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

                                    FORM 10-K
(Mark One)

[X] ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
    EXCHANGE ACT OF 1934 For the fiscal year ended NOVEMBER 2, 1997
                                       or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
    EXCHANGE ACT OF 1934
                          Commission file number 1-9474

                            FORSTMANN & COMPANY, INC.
             (Exact name of registrant as specified in its charter)

              GEORGIA                                   58-1651326
    -----------------------------         ------------------------------------
   (State or other jurisdiction of        (I.R.S. Employer Identification No.)
    incorporation or organization)

    1155 AVENUE OF THE AMERICAS, NEW YORK, N.Y.              10036
    ------------------------------------------             ----------
     (Address of principal executive offices)              (Zip Code)

       Registrant's telephone number, including area code: (212) 642-6900

        Securities registered pursuant to Section 12(b) of the Act: NONE

           Securities registered pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $.01 PAR VALUE
                          ----------------------------
                                (Title of class)

           Indicate  by check  mark  whether  the  registrant  (1) has filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )

           Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. (X)

           The aggregate market value of the common stock held by non-affiliates
of the registrant as of January 28, 1998 was  $11,815,789,  based on the trading
price in the over-the-counter market on such date.

           Indicate by check mark whether the registrant has filed all documents
and reports  required to be filed by Sections 12, 13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes (X) No ( )

As of January 28, 1998 there were 4,384,436 shares of Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Definitive  proxy  statement  for  the  registrant's   1998  Annual  Meeting  of
Shareholders  (incorporated  in Part III to the extent provided in Items 10, 11,
12 and 13 hereof).

<PAGE>

Item 1.  BUSINESS

GENERAL

           Forstmann & Company, Inc., a Georgia corporation (the "Company"),  is
a leading  designer,  marketer  and  manufacturer  of  innovative,  high quality
woolen,  worsted and other fabrics which are used primarily in the production of
brand-name  and private  label  apparel for men and women,  as well as specialty
fabrics for use in billiard tables, sports caps and school uniforms. The apparel
industry  represents  the  majority  of the  Company's  customers.  The  Company
manufactures  fabrics  produced from 100% wool,  wool blends and blends of other
natural  and  man-made  fibers.  The  Company  believes  that it is the  largest
manufacturer  of  domestically  produced  woolen  fabrics and the second largest
manufacturer of domestically produced worsted fabrics.

           During the Company's 1997 fiscal year (the fifty-two week period from
November 4, 1996 through  November 2, 1997)  ("Fiscal Year 1997"),  women's wear
and outerwear fabrics  accounted for  approximately  67.8% of revenues and men's
wear fabrics accounted for approximately 19.9% of revenues. During the Company's
1996 fiscal year (the  fifty-three  week  period from  October 30, 1995  through
November 3, 1996)  ("Fiscal  Year  1996"),  women=s wear and  outerwear  fabrics
accounted for  approximately  66.8% of revenues and men=s wear fabrics accounted
for approximately 19.1% of revenues.  During the Company's 1995 fiscal year (the
fifty-two  week period from October 31, 1994 through  October 29, 1995) ("Fiscal
Year 1995"),  women's wear and outerwear  fabrics  accounted  for  approximately
65.0% of revenues and men's wear fabrics  accounted for  approximately  23.4% of
revenues.  Specialty  fabrics,  including  government  and other,  accounted for
remaining revenues.

           Although   Forstmann  was   incorporated   in  December   1985,   its
predecessors  have been in  business  for over 100  years.  The  Company  is the
successor  to the  business of the Woolen and Worsted  Fabrics  Division of J.P.
Stevens & Co., Inc., the assets of which the Company acquired in February 1986.

           The  principal  executive  offices of the Company are located at 1155
Avenue of the Americas,  New York, New York 10036,  and its telephone  number is
(212) 642-6900.

EMERGENCE FROM BANKRUPTCY

           On  September  22,  1995,  as a result of a decline in the  Company's
results of operations  during Fiscal Year 1995 reflecting,  among other factors,
rising wool costs,  sluggish retail apparel sales,  and high debt leverage,  the
Company  filed a petition  for  relief  under  Chapter  11 of the United  States
Bankruptcy Code (the "Bankruptcy  Code") with the United States Bankruptcy Court
for the Southern District of New York (the "Bankruptcy Filing").  From September
22, 1995 to July 23, 1997, the Company  operated as a  debtor-in-possession.  On
May 14, 1997,  the Company filed its First Amended Plan of  Reorganization  (the
"Plan of Reorganization") and an accompanying First Amended Disclosure Statement
Pursuant to Section 1125 of the Bankruptcy Code (the "Disclosure Statement"). On
May 15, 1997,  the  Bankruptcy  Court  entered an order  approving the Company's
Disclosure  Statement.  Shortly thereafter the Company began to solicit the vote
of its creditors and stockholders  with respect to the Plan of Reorganization in
accordance  with the  Bankruptcy  Code. On July 9, 1997,  the  Bankruptcy  Court
entered an order  confirming the Plan of  Reorganization.  On July 23, 1997 (the
"Effective Date"), the Plan of Reorganization was consummated by the Company and
the Company emerged from bankruptcy.

<PAGE>

           Pursuant to the Plan of Reorganization,  all general unsecured claims
against  the  Company  were  converted  into  100% of the  common  stock  of the
reorganized  Company  based on a ratio of 50 shares  per each  $1,000 of allowed
unsecured claim.  Secured claims against the Company  aggregating  approximately
$60.1 million were either  refinanced,  reinstated or restructured as more fully
described  in Note 8 to the  Financial  Statements  contained  in Item 8 of this
Annual Report (the "Financial Statements"). In addition, pursuant to the Plan of
Reorganization, as of the Effective Date:

           (i)      holders of the Company's redeemable preferred stock received
                    in the aggregate  warrants entitling them to purchase 43,878
                    shares of the new  common  stock of the  Company  within two
                    years of the Effective  Date at an exercise price of $23 per
                    share, and the preferred stock was canceled;

           (ii)     holders of the  Company's  old common stock  received in the
                    aggregate  warrants entitling them to purchase 43,878 shares
                    of the new common  stock of the Company  within two years of
                    the  Effective  Date at an exercise  price of $23 per share,
                    and the old common stock was canceled;

           (iii)    holders  of  options  to  purchase   common   stock  of  the
                    predecessor  Company  received  no  distributions  under the
                    Plan, and the options were canceled;

           (iv)     an  aggregate  of  487,528  shares  of  common  stock of the
                    reorganized Company were reserved for issuance upon exercise
                    of  options  granted  or  to  be  granted  pursuant  to  the
                    Company's  Management  Stock  Option  Plan  and,  as of  the
                    Effective  Date,  146,258  options  were  granted to certain
                    employees of the Company at an exercise  price of $12.88 per
                    share;

           (v)      the Company entered into a Loan and Security Agreement dated
                    as of July 23, 1997 (the "Loan and Security Agreement") with
                    BankAmerica  Business Credit,  Inc. ("BABC"),  as agent, and
                    the financial  institutions  named therein,  providing for a
                    revolving line of credit  (including a $10 million letter of
                    credit  facility) of up to $85 million (the  "Revolving Loan
                    Facility")  and term loans of  approximately  $31.5  million
                    (the "Term Loan Facility"),  the proceeds of which were used
                    to repay all  amounts  outstanding  under the  Company's  GE
                    Capital DIP Facility (hereinafter defined) and CIT Equipment
                    Facility  (hereinafter  defined),  repay the principal and a
                    portion of the  accrued  and unpaid  interest  due under the
                    Senior  Secured Notes  (hereinafter  defined) and fund other
                    amounts due pursuant to the Plan of  Reorganization  and the
                    Loan and Security Agreement.


<PAGE>
BUSINESS

           In connection with the Plan of Reorganization,  the Company adopted a
business plan focusing on significantly  reducing product offerings,  tightening
management of inventory  levels,  enhancing  cost controls and reducing  capital
expenditures.  This business plan was  substantially  implemented  during Fiscal
Year 1997.  Management,  as a part of its strategic  planning,  will continue to
examine  alternative  approaches to further  rationalize  the Company's  product
line, to effect cost savings,  to adapt the Company's business to changes in its
markets  and  to  find  new  markets.   These   alternatives   may  include  the
discontinuance  of  certain  product  lines  to  be  determined,   the  possible
outsourcing  of certain  manufacturing  processes and the  realignment  of staff
functions.  The Company expects sales revenues in fiscal year 1998 to be between
15% to 20%  lower  than  in  Fiscal  Year  1997.  Accordingly,  the  Company  is
implementing plans which are intended to align its costs during fiscal year 1998
with the decline in sales  anticipated  in fiscal year 1998.  See  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations",
below.

MARKETS AND PRODUCTS.  The Company  fulfills many of the diverse fabric needs of
leading men's,  women's and outerwear apparel makers by offering a collection of
100% wool, wool-blend, synthetic and synthetic-blend fabrics, as well as fabrics
blended with natural  fibers such as linen,  cotton and silk.  These fabrics are
offered in a wide  variety of styles,  colors,  weaves and weights  which can be
used in tailored clothing,  sportswear,  coats for men and women, as well as for
specialty  applications.  The Company introduces new collections  throughout the
year to ensure that its customers are  frequently  presented  with to the latest
fabric offerings and to accommodate seasonal retail cycles.

           As a  result  of  its  bankruptcy,  the  Company  began  an  internal
rationalization  of its product  lines during the fourth  quarter of Fiscal Year
1995,  reviewing  each of its  styles for such  factors as margin  contribution,
volume  and  continued  market  potential.  Through  this  review,  the  Company
simplified  its product  development  process  and  reduced the total  number of
products  offered.  The  Company  has  established  a protocol  for new  product
development  that requires  analysis of such factors as research and development
costs, potential margin contribution,  volume and sales, prior to adopting a new
product.

           WOMEN'S   APPAREL   FABRICS.   The  Company   designs,   markets  and
manufactures  woolen and worsted  fabrics for women's  apparel in the  moderate,
better and bridge price  ranges,  primarily for  sportswear,  suits and dresses.
Forstmann is also a  significant  supplier of fabrics for women's  woolen coats,
providing  fabric  for most  major  domestic  women's  outerwear  manufacturers.
Forstmann offers a spring/summer,  fall/winter and holiday fabric collection for
women's  apparel with each one varying in terms of fabric  composition,  weight,
color  palette  and  styling  to fit the  appropriate  season.  The  fall/winter
collection includes traditional fabrics such as 100% wool, flannels, meltons and
velours and 100% worsted  crepes,  tricotines and twills.  It also includes more
directional  fabrics made with silk, mohair,  cashmere,  polyester,  viscose and
other synthetic and natural fibers.
<PAGE>

The  spring/summer  and holiday  collections are generally lighter in weight and
texture. As U.S. consumer habits demand, there is a greater emphasis on non-wool
or  "wool-poor"  products in these  collections.  They  include a number of 100%
worsted viscose and viscose-blend  fabrics, as well as a variety of combinations
of fibers such as linen, silk and polyester.  Forstmann also offers a collection
of lightweight  worsted wool fabrics,  some of which are suitable for year-round
wear and contain Lycra (R) brand spandex* or other synthetic or natural fibers.

           With three  distinct  collections,  Forstmann is seeking to serve its
women's  wear  customers  all year  long.  The  women's  apparel  fabrics  group
accounted for approximately 67.8% of total revenue in Fiscal Year 1997, 66.8% of
total  revenue in Fiscal  Year 1996 and 65.0% of total  revenue  in Fiscal  Year
1995.

           MEN'S APPAREL FABRICS. The Company designs,  markets and manufactures
fabrics in the moderate and better  price  ranges for men's  apparel.  The men's
wear group presents a fall/winter and  spring/summer  collection for two general
apparel  categories:  sportswear  (woolen  sportcoats,  trousers)  and  tailored
clothing  (worsted  suits,  formal wear,  blazers).  The product  ranges include
traditional fabrics such as tropicals,  gabardines and flannels in wool and wool
blends,  as well as fabrics  made with  man-made  fibers such as Lycra (R) brand
spandex,  viscose  and  polyester  and  natural  fibers  such as linen and silk.
Through market-specific product styling and composition,  the Company is able to
serve  emerging  apparel  categories  such as suit  separates and "casual dress"
sportswear as well as its traditional base of tailored  clothing and sportswear.
Men's wear  accounted  for  approximately  19.9% of total revenue in Fiscal Year
1997,  19.1% of total  revenue in Fiscal Year 1996 and 23.4% of total revenue in
Fiscal Year 1995.

           SPECIALTY AND  GOVERNMENT  FABRICS.  The Company  produces  specialty
fabrics for a wide variety of end uses,  including billiard tables,  sports caps
and school  uniforms.  The Company is a leading  domestic  billiard table fabric
manufacturer,  selling directly to manufacturers and  distributors.  Since 1992,
the Company  has also sold a small  percentage  of  billiard  fabrics in Europe.
Forstmann  is the sole  supplier of wool fabric used in  production  of official
major league baseball caps for on-field play.

           The  Company  also  sells a  limited  quantity  of fabric to the U.S.
government for a variety of military apparel uses. These fabrics are designed to
meet stringent requirements for tailoring, comfort and durability. The Company's
sales to the  government  are  generally in the form of long-term  contracts for
high-volume,  lower-margin goods. Therefore,  the Company bids opportunistically
on  contracts  that will  balance its  manufacturing  capacity  during  off-peak
periods.  The actual awarding of government contracts can be a long-term process
with  legislative  approval of funding  sometimes  required.  During Fiscal Year
1997,  the Company was  awarded  $6.1  million in  government  contracts  and at
November 2, 1997,  $2.3 million in orders were open and unfilled.  Specialty and
government  sales accounted for  approximately  10.5% of total revenue in Fiscal
Year 1997,  10.2% of total revenue in Fiscal Year 1996 and 6.0% of total revenue
in Fiscal Year 1995.

-----------------------
* Lycra (R) brand spandex is a registered  trademark of E.I. Dupont de Nemours &
Company, Inc.

<PAGE>

           DISCONTINUED  PRODUCT LINES.  During Fiscal Year 1996, as part of the
product  rationalization  process discussed above, the Company  discontinued its
civilian  uniform,  converted  fabrics and Carpini fabrics product lines.  Sales
from  the  Company's  discontinued  product  lines,  civilian  uniform  fabrics,
converted fabrics and Carpini fabrics, accounted for approximately 1.9% of total
revenue in Fiscal Year 1997,  3.9% of total revenue in Fiscal Year 1996 and 5.6%
of total revenue in Fiscal Year 1995. All three discontinued  product lines were
unprofitable in each of these fiscal years.

STYLING,  MERCHANDISING AND MARKETING. The Company's styling,  merchandising and
marketing  functions are integrated and include the  conceptualization  (styling
and  merchandising)  and  the  sales  (marketing)  of the  product  line.  These
functions  are directed  from its New York office and are  organized  around the
Company's  three  customer-end  use divisions:  women's apparel  fabrics,  men's
apparel fabrics and specialty and government fabrics. The primary sales force is
based in New York, with a sales representative in Dallas.
The Company also retains sales agents in Canada, Germany and California.

PRODUCT DEVELOPMENT.  Over the course of each fiscal year,  approximately 30% of
products  offered by the Company are new  introductions.  The  Company's  recent
rationalization  of its  product  line led to a  complete  restructuring  of the
product development function within the Company. The ultimate accountability for
the  successful,  cost-effective  development  of new products was firmly placed
with the senior manager of each of the Company's customer-end use divisions.  In
addition,  the Company has  established  a protocol for new product  development
that  requires  analysis of such  factors as  research  and  development  costs,
potential  margin  contribution,  and market  potential  prior to adopting a new
product.  The Company's objective is to cultivate innovative product development
that   utilizes  the  Company's   resources  and  maximizes  its   manufacturing
capabilities,  while  addressing the ever changing  requirements of its targeted
markets.

MANUFACTURING. The Company owns and operates vertically integrated facilities at
which it performs operations from yarn manufacturing through weaving, dyeing and
finishing of fabric.  This vertical  integration  not only provides  significant
flexibility  in the  production  of woolens and worsteds  fabrics,  but also the
ability to produce a wide variety of other natural and synthetic-blend  fabrics.
The  Company  operates  the only major  United  States  mill which  manufactures
fabrics on both the woolen and worsted systems.

           For the production of woolen fabrics,  the Company  purchases scoured
(degreased) wool which consists of the shorter fiber taken from the sheep.  When
spun into yarn, woolen yarns generally tend to have a "fuzzy"  appearance due to
the length of the fiber.  Woolen  fabrics are used in  garments  such as flannel
blazers,  outerwear  (coats) and sports  coats.  Woolen  fabrics can be produced
piece-dyed (solid color) or as fancies (patterned).  In piece dyeing, the fabric
is dyed after it is woven. In fancies,  the raw wool is dyed or yarn is dyed and
then woven into the desired pattern. Finishing of woolen fabrics is the critical
value added step in the  manufacturing  process.  It is finishing that gives the
woolen fabric its "hand" (feel) and appearance.

<PAGE>
           For the production of worsted fabrics, the Company purchases wool top
which  consists  of the long fiber  taken from sheep  which has been  combed,  a
process which parallels and straightens the fibers.  The combination of the long
fibers and additional yarn manufacturing steps to straighten the fibers produces
worsted  yarn,  which is  generally  fine and has a smooth  appearance.  Worsted
fabrics are used in garments such as men's suits, women's crepe skirts and men's
trousers.  Worsted  fabrics,  like woolen  fabrics,  can be produced  piece dyed
(solid)  or fancy  (patterned).  Other  fibers  such as  viscose,  linen,  silk,
polyester,  nylon or cotton can be blended or woven into both woolen and worsted
applications.

CAPITAL INVESTMENT  PROGRAM. As a result of the Bankruptcy Filing, the Company's
capital investment  program was curtailed.  Capital  expenditures  during Fiscal
Year 1997 and  Fiscal  Year 1996  were  limited  to  maintaining  the  Company's
facilities,  emergency  replacements and the relocation of certain wool blending
machinery and equipment from the Company's  previously  owned Tifton facility to
its Dublin  facility.  During Fiscal Year 1997 and Fiscal Year 1996, the Company
invested $1.9 million and $1.0  million,  respectively,  in property,  plant and
equipment and $0.4 million and $0.9 million,  respectively,  in the  development
and implementation of certain computer  information systems. The Company expects
to spend less than $5.0 million in capital-related expenditures (including costs
associated  with the  development  and  implementation  of computer  information
systems) during fiscal year 1998.

RAW MATERIALS. The Company's raw material costs constituted  approximately 43.0%
of its cost of goods  manufactured  during  Fiscal  Year 1997.  The  primary raw
material  used by the  Company is wool.  As a result,  the  Company's  costs are
dependent  on its  ability to manage its wool  inventory  and  control  its wool
costs.  Approximately  three-quarters  of the  Company's  wool is imported  from
Australia  and  substantially  all of the  balance  is  purchased  in the United
States.  The Company  purchases its wool from both brokers and processors and is
not dependent on a single supply  source.  The Company's  foreign wool purchases
are  denominated  in U.S.  dollars and the Company  generally does not incur any
currency  exchange risk.  However,  future changes in the exchange rates between
United States and Australian dollars can materially affect the Company's results
of  operations  for  financial  reporting  purposes.  The Company  does not have
adequate  alternative  sources of raw wool if the existing  wool  suppliers  are
unable to supply raw wool to the Company.

           During Fiscal Year 1995 and again,  during Fiscal Year 1996, the cost
of certain raw wool categories sourced from Australia rose significantly. Fiscal
Year 1997 wool costs were  approximated 2.0% lower than Fiscal Year 1996; Fiscal
Year 1996 wool costs were  approximately  9% higher than Fiscal Year 1995;  and,
Fiscal Year 1995 wool costs were approximately 26% higher than fiscal year 1994.
Based on the Company's  forward  purchase  commitments,  the Company expects its
wool costs to be a  weighted  average of 3% higher  during  fiscal  year 1998 as
compared to Fiscal  Year 1997.  See  "Management's  Discussion  and  Analysis of
Financial  Condition and Results of Operations",  below, for a discussion of the
effects of changes in wool prices and the impact of fluctuations in the exchange
rate between the U.S. and Australian dollars.

<PAGE>
CUSTOMERS.  The Company has more than 700 active  customers.  During Fiscal Year
1997,  one of the Company's  customers  accounted for  approximately  17% of the
Company's revenues. No other customer of the Company accounted for 6% or more of
the Company's revenues in Fiscal Year 1997.

           Substantially  all of the Company's  customers are located within the
United States.  During each of Fiscal Year's 1995,  1996 and 1997, less than two
percent of the Company's revenues were derived from exports.

BACKLOG. The Company's sales order backlog at January 4, 1998 was $51.5 million,
a decrease of $8.5 million from the  comparable  period one year ago.  Excluding
government orders,  which have historically  yielded lower gross profit margins,
the backlog at January 4, 1998 was $50.5  million or $0.8  million  greater than
the  comparable  period one year ago.  The  increase in the  backlog,  excluding
government  orders,  is primarily  attributable to an increase in coating fabric
orders  which was  partly  offset by a decline in women's  wear  fabric  orders,
particularly  in  worsted  fabrics.  Management  expects  the men's and  women's
worsted  fabric  business  to  remain  very  competitive  in  the  future.   See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations", below.

SEASONALITY.  The wool fabric  business is seasonal,  with the vast  majority of
orders placed from  December  through  April for  manufacture  and shipment from
February  through July to enable apparel  manufacturers  to produce  apparel for
retail sale during the fall and winter  seasons.  As a result of normal  payment
terms for the sale of such  fabrics,  the Company  receives the major portion of
its payments from May through October.  The Company's worsted fabrics sales tend
to be less  seasonal  because  the  lighter  weight of such  fabrics  makes them
suitable for retail sale in the spring and summer seasons as well as in the fall
and winter seasons.

COMPETITION. The textile business in the United States is highly competitive and
the Company  competes with many other  textile  companies.  However,  due to the
capital intensive nature of wool fabric  production,  there are a limited number
of domestic textile mills that produce woolen and worsted  fabrics.  The Company
believes that it is the largest domestic  manufacturer of woolen fabrics and the
second largest domestic manufacturer of worsted fabrics. The Company's principal
competitors in the sale of woolen fabrics are Warshaw  Woolen  Associates,  Inc.
and Carleton  Woolen Mills,  Inc., and its principal  competitors in the sale of
worsted  fabrics  are  Burlington  Industries  Equity,  Inc.  and The  Worcestor
Company, Inc.

           Almost all of the  fabrics  the  Company  produces  for  apparel  are
consumed in the United  States,  although the  finished  garments are often cut,
made and sewn in other  countries.  For  several  years,  the  Company has faced
increasing  domestic and foreign  competition  in virtually  all segments of its
business.  This trend is expected to continue,  with competition increasing from
global  woolen and  worsted  textile  manufacturers  as well as from  imports of
finished garments.

<PAGE>
           The  Company  believes  that the  principal  competitive  factors are
price,  quality,  service  and  fashion,  with the  significance  of each factor
depending upon the product and market involved.  The competitive position of the
Company  varies  among the  different  fabrics it  manufactures.  In the current
retail  environment,  the  Company  believes  that price is the  primary  factor
influencing its customers to make a purchasing  decision.  The Company  believes
that it is generally  perceived  as providing a high level of service,  and that
this perception provides a competitive advantage. During Fiscal Year 1997, in an
effort to distinguish itself as a premier service provider,  the Company reduced
its  sample  lead  time  by  approximately  30% and  production  lead  times  by
approximately 15%.

           U.S.  Department of Commerce statistics indicate that there was a 10%
decline in 1996 in the  utilization of chiefly wool fabric in U.S. men's apparel
production.  However,  in the same year, chiefly wool fabric utilization in U.S.
women's apparel  production grew 11% to 76.2 million yards. The increase was due
primarily  to increased  imports of wool  apparel or wool fabric.  In the period
from 1994 to 1996,  overall  wool  apparel  imports  to the U.S.  increased  8%.
Currently,  imports of  foreign-manufactured  woolen and  worsted  fabrics  face
strict quotas and high import duties upon entering the United States unless they
are produced under the North  American Free Trade  Agreement  ("NAFTA"),  or the
Caribbean  Basin  Initiative  ("CBI")  trade  agreements.  The  Company  expects
competition   from  imported   garments  to  continue  as  apparel   makers  are
increasingly  linking the sourcing of their  fabrics with the cut,  make and sew
operations  of garment  manufacturing  to maximize  low-cost  foreign  labor and
tariff reductions.

           NAFTA,  which became effective in 1994, has resulted in an increasing
percentage  of garments for sale in the United  States,  Canada and Mexico being
manufactured  in Canada or Mexico,  taking  market  share from the Far East.  In
order for such  garments  to qualify  for  duty-free  treatment  into the United
States and Canada,  the fabric has to be sourced from the United States,  Canada
or Mexico. Historically, there has been limited capacity for wool production and
garment   assembly  in  Mexico  and  Canada.   While  under  NAFTA,  a  Canadian
manufacturer  is permitted to export high volumes of men's suits into the United
States.  This activity has had little effect on the Company's  overall  business
since the portion of the Company's business represented by men's suiting fabrics
is relatively  small.  However,  in Mexico,  certain  competitors  may be adding
capacity for woolen and worsted fabric  production and garment  packaging.  This
development  may  pose  greater  competitive  challenges  for  the  Company  as,
currently,  Mexico  benefits from lower labor rates,  lower raw wool tariffs and
much less stringent environmental regulations.

           The CBI  provides  reduced  duties  under  the "807"  provision.  The
General Agreement on Trade and Tariffs ("GATT"),  reduces tariffs on wool fabric
from  about 33% to 25% over the next eight  years.  In  exchange  for the tariff
reduction,  market  access for  products  manufactured  in the United  States to
countries that are parties to GATT is improved.

TRADEMARKS.  The Company owns the FORSTMANN  (R) name,  which it uses as a trade
name, as a trademark in connection  with various  merchandise,  and as a service
mark in the United  States.  The  Forstmann  name is also  registered in various
countries,  including Austria, Australia, the Benelux countries,  Canada, China,
Denmark,  France, Germany, Hong Kong, Indonesia,  Ireland, Italy, Japan, Norway,
Portugal,  Spain,  Switzerland and the United Kingdom, under International Class
24. In  addition,  the Company has applied to  register  the  Forstmann  name in
Sweden.  The Company  believes  that no  individual  trademark or trade name, is
material to the Company's business.

<PAGE>
EMPLOYEES.  As of December 31, 1997, the Company  employed  approximately  2,167
hourly-paid,  full-time  skilled  personnel at its plants and  approximately 319
additional salaried, supervisory,  management and administrative employees. None
of the Company's  employees is represented  by a union or a labor  organization.
The Company has never  experienced a strike and believes that its relations with
its employees are good.

ENVIRONMENTAL   MATTERS.  By  the  nature  of  its  operations,   the  Company's
manufacturing  facilities  are  subject  to  various  federal,  state  and local
environmental  laws and  regulations  and  occasionally  have  been  subject  to
proceedings and orders pertaining to emissions into the environment.

           DUBLIN,  GEORGIA.  On December  29, 1995,  the Georgia  Environmental
Protection   Division  ("EPD")  issued  separate   administrative   orders  (the
"Administrative  Orders")  to  the  Company  and to  J.P.  Stevens  & Co.,  Inc.
("Stevens")  which relate to three sites on the Georgia Hazardous Site Inventory
- the "TCE site", the "1,1-DCA site" and another site known as the "Burn Area" -
at the Company's Dublin,  Georgia facility.  The Administrative  Orders required
the Company and Stevens to submit a compliance  status report  ("CSR") for these
sites that would  include,  among other things,  a  description  of the release,
including its nature and extent,  and suspected or known source, the quantity of
the  release and the date of the  release.  The CSR would also have to include a
determination of cleanup standards  (called "risk reduction  standards") for the
sites  and a  certification  that  the  sites  were  in  compliance  with  those
standards.  Alternatively,  the party submitting the CSR could  acknowledge that
the site was not in compliance  with risk reduction  standards.  Pursuant to the
Administrative  Orders,  if a site is not in compliance  with the risk reduction
standards,  then a  Corrective  Action  Plan (a  "Corrective  Action  Plan") for
remediating the release would have to be submitted to EPD.

           Since both the Company  and Stevens had been  required to perform the
same  work at all  three of these  sites,  the  Company  and  Stevens  agreed to
allocate responsibilities between themselves pursuant to an Agreement Concerning
Performance  of Work (the  "Agreement")  dated  January 24, 1997.  The Agreement
required  the  Company  to  prepare  and  submit  to EPD the CSR for the TCE and
1,1-DCA sites,  while  requiring  Stevens to do the same for the Burn Area site.
Stevens  has  submitted  a CSR for the Burn  Area  site but has not  received  a
response  from EPD.  The  Agreement  does not  commit  either  party to  perform
corrective action at these sites.

           The  Company  submitted a CSR for the TCE and  1,1-DCA  sites,  which
certified compliance with risk reduction standards for both sites. EPD indicated
that it did not agree to the  certification  with respect to the TCE site. After
extensive  discussions  with EPD concerning the issue,  the Company  submitted a
Corrective  Action Plan for the TCE site by letter dated May 15, 1997. By letter
dated  September 29, 1997,  EPD responded to the  Corrective  Action Plan with a
notice of deficiency.  The Company submitted a revised Corrective Action Plan on
October  31,  1997.  The  revised  Corrective  Action  Plan calls for  continued
operation of the Company's existing  groundwater recovery system, as well as one
additional  groundwater  recovery well and a groundwater  collection trench near
the former dry cleaning  basement.  EPD has not yet  responded to the  Company's
revised Corrective Action Plan.

           TIFTON,  GEORGIA.  In January  1997,  the Company  was  notified by a
potential  buyer of the  Company's  Tifton  facility  that soil and  groundwater
samples had been obtained from that facility and that certain  contaminants  had
been identified.  Subsequently,  through  sampling and testing  performed by the
Company's  environmental  consultants,  the Company  confirmed  the  presence of
contaminants in groundwater samples taken at the site. On February 28, 1997, the
Company  notified EPD of such  findings,  and the site was placed on the Georgia
Hazadous Site Inventory.
<PAGE>
           The Company subsequently consummated its sale of the Tifton facility.
As part of that transaction,  the Company, the Tift County Development Authority
as purchaser ("TCDA") and Burlen Corporation as operator ("Burlen") entered into
an   Environmental   Cost  Sharing  and  Indemnity   Agreement   ("Cost  Sharing
Agreement").   Under  the  Cost   Sharing   Agreement,   the  Company   retained
responsibility for remediating certain contamination,  to the extent required by
law, that originated prior to Burlen's occupancy of the premises.  Likewise, the
Company  assumed the  obligation to indemnify  TCDA and Burlen in regard to such
contamination to the extent that a claim is made by an unaffiliated  third party
or  governmental  agency.  In exchange,  Burlen agreed to pay to the Company the
lesser of (1) $150,000 minus any payments  already made to the Company  (certain
expenses  had  already  been  shared)  to respond  to the  contamination  or (2)
one-half of the costs incurred by the Company in response to such contamination.
EPD has not yet requested any additional response to conditions at this site.

           At November 2, 1997,  the Company had $0.4 million  accrued for costs
to be  incurred  in  connection  with  the  TCE,  1,1-DCA  and  Tifton  facility
environmental matters. The Company, subject to EPD concurring with the Company's
Corrective Action Plan relating to the TCE and 1,1-DCA sites,  EPD's response to
J.P. Stevens' CSR and compliance status  certification and EPD's response to the
Tifton site, believes the accrual for environmental costs at November 2, 1997 is
adequate.

FINANCING AGREEMENTS

           The Company's  indebtedness for borrowed money as of November 2, 1997
consisted of amounts outstanding under the Loan and Security Agreement, Deferred
Interest Rate Notes (hereinafter  defined) a promissory note and certain capital
lease obligations.

LOAN AND SECURITY AGREEMENT.  In connection with the consummation of the Plan of
Reorganization  on July 23, 1997, the Company entered into the Loan and Security
Agreement with a syndicate of financial  institutions  led by BABC. The Loan and
Security  Agreement  provides for a revolving line of credit  (including a $10.0
million letter of credit facility),  subject to a borrowing base formula,  of up
to $85 million (the "Revolving  Loan Facility") and term loans of  approximately
$31.5 million (the "Term Loan  Facility").  Borrowings on July 23, 1997 of $28.0
million under the  Revolving  Loan Facility plus the proceeds from the Term Loan
Facility were used to repay all  borrowings  outstanding  under the Company's GE
Capital  DIP  Facility   (hereinafter   defined)  and  CIT  Equipment   Facility
(hereinafter  defined),  repay the  principal  and a portion of the  accrued and
unpaid  interest due under the Senior  Secured Notes  (hereinafter  defined) and
fund other amounts due pursuant to the Plan of  Reorganization  and the Loan and
Security Agreement.

           The Revolving Loan Facility and Term Loan Facility mature on July 22,
2000. If the Company  elects to terminate the Revolving  Loan Facility  prior to
April 23, 2000, the Company must pay a termination fee. The fee will be $850,000
if the  termination  occurs  prior  to the  first  anniversary  of the  Loan and
Security  Agreement,  $637,500 if the  termination  occurs between the first and
second  anniversaries  of the Loan and  Security  Agreement  and $425,000 if the
termination  occurs  between  the second  anniversary  of the Loan and  Security
Agreement  and April 23, 2000.  The Term Loan  Facility  can be prepaid,  at the
Company's election, without a termination fee at any time prior to maturity. The
Company's obligations under the Loan and Security Agreement are secured by liens
on substantially all of the Company's assets.
<PAGE>
           Outstanding  borrowings  (including  outstanding  letters  of credit)
under the Revolving  Loan Facility  cannot exceed the sum of (1) 85% of eligible
accounts  receivable  (including eligible bill and hold receivables which cannot
exceed $17.6  million),  plus (2) the lesser of $30.0 million or 65% of eligible
inventory,  less (3) a reserve  that is  initially  $6.5 million and declines by
$47,500 each month as payments  under the Term Loan Facility are made.  Further,
the  Company's  borrowing  base  is  subject  to  other  reserves  which  may be
established  from time to time by BABC. At November 2, 1997,  the Company's loan
availability  as  defined  in the Loan and  Security  Agreement,  in  excess  of
outstanding advances and letters of credit, was approximately $36.0 million.

           Borrowings  under  the  Revolving  Loan  Facility  and the Term  Loan
Facility bear interest,  at the Company's  option,  at a floating rate (which is
based on a Bank of America  reference rate  ("Prime")) or a fixed rate (which is
based on  LIBOR),  payable  monthly.  Under the  Revolving  Loan  Facility,  the
floating  rate is 0.25% per annum  above  Prime and the fixed  rate is 2.50% per
annum above LIBOR. Under the Term Loan Facility,  the floating rate is 0.75% per
annum above Prime and the fixed rate is 3.00% per annum above LIBOR.

           At November 2, 1997, there were two fixed rate loans of approximately
$5.0 million each  outstanding  under the Revolving  Loan  Facility,  which bore
interest at 8.375% per annum  through  November  28,  1997,  and 8.50% per annum
through  January  28,  1998,  respectively.  There  were two fixed rate loans of
approximately  $6.0 and $24.0 million  outstanding under the Term Loan Facility,
which bore interest at 8.875% per annum,  through  November 28, 1997,  and 9.00%
per annum, through January 28, 1998, respectively. Further, at November 2, 1997,
approximately  $327,000 of the Term Loan Facility bore floating rate interest at
9.50% per annum, and  approximately  $3.4 million of the Revolving Loan Facility
bore floating rate interest at 9.0% per annum.

           The  Term  Loan  Facility  requires  monthly  principal  payments  of
approximately  $374,000  which began  August 31, 1997.  Further,  the Company is
required to pay 50% of "excess  cash flow" for each fiscal  year,  as defined in
the Loan and Security  Agreement,  as long as the outstanding  principal balance
under the Term Loan  Facility is greater than $23.3  million.  Such "excess cash
flow"  payments are due on April 30 of each year  following  the fiscal year for
which an "excess  cash flow"  payment is due.  Such  payments  are to be applied
against  the  unamortized  principal  portion of the Term Loan  Facility  in the
inverse order of maturity.  The Company  anticipates that its "excess cash flow"
payment  for  Fiscal  Year  1997,  which  is due on  April  30,  1998,  will  be
approximately $1.4 million.

           In connection with entering into the Loan and Security Agreement, the
Company paid BABC  approximately  $728,000 as an underwriting  fee and agreed to
pay the  financial  institutions  party to the Loan and  Security  Agreement  an
unused  line fee of  0.50%  per  annum  on the  average  unused  portion  of the
Revolving Loan Facility.  The Company paid approximately  $582,000 as a facility
fee to  participants  in the  syndicate to the Loan and Security  Agreement.  In
addition,  the Company  pays BABC an agency fee of $125,000  per annum,  payable
monthly  commencing  August 1, 1997,  and pays certain fees in  connection  with
letters of credit.  Further,  the Company pays BABC a loan administration fee of
0.25% per annum on the principal  amount  outstanding  under the Revolving  Loan
Facility and Term Loan Facility.
<PAGE>
           The  Loan  and  Security  Agreement   contains  certain   restrictive
covenants,  including limitations on the incurrence of indebtedness, the sale of
assets, the incurrence of liens, the making of certain restricted payments,  the
making of specified investments, the payment of cash dividends and the making of
certain fundamental  corporate changes and amendments to the Company's corporate
organizational and governance instruments.  In addition, the Company is required
to  satisfy,   among  other  things,  certain  financial  performance  criteria,
including  minimum interest and fixed charge coverage  ratios,  minimum adjusted
tangible net worth  requirements  and maximum  capital  expenditure and software
development costs.

DIP FACILITY.  In connection with the Bankruptcy  Filing,  the Company  obtained
debtor-in-possession ("DIP") financing from General Electric Capital Corporation
("GE  Capital")  under a revolving  credit  facility  which was  approved by the
Bankruptcy Court (the "GE Capital DIP Facility").  As noted above, in July 1997,
the Company repaid all amounts outstanding under the GE Capital DIP Facility and
paid approximately $103,000 in unpaid amendment fees and legal fees and expenses
through borrowings under the Loan and Security Agreement.

DEFERRED INTEREST RATE NOTES AND SENIOR SECURED NOTES. Prior to the commencement
of its bankruptcy proceeding,  the Company issued an aggregate of $30 million of
its Senior Secured Notes due October 30, 1997 (the "Senior Secured  Notes").  On
the Effective Date, the outstanding principal amount of the Senior Secured Notes
was repaid in full and the Company issued subordinated  floating rate notes (the
"Deferred  Interest  Rate  Notes") in respect  of  accrued  but unpaid  interest
(approximately  $1.6 million) due the holders of the Senior  Secured  Notes.  In
connection  with the issuance of the Deferred  Interest Rate Notes,  the Company
paid a closing fee of  approximately  $31,400.  Further,  in accordance with the
Plan of Reorganization, the Company paid $157,000 in trustee fees and legal fees
and expenses.  In December 1997,  the Company repaid the Deferred  Interest Rate
Notes  and  accrued  interest  thereon  in full  through  borrowings  under  the
Revolving Loan Facility.

NOTE AND CAPITAL LEASE OBLIGATIONS.  In connection with the Company's  emergence
from bankruptcy,  the Company  restructured or refinanced certain of its secured
capital lease  obligations by issuing a promissory  note and modifying the terms
of certain  other  capital  leases.  At November 2, 1997,  an  aggregate of $3.0
million was  outstanding  under the note and capital  leases with interest rates
ranging from 7.5% to 10.75% and varying maturity dates through August 1, 2000.



<PAGE>


Item 2.    PROPERTIES

           Information regarding the Company's manufacturing facilities,  all of
which are owned, is as follows:

                                                Approximate
                                              Square Feet of
                                                  BUILDING         ACREAGE

Dublin Plant                                      363,000           295
Dublin, Georgia

Nathaniel Plant                                   313,000            *
Dublin, Georgia

Milledgeville Plant                               580,000           141
Milledgeville, Georgia

Louisville Plant                                  153,000           393
Louisville, Georgia

* The  Nathaniel  plant  adjoins  the  Dublin  plant and is  located on the same
property.

          The Company owns a 24,000  square foot office  building  adjoining its
Dublin plant, which is used for administrative offices.

          The Company leases approximately 35,000 square feet of office space at
1155 Avenue of the Americas, New York City (the "1155 Lease"), for its principal
executives offices, its styling, and sales and marketing operations.  Such lease
expires on December 31,  2015.  The Company also leases  storage  facilities  in
Georgia, primarily on a short-term basis.

          In November 1996, the Company entered into a Contract of Sale with the
TCDA,  providing for the sale of the Tifton facility for $1.25 million.  On July
18, 1997,  the sale was  consummated  and the net proceeds of $1.25 million were
applied to a portion of the then outstanding  accrued but unpaid interest due to
the holders of the Company's  Senior  Secured  Notes.  The selling price for the
Tifton  facility was $1.1 million  below the net book value for the facility and
such loss was accrued during Fiscal Year 1996.

          The Company  believes that its facilities are adequate for its present
needs.  Substantially all of the Company's properties,  plants and equipment are
encumbered  by security  interests  under the Loan and Security  Agreement.  See
"Business  --Financing  Arrangements"  in Item 1. of this Annual  Report on Form
10-K.

Item 3.   LEGAL PROCEEDINGS

          The Company is a party to legal actions arising in the ordinary course
of business.  Other than the Company's bankruptcy  proceeding and claims made in
connection  therewith  and  environmental  matters,  the Company has no material
pending  legal  proceedings.  See Item 1.  "Business -  Significant  Events" and
"Description  of  Business -  Environmental  Matters"  contained  in this Annual
Report.

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

          During  the  fourth  quarter of Fiscal  Year  1997,  no  matters  were
submitted by the Company to a vote of its shareholders.

                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
             STOCKHOLDER MATTERS

          Prior to October 1995,  the  Company's  Common Stock was traded on the
NASDAQ National Market System ("NASDAQ-NMS"),  the automated quotation system of
The National  Association  of  Securities  Dealers,  Inc. (the "NASD") under the
symbol  "FSTM".  In October 1995,  the NASDAQ  National  Market System  delisted
Forstmann & Company,  Inc.  because the closing  price of the  Company's  Common
Stock had been less than  $1.00 for more than 30  consecutive  days.  Since such
time,  there has been no  established  public  trading  market for the Company's
Common Stock.

          The  following  table sets forth the high and low sales prices for the
1997 91-Day Period Ended November 2, 1997 of the Company's  Common Stock.  There
were no over-the-counter market transactions during the 1997 12-Day Period Ended
August 3, 1997 (the period from the  Effective  Date to the end of the Company's
third fiscal quarter).  These quotations are based on reported  over-the-counter
market  transactions and represent prices between dealers, do not include retail
markup or commission and may not necessarily represent actual transactions.

                                             HIGH SALES PRICE   LOW SALES PRICE
          1997 91-Day Period Ended
             November 2, 1997                    $13.50              $11.75

           At January 28, 1998, the Company had 459 record holders of its Common
Stock,  including CEDE & Company, the nominee of Depository Trust Company,  that
held  3,766,802  shares of common  stock as  nominee  for an  unknown  number of
beneficial holders.

           Pursuant to the Plan of Reorganization,  all general unsecured claims
against  the  Company  were  converted  into  100% of the  common  stock  of the
reorganized  Company  based on a ratio of 50 shares  per each  $1,000 of allowed
unsecured  claim.  Such shares were not registered  under the Securities Act. On
the Effective Date, pursuant to the Plan of Reorganization,  the Company entered
into a Registration Rights Agreement (the "Registration  Rights Agreement") with
certain holders of its common stock. The Registration  Rights Agreement requires
that the Company  file a  registration  statement  covering the shares of common
stock held by such  holders no later than March 31,  1998.  The  Company is also
required to use its best  efforts to have the  registration  statement  declared
effective by the Securities and Exchange Commission and to keep the registration
statement effective for a period of two years.

           On October 9, 1997, the Company adopted a  shareholders'  rights plan
(the "Rights Plan") whereby  shareholders of record on October 29, 1997 received
one right (the  "Right(s)") to purchase one share of common stock at an exercise
price of $60 for each  common  share held on the record  date.  The Rights  will
become exercisable in the event that any person or group acquires 25% or more of
the Company's common shares,  or announces a tender offer for 25% or more of the
Company's common stock. However, the Rights Plan "grandfathers" positions in the
Company's  common stock in  existence on October 9, 1997 and the  ownership by a
person or group of 25% or more of the Company's  common shares on such date will
not  trigger  the  exercisability  of the Rights so long as such person or group
does not acquire an additional 1% or more of the Company's common shares. Should
any  "non-grand-fathered"  person  or group  acquire  25% or more of the  common
shares of the Company,  all Rights not held by such person or group will entitle
the holders  thereof to purchase  common shares of the Company at a 50% discount
from the then current market price for such common stock. Alternatively, after a
person or group  crosses the 25%  threshold and before such person or group owns
50% or more of the Company's common shares, the Company's Board of Directors may
issue one common  share in exchange for each right (other than those held by the
acquiring person) in lieu of permitting the Rights to be exercised. In the event
of a merger of the Company,  the Rights Plan requires that the provision be made
for the conversion of the Rights into rights to purchase shares of the acquiring
person at a 50%  discount.  The  Rights,  which  have a  ten-year  term,  may be
redeemed  for $0.01 per Right by the  Company  at any time prior to the time the
Rights become exercisable.

          The Company has not paid,  and has no present  intention to pay in the
foreseeable  future, any cash dividends in respect of its Common Stock. The Loan
and Security Agreement  prohibits the payment of cash dividends.  The payment of
future cash dividends,  if any, would be made only from assets legally available
therefor,  and would  generally  depend on the  Company's  financial  condition,
results of operations,  current and anticipated capital requirements,  plans for
expansion,  if any,  restrictions  under its then existing credit and other debt
instruments and arrangements, and other factors deemed relevant by the Company's
Board of Directors, in its sole discretion.

          Except   for  the   securities   issued   pursuant   to  the  Plan  of
Reorganization, no sales of equity securities that were not registered under the
Securities  Act have been made by the Company  during the period covered by this
Annual Report.


<PAGE>


Item 6.  SELECTED FINANCIAL DATA

           Presented  below  are  selected  operating  statement  data  for  the
Reorganized  Company 1997 103-Day Period ended November 2, 1997 (as  hereinafter
defined),  the  Predecessor  Company 1997 261-Day Period ended July 22, 1997 (as
hereinafter  defined)  and the  predecessor  Company for the fiscal  years ended
November 3, 1996,  October 29, 1995, October 30, 1994 and October 31, 1993. Also
presented  are selected  balance  sheet data for the  Reorganized  Company as of
November 2, 1997 and the predecessor Company as of November 3, 1996, October 29,
1995,  October 30, 1994 and October 31, 1993.  Also,  present below are selected
operating  data for Fiscal  Year 1997 (the  combined  Reorganized  Company  1997
261-Day Period Ended November 2, 1997 and the  Predecessor  Company 1997 261-Day
Period Ended July 22, 1997). The selected  financial data have been derived from
the audited financial  statements of the Company,  are not covered by the report
of the Company's  independent  auditors and should be read in  conjunction  with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations", below and the Company's Financial Statements (and the related notes
and schedules  thereto).  Due to the effects of the  consummation of the Plan of
Reorganization  and the application of "fresh start"  accounting,  the operating
statement data and balance sheet data for different  periods are not necessarily
comparable.



<PAGE>

<TABLE>
<CAPTION>

                                COMBINED     REORGANIZED                                PREDECESSOR
                                COMPANY        COMPANY                                    COMPANY
                                -------        -------        --------------------------------------------------------------------
                                                1997             1997 
                                              103-DAY           261-DAY        FISCAL         FISCAL        FISCAL        FISCAL 
                                              PERIOD            PERIOD          YEAR           YEAR          YEAR          YEAR
                                 FISCAL        ENDED             ENDED          ENDED         ENDED         ENDED         ENDED
                                  YEAR        NOVEMBER 2,       JULY 22,      NOVEMBER 3,    OCTOBER 29,   OCTOBER 30,  OCTOBER 31,
                                  1997           1997             1997          1996           1995          1994           1993 
                                  ----           ----             ----          ----           ----          ----           ----
OPERATING  STATEMENT  DATA (1):                       (amounts  in  thousands,  except per share and share information)

<S>                            <C>            <C>            <C>           <C>           <C>           <C>           <C>        
Net sales                      $ 199,010       $ 57,126      $   141,884   $   195,028   $   222,217   $   237,085   $   233,365
Gross profit                      26,393          7,726(6)        18,667        22,755        26,323        47,852        51,018
Operating income (loss)            9,894          2,965            6,929         3,274          (248)       23,417        26,618
Income (loss) before
reorganization items,
income taxes and
extraordinary gain (loss)          3,213          1,242            1,971        (5,789)      (19,817)        5,900        10,869
Reorganization items (2)          33,796            395           33,401        12,055        10,904          --            --
Income tax (provision)
benefit                              461            461(5)          --            --           4,250        (2,331)       (4,245)
Income (loss) before
extraordinary gain or
(loss)                           (31,044)           386          (31,430)      (17,844)      (26,471)        3,569         6,624
Net income (loss)                 (7,005)           290           (7,295)      (17,844)      (26,471)        3,569         6,624
Income (loss) applicable to
common shareholders               (7,005)           290           (7,295)      (17,844)      (26,701)        3,339         6,415
Per share and share
information:
Income (loss) before
extraordinary gain
(loss) applicable to
common shareholders                  n/a           0.09            (5.59)        (3.18)        (4.75)         0.60          1.15
Income (loss) applicable
to common shareholders               n/a           0.07            (1.30)        (3.18)        (4.75)         0.60          1.15
Weighted average common
shares outstanding                   n/a      4,384,436        5,618,799     5,618,799     5,618,799     5,592,022     5,585,014
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                               COMBINED     REORGANIZED                                PREDECESSOR
                                COMPANY        COMPANY                                    COMPANY
                                -------        -------        --------------------------------------------------------------------
                                                1997             1997 
                                              103-DAY           261-DAY        FISCAL         FISCAL        FISCAL        FISCAL 
                                              PERIOD            PERIOD          YEAR           YEAR          YEAR          YEAR
                                 FISCAL        ENDED             ENDED          ENDED         ENDED         ENDED         ENDED
                                  YEAR        NOVEMBER 2,       JULY 22,      NOVEMBER 3,    OCTOBER 29,   OCTOBER 30,  OCTOBER 31,
                                  1997           1997             1997          1996           1995          1994           1993 
                                  ----           ----             ----          ----           ----          ----           ----
OTHER OPERATING DATA (1):                              (amounts in thousands, except per share and share information)
<S>                               <C>             <C>             <C>           <C>           <C>           <C>           <C>   
Income before depreciation
and amortization,
reorganization items,
interest expense,
income taxes and
extraordinary gain (loss)         21,088(6)       4,333           16,755        15,236        13,581        37,074        37,946
Net cash flow provided
(used) by operating
activities                         6,573         15,261           (8,688)       36,232        27,473        (1,700)       (3,267)
Net cash flow provided
(used) by investing
activities                           313           (974)           1,287        (1,743)      (14,980)      (13,207)      (16,895)
Net cash flow provided
(used) by financing
activities                        (5,883)       (13,968)           8,085       (34,493)      (12,490)       14,903        13,629

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                    REORGANIZED                                     PREDECESSOR
                                                      COMPANY                                         COMPANY
                                                    ------------          --------------------------------------------------------- 
                                                       AS OF                AS OF            AS OF            AS OF         AS OF 
                                                     NOVEMBER 2,          NOVEMBER 2,      OCTOBER 29,     OCTOBER 30,   OCTOBER 31,
                                                      1997(2,4)            1996(2)           1995(2)          1994         1993(4)
                                                     -----------          ----------       ----------      ----------    ----------
BALANCE SHEET DATA (2,3,4):                                                 (amounts in thousands)

<S>                                                    <C>                <C>               <C>             <C>             <C>     
Current assets                                         $ 87,192           $  82,058         $116,475        $140,801        $130,172
Property, plant and
equipment, net of
accumulated depreciation
and amortization                                         24,779(5)           65,664           78,784          79,479          76,521
Total assets                                            113,641             149,929          198,203         229,256         215,567
Long-term debt, including
current maturities
of long-term debt
and long-term debt
included in liabilities
subject to compromise                                    48,304             109,031          142,935         158,311         138,859
Senior preferred stock,                                    --                 2,655            2,655           2,425           2,195
redeemable
Shareholders' equity
(deficit)                                                50,631              (9,328)           7,667          35,836          33,890
</TABLE>
<PAGE>

(1)      The  Reorganized  Company  1997 103-Day  Period ended  November 2, 1997
         consists  of the  period  from July 23,  1997 (the  Effective  Date) to
         November 2, 1997.  The  Predecessor  Company 1997 261-Day  Period Ended
         July 22, 1997  consists of the period from November 4, 1996 to July 22,
         1997. The year ended November 3, 1996 ("Fiscal Year 1996") consisted of
         a 53-week  period.  The years  ended  October 29,  1995  ("Fiscal  Year
         1995"),  October  30,  1994  ("Fiscal  Year 1994") and October 31, 1993
         ("Fiscal Year 1993") consisted of 52-week periods. No cash dividends on
         the common stock were paid during any of these periods.

(2)      On September 22, 1995, the Bankruptcy  Filing  occurred.  The financial
         statements  of  the  Reorganized  Company  1997  103-Day  Period  ended
         November 2, 1997 and the Predecessor  Company 1997 261-Day Period ended
         July 22, 1997 and Fiscal Years 1996 and 1995 financial  statements have
         been  prepared in accordance  with the American  Institute of Certified
         Public Accountants  Statement of Position 90-7, "Financial Reporting of
         Entities in Reorganization  Under the Bankruptcy Code" ("SOP 90-7"). In
         accordance with SOP 90-7,  professional fees and restructuring  charges
         directly  related to the bankruptcy  have been  segregated  from normal
         operations during each of the applicable periods.  Reference is made to
         Note 16 to the Financial Statements for a description of reorganization
         items.

(3)      The Company revalued its assets and liabilities to fair value as of the
         beginning  of  Fiscal  Year  1993   pursuant  to  the   principles   of
         quasi-reorganization accounting.

(4)      In accordance with SOP 90-7, the Company established its reorganization
         value and adopted  "fresh start"  accounting.  Under the  principles of
         "fresh start" accounting,  the Company's total net assets were recorded
         at  assumed   reorganization   value,   which  was  then  allocated  to
         identifiable  tangible  and  intangible  assets  on the  basis of their
         estimated fair value. In accordance with "fresh start" accounting,  the
         difference between the assumed  reorganization  value and the aggregate
         fair value of the identifiable  tangible and intangible assets resulted
         in a reduction in the value assigned to property,  plant and equipment.
         See Note 2 to the Financial Statements.

(5)      In  accordance  with SOP 90-7,  an income tax  provision not payable in
         cash was recognized for the Reorganized  Company 1997 103-Day Period at
         an effective  income tax rate of 54.43%.  Such  provision  was credited
         against  additional  paid-in capital as net operating  losses generated
         during the  Predecessor  Company 1997 261-Day Period and can be used to
         offset net taxable income  generated  during the Reorganized  Company's
         1997 103-Day Period.

(6)      At the Effective Date, the Company  adjusted its inventory  balances to
         fair  value  resulting  in the  elimination  of  the  LIFO  reserve  of
         approximately $2.7 million and a write-up of approximately $3.8 million
         above the  predecessor  Company's FIFO cost. Such write-up was credited
         against  reorganization  items during the Predecessor Company 1997 261-
         Day Period.  This write up will be  allocated  to cost of goods sold as
         the  inventory  on hand at July 22,  1997 is sold.  Approximately  $0.7
         million  was  charged  to cost of goods  sold  during  the  Reorganized
         Company 1997 Fourth Quarter.


<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS


FORWARD LOOKING STATEMENTS

           Certain  matters  discussed in this Annual Report are forward looking
statements  which  reflect the  Company's  current  views with respect to future
events and financial performance.  These forward-looking  statements are subject
to certain risks and  uncertainties  which could cause actual  results to differ
materially from historical results or those  anticipated.  Readers are cautioned
not to place undue  reliance on these  forward-looking  statements,  which speak
only as of their dates. The Company  undertakes no obligation to publicly update
or  revise  any  forward-looking   statements,   whether  as  a  result  of  new
information,  future  events or  otherwise.  The  following  factors could cause
actual  results  to  differ   materially  from   historical   results  or  those
anticipated:  demand for the  Company's  products,  competition,  the  Company's
production needs, wool market conditions,  the adequacy of the Company's current
financing,  any unexpected  financing  requirements,  and changes in the general
economic climate.

RECENT EVENTS

           The  following  discussion  should  be read in  conjunction  with the
Financial  Statements and the related notes  included in this Annual Report.  On
September 22, 1995,  the Company filed for relief under Chapter 11 of the United
States  Bankruptcy Code with the Bankruptcy  Court for the Southern  District of
New York (the "Bankruptcy  Filing"). On May 14, 1997, the Company filed its Plan
of  Reorganization  and  Disclosure  Statement.  On May 15, 1997, the Bankruptcy
Court entered an order approving the Company's  Disclosure Statement and shortly
thereafter,  the  Company  began  to  solicit  the  vote  of its  creditors  and
stockholders  with respect to the Plan of  Reorganization in accordance with the
Bankruptcy  Code.  On July 9,  1997,  the  Bankruptcy  Court  entered  an  order
confirming the Plan of Reorganization.  On July 23, 1997 (the "Effective Date"),
the Plan of Reorganization was consummated by the Company.

           Pursuant to the Plan of Reorganization,  all general unsecured claims
against  the  Company  were  converted  into  100% of the  common  stock  in the
reorganized  Company  based on a ratio of 50 shares  per each  $1,000 of allowed
unsecured claims.  Secured claims against the Company aggregating  approximately
$60.1 million were either  refinanced,  reinstated or restructured as more fully
described in Note 8 to the Financial Statements.  Further,  pursuant to the Plan
of Reorganization,  administrative claims (which includes reclamation claims and
approved  professional fees),  priority claims and convenience claims (unsecured
claims  in the  amount  of $400 or less)  were  paid in full.  See Note 1 to the
Financial  Statements  for a more  detailed  description  of the  effects of the
consummation of the Plan of Reorganization.

<PAGE>

           In  accordance  with  the  American  Institute  of  Certified  Public
Accountants  Statement  of Position  90-7,  "Financial  Reporting by Entities in
Reorganization  Under the Bankruptcy Code" ("SOP 90-7"), the Company established
its reorganization value and adopted "fresh start" accounting. See Note 2 to the
Financial  Statements for a description of the methodology used to determine the
Company's reorganized value and the affect of adopting "fresh start" accounting.
As a  result  of  the  consummation  of  the  Plan  of  Reorganization  and  the
application of "fresh start" accounting,  the Company was required to report its
financial results for the fifty-two weeks ended November 2, 1997 in two separate
periods in this Annual Report.

           The following table describes the periods  presented in the Financial
Statements  and related  notes  contained  elsewhere  in this Annual  Report and
discussed herein:

      PERIOD                              REFERRED TO AS
      Results for the Reorganized
         Company From July 23, 1997 
         to November 2, 1997          "Reorganized Company 1997 103-Day Period"

      Results for the Reorganized
         Company From August 4, 1997 
         to November 2, 1997          "Reorganized Company 1997 Fourth Quarter"

      Results for the Predecessor
         Company From November 4, 
         1996 to July 22, 1997        "Predecessor Company 1997 261-Day Period"

      Combined Reorganized Company
         1997 103-Day Period and
         Predecessor Company 1997
         261-Day Period (Results for
         the Fifty-Two Weeks Ended
         November 2, 1997)            "Fiscal Year 1997"

      Results for the Predecessor 
         Company Fifty-Three Weeks 
         Ended November 3, 1996       "Fiscal Year 1996"

      Results for the Predecessor 
         Company Fifty-Two Weeks 
         Ended October 29, 1995       "Fiscal Year 1995"

           Due to the effects of the consummation of the Plan of  Reorganization
and  application of "fresh start"  accounting,  results for the periods  defined
above are not necessarily comparable.

RESULTS OF OPERATIONS

           The  discussion  below  compares the results of operations for Fiscal
Year 1997 to Fiscal Year 1996 and Fiscal  Year 1996 to Fiscal Year 1995.  Except
as indicated,  management believes that the impact of the Plan of Reorganization
and the application of "fresh start" accounting did not significantly affect the
results of operations for Fiscal Year 1997.  Further,  management  believes that
the combined  operating  results of the Reorganized  Company 1997 103-Day Period
and the Predecessor Company 1997 261-Day Period are indicative of the results of
operations for Fiscal Year 1997  (fifty-two  weeks ended November 2, 1997) taken
as a whole. Due to the effects of the consummation of the Plan of Reorganization
and the  application of "fresh start"  accounting,  results for Fiscal Year 1997
are not  necessarily  fully  comparable  to the results for Fiscal Year 1996 and
Fiscal Year 1995.
<PAGE>
           The  application  of "fresh start"  accounting  resulted in property,
plant and equipment being written down by $28.6 million, which will result in an
approximate  $6.4 million  reduction in annual  depreciation  expense.  Further,
annual  amortization  expense will be  approximately  $0.3 million  lower,  as a
result of the Company writing off certain intangible assets (primarily  deferred
software development costs) and certain other assets and liabilities  associated
with the Company's  headquarters  lease. The write off of the intangible  assets
occurred during the  Predecessor  Company 1997 261-Day Period and was charged to
operations  ($0.9  million  to cost of goods sold and $0.3  million to  selling,
general and administrative  expenses). The write off of certain other assets and
liabilities  associated  with the  Company's  headquarters  lease was charged to
reorganization  items during the  Predecessor  Company 1997 261-Day Period ($0.9
million). In addition,  as described in Note 8 to the Financial Statements,  the
Company incurred additional deferred financing costs in connection with entering
into the Loan and Security Agreement and other financing  arrangements and wrote
off certain deferred financing costs associated with the debt restructuring. The
write  off  of  deferred   financing   costs  ($0.2   million)  was  charged  to
reorganization items during the Predecessor Company 1997 261-Day Period.

           THE 1997 FIFTY-TWO  WEEKS ENDED NOVEMBER 2, 1997 ("FISCAL YEAR 1997")
COMPARED TO THE FIFTY-THREE WEEKS ENDED NOVEMBER 3, 1996 ("FISCAL YEAR 1996").

           Net sales in Fiscal  Year 1997 were  $199.0  million,  an increase of
$4.0 million or 2.0% from Fiscal Year 1996. Total yards of fabric sold increased
3.7% during Fiscal Year 1997.  The increase in sales was primarily  attributable
to  increases  in women's  outerwear  (coating),  men's  wear  (both  woolen and
worsted) and government fabric sales. Such increases in sales during Fiscal Year
1997 were partly  offset by declines  in sales of women's  wear  fabrics and the
effect of the strategic decision during Fiscal Year 1996 to discontinue  certain
product lines (career uniforms, converting and international). Due to this shift
in product  mix,  the average per yard  selling  price  declined to $7.33 during
Fiscal Year 1997 from $7.45 in Fiscal Year 1996.  Excluding  government sales of
$10.1  million in Fiscal  Year 1997 and $8.9  million in Fiscal  Year 1996,  net
sales increased 1.5% during Fiscal Year 1997 compared to Fiscal Year 1996.

           The  decline  in  women's  wear  sales was the result of a decline in
women's  worsted  fabric  sales,  which was  somewhat  offset by an  increase in
women's woolen fabric sales. The increase in woolen fabric sales is attributable
to the favorable market  conditions for women's woolen fabrics,  improved market
conditions for domestic suppliers of women's outerwear and reduced pressure from
import of women's  outerwear.  Although men's wear fabric sales increased during
Fiscal Year 1997, the Company  expects women's and men's worsted fabric sales in
the future to encounter  stiffer  competitive  pressures  due to the  continuing
over-capacity  in domestic worsted wool  manufacturing.  Throughout the past few
years, the domestic demand for men's worsted fabrics has declined as a result of
the on-going  shift from tailored  men's apparel to "Casual  Friday" wear.  This
trend is expected to  continue  and result in  additional  excess  worsted  wool
manufacturing capacity,  both domestically and world-wide.  Further, the women's
apparel  market is extremely  price  sensitive and subject to changes in fashion
trends,  which  recently  have been  moving away from  worsted  fabrics to other
fibers and  blends.  Accordingly,  the  Company  expects  the men's and  women's
worsted fabric business to remain very competitive in the future. Further, based
on the  backlog  of  government  orders at  November  2, 1997 and the  timing of
expected future  government  requests for competitive  bids, the Company expects
the sale of  government  fabrics  to be lower in fiscal  year 1998  compared  to
Fiscal Year 1997.

<PAGE>

           During  Fiscal Year 1996, in order to  differentiate  itself from its
domestic  and  foreign  competitors,  the  Company  began to  emphasize  on-time
delivery and customer  service.  Management  believes that this focus,  which is
continuing,   when   coupled  with   efforts  to  maintain   existing   customer
relationships  and  competitive  pricing,  will  enable  the  Company to respond
effectively to increased competitive pressures.

           Cost of goods sold in Fiscal  Year 1997 was  $172.6 or  approximately
the same as in Fiscal  Year 1996 when  cost of goods  sold was  $172.3  million.
Gross  profit in Fiscal Year 1997  increased  to $26.4  million or $3.6  million
higher than Fiscal Year 1996.  The gross profit margin was 13.3% for Fiscal Year
1997 as compared to 11.7% for Fiscal Year 1996.

           The Company's  reduction of inventory levels in Fiscal Years 1997 and
1996 resulted in the liquidation of LIFO inventory layers carried at lower costs
prevailing in prior years which  increased gross profit by $0.5 million and $2.2
million, respectively. The effect of the liquidation of LIFO inventory layers in
Fiscal Year 1997 was  recognized  during the  Predecessor  Company  1997 261-Day
Period.  At the Effective Date, the Company  adjusted its inventory  balances to
fair value  resulting in the  elimination  of the LIFO reserve of  approximately
$2.7 million and a write-up of approximately  $3.8 million above the predecessor
Company's FIFO cost.  Such write-up was credited  against  reorganization  items
during the Predecessor Company 1997 261-Day Period and will be allocated to cost
of  goods  sold  as the  inventory  on  hand  at the  Effective  Date  is  sold.
Approximately  $0.7  million  was  charged  to cost of  goods  sold  during  the
Reorganized Company 1997 Fourth Quarter.

           The  improvement in gross profit in Fiscal Year 1997 is  attributable
to improved  manufacturing  efficiencies and shifts in product mix. As described
above,  during the Predecessor  Company 1997 261-Day Period,  certain intangible
assets  were  written off and certain  plant and  equipment  which was idled was
written down to fair value.  This resulted in the  recognition of  approximately
$1.3 million in depreciation and amortization expense in the Predecessor Company
1997 261-Day Period which was offset by $1.6 million in lower  depreciation  and
amortization  costs during the  Reorganized  Company 1997 103-Day  Period due to
"fresh start" accounting.  As a result of "fresh start"  accounting,  management
expects  depreciation and amortization  charged to cost of goods sold to be $5.5
million lower in fiscal year 1998 than Fiscal Year 1997.

           Included  in cost of goods sold in Fiscal  Year 1997 is the effect of
$2.2 million in higher group medical  claims due to the  Company's  self-insured
health care plan  experiencing  approximately 28 individual  claims in excess of
$50,000  whereas,  in Fiscal  Year 1996  only 4  individual  claims in excess of
$50,000  were  realized.  The  Company  expects  this  unfavorable  trend in the
Company's  self-insured  health  care plan to  continue.  The  Company has taken
certain action designed to contain its health care costs,  including  increasing
employees'   contributions,   enhancing  the  physician  and  hospital   network
participation   and  engaging  a  third  party  health  care  cost   containment
specialist.  These  actions are designed to mitigate the effect of higher health
care claims in fiscal year 1998.

<PAGE>

           Selling, general and administrative expenses, excluding the provision
for uncollectible accounts,  decreased 12.5% or $2.3 million to $15.9 million in
Fiscal  Year  1997,  as  compared  to $18.1  million in Fiscal  Year 1996.  This
decrease  is  primarily  due to  lower  human  resources  related  expenses  and
professional  fees.  Since the Bankruptcy  Filing,  the Company has continued to
streamline  its  organization  structure  and  reduce  its  overhead  to be more
responsive  to  customer  needs and more  closely  match  selling,  general  and
administrative expenses to market conditions and expectations.  These decreases,
among others,  were partially offset by higher incentive  compensation  expense,
which was  related to the  Company's  retention  and  confirmation  bonus  plan.
Further,   depreciation  and  amortization  charged  to  selling,   general  and
administrative expense was approximately $231,000 lower primarily as a result of
the effects of lowering the value of property, plant and equipment in connection
with "fresh start" accounting.

           The provision for uncollectible  accounts decreased from $1.4 million
in Fiscal Year 1996 to $0.7 million in Fiscal Year 1997. Such decrease primarily
occurred  during the  Predecessor  Company 1997 261-Day  Period.  The Company is
currently negotiating a non-notification  factoring arrangement to cover certain
of its larger customers. The arrangement is designed to protect the Company from
a  catastrophic  loss should one or more of the  Company's  larger  customers be
unable to pay the Company when their obligations to the Company become due. This
program  is  expected  to cost in  excess  of  $400,000  annually.  Accordingly,
management  believes that its costs of collecting  and  protecting  its accounts
receivable will be higher in fiscal year 1998 than in Fiscal Year 1997.

           Interest expense for Fiscal Year 1997 decreased $2.4 million or 26.3%
to $6.7 million, as compared to $9.1 million for Fiscal Year 1996. This decrease
is primarily attributable to lower average borrowings under the Company's credit
facilities  which was facilitated by decreased  working capital needs mainly due
to the further  reduction in  inventories.  Further,  due to the refinancing and
debt restructuring described above, amortization expense during Fiscal Year 1997
was $0.3 million lower.

           As a result of the  foregoing,  income before  reorganization  items,
income tax and extraordinary  item for Fiscal Year 1997 improved $9.0 million to
$3.2  million  from  a  loss  before   reorganization   items,  income  tax  and
extraordinary  item  of  $5.8  million  for  Fiscal  Year  1996.  Income  before
depreciation and amortization,  reorganization items,  interest expense,  income
taxes and  extraordinary  item  during  Fiscal  Year 1997 was $21.8  million  as
compared to $15.2 in Fiscal Year 1996.

           Reorganization items which are more fully described in Note 16 to the
Financial Statements were $33.8 million in Fiscal Year 1997 as compared to $12.1
million in Fiscal Year 1996.  Included in Fiscal Year 1997 is the "fresh  start"
accounting adjustment of $28.6 million to adjust the carrying value of property,
plant and equipment in accordance  with SOP 90-7, a loss on sale of $2.9 million
on certain unerected equipment at the Company's former Tifton facility, a credit
of $6.5 million to adjust  inventory to fair market value in accordance with SOP
90-7,  the write off of certain  assets and  liabilities  of $1.7  million,  net
associated  with the  Company's  current  and  former  headquarters  lease,  the
rejection of certain  pre-petition  contracts of $1.6 million, and the write off
of certain  deferred  financing costs of $0.2 million related to the refinancing
and restructuring described below in "Financial Condition, Liquidity and Capital
Resources".
<PAGE>
           During Fiscal Year 1995, the Company fully utilized its net operating
loss  carrybacks as permitted by the Internal  Revenue Code. For the Predecessor
Company  1997  261-Day  Period and Fiscal  Year 1996,  no income tax benefit was
recognized from the realization of net operating  losses. In accordance with SOP
90-7,  an  income  tax  provision  not  payable  in cash was  recognized  in the
Reorganized  Company  1997  103-Day  Period at an  effective  income tax rate of
54.43%.  The income tax  provision  not  payable  in cash was  credited  against
additional  paid-in  capital  as  net  operating  losses  generated  during  the
Predecessor  Company  1997  261-Day  Period  can be used to offset  net tax able
income, if any, generated during the Reorganized Company's 1997 103-Day Period.

           As a result of the consummation of the Plan of  Reorganization  which
resulted in the exchange of the general unsecured claims against the Company for
equity in the reorganized Company, as more thoroughly described in Note 1 to the
Financial  Statements,  the Company  recognized  an  extraordinary  gain on debt
discharge of $24.1 million  during the  Predecessor  Company 1997 261-Day Period
which was offset by additional  costs associated with the debt discharge of $0.1
million which was recognized during the Reorganized Company 1997 103-Day Period.
The Company had sufficient net operating loss carry forwards to offset this gain
and therefore, no income tax was recorded.

          THE  FIFTY-THREE  WEEK PERIOD  ENDED  NOVEMBER 3, 1996  ("FISCAL  YEAR
1996")  COMPARED TO THE  FIFTY-TWO  WEEK PERIOD ENDED  OCTOBER 29, 1995 ("FISCAL
YEAR 1995").

          Net sales in Fiscal Year 1996 were $195.0 million, a decrease of $27.2
million or 12.2% from  Fiscal Year 1995.  Total  yards of fabric sold  decreased
12.5% during Fiscal Year 1996.  The decline in sales was primarily  attributable
to a decline in sales of women's wear and men's wear fabrics which were somewhat
offset by increases in women's  outerwear  (coating),  specialty and  government
fabrics.  Due to this shift in product mix,  the average per yard selling  price
increased  to $7.45 in Fiscal  Year 1996 from  $7.42 in Fiscal  Year  1995.  The
decline in men's wear fabrics  reflected the shift from  tailored  men's wear to
"Casual  Friday"  wear.  The decrease in sales in the women's  apparel  business
reflected the  Company's  more focused  product  offerings in response to a more
competitive,  price sensitive market.  Sales of women's outerwear fabrics during
Fiscal Year 1996 increased approximately 4.4% over Fiscal Year 1995 due to lower
outerwear  inventories  at retail and less impact by imports from Eastern Europe
during Fiscal Year 1996.  Specialty fabric sales increased  approximately 15.4%,
as sales of baseball cap fabric returned to historical  levels as the effects of
the baseball strike in 1994/1995 subsided during the Company's Fiscal Year 1996.
Excluding  government  sales of $8.9  million  during  Fiscal Year 1996 and $3.7
million  in Fiscal  Year  1995,  net sales  declined  14.8% in Fiscal  Year 1996
compared to Fiscal Year 1995.

          Cost of goods sold decreased $23.6 million to $172.3 million in Fiscal
Year 1996.  Gross  profit  declined  $3.6  million or 13.6% to $22.8  million in
Fiscal Year 1996 and the gross  profit  margin  declined to 11.7% in Fiscal Year
1996 from 11.8% in Fiscal Year 1995. The Company's reduction of inventory levels
in Fiscal Year 1996 resulted in the liquidation of LIFO inventory layers carried
at lower  costs  prevailing  in prior years which  increased  gross  profit $2.2
million in Fiscal Year 1996.  The decline in gross profit  primarily  related to
increased wool prices that were not recovered  through higher selling prices and
reduced manufacturing operations which were not directly offset by reductions in
fixed costs.  The Company reduced fixed  manufacturing  costs during Fiscal Year
1996 to offset  reduced  manufacturing  levels.  As these cost  reductions  were
implemented  in stages  throughout  Fiscal  Year  1996,  the full  effect of the
savings were not realized in Fiscal Year 1996.
<PAGE>
          Selling, general and administrative expenses,  excluding the provision
for uncollectible accounts, decreased 22.2% to $18.1 million in Fiscal Year 1996
as compared to $23.3  million in Fiscal Year 1995.  The majority of the decrease
related to  organizational  changes  implemented  during  Fiscal Year 1996 which
resulted in a leaner  corporate  organization,  particularly  in  marketing  and
product  development  functions.  The Company also achieved  reductions in other
human resource costs and administrative  expenses. In Fiscal Year 1996 there was
no severance expense included in selling,  general and administrative  expenses,
whereas,  in Fiscal Year 1995 over $1.3  million  was  expensed  for  severance.
Fiscal Year 1996 results  included  $0.9 million  accrued in  connection  with a
confirmation and retention program and a financial consulting service agreement,
while Fiscal Year 1995  results  included  approximately  $1.0 million in higher
costs  associated  with the relocation of the Company's  corporate and marketing
offices.

          The provision for uncollectible  accounts  decreased from $2.9 million
in Fiscal  Year 1995 to $1.4  million in Fiscal  Year 1996.  Such  decrease  was
primarily  attributable to a decrease in the Company's sales of $27.2 million in
Fiscal  Year 1996 when  compared  to Fiscal Year 1995.  Further,  the  Company's
allowance  for doubtful  accounts in Fiscal Year 1995 was  increased  due to the
bankruptcy  filing of two of the  Company's  men's  wear  customers,  whereas no
significant  customers of the Company filed for bankruptcy  protection in Fiscal
Year 1996.

          Interest  expense in Fiscal  Year 1996 was $9.1  million  compared  to
$19.6  million in Fiscal  Year 1995.  This  decrease  was  primarily  due to the
Company  ceasing  to accrue  interest  on the  approximately  $56.6  million  in
principal  amount  of its  Subordinated  Notes  outstanding  as a result  of the
Bankruptcy Filing and a significant  reduction in the Company's borrowings under
the DIP  Facility  due to  reduced  inventory  levels and  capital  expenditures
throughout Fiscal Year 1996.

          As noted above,  the Company  instituted a strategic  planning process
during  its  bankruptcy,   which  led  to  significantly  reducing  its  product
offerings, manufacturing production levels and capital spending plans (including
those for computer  information  systems).  As a result of such events,  certain
assets of the Company were rendered surplus or obsolete in Fiscal Years 1996 and
1995. During Fiscal Year 1996, the Company  increased  inventory market reserves
by $10.7 million of which $3.5 million was charged to reorganization  expense in
connection with the Company's assessment and evaluation of its business strategy
which  resulted  in the  Company  continuing  to reduce its  product  offerings.
Certain yarn  inventories  which had been  previously  identified  as surplus or
obsolete  inventory  were sold for its net carrying value which was $4.9 million
below its gross inventory value. The sale transactions  resulted in a release of
yarn inventory market reserves of $4.9 million and did not give rise to any loss
during  Fiscal Year 1996 as a  significant  portion had been written down during
the Company's  fourth quarter in Fiscal Year 1995.  During Fiscal Year 1996, the
Company also  announced its intention to close  manufacturing  operations in the
Tifton facility.  Such closing was completed in November 1996 (see Note 5 to the
Financial  Statements).  These  expenses  have been  reflected in the  Company's
financial  statements  as  reorganization  items in the periods  incurred.  As a
result of the  Bankruptcy  Filing and the Company's  operational  restructuring,
during Fiscal Year 1996, the Company incurred $4.1 million in professional fees,
accrued $1.1 million in  connection  with the expected loss from the sale of the
Tifton  facility,  recognized $1.1 million in additional  interest  expense as a
result of being in default of the Senior Secured Notes,  realized a loss of $0.9
million due to the rejection and amendment of certain executory contracts, wrote
down  barter  credits  by $0.5  million  and  incurred  $0.9  million  in  other
reorganization  items. All of these costs and write offs have been accounted for
as reorganization items in accordance with SOP 90-7.
<PAGE>
          The Company's  effective tax rate was 13.8% for Fiscal Year 1995.  The
Company  did not  recognize  an income  tax  benefit  in Fiscal  Year 1996 as no
further amount of net operating  losses could be carried back. To the extent the
Company had net  deferred tax assets at November 3, 1996,  the  Company,  during
Fiscal Year 1996,  established a valuation allowance to reduce such net deferred
tax assets to zero.

          As a result of the foregoing, the Company realized a net loss of $17.8
million in Fiscal Year 1996  compared  to a net loss of $26.5  million in Fiscal
Year 1995.

          Preferred  stock in-kind  dividends and accretion to redemption  value
was  $230,000  in Fiscal  Year 1995 and zero in Fiscal  Year 1996.  The  Company
stopped accruing the dividend under the redeemable preferred stock and accreting
the recorded balance to redemption  value as a result of the Bankruptcy  Filing.
As  a  result  of  the  foregoing,  the  Company's  loss  applicable  to  common
shareholders was $17.8 million in Fiscal Year 1996,  compared to loss applicable
to common shareholders of $26.7 million in Fiscal Year 1995.

<PAGE>

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

           The implementation of the Plan of Reorganization,  which is discussed
in Note 1 to the Financial Statements,  significantly  deleveraged the Company's
balance  sheet  and,  enhanced  the  Company's  borrowing  availability  and the
implementation  of  "fresh  start"  accounting   significantly   lowered  annual
depreciation and amortization expense. In addition, since the Bankruptcy Filing,
in  response  to  continuing  changes in market  conditions,  management  of the
Company  has  formulated  and  implemented  a  business  plan  that  focuses  on
significantly  reducing product  offerings;  tightening  management of inventory
levels; enhancing cost controls; and reducing capital expenditures. All of these
actions have  improved the  Company's  cash flows from  operations  and in total
during Fiscal Year 1997.

           On the  Effective  Date,  as  described  in  Note 8 to the  Financial
Statements,  the Company  entered  into the Loan and Security  Agreement  with a
syndicate of financial institutions led by BABC. The Loan and Security Agreement
provides for a Revolving  Loan  Facility  (including a $10.0  million  letter of
credit facility), subject to a borrowing base formula and certain borrowing base
limitations,  of up to $85 million and the Term Loan  Facility of  approximately
$31.5 million.

           Proceeds  from the Company's  operations  (as defined) are applied to
reduce the principal  amount of floating rate borrowings  outstanding  under the
Revolving Loan Facility.  Unused  portions of the Revolving Loan Facility may be
borrowed and  reborrowed  subject to  availability  in accordance  with the then
applicable  commitment and borrowing base limitations.  At November 2, 1997, the
Company's  availability,  net of  outstanding  advances,  letters  of credit and
reserves, under the Revolving Loan Facility was approximately $36.0 million. The
Company  believes that cash generated from  operations and borrowings  under the
Revolving  Loan  Facility  will be  sufficient  to fund its working  capital and
capital  expenditures  requirements during fiscal year 1998 and the near future.
However,  expected cash flow from  operations is dependent upon achieving  sales
expectations during fiscal year 1998, which are influenced by market conditions,
including  apparel sales at retail,  that are beyond the control of the Company.
Further,  the collectibility of accounts  receivable is dependent upon the state
of the economy  and,  in  particular,  the  financial  condition  of the apparel
industry. Also, continuing refinement of the Company's strategies in response to
evolving circumstances could materially change the Company's working capital and
capital expenditures requirements.

           The  Company's  sales  order  backlog  at  January  4, 1998 was $51.5
million,  a decrease of $8.5  million from the  comparable  period one year ago.
Excluding  government orders, which historically have yielded lower gross profit
margins,  the  backlog  at January  4, 1998 was $50.5  million  or $0.8  million
greater  than the  comparable  period one year ago. The increase in the backlog,
excluding government orders, is primarily attributable to an increase in coating
fabric  orders  which was  partly  offset by a decline in  women's  wear  fabric
orders,  particularly in worsted fabrics. As discussed above, management expects
the men's and women's worsted fabric business to remain very  competitive in the
future.  Further, the Company expects the sale of government fabrics to be lower
in fiscal  year 1998  compared  to Fiscal  Year 1997.  Historically,  government
fabric  orders have been  taken,  in part,  to balance  overall  worsted  fabric
manufacturing operations.
<PAGE>
           Based on these trends (increased competitive pressures in the worsted
market,  the  decline in the  backlog  of  government  orders  and  management's
expectations  as to the level of government  orders to be awarded to the Company
during fiscal year 1998 and the effect of the discontinued  product lines),  the
Company  expects  sales  revenues  in fiscal  year 1998 to be between 15% to 20%
lower than in Fiscal Year 1997.  Accordingly,  the Company is implementing plans
which are intended to align its costs  during  fiscal year 1998 with the decline
in sales anticipated in fiscal year 1998. However,  there can be no assurance as
to the level of sales that will  actually be  attained  in fiscal year 1998,  as
sales are dependent on market  conditions and other factors beyond the Company's
control,  nor can there be assurance  that the Company's  cost reduction will be
implemented successfully.

           In connection with the Plan of Reorganization,  the Company adopted a
business plan focusing on significantly  reducing product offerings,  tightening
management of inventory  levels,  enhancing  cost controls and reducing  capital
expenditures.  This business plan was  substantially  implemented  during Fiscal
Year 1997.  Management,  as a part of its strategic  planning,  will continue to
examine  alternative  approaches to further  rationalize  the Company's  product
line, to effect cost savings,  to adapt the Company's business to changes in its
markets  and  to  find  new  markets.   These   alternatives   may  include  the
discontinuance  of  certain  product  lines  to  be  determined,   the  possible
outsourcing  of certain  manufacturing  processes and the  realignment  of staff
functions.

           The Company's business is seasonal,  with the vast majority of orders
for woolen fabrics placed from December through April for apparel  manufacturers
to produce  apparel  for retail  sale  during the fall and winter  months.  This
results  in a  seasonal  sales  order and  billing  pattern  which  historically
generates  higher sales during the  Company's  second and third fiscal  quarters
compared to the Company's first and fourth  quarters.  This sales pattern places
seasonal constraints on the Company's manufacturing  operations which results in
increased  working  capital  requirements  in the Company's first fiscal quarter
relating to the manufacture of certain components of inventory which are sold in
the Company's  second and third fiscal  quarters.  The seasonal  sales and order
pattern  also  results in  increased  levels of accounts  receivable  due to the
larger sales volume and "dated" sales to coating fabric  customers  which allows
for payment sixty (60) days from July 1 for invoices  billed in January  through
June.

           Due to the seasonal  nature of the Company's  core woolen and worsted
business,  the Company's  borrowings under the Revolving Loan Facility will tend
to increase during the first three fiscal quarters of the Company's  fiscal year
until the fourth  quarter,  when at year-end,  borrowings tend to be the lowest.
However, for the reasons indicated above, borrowings during various times within
fiscal year 1998 may be higher than comparable periods within Fiscal Year 1997.

CURRENCY RISKS

           The Company purchases a significant  amount of its raw wool inventory
from Australia.  Since all of the Company's forward purchase commitments for raw
wool are denominated in U.S.  dollars,  there is no actual currency  exposure on
outstanding  contracts.  However,  future changes in the relative exchange rates
between  the United  States and  Australian  dollars can  materially  affect the
Company's results of operations for financial  reporting  purposes.  The Company
expects wool costs during fiscal year 1998 to be slightly  higher than in Fiscal
Year 1997.
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS

           In February 1997, the Financial  Accounting  Standards Board ("FASB")
issued Statement of Financial  Accounting  Standards ("SFAS") No. 128, "Earnings
per share". SFAS 128 establishes standards for computing and presenting earnings
per share  ("EPS") and applies to entities  with  publicly  held common stock or
potential common stock and requires the presentation of basic and diluted 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 EPS  excludes  dilution  and is computed by dividing  income
available to common stockholders by the weighted-average number of common shares
outstanding  for the period being  reported.  Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were  exercised  or  converted  into common stock or resulted on the issuance of
common  stock  that  then  shared in the  earnings  of the  entity.  SFAS 128 is
effective for financial  statements issued for periods ending after December 15,
1997,  including interim periods;  earlier  application is not permitted and all
prior-period  EPS data presented  must be restated.  Adoption of SFAS 128 is not
expected to be material to the Company's results of operations.

           In June 1997, the FASB issued SFAS No. 130, "Reporting  Comprehensive
Income".  SFAS 130 requires  that all items that are  required to be  recognized
under accounting  standards as components of comprehensive income be reported in
a  financial  statement  that is  displayed  with the same  prominence  as other
financial statements. SFAS 130 requires that an enterprise (a) classify items of
other  comprehensive  income by their  nature in a financial  statement  and (b)
display the accumulated  balance of other  comprehensive  income separately from
retained  earnings and additional  paid-in  capital in the equity section of the
statement  of  financial  position.  SFAS  130 is  effective  for  fiscal  years
beginning after December 15, 1997 and  reclassification of financial  statements
for earlier periods provided for comparative  purposes is required.  The Company
will provide the comprehensive income statement required by SFAS.

           In June  1997,  the FASB  issued  SFAS  No.  131,  "Disclosure  about
Segments of an  Enterprise  and Related  Information".  SFAS 131 requires that a
public business  enterprise  report financial and descriptive  information about
its  reportable  operating  segments.   Generally,  under  SFAS  131,  financial
information  is required to be reported on the basis that it is used  internally
for evaluating  segment  performance  and deciding how to allocate  resources to
segments.  SFAS  131 also  requires  that a public  business  enterprise  report
descriptive  information about the way operating  segments were determined,  the
products and services provided by the operating  segments,  differences  between
the  measurements  used in reporting  segment  information and those used in the
enterprise's   general-purpose   financial   statements,   and  changes  in  the
measurement of segment amounts from period to period.  SFAS 131 is effective for
financial  statements for periods beginning after December 15, 1997. The Company
does not believe that it has reportable segments as defined by SFAS 131.
<PAGE>
          The  Company  is  in  the  process  of  updating  or   replacing   its
computerized  systems to ensure its  systems are "Year  2000"  compliant  and to
improve the Company's  overall  manufacturing,  planning and  inventory  related
systems.  The Company is  utilizing  both  internal  and  external  resources to
upgrade or replace its existing  computerized  systems.  Currently,  the Company
estimates that the total cost of upgrading or replacing its existing  systems is
approximately $2.3 million.  Costs associated with upgrading existing systems to
address the "Year 2000" will be expensed in the period  incurred,  whereas costs
associated with the  replacement of existing  systems will be capitalized in the
period  incurred.  During fiscal year 1998, the Company  expects to expense $0.3
million in costs  associated with upgrading its existing systems to make it Year
2000  complaint  and  capitalize  $1.5  million  in  costs  associated  with the
replacement of existing systems.

          The  Company   expects  its  "Year  2000"  upgrade   project  and  the
replacement of its  manufacturing,  planning and inventory related systems to be
completed on a timely basis.  During Fiscal Year 1997 the Company  expensed less
than $0.1 million  associated with system upgrades and capitalized  $0.4 million
associated with the replacement of certain computerized systems.
<PAGE>
Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                        INDEX TO FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULES


Independent Auditors' Report..................................................34

Balance Sheets for the Reorganized Company as of November 2, 1997
and the Predecessor Company as of November 3, 1996 and October 29, 1995.......36

Statements  of  Operations  for the  Reorganized  Company  103-Day
Period Ended November 2, 1997, the Predecessor Company 261-Day Period 
Ended July 22, 1997 and the Predecessor Company Fifty-Three Weeks Ended 
November 3, 1996 and Fifty-Two Weeks Ended October 29, 1995...................38

Statements  of Cash  Flows for the  Reorganized  Company  103-Day  
Period  Ended November 2, 1997, the Predecessor Company 261-Day 
Period Ended July 22, 1997 and the Predecessor Company Fifty-Three 
Weeks Ended November 3, 1996 and Fifty-Two Weeks Ended October 29, 1995.......39

Statements  of  Shareholders'  Equity  (Deficit)  for  the  
Predecessor  Company Fifty-Two Weeks Ended October 29, 1995, 
Fifty-Three Weeks Ended November 3, 1996 and  the  Predecessor  
Company  261-Day  Period  Ended  July  22,  1997  and the Reorganized 
Company 103-Day Period Ended November 2, 1997.................................43

Notes to Financial  Statements for the Reorganized  Company 103-Day 
Period Ended November 2, 1997 and the Predecessor  Company 261-Day 
Period Ended July 22, 1997 and the Predecessor Company Fifty-Three 
Weeks Ended November 3, 1996 and Fifty-Two Weeks Ended October 29, 1995.......45

Schedule II
Supplemental Financial Statement Schedule for the Fifty-Two Weeks Ended
October 29, 1995, the Fifty-Three Weeks Ended November 3, 1996 and the
Fifty-Two Weeks Ended November 2, 1997........................................78


<PAGE>



INDEPENDENT AUDITORS' REPORT


Board of Directors and Shareholders
Forstmann & Company, Inc.:


We have audited the  accompanying  financial  statements of Forstmann & Company,
Inc. (the "Company") for the following periods:

                                       PERIOD(S) COVERED
FINANCIAL STATEMENTS       REORGANIZED COMPANY           PREDECESSOR COMPANY

Balance Sheet              November 2, 1997              November 3, 1996

Statement of Operations    Period from July 23, 1997     Period from November 4,
                           to November 2, 1997           1996 to July 22, 1997

                                                         Fifty-three weeks
                                                         ended November3, 1996
                                                         and fifty-two weeks
                                                         ended October 29, 1995

Statement of Cash Flows    Period from July 23, 1997     Period from November 4,
                           to November 2, 1997           1996 to July 22, 1997

                                                         
                                                         Fifty-three weeks 
                                                         ended November 3, 1996
                                                         and fifty-two weeks
                                                         ended October 29, 1995

Statement of Changes in    Period from July 23, 1997     Period from November 4,
Shareholders' Equity       to November 2, 1997           1996 to July 22, 1997
(Deficit)
                                                         Fifty-three weeks
                                                         ended November 3, 1996
                                                         and fifty-two weeks
                                                         ended October 29, 1995

Our audits also include the financial  statement schedule listed in the Index to
Financial   Statements  and  Financial  Statement   Schedule.   These  financial
statements and the financial  statement  schedule are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements and financial statement schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
<PAGE>
In our  opinion,  such  financial  statements  present  fairly,  in all material
respects, the financial position of the Company at November 2, 1997 and November
3, 1996,  and the  results of its  operations  and its cash flows for the period
July 23, 1997 to November 2, 1997, the period November 4, 1996 to July 22, 1997,
the  fifty-three  weeks  ended  November 3, 1996 and the  fifty-two  weeks ended
October 29, 1995, in conformity with generally accepted  accounting  principles.
Also, in our opinion,  such financial  statement  schedule,  when  considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information as set forth therein.

As  discussed  in  Note 2 to the  financial  statements,  on July  9,  1997  the
Bankruptcy   Court  entered  an  order   confirming   the   Company's   plan  of
reorganization  which became  effective  after the close of business on July 22,
1997.  Accordingly,  the accompanying financial statements have been prepared in
conformity  with AICPA  Statement of Position  90-7,  "Financial  Reporting  for
Entities  in  Reorganization  Under the  Bankruptcy  Code," for the  Reorganized
Company as a new entity with assets, liabilities, and a capital structure having
carrying values not comparable with prior periods as described in Note 2.




DELOITTE & TOUCHE LLP
Atlanta, Georgia
December 19, 1997


<PAGE>
FORSTMANN & COMPANY, INC.
BALANCE SHEETS
NOVEMBER 2, 1997 AND NOVEMBER 3, 1996
<TABLE>
<CAPTION>
                                                                                      Reorganized                Predecessor
                                                                                        Company                    Company
                                                                                       November 2,                November 3,
                                                              NOTES                       1997                       1996
                                                              -----                       ----                       ----
ASSETS

CURRENT ASSETS:
<S>                                                                                  <C>                        <C>         
   Cash                                                                              $    493,000               $     48,000
   Cash restricted for settlement of unpaid claims                                        558,000                       --
   Accounts receivable, net of allowance of                        
      $458,000 and $4,205,000                                                          42,005,000                 35,890,000
   Inventories                                                  4                      43,210,000                 44,646,000
   Current deferred tax assets                                  9                            --                         --
   Other current assets                                                                   926,000                    224,000
   Property, plant and equipment held for sale                  5                            --                    1,250,000
                                                                                     ------------               ------------
      Total current assets                                                             87,192,000                 82,058,000
                                                                   
Property, plant and equipment, net                              5                      24,779,000                 65,664,000
Other assets                                                    6                       1,670,000                  2,207,000
                                                                                     ------------               ------------
      Total                                                                          $113,641,000               $149,929,000
                                                                                     ============               ============
                                                              







See notes to financial statements.


</TABLE>







                            (continued on next page)


<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
BALANCE SHEETS
NOVEMBER 2, 1997 AND NOVEMBER 3, 1996 (CONTINUED)
<CAPTION>
                                                                                Reorganized                  Predecessor
                                                                                  Company                      Company
                                                                                 November 2,                  November 3,
                                                              NOTES                 1997                         1996
                                                              -----                 ----                         ----
<S>                                                            <C>             <C>                        <C>          
LIABILITIES AND SHAREHOLDERS'
   EQUITY (DEFICIT)

CURRENT LIABILITIES:

   Current maturities of long-term debt                        8               $  5,756,000               $  48,389,000
   Accounts payable                                                               3,335,000                   2,173,000
   Accrued liabilities                                         7                 11,371,000                  13,399,000
                                                                               ------------               -------------
      Total current liabilities                                                  20,462,000                  63,961,000

Long-term debt                                                 8                 42,548,000                   4,010,000
Deferred tax liabilities                                       9                       --                          --
                                                                               ------------               -------------
    Total liabilities not subject to compromise                                  63,010,000                  67,971,000
                                                                 
Liabilities subject to compromise                             13                       --                    88,631,000
                                                                 
Commitments and contingencies                                 14 
                                                                 
Redeemable  preferred  stock  subject to                         
   compromise,  $1.00 par value, 100,000                          
   shares  authorized, 56,867.50  shares                          
   issued  and  outstanding  (aggregate)                         
   redemption and liquidation value of $100 per                  
   share or $5,686,750)                                       10                       --                     2,655,000
                                                                 
SHAREHOLDERS' EQUITY (DEFICIT):                               11 
                                                                 
   New common stock, $.01 par value,10,000,000                   
      shares authorized 4,384,436 shares issued                  
      and outstanding                                                                43,844                        --
   Old common stock, $.001 par value,20,000,000                  
      shares authorized, 5,618,799 shares issued                  
      and outstanding                                                                  --                         5,619
   Additional paid-in capital                                                    50,297,156                  26,564,381
   Excess of additional pension liability                        
      over unrecognized prior service cost                                             --                    (1,107,000)
   Retained earnings  since July 23, 1997                        
      and (deficit) since November 2, 1992                                          290,000                 (34,791,000)
                                                                               ------------               -------------
      Total shareholders' equity (deficit)                                       50,631,000                  (9,328,000)
                                                                               ------------               -------------
      Total                                                                    $113,641,000               $ 149,929,000
                                                                               ============               =============
                                                              
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
                                                             Reorganized
                                                                Company                           PREDECESSOR COMPANY
                                                             -----------       --------------------------------------------------- 
                                                             Period From       Period From
                                                               July 23,         November 4,       Fifty-Three         Fifty-Two
                                                                1997 to           1996 to         Weeks Ended        Weeks Ended
                                                              November 2,         July 22,         November 3,       October 29,
                                                NOTES            1997               1997              1996              1995
                                                -----            ----               ----              ----              ----
<S>                                                         <C>              <C>                 <C>                <C>          
Net sales                                                   $57,126,000      $ 141,884,000       $ 195,028,000      $ 222,217,000
                                                     
Cost of goods sold                                           49,400,000        123,217,000         172,273,000        195,894,000
                                                            -----------      -------------       -------------      -------------
Gross profit                                                  7,726,000         18,667,000          22,755,000         26,323,000
                                                     
Selling, general and administrative                  
   expenses                                                   4,296,000         11,576,000          18,129,000         23,310,000
                                                     
Provision for uncollectible accounts                 
   and notes receivable                                         458,000            252,000           1,397,000          2,879,000
                                                     
Loss (gain) from abandonment, disposal               
   and impairment of machinery and                   
   equipment and other assets                       5             7,000            (90,000)            (45,000)           382,000
                                                            -----------      -------------       -------------      -------------
Operating income (loss)                                       2,965,000          6,929,000           3,274,000           (248,000)
                                                     
Interest  expense  (contractual                      
   interest of $11,192,000  for the                  
   Predecessor Company 1997 261-Day                  
   Period, $17,683,000 for 1996 and                  
   $20,422,000 for 1995)                            8         1,723,000          4,958,000           9,063,000         19,569,000
                                                            -----------      -------------       -------------      -------------
Income (loss) before reorganization                  
   Items, income taxes and                           
   extraordinary gain (loss)                                  1,242,000          1,971,000          (5,789,000)       (19,817,000)
                                                     
Reorganization items                               16           395,000         33,401,000          12,055,000         10,904,000
                                                            -----------      -------------       -------------      -------------
Income (loss) before income taxes                    
   and extraordinary item                                       847,000        (31,430,000)        (17,844,000)       (30,721,000)
                                                

See notes to financial statements.
</TABLE>
                            (continued on next page)
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENTS OF OPERATIONS (CONTINUED)
<CAPTION>
                                                             Reorganized
                                                               Company                           PREDECESSOR COMPANY
                                                             -----------      -----------------------------------------------------
                                                             Period From       Period From
                                                               July 23,        November 4,        Fifty-Three           Fifty-Two
                                                               1997 to          1996 to           Weeks Ended          Weeks Ended
                                                              November 2,       July 22,           November 3,         October 29,
                                                NOTES            1997             1997               1996                  1995
                                                -----            ----             ----               ----                  ----
<S>                                                           <C>                                                      <C>        
Income tax provision:

Not payable in cash (benefit)                       9          461,000                --                  --            (4,250,000)
                                                           -----------        ------------        ------------        ------------
Income (loss) before extraordinary item                        386,000         (31,430,000)        (17,844,000)        (26,471,000)
                                                     
Extraordinary item - gain (loss) on                  
   debt discharge                                              (96,000)         24,135,000                --                  --
                                                           -----------        ------------        ------------        ------------
Net income (loss)                                              290,000          (7,295,000)        (17,844,000)        (26,471,000)
                                                     
Preferred stock in-kind dividends and                
   accretion to redemption value                   10             --                  --                  --              (230,000)
                                                           -----------        ------------        ------------        ------------
Income (loss) applicable to common                   
   shareholders                                            $   290,000        $ (7,295,000)       $(17,844,000)       $(26,701,000)
                                                           ===========        ============        ============        ============
Per share and share information:                     
   Income (loss) before extraordinary item           
      applicable to common shareholders                    $       .09        $      (5.59)       $      (3.18)       $      (4.75)
                                                     
Extraordinary (loss) gain applicable to              
      common shareholders                                  $      (.02)       $       4.29        $       --          $       --
                                                           -----------        ------------        ------------        ------------
   Income (loss) applicable to common                
      shareholders                                         $       .07        $      (1.30)       $      (3.18)       $      (4.75)
                                                           ===========        ============        ============        ============
   Weighted average common shares                    
      outstanding                                            4,384,436           5,618,799           5,618,799           5,618,799
                                                           ===========        ============        ============        ============
                                                
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                  Reorganized
                                                                    Company                      PREDECESSOR COMPANY
                                                                  ------------    ------------------------------------------------ 
                                                                  Period From      Period From
                                                                    July 23,        November 4,      Fifty-Three        Fifty-Two
                                                                    1997 to           1996 to        Weeks Ended       Weeks Ended
                                                                   November 2,        July 22,       November 3,       October 29,
                                                                      1997              1997            1996               1995
                                                                      ----              ----            ----               ----
<S>                                                              <C>               <C>               <C>               <C>          
Net income (loss)                                                $    290,000      $ (7,295,000)     $(17,844,000)     $(26,471,000)
                                                                 ------------      ------------      ------------      ------------
Adjustments to reconcile net income (loss) to net
   cash provided (used) by operating activities:
      Depreciation and amortization                                 1,519,000        10,600,000        13,113,000        13,982,000
      Write-off of debt premium                                          --                --                --          (3,531,000)
      Write-off of deferred financing costs                              --             211,000              --           1,005,000
      Income tax not payable in cash                                  461,000              --                --                --
      Income tax benefit                                                 --                --                --          (4,250,000)
      Income tax refunds (payments), net                             (250,000)         (108,000)        2,531,000         1,014,000
      Provision for uncollectible accounts                            458,000           252,000         1,397,000         2,879,000
      Increase (decrease) in market reserves                          721,000        (6,362,000)       (2,249,000)        6,418,000
      Loss  from abandonment, disposal and impairment
         of machinery and equipment and other assets                    7,000         3,305,000         1,782,000         8,199,000
      Non-cash item-beginning profit inventory
         write-down                                                   686,000              --                --                --
      Adjustment of accounts to fair value                               --          22,076,000              --                --
      Extraordinary loss (gain) on debt discharge                      96,000       (24,135,000)             --                --
      Foreign currency transaction loss (gain)                           --              (1,000)           22,000            (2,000)
   Change in current assets and current liabilities:
      Accounts receivable                                          10,301,000       (17,592,000)        6,594,000        10,338,000
      Inventories                                                   3,854,000         9,047,000        27,073,000          (711,000)
      Other current assets                                            182,000          (996,000)          456,000           279,000
      Accounts payable                                               (676,000)        2,028,000           446,000       (11,382,000)
      Accrued liabilities                                          (2,292,000)          795,000         4,190,000        (3,224,000)
   Investment in notes receivable, net                                   --                --                --             (10,000)
   Operating liabilities subject to compromise                        (96,000)         (513,000)       (1,279,000)       32,940,000
                                                                 ------------      ------------      ------------      ------------
Total adjustments                                                  15,136,000        (1,393,000)       54,076,000        53,944,000
                                                                 ------------      ------------      ------------      ------------
   Net cash provided (used) by operating activities                15,261,000        (8,688,000)       36,232,000        27,473,000
                                                                 ------------      ------------      ------------      ------------



See notes to financial statements.
</TABLE>
                            (continued on next page)
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<CAPTION>
                                                                  Reorganized
                                                                    Company                      PREDECESSOR COMPANY
                                                                  ------------    ------------------------------------------------ 
                                                                  Period From      Period From
                                                                    July 23,        November 4,        Fifty-Three        Fifty-Two
                                                                    1997 to           1996 to          Weeks Ended       Weeks Ended
                                                                   November 2,        July 22,         November 3,       October 29,
                                                                      1997              1997              1996               1995
                                                                      ----              ----              ----               ----
<S>                                                              <C>               <C>               <C>               <C>         
Cash flows provided (used) by investing activities:

   Investment in property, plant and equipment                       (857,000)       (1,036,000)         (972,000)      (13,729,000)
   Investment in other assets, principally
      computer information systems                                   (125,000)         (289,000)         (921,000)       (1,361,000)
   Proceeds from disposal of property,
      plant and equipment                                               8,000         2,612,000           150,000           110,000
                                                                 ------------      ------------      ------------      ------------
   Net cash provided (used) by investing activities                  (974,000)        1,287,000        (1,743,000)      (14,980,000)
                                                                 ------------      ------------      ------------      ------------
Cash flows provided (used) by financing activities:
   Net borrowings (repayments) under the
      Revolving Loan Facility                                     (12,855,000)       26,244,000              --                --
   Borrowings under the Term Loan Facility                               --          31,450,000              --                --
   Repayment of the Term Loan Facility                             (1,123,000)             --                --                --
   Net borrowings (repayments) under DIP Facility                        --         (16,017,000)        6,582,000         9,434,000
   Net borrowings (repayments) under GE Capital
      Facility                                                           --                --         (38,626,000)
                                                                                                                        (20,070,000)
   Proceeds from the Term Loan                                           --                --                --           7,500,000
   Repayment of the Term Loan                                            --                --                --          (7,500,000)
   Repayment of  Senior Secured Notes                                    --         (26,909,000)          (91,000)             --
   Borrowing under the CIT Equipment Facility                            --                --                --           2,487,000
   Borrowing under financing arrangements                                --           1,691,000              --                --
   Repayment of CIT Equipment Facility and other
      financing arrangements                                          (99,000)       (6,368,000)       (1,770,000)       (2,900,000)
   Deferred financing costs                                           109,000        (2,006,000)         (588,000)         (572,000)
   Cash paid in connection with  Dissenters'
      Proceeding                                                         --                --                --            (869,000)
                                                                 ------------      ------------      ------------      ------------
      Net cash provided (used) by financing activities            (13,968,000)        8,085,000       (34,493,000)      (12,490,000)
                                                                 ------------      ------------      ------------      ------------
Net increase (decrease) in cash                                       319,000           684,000            (4,000)            3,000
Cash at beginning of period                                           732,000            48,000            52,000            49,000
                                                                 ------------      ------------      ------------      ------------
Cash at end of period                                            $  1,051,000      $    732,000      $     48,000      $     52,000
                                                                 ============      ============      ============      ============
See notes to financial statements.
</TABLE>
                            (continued on next page)
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<CAPTION>
                                                                 Reorganized
                                                                    Company                      PREDECESSOR COMPANY
                                                                  ------------    ------------------------------------------------ 
                                                                  Period From      Period From
                                                                    July 23,        November 4,      Fifty-Three        Fifty-Two
                                                                    1997 to           1996 to        Weeks Ended       Weeks Ended
                                                                   November 2,        July 22,       November 3,       October 29,
                                                                      1997              1997            1996               1995
                                                                      ----              ----            ----               ----
<S>                                                                <C>             <C>               <C>               <C>         
Supplemental schedule of cash flow information:
   Cash paid during the period for interest                        $ 1,520,000     $  5,093,000      $  6,187,000      $ 15,336,000
                                                                   ===========     ============      ============      ============
   Cash (received) paid during the period for
      income taxes , net                                           $   250,000     $    108,000      $ (2,531,000)     $ (1,014,000)
                                                                   ===========     ============      ============      ============
   Cash paid during the period for professional fees
      relating to services rendered in connection with
      the Chapter 11 proceeding and other
      reorganization items paid                                    $ 2,392,000     $  4,019,000      $  4,778,000      $    847,000
                                                                   ===========     ============      ============      ============
Supplemental schedule for non-cash investing
   and financing activities:
      Preferred stock in-kind dividends and accretion
         to redemption value                                       $      --       $       --        $       --        $    230,000
                                                                   ===========     ============      ============      ============
Supplemental schedule of changes in current
   assets and current liabilities:
      Accounts receivable trade, net:
         Decrease (increase) from operations                       $10,301,000     $(17,592,000)     $  6,594,000      $ 10,338,000
         Loss on asset impairment                                         --            466,000              --                --
         Provision for uncollectible accounts                          458,000          252,000         1,397,000         2,879,000
                                                                   -----------     ------------      ------------      ------------
            Net decrease (increase)                                $10,759,000     $(16,874,000)     $  7,991,000      $ 13,217,000
                                                                   ===========     ============      ============      ============
      Inventories:
         Decrease (increase) from operations                       $ 3,854,000     $  9,047,000      $ 27,073,000      $   (711,000)
         Decrease from non-cash barter transaction                        --               --                --           1,704,000
         Decrease from non-cash beginning profit
            inventory write-down                                       686,000             --                --                --
         Increase from fair market valuation                              --         (6,510,000)             --                --
         Increase (decrease) in market reserves                        721,000       (6,362,000)       (2,249,000)        6,418,000
                                                                   -----------     ------------      ------------      ------------
            Net decrease (increase)                                $ 5,261,000     $ (3,825,000)     $ 24,824,000      $  7,411,000
                                                                   ===========     ============      ============      ============



See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<CAPTION>
                                           Shares                                       Pension                          Total
                                             Of                        Additional      Liability        Retained      Shareholders'
                                           Common        Common         Paid-In        Over Prior       Earnings        Equity
                                           STOCK         STOCK          CAPITAL       SERVICE COST     (DEFICIT)       (DEFICIT)
                                           ------        ------        ----------     ------------     ---------       ---------
PREDECESSOR COMPANY:
<S>                                       <C>           <C>          <C>              <C>             <C>              <C>         
Balance, October 30, 1994                 5,618,799     $  5,619     $ 26,602,381     $  (526,000)    $  9,754,000     $ 35,836,000

Adjustments to quasi
   reorganization                              --           --            (38,000)           --               --            (38,000)

Adjustments to pension
   liability over prior
   service cost                                --           --               --        (1,430,000)            --         (1,430,000)

Loss applicable to
   common shareholders                         --           --               --              --        (26,701,000)     (26,701,000)
                                         ----------     --------     ------------     -----------     ------------     ------------
Balance, October 29, 1995                 5,618,799     $  5,619     $ 26,564,381     $(1,956,000)    $(16,947,000)    $  7,667,000

Adjustments to pension
   liability over prior
   service cost                                --           --               --           849,000             --            849,000

Loss applicable to
   common shareholders                         --           --               --              --        (17,844,000)     (17,844,000)
                                         ----------     --------     ------------     -----------     ------------     ------------
Balance, November 3, 1996                 5,618,799     $  5,619     $ 26,564,381     $(1,107,000)    $(34,791,000)    $ (9,328,000)

Loss for period before debt
   discharge and refinancing
   and fresh start accounting                  --           --               --              --         (8,760,000)      (8,760,000)

Adjustments for:

   Cancellation of old
      common stock and
      old preferred stock                (5,618,799)      (5,619)       2,660,619            --               --          2,655,000

   Discharge of debt                      4,384,436       43,844       62,697,156            --         24,135,000       86,876,000

   Debt refinancing expense                    --           --               --              --           (594,000)        (594,000)

Fresh start accounting adjustments:

   Fair market valuation of assets
      and liabilities                          --           --               --              --        (22,076,000)     (22,076,000)

   Eliminate retained earnings
      deficit and pension liability
      over prior service cost                  --           --        (43,193,000)      1,107,000       42,086,000             --
                                         ----------     --------     ------------     -----------     ------------     ------------
Balance, July 22, 1997                    4,384,436     $ 43,844     $ 48,729,156     $      --       $       --       $ 48,773,000

See notes to financial statements.
</TABLE>
                            (continued on next page)


<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
<CAPTION>
                                           Shares                                       Pension                          Total
                                             Of                        Additional      Liability        Retained      Shareholders'
                                           Common        Common         Paid-In        Over Prior       Earnings        Equity
                                           STOCK         STOCK          CAPITAL       SERVICE COST     (DEFICIT)       (DEFICIT)
                                           ------        ------        ----------     ------------     ---------       ---------
<S>                                       <C>           <C>         <C>                 <C>             <C>          <C>        
REORGANIZED COMPANY:

Adjustments to pension liability
   over prior service cost                     --          --         1,107,000                --           --         1,107,000

Income for period                              --          --              --                  --        290,000         290,000

Income taxes not payable
   in cash                                     --          --           461,000                --           --           461,000
                                          ---------     -------     -----------         -----------     --------     -----------
Balance, November 2, 1997                 4,384,436     $43,844     $50,297,156         $      --       $290,000     $50,631,000
                                          =========     =======     ===========         ===========     ========     ===========


See notes to financial statements.

</TABLE>
<PAGE>
FORSTMANN & COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS FOR THE REORGANIZED
COMPANY 1997 103-DAY PERIOD ENDED NOVEMBER 2, 1997 AND THE  PREDECESSOR  COMPANY
1997 261-DAY PERIOD ENDED JULY 22, 1997, THE FIFTY-THREE WEEKS ENDED NOVEMBER 3,
1996 AND THE FIFTY-TWO WEEKS ENDED OCTOBER 29, 1995

1.        NATURE OF BUSINESS AND BANKRUPTCY FILING

          Forstmann  & Company,  Inc.  (the  "Company")  is a leading  designer,
marketer and manufacturer of innovative,  high quality woolen, worsted and other
fabrics which are used  primarily in the  production  of brand-name  and private
label  apparel  for men and  women,  as well  as  specialty  fabrics  for use in
billiard  tables,  sports  caps  and  school  uniforms.   The  apparel  industry
represents the majority of the Company's customers.

          On  September  22,  1995,  as a result of a decline  in the  Company's
results of operations  during Fiscal Year 1995 reflecting,  among other factors,
rising wool costs,  sluggish retail apparel sales,  and high debt leverage,  the
Company  filed a petition  for  relief  under  Chapter  11 of the United  States
Bankruptcy Code (the "Bankruptcy  Code") with the United States Bankruptcy Court
for the Southern District of New York (the "Bankruptcy Filing").  From September
22, 1995 to July 23, 1997, the Company operated as a debtor-in-possession.

           On May  14,  1997,  the  Company  filed  its  First  Amended  Plan of
Reorganization (the "Plan of Reorganization")  and an accompanying First Amended
Disclosure  Statement  Pursuant  to  Section  1125 of the  Bankruptcy  Code (the
"Disclosure Statement").  On May 15, 1997, the Bankruptcy Court entered an order
approving  the  Company's  Disclosure  Statement,  and shortly  thereafter,  the
Company began to solicit the vote of its creditors and stockholders with respect
to the Plan of Reorganization in accordance with the Bankruptcy Code. On July 9,
1997,   the   Bankruptcy   Court  entered  an  order   confirming  the  Plan  of
Reorganization.   On  July  23,  1997  (the  "Effective   Date"),  the  Plan  of
Reorganization was consummated by the Company.

           Pursuant to the Plan of Reorganization,  all general unsecured claims
against  the  Company  were  converted  into  100% of the  common  stock  of the
reorganized  Company  based on a ratio of 50 shares  per each  $1,000 of allowed
unsecured claim.  Secured claims against the Company  aggregating  approximately
$60.1 million were either  refinanced,  reinstated or restructured as more fully
described in Note 8 to the Financial  Statements.  In addition,  pursuant to the
Plan of Reorganization, as of the Effective Date:

           (i)       holders  of  the  Company's   redeemable   preferred  stock
                     received  in  the  aggregate  warrants  entitling  them  to
                     purchase  43,878  shares  of the new  common  stock  of the
                     Company  within  two  years  of the  Effective  Date  at an
                     exercise  price of $23 per share,  and the preferred  stock
                     was canceled;

<PAGE>
           (ii)      holders of the Company's  old common stock  received in the
                     aggregate warrants entitling them to purchase 43,878 shares
                     of the new common stock of the Company  within two years of
                     the Effective  Date at an exercise  price of $23 per share,
                     and the old common stock was canceled;

           (iii)     holders of options to purchase  common stock of the Company
                     received no  distributions  under the Plan, and the options
                     were canceled;

           (iv)      an  aggregate  of  487,528  shares of  common  stock of the
                     reorganized   Company  were   reserved  for  issuance  upon
                     exercise  of options  granted or to be granted  pursuant to
                     the Company's  Management  Stock Option Plan and, as of the
                     Effective  Date,  146,258  options  were granted to certain
                     employees of the Company at an exercise price of $12.88 per
                     share;

           (v)       the  Company  entered  into a Loan and  Security  Agreement
                     dated  as  of  July  23,  1997  (the  "Loan  and   Security
                     Agreement")   with  BankAmerica   Business   Credit,   Inc.
                     ("BABC"),  as agent, and the financial  institutions  named
                     therein,  the  proceeds  of which  were  used to repay  all
                     amounts  outstanding  under the  Company's  GE Capital  DIP
                     Facility  (hereinafter  defined) and CIT Equipment Facility
                     (hereinafter defined), repay the principal and a portion of
                     the  accrued  and  unpaid  interest  due under  the  Senior
                     Secured Notes (hereinafter  defined) and fund other amounts
                     due pursuant to the Plan of Reorganization and the Loan and
                     Security Agreement.

2.         REORGANIZATION VALUE AND "FRESH START" ACCOUNTING.

           In  accordance  with  the  American  Institute  of  Certified  Public
Accountants'  Statement of Position  90-7,  "Financial  Reporting by Entities in
Reorganization  Under the Bankruptcy Code" ("SOP 90-7"), the Company established
its  reorganization  value and adopted  "fresh start"  accounting as of July 22,
1997.

           Pursuant  to  SOP  90-7,  the  total   reorganization  value  of  the
reorganized  Company's  assets  was  determined  using  several  factors  and by
reliance on various valuation methods,  including discounting cash flow, as well
as by analyzing  market cash flow  multiples  applied to the Company's pro forma
adjusted  12-month  trailing cash flows.  The factors  considered by the Company
included:

           (i)       Forecasted  operating  and cash  flow  results  which  gave
                     effect to the  estimated  impact of the  restructuring  and
                     implementation  of  the  Company's  strategic  initiatives;
                     limitations  on the use of  available  net  operating  loss
                     carryovers   and  other  tax   attributes   resulting  from
                     consummation  of  the  Plan  of  Reorganization  and  other
                     events;

<PAGE>

           (ii)       the  discounted  residual value at the end of the forecast
                      period;

           (iii)     market share and position;

           (iv)      competition and general economic considerations;

           (v)       future potential profitability, and;

           (vi)       the   Company's    seasonality    and   working    capital
                      requirements.

           Based on this  analysis,  the Company,  after  consultation  with the
Company's  creditors'  committee  established  by the  Bankruptcy  Court  and an
independent  firm  specializing  in  reorganizations  retained by the creditors'
committee,  established the Company's reorganization value. Under the principles
of "fresh start"  accounting,  the  Company's  total net assets were recorded at
this assumed  reorganization  value,  which was then  allocated to  identifiable
tangible and intangible  assets on the basis of their  estimated fair value.  In
accordance  with "fresh start"  accounting,  the difference  between the assumed
reorganization  value and the aggregate fair value of the identifiable  tangible
and intangible assets resulted in a reduction in the value assigned to property,
plant  and  equipment.  In  addition,  the  Company's  accumulated  deficit  was
eliminated.






                            (continued on next page)



<PAGE>


           The  effect  of the Plan of  Reorganization  and the  application  of
"fresh start" accounting to the Company's condensed balance sheet as of July 22,
1997 was as follows (in thousands):
<TABLE>
<CAPTION>
                                                           Pre-Fresh
                                                            Start             Plan of                          Fresh Start
                                                           Balance         Reorganization     Fair Value         Balance
                                                            Sheet            Adjustments      Adjustment          Sheet
                                                         July 22, 1997          (A)              (B)          July 22, 1997
                                                         -------------     --------------     ----------      -------------
<S>                                                      <C>                <C>               <C>               <C>     
Cash and cash equivalents                                $      48          $    684          $   --            $    732
Accounts receivable                                         52,764              --                --              52,764
Inventory                                                   41,961              --               6,510            48,471
Other current assets                                         1,220              (360)             --                 860
                                                         ---------          --------          --------          --------
   Total current assets                                     95,993               324             6,510           102,827

Property, plant and equipment, net                          53,879              --             (28,586)           25,293
Deferred financing costs                                       794               995              --               1,789
Other assets                                                    91              --                --                  91
                                                         ---------          --------          --------          --------
   Total assets                                          $ 150,757          $  1,319          $(22,076)         $130,000
                                                         =========          ========          ========          ========
Current maturities of long-term debt                     $  53,906          $(48,282)         $   --            $  5,624
Accounts payable                                             3,964              --                --               3,964
Accrued liabilities                                         17,043            (3,378)             --              13,665
                                                         ---------          --------          --------          --------
   Total current liabilities                                74,913           (51,660)             --              23,253

Long-term debt                                               2,690            54,114              --              56,804
Other long-term obligations                                  1,170              --                --               1,170
Liabilities subject to compromise                           87,417           (87,417)             --                --
Redeemable preferred stock                                   2,655            (2,655)             --                --
Stockholders' equity (deficit)                             (18,088)           88,937           (22,076)           48,773
                                                         ---------          --------          --------          --------
   Total liabilities and stockholders' equity            $ 150,757          $  1,319          $(22,076)         $130,000
                                                         =========          ========          ========          ========
</TABLE>

      (A)       To record the transactions  consummated  pursuant to the Plan of
                Reorganization   and  eliminate   the  deficit  in   accumulated
                stockholders' deficit.

      (B)       To record the  adjustments  to state assets and  liabilities  at
                fair value and adjust for the  difference  between  the  assumed
                reorganization  value  and the fair  value  of the  identifiable
                tangible and intangible assets by reducing the value assigned to
                property, plant and equipment.

3.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          REORGANIZATION  VALUE AND "FRESH  START"  ACCOUNTING  - The  Company's
financial statements have been prepared in accordance with SOP 90-7.

          FISCAL  YEAR - The  Company  has  adopted a fiscal  year ending on the
Sunday nearest to October 31.

<PAGE>


          As a result of the consummation of the Plan of Reorganization  and the
application of "fresh start" accounting in accordance with SOP 90-7, the Company
was  required  to report  its  financial  results  for  Fiscal  Year 1997 in two
separate  periods.  The following table  describes the periods  presented in the
financial statements and the notes thereto:

PERIOD                                REFERRED TO AS
Results of the Reorganized Company    "Reorganized Company 1997 103-Day Period"
   From July 23, 1997 to
   November 2, 1997

Results for the  Reorganized Company  "Reorganized  Company 1997 Fourth Quarter"
   From August 4, 1997
   to November 2, 1997

Results for the Predecessor Company   "Predecessor  Company 1997 261-Day Period"
   From November 4, 1996 
   to July 22, 1997

Combined Reorganized Company          "Fiscal Year 1997"
   1997 103-Day Period and
   Predecessor Company 1997
   261-Day Period (Results for the
   Fifty-Two Weeks Ended
   November 2, 1997)

Results for the Predecessor Company   "Fiscal Year 1996"
   Fifty-Three Weeks Ended
   November 3, 1996

Results for the Predecessor Company   "Fiscal Year 1995"
   Fifty-Two Weeks Ended
   October 29, 1995

          Due to the effects of the  consummation of the Plan of  Reorganization
and  application of "fresh start"  accounting,  results for Fiscal Year 1997 are
not necessarily  fully comparable to the results for Fiscal Year 1996 and Fiscal
Year 1995. Due to the seasonal nature of the Company's business,  the results of
each of the Reorganized  Company 1997 103-Day Period and the Predecessor Company
1997 261-Day  Period can not be annualized so as to be indicative of the results
for a full fiscal year.


<PAGE>


          USE  OF  ESTIMATES  -  The  preparation  of  financial  statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

          REVENUE  RECOGNITION - Generally,  sales are recognized when goods are
sold and then  shipped to the  Company's  customers.  A portion of such sales is
made on extended  terms of up to 240 days. At November 2, 1997,  $1.5 million of
sales made on extended terms were included in accounts receivable under terms of
specific sales.

          When customers,  under the terms of specific orders,  request that the
Company  manufacture,  invoice  and ship  goods on a bill  and hold  basis,  the
Company  recognizes  revenue based on the completion  date required in the order
and actual completion of the manufacturing  process.  At the time such goods are
ready for delivery,  title and risk of ownership pass to the customer.  Accounts
receivable  included bill and hold  receivables  of $20.2 million at November 2,
1997 and $16.5 million at November 3, 1996.

          One of the Company's  customers  accounted for approximately  17%, 13%
and 14% of the  Company's  revenues  during  Fiscal  Years 1997,  1996 and 1995,
respectively.  No other customer of the Company accounted for 10% or more of the
Company's revenues in these Fiscal Years 1997, 1996 and 1995.

          ALLOWANCE  FOR  UNCOLLECTIBLE   ACCOUNTS  -  Based  on  a  review  and
assessment  of  the   collectibility  of  aged  balances  included  in  accounts
receivable,  the Company  establishes  a specific  allowance  for  uncollectible
accounts.   Additionally,  the  Company  establishes  a  general  allowance  for
uncollectible accounts based, in part, on historical trends and the state of the
economy and its effect on the Company's customers.  The Company also establishes
allowances  for estimated  sales  returns.  The Company grants credit to certain
customers,  most of which are companies in apparel  industries.  One  individual
customer's accounts receivable balance represented  approximately 23.4% of gross
accounts  receivable  at  November  2, 1997 and no other  individual  customer's
accounts  receivable  balance  exceeded  6.1% of gross  accounts  receivable  at
November 2, 1997.

          INVENTORIES - Inventories are stated at the lower of cost,  determined
principally by the last-in, first-out ("LIFO") method, or market.

          PROPERTY,  PLANT AND  EQUIPMENT  HELD FOR SALE -  Property,  plant and
equipment  held  for  sale is  stated  at the  lower  of cost or  estimated  net
realizable value.

          PROPERTY,  PLANT AND  EQUIPMENT -  Property,  plant and  equipment  is
recorded at adjusted cost, net of accumulated depreciation and amortization.  In
conjunction with adoption of "fresh start" accounting,  all property,  plant and
equipment  was  adjusted  to  reflect  reorganization  value.  Depreciation  and
amortization  is computed  using the  straight-line  method  over the  estimated
useful lives of the assets or the lease terms of certain  capital leased assets.
For  income  tax  purposes,   accelerated  methods  of  depreciation  are  used.
Maintenance and repairs are expensed when incurred,  and renewals or betterments
are capitalized. Property, plant and equipment is evaluated on a quarterly basis
and written  down to net  realizable  value when  management  believes  that the
undepreciated cost can not be recovered through future cash flow.
<PAGE>
          DEFERRED  FINANCING  COSTS - Costs  incurred to obtain  financing  are
included as other assets and amortized using the  straight-line  method over the
expected maturities of the related debt.

          COMPUTER  INFORMATION  SYSTEMS - Costs  directly  associated  with the
initial purchase, development and implementation of computer information systems
are  deferred  and  included  as other  assets.  Such costs are  amortized  on a
straight-line  basis over the expected  useful life of the systems,  principally
five  years.  Ongoing  maintenance  costs of  computer  information  systems are
expensed.

          ENVIRONMENTAL   REMEDIATION   LIABILITIES  -  The  Company  recognizes
environmental  remediation  liabilities  when  a loss  is  probable  and  can be
reasonably estimated. Estimates are developed in consultation with environmental
consultants and legal counsel and are periodically revised based on expenditures
against  established  reserves and the  availability of additional  information.
Such  liabilities  are included on the balance sheet as accrued  liabilities and
include estimates for legal and other consultation costs.

          EARNINGS (LOSS) PER SHARE - Earnings  (loss) per share  information is
computed using the weighted average common shares  outstanding  during each year
and income (loss)  applicable to common  shareholders.  Shares issuable upon the
exercise of employee  stock  options do not have a material  dilutive  effect on
earnings (loss) per share for the periods presented.

          RECENT  ACCOUNTING  PRONOUNCEMENTS  - In February  1997, the Financial
Accounting  Standards  Board ("FASB") issued  Statement of Financial  Accounting
Standards ("SFAS") No. 128, "Earnings per share". SFAS 128 establishes standards
for computing and presenting  earnings per share ("EPS") and applies to entities
with  publicly  held common  stock or  potential  common  stock and requires the
presentation  of basic and diluted 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 EPS excludes  dilution and is
computed  by  dividing   income   available  to  common   stockholders   by  the
weighted-average  number of  common  shares  outstanding  for the  period  being
reported.  Diluted  EPS  reflects  the  potential  dilution  that could occur if
securities or other  contracts to issue common stock were exercised or converted
into common  stock or resulted on the  issuance of common stock that then shared
in the earnings of the entity.  SFAS 128 is effective for  financial  statements
issued for periods ending after December 15, 1997,  including  interim  periods;
earlier  application  is not permitted and all  prior-period  EPS data presented
must be  restated.  Adoption  of SFAS 128 is not  expected to be material to the
Company's results of operations.

           In June 1997, the FASB issued SFAS No. 130, "Reporting  Comprehensive
Income".  SFAS 130 requires  that all items that are  required to be  recognized
under accounting  standards as components of comprehensive income be reported in
a  financial  statement  that is  displayed  with the same  prominence  as other
financial statements. SFAS 130 requires that an enterprise (a) classify items of
other  comprehensive  income by their  nature in a financial  statement  and (b)
display the accumulated  balance of other  comprehensive  income separately from
retained  earnings and additional  paid-in  capital in the equity section of the
statement  of  financial  position.  SFAS  130 is  effective  for  fiscal  years
beginning after December 15, 1997 and  reclassification of financial  statements
for earlier periods provided for comparative  purposes is required.  The Company
will provide the comprehensive income statement required by SFAS 130.
<PAGE>
           In June  1997,  the FASB  issued  SFAS  No.  131,  "Disclosure  about
Segments of an  Enterprise  and Related  Information".  SFAS 131 requires that a
public business  enterprise  report financial and descriptive  information about
its  reportable  operating  segments.   Generally,  under  SFAS  131,  financial
information  is required to be reported on the basis that it is used  internally
for evaluating  segment  performance  and deciding how to allocate  resources to
segments.  SFAS  131 also  requires  that a public  business  enterprise  report
descriptive  information about the way operating  segments were determined,  the
products and services provided by the operating  segments,  differences  between
the  measurements  used in reporting  segment  information and those used in the
enterprise's   general-purpose   financial   statements,   and  changes  in  the
measurement of segment amounts from period to period.  SFAS 131 is effective for
financial  statements for periods beginning after December 15, 1997. The Company
does not believe that it has reportable segments as defined by SFAS 131.

4.        INVENTORIES

          Inventories  consist of the following at November 2, 1997 and November
3, 1996 (in thousands):

                                                         1997              1996
                                                         ----              ----

Raw materials and supplies                           $  8,303          $  7,406
Work-in-process                                        27,459            32,007
Finished products                                       8,169            11,595
Less market reserves                                     (721)           (6,362)
                                                     --------          --------
     Total                                             43,210            44,646
Difference between LIFO carrying
  value and current replacement
  cost                                                   --               3,936
                                                     --------          --------
Current replacement cost                             $ 43,210          $ 48,582
                                                     ========          ========

          Market  reserves  are  estimated  by the Company  based,  in part,  on
inventory age as well as estimated usage.

           During the Predecessor  Company 1997 261-Day Period, the Company sold
certain  yarn  inventory  which had been  previously  identified  as  surplus or
obsolete  for its net  carrying  value  which was $3.0  million  below its gross
inventory value. This transaction resulted in a release of yarn inventory market
reserves  of  $3.0  million  and did  not  give  rise  to any  loss  during  the
Predecessor  Company 1997 261-Day Period.  Additionally,  the Company  increased
market reserves by $0.9 million for inventory related to the converting  fabrics
product line which had been discontinued as part of the product  rationalization
effort undertaken in Fiscal Year 1996. Such reserve was necessary as a result of
selling price markdowns anticipated to sell off the remaining converting fabrics
inventory on hand. This expense was charged to  reorganization  items during the
Predecessor Company 1997 261-Day Period.
<PAGE>
          At the Effective Date, the Company adjusted its inventory  balances to
fair value  resulting in the  elimination  of the LIFO reserve of  approximately
$2.7 million and a write-up of approximately  $3.8 million above the predecessor
Company's FIFO cost.  Such write-up was credited  against  reorganization  items
during the Predecessor Company 1997 261-Day Period and will be allocated to cost
of  goods  sold  as the  inventory  on  hand  at the  Effective  Date  is  sold.
Approximately  $0.7  million  was  charged  to cost of  goods  sold  during  the
Reorganized Company 1997 Fourth Quarter.

          During  Fiscal  Year 1996,  the  Company  increased  inventory  market
reserves by $10.7 million,  of which $3.5 million was charged to  reorganization
expense in  connection  with the  Company's  assessment  and  evaluation  of its
business strategy which resulted in the Company continuing to reduce its product
offerings  and  rendered  many  inventory  units as either  surplus or obsolete.
During Fiscal Year 1996, the Company also sold certain yarn inventory  which had
been  previously  identified  as surplus or obsolete for its net carrying  value
which was $4.9  million  below  its  gross  inventory  value.  This  transaction
resulted in a release of yarn inventory  market reserves of $4.9 million and did
not give rise to any loss during Fiscal Year 1996.

          The reduction of inventory  quantities has resulted in the liquidation
of LIFO inventory  layers carried at lower costs  prevailing in prior years. The
effect of this  liquidation  increased  gross profit by $0.5 million  during the
Predecessor Company 1997 261-Day Period and $2.2 million in Fiscal Year 1996.

5.        PROPERTY, PLANT AND EQUIPMENT

           Property, plant and equipment consist of the following at November 2,
1997 and November 3, 1996 (in thousands): 

                                                        1997                1996
                                                        ----                ----
Land                                                $    243          $     840
Buildings                                              4,062             16,391
Machinery and equipment                               21,003             85,977
Construction in progress                                 826              4,685
                                                    --------          ---------
   Total                                              26,134            107,893
Less accumulated depreciation and
  amortization                                        (1,355)           (42,229)
                                                    --------          ---------
        Net                                         $ 24,779          $  65,664
                                                    ========          =========

          Capital lease assets (principally machinery and equipment) at November
2, 1997 and  November  3,  1996  were  $808,000  and  $5,389,000,  respectively.
Accumulated  amortization  related to such  capital  lease assets at November 2,
1997 and November 3,1996 was $23,000 and $1,173,000, respectively.

          Depreciation  and  amortization  expense of capital  lease  assets was
$9,792,000  for  Fiscal  Year  1997,   $11,417,000  for  Fiscal  Year  1996  and
$11,870,000 for Fiscal Year 1995.
<PAGE>
          During Fiscal Year 1996, the Company  announced its intention to close
its Tifton facility.  The closing  commenced in late July 1996 and was completed
in November 1996. The Company  incurred $0.4 million during Fiscal Year 1996 and
$0.1 million in expenses during the  Predecessor  Company 1997 261-Day Period in
connection  with the  relocation of certain of its wool  blending  machinery and
equipment from the Tifton facility to the Dublin  facility.  These expenses were
reflected as reorganization items in the period incurred.

          In November 1996, the Company entered into a Contract of Sale with the
Tift County  Development  Authority (the "TCDA"),  providing for the sale of the
Tifton  facility for $1.25 million.  On July 18, 1997, the sale was  consummated
and the net  proceeds of $1.25  million were applied to a portion of the accrued
but unpaid  interest due to the holders of the Company's  Senior  Secured Notes.
The selling  price for the Tifton  facility was $1.1 million  below the net book
value for the facility and such loss was accrued during Fiscal Year 1996.

          In accordance with "fresh start"  accounting,  the difference  between
the assumed reorganization value and the fair value of the identifiable tangible
and  intangible  assets  resulted  in a  write-down  in the  value  assigned  to
property,  plant and equipment of $28.6 million.  During the Predecessor Company
1997 261-Day Period, the Company adjusted certain impaired  property,  plant and
equipment to its net realizable  value. This resulted in a $0.4 million increase
in cost of goods  sold and a $0.1  million  increase  in  selling,  general  and
administrative expenses during the Predecessor Company 1997 261-Day Period.

          As of November 3, 1996,  $4.2 million was included in  construction in
progress relating to certain unerected equipment located at the Tifton facility.
Such equipment was not sold in connection with the sale of the Tifton  facility.
During the Predecessor  Company 1997 261-Day Period,  the Company negotiated the
return  of such  equipment  to its  manufacturer  or  sold  such  equipment  and
recognized a loss of $2.9  million.  Such loss is reflected as a  reorganization
items in the Predecessor Company 1997 261-Day Period.
<PAGE>
6.        OTHER ASSETS

           Other  assets  consist  of the  following  at  November  2,  1997 and
November 3, 1996 (in thousands):
                                                             1997           1996
                                                           ------         ------
Computer information systems,
  net of accumulated amortization of
  $0 and $2,270                                            $   94         $1,174

Deferred financing costs, net of
  accumulated amortization of
 $164 and $1,874                                            1,520            679

Other, including $0 and $246 of net
   barter credits                                              56            354
                                                           ------         ------
Total                                                      $1,670         $2,207
                                                           ======         ======

          During the  Predecessor  Company  1997  261-Day  Period,  the  Company
evaluated its computer  information systems that were being internally developed
and concluded that the majority of such previously capitalized costs will not be
recovered  through future operations and,  accordingly,  wrote off approximately
$1.2 million of such deferred software development costs.

          Also, during the Predecessor  Company 1997 261-Day Period, the Company
wrote off approximately $0.2 million of deferred financing costs associated with
debt agreements that were fully paid in connection with the  consummation of the
Plan of Reorganization.

          Based upon  analysis of planned  barter  credit use, the Company wrote
down its barter  credits by $0.2  million  during the  Predecessor  Company 1997
261-Day Period and $0.5 million during Fiscal Year 1996.

7.        ACCRUED LIABILITIES

          Accrued  liabilities  consist of the following at November 2, 1997 and
November 3, 1996 (in thousands):
                                                              1997          1996
                                                           -------       -------
Salaries and wages
Salaries and wages
   (including related payroll taxes)                       $   978       $   987
Incentive compensation                                       2,082         1,289
Vacation                                                     1,729         1,616
Employee benefit plans                                          20           617
Interest on long-term debt                                      62         2,888
Medical insurance claims                                     1,327         1,330
Professional fees                                              355         2,346
Environmental remediation                                      361           339
Deferred rental and other lease obligations                  2,186          --
Other                                                        2,271         1,987
                                                           -------       -------
    Total                                                  $11,371       $13,399
                                                           =======       =======

           See  Note 13 to the  Financial  Statements  for  accrued  liabilities
included in Liabilities Subject to Compromise at November 3, 1996.
<PAGE>
8.        LONG-TERM DEBT AND OTHER FINANCING AGREEMENTS

         Long-term  debt  consists  of the  following  at  November  2, 1997 and
November 3, 1996 (in thousands):

                                                          1997             1996
                                                      --------        ---------
Revolving Loan Facility                               $ 13,389        $    --
Term Loan Facility                                      30,327             --
Deferred Interest Rate Notes                             1,571             --
Other note                                                 603             --
Capital lease obligations                                2,414            3,337
GE Capital DIP Facility                                   --             16,017
Senior Secured Notes                                      --             26,909
CIT Equipment Facilities                                  --              6,136
Senior Subordinated Notes                                 --             56,632
                                                      --------        ---------
      Total debt                                        48,304          109,031
Current portion of long-term debt                       (5,756)         (48,389)
Senior Subordinated Notes included in
   Liabilities Subject  to Compromise                     --            (56,632)
                                                      --------        ---------
      Total long-term debt                            $ 42,548        $   4,010
                                                      ========        =========

           REVOLVING  LOAN AND TERM  LOAN  FACILITIES  - On July 23,  1997,  the
Company  entered  into the Loan  and  Security  Agreement  with a  syndicate  of
financial institutions led by BABC. The Loan and Security Agreement provides for
a  revolving  line  of  credit  (including  a $10.0  million  letter  of  credit
facility),  subject to a  borrowing  base  formula,  of up to $85  million  (the
"Revolving  Loan Facility") and term loans of  approximately  $31.5 million (the
"Term Loan Facility").

           Borrowings on July 23, 1997 of $28.0 million under the Revolving Loan
Facility,  plus the proceeds from the Term Loan Facility, were used to repay all
borrowings  outstanding under the Company's GE Capital DIP Facility (hereinafter
defined) and CIT Equipment Facility (hereinafter  defined),  repay the principal
and a portion of the accrued and unpaid  interest  due under the Senior  Secured
Notes  (hereinafter  defined) and fund other amounts due pursuant to the Plan of
Reorganization and the Loan and Security Agreement.

           The Revolving Loan Facility and the Term Loan Facility mature on July
22, 2000. If the Company  elects to terminate the Revolving  Loan Facility prior
to April 23,  2000,  the Company  must pay a  termination  fee.  The fee will be
$850,000 if the  termination  occurs prior to the first  anniversary of the Loan
and Security Agreement, $637,500 if the termination occurs between the first and
second  anniversaries  of the Loan and  Security  Agreement  and $425,000 if the
termination  occurs  between  the second  anniversary  of the Loan and  Security
Agreement  and April 23, 2000.  The Term Loan  Facility  can be prepaid,  at the
Company's election, without a termination fee at any time prior to maturity. The
Company's obligations under the Loan and Security Agreement are secured by liens
on substantially all of the Company's assets.
<PAGE>
           Outstanding  borrowings  (including  outstanding  letters  of credit)
under the Revolving  Loan Facility  cannot exceed the sum of (1) 85% of eligible
accounts  receivable  (including  eligible bill and hold receivables up to $17.6
million),  plus (2) the lesser of $30.0  million or 65% of  eligible  inventory,
less (3) a reserve that is  initially  $6.5 million and declines by $47,500 each
month as payments under the Term Loan Facility are made. Further,  the Company's
borrowing base is subject to other  reserves which may be established  from time
to time by BABC. At November 2, 1997, the Company's loan availability as defined
in the Loan and  Security  Agreement,  in excess  of  outstanding  advances  and
letters of credit, was approximately $36.0 million.

           Borrowings  under  the  Revolving  Loan  Facility  and the Term  Loan
Facility bear interest,  at the Company's  option,  at a floating rate (which is
based on a Bank of America  reference rate  ("Prime")) or a fixed rate (which is
based on  LIBOR),  payable  monthly.  Under the  Revolving  Loan  Facility,  the
floating  rate is 0.25% per annum  above  Prime and the fixed  rate is 2.50% per
annum above LIBOR. Under the Term Loan Facility,  the floating rate is 0.75% per
annum above Prime and the fixed rate is 3.00% per annum above LIBOR.

           At November 2, 1997, there were two fixed rate loans of approximately
$5.0 million each  outstanding  under the Revolving  Loan  Facility,  which bore
interest at 8.375% per annum,  through  November 28,  1997,  and 8.50% per annum
through  January  28,  1998,  respectively.  There  were two fixed rate loans of
approximately  $6.0 and $24.0 million  outstanding under the Term Loan Facility,
which bore interest at 8.875% per annum,  through  November 28, 1997,  and 9.00%
per annum, through January 28, 1998, respectively. Further, at November 2, 1997,
approximately  $327,000 of the Term Loan Facility bore floating rate interest at
9.50% per annum, and  approximately  $3.4 million of the Revolving Loan Facility
bore floating rate interest at 9.0% per annum.

           The  Term  Loan  Facility  requires  monthly  principal  payments  of
approximately  $374,000  commencing  August 31,  1997.  Further,  the Company is
required  to pay 50% of excess  cash flow (as  defined in the Loan and  Security
Agreement)  for each fiscal year as long as the  outstanding  principal  balance
under the Term Loan  Facility is greater  than $23.3  million.  Such excess cash
flow  payments  are due on April 30 of each year  following  the fiscal year for
which an "excess  cash flow"  payment is due.  Such  payments  are to be applied
against  the  unamortized  principal  portion of the Term Loan  Facility  in the
inverse  order of maturity.  The Company  anticipates  that its excess cash flow
payment for Fiscal Year 1997,  which payment will be due on April 30, 1998, will
be approximately $1.4 million.

           In connection with entering into the Loan and Security Agreement, the
Company paid BABC  approximately  $728,000 as an underwriting  fee and agreed to
pay the  financial  institutions  party to the Loan and  Security  Agreement  an
unused  line fee of  0.50%  per  annum  on the  average  unused  portion  of the
Revolving Loan Facility.  The Company paid approximately  $582,000 as a facility
fee to  participants  in the  syndicate to the Loan and Security  Agreement.  In
addition,  the Company  pays BABC an agency fee of $125,000  per annum,  payable
monthly  commencing  August 1, 1997,  and pays certain fees in  connection  with
letters of credit.  Further,  the Company pays BABC a loan administration fee of
0.25% per annum on the principal  amount  outstanding  under the Revolving  Loan
Facility and Term Loan Facility.
<PAGE>
           The  Loan  and  Security  Agreement   contains  certain   restrictive
covenants,  including limitations on the incurrence of indebtedness, the sale of
assets, the incurrence of liens, the making of certain restricted payments,  the
making of specified investments, the payment of cash dividends and the making of
certain fundamental  corporate changes and amendments to the Company's corporate
organizational and governance instruments.  In addition, the Company is required
to  satisfy,   among  other  things,  certain  financial  performance  criteria,
including  minimum interest and fixed charge coverage  ratios,  minimum adjusted
tangible net worth  requirements  and maximum  capital  expenditure and software
development  costs.  As of November 2, 1997, the Company was in compliance  with
such covenants.

           DEFERRED  INTEREST RATE NOTES AND SENIOR  SECURED NOTES - On April 5,
1993,  the Company  issued an  aggregate  of $20  million of its Senior  Secured
Floating  Rate Notes and on March 30, 1994,  the Company  issued an aggregate of
$10 million of its Senior  Secured  Floating  Rate Notes,  all of which were due
October 30, 1997  (collectively the "Senior Secured Notes").  The Senior Secured
Notes were  issued  pursuant  to an  indenture  dated  April 5, 1993,  which was
amended and  restated as of March 30, 1994  between the Company and Shawmut Bank
Connecticut,  National  Association,  as  trustee  (the  "Senior  Secured  Notes
Indenture").

           On the Effective Date, the outstanding principal amount of the Senior
Secured Notes was repaid in full and the Company  issued  subordinated  floating
rate notes (the "Deferred Interest Rate Notes") in respect of accrued but unpaid
interest  (approximately  $1.6  million)  due the holders of the Senior  Secured
Notes. In connection with the issuance of the Deferred  Interest Rate Notes, the
Company paid a closing fee of approximately $31,400. Further, in accordance with
the Plan of Reorganization,  the Company paid $157,000 in trustee fees and legal
fees and  expenses.  The Deferred  Interest Rate Notes are due July 23, 2001 and
bear interest at 4.5% per annum above LIBOR, payable monthly. Subject to certain
exceptions,  the Deferred Interest Rate Notes restrict,  among other things, the
incurrence of  indebtedness  and liens. On December 22, 1997, the Company repaid
the  Deferred  Interest  Rate Notes and accrued  interest  due  thereon  through
borrowings under the Revolving Loan Facility.

           OTHER NOTE AND CAPITAL LEASE  OBLIGATIONS  - Prior to the  Bankruptcy
Filing, the Company was a party to certain capital lease financing  arrangements
which provided  financing for the acquisition of various  textile  machinery and
equipment.  In connection with the  consummation of the Plan of  Reorganization,
the Company issued a secured note in satisfaction  of its obligations  under one
of  the  capital  leases  and  restructured  the  remaining  capital  leases  in
settlement of the lessors'  secured claims.  The principal amount due under such
note and capital  lease  obligations  are  included in the schedule of aggregate
long-term debt maturities below.

           GE CAPITAL DIP FACILITY - In connection  with the Bankruptcy  Filing,
the  Company  obtained   debtor-in-possession  ("DIP")  financing  from  General
Electric Capital Corporation ("GE Capital") under a revolving facility which was
approved by the Bankruptcy Court (the "DIP Facility"). The DIP Facility provided
up to $85  million in  financing  (including  a $10.0  million  letter of credit
facility) under a borrowing base formula.  In connection with its emergence from
bankruptcy,  the Company repaid all amounts outstanding under the GE Capital DIP
Facility and paid approximately $103,000 in unpaid amendment fees and legal fees
and expenses.
<PAGE>
           CIT  EQUIPMENT  FACILITY  - The  Company  was a party  to a loan  and
security agreement (the "CIT Equipment  Facility") with the CIT  Group/Equipment
Financing,  Inc. ("CIT") which provided financing for the acquisition of, and to
refinance  borrowings  incurred  to  acquire,   various  textile  machinery  and
equipment. At the Bankruptcy Filing date the Company owed CIT approximately $7.7
million  in  principal  and  accrued  interest.   On  the  Effective  Date,  the
outstanding  principal  and  accrued  but  unpaid  interest  due  under  the CIT
Equipment Facility was repaid in full.  Further,  in accordance with the Plan of
Reorganization,  the  Company  paid  approximately  $36,000  in  legal  fees and
expenses.

           SUBORDINATED  NOTES - On April  20,  1989,  through  an  underwritten
public  offering,  the Company sold $100 million of 14-3/4% Senior  Subordinated
Notes due April 15, 1999 (the  "Subordinated  Notes").  In fiscal year 1992, the
Company  acquired,  and did not retire or  cancel,  $46,240,100  aggregate  face
amount  of  the  Subordinated   Notes.  The  Company  used  $2,875,000  of  such
Subordinated Notes to satisfy a January 31, 1993 mandatory  redemption  required
in the Subordinated Notes Indenture.

           In accordance with the Plan of Reorganization, the Subordinated Notes
were settled  through the  issuance of  3,013,744  shares of common stock of the
reorganized Company. Further, in accordance with the Plan of Reorganization, the
Company paid $80,000 in trustee fees associated with the Subordinated Notes.

           AGGREGATE  MATURITIES - Aggregate long-term debt maturities excluding
capital  lease  obligations  (see Note 14 to the Financial  Statements),  are as
follows (in thousands):

           FISCAL YEAR                                            AMOUNT
           -----------                                            ------
              1998  ........................................... $ 4,722
              1999  ...........................................   4,699
              2000  ...........................................  34,898
              2001  ...........................................   1,571
                                                                -------
                Total.......................................... $45,890
                                                                =======

9.         INCOME TAXES

           The   provision   (benefit)  for  income  taxes  is  as  follows  (in
thousands):

                    Reorganized      Predecessor
                    Company 1997     Company 1997
                      103-Day          261-Day
                      PERIOD           PERIOD          1996              1995
                      ------           ------          ----              ----
Current                $--              $--           $  --           $(1,930)
Deferred                461              --              --            (2,320)
                       ----             -----         -------         -------
Total                  $461             $--           $  --           $(4,250)
                       ====             =====         =======         =======
<PAGE>
           A  reconciliation  between federal income taxes at the statutory rate
and the Company's income tax provision is as follows:

                               Reorganized   Predecessor
                               Company 1997  Company 1997
                                 103-Day       261-Day
                                  PERIOD        PERIOD       1996      1995
                                  ------        ------       ----      ----

Federal statutory tax rate        35.00%       (35.00)%    (35.00)%  (35.00)%
State income taxes, net                     
   of federal benefit              4.50         (4.50)      (4.50)    (4.50)
Valuation allowance                 --          29.09       32.94     25.14
Non-deductible expenses           14.93         10.41        6.56       .53
                                  -----         -----       -----     -----
Income tax provision              54.43%          --  %       --  %  (13.83)%
                                  =====         =====       =====     =====
                                      
           Recognition of the income tax benefit in Fiscal Year 1995 was limited
to the amount of its net  operating  loss the  Company  can carry  back.  To the
extent the Company had net  deferred  tax assets at November 3, 1996 and October
29,  1995,  the  Company,  during  Fiscal  Years  1996 and 1995,  established  a
valuation  allowance  to  reduce  such net  deferred  tax  assets  to zero.  The
corresponding  charge to increase the valuation  allowance reduced the Company's
Fiscal Year 1996 and Fiscal Year 1995 income tax benefit.






                            (continued on next page)
<PAGE>

           Deferred  income taxes  reflect the net tax effects of (a)  temporary
differences between the carrying amounts of assets and liabilities for financial
reporting  purposes  and the  amounts  used for  income  tax  purposes,  and (b)
operating  loss and tax credit  carryforwards.  The tax  effects of  significant
items  comprising  the  Company's net deferred tax liability at November 2, 1997
and November 3, 1996 are as follows (in thousands):
                                                              1997         1996
                                                          --------     --------
Deferred tax liabilities:

Differences between book and tax basis of
   property, plant and equipment                          $   --       $  9,915
Deferred interest payable                                     --          1,054
Inventories                                                    968         --
Other                                                         --             27
                                                          --------     --------
  Total                                                        968       10,996
                                                          --------     --------

Deferred tax assets:

Operating loss carryforwards                                (7,773)     (14,222)
Alternative minimum tax carryforwards                         (923)        (923)
Differences between book and tax basis of property,
   plant and equipment                                      (2,797)        --
Difference between book and tax basis of
   computer information systems                               --           (494)
Accrued liabilities                                         (2,954)      (4,256)
Barter credits reserve                                        (963)        (814)
Allowance for uncollectible accounts                        (2,068)      (1,661)
Inventories                                                   --         (5,888)
Other                                                          (30)        (219)
                                                          --------     --------
   Total                                                   (17,508)     (28,477)

Valuation allowance                                         16,540       17,481
                                                          --------     --------
Net deferred tax liability                                $   --       $   --
                                                          ========     ========

           The valuation  allowance  increased  $5.4 million  during Fiscal Year
1996  primarily  due to the  increase in the  operating  loss  carryforward.  At
November 2, 1997, the Company had  cumulative  net operating loss  carryforwards
for federal  income tax purposes of  approximately  $18.5  million.  For federal
income tax purposes,  net operating  loss  carryforwards  begin to expire in the
year 2010.  Under the Plan of  Reorganization,  certain  debt  instruments  were
canceled in exchanged for shares in the  reorganized  Company's  common stock as
described  in Note 8 to the  Financial  Statements.  As a  result,  the  Company
recognized a gain on  extinguishment  of debt of approximately  $24.1 million in
the  Predecessor  Company 1997 261-Day  Period.  The Company had  sufficient net
operating loss  carryforwards  to offset this gain and therefore,  no income tax
expense was recorded.
<PAGE>
           Distribution  of the new common stock of the Company to the Company's
unsecured  creditors  pursuant to the Plan of Reorganization is believed to have
resulted  in an  ownership  change as  defined in  Section  382 of the  Internal
Revenue Code. This ownership change limits the Company's  ability to utilize its
net operating  loss  carryforwards.  Such  ownership  change  further limits the
Company's ability to utilize certain of its other carryforward tax attributes.

           Certain  future events may result in such benefits  being utilized in
the  Company's  future  income tax  returns,  which the Company will record as a
reduction in the valuation  allowance and, in accordance  with the principles of
"fresh start" accounting, a credit to additional paid-in capital.

           During Fiscal Year 1995, the Company fully utilized its net operating
loss  carrybacks as permitted by the Internal  Revenue Code. For the Predecessor
Company's  1997 261-Day  Period and Fiscal Year 1996,  no income tax benefit has
been recognized from the realization of net operating losses. In accordance with
SOP 90-7,  an income tax provision  not payable in cash was  recognized  for the
Reorganized  Company  1997  103-Day  Period at an  effective  income tax rate of
54.43%.  Such provision was credited against  additional  paid-in capital as net
operating losses  generated  during the Predecessor  Company 1997 261-Day Period
can be used to offset  net  taxable  income  generated  during  the  Reorganized
Company's 1997 103-Day Period.

10.        REDEEMABLE PREFERRED STOCK

           The Company's senior preferred stock,  with a dividend rate of 5% per
annum, was non-voting, except in limited circumstances, and ranked senior to any
subsequently  issued  class or series  of  preferred  stock.  As a result of the
Bankruptcy  Filing,  the Company no longer  accrued the  dividend  due under the
redeemable preferred stock or accreted the recorded balance to redemption value.

           On the Effective Date, holders of the Company's  redeemable preferred
stock  received in the  aggregate  warrants  entitling  them to purchase  43,878
shares of the new common stock of the Company  within two years of the Effective
Date  at an  exercise  price  of $23  per  share  and the  preferred  stock  was
cancelled.

11.        SHAREHOLDERS' EQUITY AND STOCK OPTION PLANS

           SHAREHOLDERS'  EQUITY - The  Company had  4,384,436  shares of common
stock outstanding at November 2, 1997 (including  106,237 shares of common stock
held by the Company as the Distribution  Agent under the Plan of  Reorganization
in a Disputed  Claims Equity Reserve  pending  determination  of the entitlement
thereto of holders of certain  disputed claims against the Company) having a par
value of $.01 per share.  Authorized shares were 10,000,000 at November 2, 1997.
In accordance with "fresh start"  accounting,  as more  thoroughly  described in
Note 2 to the Financial Statements,  the balance of the shareholders' deficit on
July 22, 1997 was reclassified to additional  paid-in capital.  Accordingly,  at
November  2,  1997,  retained  earnings  is  comprised  of the net income of the
Company since its emergence from bankruptcy on July 23, 1997.

           Also on the Effective Date, the Company issued warrants to holders of
record as of July 9, 1997 of its old common stock and its old  preferred  stock.
Eligible  stockholders  received  warrants to purchase  an  aggregate  of 87,756
shares of the Company's new common stock at an exercise  price of $23 per share.
The warrants may be exercised at any time prior to the second anniversary of the
Effective Date.
<PAGE>
           REGISTRATION  RIGHTS  AGREEMENT - On the Effective Date,  pursuant to
the Plan of  Reorganization,  the Company  entered  into a  Registration  Rights
Agreement (the  "Registration  Rights  Agreement")  with certain  holders of its
common stock. The Registration Rights Agreement requires that the Company file a
registration  statement covering the shares of common stock held by such holders
on or before  March 31,  1998.  The  Company  is also  required  to use its best
efforts to have the registration  statement declared effective by the Securities
and Exchange  Commission and to keep the registration  statement effective for a
period of two years.

           RIGHTS PLAN - On October 9, 1997, the Company adopted a shareholders'
rights plan (the "Rights  Plan") whereby  shareholders  of record on October 29,
1997 received one right (the  "Right(s)")  to purchase one share of common stock
at an exercise  price of $60 for each common share held on the record date.  The
Rights will become  exercisable  in the event that any person or group  acquires
25% or more of the Company's common shares,  or announces a tender offer for 25%
or more of the Company's common stock.  However,  the Rights Plan "grandfathers"
positions in the Company's  common stock in existence on October 9, 1997 and the
ownership by a person or group of 25% or more of the Company's  common shares on
such date will not  trigger  the  exercisablility  of the Rights so long as such
person or group  does not  acquire  an  additional  1% or more of the  Company's
common shares.  Should any  "non-grand-fathered"  person or group acquire 25% or
more of the common shares of the Company,  all Rights not held by such person or
group will entitle the holders  thereof to purchase common shares of the Company
at a 50%  discount  from the then current  market  price for such common  stock.
Alternatively, after a person or group crosses the 25% threshold and before such
person or group owns 50% or more of the Company's  common shares,  the Company's
Board of Directors alternatively may issue one common share in exchange for each
Right (other than those held by the  acquiring  person) in lieu of the Rights to
be exercised.  In the event of a merger of the Company, the Rights Plan requires
that  provision be made for the conversion of the Rights into rights to purchase
shares of the acquiring person at a 50% discount.  The Rights,  which have a ten
year term,  may be redeemed for $0.01 per Right by the Company at any time prior
to the time the Rights become exercisable.

           STOCK OPTION PLANS - On September 18, 1992,  the Company  adopted the
Forstmann & Company,  Inc. Common Stock Incentive Plan, as subsequently  amended
(the "Option Plan"), for key employees of the Company.  Through November 3, 1996
the  Company's  shareholders  had  reserved  950,000  shares for issuance by the
Company  under the Option  Plan.  Options  granted  under the Option Plan may be
either  incentive stock options,  which are intended to meet the requirements of
Section 422 of the Internal Revenue Code, or non-qualified stock options.

           Pursuant to the Plan of Reorganization  options outstanding under the
Option   Plan  were   terminated.   The   Company,   pursuant  to  the  Plan  of
Reorganization,  adopted the Forstmann & Company,  Inc.  Executive  Stock Option
Plan (the "Executive Option Plan") for key employees and reserved 487,528 shares
of its new common stock for future  issuance  upon the exercise of stock options
granted or to be granted pursuant to the Executive Option Plan. On the Effective
Date, the Company  granted options to purchase an aggregate of 146,258 shares of
common  stock at an  exercise  price of $12.88 per share to  certain  employees.
One-quarter  of these  options  vested on the  Effective  Date and an additional
quarter  will vest on each of the first  three  anniversaries  of the  Effective
Date. No options under the Executive  Option Plan were  exercised  during Fiscal
Year 1997.
<PAGE>
           In October 1995, Statement of Financial Accounting Standards ("SFAS")
No. 123,  "Accounting for Stock-Based  Compensation" was issued. The adoption of
the new recognition provisions for stock-based  compensation expense included in
SFAS No.123 is  optional.  As permitted by SFAS No. 123, the Company has elected
to follow the measurement  provisions of Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees," in its accounting for employee stock
options and does not recognize  compensation  expense for its stock-based plans;
therefore,  no  impact  on the  Company's  financial  position  and  results  of
operations is expected. Had compensation cost for the Executive Option Plan been
determined  consistent  with the  methodology  prescribed  by SFAS  No.123,  the
Company's  net income and  earnings per share for the  Reorganized  Company 1997
103-Day  Period would have been reduced,  on a pro forma basis,  to $113,000 and
$.03, respectively from the actual $290,000 and $.07, respectively.





                            (continued on next page)
<PAGE>

           Shares of the  Company's  common stock  available  for future  grants
under the Management  Option Plan were 341,270 at November 2, 1997. Stock option
transactions are summarized as follows:

                                             Executive     Option       Option
                                            Option Plan     Plan         Plan
                                                1997        1997         1996
                                                ----        ----         ----

Shares under option at
   beginning of fiscal year                      --        145,667      421,301
Granted                                       146,258         --           --
Exercised                                        --           --           --
Terminated                                       --       (145,667)    (275,634)
                                              -------     --------     --------
Shares under option at end
   of fiscal year                             146,258         --        145,667
                                              =======     ========     ========
Options exercisable at end of
   of fiscal year                              36,564         --         95,667
                                              =======     ========     ========
Options available for future grant            341,270         --        800,536
                                              =======     ========     ========

Option prices per share:
Granted                                       $ 12.88         --           --
Exercised                                        --           --           --
Outstanding at end of fiscal year             $ 12.88         --     $6.75-$8.50

           The weighted  averaged fair value of the stock options granted during
Fiscal Year 1997 under the Management  Option Plan was $4.30.  The fair value of
each  stock  option  grant is  estimated  on the date of grant  using  the Black
Scholes option pricing model with the following weighted average assumption used
for grants in Fiscal Year 1997:

              Risk free interest rate                     6.06%
              Expected dividend yield                      0.0%
              Expected life                                5.0 years
              Expected volatility                         44.2%

           The  outstanding  stock  options at  November 2, 1997 have a weighted
average contractual life of 9.75 years.
<PAGE>
12.        EMPLOYEE BENEFIT PLANS

           The  Company  has  established  and  presently   maintains  qualified
noncontributory  pension  plans and qualified  profit  sharing and savings plans
covering substantially all hourly and salaried employees.

           Pension plan assets  consist  primarily of common  stocks,  bonds and
United States government securities. The plans provide pension benefits that are
determined by years of service.  Pension benefits for salaried plan participants
are based on the plan participants' average compensation for the last five years
of service and pension  benefits for hourly plan  participants  are based on the
plan's applicable hourly rate for each specific  participant's  year of service.
The  Company's  funding  policy is to make the annual  contribution  required by
applicable regulations and recommended by its actuary.

           Net  periodic  pension  cost for the  periods  indicated  include the
following  components  at November 2, 1997  (Combined  Reorganized  Company 1997
103-Day Period and Predecessor  Company 1997 261-Day  Period),  November 3, 1996
and October 29, 1995 (in thousands, except assumption percentages):
<TABLE>
<CAPTION>
                                                          1997                         1996                       1995
                                               -------------------------     --------------------------   ---------------------
                                                  Hourly       Salaried        Hourly       Salaried      Hourly       Salaried
                                                 Pension        Pension       Pension       Pension       Pension       Pension
                                                   PLAN          PLAN          PLAN          PLAN         PLAN           PLAN
                                                   ----          ----          ----          ----         ----           ----
<S>                                               <C>           <C>           <C>           <C>           <C>           <C>  
Service cost                                      $ 633         $ 695         $ 659         $ 798         $ 489         $ 683
Interest cost                                       750           676           681           577           591           539
Return on plan assets                              (853)         (730)         (537)         (503)         (489)         (434)
                                                  -----         -----         -----         -----         -----         -----
Net periodic pension cost                         $ 530         $ 641         $ 803         $ 872         $ 591         $ 788
                                                  =====         =====         =====         =====         =====         =====

Assumptions used in the accounting are:

Discount rates                                     7.25%         7.25%         7.50%         7.50%         7.25%         7.25%
Rate of increase in
  compensation levels                              --            4.00%         --            4.00%         --            5.50%
Expected long-term rate
  of return on assets                              8.75%         8.75%         8.00%         8.00%         8.00%         8.00%

</TABLE>


                            (continued on next page)
<PAGE>
           The following schedule sets forth the funded status of the hourly and
salaried  pension plans and the plan assets (accrued  pension costs) included in
the  Company's  balance  sheets  at  November  2,  1997 and  November  3,  1996,
respectively (in thousands):

<TABLE>
<CAPTION>

                                                                     1997                               1996
                                                         ---------------------------         -------------------------
                                                            Hourly         Salaried            Hourly         Salaried
                                                           Pension          Pension           Pension          Pension
                                                            PLAN              PLAN              PLAN             PLAN
                                                            ----              ----              ----             ----       
<S>                                                      <C>               <C>               <C>               <C>     
Actuarial present value of pension obligation:
   Vested                                                $(10,293)         $ (8,613)         $ (9,417)         $(7,087)
   Nonvested                                               (1,125)             (408)             (648)            (506)
                                                         --------          --------          --------          -------
Accumulated benefit obligation                            (11,418)           (9,021)          (10,065)          (7,593)
Effects of projected future
  compensation levels                                        --              (1,434)             --             (1,223)
                                                         --------          --------          --------          -------
Projected benefit obligation                              (11,418)          (10,455)          (10,065)          (8,816)
Plan assets at fair value                                  12,121             9,831             9,623            8,240
Unrecognized net loss (gain)                                  719              (814)            1,170             (764)
                                                         --------          --------          --------          -------
Plan assets (accrued pension
  costs) included in balance sheet                       $  1,422          $ (1,438)         $    728          $(1,340)
                                                         ========          ========          ========          =======
</TABLE>

           The Company's assumed discount rate ("discount rate") used to measure
the accumulated  benefit obligation for its hourly and salaried pension plans as
of the end of Fiscal  Year 1997 was  decreased  from 7.50% to 7.25% based on the
composition  of  the  accumulated   benefit   obligation  and  current  economic
conditions. Also, as of the beginning of Fiscal Year 1997, the Company increased
its assumed expected  long-term rate of return on assets from 8.00% to 8.75% for
both the hourly and  salaried  pension  plans.  This  increase  in the  expected
long-term rate of return on assets was based on the historical actual returns on
plan assets.

           In accordance with "fresh start" accounting the hourly pension plan's
excess of additional  pension liability over unrecognized prior service cost was
eliminated  and  charged  to  paid-in  capital  at July  22,  1997.  During  the
Reorganized  Company  1997 103-Day  Period,  the Company  decreased  its accrued
additional  pension liability in excess of accumulated  benefit  obligation from
$1,170,000 to zero and, in accordance  with "fresh start"  accounting,  credited
additional paid-in capital $1,107,000 and credited other assets $63,000.
<PAGE>
           The Company's  assumed  discount rate used to measure the accumulated
benefit  obligation  for its hourly and salaried  pension plans as of the end of
Fiscal Year 1996 was increased  from 7.25% to 7.50% based on the  composition of
the  accumulated  benefit  obligation and current  economic  conditions.  During
Fiscal Year 1996, the Company decreased its accrued additional pension liability
in excess of accumulated  benefit  obligation  from $2,025,000 to $1,170,000 and
decreased the excess of additional  pension  liability over  unrecognized  prior
service  cost  charged to  shareholders'  equity from  $1,956,000  at the end of
Fiscal Year 1995 to $1,107,000 at the end of Fiscal Year 1996.

           The Company has a qualified employees' savings, investment and profit
sharing plan under Section 401(k) of the Internal  Revenue Code (the  "Qualified
401(k) Plan"). During Fiscal Year 1997, the Qualified 401(k) Plan was amended to
include  eligible hourly  employees  participation  in the Qualified 401(k) Plan
effective  January 1, 1998.  The Company also adopted a  non-qualified  salaried
employees' savings, investment and profit sharing plan covering certain salaried
employees  not  covered  under the  Qualified  401(k)  Plan (the  "Non-Qualified
Plan"). No matching  contributions to the Qualified 401(k) Plan or Non-Qualified
Plan were made by the  Company in Fiscal  Year 1997,  Fiscal Year 1996 or Fiscal
Year  1995.   Subsequent  to  November  2,  1997,  the  Company  terminated  the
Non-Qualified Plan.

           Effective as of November 14, 1996, the Bankruptcy  Court approved the
Company's  Incentive  Compensation  and Retention  Program (the "Program") which
provides certain eligible employees with a pre-determined confirmation bonus and
provides for a discretionary  bonus to certain employees of the Company selected
by the  Company's  Chief  Executive  Officer in  consultation  with the Board of
Directors.  The aggregate  amounts  payable under the program as a  confirmation
bonus  can not  exceed  $990,000  and the  total  of the  discretionary  bonuses
available  to be awarded  shall not  exceed  $510,000  (plus any  portion of the
confirmation  bonus pool not paid to a participant as a result of  ineligibility
of any  one or more  confirmation  bonus  participants).  The  confirmation  and
discretionary  bonuses  payable to a  participant  under the Program  were to be
payable  in two  installments,  50%  one  month  after  the  Company's  Plan  of
Reorganization  became effective with the remaining 50% payable six months after
the Plan of Reorganization  became effective.  The Plan of Reorganization became
effective on July 23, 1997.  Accordingly,  on August 26, 1997,  the Company paid
$0.8 million in connection  with the Program.  Further,  the Program  provides a
termination  award  to  certain  key  employees  if  the  eligible  employee  is
terminated  without "cause" within two years  following the  confirmation of the
Plan of  Reorganization.  A termination  award will be equal to one and one-half
times the terminated  participant's base salary and is payable to the terminated
participant  no  later  than  three  business  days  following  the  date of the
participant's termination with the Company. As of November 2, 1997, $0.8 million
was accrued by the Company in connection with the Program.
<PAGE>
13.        LIABILITIES SUBJECT TO COMPROMISE

           Liabilities  Subject  to  Compromise  consist  of  the  following  at
November 3, 1996 (in thousands):

                                                                            1996
                                                                            ----
Subordinated Notes, including accrued
      pre-petition interest                                              $60,330
Trade accounts payable                                                    22,591
Priority tax claim                                                           293
Accrued severance                                                          1,295
Deferred rental and other lease
   obligations                                                             2,735
Accrued additional pension liability in excess of
   accumulated benefit obligation                                          1,170
Other                                                                        217
                                                                         -------
    Total                                                                $88,631
                                                                         =======

           In accordance with the Plan of  Reorganization,  unsecured  creditors
with  allowed  claims  could  elect to receive  the lesser of $400 or the actual
amount of their allowed unsecured claim (the "Convenience Class").  Accordingly,
on the  Effective  Date,  the Company  paid  $59,068 to the  Convenience  Class.
Further, in accordance with the Plan of Reorganization, the Company was required
to deposit into a reserve  account (the  "Disputed  Claims Cash  Reserve")  cash
equal to 100% of the  asserted  amount of  administrative,  priority and secured
claims as to which the Company  disputes  liability.  On the Effective Date, the
Company deposited  $684,221 in the Disputed Claims Cash Reserve.  At November 2,
1997, $558,000 was on deposit in the Disputed Claims Cash Reserve account.
<PAGE>
14.        COMMITMENTS AND CONTINGENCIES

           LEASE  COMMITMENTS - Aggregate future minimum lease commitments under
operating leases and capital leases with an initial or remaining  non-cancelable
term in excess of one  year,  together  with the  present  value of the  minimum
capital lease payments at November 2, 1997, are as follows (in thousands):


                                                       Operating       Capital
           FISCAL YEAR                                   LEASES        LEASES
              1998 ....................................  $2,661        $1,328
              1999 ....................................   2,677           907
              2000 ....................................   2,439           587
              2001 ....................................   2,194            -
              2002.....................................   1,906            -
              Thereafter...............................  16,814            -
                                                        -------        -------
              Total minimum lease payments............. $28,691        $2,822
                                                        =======

              Less amount representing interest........                   408
                                                                       -------
              Present value of minimum lease
                 payments..............................                 2,414
              Less current portion of capital
                 lease obligations.....................                 1,034
                                                                       -------
              Long-term portion of capital
                 lease obligations.....................                $1,380
                                                                       =======

           Rental  expense  under  operating  leases was $2.8 million for Fiscal
Year 1997 and $3.1 million for Fiscal Year 1996 and Fiscal Year 1995.

           The Company was unable to negotiate a favorable  extension or renewal
of its  corporate  and  marketing  lease  which  expired  in  October  1996 (the
"Previous  Lease") and on January 31,  1995,  the Company  entered into a twenty
(20)  year  lease for  office  space  with a new  landlord  (the  "New  Lease").
Concurrent  with the  consummation  of the New Lease,  the new  landlord and the
Company entered into a takeover agreement, effective August 1, 1995, whereby the
new landlord agreed to take over the Company's  remaining  obligations under the
Previous  Lease.  Pursuant  to the  accounting  rules for  leases,  the  Company
recognized  a loss of $0.6  million  during  Fiscal Year 1995 for the  estimated
economic loss in the Previous  Lease assumed by the new landlord.  Additionally,
during Fiscal Year 1995,  the Company wrote off certain  leasehold  improvements
associated with the Previous Lease.
<PAGE>
           Under  the  terms of the New  Lease,  as  subsequently  amended,  the
Company's  rental payments  commenced  January 1, 1996 and future minimum rental
payments, on a calendar year basis, are $1.1 million per year through 2015. Such
minimum  rental  payments  will be  adjusted  periodically,  subject  to certain
maximum limitations,  based on changes in the Consumer Price Index (as defined).
The Company has incurred  approximately  $3.9 million in leasehold  improvements
and  related  fees  and  expenses,   of  which  the  landlord  has   contributed
approximately  $1.4 million.  Under the terms of the New Lease,  $0.5 million in
landlord  contributions  is due the Company.  The new landlord is disputing  the
Company's  claims under the takeover  agreement and landlord  contributions  the
Company is due pursuant to the New Lease.  Pending the outcome of this  dispute,
the  Company  fully  reserved  its claims  against the new  landlord  during the
Predecessor   Company  1997  261-Day  Period.  Such  reserves  were  charged  to
reorganization items.

           On December  27,  1995,  the New Lease was  amended  to,  among other
things,  permanently  reduce the square footage under the lease thereby reducing
future  rental  payments by  approximately  $0.5 million per year. In connection
with entering into the amendment, $255,000 of capitalized leasehold improvements
and related  fees and  expenses  were  written  off during the first  quarter of
Fiscal Year 1996.

           LICENSE & ROYALTY  AGREEMENTS - In July 1992,  the Company formed its
Forstmann  International  division  and  entered  into  a  licensing,  technical
information  and consulting  arrangement  with  Compagnia  Tessile,  S.p.A.,  an
Italian  corporation,  and its  affiliate  (collectively  "Carpini").  Under the
arrangement,  the Company had the exclusive right to manufacture "Carpini(R) USA
for  Forstmann   International"  fabrics  for  women's  and  men's  apparel  for
distribution  and sale in the  United  States,  Canada and Mexico for an initial
period  through  December  31,  1997.  The Company also had the right to acquire
certain technical information.  In consideration of the licensing and consulting
arrangement,  the  Company  had  agreed to pay  Carpini  an annual  royalty  and
guaranteed minimum fee.

           Additionally,  the  Company  was  required to pay Carpini a sales fee
equal to five percent (5%) of annual net sales of "Carpini USA"  fabrics,  after
deducting the annual guaranteed minimum fee. Further, the arrangement  permitted
the Company to purchase  certain fabrics  manufactured by Carpini which could be
resold by the  Company  in the United  States and  Canada.  In  connection  with
entering into the arrangement, the Company established letters of credit payable
to Carpini in an aggregate of $1.0  million.  On December 22, 1995,  through the
Bankruptcy  Court,  the  Company  rejected  all  agreements  under  the  Carpini
arrangement  except for a letter agreement which permits the Company to purchase
certain  fabrics  manufactured  by Carpini which can be resold by the Company in
the United  States and  Canada.  Since the  Bankruptcy  Filing,  Carpini has not
shipped any  fabrics  manufactured  by Carpini as provided  for in the letter of
agreement.  Under the terms of the  arrangement  and letters of credit,  Carpini
subsequently  drew all  amounts  outstanding  under  the  letters  of  credit as
reimbursement  for defaulted  royalty and guaranteed  minimum fee and liquidated
damages.  The $0.7 million in excess of the royalty and  guaranteed  minimum fee
due as of  December  31,  1995  was  expensed  as a  reorganization  item in the
Company's first quarter of Fiscal Year 1996.
<PAGE>
           PURCHASE  COMMITMENTS  - In the  ordinary  course  of  business,  the
Company  has  significant  purchase  orders  for  raw  wool  outstanding,  which
generally  require  the  placement  of an  order  six-to-nine  months  prior  to
delivery.

           LETTERS OF CREDIT - At November 2, 1997, the Company had  outstanding
letters of credit aggregating $2.3 million.

           LITIGATION - The Company is a party to legal  actions  arising out of
the  ordinary  course  of  business.   In  the  opinion  of  management,   after
consultation with counsel,  other than environmental  matters, the resolution of
these claims will not have a material  adverse effect on the financial  position
or results of operations of the Company.

           FINANCIAL  CONSULTING  SERVICES  AGREEMENT  - On July 31,  1995,  the
Company and Jay Alix & Associates  entered into a Letter Agreement,  as amended,
pursuant to which the  services of the  Company's  Chief  Executive  Officer are
provided.  Under the terms of the  Letter  Agreement,  it can be  terminated  by
written notice from either party. On December 20, 1996, the Letter Agreement was
amended to provide a  performance  fee equal to (a)  $400,000 in cash,  plus (b)
cash,  securities or other  property in the amount and of the type that would be
received pursuant to the Company's Plan of Reorganization by a person holding an
unsecured claim against the Company allowed in the amount of $600,000. On August
26, 1997,  the Company paid  $200,000 and  distributed  30,000 shares of its new
common stock pursuant to the terms of the Letter of Agreement as amended.  As of
November 2, 1997, $200,000 was accrued under the Letter Agreement.

           ENVIRONMENTAL  - By the  nature  of  its  operations,  the  Company's
manufacturing  facilities  are  subject  to  various  federal,  state  and local
environmental  laws and  regulations  and  occasionally  have  been  subject  to
proceedings and orders pertaining to emissions into the environment.

           DUBLIN,  GEORGIA.  On December  29, 1995,  the Georgia  Environmental
Protection   Division  ("EPD")  issued  separate   administrative   orders  (the
"Administrative  Orders")  to  the  Company  and to  J.P.  Stevens  & Co.,  Inc.
("Stevens")  which relate to three sites on the Georgia Hazardous Site Inventory
- the "TCE site", the "1,1-DCA site" and another site known as the "Burn Area" -
at the Company's Dublin,  Georgia facility.  The Administrative  Orders required
the Company and Stevens to submit a compliance  status report  ("CSR") for these
sites that would  include,  among other things,  a  description  of the release,
including its nature and extent,  and suspected or known source, the quantity of
the  release and the date of the  release.  The CSR would also have to include a
determination of cleanup standards  (called "risk reduction  standards") for the
sites  and a  certification  that  the  sites  were  in  compliance  with  those
standards;  alternatively,  the party submitting the CSR could  acknowledge that
the site is not in compliance  with risk  reduction  standards.  Pursuant to the
Administrative  Orders,  if a site is not in compliance  with the risk reduction
standards,  then a  Corrective  Action  Plan (a  "Corrective  Action  Plan") for
remediating the release would have to be submitted to EPD.
<PAGE>
           Since both the Company  and Stevens had been  required to perform the
same  work at all  three of these  sites,  the  Company  and  Stevens  agreed to
allocate responsibilities between themselves pursuant to an Agreement Concerning
Performance of Work ("Agreement") dated January 24, 1997. The Agreement required
the Company to prepare and submit to EPD the CSR for the TCE and 1,1-DCA  sites,
while  requiring  Stevens to  prepare  and submit to EPD a CSR for the Burn Area
site.  Stevens has submitted a CSR for the Burn Area site but has not received a
response  from EPD.  The  Agreement  does not  commit  either  party to  perform
corrective action at these sites.

           The  Company  submitted a CSR for the TCE and  1,1-DCA  sites,  which
certified compliance with risk reduction standards for both sites. EPD indicated
that it did not agree to the  certification  with respect to the TCE site. After
extensive  discussions  with EPD concerning the issue,  the Company  submitted a
Corrective  Action Plan for the TCE site by letter dated May 15, 1997. By letter
dated  September  29, 1997,  EPD  responded to the  Corrective  Action Plan with
notice of deficiency.  The Company submitted a revised Corrective Action Plan on
October  31,  1997.  The  revised  Corrective  Action  Plan calls for  continued
operation of the Company's existing  groundwater recovery system, as well as one
additional  groundwater  recovery well and a groundwater  collection trench near
the former dry cleaning  basement.  EPD has not yet  responded to the  Company's
revised Corrective Action Plan.

           TIFTON,  GEORGIA.  In January  1997,  the Company  was  notified by a
potential  buyer of the  Company's  Tifton  facility  that soil and  groundwater
samples had been obtained from that facility and that certain  contaminants  had
been identified.  Subsequently,  through  sampling and testing  performed by the
Company's  environmental  consultants,  the Company  confirmed  the  presence of
contaminants in groundwater samples taken at the site. On February 28, 1997, the
Company  notified EPD of such  findings,  and the site was placed on the Georgia
Hazardous Site Inventory.

           The Company subsequently consummated its sale of the Tifton facility.
As part of that transaction,  the Company, the Tift County Development Authority
as purchaser ("TCDA") and Burlen Corporation as operator ("Burlen") entered into
an   Environmental   Cost  Sharing  and  Indemnity   Agreement   ("Cost  Sharing
Agreement").   Under  the  Cost   Sharing   Agreement,   the  Company   retained
responsibility for remediating certain contamination,  to the extent required by
law, that originated prior to Burlen's occupancy of the premises.  Likewise, the
Company  assumed the  obligation to indemnify  TCDA and Burlen in regard to such
contamination to the extent that a claim is made by an unaffiliated  third party
or  governmental  agency.  In exchange,  Burlen agreed to pay to the Company the
lesser of (1) $150,000 minus any payments  already made to the Company  (certain
expenses  had  already  been  shared)  to respond  to the  contamination  or (2)
one-half of the costs incurred by the Company in response to such contamination.
EPD has not yet requested any additional response to conditions at this site.

           At November 2, 1997,  the Company had $0.4 million  accrued for costs
to be  incurred  in  connection  with  the  TCE,  1,1-DCA  and  Tifton  facility
environmental matters. The Company, subject to EPD concurring with the Company's
Corrective Action Plan relating to the TCE and 1,1-DCA sites,  EPD's response to
J.P. Stevens CSR and compliance  status  certification and EPD's response to the
Tifton site, believes the accrual for environmental costs at November 2, 1997 is
adequate.
<PAGE>
 15.        FAIR VALUE OF FINANCIAL INSTRUMENTS

           Statement of Financial  Accounting  Standards No. 107, "Fair Value of
Financial   Instruments",   requires  that  the  fair  value  of  all  financial
instruments  be estimated and compared to the carrying  amount of such financial
instruments as of the balance sheet date.

           Judgement  is  required in  developing  the  estimates  of fair value
presented herein. Accordingly, these estimates are not necessarily indicative of
the amounts the Company could realize in a current market  exchange.  The use of
different market assumptions and/or estimation methodologies may have a material
effect  on  the  estimated  fair  value  amounts.   The  following  methods  and
assumptions  were used to  estimate  the fair value of each  class of  financial
instruments:

           CASH,  ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE - The carrying amount
of these items is a reasonable estimate of their fair value.

           LONG-TERM  DEBT (OTHER THAN CAPITAL LEASE  OBLIGATIONS)  - Based upon
the  nature  of the  Company's  Loan and  Security  Agreement  and the  Deferred
Interest Rate Notes, the Company believes its carrying value  approximates  fair
value.

           Accordingly,  the Company believes that the carrying amount for cash,
accounts  receivable,  accounts  payable and long-term  debt (other than capital
lease obligations) approximates fair value at November 2, 1997.

<PAGE>
16.        REORGANIZATION ITEMS

           In accordance with SOP 90-7, professional fees, asset impairments and
restructuring  charges  directly  related to the  Bankruptcy  Filing and related
reorganization  proceedings have been segregated from normal  operations  during
the  Reorganized  Company  1997 103-Day  Period,  the  Predecessor  Company 1997
261-Day  Period,  Fiscal  Year 1996 and  Fiscal  Year 1995 and  consists  of (in
thousands):

<TABLE>
<CAPTION>

                                                         Reorganized                          Predecessor
                                                           COMPANY                              COMPANY
                                                         ------------       ------------------------------------------------
                                                         1997 103-Day        1997 261-Day
                                                         Period Ended        Period Ended           Fiscal           Fiscal
                                                          November 2,          July 22,              Year             Year
                                                             1997                1997                1996             1995
                                                             ----                ----                ----             ----
<S>                                                          <C>              <C>                 <C>             <C>     
Professional fees                                            $288             $  3,102            $ 4,084         $  1,234
Write off of deferred financing cost                                  
   and expense and other financing                                    
   fees incurred                                              --                   403               --              1,305
Write off of debt premium associated                                  
  with Subordinated Notes                                     --                  --                 --             (3,531)
Impairment of assets (See Notes 4, 5                                  
   and 6)                                                     --                 4,199              5,076           12,156
Expense incurred due to the rejection and                             
   amendment of executory contracts                           --                 3,314                925             --
Default interest expense and                                          
   professional fees associated with the                              
   Senior Secured Notes                                       --                  (388)             1,101             --
Severance expenses                                             51                  105                279              190
Adjustment of accounts to fair value                               
   (see Note 2)                                               --                22,076               --               --
Other                                                          56                  590                590             (450)
                                                             ----             --------            -------         --------
  Total                                                      $395             $ 33,401            $12,055         $ 10,904
                                                             ====             ========            =======         ========
</TABLE>

           During the  Predecessor  Company  1997  261-Day  Period,  the Company
recognized  a $2.9  million  loss for certain  equipment  not  installed  at the
Company's Tifton facility which was held for sale.
           During the  Predecessor  Company  1997 261-Day  Period,  pre-petition
unsecured  liabilities  were increased by $3.3 million  associated with contract
rejection  damages relating to the Company's  former  headquarters and marketing
office leases ($1.7 million),  the termination of a contract to purchase certain
equipment ($0.9 million) and two rejected contracts relating to the former joint
venture with an Italian  fabric  designer  ($0.7  million).  These  charges were
recognized as reorganization  items during the Predecessor  Company 1997 261-Day
Period.  Such charges were partially offset by the recognition of a $0.9 million
net receivable from the Company's  current landlord related to its assumption of
a portion of the Company's obligations under its former headquarters lease.

           During the Predecessor Company 1997 261-Day Period, the Company fully
reserved  against   accounts   receivable  from  its  current  landlord  of  its
headquarters and marketing offices lease relating to its assumption of a portion
of the  Company's  former  headquarters  lease  as  well as the  remaining  work
allowance  receivable under its current lease.  This charge was partially offset
by a reduction in the deferred rent liability  account for its current lease due
to the adjustment of the work allowance receivable.  Expense of $0.9 million was
charged to  reorganization  expense during the Predecessor  Company 1997 261-Day
Period as a result of these items.

17.        QUARTERLY FINANCIAL DATA (UNAUDITED)

           Quarterly  financial data for the  Reorganized  Company 12-Day Period
Ended August 3, 1997 and 91-Day Period Ended November 2, 1997,  the  Predecessor
Company 1997 First and Second fiscal quarters and the  Predecessor  Company 1997
79-Day Period Ended July 22, 1997 and Fiscal Year 1996 are summarized as follows
(in thousands, except per share information):

REORGANIZED COMPANY:                                       FISCAL PERIOD
--------------------------------  ---------------------------------------------
                                                      12-Day            91-Day
                                                      Period            Period
                                                       Ended            Ended
                                                      August 3,      November 2,
                                                        1997             1997
                                                        ----             ----
FISCAL PERIOD 1997
Net sales                                               $8,016         $ 49,110
Gross profit                                             2,163            5,563
Reorganization items                                      --                395
Income (loss) before
   extraordinary item                                      893             (567)
Income (loss) applicable to
   common shareholders                                     893             (603)
Income (loss) before
   extraordinary item per share
   applicable to common
   shareholders                                            .20             (.11)
Extraordinary loss on debt
   discharge                                              --               --
Income (loss) per share applicable
   to common shareholders                                  .20             (.13)
<PAGE>
PREDECESSOR COMPANY:                               FISCAL PERIOD
----------------------------      ---------------------------------------------
                                                              79-Day
                                                              Period
                                                              Ended
                                                             July 22,
                                     FIRST       SECOND        1997
FISCAL PERIOD 1997
Net sales                         $ 31,218      $64,786     $ 45,880      
Gross profit                         2,843       11,926        3,898      
Reorganization items                 4,151        4,174       25,076      
Income (loss) before
   extraordinary item               (7,318)       2,040      (26,152)     
Income (loss) applicable to
   common shareholders              (7,318)       2,040       (2,017)     
Income (loss) before
   extraordinary item per
   share applicable to
   common shareholders               (1.30)         .36        (4.65)     
Extraordinary gain on debt
   discharge                          --           --         24,135      
Income (loss) per share
   applicable to common
   shareholders                      (1.30)         .36         (.36)     

PREDECESSOR COMPANY:                             FISCAL QUARTER
------------------------------    ---------------------------------------------
                                    FIRST       SECOND       THIRD       FOURTH
FISCAL YEAR 1996
Net sales                         $ 33,306     $62,087    $ 58,009     $ 41,626
Gross profit                           983      10,842       9,160        1,770
Reorganization items                 2,859       1,574       3,259        4,363
Income (loss) applicable to
  common shareholders               (9,139)      2,282      (1,122)      (9,865)
Income (loss) per share
  applicable to common
shareholders                         (1.63)        .41        (.20)       (1.76)

             During the Predecessor Company 79-Day Period Ended July 22, 1997 in
    connection  with the  adoption  of "fresh  start"  accounting,  the  Company
    adjusted its inventory  balances to fair value  resulting in the elimination
    of the  LIFO  reserve  of  approximately  $2.7  million  and a  write-up  of
    approximately  $3.8 million above the  predecessor  Company's FIFO cost (See
    Note 4 to the Financial  Statements)  and  decreased  the value  assigned to
    property, plant, and equipment by $28.6 million (See Note 5 to the Financial
    Statements).   These   items   resulted  in  a  $22.1   million   charge  to
    reorganization items during the Predecessor Company 1997 79-Day Period Ended
    July 22, 1997.

             As a result of the consummation of the Plan of Reorganization which
    resulted in the exchange of the general unsecured claims against the Company
    for  equity  in  the  reorganized   Company,   the  Company   recognized  an
    extrordinary  gain on debt discharge of $24.1 million during the Predecessor
    Company  79-Day  Period  Ended July 22,  1997.  Also during the  Predecessor
    Company   79-Day  Period  Ended  July  22,  1997,   the  Company  wrote  off
    approximately $1.2 million of deferred software  development costs (See Note
    6 to the Financial  Statements) and wrote off approximately  $0.9 million of
    certain assets and liabilities  associated  with the Company's  headquarters
    lease (See Note 16 to the Financial  Statements),  accelerated  depreciation
    associated with impaired property,  plant and equipment by $0.5 million (See
    Note 5 to the Financial Statements) and wrote off approximately $0.2 million
    of deferred financing costs (See Note 6 to the financial statements).

             During the first quarter of Fiscal Year 1997, the Company accrued a
    $3.0 million loss for certain  unerected  equipment at the Company's  Tifton
    facility  which was held for sale.  During the  Predecessor  Company's  1997
    79-Day  Period Ended July 22, 1997,  such  equipment  was sold and a gain of
    $0.1 million was realized (See Note 5 to the Financial  Statements).  During
    the second quarter of Fiscal Year 1997, the Company  increased  pre-petition
    unsecured  liabilities  by  $3.3  million  (See  Note  16 to  the  Financial
    Statements),  increased  inventory market reserves related to the converting
    fabrics  product  line  by  $0.9  million  (See  Note  4  to  the  Financial
    Statements) and wrote down its barter credits by $0.2 million (See Note 6 to
    the Financial Statements). Also, due to the seasonal nature of the Company's
    business,  during the first quarter of Fiscal Year 1997 and the  Reorganized
    Company 1997 Fourth Quarter,  the Company incurred  significant  unfavorable
    manufacturing  variances  resulting  from a slowdown  of  production  at its
    manufacturing facilities.

             During the fourth quarter of Fiscal Year 1996, the Company  accrued
    $1.1 million for the expected loss on the sale of the Tifton plant (see Note
    5 to the Financial Statements),  increased its barter credit reserve by $0.5
    million (see Note 6 to the  Financial  Statements),  increased its inventory
    market  reserves by $1.0 million (see Note 4 to the  Financial  Statements),
    reduced its severance  accrual  relating to the Company's former Chairman of
    the Board, President and Chief Executive Officer by $1.0 million and accrued
    $0.8 million for severance  associated  with three former  executives of the
    Company. Also, due to the seasonal nature of the Company's business,  during
    the first and fourth  quarters  of Fiscal Year 1996,  the  Company  incurred
    significant unfavorable manufacturing variances resulting from a slowdown of
    production at its manufacturing facilities.
<PAGE>
                                                                    SCHEDULE II
<TABLE>
<CAPTION>
                                                           FORSTMANN & COMPANY, INC.

                                                       VALUATION AND QUALIFYING ACCOUNTS
                                                THE FIFTY-TWO WEEKS ENDED OCTOBER 29, 1995 AND
                                    NOVEMBER 2, 1997 AND THE FIFTY-THREE WEEKS ENDED NOVEMBER 3, 1996 AND THE
                                                      FIFTY-TWO WEEKS ENDED NOVEMBER 2, 1997

                                                                          Additions
                                                     Balance at           Charged to                                      Balance
                                                     Beginning            Costs and                                        at End
DESCRIPTION                                          OF PERIOD             EXPENSES            DEDUCTIONS                OF PERIOD
                                                     ---------            ---------           -----------               ------------
<S>                                                 <C>                 <C>                  <C>                          <C>       
ALLOWANCE FOR DOUBTFUL ACCOUNTS:

Fifty-Two Weeks Ended
  October 29, 1995                                  $2,100,000          $ 2,879,000          $ (1,988,000)(1)             $2,991,000
Fifty-Three Weeks Ended
  November 3, 1996                                  $2,991,000          $ 1,397,000          $   (183,000)(1)             $4,205,000
Fifty-Two Weeks Ended
  November 2, 1997                                  $4,205,000          $   710,000          $ (4,457,000)(1)(2)          $  458,000

INVENTORY MARKET RESERVES:

Fifty-Two Weeks Ended
  October 29, 1995                                  $2,193,000          $11,239,000          $ (4,821,000)                $8,611,000
Fifty-Three Weeks Ended
  November 3, 1996                                  $8,611,000          $10,678,000          $(12,927,000)                $6,362,000
Fifty-Two Weeks Ended
  November 2, 1997                                  $6,362,000          $ 3,334,000          $ (8,975,000)(2)             $  721,000

</TABLE>

(1)        Accounts written off net of recoveries of accounts previously written
           off.

(2)        Includes  amounts  netted  against the gross  accounts as of July 23,
           1997 in connection with "fresh start" accounting.

<PAGE>
Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON            
         ACCOUNTING AND FINANCIAL DISCLOSURE

             None

                                    PART III

          The information  required by Item 10 (Directors and Executive Officers
of the Registrant) Item 11 (Executive Compensation), Item 12 (Security Ownership
of Certain Beneficial Owners and Management) and Item 13 (Certain  Relationships
and  Related  Transactions)  is  incorporated  by  reference  to  the  Company's
definitive  proxy  statement for the 1998 Annual Meeting of  Stockholders  to be
filed with the  Securities  and Exchange  Commission  on or before  February 28,
1998,  except  that  the  "Report  of  the  Compensation   Committees"  and  the
"Performance  Graph" and the text  describing  it to be  contained  in the proxy
statement are not incorporated by reference herein.
<PAGE>
                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT
         SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Annual Report:

      1 and 2.

             Financial  statements and financial statement schedules - See Index
             Financial Statements and Financial Statement Schedules in Item 8 of
             this Annual Report.


      3. Listing of Exhibits:

           2.         First  Amended  Plan  of  Reorganization   (Exhibit  1  to
                      Company's Current Report on Form 8-K dated July 9, 1997).

           3.1(a)     Articles  of  Restatement  setting  forth the  Amended and
                      Restated  Articles of  Incorporation  of the  Company,  as
                      filed with the  Secretary  of State of Georgia on November
                      19, 1990 (Exhibit 3(i)1. to the Company's Quarterly Report
                      on Form 10-Q for the quarter ended July 31, 1994).

           3.1(b)     Articles of  Correction,  as filed with the  Secretary  of
                      State of Georgia on December 18, 1990 (Exhibit  3(i)2.  to
                      the  Company's  Quarterly  Report  on  Form  10-Q  for the
                      quarter ended July 31, 1994).

           3.1(c)     Articles of Amendment to the Articles of  Incorporation of
                      the  Company,  as  filed  with the  Secretary  of State of
                      Georgia on April 5, 1994 (Exhibit  3.1(d) to the Company's
                      Annual  Report on Form 10-K for the year ended October 30,
                      1994).

           3.1(d)     Amendment  Pursuant to  Reorganization  of the Articles of
                      Incorporation of Forstmann & Company, Inc., dated July 23,
                      1997 (Exhibit 3 to the Company's  Quarterly Report on Form
                      10-Q for the quarter ended August 3, 1997).

           3.2(a)*    Amended and Restated  By-Laws of the Company as of October
                      9, 1997.

           4.1        Registration Rights Agreement,  dated as of July 23, 1997,
                      between the Company and the holders of Common  Stock named
                      therein. (Exhibit 4.4 to the Company's Quarterly Report on
                      Form 10-Q for the quarter ended August 3, 1997).
<PAGE>
           4.2        Warrant Agreement,  dated as of July 23, 1997, between the
                      Company  and  Norwest  Bank  Minnesota,  N.A.,  as warrant
                      agent.  (Exhibit 4.2 to the Company's  Quarterly Report on
                      Form 10-Q for the quarter ended August 3, 1997).

           4.3        Indenture,  dated as of July 23, 1997, between the Company
                      and  State  Street  Bank and  Trust  Company,  as  Trustee
                      (Deferred  Interest  Rate  Notes).  (Exhibit  4.3  to  the
                      Company's  Quarterly Report on Form 10-Q for the quarterly
                      period ended August 3, 1997).

           4.4(a)***  Loan  Agreement,  dated as of July 23,  1997,  between the
                      Company and Schlaforst Inc.

           4.4(b)***  Promissory  Note,  dated as of July 23, 1997,  between the
                      Company and Schlaforst Inc.

           4.4(c)***  Security Agreement, dated as of July 23, 1997, between the
                      Company and Schlaforst Inc.

           10.1(a)    Loan and  Security  Agreement,  dated as of July 23, 1997,
                      among  the  Company,   the  lenders  named  therein,   and
                      BankAmerica Business Credit, Inc., as agent (the "Agent").
                      (Exhibit 10.1(a) to the Company's Quarterly Report on Form
                      10-Q for the quarterly period ended August 3, 1997).

           10.1(b)    Trademark Security  Agreement,  dated as of July 23, 1997,
                      between the Company and the Agent. (Exhibit 10.1(b) to the
                      Company's  Quarterly Report on Form 10-Q for the quarterly
                      period ended August 3, 1997).

           10.1(c)    Patent  Secutiry  Agreement,  dated as of July  23,  1997,
                      between the Company and the Agent. (Exhibit 10.1(c) to the
                      Company's  Quarterly Report on Form 10-Q for the quarterly
                      period ended August 3, 1997).

           10.1(d)    Pledge Agreement,  dated as of July 23, 1997,  between the
                      Company and the Agent.  (Exhibit  10.1(d) to the Company's
                      Quarterly  Report  on Form 10-Q for the  quarterly  period
                      ended August 3, 1997).

           10.1(e)    Deed to Secure Debt,  dated as of July 23,  1997,  between
                      the Company and the Agent,  with respect to the owned real
                      property  located in  Laurens  County,  Georgia.  (Exhibit
                      10.1(e) to the Company's Quarterly Report on Form 10-Q for
                      the quarterly period ended August 2, 1997).
<PAGE>
           10.1(f)    Deed to Secure Debt,  dated as of July 23,  1997,  between
                      the Company and the Agent,  with respect to the owned real
                      property  located in  Baldwin  County,  Georgia.  (Exhibit
                      10.1(f) to the Company's Quarterly Report on Form 10-Q for
                      the quarterly period ended August 5, 1997).

           10.1(g)    Deed to Secure Debt,  dated as of July 23,  1997,  between
                      the Company and the Agent,  with respect to the owned real
                      property located in Jefferson  County,  Georgia.  (Exhibit
                      10.1(g) to the Company's Quarterly Report on Form 10-Q for
                      the quarterly period ended August 3, 1997).

           10.2**     Incentive Plan for Senior  Managers,  effective as of July
                      23, 1997.  (Exhibit 10.2 to the Company's Quarterly Report
                      on Form  10-Q for the  quarterly  period  ended  August 3,
                      1997).

           10.3**     Incentive Plan for Key Employees, effective as of July 23,
                      1997.  (Exhibit 10.3 to the Company's  Quarterly Report on
                      Form 10-Q for the quarterly period ended August 3,1 997).

           10.4**     Executive  Stock  Option  Plan,  effective  as of July 23,
                      1997.  (Exhibit 10.4 to the Company's  Quarterly Report on
                      Form 10-Q for the quarterly period ended August 3, 1997).

           10.5       Environmental  Cost Sharing and Indemnity  Agreement dated
                      as of July  18,  1997,  among  the  Company,  Tift  County
                      Development  Authority  and Burlen  Corporation.  (Exhibit
                      10.5 to the  Company's  Quarterly  Report on Form 10-Q for
                      the quarterly period ended August 3, 1997).

           10.6(a)    Lease dated  January 31, 1995 between  1155 Avamer  Realty
                      Corp.,  and the Company  (Exhibit 10.1(a) to the Company's
                      Quarterly  Report  on  Form  10-Q  for the  quarter  ended
                      January 29, 1995).

           10.6(b)    Lease  Takeover  Amendment  dated January 31, 1995 between
                      the Company and 1155 Avamer  Realty Corp.  and the Company
                      (Exhibit 10.1(b) to the Company's Quarterly Report on Form
                      10-Q for the quarter ended January 29, 1995).

           10.6(c)    First  Amendment  to Lease dated as of  December  27, 1995
                      between 1155 Avamer Realty Corp., and the Company (Exhibit
                      10.1(h) to the  Company's  Annual  Report on Form 10-K for
                      the year ended October 29, 1995).

           10.7(a)*   Form of  Indemnity  Agreement,  effective as of October 9,
                      1997,  between the  Company  and certain of its  corporate
                      officers.
<PAGE>
           10.7(b)*   Form of  Indemnity  Agreement,  effective as of October 9,
                      1997, between the Company and its directors.

           10.8       Forstmann  &  Company,  Inc.  Incentive  Compensation  and
                      Retention  Program,  effective  as of  November  14,  1996
                      (Exhibit 10.8 to the Company's  Annual Report on Form 10-K
                      for the year ended November 3, 1996).

           10.9(a)    Agreement for Financial  Consulting  Services  between Jay
                      Alix &  Associates  and the  Company,  dated July 31, 1995
                      (Exhibit  10.10(k) to the Company's  Annual Report on Form
                      10-K for the year ended October 29, 1995).

           10.9(b)    Letter of  Acknowledgment  in  Agreement  dated August 18,
                      1995,  between  Jay  Alix &  Associates  and the  Company,
                      outlining  changes to "Agreement for Financial  Consulting
                      Services"  dated July 31,  1995  (Exhibit  10.10(l) to the
                      Company's  Annual  Report on Form 10-K for the year  ended
                      October 29, 1995).

           10.9(c)    Second  Amendment to Agreement  for  Financial  Consulting
                      Services, dated December 20, 1996 (Exhibit 10.10(m) to the
                      Company's  Annual  Report on Form 10-K for the year  ended
                      November 3, 1996).

           11.1*      Computation of per share earnings.

           27*        Financial Data Schedule


(b) The Company filed a Current  Report on Form 8-K during the fourth quarter of
its fiscal year ended November 2, 1997.


      * Filed herewith.

      ** Management or Compensatory Plan or Arrangements.

      *** Not filed  herewith.  Registrant  has filed herewith an Undertaking to
      Furnish Copy of Agreements Upon Request.
<PAGE>
September 18, 1997


                         Undertaking to Furnish Copy of
                             Agreements Upon Request



                        Loan Agreement, dated as of July
                        23, 1997, Between the Company and
                                Schlafhorst Inc.

                        Promissory Note, dated as of July
                        23, 1997, Between the Company and
                                Schlafhorst Inc.

                      Security Agreement, dated as of July
                        23, 1997, Between the Company and
                                Schlafhorst Inc.


The total amount of the debt securities to which the above-referenced agreements
relate  does  not  exceed  10% of  the  total  assets  of  the  registrant  and,
consequently,  the registrant is not filing the agreements pursuant to Paragraph
(b) (4) (iii) of Item 601 of  Regulation  S-K. The  registrant  will provide the
Securities and Exchange Commission with a copy of such agreements upon request.


                             Sincerely,

                             FORSTMANN & COMPANY, INC.

                             By /s/Rodney Peckham
                                -----------------
                             Rodney Peckham
                             Chief Financial Officer
<PAGE>
                                   SIGNATURES

Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities  and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Date: January 30, 1997             By:/s/ Rodney J. Peckham
                                      -------------------------------------
                                      Rodney J. Peckham
                                      Executive Vice President Finance,
                                      Administration and Strategic Planning


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

           SIGNATURE               TITLE                    DATE


/s/ Brian A. Moorstein          President                 January 30, 1998
----------------------
Brian A. Moorstein               (Principal Executive
                                 Officer)


/s/ Rodney J. Peckham           Executive Vice President  January 30, 1998
----------------------
Rodney J. Peckham                Finance, Administration 
                                 and Strategic Planning
                                 (Principal Financial
                                 Officer)

/s/ Gary E. Schafer             Vice President            January 30, 1998
----------------------
Gary E. Schafer                  and Corporate
                                 Controller (Principal
                                 Financial Accounting 
                                 Officer)


/s/ Bruce W. Gregory            Director                  January 30, 1998
----------------------
Bruce W. Gregory



/s/ Margaret Bertelsen Hapton   Director                  January 30, 1998
-----------------------------
Margaret Bertelsen Hampton


/s/ James E. Kjorlien           Director                  January 30, 1998
----------------------
James E. Kjorlien
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549




                        --------------------------------






                                    EXHIBITS


                                 FILED WITH THE




                           ANNUAL REPORT ON FORM 10-K


                                       FOR


                   FOR THE FISCAL YEAR ENDED NOVEMBER 2, 1997


                                       OF


                            FORSTMANN & COMPANY, INC.



                         COMMISSION FILE NUMBER: 1-9474
<PAGE>


                                  EXHIBIT INDEX

                                                                      Sequential
EXHIBIT NO.                               DESCRIPTION                  PAGE NO.
----------                                -----------                  --------
2.              First Amended Plan of Reorganization (Exhibit 1 to            
                Company's Current Report on Form 8-K dated
                July 9, 1997).                                              *
              
3.1(a)          Articles of Restatement setting forth the Amended
                and Restated Articles of Incorporation of the Company,
                as filed with the Secretary of State of Georgia on
                November 19, 1990 (Exhibit 3(i)1. to the Company's
                Quarterly Report on Form 10-Q for the quarter
                ended July 31, 1994).                                       *
              
3.1(b)          Articles of Correction, as filed with the Secretary of
                State of Georgia on December 18, 1990 (Exhibit 3(i)2.
                to the Company's Quarterly Report on Form
                10-Q for the quarter ended July 31, 1994).                  *
              
3.1(c)          Articles of Amendment to the Articles of Incorporation
                of the Company, as filed with the Secretary of State
                of Georgia on April 5, 1994 (Exhibit 3.1(d) to the
                Company's Annual Report on Form 10-K for the
                year ended October 30, 1994).                               *
              
3.1(d)          Amendment Pursuant to Reorganization of the Articles
                of Incorporation of Forstmann & Company, Inc.,
                dated July 23, 1997 (Exhibit 3 to the Company's
                Quarterly Report on Form 10-Q for the quarter
                ended August 3, 1997).                                      *
              
3.2(a)          Amended and Restated By-Laws of the Company
                as of October 9, 1997.
              
4.1             Registration Rights Agreement, dated as of July 23, 1997,
                between the Company and the holders of Common
                Stock named therein.  (Exhibit 4.4 to the Company's
                Quarterly Report on Form 10-Q for the quarter
                ended August 3, 1997).                                      *
<PAGE>
                                  EXHIBIT INDEX

                                                                      Sequential
EXHIBIT NO.                               DESCRIPTION                  PAGE NO.
----------                                -----------                  --------

4.2          Warrant Agreement, dated as of July 23, 1997,
             between the Company and Norwest Bank Minnesota,
             N.A., as warrant agent.  (Exhibit 4.2 to the Company's
             Quarterly Report on Form 10-Q for the quarter
             ended August 3, 1997).                                         *

4.3          Indenture, dated as of July 23, 1997, between the
             Company and State Street Bank and Trust Company,
             as Trustee (Deferred Interest Rate Notes).
             (Exhibit 4.3 to the Company's Quarterly Report on
             Form 10-Q for the quarterly period ended
             August 3, 1997).                                               *

4.4(a)***    Loan Agreement, dated as of July 23, 1997, between
             the Company and Schlaforst Inc.                                *

4.4(b)***    Promissory Note, dated as of July 23, 1997, between
             the Company and Schlaforst Inc.                                *

4.4(c)***    Security Agreement, dated as of July 23, 1997, between
             the Company and Schlaforst Inc.                                *

10.1(a)      Loan and Security Agreement, dated as of July 23, 1997,
             among the Company, the lenders named therein, and
             BankAmerica Business Credit, Inc., as agent
             (the "Agent").  (Exhibit 10.1(a) to the Company's
             Quarterly Report on Form 10-Q for the quarterly
             period ended August 3, 1997).                                  *

10.1(b)      Trademark Security Agreement, dated as of
             July 23, 1997, between the Company and the Agent.
             (Exhibit 10.1(b) to the Company's Quarterly Report
             on Form 10-Q for the quarterly period ended
             August 3, 1997).                                               *

<PAGE>
                                 EXHIBIT INDEX

                                                                      Sequential
EXHIBIT NO.                               DESCRIPTION                  PAGE NO.
----------                                -----------                  --------


10.1(c)      Patent Secutiry Agreement, dated as of
             July 23, 1997, between the Company and the Agent.
             (Exhibit 10.1(c) to the Company's Quarterly Report
             on Form 10-Q for the quarterly period ended
             August 3, 1997).                                               *

10.1(d)      Pledge Agreement, dated as of July 23, 1997,
             between the Company and the Agent.  (Exhibit 10.1(d)
             to the Company's Quarterly Report on Form 10-Q
             for the quarterly period ended August 3, 1997).                *

10.1(e)      Deed to Secure Debt, dated as of July 23, 1997,
             between the Company and the Agent, with respect
             to the owned real property located in Laurens County,
             Georgia.  (Exhibit 10.1(e) to the Company's Quarterly
             Report on Form 10-Q for the quarterly period ended
             August 2, 1997).                                               *

10.1(f)      Deed to Secure Debt, dated as of July 23, 1997,
             between the Company and the Agent, with respect
             to the owned real property located in Baldwin County,
             Georgia.  (Exhibit 10.1(f) to the Company's Quarterly
             Report on Form 10-Q for the quarterly period
             ended August 5, 1997).                                         *

10.1(g)      Deed to Secure Debt, dated as of July 23, 1997,
             between the Company and the Agent, with respect
             to the owned real property located in Jefferson
             County, Georgia.  (Exhibit 10.1(g) to the Company's
             Quarterly Report on Form 10-Q for the quarterly
             period ended August 3, 1997).                                  *

10.2         Incentive Plan for Senior Managers, effective as of
             July 23, 1997.  (Exhibit 10.2 to the Company's
             Quarterly Report on Form 10-Q for the quarterly
             period ended August 3, 1997).                                  *
<PAGE>
                                 EXHIBIT INDEX

                                                                      Sequential
EXHIBIT NO.                               DESCRIPTION                  PAGE NO.
----------                                -----------                  --------


10.3         Incentive Plan for Key Employees, effective as of
             July 23, 1997.  (Exhibit 10.3 to the Company's Quarterly
             Report on Form 10-Q for the quarterly period
             ended August 3,1 997).                                         *

10.4         Executive Stock Option Plan, effective as of
             July 23, 1997.  (Exhibit 10.4 to the Company's
             Quarterly Report on Form 10-Q for the quarterly
             period ended August 3, 1997).                                  *

10.5         Environmental Cost Sharing and Indemnity Agreement
             dated as of July 18, 1997, among the Company, Tift
             County Development Authority and Burlen Corporation.
             (Exhibit 10.5 to the Company's Quarterly Report on
             Form 10-Q for the quarterly period ended
             August 3, 1997).                                               *

10.6(a)      Lease dated January 31, 1995 between 1155 Avamer
             Realty Corp., and the Company (Exhibit 10.1(a) to
             the Company's Quarterly Report on Form 10-Q for
             the quarter ended January 29, 1995).                           *

10.6(b)      Lease Takeover Amendment dated January 31, 1995
             between the Company and 1155 Avamer Realty
             Corp. and the Company (Exhibit 10.1(b) to the
             Company's Quarterly Report on Form 10-Q for the
             quarter ended January 29, 1995).                               *

10.6(c)      First Amendment to Lease dated as of December 27, 1995
             between 1155 Avamer Realty Corp., and the Company
             (Exhibit 10.1(h) to the Company's Annual Report
             on Form 10-K for the year ended October 29, 1995).             *
<PAGE>
                                 EXHIBIT INDEX

                                                                      Sequential
EXHIBIT NO.                               DESCRIPTION                  PAGE NO.
----------                                -----------                  --------


10.7(a)      Form of Indemnity Agreement, effective as of
             October 9, 1997, between the Company and
             certain of its corporate officers.

10.7(b)      Form of Indemnity Agreement, effective as of
             October 9, 1997, between the Company and its
             directors.

10.8         Forstmann & Company, Inc. Incentive Compensation
             and Retention Program, effective as of
             November 14, 1996 (Exhibit 10.8 to the Company's
             Annual Report on Form 10-K for the year ended
             November 3, 1996).                                             *

10.9(a)      Agreement for Financial Consulting Services between
             Jay Alix & Associates and the Company, dated
             July 31, 1995 (Exhibit 10.10(k) to the Company's
             Annual Report on Form 10-K for the year ended
             October 29, 1995).                                             *

10.9(b)      Letter of Acknowledgment in Agreement dated
             August 18, 1995, between Jay Alix & Associates
             and the Company, outlining changes to "Agreement
             for Financial Consulting Services" dated July 31, 1995
             (Exhibit 10.10(l) to the Company's Annual Report
             on Form 10-K for the year ended October 29, 1995).             *

10.9(c)      Second Amendment to Agreement for Financial
             Consulting Services, dated December 20, 1996
             (Exhibit 10.10(m) to the Company's Annual
             Report on Form 10-K for the year ended
             November 3, 1996).                                             *
<PAGE>
                                 EXHIBIT INDEX

                                                                      Sequential
EXHIBIT NO.                               DESCRIPTION                  PAGE NO.
----------                                -----------                  --------

11.1         Computation of per share earnings.

27           Financial Data Schedule


(b) The Company filed a Current  Report on Form 8-K during the fourth quarter of
its fiscal year ended November 2, 1997.



 *** Not filed  herewith.  Registrant  has filed herewith an Undertaking to
     Furnish Copy of Agreements Upon Request.
<PAGE>

                                                               EXHIBIT 3.2(a)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------











                            FORSTMANN & COMPANY, INC.





                              AMENDED AND RESTATED

                                     BY-LAWS









                          As Adopted on October 9, 1997









-------------------------------------------------------------------------------
-------------------------------------------------------------------------------


                                                    


<PAGE>




                              AMENDED AND RESTATED
                                     BY-LAWS


                                TABLE OF CONTENTS


SECTION                                                                     PAGE

ARTICLE I

         OFFICES...............................................................1
         Section 1.01.  REGISTERED OFFICE......................................1

ARTICLE II

           STOCKHOLDERS........................................................1
         Section 2.01.  ANNUAL MEETINGS........................................1
         Section 2.02.  SPECIAL MEETINGS.......................................1
         Section 2.03.  NOTICE OF MEETINGS; WAIVER.............................2
         Section 2.04.  VOTING.................................................2
         Section 2.05.  ADJOURNMENT............................................2
         Section 2.06.  PROXIES................................................3
         Section 2.07.  ORGANIZATION; PROCEDURE................................3
         Section 2.08.  QUORUM.................................................3
         Section 2.09.  INSPECTORS OF ELECTIONS................................3
         Section 2.10.  OPENING AND CLOSING OF POLLS...........................4
         Section 2.11.  STOCKHOLDER PROPOSALS..................................4
         Section 2.12.  CONSENT OF STOCKHOLDERS IN LIEU OF MEETING.............4

ARTICLE III

         BOARD OF DIRECTORS....................................................6
         Section 3.01.  GENERAL POWERS.........................................6
         Section 3.02.  NUMBER AND TERM OF OFFICE..............................6
         Section 3.03.  ELECTION OF DIRECTORS; QUALIFICATION...................6
         Section 3.04.  NOMINATION OF DIRECTORS................................6
         Section 3.05.  ANNUAL AND REGULAR MEETINGS; NOTICE....................7
         Section 3.06.  SPECIAL MEETINGS; NOTICE...............................7

                                                   


<PAGE>



         Section 3.07.  QUORUM; VOTING.........................................8
                        --------------
         Section 3.08.  ADJOURNMENT............................................8
                        -----------
         Section 3.09.  ACTION WITHOUT A MEETING...............................8
                        ------------------------
         Section 3.10.  REGULATIONS; MANNER OF ACTING..........................8
                        -----------------------------
         Section 3.11.  ACTION BY TELEPHONIC COMMUNICATIONS....................8
                        -----------------------------------
         Section 3.12.  RESIGNATIONS...........................................8
                        ------------
         Section 3.13.  REMOVAL OF DIRECTORS...................................8
                        --------------------
         Section 3.14.  VACANCIES AND NEWLY CREATED DIRECTORSHIPS..............9
                        -----------------------------------------
         Section 3.15.  COMPENSATION...........................................9
                        ------------
         Section 3.16.  RELIANCE ON ACCOUNTS AND REPORTS, ETC..................9
                        -------------------------------------

ARTICLE IV

         EXECUTIVE COMMITTEE AND OTHER COMMITTEES..............................9
         Section 4.01.  HOW CONSTITUTED........................................9
         Section 4.02.  POWERS................................................10
         Section 4.03.  PROCEEDINGS...........................................10
         Section 4.04.  QUORUM AND MANNER OF ACTING...........................10
         Section 4.05.  ACTION BY TELEPHONIC COMMUNICATIONS...................11
         Section 4.06.  ABSENT OR DISQUALIFIED MEMBERS........................11
         Section 4.07.  RESIGNATIONS..........................................11
         Section 4.08.  REMOVAL...............................................11
         Section 4.09.  VACANCIES.............................................11

ARTICLE V

         OFFICERS.............................................................11
         Section 5.01.  NUMBER................................................11
         Section 5.02.  ELECTION..............................................11
         Section 5.03.  SALARIES..............................................12
         Section 5.04.  REMOVAL AND RESIGNATION; VACANCIES....................12
         Section 5.05.  AUTHORITY AND DUTIES OF OFFICERS......................12
         Section 5.06.  THE CHAIRMAN OF THE BOARD.............................12
         Section 5.07.  THE PRESIDENT.........................................12
         Section 5.08.  THE VICE PRESIDENT....................................12
         Section 5.09.  THE SECRETARY.........................................13
         Section 5.10.  THE CHIEF FINANCIAL OFFICER...........................13




                                                   


<PAGE>



         Section 5.11.  THE TREASURER.........................................14
         Section 5.12.  ADDITIONAL OFFICERS...................................14

ARTICLE VI

         CAPITAL STOCK........................................................15
         Section 6.01.  CERTIFICATES OF STOCK, UNCERTIFICATED SHARES..........15
         Section 6.02.  SIGNATURES............................................15
         Section 6.03.  LOST, STOLEN OR DESTROYED CERTIFICATES................15
         Section 6.04.  TRANSFER OF STOCK.....................................15
         Section 6.05.  RECORD DATE...........................................15
         Section 6.06.  REGISTERED STOCKHOLDERS...............................16
         Section 6.07.  TRANSFER AGENT AND REGISTRAR..........................16

ARTICLE VII

         INDEMNIFICATION......................................................16
         Section 7.01.  NATURE OF INDEMNITY...................................16
         Section 7.02.  SUIT AGAINST CORPORATION..............................17
         Section 7.03.  NO PRESUMPTION........................................17
         Section 7.04.  SUCCESSFUL DEFENSE....................................17
         Section 7.05.  ADVANCE FOR EXPENSES..................................17
         Section 7.06.  DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION....17
         Section 7.07.  DETERMINATION TO ADVANCE EXPENSES.....................18
         Section 7.08.  PROCEDURE FOR INDEMNIFICATION OF DIRECTORS
                        AND OFFICERS..........................................18
         Section 7.09.  SURVIVAL; PRESERVATION OF OTHER RIGHTS................19
         Section 7.10.  INSURANCE.............................................19
         Section 7.11.  SEVERABILITY..........................................19

ARTICLE VIII

         GENERAL PROVISIONS...................................................20
         Section 8.01.  DIVIDENDS.............................................20
         Section 8.02.  RESERVES..............................................20
         Section 8.03.  EXECUTION OF INSTRUMENTS..............................20
         Section 8.04.  CORPORATE INDEBTEDNESS................................20
         Section 8.05.  DEPOSITS..............................................21
         Section 8.06.  CHECKS................................................21
         Section 8.07.  SALE, TRANSFER, ETC. OF SECURITIES....................21
         Section 8.08.  VOTING AS STOCKHOLDER.................................21

                                                    


<PAGE>



         Section 8.09.  SEAL..................................................21
         Section 8.10.  BOOKS AND RECORDS; INSPECTION.........................21

ARTICLE IX

         AMENDMENT OF BY-LAWS.................................................22
         Section 9.01.  AMENDMENT.............................................22

ARTICLE X

         CONSTRUCTION.........................................................22
         Section 10.01.  CONSTRUCTION.........................................22





























                                                    


<PAGE>

                                                              

                            FORSTMANN & COMPANY, INC.

                              AMENDED AND RESTATED
                                     BY-LAWS

                          As adopted on October 9, 1997


                                    ARTICLE I

                                     OFFICES

                  Section 1.01.  REGISTERED OFFICE. The corporation shall at all
times  maintain a  registered  office in the State of Georgia  and a  registered
agent at that address but may have other offices  located  within or without the
State of Georgia as the Board of Directors may determine.


                                   ARTICLE II

                                  STOCKHOLDERS

                  Section  2.01.  ANNUAL  MEETINGS.  The  annual  meeting of the
stockholders  of the  Corporation for the election of the Board of Directors and
for the  transaction  of such other  business as  properly  may come before such
meeting  shall be held at such  place,  either  within or  without  the State of
Georgia,  at such date and hour as may be fixed from time to time by  resolution
of the Board of Directors and set forth in the notice or waiver of notice of the
meeting.

                  Section  2.02.  SPECIAL  MEETINGS.  Special  meetings  of  the
stockholders  may be called at any time by the Chairman of the Board (or, in the
event of his or her absence or disability,  by the President or, in the event of
his or her absence or  disability,  by any Vice  President),  or by the Board of
Directors.  A special  meeting shall be called by the Chairman of the Board (or,
in the event of his or her absence or  disability,  by the  President or, in the
event of his or her  absence or  disability,  by any Vice  President)  or by the
Secretary,   immediately   upon  receipt  of  a  written  request   therefor  by
stockholders  holding in the aggregate  not less than 662/3% of the  outstanding
shares of the  Corporation  at the time  entitled  to vote at any meeting of the
stockholders,  provided  that such  request  states the  purposes  for which the
meeting is called. The business that may be transacted at any special meeting of
the stockholders  shall be limited to that proposed in the notice of the special
meeting given in

                                                  


<PAGE>



accordance  with Section 2.03 hereof or otherwise  properly  brought  before the
meeting by a  stockholder  pursuant to these  By-Laws.  If such  officers or the
Board of  Directors  shall fail to call such  meeting  within  twenty days after
receipt of such request,  any  stockholder  executing such request may call such
meeting. Such special meetings of the stockholders shall be held at such places,
within or without the State of Georgia,  as shall be specified in the respective
notices or waivers of notice thereof.


                  Section 2.03. NOTICE OF MEETINGS; WAIVER. The Secretary or any
Assistant  Secretary  shall cause written notice of the place,  date and hour of
each meeting of the  stockholders,  and, in the case of a special  meeting,  the
purpose or purposes for which such meeting is called,  to be given personally or
by mail,  not less than ten nor more than sixty days  prior to the  meeting,  to
each  stockholder of record entitled to vote at such meeting.  If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail,  postage  prepaid,  directed to the  stockholder  at his
address as it appears on the record of stockholders of the  Corporation,  or, if
he or she shall have  filed  with the  Secretary  of the  Corporation  a written
request  that  notices  to him or her be  mailed  to some  other  address,  then
directed to him or her at such other address. Such further notice shall be given
as may be required by law.

                  No notice of any meeting of stockholders  need be given to any
stockholder  who submits a signed waiver of notice,  whether before or after the
meeting.  Neither  the  business  to be  transacted  at, nor the purpose of, any
regular or special  meeting of the  stockholders  need be specified in a written
waiver of notice,  except as may otherwise be required by law. The attendance of
any stockholder at a meeting of stockholders shall constitute a waiver of notice
of such meeting,  except when the stockholder  attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.

                  Section 2.04.  VOTING.  If,  pursuant to Section 6.05 of these
By-Laws, a record date has been fixed, every holder of record of shares entitled
to vote at a meeting  of  stockholders  shall be  entitled  to one vote for each
share  outstanding  in his or her name on the  books of the  Corporation  at the
close of business on such record  date.  If no record date has been fixed,  then
every holder of record of shares  entitled to vote at a meeting of  stockholders
shall be entitled to one vote for each share of stock  outstanding in his or her
name on the books of the  Corporation  at the close of  business on the day next
preceding  the day on which  notice  of the  meeting  is given  or, if notice is
waived, at the close of business on the day next preceding the day on which the


                                                  


<PAGE>



meeting is held.  Except as  otherwise  required  by law or by the  Articles  of
Incorporation  or by  these  By-Laws,  the  vote  of a  majority  of the  shares
represented  in person or by proxy at any  meeting  at which a quorum is present
shall be sufficient for the transaction of any business at such meeting.

                  Section 2.05.  ADJOURNMENT.  If a quorum is not present at any
meeting  of the  stockholders,  the  stockholders  present in person or by proxy
shall  have the power to  adjourn  any such  meeting  from time to time  until a
quorum is present.  Notice of any adjourned  meeting of the  stockholders of the
Corporation need not be given if the place,  date and hour thereof are announced
at the meeting at which the adjournment is taken, provided, however, that if the
adjournment  is for more than thirty  days,  or if after the  adjournment  a new
record date for the adjourned meeting is fixed pursuant to Section 6.05 of these
By-Laws,  a notice of the adjourned  meeting,  conforming to the requirements of
Section  2.03 of these  By-Laws,  shall be given to each  stockholder  of record
entitled to vote at such meeting.  At any adjourned meeting at which a quorum is
present,  any business may be transacted  that might have been transacted on the
original date of the meeting.

                  Section 2.06. PROXIES.  Any stockholder or his or her agent or
attorney-in-fact  entitled  to vote at any  meeting  of the  stockholders  or to
express consent to or dissent from corporate action in writing without a meeting
may authorize  another person or persons to vote at any such meeting and express
such consent or dissent for him or her by proxy.  A stockholder  may authorize a
valid proxy by executing an appointment form. Such execution may be accomplished
by any reasonable means,  including by facsimile,  signed by such stockholder or
his or her attorney-in-fact in the case of an individual  stockholder,  or by an
authorized  officer,  director,  employee  or  agent  in the  case of any  other
stockholder.  No such proxy shall be voted or acted upon after the expiration of
eleven  months from the date of such proxy,  unless  such proxy  provides  for a
longer period. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where (I) the  appointment  form states that
it is  irrevocable  and the  appointment  is coupled with an  interest,  or (II)
applicable  law provides that a proxy shall be  irrevocable.  A stockholder  may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an  instrument  in writing  revoking  the proxy or by filing
another duly executed proxy bearing a later date with the  Secretary.  Any copy,
facsimile  telecommunication  or other  reliable  reproduction  of a writing  or
transmission created pursuant to this section may be substituted or used in lieu
of the original  writing or transmission  for any and all purposes for which the
original  writing  or  transmission  could be used,  provided  that  such  copy,
facsimile telecommunication or other reproduction shall be a complete



                                                    


<PAGE>



reproduction of the entire original writing or transmission. An appointment form
is effective when it is received by the inspector of election.

                  Section  2.07.  ORGANIZATION;  PROCEDURE.  At every meeting of
stockholders,  the  presiding  officer shall be the Chairman of the Board or, in
the event of his or her absence or disability, the President or, in the event of
his or her absence or  disability,  a presiding  officer chosen by a majority of
the  stockholders  present in person or by proxy. The Secretary or, in the event
of his or her absence or  disability,  the  Assistant  Secretary,  if any or, if
there be no Assistant Secretary,  in the absence of the Secretary,  an appointee
of the presiding  officer,  shall act as Secretary of the meeting.  The order of
business and all other matters of procedure at every meeting of stockholders may
be determined by such presiding officer.

                  Section 2.08. QUORUM. A quorum for the transaction of business
at any annual or special meeting of stockholders shall exist when the holders of
a majority of the outstanding  shares entitled to vote are represented either in
person or by proxy at such meeting.

                  Section 2.09.  INSPECTORS OF ELECTIONS.  Preceding any meeting
of the stockholders, the Board of Directors shall appoint one or more persons to
act  as  Inspector  of  Elections,  and  may  designate  one or  more  alternate
inspectors.  In the event no  inspector  or alternate is able to act, the person
presiding  at the meeting  shall  appoint one or more  inspectors  to act at the
meeting. Each inspector,  before entering upon the discharge of the duties of an
inspector,  shall  take and sign an oath  faithfully  to  execute  the duties of
inspector  with  strict  impartiality  and  according  to the best of his or her
ability.  The  inspector may be an officer or employee of the  Corporation.  The
inspector shall:

         (a)      ascertain  the  number of shares  outstanding  and the  voting
                  power of each;

         (b)      determine the shares represented at a meeting;

         (c)      determine the validity of proxies and ballots;

         (d)      count all votes; and

         (e)      determine the result.

                  Section 2.10.  OPENING AND CLOSING OF POLLS. The date and time
for the opening and the closing of the polls for each matter to be voted upon at
a stockholder  meeting  shall be announced at the meeting.  The inspector of the
election shall be

                                                   


<PAGE>



prohibited  from  accepting  any ballots,  proxies or votes nor any  revocations
thereof or changes thereto after the closing of the polls.

                  Section   2.11.   STOCKHOLDER   PROPOSALS.   No   proposal  (a
"Stockholder  Proposal")  shall be brought before a meeting of stockholders by a
stockholder  (the  "Proponent")  unless the  Proponent  shall have given  timely
notice thereof in writing to the Secretary of the  Corporation.  To be timely, a
stockholder's  notice  must  be  delivered  to or  mailed  and  received  at the
principal executive offices of the Corporation not less than sixty nor more than
ninety days prior to such meeting; provided,  however, that if less than seventy
days' notice or prior public  disclosure  of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of meeting was mailed or such public disclosure was made. The notice
shall set forth with  particularity (I) the names and business  addresses of the
Proponent and all natural  persons,  corporations,  partnerships,  trusts or any
other type of legal entity or recognized  ownership  vehicle  (each, a "Person")
acting in concert with the Proponent; (II) the name and address of the Proponent
and the Persons  identified  in clause (i), as they appear on the  Corporation's
books (if they so appear);  (III) the number of shares of each class of stock of
the Corporation  beneficially  owned by the Proponent and each Person identified
in clause (i); (IV) a description  of the  Stockholder  Proposal  containing all
material  information  relating  thereto;  (V)  any  material  interest  of  the
Proponent and each Person  identified in clause (i) in such  proposal;  and (VI)
such  other  information  as the Board of  Directors  reasonably  determines  is
necessary or  appropriate to enable the Board of Directors and  stockholders  of
the Corporation to consider the Stockholder  Proposal.  The presiding officer at
any meeting of the stockholders may, if the facts so warrant, determine that any
Stockholder  Proposal was not made in accordance with the procedures  prescribed
in this Section 2.11 or is otherwise  not in  accordance  with law, and if he or
she should so  determine,  such officer  shall so declare at the meeting and the
Stockholder Proposal shall not be brought before the meeting.

                  Section  2.12.  CONSENT OF  STOCKHOLDERS  IN LIEU OF  MEETING.
Whenever the vote of  stockholders at a meeting thereof is required or permitted
to be taken for or in connection with any corporate  action,  such action may be
taken   without  a  meeting,   without  prior  notice  and  without  a  vote  of
stockholders,  if a consent or consents in writing,  setting forth the action so
taken,  shall be signed by the holders of outstanding stock having not less than
the minimum  number of votes that would be  necessary  to authorize or take such
action at a meeting at which all shares  entitled to vote  thereon  were present
and  voted  and  shall  be  delivered  to the  Corporation  by  delivery  to its
registered office in the State of Georgia,  its principal place of business,  or
an  officer  or agent of the  Corporation  having  custody  of the book in which
proceedings of meetings

                                                   


<PAGE>



of  stockholders  are recorded.  Delivery made to the  Corporation's  registered
office shall be by hand or by  certified  or  registered  mail,  return  receipt
requested. Prompt notice of the taking of the corporate written consent shall be
given to those stockholders who have not consented in writing.

                  Every written consent shall bear the date of signature of each
stockholder  who signs the consent and no written  consent shall be effective to
take the corporate  action referred to therein unless,  within sixty days of the
earliest  dated  consent  delivered  in  the  manner  required  by  law  to  the
Corporation,  written consents signed by a sufficient  number of holders to take
action are delivered to the Corporation by deli very to its registered office in
the State of Georgia, its principal place of business, or an officer or agent of
the Corporation  having custody of the book in which  proceedings of meetings of
stockholders are recorded.

                  The  record  date for  determining  stockholders  entitled  to
consent to corporate  action in writing  without a meeting shall be fixed by the
Board of Directors.  Any stockholder seeking to have the stockholders  authorize
or take corporate  action by written consent without a meeting shall, by written
notice to the  Chairman  of the  Board or the  President,  request  the Board of
Directors to fix a record date. Upon receipt of such a request,  the Chairman of
the Board,  or, in his or her  absence,  the  President,  shall,  as promptly as
practicable,  call a special  meeting  of the Board of  Directors  to be held as
promptly as  practicable,  but in any event not more than ten days following the
date of receipt for such a request.  At such a meeting,  the Board of  Directors
shall fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors,  and
which date  shall not be more than ten days after the date that such  resolution
is adopted.  Notice of the record date shall be published in accordance with the
rules and policies of the National Association of Securities Dealers, Inc. If no
record  date has been so fixed by the Board of  Directors,  the record  date for
determining the  stockholders  entitled to consent to corporate action without a
meeting,  where no prior  action by the Board of  Directors  is  required by the
Georgia  Business  Corporation  Code,  shall be the first date on which a signed
written  consent  setting forth the action  proposed to be taken is delivered to
the Corporation.  If no record date has been fixed by the Board of Directors and
prior  action by the Board of  Directors  is required  by the  Georgia  Business
Corporation  Code,  the record  date for  determining  stockholders  entitled to
consent to such corporate  action in writing without a meeting shall be the date
on which the Board of Directors adopts the resolution taking such prior action.

                  In the event of the delivery to the  Corporation  of a written
consent or consents  purporting  to  represent  the  requisite  voting  power to
authorize or take  corporate  action and/or related  revocations,  the Secretary
shall provide for the

                                                    


<PAGE>



safekeeping  of  such  consents  and  revocations  and  shall,  as  promptly  as
practicable,   engage  independent   inspectors  for  the  purpose  of  promptly
performing a ministerial review of the validity of the consents and revocations.
No action by written  consent  without a meeting  shall be effective  until such
inspectors have completed their review,  determined that the requisite number of
ballots and  unrevoked  consents has been  obtained to authorize or take actions
specified in the  consents and  certifies  such  determination  for entry in the
records of the  Corporation  for the purpose of  recording  the  proceedings  of
meetings of the stockholders.




<PAGE>



                                   ARTICLE III

                               BOARD OF DIRECTORS

                  Section  3.01.  GENERAL  POWERS.  Except as may  otherwise  be
provided  by law, by the  Articles of  Incorporation  or by these  By-Laws,  the
property,  affairs and business of the Corporation  shall be managed by or under
the  direction of the Board of Directors and the Board of Directors may exercise
all the powers of the Corporation.

                  Section  3.02.  NUMBER  AND  TERM OF  OFFICE.  The  number  of
directors  shall not be less than five, nor more than seven,  and shall be fixed
within such minimum and maximum by the  stockholders  or the Board of Directors.
Each director  (whenever  elected) shall hold office until the annual meeting of
stockholders and until his or her successor has been duly elected and qualified,
or until his or her earlier death, retirement, disqualification,  resignation or
removal from office.

                  Section 3.03. ELECTION OF DIRECTORS;  QUALIFICATION. Except as
otherwise  provided in Sections  3.12 and 3.13 of these  By-Laws,  the directors
shall be elected at each annual meeting of the stockholders.  At each meeting of
the  stockholders  for the election of directors,  provided a quorum is present,
the directors  shall be elected by a plurality of the votes validly cast in such
election.

                  As long as any shares of the Corporation's capital stock shall
be quoted on the NASDAQ  National  Market,  the Board of Directors shall ensure,
and shall have all powers necessary to ensure,  that the membership of the Board
of Directors shall at all times include such number of  "independent"  directors
(as such  term is  defined  in Part III,  Paragraph  6(c) of  Schedule  D to the
By-Laws of the National  Association of Security Dealers,  Inc., as the same may
be amended  from time to time) as shall be required by such By-Laws in order for
shares of the  Corporation's  capital  stock to be eligible for quotation on the
NASDAQ  National  Market.  In the event  that the  shares  of the  Corporation's
capital  stock  shall  cease to be  quoted on the  NASDAQ  National  Market  and
subsequently shares of the Corporation's capital stock are listed or quoted on a
national  securities  exchange or other trading  system,  the Board of Directors
shall ensure that the membership of the Board of Directors shall at all times be
consistent with the applicable rules and regulations of such exchange or trading
system.

                  Section  3.04.   NOMINATION  OF  DIRECTORS.   Nominations  for
election to the Board of Directors at a meeting of  stockholders  may be made by
the Board of Directors or by any  stockholder  entitled to vote for the election
of Directors at such meeting.  Such nominations,  other than those made by or on
behalf of the Board of Directors,  shall be made by notice in writing  delivered
or mailed by first class United States mail,

                                                    


<PAGE>



postage  prepaid,  to the Board of  Directors  in care of the  Secretary  of the
Corporation,  and  received  not less than sixty days nor more than  ninety days
prior to such meeting; provided, however, that if less than seventy days' notice
or prior public  disclosure of the date of the meeting is given to stockholders,
such nomination shall have been mailed or delivered to the Board of Directors in
care of the  Secretary  not later  than the close of  business  on the tenth day
following  the day on which the  notice of  meeting  was  mailed or such  public
disclosure was made. Such notice shall set forth (A) as to each proposed nominee
(I) the name, age,  business  address and, if known,  residence  address of each
such nominee,  (II) the principal occupation or employment of each such nominee,
(III) the number of shares of stock of the  Corporation  which are  beneficially
owned by each  such  nominee,  and (IV) any  other  information  concerning  the
nominee that must be disclosed as to nominees in proxy solicitations pursuant to
Regulation 14A under the Securities  Exchange Act of 1934, as amended (including
such  person's  written  consent  to be  named  as a  nominee  and to serve as a
Director if elected);  and (B) as to the  stockholder  giving the notice (I) the
name and address, as they appear on the Corporation's books, of such stockholder
and  (II)  the  class  and  number  of  shares  of  the  Corporation  which  are
beneficially  owned  by  such  stockholder.  At  the  request  of the  Board  of
Directors,  any person  nominated  by the Board of  Directors  for election as a
Director  shall furnish to the  Secretary of the  Corporation  that  information
required to be set forth in a stockholder's  notice of nomination which pertains
to the  nominee.  No person  shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 3.04 of these By-laws.  The presiding officer at the meeting may, if the
facts  warrant,  determine and declare to the meeting that a nomination  was not
made in  accordance  with the  foregoing  procedure,  and if he or she should so
determine,  he or  she  shall  so  declare  to the  meeting  and  the  defective
nomination shall not be brought before the meeting.

                  Section 3.05. ANNUAL AND REGULAR MEETINGS;  NOTICE. The annual
meeting of the Board of Directors  for the purpose of electing  officers and for
the  transaction  of such other business as may come before the meeting shall be
held as soon as  possible  following  adjournment  of the annual  meeting of the
stockholders.  Notice of such annual  meeting of the Board of Directors need not
be given. The Board of Directors from time to time may by resolution provide for
the  holding  of  regular  meetings  and fix the place  (which  may be within or
without the State of Georgia) and the date and hour of such meetings.  Notice of
regular  meetings  need not be given,  provided,  however,  that if the Board of
Directors shall fix or change the time or place of any regular  meeting,  notice
of such  action  shall  be  mailed  promptly,  or sent  by  telegram,  facsimile
transmission  or cablegram,  to each director who shall not have been present at
the  meeting at which such action was taken,  addressed  to him or her at his or
her usual place of business,  or shall be  delivered  to him or her  personally.
Notice of

                                                    


<PAGE>



such action  need not be given to any  director  who  attends the first  regular
meeting after such action is taken without  protesting the lack of notice to him
or her, prior to or at the commencement of such meeting,  or to any director who
submits a signed waiver of notice, whether before or after such meeting.

                  Section 3.06.  SPECIAL MEETINGS;  NOTICE.  Special meetings of
the Board of  Directors  shall be held  whenever  called by the  Chairman of the
Board, or, in the event of his absence or disability,  by any other director, at
such place  (within or without  the State of  Georgia),  date and hour as may be
specified  in the  respective  notices or  waivers  of notice of such  meetings.
Special  meetings of the Board of Directors may be called on twenty-four  hours'
notice,  if  notice  is  given  to each  director  personally  or by  telephone,
facsimile  transmission,  or  telegram,  or on five days'  notice,  if notice is
mailed to each  director,  addressed  to him or her at his or her usual place of
business.  Notice of any special  meeting  need not be given to any director who
attends such meeting without  protesting the lack of notice to him or her, prior
to or at the  commencement  of such  meeting,  or to any  director who submits a
signed waiver of notice,  whether before or after such meeting, and any business
may be transacted thereat.

                  Section 3.07. QUORUM;  VOTING. At all meetings of the Board of
Directors,  the  presence of a majority of the total  then-authorized  number of
directors shall  constitute a quorum for the transaction of business.  Except as
otherwise  required by law, the vote of a majority of the  directors  present at
any  meeting  at  which a quorum  is  present  shall be the act of the  Board of
Directors.

                  Section  3.08.  ADJOURNMENT.   A  majority  of  the  directors
present,  whether or not a quorum is  present,  may  adjourn  any meeting of the
Board of  Directors  to another  time or place.  No notice  need be given of any
adjourned  meeting  unless the time and place of the  adjourned  meeting are not
announced at the time of  adjournment,  in which case notice  conforming  to the
requirements of Section 3.05 of these By-Laws shall be given to each director.

                  Section 3.09. ACTION WITHOUT A MEETING. Any action required or
permitted  to be taken at any  meeting  of the Board of  Directors  may be taken
without a meeting if all members of the Board of  Directors  consent  thereto in
writing,  and such writing or writings are filed with the minutes of proceedings
of the Board of Directors.

                  Section  3.10.  REGULATIONS;  MANNER OF ACTING.  To the extent
consistent with applicable law, the Articles of Incorporation and these By-Laws,
the Board of Directors may adopt such rules and  regulations  for the conduct of
meetings  of the Board of  Directors  and for the  management  of the  property,
affairs and business of the

                                                    


<PAGE>



Corporation as the Board of Directors may deem appropriate.  The directors shall
act only as a Board, and the individual directors shall have no power as such.

                  Section 3.11. ACTION BY TELEPHONIC COMMUNICATIONS.  Members of
the Board of Directors may participate in a meeting of the Board of Directors by
means of conference  telephone or similar  communications  equipment by means of
which  all  persons  participating  in the  meeting  can hear  each  other,  and
participation in a meeting pursuant to this provision shall constitute  presence
in person at such meeting.

                  Section  3.12.  RESIGNATIONS.  Any  director may resign at any
time by delivering a written notice of resignation,  signed by such director, to
the  Chairman of the Board,  if any,  or to the  President  of the  Corporation.
Unless otherwise  specified  therein,  such  resignation  shall take effect upon
delivery.

                  Section  3.13.  REMOVAL  OF  DIRECTORS.  Any  director  may be
removed at any time,  either for or without cause,  upon the affirmative vote of
the holders of a majority of the outstanding  shares of stock of the Corporation
entitled to vote for the election of such Director.  Any vacancy in the Board of
Directors  caused  by any such  removal  may be filled  at such  meeting  by the
stockholders  entitled to vote for the election of the  Director so removed.  If
such  stockholders  do not fill such  vacancy at such meeting (or in the written
instrument  effecting  such  removal,  if such  removal was  effected by consent
without a meeting), such vacancy may be filled in the manner provided in Section
3.14 of these By-Laws.

                  Section 3.14.  VACANCIES AND NEWLY CREATED  DIRECTORSHIPS.  If
any  vacancies  shall  occur in the  Board of  Directors,  by  reason  of death,
resignation,  removal,  increase in the  then-authorized  number of directors or
otherwise,  the  directors  then in  office  shall  continue  to act,  and  such
vacancies  and newly  created  directorships  may be filled by a majority of the
directors  then in office,  although less than a quorum.  A director  elected to
fill a vacancy or a newly  created  directorship  shall hold office until his or
her successor has been elected and qualified or until his or her earlier  death,
resignation or removal.  Any such vacancy or newly created directorship may also
be filled at any time by vote of the stockholders.

                  Section 3.15.  COMPENSATION.  The amount,  if any,  which each
director shall be entitled to receive as compensation for his or her services as
such shall be fixed from time to time by resolution of the Board of Directors.

                  Section 3.16. RELIANCE ON ACCOUNTS AND REPORTS,  ETC. A member
of the Board of Directors,  or a member of any Committee designated by the Board
of Directors, shall be fully protected in relying in good faith upon the records
of the

                                                  


<PAGE>



Corporation  and  upon  such  information,   opinions,  reports  or  statements,
including financial  statements and other financial data, if prepared by (I) one
or more officers or employees of the  Corporation  whom the director  reasonably
believes to be reliable  and  competent  in the  matters  presented;  (II) legal
counsel,  public accountants,  investment bankers or other persons as to matters
the director reasonably believes are within the person's  professional or expert
competence;  or (III)  Committees of the Board of Directors of which he is not a
member if the director reasonably believes the Committee merits confidence.


                                   ARTICLE IV

                    EXECUTIVE COMMITTEE AND OTHER COMMITTEES

                  Section  4.01.  HOW  CONSTITUTED.  The Board of Directors  may
designate one or more Committees,  including an Executive  Committee,  each such
Committee  to consist of such  number of  directors  as from time to time may be
fixed by the Board of  Directors.  The Board of Directors  may  designate one or
more directors as alternate  members of any such Committee,  who may replace any
absent or  disqualified  member or  members at any  meeting  of such  Committee.
Thereafter,  members (and alternate members,  if any) of each such Committee may
be designated by the Board of Directors.  Any such Committee may be abolished or
re-designated from time to time by the Board of Directors. Each member (and each
alternate member) of any such Committee (whether designated at an annual meeting
of the Board of Directors or to fill a vacancy or  otherwise)  shall hold office
until his or her successor  shall have been  designated or until he or she shall
cease to be a  director,  or until  his or her  earlier  death,  resignation  or
removal.

                  Section  4.02.  POWERS.   During  the  intervals  between  the
meetings of the Board of Directors, the Executive Committee, except as otherwise
provided  in this  section,  shall  have and may  exercise  all the  powers  and
authority of the Board of Directors in the  management of the property,  affairs
and business of the Corporation, including the power to declare dividends and to
authorize the issuance of stock. Each such other Committee,  except as otherwise
provided in this  section,  shall have and may exercise such powers of the Board
of Directors as may be provided by  resolution  or  resolutions  of the Board of
Directors.  Neither the Executive  Committee nor any such other  Committee shall
have the power or authority:

                  (a) to approve or propose to  stockholders  action that by law
         must be approved by stockholders;




<PAGE>



                  (b) to fill  vacancies  on the Board of Directors or on any of
         its committees;

                  (c)  to  amend  the  Articles  of  Incorporation  pursuant  to
         O.C.G.A. Section 14-2- 1002;

                  (d) to  recommend to the  stockholders  a  dissolution  of the
         Corporation or a revocation of a dissolution;

                  (e) to adopt,  amend or repeal the By-Laws of the Corporation;
         or

                  (f) to  approve a plan of  merger  not  requiring  stockholder
         approval.

The Executive  Committee shall have, and any such other Committee may be granted
by the Board of Directors,  power to authorize the seal of the Corporation to be
affixed to any or all papers which may require it.

                  Section 4.03. PROCEEDINGS. Each such Committee may fix its own
rules of  procedure  and may meet at such place  (within or without the State of
Georgia),  at such time and upon such notice, if any, as it shall determine from
time to time.  Each such  Committee  shall keep minutes of its  proceedings  and
shall  report such  proceedings  to the Board of Directors at the meeting of the
Board of Directors next following any such proceedings.

                  Section  4.04.  QUORUM AND MANNER OF ACTING.  Except as may be
otherwise provided in the resolution creating such Committee, at all meetings of
any  Committee  the presence of members (or alternate  members)  constituting  a
majority of the total authorized membership of such Committee shall constitute a
quorum for the  transaction of business.  The act of the majority of the members
present at any  meeting  at which a quorum is  present  shall be the act of such
Committee.  Any action  required or  permitted to be taken at any meeting of any
such Committee may be taken without a meeting,  if all members of such Committee
shall  consent to such action in writing and such  writing or writings are filed
with the minutes of the  proceedings of the  Committee.  The members of any such
Committee  shall act only as a  Committee,  and the  individual  members of such
Committee shall have no power as such.

                  Section 4.05. ACTION BY TELEPHONIC COMMUNICATIONS.  Members of
any Committee  designated by the Board of Directors may participate in a meeting
of such  Committee by means of  conference  telephone or similar  communications
equipment  by means of which all persons  participating  in the meeting can hear
each other, and


                                                    


<PAGE>



participation in a meeting pursuant to this provision shall constitute  presence
in person at such meeting.

                  Section 4.06. ABSENT OR DISQUALIFIED  MEMBERS.  In the absence
or disqualification of a member of any Committee,  the member or members thereof
present at any meeting and not disqualified from voting,  whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the Board
of  Directors  to  act at the  meeting  in the  place  of  any  such  absent  or
disqualified member.

                  Section  4.07.  RESIGNATIONS.  Any member  (and any  alternate
member) of any Committee  may resign at any time by delivering a written  notice
of resignation,  signed by such member,  to the Chairman of the Board, or to the
President.  Unless otherwise  specified  therein,  such  resignation  shall take
effect upon delivery.

                  Section 4.08.  REMOVAL.  Any member (and any alternate member)
of any  Committee  may be  removed  from his or her  position  as a  member  (or
alternate  member, as the case may be) of such Committee at any time, either for
or without  cause,  by  resolution  adopted by a majority  of the whole Board of
Directors.

                  Section  4.09.  VACANCIES.  If any vacancy  shall occur in any
Committee,  by  reason  of  disqualification,  death,  resignation,  removal  or
otherwise,  the remaining members (and any alternate  members) shall continue to
act, and any such vacancy may be filled by the Board of Directors.


                                    ARTICLE V

                                    OFFICERS

                  Section 5.01. NUMBER. The officers of the Corporation shall be
chosen by the  Board of  Directors  and  shall be a  Chairman  of the  Board,  a
President, a Chief Financial Officer, one or more Vice Presidents,  a Secretary,
and a  Treasurer.  The Board of Directors  also may elect one or more  Assistant
Secretaries  and Assistant  Treasurers in such numbers as the Board of Directors
may determine.  Any number of offices may be held by the same person. No officer
need be a director of the Corporation.

                  Section 5.02.  ELECTION.  Unless  otherwise  determined by the
Board of  Directors,  the  officers of the  Corporation  shall be elected by the
Board of Directors at the annual meeting of the Board of Directors, and shall be
elected to hold office until the next succeeding  annual meeting of the Board of
Directors. In the event of the



<PAGE>



failure to elect officers at such annual meeting, officers may be elected at any
regular or special  meeting of the Board of  Directors.  Each officer shall hold
office until his or her successor has been elected and  qualified,  or until his
or her earlier death, resignation or removal.

                  Section  5.03.  SALARIES.  The  salaries of all  officers  and
agents of the  Corporation  elected by the Board of Directors  shall be fixed by
the Board of  Directors,  but this  authority  may be  delegated to any officer,
agent or employee of the Corporation as to persons under his or her direction or
control.

                  Section 5.04. REMOVAL AND RESIGNATION;  VACANCIES. Any officer
may be removed for or without cause at any time by the Board of  Directors.  Any
officer may resign at any time by  delivering a written  notice of  resignation,
signed by such  officer,  to the Board of  Directors  or the  President.  Unless
otherwise  specified therein,  such resignation shall take effect upon delivery.
Any vacancy  occurring in any office of the  Corporation by death,  resignation,
removal or otherwise, shall be filled by the Board of Directors.

                  Section 5.05.  AUTHORITY AND DUTIES OF OFFICERS.  The officers
of the Corporation  shall have such authority and shall exercise such powers and
perform  such duties as may be specified  in these  By-Laws,  except that in any
event each officer shall  exercise such powers and perform such duties as may be
required by law.

                  Section 5.06.  THE CHAIRMAN OF THE BOARD.  The Chairman of the
Board,  when present,  shall preside at all meetings of the stockholders and the
Board of Directors. The Chairman of the Board shall perform other duties usually
pertaining  to the office of a  chairman  of the board of  directors,  and shall
perform  such other  duties and have such other powers as the Board of Directors
shall designate from time to time.

                  Section 5.07. THE PRESIDENT.  The President shall be the chief
executive officer and the chief operating officer of the Corporation, shall have
general   control  and  supervision  of  the  policies  and  operations  of  the
Corporation  and  shall  see that all  orders  and  resolutions  of the Board of
Directors  are carried into effect.  He or she shall manage and  administer  the
Corporation's  business  and  affairs  and shall  also  perform  all  duties and
exercise  all  powers  usually  pertaining  to the  office of a chief  executive
officer and a chief operating officer of a corporation. He or she shall have the
authority to sign, in the name and on behalf of the Corporation, checks, orders,
contracts,  leases,  notes,  drafts  and  other  documents  and  instruments  in
connection with the business of the Corporation, and together with the Secretary
or an Assistant  Secretary,  conveyances of real estate and other  documents and
instruments  to which the seal of the  Corporation  is affixed.  He or she shall
have the authority to cause the

                                                   


<PAGE>



employment or appointment of such employees and agents of the Corporation as the
conduct  of  the  business  of  the  Corporation  may  require,   to  fix  their
compensation,  and to  remove  or  suspend  any  employee  or agent  elected  or
appointed  by the  President  or the Board of  Directors.  The  President  shall
perform  such other  duties and have such other powers as the Board of Directors
or the Chairman may from time to time prescribe.

                  Section 5.08. THE VICE  PRESIDENT.  Each Vice President  shall
perform such duties and exercise such powers as may be assigned to him from time
to time by the  President.  In the absence of the  President,  the duties of the
President  shall be  performed  and his  powers  may be  exercised  by such Vice
President as shall be designated by the President,  or failing such designation,
such duties  shall be  performed  and such powers may be  exercised by each Vice
President in the order of their earliest election to that office, subject in any
case to review and superseding action by the President.

                  Section 5.09.  THE  SECRETARY.  The  Secretary  shall have the
following powers and duties:

                  (a) He or she  shall  keep or cause to be kept a record of all
         the proceedings of the meetings of the stockholders and of the Board of
         Directors in books provided for that purpose.

                  (b) He or she shall  cause  all  notices  to be duly  given in
         accordance with the provisions of these By-Laws and as required by law.

                  (c) Whenever any  Committee  shall be appointed  pursuant to a
         resolution of the Board of Directors, he or she shall furnish a copy of
         such resolution to the members of such Committee.

                  (d) He or she shall be the custodian of the records and of the
         seal of the Corporation and cause such seal (or a facsimile thereof) to
         be affixed to all certificates  representing  shares of the Corporation
         prior to the issuance  thereof and to all  instruments the execution of
         which on  behalf of the  Corporation  under  its seal  shall  have been
         requested and duly  authorized in accordance  with these  By-Laws,  and
         when so affixed he or she may attest the same.

                  (e) He or she  shall  properly  maintain  and file all  books,
         reports,  statements,  certificates and all other documents and records
         required by law, the Articles of Incorporation or these By-Laws.


                                                  


<PAGE>



                  (f) He or she shall have charge of the stock books and ledgers
         of the  Corporation  and shall cause the stock and transfer books to be
         kept in such  manner  as to show at any time the  number  of  shares of
         stock of the  Corporation  of each class  issued and  outstanding,  the
         names  (alphabetically  arranged)  and the  addresses of the holders of
         record of such shares, the number of shares held by each holder and the
         date as of which each became such holder of record.

                  (g) He or she shall sign (unless the  Treasurer,  an Assistant
         Treasurer or an  Assistant  Secretary  shall have signed)  certificates
         representing shares of the Corporation the issuance of which shall have
         been authorized by the Board of Directors.

                  (h) He or she shall perform,  in general,  all duties incident
         to the office of secretary and such other duties as may be specified in
         these  By-Laws or as may be assigned to him or her from time to time by
         the Board of Directors or the President.

                  Section 5.10. THE CHIEF FINANCIAL OFFICER. The Chief Financial
Officer of the Corporation shall have the following powers and duties:

                  (a) He or she shall have  charge and  supervision  over and be
         responsible for the moneys,  securities,  receipts and disbursements of
         the  Corporation,  and shall keep or cause to be kept full and accurate
         records of all receipts of the Corporation.

                  (b) He or she  shall  cause  the  moneys  and  other  valuable
         effects  of the  Corporation  to be  deposited  in the  name and to the
         credit of the Corporation in such banks or trust companies or with such
         bankers or other  depositaries  as shall be selected in accordance with
         Section 8.05 of these By-Laws.

                  (c) He or she shall cause the moneys of the  Corporation to be
         disbursed  by checks or drafts  (signed as provided in Section  8.06 of
         these By-Laws) upon the authorized  depositaries of the Corporation and
         cause  to be  taken  and  preserved  proper  vouchers  for  all  moneys
         disbursed.

                  (d) He or she shall  render to the Board of  Directors  or the
         President,  whenever requested,  a statement of the financial condition
         of the  Corporation  and  of all  his  or  her  transactions  as  Chief
         Financial  Officer,  and render a full  financial  report at the annual
         meeting of the stockholders, if called upon to do so.


                                                    


<PAGE>



                  (e) He or she shall be empowered  from time to time to require
         from all officers or agents of the  Corporation  reports or  statements
         giving such information as he or she may desire with respect to any and
         all financial transactions of the Corporation.

                  (f) He or she shall perform,  in general,  all duties incident
         to the office of chief  financial  officer and such other duties as may
         be specified in these  By-Laws or as may be assigned to him or her from
         time to time by the Board of Directors or the President.

                  Section 5.11. THE TREASURER.  The Treasurer shall perform such
duties usually pertaining to the office of treasurer and shall also perform such
other  duties and have such other  powers as may be  assigned to him or her from
time to time by the Board of Directors or the President.

                  Section 5.12. ADDITIONAL OFFICERS.  The Board of Directors may
appoint  such other  officers  and agents as it may deem  appropriate,  and such
other  officers  and agents  shall hold their  offices  for such terms and shall
exercise such powers and perform such duties as may be  determined  from time to
time by the Board of  Directors.  The Board of  Directors  from time to time may
delegate  to any officer or agent the power to appoint  subordinate  officers or
agents and to prescribe their respective  rights,  terms of office,  authorities
and duties. Any such officer or agent may remove any such subordinate officer or
agent appointed by him or her, for or without cause.



                                   ARTICLE VI

                                  CAPITAL STOCK

                  Section 6.01.  CERTIFICATES OF STOCK,  UNCERTIFICATED  SHARES.
The shares of the  Corporation  shall be represented by  certificates,  provided
that the Board of Directors may provide by resolution or  resolutions  that some
or all of any or all classes or series of the stock of the Corporation  shall be
uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate  until each  certificate  is  surrendered  to the  Corporation.
Notwithstanding  the  adoption of such a resolution  by the Board of  Directors,
every holder of stock in the Corporation  represented by  certificates  and upon
request  every  holder of  uncertificated  shares  shall be  entitled  to have a
certificate  signed  by the  Chairman  of the  Board,  the  President  or a Vice
President,  and by the  Secretary or an Assistant  Secretary,  representing  the
number of shares  registered in certificate  form.  Such signature may be either
manual or in

                                                   


<PAGE>



facsimile,   provided  that  if  such  signature  is  in  facsimile,  then  such
certificate  must be  countersigned  by a  transfer  agent  or  registered  by a
registrar  other than the  Corporation  or an  employee of a  Corporation.  Such
signature of a transfer  agent or registrar may be manual or by facsimile.  Such
certificate  shall be in such form as the Board of Directors may  determine,  to
the extent  consistent with applicable  law, the Articles of  Incorporation  and
these By-Laws.

                  Section 6.02. SIGNATURES.  In case any officer, transfer agent
or registrar who has signed, or whose facsimile  signature has been placed upon,
a certificate shall have ceased to be such officer,  transfer agent or registrar
before such certificate is issued,  it may be issued by the Corporation with the
same effect as if he or she were such  officer,  transfer  agent or registrar at
the date of issue.

                  Section  6.03.  LOST,  STOLEN OR DESTROYED  CERTIFICATES.  The
Board of Directors may direct that a new  certificate  be issued in place of any
certificate  thereto fore issued by the  Corporation  alleged to have been lost,
stolen or destroyed,  upon delivery to the Board of Directors of an affidavit of
the owner or owners of such  certificate,  setting  forth such  allegation.  The
Board of  Directors  may  require  the owner of such lost,  stolen or  destroyed
certificate,  or his  legal  representative,  to  give  the  Corporation  a bond
sufficient  to  indemnify  it against  any claim that may be made  against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate.

                  Section  6.04.  TRANSFER OF STOCK.  Transfers of shares of the
Corporation shall be made only on the books of the Corporation by the registered
holder  thereof,  or by his duly authorized  attorney,  or with a duly appointed
transfer agent or registrar, and on surrender of the certificate or certificates
for such shares  properly  endorsed  and the payment of all taxes  thereon.  The
Board of Directors  may make such  additional  rules  concerning  the  issuance,
transfer and registration of stock and requirements  regarding the establishment
of  lost,  destroyed  and  wrongfully  taken  stock  certificates  as  it  deems
appropriate.

                  Section  6.05.  RECORD DATE.  Subject to Section 2.12 of these
By-Laws, in order to determine the stockholders entitled to notice of or to vote
at any meeting of stockholders  or any adjournment  thereof or to take any other
action,  the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date on which the  resolution  fixing the record date
is adopted by the Board of  Directors,  and which shall not be more than seventy
nor  less  than  ten  days  before  the  date  of  such  meeting  or  action.  A
determination of stockholders of record entitled to



                                                  


<PAGE>



notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the  meeting  unless the Board of  Directors  fixes a new record date for the
adjourned meeting.

                  In order that the Corporation  may determine the  stockholders
entitled to receive  payment of any dividend or other  distribution or allotment
of any rights of the stockholders  entitled to exercise any rights in respect of
any change,  conversion  or exchange of stock,  the Board of Directors may fix a
record  date,  which  record  date  shall not  precede  the date upon  which the
resolution fixing the record date is adopted, and which record date shall be not
more than sixty  days  prior to such  action.  If no record  date is fixed,  the
record date for  determining  stockholders  for any such purpose shall be at the
close  of  business  on the day on  which  the  Board of  Directors  adopts  the
resolution relating thereto.

                  Section 6.06. REGISTERED STOCKHOLDERS.  Prior to due surrender
of a certificate  for  registration  of transfer,  the Corporation may treat the
registered  owner as the person  exclusively  entitled to receive  dividends and
other  distributions,  to vote, to receive  notice and otherwise to exercise all
the  rights  and  powers  of  the  owner  of  the  shares  represented  by  such
certificate,  and the Corporation  shall not be bound to recognize any equitable
or legal claim to or  interest  in such shares on the part of any other  person,
whether or not the  Corporation  shall have  notice of such claim or  interests,
except as  otherwise  required by law.  Whenever any transfer of shares shall be
made for collateral  security,  and not absolutely,  it shall be so expressed in
the  entry of the  transfer  if,  when the  certificates  are  presented  to the
Corporation  for  transfer  or   uncertificated   shares  are  requested  to  be
transferred,  both the transferor and transferee  request the  Corporation to do
so.

                  Section  6.07.  TRANSFER  AGENT  AND  REGISTRAR.  The Board of
Directors  may appoint one or more transfer  agents and one or more  registrars,
and may require all  certificates  representing  shares to bear the signature of
any such transfer agents or registrars.


                                   ARTICLE VII

                                 INDEMNIFICATION

                  Section  7.01.  NATURE OF  INDEMNITY.  The  Corporation  shall
indemnify  any person who was or is a party or is  threatened to be made a party
to  any  threatened,   pending  or  completed  action,  suit  or  proceeding  (a
"Proceeding"),  whether civil,  criminal,  administrative or  investigative,  by
reason of the fact that he or she is or was

                                                  


<PAGE>



or has agreed to become a director or officer of the  Corporation,  or is or was
serving or has agreed to serve at the request of the  Corporation  as a director
or officer of another corporation,  partnership,  joint venture,  trust or other
enterprise,  or by reason of any action alleged to have been taken or omitted in
such  capacity,  and may  indemnify  any  person  who  was or is a  party  or is
threatened to be made a party to such an action, suit or proceeding by reason of
the fact that he or she is or was or has agreed to become an  employee  or agent
of the  Corporation,  or is or was serving or has agreed to serve at the request
of the Corporation as an employee or agent of another corporation,  partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees),  judgments,  fines and amounts paid in settlement actually and reasonably
incurred by him or her or on his or her behalf in  connection  with such action,
suit or proceeding  and any appeal  therefrom,  if he or she acted in good faith
and in a manner that, if such conduct was made in his or her official  capacity,
he or she reasonably believed was in the best interests of the Corporation,  or,
in all other cases, he or she reasonably  believed to be at least not opposed to
the best interests of the Corporation,  and, with respect to any criminal action
or proceeding, he or she had no reasonable cause to believe was unlawful; except
that the Corporation shall not indemnify a director or officer (I) in connection
with a proceeding by or in the right of the  Corporation,  except for reasonable
expenses incurred in connection with the proceeding if it is determined that the
director has met the relevant  standard of conduct  under this Section  7.01, or
(II) in connection  with any proceeding  with respect to conduct for which he or
she was  adjudged  liable on the basis  that  personal  benefit  was  improperly
received by him or her,  whether or not involving  action in his or her official
capacity.

                  Section 7.02. SUIT AGAINST  CORPORATION.  Notwithstanding  the
foregoing,  but subject to Section 7.04 of these By-Laws,  the Corporation shall
not be  obligated  to  indemnify  a director  or officer of the  Corporation  in
respect  of a  Proceeding  (or part  thereof)  instituted  by such  director  or
officer,  unless such  Proceeding  (or part thereof) has been  authorized by the
Board of Directors.

                  Section 7.03. NO  PRESUMPTION.  The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea of
NOLO  CONTENDERE or its equivalent,  shall not, of itself,  create a presumption
that  the  person  did not act in good  faith  and in a  manner  which he or she
reasonably  believed to be in, or at least not opposed to, the best interests of
the  Corporation,  and, with respect to any criminal  action or proceeding,  had
reasonable cause to believe that his conduct was unlawful.




                                                    


<PAGE>



                  Section  7.04.  SUCCESSFUL  DEFENSE.  To  the  extent  that  a
director  or officer of the  Corporation  has been  successful  on the merits or
otherwise in defense of any action,  suit or proceeding to which he or she was a
party  because  he or  she  was a  director  or  officer,  he or  she  shall  be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.

                  Section 7.05.  ADVANCE FOR  EXPENSES.  Subject to Section 7.07
hereof,  the Corporation may, before final disposition of a Proceeding,  advance
funds to pay for or reimburse the reasonable  expenses incurred by a director or
officer  who is a party  to a  Proceeding  because  he or she is a  director  or
officer of the  Corporation,  provided that such director or officer delivers to
the Corporation prior to such a decision (I) a written affirmation of his or her
good  faith  belief  that he or she has met the  relevant  standard  of  conduct
described  in Section  7.01  hereof,  or that the subject of the  Proceeding  is
conduct  for  which  liability  has been  eliminated  under a  provision  of the
Articles  of  Incorporation  of the  Corporation;  and (II) a written  unlimited
general  undertaking to repay any funds advanced if it is ultimately  determined
that such  director  or officer is not  entitled  to  indemnification  under the
Articles of Incorporation of the Corporation or these By-Laws.

                  Section   7.06.    DETERMINATION    AND    AUTHORIZATION    OF
INDEMNIFICATION. Any indemnification of a director or officer of the Corporation
under Section 7.01 of these By-Laws (unless ordered by a court) shall be made by
the  Corporation  unless a  determination  is made that  indemnification  of the
director or officer is not proper in the circumstances because he or she has not
met the  applicable  standard  of  conduct  set forth in  Section  7.01 of these
By-Laws.  Any  indemnification  of an employee or agent of the Corporation under
Section  7.01 of these  By-Laws  (unless  ordered by a court) may be made by the
Corporation upon a determination  that  indemnification of the employee or agent
is proper in the circumstances because he or she has met the applicable standard
of conduct set forth in Section 7.01 of these  By-Laws.  Any such  determination
shall be made by the Corporation in the following  manner:  (1) if there are two
or more  disinterested  directors  (as such term is defined in O.C.G.A.  Section
14-2-  850),  by  the  Board  of  Directors  by  a  majority  vote  of  all  the
disinterested  directors (a majority of whom shall for such purpose constitute a
quorum)  or by a  majority  of  the  members  of a  committee  of  two  or  more
disinterested  directors  appointed by such a vote; (2) by special legal counsel
selected in the manner  described in subsection  (1) of this Section 7.06 or, if
there are  fewer  than two  disinterested  directors,  selected  by the Board of
Directors in accordance  with Section 3.07 hereof;  or (3) by the  stockholders,
but  shares  owned by or voted  under the  control  of a  director  who is not a
disinterested director, or an officer,  employee or agent, who at the time would
not qualify as a disinterested director if he or she were a director, may not be
voted on the determination.

                                                    


<PAGE>



                  Section 7.07.  DETERMINATION TO ADVANCE EXPENSES. The decision
to advance  funds to an officer or director  under  Section 7.05 hereof shall be
made by the Corporation in the following  manner:  (1) by the Board of Directors
when there are two or more  disinterested  directors,  by a majority vote of all
disinterested  directors  (a  majority  of whom for such  purpose  constitute  a
quorum)  or by a  majority  of  the  members  of a  committee  of  two  or  more
disinterested  directors;  (2) when  there  are  fewer  than  two  disinterested
directors, by the vote of a majority of the Board of Directors without regard to
whether or not any such director is  disinterested;  or (3) by the Stockholders,
but shares  owned or voted under the control of a director  who at the time does
not qualify as a  disinterested  director with respect to the proceeding may not
be voted on the authorization.

                  Section 7.08.  PROCEDURE FOR  INDEMNIFICATION OF DIRECTORS AND
OFFICERS. Any indemnification of a director,  officer,  employee or agent of the
Corporation  under  Section  7.01 of these  By-Laws,  or the  advance  of costs,
charges  and  expenses  to a director  or officer  under  Section  7.05 of these
By-Laws,  shall be made promptly,  and in any event within thirty days, upon the
written request of such person. If the Corporation fails to respond within sixty
days to a written request for indemnity or advancement of expenses by a director
or officer,  the Corporation  shall be deemed to have approved such request.  If
the  Corporation  fails to respond  within  sixty days to a written  request for
indemnity or advancement of expenses by an employee or agent of the Corporation,
the Corporation shall be deemed to have denied such request.  If the Corporation
denies a written  request for indemnity or advancement of expenses,  in whole or
in part,  or if  payment in full  pursuant  to such  request is not made  within
thirty days, the right to indemnification or advances as granted by this Article
shall be  enforceable  by the  director  or  officer  in any court of  competent
jurisdiction.  Such  person's  costs and expenses  incurred in  connection  with
successfully establishing his right to indemnification,  in whole or in part, in
any such action  shall also be  indemnified  by the  Corporation.  To the extent
allowed by law, it shall be a defense to any such  action  (other than an action
brought to enforce a claim for the advance of costs,  charges and expenses under
Section 7.05 of these By-Laws where the required  undertaking,  if any, has been
received by or tendered to the  Corporation)  that the  claimant has not met the
standard of conduct set forth in Section 7.01 of these ByLaws, but the burden of
proving such  defense  shall be on the  Corporation.  Neither the failure of the
Corporation  (including its Board of Directors,  its independent  legal counsel,
and its stockholders) to have made a determination  prior to the commencement of
such action that  indemnification of the claimant is proper in the circumstances
because he has met the applicable  standard of conduct set forth in Section 7.01
of these By-Laws,  nor the fact that there has been an actual  determination  by
the  Corporation  (including  its  Board of  Directors,  its  independent  legal
counsel, and its stockholders)


                                                  


<PAGE>



that the claimant has not met such  applicable  standard of conduct,  shall be a
defense to the action or create a presumption  that the claimant has not met the
applicable standard of conduct.

                  Section 7.09.  SURVIVAL;  PRESERVATION  OF OTHER  RIGHTS.  The
foregoing  indemnification  provisions  shall be deemed to be a contract between
the Corporation and each director, officer, employee and agent who serves in any
such  capacity  at any  time  while  these  provisions  as well as the  relevant
provisions of the Georgia Business Corporation Code are in effect and any repeal
or  modification  thereof shall not affect any right or obligation then existing
with  respect to any state of facts then or  previously  existing or any action,
suit or proceeding previously or thereafter brought or threatened based in whole
or in part upon any such  state of facts.  Such a  "contract  right"  may not be
modified retroactively without the consent of such director,  officer,  employee
or agent.

                  The indemnification  provided by this Article VII shall not be
deemed exclusive of any other rights to which those  indemnified may be entitled
under any by-law,  agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another  capacity  while holding such office,  and shall continue as to a person
who has ceased to be a director,  officer,  employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.

                  Section  7.10.  INSURANCE.  The  Corporation  may purchase and
maintain insurance on behalf of any person who is or was or has agreed to become
a director or officer of the Corporation, or is or was serving at the request of
the  Corporation as a director or officer of another  corporation,  partnership,
joint  venture,  trust,  employee  benefit  plan or  other  entity  against  any
liability  asserted  against him or her and  incurred by him or her or on his or
her behalf in any such  capacity,  or arising  out of his or her status as such,
whether  or not the  Corporation  would have the power to  indemnify  him or her
against such liability under the provisions of this Article,  PROVIDED that such
insurance is available on acceptable terms, which determination shall be made by
a vote of a majority of the entire Board of Directors.

                  Section  7.11.  SEVERABILITY.  If this  Article or any portion
hereof  shall  be   invalidated   on  any  ground  by  any  court  of  competent
jurisdiction, then the Corporation shall nevertheless indemnify each director or
officer and may indemnify each employee or agent of the Corporation as to costs,
charges and expenses (including attorneys' fees),  judgments,  fines and amounts
paid in  settlement  with  respect to any action,  suit or  proceeding,  whether
civil, criminal, administrative or investigative, including an


                                                  


<PAGE>



action by or in the right of the Corporation, to the fullest extent permitted by
any applicable  portion of this Article that shall not have been invalidated and
to the fullest extent permitted by applicable law.



                                  ARTICLE VIII

                               GENERAL PROVISIONS

                  Section 8.01. DIVIDENDS.  Subject to any applicable provisions
of law and the  Articles  of  Incorporation,  dividends  upon the  shares of the
Corporation  may be declared by the Board of Directors at any regular or special
meeting of the Board of  Directors  and any such  dividend  may be paid in cash,
property, or shares of the Corporation's capital stock.

                  Section  8.02.  RESERVES.  There  may be set  aside out of any
funds of the  Corporation  available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute  discretion,  thinks proper as a
reserve or reserves to meet contingencies,  or for equalizing dividends,  or for
repairing  or  maintaining  any  property of the  Corporation  or for such other
purpose as the Board of Directors  shall think  conducive to the interest of the
Corporation, and the Board of Directors may similarly modify or abolish any such
reserve.

                  Section 8.03.  EXECUTION OF  INSTRUMENTS.  The Chairman of the
Board,  the President,  any Vice  President,  the Secretary or the Treasurer may
enter into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation.  The Board of Directors, the Chairman of the Board or
the  President  may  authorize  any  other  officer  or agent to enter  into any
contract or execute and deliver any  instrument in the name and on behalf of the
Corporation.  Any such  authorization  may be general  or  limited  to  specific
contracts or instruments.

                  Section  8.04.  CORPORATE  INDEBTEDNESS.   No  loan  shall  be
contracted on behalf of the Corporation,  and no evidence of indebtedness  shall
be issued in its name, unless authorized by the Board of Directors, the Chairman
of the Board or the Presi dent. Such authorization may be general or confined to
specific  instances.  Loans so  authorized  may be  effected at any time for the
Corporation from any bank, trust company or other institution, or from any firm,
corporation or individual. All bonds, debentures, notes and other obligations or
evidences  of  indebtedness  of the  Corporation  issued for such loans shall be
made,  executed  and  delivered as the Board of  Directors,  the Chairman of the
Board or the President shall authorize. When so authorized by the

                                                    


<PAGE>



Board of Directors,  the Chairman of the Board or the President,  any part of or
all the properties,  including contract rights, assets, business or good will of
the Corporation,  whether then owned or thereafter  acquired,  may be mortgaged,
pledged,  hypothecated  or conveyed  or  assigned  in trust as security  for the
payment of such bonds,  debentures,  notes and other obligations or evidences of
indebtedness of the  Corporation,  and of the interest  thereon,  by instruments
executed and delivered in the name of the Corporation.

                  Section 8.05.  DEPOSITS.  Any funds of the  Corporation may be
deposited from time to time in such banks, trust companies or other depositaries
as may be determined by the Board of Directors, the Chairman of the Board or the
President,  or by such  officers or agents as may be  authorized by the Board of
Directors,   the   Chairman  of  the  Board  or  the   President  to  make  such
determination.

                  Section  8.06.  CHECKS.  All checks or  demands  for money and
notes of the  Corporation  shall be signed by such  officer or  officers or such
agent  or  agents  of the  Corporation,  and in such  manner,  as the  Board  of
Directors,  the  Chairman  of the Board or the  President  from time to time may
determine.

                  Section  8.07.  SALE,  TRANSFER,  ETC. OF  SECURITIES.  To the
extent  authorized by the Board of  Directors,  the Chairman of the Board or the
President,  any Vice  President,  the  Secretary  or the  Treasurer or any other
officers designated by the Board of Directors,  the Chairman of the Board or the
President may sell, transfer,  endorse, and assign any shares of stock, bonds or
other securities owned by or held in the name of the Corporation,  and may make,
execute and deliver in the name of the  Corporation,  under its corporate  seal,
any  instruments  that may be  appropriate  to effect any such  sale,  transfer,
endorsement or assignment.

                  Section  8.08.   VOTING  AS  STOCKHOLDER.   Unless   otherwise
determined by  resolution of the Board of Directors,  the Chairman of the Board,
the  President  or any Vice  President  shall have full power and  authority  on
behalf  of  the  Corporation  to  attend  any  meeting  of  stockholders  of any
corporation  in which  the  Corporation  may hold  stock,  and to act,  vote (or
execute  proxies to vote) and  exercise in person or by proxy all other  rights,
powers and  privileges  incident to the  ownership of such stock.  Such officers
acting on behalf of the  Corporation  shall  have full  power and  authority  to
execute any instrument  expressing  consent to or dissent from any action of any
such  corporation  without a meeting.  The Board of Directors  may by resolution
from time to time  confer  such  power and  authority  upon any other  person or
persons.

                  Section 8.09.  SEAL. The seal of the  Corporation  shall be in
such form as



                                                    


<PAGE>


the Board of Directors may from time to time determine.  The seal may be used by
causing it or a facsimile thereof to be impressed, affixed or reproduced, or may
be used in any other lawful manner.

                  Section  8.10.  BOOKS AND RECORDS;  INSPECTION.  Except to the
extent otherwise required by law, the books and records of the Corporation shall
be kept at such place or places within or without the State of Georgia as may be
determined from time to time by the Board of Directors.

                                   ARTICLE IX

                              AMENDMENT OF BY-LAWS

                  Section 9.01. AMENDMENT. These By-Laws may be amended, altered
or repealed, unless otherwise specified by law:

                  (a) by  resolution  adopted  by a  majority  of the  Board  of
         Directors  at any  special or  regular  meeting of the Board if, in the
         case of such special meeting only, notice of such amendment, alteration
         or  repeal  is  contained  in the  notice  or  waiver of notice of such
         meeting; or

                  (b) at any regular or special meeting of the  stockholders if,
         in the case of such special  meeting  only,  notice of such  amendment,
         alteration  or repeal is contained in the notice or waiver of notice of
         such meeting.


                                    ARTICLE X

                                  CONSTRUCTION

                  Section  10.01.  CONSTRUCTION.  In the  event of any  conflict
between the  provisions  of these By-Laws as in effect from time to time and the
provisions of the Articles of Incorporation of the Corporation as in effect from
time to  time,  the  provisions  of such  Articles  of  Incorporation  shall  be
controlling.








                                                   


<PAGE>





                                                               EXHIBIT 10.7(a)

                               INDEMNITY AGREEMENT


         AGREEMENT,  effective as of October 9, 1997 (the "Agreement"),  between
FORSTMANN & COMPANY,  INC., a Georgia  corporation (the  "Company"),  and [NAME]
("Indemnitee"), [ADDRESS],[CITY], [STATE] [ZIP CODE].

         WHEREAS,  it is  essential  to the  Company  to retain  and  attract as
executive officers the most capable persons available; and

         WHEREAS,  both the Company and Indemnitee  recognize the increased risk
of litigation and other claims being asserted against  directors and officers of
public companies in today's environment; and

         WHEREAS,  the  Company  wishes to  provide  in this  Agreement  for the
indemnification  of and the  advancing  of  expenses to  Indemnitee  to the full
extent (whether  partial or complete)  authorized or permitted by law and as set
forth in this  Agreement,  and, to the extent  insurance is maintained,  for the
continued  coverage of Indemnitee  under the Company's  directors' and officers'
liability insurance policies; and

         WHEREAS,  the  Company,  in order to induce  Indemnitee  to continue to
serve as an  executive  officer,  has  agreed  to  provide  Indemnitee  with the
benefits contemplated by this Agreement;

         NOW,  THEREFORE,  in  consideration of the premises and of Indemnitee's
agreeing  to serve or to  continue  to serve  the  Company  directly  or, at its
request,  another  enterprise,  and intending to be legally  bound  hereby,  the
parties hereto agree as follows:

         1.       BASIC INDEMNIFICATION ARRANGEMENT.

                  (a) In the event  Indemnitee was, is, or becomes a party to or
witness  or other  participant  in,  or is  threatened  to be made a party to or
witness or other  participant  in, a Claim by reason of (or  arising in part out
of) an Indemnifiable  Event, the Company shall indemnify  Indemnitee to the full
extent authorized or permitted by law as soon as practicable but in any event no
later than thirty (30) days after  written  demand is  presented to the Company,
against any and all Expenses,  judgments,  fines,  penalties and amounts paid in
settlement  (including  all  interest,  assessments  and other  charges  paid or
payable in connection  with or in respect of such  Expenses,  judgments,  fines,
penalties or amounts paid in settlement) of such Claim; provided, however, that,
except for proceedings to enforce rights to  indemnification,  the Company shall
not be obligated to indemnify  Indemnitee  in connection  with a proceeding  (or
part thereof)

                                                   

<PAGE>



initiated by Indemnitee  unless such proceeding (or part thereof) was authorized
in  advance,  or  unanimously  consented  to, by the Board of  Directors  of the
Company.  If so requested by Indemnitee,  the Company shall advance  (within two
(2) business days of such request), on an unsecured and interest-free basis, any
and all Expenses to Indemnitee (an "Expense Advance"),  provided that Indemnitee
affirms in writing  Indemnitee's  good faith belief that  Indemnitee has met the
required standard of conduct for indemnification under applicable law.

                  (b)  Notwithstanding  the foregoing (I) the obligations of the
Company  under  Section  1(a)  shall  be  subject  to  the  condition  that  the
Independent  Legal Counsel shall not have  determined in a written  opinion that
Indemnitee  would not be permitted to be indemnified  under  applicable law, and
(II) the  obligation  of the  Company to make an  Expense  Advance  pursuant  to
Section 1(a) shall be subject to the condition  that, if, when and to the extent
that the  Independent  Legal Counsel  determines  that  Indemnitee  would not be
permitted  to be so  indemnified  under  applicable  law,  the Company  shall be
entitled to be  reimbursed  by  Indemnitee  (who hereby  agrees to reimburse the
Company) for all such  amounts  theretofore  paid;  provided,  however,  that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent  jurisdiction  to secure a  determination  that  Indemnitee  should be
indemnified  under  applicable  law, any  determination  made by the Independent
Legal Counsel that  Indemnitee  would not be permitted to be  indemnified  under
applicable  law shall not be binding,  and  Indemnitee  shall not be required to
reimburse  the  Company  for  any  Expense   Advance  until  a  final   judicial
determination  is made with  respect  thereto  (as to which all rights of appeal
therefrom have been exhausted or lapsed).  If there has been no determination by
the  Independent  Legal Counsel or if the Independent  Legal Counsel  determines
that  Indemnitee  would not be permitted to be  indemnified  in whole or in part
under applicable law,  Indemnitee shall have the right to commence litigation in
any  court  in  the  States  of  Georgia  or  New  York  having  subject  matter
jurisdiction   thereof  and  in  which  venue  is  proper   seeking  an  initial
determination  by  the  court  or  challenging  any  such  determination  by the
Independent Legal Counsel or any aspect thereof,  including the legal or factual
bases  therefor,  and the  Company  hereby  consent to service of process and to
appear  in any such  proceeding.  Any  determination  by the  Independent  Legal
Counsel otherwise shall be conclusive and binding on the Company and Indemnitee.

                  (c) No change in the Company's  Articles of Incorporation (the
"Articles")  or Amended and Restated  By-Laws (the  "By-Laws") or in the Georgia
Business  Corporation  Code  subsequent to the date of this Agreement shall have
the effect of limiting or eliminating the  indemnification  available under this
Agreement as to any act, omission or capacity for which this Agreement  provides
indemnification  at the time of such act,  omission or  capacity.  If any change
after the date of this Agreement in the Articles or By-Laws of the Company or in
any  applicable  law,  statute  or rule  expands  the  power of the  Company  to
indemnify the Indemnitee, such change

                                                   

<PAGE>



shall to the same  extent  expand  the  Indemnitee's  rights  and the  Company's
obligations  under this  Agreement.  If any change in the Articles or By-Laws of
the Company or in any applicable  law,  statute or rule  diminishes the power of
the Company to  indemnify  the  Indemnitee,  such  change,  except to the extent
otherwise  required  by law,  statute or rule to be  applied to this  Agreement,
shall have no effect on this  Agreement or the parties'  rights and  obligations
hereunder.

         2. INDEPENDENT LEGAL COUNSEL.  The Company agrees that, in the event of
a  dispute  with  Indemnitee  with  respect  to  any  matter  hereafter  arising
concerning  the rights of Indemnitee to indemnity  payments or Expense  Advances
under this Agreement or any other agreement, or any Articles or By-Law provision
now or hereinafter in effect relating to Claims for  Indemnifiable  Events,  the
Company shall seek legal advice only from Independent  Legal Counsel selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld or  delayed).  The Company  shall notify  Indemnitee  in writing of the
Company's  intention to seek legal advice,  and the Indemnitee  shall notify the
Company of Indemnitee's  choice of Independent  Legal Counsel within thirty (30)
days  thereafter.  Such counsel  shall,  among other things,  render its written
opinion to the  Company  and  Indemnitee  as to whether  and to what  extent the
Indemnitee  would be  permitted  to be  indemnified  under  applicable  law. The
Company  agrees to pay the  reasonable  fees of the  Independent  Legal  Counsel
referred  to above and to  indemnify  fully  such  counsel  against  any and all
expenses (including  attorneys' fees),  claims,  liabilities and damages arising
out of or  relating  to  this  Agreement  or  its  engagement  pursuant  hereto.
Notwithstanding  the foregoing,  the Company shall not be required to seek legal
advice  from more than one (1)  Independent  Legal  Counsel if more than one (1)
party to an Indemnity  Agreement  with the Company seek  indemnity  payments and
Expense  Advances with respect to the same or substantially  similar Claims.  In
such event, the Indemnitees  shall have sixty (60) days to notify the Company of
their choice of Independent Legal Counsel and the selection of Independent Legal
Counsel  shall be made (A) by the  Independent  Director(s)  (as  defined in the
Company's  By-Laws)  seeking such indemnity,  or (B) if no Independent  Director
seeks such  indemnity,  by the  directors  and  officers  of the Company who are
parties to an Indemnity  Agreement with the Company and who seek such indemnity.
The Company shall have the right to select the Independent  Legal Counsel if (X)
Indemnitee  is  entitled  to select the  Independent  Legal  Counsel but has not
timely  notified the Company of Indemnitee's  selection,  (Y) there is a dispute
involving  two (2) or more  Independent  Directors  who do not timely notify the
Company of their choice of a single  Independent Legal Counsel or (Z) there is a
dispute  involving  more than one (1) party to an Indemnity  Agreement,  none of
whom is an Independent  Director,  and all such persons do not timely notify the
Company of their choice of a single Independent Legal Counsel.

         3. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee  against any and all Expenses and, if requested by Indemnitee,  shall
(within

                                                   

<PAGE>



two (2) business  days of such  request)  advance such  Expenses to  Indemnitee,
which are  incurred  by  Indemnitee  in  connection  with any action  brought by
Indemnitee for (I) indemnification or advance payment of Expenses by the Company
under this Agreement or any other agreement, or any Articles or By-Law provision
now or hereafter in effect  relating to Claims for  Indemnifiable  Events and/or
(II) recovery under any directors' and officers'  liability  insurance  policies
maintained by the Company; provided,  however, that if there is a final judicial
determination (as to which all rights of appeal therefrom have been exhausted or
lapsed) that Indemnitee is not entitled to such indemnification, advance payment
of Expenses or insurance  recovery,  Indemnitee  shall reimburse the Company for
all such Expenses theretofore paid under this Section 3.

         4.  PARTIAL  INDEMNITY,  ETC.  If  Indemnitee  is  entitled  under  any
provision  of this  Agreement  to  indemnification  by the Company for some or a
portion of the  Expenses,  judgements,  fines,  penalties  and  amounts  paid in
settlement of a Claim but not, however, for all of the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.  Moreover,  notwithstanding  any other provision of this
Agreement,  to the extent that  Indemnitee has been  successful on the merits or
otherwise  in defense of any or all  Claims  relating  in whole or in part to an
Indemnifiable  Event or in  defense  of any issue or matter  therein,  including
dismissal  without  prejudice,  Indemnitee  shall  be  indemnified  against  all
Expenses incurred in connection therewith.

         5.  BURDEN  OF  PROOF.  In  connection  with any  determination  by the
Independent  Legal Counsel or otherwise as to whether  Indemnitee is entitled to
be  indemnified  hereunder,  the  burden  of proof  shall be on the  Company  to
establish that Indemnitee is not so entitled.

         6. NO PRESUMPTIONS.  For purposes of this Agreement, the termination of
any claim, action, suit or proceeding,  by judgment,  order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo contendere
or its equivalent,  shall not create a presumption  that Indemnitee did not meet
any particular standard of conduct or have any particular belief or that a court
has  determined  that  indemnification  is not permitted by  applicable  law. In
addition,  neither the failure of the  Independent  Legal Counsel to have made a
determination  as to  whether  Indemnitee  has met any  particular  standard  of
conduct or had any particular belief, nor an actual determination by Independent
Legal  Counsel that  Indemnitee  has not met such standard of conduct or did not
have such belief,  prior to the commencement of legal  proceedings by Indemnitee
to secure a judicial  determination  that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that  Indemnitee has not met any particular  standard of conduct or did not have
any particular belief.


                                                   

<PAGE>



         7. NONEXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Articles, By-Laws,
or the Georgia  Business  Corporation  Code or  otherwise.  To the extent that a
change in the Georgia Business  Corporation Code (whether by statute or judicial
decision)  permits greater  indemnification  by agreement than would be afforded
currently under the Articles,  By-Laws and this  Agreement,  it is the intent of
the parties  hereto that  Indemnitee  shall enjoy by this  Agreement the greater
benefits so afforded by such change.


         8.       LIABILITY INSURANCE.

                  (a) The  Company  hereby  represents  and  warrants  that  the
Company has purchased and maintains directors' and officers' liability insurance
consisting  of a policy  issued  by  Executive  Risk  Indemnity  Inc.  providing
$5,000,000  in  coverage,  and an  excess  policy  with Gulf  Insurance  Company
providing $5,000,000 in coverage in excess of $5,000,000,  and that each of such
policies is in full force and effect (the "D&O Insurance").

                  (b) The Company  hereby  covenants and agrees that, so long as
Indemnitee  shall  continue to serve as a director or officer of the Company and
thereafter  so long as  Indemnitee  shall be  subject to any  possible  claim or
threatened,  pending or completed  action,  suit or  proceeding,  whether civil,
criminal or investigative,  by reason of the fact that Indemnitee was a director
or officer of the Company,  the Company shall use reasonable efforts to maintain
in  full  force  and  effect  the D&O  Insurance,  or  substantially  equivalent
insurance coverage;  provided,  however, that the Company shall not be obligated
hereunder  to  pay  annual  premiums  for  directors'  and  officers'  liability
insurance in excess of one hundred fifty percent (150%) of the  annualized  rate
of premiums  paid by the Company for D&O Insurance for the 1997 policy year (the
"Increased  Rate"), and if the premiums for such insurance coverage would exceed
the Increased Rate for any policy year, and the Company  determines not to spend
in excess of the Increased  Rate, the Company shall endeavor to retain such type
of coverage by amending the levels of self insured  retention  and/or  limits of
liability of such insurance coverage so as not to exceed the Increased Rate.

                  (c) In all  policies  of D&O  Insurance,  Indemnitee  shall be
named as an insured in such manner as to provide  Indemnitee the same rights and
benefits,  subject to the same  limitations,  as are  accorded to the  Company's
directors or officers most favorably insured by such policy.

         9.       NOTICES.


                                                   

<PAGE>



                  (a) The Indemnitee shall give to the Company notice in writing
as soon as practicable  of any Claim made against him for which  indemnification
will or could be sought under this Agreement.  Failure to give such notice shall
not be cause for the Company not to  indemnify  Indemnitee  or advance  Expenses
unless the Company can demonstrate that it was prejudiced by such failure.

                  (b) Notices shall be in writing and shall be either personally
delivered or sent by Federal  Express or other reputable  overnight  courier for
next business day delivery, or sent by certified mail, return receipt requested,
addressed as follows:

         If to the Company:                      Forstmann & Company, Inc.
                                                 1155 Avenue of the Americas
                                                 New York, New York  10036
                                                 Attn.: Chief Executive Officer
                                                 Attn.: Chief Financial Officer

         If to the Indemnitee:                   at Indemnitee's address stated
                                                 above

or at such other  address  as from time to time  designated  by  written  notice
delivered in accordance  herewith.  Any notice personally served shall be deemed
delivered on the date of such service.  Any notice sent by overnight  courier as
provided  above shall be deemed  delivered  on the first  business day after the
date such notice was actually  delivered by such  overnight  courier or refused.
Any notice sent by mail as provided above shall be deemed  delivered on the date
of actual receipt or refusal thereof.

         10. AMENDMENTS,  ETC. No supplement,  modification or amendment of this
Agreement  shall be binding  unless  executed  in writing by both of the parties
hereto.  No waiver of any of the provisions of this Agreement shall be deemed or
shall  constitute  a waiver  of any  other  provisions  hereof  (whether  or not
similar) nor shall such waiver constitute a continuing waiver.

         11.  SUBROGATION.  In the event of payment  under this  Agreement,  the
Company  shall be  subrogated to the extent of such payment to all of the rights
of recovery of  Indemnitee,  who shall execute all papers  required and shall do
everything

                                                   

<PAGE>



necessary  to secure such rights,  including  the  execution  of such  documents
necessary  to enable the  Company  effectively  to bring  suit to  enforce  such
rights.

         12. NO DUPLICATION  OF PAYMENTS.  The Company shall not be liable under
this  Agreement  to make any payment in  connection  with any Claim made against
Indemnitee to the extent  Indemnitee  has otherwise  actually  received  payment
(under any insurance policy, the Articles,  By-Laws or otherwise) of the amounts
otherwise indemnifiable hereunder.  This Agreement shall supersede any agreement
or  understanding,  whether written or oral,  between the Company and Indemnitee
regarding indemnification for any Claim.

         13. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their  respective
successors,  assigns,  including  any direct or indirect  successor by purchase,
merger,  consolidation or otherwise to all or substantially  all of the business
and/or assets of the Company,  spouses,  heirs, executors and personal and legal
representatives.  This Agreement shall continue in effect  regardless of whether
Indemnitee continues to serve as a director of the Company.

         14.  SEVERABILITY.  The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single  section,  paragraph  or  sentence)  is  held  by a  court  of  competent
jurisdiction to be invalid, void or otherwise  unenforceable in any respect, and
the validity and enforceability of any such provision in every other respect and
of the  remaining  provisions  hereof shall not be in any way impaired and shall
remain enforceable to the fullest extent permitted by law.

         15.  GOVERNING LAW. This  Agreement  shall be governed by and construed
and enforced in accordance  with the laws of the State of Georgia  applicable to
contracts  made and to be performed in such state  without  giving effect to the
principles of conflicts of laws.

         16.      CERTAIN DEFINITIONS.

                  (a) CLAIM: any threatened,  pending or completed action,  suit
or proceeding,  or any inquiry or investigation  whether instituted by or in the
right of the Company or any other party,  that Indemnitee in good faith believes
might lead to the institution of any action, suit or proceeding,  whether civil,
criminal, administrative,  investigative or other, arising in connection with an
Indemnnifiable Event.

                  (b)  EXPENSES:  include  attorneys'  fees and all other costs,
expenses and  obligations  paid or incurred in  connection  with  investigating,
defending, being a

                                                   

<PAGE>



witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Claim relating to any Indemnifiable Event.

                  (c)  INDEMNIFIABLE  EVENT: any event or occurrence  related to
the fact that  Indemnitee is or was a director or officer of the Company,  or is
or was serving at the request of the  Company as a director,  officer,  partner,
employee, agent or trustee of another corporation, trust or other enterprise, or
by reason of anything done or not done by Indemnitee in any such capacity.


                                                  

<PAGE>



                  (d)  INDEPENDENT  LEGAL  COUNSEL:   an  attorney  or  firm  of
attorneys,  selected in accordance  with the  provisions of Section 2, who shall
not have otherwise  performed  services for the Company or Indemnitee within the
last two (2) years.

         IN WITNESS  WHEREOF,  the parties  hereto have executed this  Agreement
this ______ day of October, 1997.

                                                 FORSTMANN & COMPANY, INC.


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




------------------------------

           [NAME]
<PAGE>

                                                                 EXHIBIT 10.7(b)
                               INDEMNITY AGREEMENT


         AGREEMENT,  effective as of October 9, 1997 (the "Agreement"),  between
FORSTMANN  &  COMPANY,   INC.,  a  Georgia  corporation  (the  "Company"),   and
[NAME]("Indemnitee"), [ADDRESS], [CITY], [STATE] [ZIP CODE].

         WHEREAS,  it is  essential  to the  Company  to retain  and  attract as
directors the most capable persons available; and

         WHEREAS,  both the Company and Indemnitee  recognize the increased risk
of litigation and other claims being asserted against  directors and officers of
public companies in today's environment; and

         WHEREAS,  the  Company  wishes to  provide  in this  Agreement  for the
indemnification  of and the  advancing  of  expenses to  Indemnitee  to the full
extent (whether  partial or complete)  authorized or permitted by law and as set
forth in this  Agreement,  and, to the extent  insurance is maintained,  for the
continued  coverage of Indemnitee  under the Company's  directors' and officers'
liability insurance policies; and

         WHEREAS,  Indemnitee  is unwilling to serve or to continue to serve the
Company as a director without the assurances provided by this Agreement; and the
Company,  in order to induce Indemnitee to continue to serve as a director,  has
agreed to provide Indemnitee with the benefits contemplated by this Agreement;

         NOW,  THEREFORE,  in  consideration of the premises and of Indemnitee's
agreeing  to serve or to  continue  to serve  the  Company  directly  or, at its
request,  another  enterprise,  and intending to be legally  bound  hereby,  the
parties hereto agree as follows:

         1.       BASIC INDEMNIFICATION ARRANGEMENT.

                  (a) In the event  Indemnitee was, is, or becomes a party to or
witness  or other  participant  in,  or is  threatened  to be made a party to or
witness or other  participant  in, a Claim by reason of (or  arising in part out
of) an Indemnifiable  Event, the Company shall indemnify  Indemnitee to the full
extent authorized or permitted by law as soon as practicable but in any event no
later than thirty (30) days after  written  demand is  presented to the Company,
against any and all Expenses,  judgments,  fines,  penalties and amounts paid in
settlement  (including  all  interest,  assessments  and other  charges  paid or
payable in connection  with or in respect of such  Expenses,  judgments,  fines,
penalties or amounts paid in settlement) of such Claim; provided, however, that,
except for proceedings to enforce rights to  indemnification,  the Company shall
not be

                                                  

<PAGE>



obligated to  indemnify  Indemnitee  in  connection  with a proceeding  (or part
thereof)  initiated by Indemnitee  unless such  proceeding (or part thereof) was
authorized in advance, or unanimously consented to, by the Board of Directors of
the Company.  If so requested by Indemnitee,  the Company shall advance  (within
two (2) business days of such request), on an unsecured and interest-free basis,
any and all  Expenses  to  Indemnitee  (an  "Expense  Advance"),  provided  that
Indemnitee affirms in writing Indemnitee's good faith belief that Indemnitee has
met the required standard of conduct for indemnification under applicable law.

                  (b)  Notwithstanding  the foregoing (I) the obligations of the
Company  under  Section  1(a)  shall  be  subject  to  the  condition  that  the
Independent  Legal Counsel shall not have  determined in a written  opinion that
Indemnitee  would not be permitted to be indemnified  under  applicable law, and
(II) the  obligation  of the  Company to make an  Expense  Advance  pursuant  to
Section 1(a) shall be subject to the condition  that, if, when and to the extent
that the  Independent  Legal Counsel  determines  that  Indemnitee  would not be
permitted  to be so  indemnified  under  applicable  law,  the Company  shall be
entitled to be  reimbursed  by  Indemnitee  (who hereby  agrees to reimburse the
Company) for all such  amounts  theretofore  paid;  provided,  however,  that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent  jurisdiction  to secure a  determination  that  Indemnitee  should be
indemnified  under  applicable  law, any  determination  made by the Independent
Legal Counsel that  Indemnitee  would not be permitted to be  indemnified  under
applicable  law shall not be binding,  and  Indemnitee  shall not be required to
reimburse  the  Company  for  any  Expense   Advance  until  a  final   judicial
determination  is made with  respect  thereto  (as to which all rights of appeal
therefrom have been exhausted or lapsed).  If there has been no determination by
the  Independent  Legal Counsel or if the Independent  Legal Counsel  determines
that  Indemnitee  would not be permitted to be  indemnified  in whole or in part
under applicable law,  Indemnitee shall have the right to commence litigation in
any  court  in  the  States  of  Georgia  or  New  York  having  subject  matter
jurisdiction   thereof  and  in  which  venue  is  proper   seeking  an  initial
determination  by  the  court  or  challenging  any  such  determination  by the
Independent Legal Counsel or any aspect thereof,  including the legal or factual
bases  therefor,  and the  Company  hereby  consent to service of process and to
appear  in any such  proceeding.  Any  determination  by the  Independent  Legal
Counsel otherwise shall be conclusive and binding on the Company and Indemnitee.

                  (c) No change in the Company's  Articles of Incorporation (the
"Articles")  or Amended and Restated  By-Laws (the  "By-Laws") or in the Georgia
Business  Corporation  Code  subsequent to the date of this Agreement shall have
the effect of limiting or eliminating the  indemnification  available under this
Agreement as to any act, omission or capacity for which this Agreement  provides
indemnification  at the time of such act,  omission or  capacity.  If any change
after the date of this Agreement in the Articles or By-Laws of the Company or in
any applicable law, statute

                                                  

<PAGE>



or rule  expands  the power of the Company to  indemnify  the  Indemnitee,  such
change shall to the same extent expand the Indemnitee's rights and the Company's
obligations  under this  Agreement.  If any change in the Articles or By-Laws of
the Company or in any applicable  law,  statute or rule  diminishes the power of
the Company to  indemnify  the  Indemnitee,  such  change,  except to the extent
otherwise  required  by law,  statute or rule to be  applied to this  Agreement,
shall have no effect on this  Agreement or the parties'  rights and  obligations
hereunder.

         2. INDEPENDENT LEGAL COUNSEL.  The Company agrees that, in the event of
a  dispute  with  Indemnitee  with  respect  to  any  matter  hereafter  arising
concerning  the rights of Indemnitee to indemnity  payments or Expense  Advances
under this Agreement or any other agreement, or any Articles or By-Law provision
now or hereinafter in effect relating to Claims for  Indemnifiable  Events,  the
Company shall seek legal advice only from Independent  Legal Counsel selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld or  delayed).  The Company  shall notify  Indemnitee  in writing of the
Company's  intention to seek legal advice,  and the Indemnitee  shall notify the
Company of Indemnitee's  choice of Independent  Legal Counsel within thirty (30)
days  thereafter.  Such counsel  shall,  among other things,  render its written
opinion to the  Company  and  Indemnitee  as to whether  and to what  extent the
Indemnitee  would be  permitted  to be  indemnified  under  applicable  law. The
Company  agrees to pay the  reasonable  fees of the  Independent  Legal  Counsel
referred  to above and to  indemnify  fully  such  counsel  against  any and all
expenses (including  attorneys' fees),  claims,  liabilities and damages arising
out of or  relating  to  this  Agreement  or  its  engagement  pursuant  hereto.
Notwithstanding  the foregoing,  the Company shall not be required to seek legal
advice  from more than one (1)  Independent  Legal  Counsel if more than one (1)
party to an Indemnity  Agreement  with the Company seek  indemnity  payments and
Expense  Advances with respect to the same or substantially  similar Claims.  In
such event, the Indemnitees  shall have sixty (60) days to notify the Company of
their choice of Independent Legal Counsel and the selection of Independent Legal
Counsel  shall be made (A) by the  Independent  Director(s)  (as  defined in the
Company's  By-Laws)  seeking such indemnity,  or (B) if no Independent  Director
seeks such  indemnity,  by the  directors  and  officers  of the Company who are
parties to an Indemnity  Agreement with the Company and who seek such indemnity.
The Company shall have the right to select the Independent  Legal Counsel if (X)
Indemnitee  is  entitled  to select the  Independent  Legal  Counsel but has not
timely  notified the Company of Indemnitee's  selection,  (Y) there is a dispute
involving  two (2) or more  Independent  Directors  who do not timely notify the
Company of their choice of a single  Independent Legal Counsel or (Z) there is a
dispute  involving  more than one (1) party to an Indemnity  Agreement,  none of
whom is an Independent  Director,  and all such persons do not timely notify the
Company of their choice of a single Independent Legal Counsel.


                                                   

<PAGE>



         3. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee  against any and all Expenses and, if requested by Indemnitee,  shall
(within  two (2)  business  days of  such  request)  advance  such  Expenses  to
Indemnitee,  which are  incurred by  Indemnitee  in  connection  with any action
brought by Indemnitee for (I)  indemnification or advance payment of Expenses by
the Company  under this  Agreement  or any other  agreement,  or any Articles or
By-Law provision now or hereafter in effect relating to Claims for Indemnifiable
Events  and/or  (II)  recovery  under any  directors'  and  officers'  liability
insurance policies maintained by the Company;  provided,  however, that if there
is a final judicial  determination  (as to which all rights of appeal  therefrom
have  been  exhausted  or  lapsed)  that  Indemnitee  is not  entitled  to  such
indemnification,  advance payment of Expenses or insurance recovery,  Indemnitee
shall  reimburse the Company for all such Expenses  theretofore  paid under this
Section 3.

         4.  PARTIAL  INDEMNITY,  ETC.  If  Indemnitee  is  entitled  under  any
provision  of this  Agreement  to  indemnification  by the Company for some or a
portion of the  Expenses,  judgements,  fines,  penalties  and  amounts  paid in
settlement of a Claim but not, however, for all of the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.  Moreover,  notwithstanding  any other provision of this
Agreement,  to the extent that  Indemnitee has been  successful on the merits or
otherwise  in defense of any or all  Claims  relating  in whole or in part to an
Indemnifiable  Event or in  defense  of any issue or matter  therein,  including
dismissal  without  prejudice,  Indemnitee  shall  be  indemnified  against  all
Expenses incurred in connection therewith.

         5.  BURDEN  OF  PROOF.  In  connection  with any  determination  by the
Independent  Legal Counsel or otherwise as to whether  Indemnitee is entitled to
be  indemnified  hereunder,  the  burden  of proof  shall be on the  Company  to
establish that Indemnitee is not so entitled.

         6. NO PRESUMPTIONS.  For purposes of this Agreement, the termination of
any claim, action, suit or proceeding,  by judgment,  order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo contendere
or its equivalent,  shall not create a presumption  that Indemnitee did not meet
any particular standard of conduct or have any particular belief or that a court
has  determined  that  indemnification  is not permitted by  applicable  law. In
addition,  neither the failure of the  Independent  Legal Counsel to have made a
determination  as to  whether  Indemnitee  has met any  particular  standard  of
conduct or had any particular belief, nor an actual determination by Independent
Legal  Counsel that  Indemnitee  has not met such standard of conduct or did not
have such belief,  prior to the commencement of legal  proceedings by Indemnitee
to secure a judicial  determination  that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption

                                                   

<PAGE>



that  Indemnitee has not met any particular  standard of conduct or did not have
any particular belief.

         7. NONEXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Articles, By-Laws,
or the Georgia  Business  Corporation  Code or  otherwise.  To the extent that a
change in the Georgia Business  Corporation Code (whether by statute or judicial
decision)  permits greater  indemnification  by agreement than would be afforded
currently under the Articles,  By-Laws and this  Agreement,  it is the intent of
the parties  hereto that  Indemnitee  shall enjoy by this  Agreement the greater
benefits so afforded by such change.

         8.       LIABILITY INSURANCE.

                  (a) The  Company  hereby  represents  and  warrants  that  the
Company has purchased and maintains directors' and officers' liability insurance
consisting  of a policy  issued  by  Executive  Risk  Indemnity  Inc.  providing
$5,000,000  in  coverage,  and an  excess  policy  with Gulf  Insurance  Company
providing $5,000,000 in coverage in excess of $5,000,000,  and that each of such
policies is in full force and effect (the "D&O Insurance").

                  (b) The Company  hereby  covenants and agrees that, so long as
Indemnitee  shall  continue to serve as a director of the Company and thereafter
so long as  Indemnitee  shall be subject to any  possible  claim or  threatened,
pending or completed  action,  suit or proceeding,  whether  civil,  criminal or
investigative,  by reason  of the fact that  Indemnitee  was a  director  of the
Company,  the Company shall use reasonable efforts to maintain in full force and
effect  the D&O  Insurance,  or  substantially  equivalent  insurance  coverage;
provided,  however,  that the Company  shall not be  obligated  hereunder to pay
annual  premiums for directors' and officers'  liability  insurance in excess of
one hundred fifty percent (150%) of the annualized  rate of premiums paid by the
Company for D&O Insurance for the 1997 policy year (the "Increased  Rate"),  and
if the premiums for such insurance  coverage would exceed the Increased Rate for
any  policy  year,  and the  Company  determines  not to spend in  excess of the
Increased  Rate,  the Company shall  endeavor to retain such type of coverage by
amending the levels of self insured retention and/or limits of liability of such
insurance coverage so as not to exceed the Increased Rate.

                  (c) In all  policies  of D&O  Insurance,  Indemnitee  shall be
named as an insured in such manner as to provide  Indemnitee the same rights and
benefits,  subject to the same  limitations,  as are  accorded to the  Company's
directors or officers most favorably insured by such policy.

         9.       NOTICES.

                                                 

<PAGE>



                  (a) The Indemnitee shall give to the Company notice in writing
as soon as practicable  of any Claim made against him for which  indemnification
will or could be sought under this Agreement.  Failure to give such notice shall
not be cause for the Company not to  indemnify  Indemnitee  or advance  Expenses
unless the Company can demonstrate that it was prejudiced by such failure.

                  (b) Notices shall be in writing and shall be either personally
delivered or sent by Federal  Express or other reputable  overnight  courier for
next business day delivery, or sent by certified mail, return receipt requested,
addressed as follows:

         If to the Company:                      Forstmann & Company, Inc.
                                                 1155 Avenue of the Americas
                                                 New York, New York  10036
                                                 Attn.: Chief Executive Officer
                                                 Attn.: Chief Financial Officer

         If to the Indemnitee:                   at Indemnitee's address stated
                                                 above

or at such other  address  as from time to time  designated  by  written  notice
delivered in accordance  herewith.  Any notice personally served shall be deemed
delivered on the date of such service.  Any notice sent by overnight  courier as
provided  above shall be deemed  delivered  on the first  business day after the
date such notice was actually  delivered by such  overnight  courier or refused.
Any notice sent by mail as provided above shall be deemed  delivered on the date
of actual receipt or refusal thereof.

         10. AMENDMENTS,  ETC. No supplement,  modification or amendment of this
Agreement  shall be binding  unless  executed  in writing by both of the parties
hereto.  No waiver of any of the provisions of this Agreement shall be deemed or
shall  constitute  a waiver  of any  other  provisions  hereof  (whether  or not
similar) nor shall such waiver constitute a continuing waiver.

         11.  SUBROGATION.  In the event of payment  under this  Agreement,  the
Company  shall be  subrogated to the extent of such payment to all of the rights
of recovery of  Indemnitee,  who shall execute all papers  required and shall do
everything  necessary to secure such  rights,  including  the  execution of such
documents  necessary to enable the Company  effectively to bring suit to enforce
such rights.

         12. NO DUPLICATION  OF PAYMENTS.  The Company shall not be liable under
this  Agreement  to make any payment in  connection  with any Claim made against
Indemnitee to the extent  Indemnitee  has otherwise  actually  received  payment
(under any insurance policy, the Articles,  By-Laws or otherwise) of the amounts
otherwise

                                                  

<PAGE>



indemnifiable  hereunder.  This  Agreement  shall  supersede  any  agreement  or
understanding,  whether  written or oral,  between the  Company  and  Indemnitee
regarding indemnification for any Claim.

         13. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their  respective
successors,  assigns,  including  any direct or indirect  successor by purchase,
merger,  consolidation or otherwise to all or substantially  all of the business
and/or assets of the Company,  spouses,  heirs, executors and personal and legal
representatives.  This Agreement shall continue in effect  regardless of whether
Indemnitee continues to serve as a director of the Company.

         14.  SEVERABILITY.  The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single  section,  paragraph  or  sentence)  is  held  by a  court  of  competent
jurisdiction to be invalid, void or otherwise  unenforceable in any respect, and
the validity and enforceability of any such provision in every other respect and
of the  remaining  provisions  hereof shall not be in any way impaired and shall
remain enforceable to the fullest extent permitted by law.

         15.  GOVERNING LAW. This  Agreement  shall be governed by and construed
and enforced in accordance  with the laws of the State of Georgia  applicable to
contracts  made and to be performed in such state  without  giving effect to the
principles of conflicts of laws.

         16.      CERTAIN DEFINITIONS.

                  (a) CLAIM: any threatened,  pending or completed action,  suit
or proceeding,  or any inquiry or investigation  whether instituted by or in the
right of the Company or any other party,  that Indemnitee in good faith believes
might lead to the institution of any action, suit or proceeding,  whether civil,
criminal, administrative,  investigative or other, arising in connection with an
Indemnnifiable Event.

                  (b)  EXPENSES:  include  attorneys'  fees and all other costs,
expenses and  obligations  paid or incurred in  connection  with  investigating,
defending,  being a witness in or  participating  in (including  on appeal),  or
preparing to defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.

                  (c)  INDEMNIFIABLE  EVENT: any event or occurrence  related to
the fact that  Indemnitee  is or was a  director  of the  Company,  or is or was
serving at the request of the Company as a director, officer, partner, employee,
agent or trustee of another corporation, trust or other enterprise, or by reason
of anything done or not done by Indemnitee in any such capacity.

                                                  

<PAGE>


                  (d)  INDEPENDENT  LEGAL  COUNSEL:   an  attorney  or  firm  of
attorneys,  selected in accordance  with the  provisions of Section 2, who shall
not have otherwise  performed  services for the Company or Indemnitee within the
last two (2) years.

         IN WITNESS  WHEREOF,  the parties  hereto have executed this  Agreement
this ______ day of October, 1997.

                                                 FORSTMANN & COMPANY, INC.


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




   ----------------------------

             [NAME]

                                                  

<PAGE>

                                                                   Exhibit 11.1

                            Forstmann & Company, Inc.
                        Computation of Per Share Earnings




                                                                  Reorganized
                                                                    Company 
                                                                  -----------
                                                                  Period From
                                                               July 23, 1997 to
                                                               NOVEMBER 2, 1997
                                                               ----------------


Income applicable to common shareholders                             $  290,000
                                                                     ==========

Average common shares and common share
equivalents outstanding:

   Average common shares outstanding                                  4,384,436

   Add average common share equivalents -
     options to purchase common shares, net                             (14,066)
                                                                     ----------

Average common shares and common share
  equivalents outstanding                                             4,370,370
Loss per common share and common
  share equivalent                                                   $     0.07
                                                                     ==========



NOTE:         The   information   provided  in  this  exhibit  is  presented  in
              accordance with Regulation  S-K, Item  601(b)(11),  while loss per
              common  share  on  the  Company's   statements  of  operations  is
              presented in accordance with Accounting  Principles  Board ("APB")
              Opinion No. 15. This information is not required by paragraph 30
              of APB NO. 15 since the common share equivalents calculated above
              are anti-dilutive.

              Computation of per share earnings for the Predecessor Company for
              all periods presented in the Condensed Statement of Operations 
              have been omitted as such information is not deemed to be 
              meaningful.