DELTA WOODSIDE INDUSTRIES, INC.
                      SALARY ADJUSTMENT AND INCENTIVE PLAN


Beginning in January 2005,  salary  reductions  will take place for all salaried
employees with a salary in excess of $50,000 according to the following formula:
<TABLE>
<CAPTION>

           SALARY RANGE                  %       # PEOPLE         PRE ADJ BASE            ADJUSTMENT
------------------------------------ ---------- ------------ ----------------------- ---------------------
<S>                                     <C>          <C>               <C>                   <C>
CEO & CFO                               25%          2                 $883,853              $220,963
OVER $200K                              15%          2                 $457,090               $68,564
OVER $100K UP TO $200K                  10%         17               $2,214,241              $221,424
OVER $50K UP TO $100K *                 5%          51               $3,240,833              $155,316
$50,000 AND UNDER                       0%          84               $3,007,079                     0
               TOTAL                    7%          156              $9,803,096              $666,267
</TABLE>

* No one in this range is allowed to go below $50,000

We will install an  incentive  plan that would  restore all of the  reduction in
salary.  The  incentive  plan will be  designed  to  restore  salary  reductions
incrementally  as we  exceed  the  planned  targeted  EBIT.  In the  first  year
(calendar  year 2005),  any incentive  will be paid in a lump sum rather than an
increase in salary.  In the second year (calendar year 2006), the incentive will
take the form of an  increase  in salary  not to exceed  the  reduction  amount.
Should we exceed  the  targeted  EBIT by more than the  salary  reductions,  the
excess stays in the company.

                [TABLES WITH TARGETS AND BONUS AMOUNTS OMITTED.]

<PAGE>

           FORM OF NOTICE LETTER TO SALARY RECOVERY PLAN PARTICIPANTS

May 18, 2005

Subject: Salary Recovery Plan

Dear _______________:

As part of the realignment  plan, we instituted a salary adjustment that reduced
your  salary  beginning  the first pay period in January.  At the same time,  we
developed a salary  recovery plan for calendar year 2005 and 2006.  The recovery
plan was based on the realignment plan projections and would restore all of your
reduction  in  salary  as a lump  sum  payment.  The  measurement  criteria  for
achieving the full recovery are as follows:

o    For calendar year 2005 (beginning  January 1, 2005), to the extent that the
     company  exceeds the  projected  realignment  plan EBITDA for such calendar
     year of [AMOUNT  OMITTED],  the company will make a salary recovery payment
     up to the full amount of the salary reductions on a dollar-for-dollar basis
     to the  extent  of such  increased  EBITDA.  The  payment  would be made in
     January 2006 as a lump sum payment.
o    For calendar  year 2006,  the recovery  plan is based on quarterly  results
     beginning  with the quarter  ending  April 1, 2006.  To the extent that the
     company  exceeds the  projected  realignment  plan EBITDA for each calendar
     quarter  of  [AMOUNT  OMITTED],  the  company  will make a lump sum  salary
     recovery payment  quarterly up to the full amount of the salary  reductions
     on a dollar-for-dollar basis to the extent of such increased EBITDA.
o    In January 2007, all salary  reductions will be restored to the extent that
     operating results are satisfactory at that time.

The  following  table  reflects the  requirements  for the payment of a recovery
bonus at various  levels of EBITDA for calendar  year 2005.  For  calendar  year
2006,  we will  provide a similar  table once we  finalize  our 2006  plan.  The
payment  would be made at the end of the calendar  year and would be prorated up
to 100% of the recovery payment.
<TABLE>
<CAPTION>

                           MARCH QTR        JUNE QTR       SEPT. QTR        DEC. QTR        TOTAL CY 2005
                        ---------------- --------------- --------------- --------------- ---------------------
<S>                        <C>              <C>            <C>              <C>             <C>
PLANNED EBITDA
TO PAY 25%
TO PAY 50%
TO PAY 75%
TO PAY 100%
</TABLE>

                                [TARGETS OMITTED]

<PAGE>


        [MATERIAL NOT DESCRIBING THE SALARY RECOVER PLAN TERMS OMITTED.]

I want to thank you for your  dedication to our business and our goals to return
Delta Woodside to profitability.  With your continued hard work and focus on the
bottom line, I know we can achieve our objectives  that will be rewarding to all
of our constituents in the future.

Sincerely,


W.F. Garrett
President and CEO