien or encumbrance on the Collateral or any part thereof. 2 Section 3.2 Upon the occurrence of an Event of Default and during the continuation thereof, the Agent, for and on behalf of the Lenders, shall have, in respect of the Collateral, (i) all the rights and remedies contained in this Assignment, the Credit Documents or permitted by law and (ii) all the rights and remedies of a secured party under the Uniform Commercial Code, all of which shall be cumulative to the extent permitted by law. Section 3.3 If at any time or times hereafter the Agent employs counsel to prepare or consider waivers or consents or to intervene, file a petition, answer, motion or other pleading in any suit or proceeding related to this Assignment or the Credit Documents, or relating to any Collateral, or to protect, take possession of, or liquidate any Collateral, or to attempt to enforce any security interest or lien in any collateral, or to enforce any rights of the Agent, then in any of such events, all of the reasonable attorneys' fees arising from such services, and any expenses, costs and charges relating thereto, shall become a part of the Credit Party Obligations secured by the Collateral and payable on demand. Section 3.4 The Agent's failure at any time or times hereafter to require strict performance by the Pledgors of any of the provisions, warranties, terms and conditions contained in this Assignment shall not waive, affect or diminish any right of the Agent at any time or times hereafter to demand strict performance therewith and with respect to any other provisions, warranties, terms and conditions contained in this Assignment. ARTICLE IV Access/Release of Collateral Section 4.1 Access to Cash Collateral Account. For so long as there are Credit Party Obligations outstanding, the Account will be maintained in the name of the Agent, and therefore the Pledgors shall not have access to the funds or other Collateral therein. The Agent shall have the right, at any time, to set off against the Credit Party Obligations all amounts in the Account. Section 4.2 Disbursement of Funds. The Agent, on behalf of the Lenders, and the Pledgors hereby agree that all amounts in the Account shall be applied by the Agent to payment of the Loans and other Credit Party Obligations. ARTICLE V Miscellaneous Section 5.1 The internal laws and decisions of the State of North Carolina shall govern and control the construction, enforceability, validity and interpretation of this Assignment. Section 5.2 This Assignment shall be binding upon and inure to the benefit of the Pledgors, the Agent and their respective successors and assigns. 3 Section 5.3 This Assignment may be executed in any number of counterparts, each of which where so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Assignment to produce or account for more than one such counterpart. Section 5.4 If any provision of any of the Assignment is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions [remainder of page intentionally left blank] 4 Each of the Pledgors has caused a counterpart of this Assignment to be duly executed and delivered as of the date first above written. PLEDGORS PLUMA, INC., a North Carolina corporation By:____________________________ Name:__________________________ Title:___________________________ Accepted and agreed as of the date first above written. NATIONSBANK, N.A., as Agent for and on behalf of the Lenders By:___________________________ Name:_________________________ Title:________________________ 5 EX-11 7 EXHIBIT 11.1
EXHIBIT 11.1 PLUMA, INC. COMPUTATION OF EARNINGS PER SHARE - --------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) (UNAUDITED) THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 1998 1997 1998 1997 INCOME AVAILABLE TO COMMON SHAREHOLDERS: Net income (loss) available to common shareholders $ (2,709,364) $ 1,768,378 $ (5,309,343) $ 4,063,440 ============= ============ ============= ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Common shares outstanding 8,109,152 8,109,152 8,109,152 7,366,625 ------------ ----------- ----------- ---------- Assumed exercise of stock options Total 8,109,152 8,109,152 8,109,152 7,366,625 ============ ========== ========== ========= EARNINGS (LOSS) PER COMMON SHARE - BASIC AND DILUTED $ (.33) $ .22 $ (.65) $ .55 ============ ========== ========== =========
EX-27 8 FDS
5 The schedule contains summary financial information extracted from the balance sheet and statements of operations for the nine months ended September 30, 1998 and is qualified in its entirety by reference to such financial statements. 0000829044 PLUMA, INC. 9-MOS DEC-31-1998 SEP-30-1998 2,563,866 0 40,781,828 1,734,356 69,555,782 117,912,533 70,884,152 24,667,198 200,224,502 32,044,163 105,393,000 0 0 36,849,127 21,509,389 200,224,502 144,865,133 144,865,133 133,250,402 133,250,402 0 4,467 5,481,849 (8,348,024) (3,038,681) (5,309,343) 0 0 0 (5,309,343) (.65) (.65)
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