EXHIBIT 10.12**EMPLOYMENT AND NON-SOLICITATION AGREEMENT**     **THIS EMPLOYMENT AND NON-SOLICITATION AGREEMENT**(the “Agreement”), dated as of August 25, 2004,is by and between DELTA APPAREL, INC., a Georgia corporation (the “Company”), and Deborah H.Merrill, a Georgia resident (“Executive”).     WHEREAS, Executive and the Company want to enter into a written agreement providing for theterms of Executive’s employment by the Company; and     WHEREAS, Executive agrees that the Company’s promises set out in this Agreement provide goodand sufficient consideration for the promises of Executive set forth in this Agreement.     NOW, THEREFORE, in consideration of the foregoing recitals, the mutual covenants set forthherein, and other good and valuable consideration, the receipt and sufficiency of which are herebyacknowledged, the parties agree as follows:     1. Employment. Executive agrees to continue his employment with the Company, and theCompany agrees to employ Executive, on the terms and conditions set forth in this Agreement. ThisAgreement shall replace and supersede the Prior Agreement, the term of which shall end upon thesigning of this Agreement. Executive agrees during the term of this Agreement to devotesubstantially all of his business time, efforts, skills and abilities to the performance of hisduties to the Company and to the furtherance of the Company’s business.     Executive’s initial job title will be Director of Corporate Reporting, Planning andAdministration his duties will be those as are designated by the Chief Executive Officer of theCompany.     2. Compensation.          (a) Base Salary. During the term of Executive’s employment with the Company pursuantto this Agreement, the Company shall pay to Executive as compensation for his services an annualbase salary of not less than $100,440.00 (“Base Salary”). Executive’s Base Salary will be payablein arrears in accordance with the Company’s normal payroll procedures and will be reviewed annuallyand subject to upward adjustment at the discretion of the Company.          (b) Incentive Bonus. During the term of Executive’s employment with the Companypursuant to this Agreement, Executive shall be entitled to participate in the Company’s Short-TermIncentive Compensation Plan as in effect from time to time. Any cash compensation
 

 
payable under this paragraph shall be referred to as “Incentive Compensation” in this Agreement.          (c) Executive Perquisites. During the term of Executive’s employment with the Companypursuant to this Agreement, Executive shall be entitled to receive such executive perquisites andfringe benefits as are provided to the executives in comparable positions and their families underany of the Company’s plans and/or programs in effect from time to time for which Executive iseligible to participate and to receive such other benefits as are customarily available toexecutives of the Company and their families, including, without limitation, vacations and life,medical and disability insurance.          (d) Tax Withholding. The Company shall have the right to deduct from any compensationpayable to Executive under this Agreement social security (FICA) taxes and all federal, state,municipal or other taxes or charges as may now be in effect or that may hereafter be enacted orrequired.          (e) Expense Reimbursements. The Company shall pay or reimburse Executive for allreasonable business expenses incurred or paid by Executive in the course of performing his dutieshereunder, including, but not limited to, reasonable travel expenses for Executive. As a conditionto such payment or reimbursement, however, Executive shall maintain and provide to the Companyreasonable documentation and receipts for such expenses.     3. Term. Unless sooner terminated pursuant to Section 4 of this Agreement, andsubject to the provisions of Section 5 hereof, the term of this Agreement (the “Term”) shallcommence as of the date hereof and shall continue until December 31, 2006.     4. Termination. Notwithstanding the provisions of Section 3 hereof, but subject tothe provisions of Section 5 hereof, Executive’s employment under this Agreement shall terminate asfollows:          (a) Death. Executive’s employment shall terminate upon the death of Executive;provided, however, that the Company shall continue to pay (in accordance with its normal payrollprocedures) the Base Salary to Executive’s estate for a period of six (6) months after the date ofExecutive’s death if Executive is employed by the Company on date of his death.          (b) Termination for Cause. The Company may terminate Executive’s employment at anytime for “Cause” (as hereinafter defined) by delivering a written termination notice to Executive.For purposes of this Agreement, “Cause” shall mean any of the following: (i) Executive’s commissionof a felony or a crime involving moral turpitude; (ii) Executive’s commission of an actconstituting fraud, deceit or material misrepresentation with respect to the Company or any of itsaffiliates; (iii) Executive’s embezzlement of funds or assets from the Company or any of itsaffiliates; (iv) evidence sufficient to conclude that Executive is addicted to any alcoholic,controlled or illegal substance or drug; (v) Executive’s commission of any act or omission of grossnegligence or willful misconduct in the performance of his duties to the Company; or (vi)Executive’s failure to correct or cure any material breach of or default under
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this Agreement notdescribed in any of the preceding clauses within ten (10) days after receiving written notice ofsuch breach or default from the Company. Determinations pursuant to this section shall be made by the Compensation Committee of the Company’s Board of Directors, ifany, and otherwise by the Company’s Chief Executive Officer.          (c) Termination Without Cause. The Company may terminate Executive’s employment atany time for any or no reason by delivering a written termination notice to Executive.          (d) Termination by Executive. Executive may terminate his employment at any time bydelivering sixty (60) days prior written notice to the Company; provided, however, that the terms,conditions and benefits specified in Section 5 hereof shall apply or be payable to Executive onlyif such termination occurs as a result of a material breach by the Company of any provision of thisAgreement which breach is not cured within ten (10) days after the Chief Executive Officer of theCompany receives from Executive a written notice detailing such breach.          (e) Termination Following Disability. In the event Executive becomes “disabled” (asdefined in the Company’s disability insurance policy as in effect on the date of such disability)and is unable to perform his material duties and responsibilities hereunder for a period of atleast ninety (90) days in the aggregate during any one hundred twenty (120) consecutive day period,the Company may terminate Executive’s employment by delivering a written termination notice toExecutive. Notwithstanding the foregoing, Executive shall continue to receive his full Base Salaryand benefits to which he is entitled under this Agreement for a period of six (6) months after theeffective date of such termination.          (f) Payments. Following any expiration or termination of this Agreement orExecutive’s employment hereunder, and in addition to (but not in duplication of) any amounts owedpursuant to Section 5 hereof, the Company shall pay to Executive all amounts earned by Executivehereunder prior to the date of such expiration or termination.          (g) Non-Disparagement. Executive agrees that during and following the termination ofhis employment he will not publicly (or in a manner he reasonably should have expected to be madepublic) disparage or otherwise make negative comments regarding the Company, its employees or itsaffiliates, provided, however, that the foregoing shall in no way restrict the Executive from ingood faith reporting any concerns that he may have to (i) any authority within the Companydesignated to receive complaints or concerns from employees, including, without limitation, theCompany’s Board of Directors or a committee thereof, or (ii) any regulator or other governmentalauthority with supervisory responsibility for the Company (including, without limitation, theSecurities and Exchange Commission) or the Company’s independent auditors.     5. Certain Termination Benefits. In the event that: (i) the provisions of Section 6 do not apply;  (ii) either (y) the Company terminates Executive’s employmentwithout Cause pursuant to Section 4(c) or (z) Executive terminates hisemployment
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   pursuant to Section 4(d) as a result of an uncured material breach by theCompany of any provision of this Agreement; and  (iii) the Executive executes and delivers the release contemplatedin Section (f) below,then in such case the Company will provide Executive the benefits described insubsection (a) below and, if and to the extent that Executive is eligible toparticipate in such plans, subsections (b) through (c) below.          (a) Base Salary and Incentive Compensation. For a period of twelve (12) monthsfollowing the termination, the Company shall continue to pay to Executive (i) his Base Salary (asin effect as of the date of his termination) and (ii) Incentive Compensation (in an aggregateamount equal to the cash Incentive Compensation received by the Executive for the most recentfiscal year prior to his termination).          (b) Life and Group Disability Insurance. If and to the extent that the Company’splans in effect from time to time permit such coverage, the Company shall continue to provideExecutive with the opportunity to obtain group life and disability insurance coverage for a periodof twelve (12) months following termination at coverage levels and rates equal to those applicableto Executive immediately prior to such termination or, if different, as provided to other executivelevel employees during such twelve-month period.          (c) Medical Insurance. If and to the extent that the Company’s plans in effect fromtime to time permit such coverage, the Company shall continue to provide Executive and his familywith the opportunity to obtain group medical insurance coverage under the Company’s medical plans(as the same may change from time to time) or other substantially similar health insurance for aperiod of twelve (12) months following termination at coverage levels and rates equal to thoseapplicable to Executive immediately prior to such termination or, if different, as provided toother executive level employees during such twelve-month period or, at the Company’s option, payCOBRA premiums during such twelve-month period.          (d) Offset. Any fringe benefits received by Executive in connection with any otheremployment accepted by Executive that are reasonably comparable, even if not necessarily asbeneficial to Executive, to the fringe benefits then being provided by the Company pursuant toparagraphs (b) and (c) of this Section 5, shall be deemed to be the equivalent of such benefits,and shall terminate the Company’s responsibility to continue providing the fringe benefits package,taken as a whole, then being provided by the Company pursuant to paragraphs (b) and (c) of thisSection 5. The Company agrees that if Executive’s employment with the Company is terminated,Executive shall have no duty to mitigate damages.          (e) Payment Default. Any amounts owed by the Company to Executive under this Section5 that are not paid when due shall bear interest at a rate of 10% per annum.          (f) General Release. Acceptance by Executive of any amounts pursuant to this Section5 shall constitute a full and complete release by Executive of any and all claimsExecutive may have against the Company, its officers, directors and affiliates, including, butnot
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limited to, claims he might have relating to Executive’s employment with the Company andcessation thereof; provided, however, that there may properly be excluded from the scope of suchgeneral release the following:     (i) claims that Executive may have against the Company for reimbursement ofordinary and necessary business expenses incurred by him during the course of hisemployment;     (ii) claims that may be made by the Executive for payment of Base Salary,bonuses, fringe benefits, stock upon vesting of inactive stock awards, stock uponexercise of stock options properly due to him, or other amounts or benefits due tohim under this Agreement;     (iii) claims respecting any matters for which the Executive is entitled to beindemnified under the Company’s Certificate of Incorporation or By-laws orapplicable law respecting third party claims asserted or third party litigationpending or threatened against the Executive; and     (iv) any claims prohibited by applicable law from being included in therelease.A condition to Executive’s receipt of any amounts pursuant to this Section 5 shall be Executive’sexecution and delivery of a general release as described above. In exchange for such release, theCompany shall, if Executive’s employment is terminated without Cause, provide a release toExecutive, but only with respect to claims against Executive that Executive identifies in writingto the Company at the time of such termination.     6. Effect of Change of Control.          (a) If within one (1) year following a “Change of Control” (as hereinafter defined), Executiveterminates his employment with the Company for “Good Reason” (as hereinafter defined) or theCompany terminates Executive’s employment for any reason other than Cause, death or disability (asdefined in Section 4(e)), the Company shall pay to Executive: (i) an amount equal to one times theExecutive’s Base Salary as of the date of termination; and (ii) an amount equal to the cashIncentive Compensation received by the Executive for the most recent fiscal year prior to histermination. In addition, the Company shall provide the Executive with out-placement assistance.In addition, the Company shall continue to provide the Executive with the opportunity to obtaincoverage under the Company’s various welfare and benefit plans, including retirement and grouphealthcare, dental and life in which Executive participates at the time of termination, for theperiod equal to twelve (12) months from the date of termination at coverage levels and ratessubstantially equal to those applicable to Executive immediately prior to such termination.          (b) “Change of Control” shall mean the date as of which: (i) there shall be consummated (1)any consolidation or merger of the Company other than a merger of the Company in which the holdersof the Company’s common stock immediately prior to the merger
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have the majority ownership of commonstock of the surviving corporation immediately after the merger, or (2) any sale, lease, exchangeor other transfer (in one transaction or a series of related transactions) of all, or substantiallyall, of the assets of the Company; or (ii) the stockholders of the Company approve any plan orproposal for the liquidation or dissolution of the Company; or (iii) any person (as such term isused in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the“Exchange Act”)), shall become the beneficial owner (within the meaning of Rule 13d-3 under theExchange Act) of 30% of the Company’s outstanding common stock; or (iv) during any period of two(2) consecutive years, individuals who at the beginning of such period constitute the entire Boardof Directors of the Company shall cease for any reason to constitute a majority thereof unless theelection, or the nomination for election by the Company’s stockholders, of each new director wasapproved by a vote of at least two-thirds of the directors then still in office who were directorsat the beginning of the period. Notwithstanding anything to the contrary herein, the consummationof the transactions contemplated by the Stock Purchase Agreement by and among the Company, M.J.Soffe Co., a North Carolina company (“Soffe”), and the shareholders of Soffe, shall not constituteor give rise to a “Change of Control” within the meaning of this Agreement.          (c) “Good Reason” shall mean any of the following actions taken by the Company without theExecutive’s written consent after a Change of Control: (i) the assignment to the Executive by the Companyof duties inconsistent with, or the reduction of the powers andfunctions associated with, the Executive’s position, duties,responsibilities and status with the Company immediately prior to aChange of Control or Potential Change of Control (as defined below), oran adverse change in Executive’s titles or offices as in effectimmediately prior to a Change of Control or Potential Change ofControl, or any removal of the Executive from or any failure tore-elect Executive to any of such positions, except in connection withthe termination of his employment for disability (as provided inSection 4(e)) or Cause or as a result of Executive’s death, except tothe extent that a change in duties relates to the elimination ofresponsibilities attendant to the Company’s no longer being a publiclytraded company;  (ii) a reduction by the Company in the Executive’sBase Salary as in effect on the date of a Change of Control orPotential Change of Control, or as the same may be increased from timeto time during the term of his Agreement;  (iii) the Company shall require the Executive to bebased anywhere other than at or within a 25-mile radius of theCompany’s principal executive offices or the location where theExecutive is based on the date of a Change of Control or PotentialChange of Control, or if Executive agrees to such relocation, theCompany fails to
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   reimburse the Executive for moving and all otherexpenses reasonably incurred in connection with such move;  (iv) a significant increase in Executive’s requiredtravel on behalf of the Company;  (v) the Company shall fail to continue in effectany Company-sponsored plan or benefit that is in effect on the date ofa Change of Control or Potential Change of Control (other than theIncentive Stock Award Plan or the Company’s stock option plan) andpursuant to which Executive has received awards or benefits and thatprovides (A) incentive or bonus compensation, (B) fringe benefits suchas vacation, medical benefits, life insurance and accident insurance,(C) reimbursement for reasonable expenses incurred by the Executive inconnection with the performance of duties with the Company, or (D)retirement benefits such as a Internal Revenue Code Section 401(k)plan, except to the extent that such plans taken as a whole arereplaced with substantially comparable plans;  (vi) any material breach by the Company of anyprovision of this Agreement which is not cured within ten (10) days ofthe Company’s receipt from Executive of notice thereof; and  (vii) any failure by the Company to obtain theassumption of this Agreement by any successor or assign of the Companyeffected in accordance with the provisions of Section 12.          (d) “Potential Change of Control” shall mean the date as of which (i) the Company enters intoan agreement the consummation of which, or the approval by shareholders of which, would constitutea Change of Control; (ii) proxies for the election of directors of the Board of Directors of theCompany are solicited by anyone other than the Company; (iii) any person (including, but notlimited to, any individual, partnership, joint venture, corporation, association or trust) publiclyannounces an intention to take or to consider taking actions which, if consummated, wouldconstitute a Change of Control; or (iv) any other event occurs which is deemed to be a PotentialChange of Control by the Board of Directors of the Company and the Board adopts a resolution to theeffect that a Potential Change of Control has occurred.          (e) In the event that (i) Executive would otherwise be entitled to the compensation andbenefits described in Section 5 or 6(a) hereof (“Compensation Payments”),and (ii) the Company determines, based upon the advice of tax counsel, that, as a result ofsuch Compensation Payments and any other benefits or payments required to be taken into accountunder the Internal Revenue Code of 1986, as amended (the “Code”), Section 280G(b)(2) (“ParachutePayments”), any of such Parachute Payments would be reportable by the Company as an “excessparachute payment” under Code Section 280G, such Compensation Payments shall be reduced to theextent necessary to cause the aggregate present value (determined in
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accordance with Code Section280G and applicable regulations promulgated thereunder) of the Executive’s Parachute Payments toequal 2.99 times the “base amount” as defined in Code Section 280G(b)(3) with respect to suchExecutive. However, such reduction in the Compensation Payments shall be made only if, in theopinion of such tax counsel, it would result in a larger Parachute Payment to the Executive thanpayment of the unreduced Parachute Payments after deduction in each case of tax imposed on andpayable by the Executive under Section 4999 of the Code (“Excise Tax”). The value of any non-cashbenefits or any deferred payment or benefit for purposes of this paragraph shall be determined by afirm of independent auditors selected by the Company.          (f) The parties hereto agree that the payments provided under Section 6(a) above arereasonable compensation in light of Executive’s services rendered to the Company and that neitherparty shall assert that the payment of such benefits constitutes an “excess parachute payment”within the meaning of Section 280G(b)(1) of the Code.          (g) Unless the Company determines that any Parachute Payments made hereunder must be reportedas “excess parachute payments” in accordance with Section 6(e) above, neither party shall file anyreturn taking the position that the payment of such benefits constitutes an “excess parachutepayment” within the meaning of Section 280G(b)(1) of the Code.     7. Non-Competition. Executive agrees that during the Term and for a period of fourmonths from the date of the termination of Executive’s employment with the Company pursuant toSections 4(b), 4(c), 4(d), 4(e) or 6 herein or for any other reason that results in the Executivebeing entitled to the benefits described in Section 5, he will not, directly or indirectly, competewith the Company by providing to any company that is in a “Competing Business” servicessubstantially similar to the services provided by Executive at the time of termination. CompetingBusiness shall be defined as any business that engages, in whole or in part, in the manufacturingor marketing of activewear tee shirts in the United States of America (the “Restricted Territory”),and Executive’s employment function or affiliation is directly or indirectly in such business ofactivewear tee shirt manufacturing or marketing.     8. Non-Solicitation. For a period of two years after the later of the expiration ofthe Term or the termination or cessation of his employment with the Company for any reasonwhatsoever, Executive shall not, on his own behalf or on behalf of any other person, partnership,association, corporation, or other entity, (a) solicit or in any manner attempt to influence orinduce any employee of the Company or its subsidiaries or affiliates (known by the Executive to besuch) to leave the employment of the Company or its subsidiaries or affiliates (other than throughgeneral advertisements not directed at any particular employee or group of employees),nor shall he use or disclose to any person, partnership, association, corporation or otherentity any information obtained while an employee of the Company concerning the names and addressesof the Company’s employees, or (b) solicit, entice or induce any customer or supplier of theCompany (or any actively sought customer or supplier of the Company) at the time of expiration ortermination for or on behalf of any Competing Business in the Restricted Territory.
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     9. Non-Disclosure of Trade Secrets. During and prior to the Term of this Agreement,Executive has had access to and became familiar with and will have access to and become familiarwith various trade secrets and proprietary and confidential information of the Company and itsaffiliates, including, but not limited to, processes, computer programs, compilations ofinformation, records, sales procedures, customer requirements, pricing techniques, customer lists,methods of doing business and other confidential information (collectively, referred to as “TradeSecrets”) which are owned by the Company and/or its affiliates and regularly used in the operationof its or their business, and as to which the Company and/or its affiliates take precautions toprevent dissemination to persons other than certain directors, officers and employees. Executiveacknowledges and agrees that the Trade Secrets (1) are secret and not known in the industry; (2)give the Company and/or its affiliates an advantage over competitors who do not know or use theTrade Secrets; (3) are of such value and nature as to make it reasonable and necessary to protectand preserve the confidentiality and secrecy of the Trade Secrets; and (4) are valuable, specialand unique assets of the Company and/or its affiliates, the disclosure of which could causesubstantial injury and loss of profits and goodwill to the Company and/or its affiliates.Executive may not use in any way or disclose any of the Trade Secrets, directly or indirectly,either during the Term or at any time after the expiration of the Term or the termination ofExecutive’s employment with the Company for any reason whatsoever, except as required in the courseof his employment under this Agreement, as required in connection with a judicial or administrativeproceeding, or if the information becomes public knowledge other than as a result of anunauthorized disclosure by the Executive. All files, records, documents, information, data andsimilar items relating to the business of the Company and/or its affiliates, whether prepared byExecutive or otherwise coming into his possession, will remain the exclusive property of theCompany and/or its affiliates (as the case may be) and may not be removed from the premises of theCompany under any circumstances without the prior written consent of the Board of Directors of theCompany and/or its affiliates (as the case may be) (except in the ordinary course of businessduring Executive’s period of active employment under this Agreement), and in any event must bepromptly delivered to the Chief Executive Officer of the Company upon termination of Executive’semployment with the Company. Executive agrees that upon his receipt of any subpoena, process orother request to produce or divulge, directly or indirectly, any Trade Secrets to any entity,agency, tribunal or person, Executive shall timely notify and promptly hand deliver a copy of thesubpoena, process or other request to the Board of Directors of the Company. For this purpose,Executive irrevocably nominates and appoints the Company (including any attorney retained by theCompany), as his true and lawful attorney-in-fact, to act in Executive’s name, place and stead toperform any act that Executive might perform to defend and protect against any disclosure of anyTrade Secrets. The rights granted to the Company and/or its affiliates in this Section 9 areintended to be in addition to and not in replacement of any protection of trade secrets provided byequity, any statute, judicially created law or other agreement.     10. Remedies. In the event that Executive violates any of the provisions of Sections7, 8 or 9 hereof (the “Protective Covenants”) or fails to provide the notice required by Section4(d) hereof, in addition to any other remedy that may be available at law, in equity or hereunder,the Company shall be entitled to receive from Executive the profits, if any, received by Executiveupon exercise of any Company granted stock options or incentive stock awards or upon lapse of therestrictions on any grant of restricted stock to the extent such options or rights
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were exercised,or such restrictions lapsed, subsequent to the commencement of the six-month period prior to thetermination of Executive’s employment. In addition, Executive acknowledges and agrees that anybreach of a Protective Covenant by him will cause irreparable damage to the Company and/or itsaffiliates, the exact amount of which will be difficult to determine, and that the remedies at lawfor any such breach will be inadequate. Accordingly, Executive agrees that, in addition to anyother remedy that may be available at law, in equity or hereunder, the Company, and/or itsaffiliates shall be entitled to specific performance and injunctive relief, without posting bond orother security, to enforce or prevent any violation of any of the Protective Covenants by him.     11. Severability. The parties hereto intend all provisions of this Agreement to beenforced to the fullest extent permitted by law. The provisions of this Agreement are severable.The covenants on the part of the Executive contained in the Protective Covenants shall be construedas independent covenants and agreements of the Executive, independently supported by good andadequate consideration, shall be construed independently of the other provisions in this Agreementand shall survive this Agreement. The existence of any claim or cause of action of Executiveagainst the Company or any of its affiliates, whether predicated on this Agreement or otherwise,shall not constitute a defense to the enforcement by the Company or its affiliates of the covenantsof Executive contained in this Agreement. The parties in no way intend to include a provision thatcontravenes public policy. Therefore, if any of the provisions, clauses, sentences, or paragraphs,or portions (“provisions”) of this Agreement is unlawful, against public policy, or otherwisedeclared void or unenforceable, such provision shall be deemed excluded from this Agreement, whichshall in all other respects remain in effect. Furthermore, in lieu of such illegal, invalid orunenforceable provision, there shall be added as part of this Agreement a provision as similar inits terms to such illegal, invalid or unenforceable provision as may be possible and be legal,valid and enforceable. If any Court should construe any portion of this Agreement to be too broadto prevent enforcement to its fullest extent then such portion shall be enforced to the maximumextent that the Court finds reasonable and enforceable.     12. Miscellaneous.          a. Notices. Any notices, consents, demands, requests, approvals and othercommunications to be given under this Agreement by either party to the other must be in writing andmust be either (i) personally delivered, (ii) mailed by registered or certified mail, postageprepaid with return receipt requested, (iii) delivered by reputable overnight express deliveryservice or reputable same-day local courier service, or (iv) delivered by telex or facsimiletransmission, with confirmed receipt, to the address set forth below, or to such other address asmay be designated by the parties from time to time in accordance with this Section 12(a):If to the Company:
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Delta Apparel, Inc.