SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                                   (MARK ONE)
                 ( X ) ANNUAL REPORT UNDER SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

                   For the Fiscal Year Ended December 31, 1996

                                       or

             ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

               For the Transition Period From _______ to ________

              Commission File No. 33-87392

                      HOSIERY CORPORATION OF AMERICA, INC.
       ------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

      DELAWARE                                      36-0782950
  ---------------------------------- -----------------------------------------
      (State or other jurisdiction of (I.R.S. Employer Identification No.)
      incorporation or organization)

  3369 Progress Drive
  Bensalem, Pennsylvania                         19020
  --------------------------------------------- ------------
              (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (215) 244-1777

Indicate by check mark whether the Registrant (1) has filed all reports required
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  the  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 voting stock held by  non-affiliates  of the
registrant is zero.  All of the voting stock is held by affiliates  and there is
no  established  public  trading  market  for any class of  common  stock of the
Registrant.

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

     Class                         Outstanding at March 24, 1997
    ---------------------------- ------------------------------------------
     Voting                                   1,332,830
     Class A, non-voting                         75,652


<PAGE>


                                                                   
                                     PART I

ITEM 1.  BUSINESS

          Hosiery Corporation of America,  Inc. (the "Company"),  the Registrant
is a corporation organized in 1975 under the laws of the state of Delaware.

         The Company is engaged in the direct mail marketing,  manufacturing and
distribution of quality women's sheer hosiery  products to consumers  throughout
the United States.  The Company has recently begun to expand its operations into
the United Kingdom and plans to enter other  international  markets  (France and
Germany) on a test basis during 1997. The Company  markets women's sheer hosiery
through a continuous  product  shipment or "continuity"  program.  The Company's
continuity program involves mailing to customers a specially priced introductory
hosiery  offer,  the  acceptance of which  enrolls  customers in the program and
results in additional  shipments of hose on a regular and continuous  basis upon
payment  of  a  prior  hose  shipment.  The  Company's  hosiery  production  was
approximately 54 million pairs in 1996,  primarily marketed under the Silkies(R)
brand name.  The  Company's  manufacturing  operations  supplied  87% of all the
hosiery required by the Company's continuity program during 1996.

         The Company markets its hosiery products exclusively through its direct
mail  marketing  continuity  program.  The  success of this  program  depends on
targeting  likely  customers and on retaining  customers by  delivering  quality
hosiery  products  directly  to the  home on a  regular  basis.  Drawing  on its
customer  list of over 61 million  individuals  and on certain  rented  customer
lists,  the  Company  has  developed  sophisticated   statistical,   regression,
segmentation and other financial analyses to accurately target, test and acquire
first-time (and previously  inactive) "front end" customers  through direct mail
solicitation. The Company has designed an initial direct mail solicitation offer
which has attracted front end customers and reactivated previous customers.

         In order to induce customers to participate in the Company's continuity
program,  the  introductory  hosiery  offer is  priced as a "loss  leader".  The
introductory  offer is priced at a nominal amount,  $1.00 per pair plus shipping
and  handling,  that is  substantially  less  than  the  cost of  manufacturing,
processing and shipping the related hosiery.

         Front end  customers  who  continue  to  participate  in the  Company's
continuity  program  become part of the Company's  repeat or "back end" customer
base.  After  responding to the front end solicitation and receiving their first
shipment,  customers can elect to continue in the program, receiving either four
or six pairs of hose with each  subsequent  shipment.  A customer who chooses to
participate  in the  continuity  program by making  regular  purchases  pursuant
thereto is an active back end customer. Such "active back end customers" exclude
customers  receiving  their first  shipment.  Upon  payment  for each  shipment,
customers are sent another  shipment of regularly  priced hose, on average every
four to six weeks. The Company has established a consistent and predictable back
end customer  base by providing  customers  with quality  hosiery  products on a
regular basis.  As of December 1996, the Company had  approximately  1.3 million
back end customers.

Marketing Strategy

         The Company has created a marketing strategy which combines direct mail
marketing  techniques  with its  continuity  program.  The  Company's  marketing
efforts  focus on  targeting  and  acquiring  front  end  customers,  as well as
maintaining a strong  relationship with continuity or back end customers through
efficient  fulfillment  of quality  products,  customer  service,  creative  new
product  introductions  and  unique  marketing  strategies.  These  direct  mail
marketing initiatives,  refined by advanced statistical and regression analyses,
have increased the size and quality of its customer base.

         The  Continuity  Program.  The Company's  current  initial  direct mail
solicitation  offers its customers the  opportunity  to receive one free pair of
hosiery  with the  purchase  of two  additional  pairs at $1.00  per  pair.  The
customer is able to choose the size, style and color of hosiery for this initial
shipment.
                                       2
<PAGE>


                                                                   
Upon receiving the first shipment,  the customer can (i) pay for the product and
order a second  shipment,  (ii) pay for the  product  and  elect  not to order a
second shipment, or (iii) return the product and keep the free pair.

         By paying for the  product and  ordering a second  shipment of hosiery,
the customer joins the Company's continuity program and becomes a repeat or back
end customer.  Upon payment for each  shipment,  customers are sent a subsequent
shipment of regularly priced hose, on average every four to six weeks, with some
customers electing a bi-monthly shipment option.  With each shipment,  customers
may change the selection of styles, colors and sizes. Back end shipments contain
either four or six pairs of hosiery which vary in price according to style.  All
shipments are made on credit,  but the Company's exposure to any one customer is
limited to the cost of one  shipment.  Customers are not required to commit to a
minimum purchase amount and can cancel the program at any time, for any reason.

         The  Company  actively   re-promotes   customers  who  have  chosen  to
discontinue their participation in the continuity program. Based upon the number
of previous shipments and the circumstances  regarding  cancellation of previous
enrollment, the Company will send as many as 13 reactivation offers to reinstate
these  customers.  In total,  the  Company  sends  about 7 million  such  offers
annually,  and believes that  approximately  27% of those  customers  rejoin the
continuity program as the result of these efforts.  The Company also maintains a
database of inactive customers who receive adaptations of the standard front end
solicitation.

         Acquiring  Front End  Customers.  Direct mail  marketing has become the
Company's  sole means of attracting  new front end  customers  and  reactivating
previous customers,  and has replaced  less-targeted  methods previously used by
the Company,  including co-operative advertising and package inserts. Four major
solicitations  featuring the Company's  specially priced  introductory offer are
mailed each year  (January,  March,  June,  September).  There is no significant
seasonality in the mailings.

         The Company employs  advanced  statistical  and regression  analyses in
conjunction with each of its solicitation  promotions.  The Company utilizes its
proprietary  in-house  database of over 61 million  customers,  as well as lists
rented from other direct marketing firms,  and analyzes  information  concerning
customer buying habits and payment records in order to determine which potential
customers  are likely to  purchase  hosiery  from the  Company on a regular  and
long-term basis. During each major  solicitation,  all chosen customer lists are
ranked by potential  realizable  profit.  The mailing cut off is then matched to
budgeted  production.  This process ensures that anticipated profit is maximized
from each of the four mailings.

         Retention  of Back End  Customers.  The  Company  seeks to  retain  its
continuity or back end customers by providing high quality  hosiery on a regular
basis and at  competitive  prices.  In  addition,  as members of the  continuity
program, customers receive gift certificates with each shipment of hosiery which
can be  redeemed  for a wide array of  merchandise.  The  Company  also offers a
women's wear catalog  featuring  branded and private label lingerie and intimate
apparel products in conjunction with outside manufacturers.  Through these means
the Company  believes it has been able to establish a  predictable  base of back
end customers  without  significant  losses of customers  over time. The Company
continually is working on developing new means of better  retaining its back end
customers.  Customers exit the continuity  program for various reasons including
unavailability  of certain  styles and  colors,  preference  for retail  stores,
situational  changes,  too much  hosiery,  promotional  sales at retail  stores,
quality and garment fit.

         Through  its  data  processing  capabilities,   the  Company  tracks  a
customer's  order  history  from  the  initial  order  through  each  subsequent
purchase,  whether  the  purchase  is a hosiery  product,  merchandise  from the
women's wear merchandise  catalog,  or other consumer  products received through
gift redemptions.  Each of the Company's  customer service  representatives  has
on-line  capabilities  to retrieve  customer  specific  queries  and  purchasing
history.
                                       3

<PAGE>


                                                                   
         Customer  Testing.  All aspects of the Company's  direct mail marketing
program  result  from  specific  customer  testing  which the  Company  conducts
continuously.  Such testing enables the Company to (i) project the profitability
of certain in-house and outside customer lists;  (ii) maximize response rates to
front end  solicitations;  (iii) determine the  profitability of the product mix
offered to back end customers;  (iv) determine optimal pricing strategy; and (v)
increase  payment and  retention  rates.  Constant  refinement  of test programs
through creative design, offer upgrades,  new hosiery products and referrals are
conducted  throughout various mailings with the objective of increasing response
rates or reducing cost, without negatively impacting  continuation or retention.
The time from test to  application  can take  between  three and  twelve  months
depending on the testing  employed.  Historically,  the Company's actual results
have been similar to its test results.

         Customer  Profile.  Management  believes  that  the  Company's  average
customer is a working  woman between age 30 and 55. The Company  estimates  that
its average customer buys  approximately  60% of her sheer hosiery products from
the Company,  and many of such customers  purchase  hosiery for other  household
members.

Product and Development

         The Company  manufactures  moderately  priced,  quality  women's  sheer
hosiery under the Silkies(R) brand name. The Company's  product line is designed
to include the more popular  product  styles and colors for which most customers
have the greatest  demand and,  effective  January 1997,  includes six styles of
sheer hosiery, in nine different colors and six sizes, as well as knee-hi's. The
Company's elastomer products  (compression  garments containing spandex) include
Control Top, Total Leg Control,  Sheer Charm and Shapely  Perfection styles. The
Company's elastomer products currently represent  approximately 93% of its total
production.   The  remainder  of  the  Company's   production  consists  of  its
non-elastomer  products  including  Panty 'n Hose,  Sheer to Waist  and  Knee-Hi
styles.  As of January  1997,  the styles range in price from $2.39 to $4.79 per
pair. The Company performs  extensive  consumer research and product testing to:
(i) ensure  product  quality,  (ii)  service all  significant  markets and (iii)
convert existing  compression hose customers to higher margin, sheer compression
hosiery products such as Shapely Perfection.

Data Processing and Management Information Systems

         The Company has computer  and data  processing  capabilities  which are
adequate for its current level of operations. The Company has a full back up and
disaster recovery program for its data processing system which enables operation
at an outside facility within twelve hours of the onset of such need.

         The Company provides data processing  services,  including  proprietary
software  programs,  to its  marketing  operations  that  manage the flow of all
hosiery  products from  solicitation  to customer  fulfillment.  These  services
include direct mail solicitations, customer list management and customer service
operations, including order input, billing, collection, printing and tracking of
customers ordering history.  Through its database  capabilities,  the Company is
also able to store and manage a  proprietary  database  of  customer  purchasing
habits gathered from the Company's hosiery sales history in addition to customer
gift redemptions and women's wear merchandise catalogs. This historical database
of  customer  purchasing  habits  covers  current  and past  hosiery  shipments,
customers' credit statistics, buying patterns and purchasing records.

Manufacturing and Distribution

         The Company manages all phases of the  manufacturing and fulfillment of
hosiery products,  including  planning,  purchasing,  production,  packaging and
distribution.   The  Company's  direct  mail  marketing  program  is  vertically
integrated  into  its  manufacturing  and  production  operations,   the  latter
providing the  Company's  marketing  operations  with  approximately  87% of the
Company's  hosiery  needs.  By spreading  the volume of yearly  orders over four
major solicitation dates, manufacturing and fulfillment
                                       4
<PAGE>



are able to avoid extreme  variations,  and thereby ensure higher efficiency and
better product quality.  Additionally,  the results of the Company's direct mail
marketing program allow the Company quickly to adjust its  manufacturing  output
accordingly.

         Production  Process.  Once  front  end and back end  orders  have  been
received, the shipment information is communicated via computer to the Company's
facilities at Newland,  North  Carolina.  The Company's  ability to schedule its
annual output allows the Company to practice "Just In Time" inventory management
techniques.  The  primary  raw  materials  utilized by the Company are nylon and
spandex  yarn,  dye and  chemicals,  and are all  readily  available.  Such  raw
materials  are purchased  directly  from  suppliers who provide the Company with
technical support.  All knitting and sewing  operations,  including toe closing,
line seaming and gusset  seaming,  are located at the  Company's  facilities  in
Newland, North Carolina. Once the hosiery products have been manufactured,  they
are transported to the Company's Lancaster,  South Carolina,  facility where the
products  are dyed,  packaged  and then to the Heath  Springs,  South  Carolina,
facility where they are prepared for delivery.

         Suppliers.   The  primary  raw  materials  utilized  in  the  Company's
manufacturing  operations  are nylon and spandex yarn,  dye and  chemicals.  The
Company  purchases a majority of its yarn under  6-month  fixed-price  contracts
from  various  domestic  and  international  suppliers.   Although  the  Company
generally  stocks only a two to three week supply of raw  materials  in order to
manage inventory efficiently,  the predictable nature of the Company's shipments
generally allows it to order raw materials up to a year in advance and secure an
adequate supply at prearranged costs.

         Packaging and Distribution.  The Company operates fully automated, high
speed packaging machines and distributes its products through the postal service
directly to the  customer's  home. The Company's use of  standardized  and fully
automated packaging allows the Company to achieve significant efficiencies.  The
Company uses the postal  service and has been able to control  delivery costs by
passing on to its customers any increases in postal rates. However, there can be
no  assurance  that in the future the Company  will be able to pass on increased
shipping costs to its customers. The Company also tries to minimize postal costs
through the use of  pre-sorting,  utilizing nine digit zip codes and co-mingling
of mail.

         Capital Investment.  During the past seven years, the Company has spent
approximately  $25 million  replacing  the  majority of its  knitting and sewing
capacity with advanced robotics,  installing  automatic  packaging equipment for
more timely response through efficient fulfillment, building a new dye house and
distribution  facility  and  upgrading  its  computer  facilities.  The  Company
maintains relationships with its machinery producers in order to keep up-to-date
on  changing   manufacturing   methods.  The  Company's  current   manufacturing
operations have the capacity to produce approximately 61 million pairs annually.
Additional requirements are being outsourced in Mexico.

Growth Strategy

         Management  believes that the Company's ability to analyze and manage a
large customer base,  combined with its knowledge of customer  buying  profiles,
provides  strong  potential for future growth  through the direct mail marketing
channel.  The  Company's  strategy  for  additional  growth  primarily  involves
expanding  its current  operations  by  acquiring  front end  customers  through
increased  solicitations  and  improved  response  rates.  In 1996,  the Company
brought in 6.6 million  front end customers  which has  increased  substantially
from 1994 and 1995 where 3.8 million and 5.0 million  front ends were  acquired,
respectively.

         The basis for the continued  growth in front end  acquisitions  will be
the  ability  to  obtain  previously   unavailable  lists  and  new  promotional
techniques  which  have  demonstrated   improved   response  rates.   Management
anticipates that the continued  increase in front end customers will continue to
lead to growth in back end shipments  over the next several  years.  The Company
believes,   based  in  part  on   management's   significant   experience   with
international  operations and test marketing  during 1996 in the United Kingdom,
France  and  Germany,   that  the  international   markets  provide  significant
opportunities for growth.

                                       5
<PAGE>


Competition and Industry

         The Company operates exclusively in the women's sheer hosiery industry,
targeting  adult  females as  customers.  Management  believes  that the overall
women's  sheer  hosiery  market may be declining as a result of the high cost of
repeat purchases of such products and changes in women's choices in business and
leisure wear. Despite this apparent overall market decline, the Company has been
able to increase its sales from $118.6 million in 1994 to $162.8 in 1996.

         Women's  sheer  hosiery  is sold  through  a  variety  of  distribution
channels,  including discount stores, grocery and drug stores, specialty stores,
national chains and direct marketing. The Company is the only organization which
focuses  solely on  distributing  women's  sheer  hosiery  through a direct mail
marketing  continuity  program.  Although  several  competitors  have sold their
hosiery  products  via  mail  order  for  many  years,   this  distribution  has
concentrated  on the  large  quantity  sale of  irregulars,  as  opposed  to the
Company's  direct mail marketing of high quality women's  hosiery  products in a
continuity program. Because the Company sells women's sheer hosiery, it competes
indirectly with major  manufacturers  and  distributors of women's sheer hosiery
who  primarily  sell through the retail  channel and some of whom are larger and
better capitalized than the Company, and may have greater brand recognition than
the Company.

         The major United States hosiery manufacturers include Sara Lee Hosiery,
a division of Sara Lee Corporation,  Kayser-Roth,  a subsidiary of Mexican-based
Grupo Synkro S.A., the Company and Americal, a privately held U.S. concern. Sara
Lee Hosiery  and  Kayser-Roth  account  for more than 70% of the  women's  sheer
hosiery market.  Over 60 other smaller  manufacturers also produce women's sheer
hosiery  primarily  for sale under  private  labels.  Sara Lee Hosiery is also a
significant competitor in the United Kingdom, France and Germany. Competition in
the  women's  sheer  hosiery  market is  generally  based on price,  quality and
customer service.

         In addition,  the Company  competes,  and faces potential  competition,
with other direct marketing companies. Such competitors include businesses which
engage in direct mail,  catalog sales,  telemarketing  and other methods of sale
which compete for the  attention and spending  dollars of consumers in the home.
There are  numerous  direct  marketing  companies  that are  larger  and  better
capitalized than the Company and that offer more varied product assortments. The
Company  believes,  however,  that it is the only  significant  direct marketing
company to focus exclusively on women's sheer hosiery.

Employees

         As of December 31, 1996, the Company had 1,032  employees,  173 of whom
were  located  at  its   headquarters   and   operations   center  in  Bensalem,
Pennsylvania, 345 of whom were located at its manufacturing facility in Newland,
North  Carolina,  271 of whom were located at its  manufacturing,  and packaging
facility  in  Lancaster,  South  Carolina,  and 236 of whom were  located at its
sewing and  fulfillment  operations  facility in Heath Springs,  South Carolina.
Additionally,  7 employees are currently employed in Europe. Of the total number
of employees,  129 are salaried  workers.  The  remaining  903 are  non-salaried
employees,  the  majority  of  whom  are  paid an  hourly  wage  plus  incentive
compensation based on productivity  measures.  The Company's hourly workforce is
not  affiliated  with any  unions.  The  Company  has not  experienced  any work
stoppages and believes its relations with its employees are good.

Recapitalization

         On October 17, 1994, the Company effected the  recapitalization  of its
capital  stock  (the  "Recapitalization").   As  a  result  of  the  substantial
indebtedness incurred in connection with the  Recapitalization,  the Company has
significant  debt service  obligations.  At December 31, 1996,  the  outstanding
amount of the  Company's  indebtedness  (other  than trade  payables)  is $143.7
million,  including  $70.0  million of senior  secured debt and $68.3 million of
senior  subordinated  debt  (the  "Notes").  (See  Items 7 and 13 and  Note 3 to
Consolidated Financial Statements).
                                       6

<PAGE>


                                                                   
ITEM 2.  PROPERTIES

         The Company owns or leases facilities at six principal  locations.  The
following  sets  forth the  general  location  of each,  its size,  whether  the
facility is owned or leased and the principal function of each.
<TABLE>

<CAPTION>
                                        Size in       Owned/
   Location                           Square Feet     Leased     Function
   --------                           -----------     ------     --------
                                                                 Headquarters; Administration;
                                                                 Marketing; Data Processing;
<S>                                      <C>                                     
   Bensalem, Pennsylvania                60,000       Leased     Customer Service

   Newland, North Carolina              138,000        Owned     Knitting; Sewing

   Lancaster, South Carolina            142,000        Owned     Dyeing; Packaging

   Heath Springs, South Carolina        143,000        Owned     Fulfillment Operations

   Liverpool, United Kingdom             15,000       Leased     Headquarters; United Kingdom

   Ettligen, Germany                       3,000      Leased     Office
<FN>

The owned facilities are subject to mortgages and security  interests granted to
secure payment of the Company's debt. See Note 10 to the Consolidated  Financial
Statements of Hosiery Corporation of America, Inc. in Item 8 hereof.
</FN>
</TABLE>

ITEM 3.    LEGAL PROCEEDINGS

         The Company is involved in, or has been involved in, litigation arising
in the normal course of its business.  The Company can not predict the timing or
outcome of these claims and proceedings.  Currently,  except as discussed below,
the  Company is not  involved  in any  litigation  which is  expected  to have a
material  effect on the  financial  position  of the  business or the results of
operations and cash flows of the Company.

         In 1984,  as a result  of a lawsuit  brought  by the FTC,  the  Federal
District  Court  for the  Eastern  District  of  Pennsylvania  issued a  consent
injunction,  which sets forth  specific rules with which the Company must comply
in conducting its mail order business and permanently  enjoins the Company,  its
successors and assigns, its officers, agents, representatives and employees, and
anyone acting in concert with the Company from violating  various FTC and Postal
Service laws and  regulations.  The FTC has recently made  inquiries  about some
aspects of the Company's  promotional  materials  prompting the Company to adopt
revised  promotional  materials  which,  the Company believes but cannot assure,
will meet the concerns expressed by the FTC.

         The Company has  received  inquiries  from  thirteen  state  regulatory
groups (the "States") concerning aspects of the Company's promotional materials,
including whether the terms of the Company's promotional offers are sufficiently
disclosed in such materials.  In January 1997,  nine of the States,  acting as a
multi-state group,  proposed an Assurance to the Company which seeks to: require
a change in the disclosure in the Company's  promotional materials regarding the
initial and subsequent  hosiery  shipments;  require the Company to make certain
disclosures in its  promotional  materials if the Company offers free samples or
operates any form of  continuity  sales plan;  prohibit the Company from seeking
collection  against any  consumer  who  receives a  solicitation  that is not in
compliance  with the terms of the  Assurance;  require that  certain  additional
disclosures be made should the Company  continue to operate a referral  program;
and prohibit  misrepresentation  in  connection  with the sale of the  Company's
products.  The Assurance also seeks  unspecified money damages and requires that
refunds be
                                       7
<PAGE>


made to customers  under certain  circumstances,  however such money damages and
refunds are not expected to be material to the Company's  financial condition or
results of  operations.  Discussions  with the States are  ongoing.  The Company
believes it will be able to reach an acceptable  resolution of the issues raised
by the States.  However, no assurance can be given that an acceptable resolution
will be reached.

         In response to the inquiries  from the FTC and the States,  the Company
has made changes in its  solicitation  materials  which,  based on experience to
date, will have a material adverse effect on its domestic response rates.
However,  response  rates  are only  one of  several  factors  that  affect  the
Company's  results of  operations.  The  Company  is unable to predict  what the
ultimate  outcome of its  discussions  with the States  will be or whether  such
outcome will have a material  adverse  effect on its revenues or  profitability.
State regulators from time to time contact the Company with inquiries  regarding
the  Company's   promotional   materials  and  state  regulators  could  require
additional changes to the Company's promotional materials,  and no assurance can
be given that such changes will not be  significant  or will not have a material
adverse  effect on the  Company's  future  financial  condition  or  results  of
operations.


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

         The Company did not submit any matter to a vote of its security holders
during the fourth quarter of 1996.


                                     PART II


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

         There is no  established  public trading market for any class of common
equity of the Company.

         As of March 18, 1997 the Company had approximately 33 holders of record
of its common stock.

Dividend Policy

         The Company has not paid cash  dividends on its common stock since 1992
and does not anticipate  paying such dividends in the  foreseeable  future.  The
Company intends to retain any future  earnings for  reinvestment in the Company.
In addition,  the Bank Credit Agreement and the indenture  pursuant to which the
Notes were issued place limitations on the Company's ability to pay dividends or
make certain  other  distributions  in respect of its common  stock.  Any future
determination   as  to  the  payment  of  dividends  will  be  subject  to  such
prohibitions and  limitations,  will be at the discretion of the Company's Board
of Directors and will depend on the Company's  results of operations,  financial
condition,  capital  requirements and other factors deemed relevant by the Board
of  Directors,  including the General  Corporation  Law of the State of Delaware
(the "DGCL") which provides that dividends are only payable out of the Company's
surplus or current net profits.

                                       8

<PAGE>


                                                                   
<TABLE>
ITEM 6.    SELECTED FINANCIAL DATA

<CAPTION>
                                                             Year Ended December 31,
                                                             -----------------------
                                            1996          1995        1994(a)       1993         1992
                                            ----          ----        -------       ----         ----
                                                                (In Thousands)

<S>                                       <C>         <C>            <C>           <C>          <C>     
    Net Revenues                          $162,763    $136,299       $118,560      $109,824     $102,235

    Operating Income Before
    Compensation Related to Stock
    Options and Expenses Related to
    Stock Offering and Acquisition (b)      36,968      31,427         21,613        16,018       11,820

    Income (Loss) From Continuing
    Operations Before Provision
    (Benefit) for Income Taxes and
    Cumulative Effect of Accounting
    Change                                  (5,696)     12,056         17,116        14,943       10,676

    Income From Continuing
    Operations Before Compensation
    Related to Stock Options,
    Expenses Related to Stock
    Offering and Acquisition,
    Provision (Benefit) for Income
    Taxes and Cumulative Effect
    of Accounting Change (b)                 18,829      12,056         17,116       14,943       10,676

    Working Capital                             589       5,794          3,152        7,518        7,632
                                             
    Total Assets                             92,600      82,860         74,860       66,859       66,152

    Long-Term Debt                          143,705     151,093        153,442       12,305       13,455

    Other Long-Term Obligations                                             66          584        1,204
                                                     
    Redeemable Equity Securities                768         384             45           --           -- 
                                                                                         
    Stockholders' Equity
    (Deficiency)                            (83,822)   (102,920)      (110,266)      26,318       25,656

    Cash Dividends Declared                      --          --             --           --          387    

<FN>
(a)  On October 17,  1994,  the Company  effected  the  recapitalization  of its
     capital stock.  For discussion of the  recapitalization,  see Note 3 to the
     Consolidated  Financial Statements of Hosiery Corporation of America,  Inc.
     in Item 8 hereof.

(b)  During 1996, the Company granted options to certain  employees to
     purchase  up to  215,369  shares of  common  stock.  The  Company
     recognized  $22,938  of  compensation   expense  related  to  the
     difference  between the estimated  fair value of the stock at the
     date of grant and the exercise  price of such options.  (See Note
     18  to  the   Consolidated   Financial   Statements   of  Hosiery
     Corporation  of  America,  Inc.  in  Item 8  hereof  for  further
     discussion.) Additionally during 1996, the Company incurred costs
     of $1.6  million,  associated  with a  potential  initial  public
     offering of equity securities and a potential acquisition,
     neither of which were  consummated.  "Operating  income"  and  "income
     (loss) from continuing operations before provision (benefit) for income
     taxes and cumulative effect of  accounting  change"  per the  Consolidated
     Financial  Statements  of Hosiery  Corporation  of America,  Inc. have 
     been adjusted in the above table to exclude these charges in order to
     present comparable operating  information with that of previous years.

</FN>
</TABLE>
                                       9
<PAGE>



ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995
           AND 1994
<TABLE>

Results of Operations

         The following  table sets forth certain  income  statement data for the
Company expressed as a percentage of net revenues.

<CAPTION>
                                                                         Fiscal Years Ended December 31,

                                                                              1996    1995     1994
                                                                              ----    ----     ----

<S>                                                                          <C>     <C>      <C>   
Net revenues...........................................................      100.0%  100.0%   100.0%
      Cost of sales....................................................       46.2    44.7     44.3
      Administrative and general expenses..............................        7.0     7.5     11.5
      Provision for doubtful accounts..................................        6.2     5.7      4.8
      Marketing costs..................................................       13.6    12.8     13.1
      Coupon redemption costs..........................................        2.5     4.4      5.4
      Depreciation and amortization....................................        1.8     1.8      2.6
                                                                             -----   -----    -----

           Subtotal....................................................       77.3    76.9     81.7
                                                                              ----    ----     ----
<FN>

Income from continuing operations before interest, compensation related 
  to stock options,  expenses  related  to  stock  offering  and  
  acquisition, other (income) expenses and provision
  (benefit) for income taxes...........................................       22.7%   23.1%    18.3%
                                                                              ====    ====     ====
</FN>
</TABLE>

Fiscal 1996 Compared to Fiscal 1995

         Net revenues  increased by 19.4% to $162.8  million in fiscal 1996 from
$136.3 million in fiscal 1995. This increase in net revenues was the result of a
combination of increased volume ($19.7  million),  a portion of which relates to
the Company's  recent  expansion into the United Kingdom,  the introduction of a
new style ($6.1  million)  and pricing  ($0.7  million).  In January  1996,  the
Company  commenced  operations in the United Kingdom  which,  for the year ended
December 31, 1996,  generated $8.8 million in revenue. In addition,  the Company
is currently  evaluating  potential  programs in Germany,  France and Japan. The
Company has begun to conduct tests during 1996 in Germany and France and expects
further testing to be conducted in 1997, as well as in Japan.

         Cost of sales  increased  23.3% to $75.2  million  in fiscal  1996 from
$61.0 million for fiscal 1995.  As a percentage  of net revenues,  cost of sales
was 46.2% in 1996 versus  44.7% for the same period in 1995.  This  increase was
primarily  due to  the  significant  increase  in  first  and  second  shipments
associated  with the  Company's  recently  initiated  operations  in the  United
Kingdom,  as well as the Company's  efforts to increase its solicitations in the
United States to acquire additional front end customers. The Company's first and
second  shipments  result in low margins  because they include the  introductory
offer,  which is  priced  substantially  less  than  the cost of  manufacturing,
processing  and  shipping  the  related   hosiery,   and  because   payment  and
continuation  rates of new  customers  are less than  those of older  customers.
First and second shipments increased by 2.5 million or 37.0% from 6.7 million in
1995 to 9.1  million in 1996.  These  additional  shipments,  in both the United
States  and the United  Kingdom,  reflected  primarily  a 9.4  million  increase
(21.6%) in  solicitations  to 52.6  million in fiscal 1996 from 43.3  million in
fiscal  1995.  Of the 2.5 million  increase in first and second  shipments,  1.2
million represent shipments within the Company's new United Kingdom program.

         Administrative and general expenses increased 11.8% to $11.4 million in
fiscal 1996 from $10.2 million for the same period of 1995.  Increased personnel
and higher wages  account for the  increase.  As a percentage  of net  revenues,
administrative and general expenses were 7.0% in 1996 versus 7.5% in 1995.

                                       10
<PAGE>


         Provision  for  doubtful  accounts  increased  $2.3 million or 29.1% to
$10.1 million in fiscal 1996 from $7.8 million for the same period of 1995. This
increase was caused by additional  front end, second and third shipments in 1996
as compared to 1995 (up 2.7 million  shipments which is 37.0% higher than 1995),
which have a higher  rate of  uncollectable  accounts.  As a  percentage  of net
revenues, bad debts were 6.2% in 1996 versus 5.7% for 1995.

         Marketing costs increased 26.4% to $22.1 million from $17.4 million for
the years ended  December  31, 1996 and 1995,  respectively.  This  increase was
partially attributable to higher amortization of prior years' deferred marketing
costs in 1996 compared to 1995,  related to the substantial  increase (41.6%) in
solicitations  in 1995 versus 1994.  In 1995,  43.3 million  solicitations  were
mailed as compared to 30.6 million in 1994.  These costs are  amortized  over 42
months with the greatest  amortization in the first 24 months.  Additionally,  a
portion of this increase was attributable to higher front end solicitations,  as
9.4 million  additional  solicitations  were mailed in 1996 compared to 1995 (up
21.6%),  including the start up in the United  Kingdom.  Marketing  expenditures
were also  incurred in France and Germany for testing.  As a  percentage  of net
revenues, marketing costs were 13.6% in 1996 versus 12.8% for 1995.

         Coupon  redemption  costs declined to $4.1 million for fiscal 1996 from
$6.0 million for fiscal 1995. As a percentage of net revenues,  redemption costs
were 2.5% in 1996 versus 4.4% for 1995. This decrease relates to the issuance of
new gift  catalogs in both 1996 and 1995 that have a lower average cost per gift
to the Company,  and beginning in 1996, the charging of shipping and handling to
redemption customers, which has also lowered the cost of future redemptions and,
therefore,  the reserve balance for these future redemptions.  Lower redemptions
account for $0.2 million of the decrease.

         Compensation related to stock option expense was $22.9 million in 1996.
This expense represents a non-cash charge attributable to options granted by the
Board of  Directors  on June 28,  1996,  with an  exercise  price below the then
market price of the Company's  common stock, as part of a series of transactions
in contemplation of a potential initial public offering.

         Expenses of $1.6 million were incurred  related to a potential  initial
public  offering of equity  securities and a potential  acquisition,  neither of
which were consumated.

         Interest expense  decreased to $18.5 million for fiscal 1996 from $19.7
million for 1995.  This decrease in interest  expense was a combination of lower
rates  ($0.6  million)  and less debt  ($0.6  million)  on the bank  loan.  As a
percentage of net revenues,  interest expense was 11.3% in 1996 versus 14.5% for
1995.

         Excluding  stock option  compensation  expense of $22.9 million and the
costs  associated with the potential  initial public offering and acquisition of
$1.6 million,  the Company would have had operating  income of $37.0 million for
fiscal 1996, a 17.6%  increase over $31.4  million for 1995,  and would have had
pretax income of $18.8 million for 1996, a 56.2% increase over $12.1 million for
fiscal 1995.  These increases were primarily  attributable  to increased  sales,
lower coupon redemption costs, and lower interest costs,  offset by increases in
cost of sales,  bad  debts,  marketing  costs  and  administrative  and  general
expenses. As a percentage of net revenues, operating income, adjusted to exclude
stock option  compensation  expense and potential  initial  public  offering and
acquisition expense of $22.9 million and $1.6 million,  respectively,  was 22.7%
for 1996 versus 23.1% for 1995. As a percentage of net revenues,  pretax income,
adjusted to exclude stock option  compensation  expense of $22.9 million and the
potential initial public offering and acquisition  expense of $1.6 million,  was
11.5% for 1996 versus 8.8% for 1995.

         The Company incurred a net loss of $4.3 million in 1996.  Excluding the
stock option  compensation  expense and potential  initial  public  offering and
acquisition  costs of $15.9 million net of tax, net income would have  increased
to $11.6 million in 1996 from $7.5 million in 1995. This increase  resulted from
the increase in pretax income of $6.7 million,  adjusted to exclude stock option
compensation  expense  of  $22.9  million  and the  costs  associated  with  the
potential  initial public offering and acquisition of $1.6 million,  offset by a
$2.6 million increase in the provision for income taxes, excluding the $8.6
                                       11
<PAGE>


million tax benefit  related to the stock  option  compensation  expense and the
costs associated with the potential intial public offering and acquisition. As a
percentage of net revenues, net income adjusted to exclude the net impact of the
stock option compensation  expense and the costs of the potential initial public
offering and acquisition, was 7.1% for 1996 versus 5.5% for 1995.

Fiscal 1995 Compared to Fiscal 1994

         Net revenues  increased by 15.0% to $136.3  million in fiscal 1995 from
$118.6  million  in  fiscal  1994.  This  increase  was  the  result  of  higher
solicitations to elicit additional front end customers (up 1.2 million customers
from the  comparable  period).  The increase in net revenues was  primarily  the
result of these additional front end shipments, the related continuation of back
end  shipments  for these  new  customers  and  there was a $.05 per pair  price
increase in both fiscal 1995 and 1994. Price variance accounts for approximately
25% of the sales increase, while the balance relates to volume increases.

         Cost of sales  increased  16.2% to $61.0  million  in fiscal  1995 from
$52.5 million in fiscal 1994.  This increase was primarily  attributable  to the
higher front end and back end shipments. There were 1.2 million additional front
end  shipments  in 1995  compared  to  1994.  The cost of sales  for  front  end
shipments  is higher as a percent of sales than the cost of back end  shipments,
resulting  in an  increase  in cost of sales as a  percent  of sales  from  1994
(44.3%) to 1995  (44.7%).  The higher cost of front end  shipments was partially
offset  by  lower  manufacturing  costs  and  lower  acquisition  cost  for  raw
materials.

         Administrative and general expenses decreased 25.1% to $10.2 million in
fiscal 1995 from $13.6  million in fiscal 1994. As a percentage of net revenues,
these expenses  decreased to 7.5% in fiscal 1995 from 11.5% in fiscal 1994. This
decrease  was  primarily  due to lower  personnel  costs ($2.6  million) and the
elimination of a corporate-owned life insurance program ($0.8 million).

         Provision for doubtful accounts  increased $2.1 million to $7.8 million
in fiscal 1995 from $5.6 million in fiscal  1994.  This  increase was  partially
caused by  additional  front end,  second and third  shipments in fiscal 1995 as
compared to fiscal 1994 (1.7 million), which have a higher rate of uncollectible
accounts, resulting in $1.3 million of the increase. The balance of the increase
was  attributable  to a lower payment rate ($0.4  million) as compared to fiscal
1994,  and an  increase  in agency  fees and  volume  increases  for other  hose
shipments ($0.4 million).

         Marketing  costs  increased 12.2% to $17.4 million for fiscal 1995 from
$15.5 million for fiscal 1994.  This increase was directly  attributable  to the
substantial  increase in front end solicitations  (43.3 million in 1995 compared
to 30.6 million in 1994).

         Coupon  redemption  costs decreased to $6.0 million in fiscal 1995 from
$6.4 million in fiscal 1994. This decrease is the result of providing a new gift
catalog to  customers  with an average cost per gift to the Company that is less
than that of previous  catalogs.  As a percentage  of net  revenues,  redemption
costs  were 4.4% in 1995 and 5.4% in 1994,  reflecting  the lower  gift costs in
1995 versus 1994.

         Depreciation  expense has  declined to $2.5 million in fiscal 1995 from
$3.1 million in fiscal  1994.  The primary  reason for the  decrease  related to
accelerated  depreciation  of computer  equipment  in 1994 that was  replaced in
early 1995.

         Interest  expense has  increased  to $19.7  million in fiscal 1995 from
$4.8 million in fiscal 1994. This increase was the direct result of the issuance
by the Company of approximately  $149 million of debt in October 1994 as part of
the Recapitalization as defined in "--The Recapitalization" below.

         Operating  income  increased to $31.4 million in fiscal 1995 from $21.6
million in fiscal  1994,  a 45.4%  increase.  Pretax  income  decreased to $12.1
million in fiscal 1995 from $17.1  million in fiscal 1994, a 30%  decrease.  The
increase  in  operating  income was  primarily  attributable  to  increased  net
revenues,  lower  administrative  and general expenses,  lower coupon redemption
costs and lower  depreciation and amortization  expense,  offset by increases in
cost of sales, provision for doubtful accounts and marketing costs. The decrease
in pretax  income was  primarily  attributable  to  increased  interest  expense
related to the 1994 Recapitalization, offset by increased operating income. As a
percentage  of net  revenues,  operating  income was 23.1% in fiscal 1995 versus
18.2% in fiscal 1994. As a percentage of net revenues, pretax income was 8.8% in
fiscal 1995 versus 14.4% in fiscal 1994.

                                       12
<PAGE>




         Net income  decreased  to $7.5  million for 1995 from $9.7  million for
1994.  Adjusted for the losses on  discontinued  operations  and the  cumulative
effect of a change in accounting,  net income  decreased to $7.5 million in 1995
from $10.5 million in 1994.  This decrease in net income resulted from decreased
operating  results  ($5.1  million),  offset by a $2.1  million  decrease in the
provision for income taxes.

Liquidity and Capital Resources

         The Company's  cash  requirements  arise  principally  from the need to
finance new front end  solicitations  (customers),  capital  expenditures,  debt
repayment  and other  working  capital  requirements.  The  Company  mailed 52.6
million, 43.3 million and 30.6 million solicitations during the years 1996, 1995
and 1994, respectively.  The Company financed these solicitations and expects to
finance future  solicitations from internally  generated funds and/or its Credit
Facility.

         In fiscal 1996, 1995 and 1994, capital  expenditures were $4.9 million,
$3.1 million and $2.8 million,  respectively.  The majority of the  expenditures
were for the  purchase of  knitting,  sewing and dyeing  equipment  and facility
acquisition and enhancements.  These  expenditures  were financed  substantially
through the assumption of capital  leases.  Also, the Company  expects to expend
approximately  $2.5  million in 1997 for  additional  equipment.  These  capital
expenditures  will be financed  through  internal  sources or the  assumption of
capital leases.

         Working  capital  decreased to $0.6 million at December 31, 1996,  from
$5.8 million at December 31,  1995,  and $3.2 million at December 31, 1994.  The
decrease  from 1995 to 1996 is primarily  the result of increases in the current
portion of long-term debt relating to increasing debt service  requirements  and
accounts  payable,  offset by increased  receivables and inventories.  Increased
cash,  receivables and inventories,  offset by higher interest and taxes account
for the increase from 1994 to 1995.

         Net cash provided from operating activities was $7.4 million in 1996 as
compared  to $8.5  million  in 1995 and $6.3  million  in 1994.  This  change is
primarily due to increases in receivables, inventory and marketing costs related
to the growth of the  business,  offset by  increases  in net income,  excluding
non-cash charges for stock option compensation,  depreciation,  and amortization
of marketing costs, and accounts payable.

         Net cash used in investing activities was $2.5 million in 1996 and $1.0
million in 1995,  and related  primarily to the  investment in equipment and the
addition  of a  fulfillment  facility  in  1996.  Investing  activities  in 1994
provided cash of $5.9  million,  primarily as a result of the sale of assets and
discontinued operations to the former stockholder.

         During 1996, 1995 and 1994, the Company used $9.9 million, $4.4 million
and $8.2 million,  respectively,  in financing activities.  Net payments on bank
and other financing, including capital lease obligations,  totaled $9.9 million,
$4.6 million and $9.9 million in 1996, 1995 and 1994, respectively. In 1994, the
Company  received  proceeds  from the  issuance  of common and  preferred  stock
totaling $53.4 million, long-term debt totaling $80.0 million and Notes totaling
$69.1 million in connection with the Recapitalization  (see below). The proceeds
in 1994 from the  Recapitalization  were primarily  used to purchase  shares for
treasury totaling $199.0 million.  The proceeds from the  Recapitalization  were
also utilized,  in part, to pay fees related to the issuance of stock associated
therewith totaling  approximately  $2.0 million,  net of amounts paid or accrued
through the use of the Company's general working capital.

                                       13
<PAGE>


The Recapitalization

         On October 17, 1994, the Company effected the  recapitalization  of its
capital  stock  (the  "Recapitalization").   As  a  result  of  the  substantial
indebtedness incurred in connection with the  Recapitalization,  the Company has
significant  debt service  obligations.  At December 31, 1996,  the  outstanding
amount of the  Company's  indebtedness  (other  than trade  payables)  is $143.7
million,  including  $70.0  million of senior  secured debt and $68.3 million of
senior   subordinated   debt   (the   "Notes").   Since   consummation   of  the
Recapitalization,  the Company's  ongoing cash  requirements  through the end of
fiscal  1999  will  consist   primarily   of  interest   payments  and  required
amortization  payments  under the Credit  Agreement,  interest  payments  on the
Notes, payments of capital lease obligations,  front end marketing expenditures,
working  capital,  capital  expenditures  and taxes.  The required  amortization
payments under the Credit Agreement will be: $8.5 million in 1997, $14.2 million
in 1998, $10.7 million in 1999, $16.6 million in 2000 and $18.5 million in 2001.
Other than upon a change of control (as defined) or as a result of certain asset
sales,  the  Company  will not be  required  to make any  principal  payments in
respect of the Notes until maturity,  August 2002. The Company's  primary source
of liquidity will be cash flow from operations and funds available to it under a
revolving  credit facility.  The revolving credit facility  provides for maximum
borrowings  of $15.0  million,  $13.7 million of which was available at December
31, 1996.

Legal Proceedings

         As  discussed  further in Item  3--Legal  Proceedings,  the Company has
received   inquiries  from  thirteen  state  regulatory  groups  (the  "States")
concerning aspects of the Company's promotional materials, including whether the
terms of the Company's  promotional  offers are  sufficiently  disclosed in such
materials.  In January 1997, nine of the States,  acting as a multi-state group,
proposed an  Assurance  to the Company  which seeks to:  require a change in the
disclosure  in the  Company's  promotional  materials  regarding the initial and
subsequent hosiery shipments; require the Company to make certain disclosures in
its  promotional  materials  if the Company  offers free samples or operates any
form of  continuity  sales plan;  prohibit the Company  from seeking  collection
against any consumer who receives a solicitation  that is not in compliance with
the terms of the Assurance;  require that certain additional disclosures be made
should  the  Company  continue  to  operate a  referral  program;  and  prohibit
misrepresentation  in connection  with the sale of the Company's  products.  The
Assurance also seeks unspecified money damages and requires that refunds be made
to customers under certain circumstances, however such money damages and refunds
are not expected to be material to the Company's  financial condition or results
of operations.  Discussions with the States are ongoing. The Company believes it
will be able to reach an  acceptable  resolution  of the  issues  raised  by the
States. However, no assurance can be given that an acceptable resolution will be
reached.

         In response to the inquiries  from the FTC and the States,  the Company
has made changes in its  solicitation  materials  which,  based on experience to
date, will have a material adverse effect on its domestic response rates.
However,  response  rates  are only  one of  several  factors  that  affect  the
Company's  results of  operations.  The  Company  is unable to predict  what the
ultimate  outcome of its  discussions  with the States  will be or whether  such
outcome will have a material  adverse  effect on its revenues or  profitability.
State regulators from time to time contact the Company with inquiries  regarding
the  Company's   promotional   materials  and  state  regulators  could  require
additional changes to the Company's promotional materials,  and no assurance can
be given that such changes will not be  significant  or will not have a material
adverse  effect on the  Company's  future  financial  condition  or  results  of
operations.


Inflation

         Over the past three  years,  which has been a period of low  inflation,
the Company has been able to increase  sales volume to compensate  for increases
in operating  expenses.  The Company has historically  been able to increase its
selling  prices  as the  cost of  sales  and  related  operating  expenses  have
increased  and,  therefore,  inflation  has  not  had a  significant  effect  on
operations.

                                       14
<PAGE>


<TABLE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                      HOSIERY CORPORATION OF AMERICA, INC.

         Index to Financial Statements and Financial Statement Schedule

<CAPTION>
                                                                                            Page Number

Financial Statements and Independent Auditors' Report:
<S>                                                                                             <C>
        Independent Auditors' Report....................................................        16
        Consolidated Balance Sheets--December 31, 1996 and 1995.........................        17
        Consolidated Statements of Operations--For the years ended December 31, 1996,
           1995 and 1994................................................................        18
        Consolidated Statements of Cash Flows--For the years ended December 31, 1996,
           1995 and 1994................................................................        19
        Consolidated Statements of Stockholders' Equity (Deficiency)--For the years
           ended December 31, 1996, 1995 and 1994.......................................        21
        Notes to Consolidated Financial Statements......................................        25
Financial Statement Schedule and Independent Auditors' Report:
        Independent Auditors' Report....................................................       S-1
        Schedule I--Valuation and Qualifying Accounts--For the years ended
           December 31, 1996, 1995 and 1994.............................................       S-2
<FN>

        Schedules  other than those  listed  above are omitted  because they are
either not applicable or not required or the information required is included in
the consolidated financial statements or notes thereto.
</FN>
</TABLE>

                                       15
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors
Hosiery Corporation of America, Inc.
Bensalem, Pennsylvania

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Hosiery
Corporation of America, Inc. and subsidiaries (the "Company") as of December 31,
1996  and  1995,  and  the  related   consolidated   statements  of  operations,
stockholders'  equity (deficiency) and cash flows for each of the three years in
the  period  ended  December  31,  1996.  These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements 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.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the consolidated financial position of the Company as of December 31,
1996 and 1995,  and the results of its operations and its cash flows for each of
the three years in the period  ended  December  31,  1996,  in  conformity  with
generally accepted accounting principles.

As discussed in Note 3 to the  consolidated  financial  statements,  on July 19,
1994, the Company entered into a Recapitalization and Stock Purchase Agreement.





Deloitte & Touche LLP
Philadelphia, Pennsylvania

February 28, 1997

                                       16
<PAGE>
<TABLE>
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
                  (Dollars in thousands, except per share data)
<CAPTION>
ASSETS                                                        1996          1995
                                                           ------------------------
CURRENT ASSETS:
<S>                                                         <C>          <C>     
     Cash and cash equivalents .........................    $  1,960     $  6,987
     Accounts receivable, less an allowance for doubtful
      accounts of $1,540 and $1,263 in 1996 and 1995,
      respectively .....................................      22,939       19,708
     Income tax refunds receivable .....................         100           32
     Inventories .......................................      15,538        9,814
     Prepaid and other current assets ..................       1,770        1,350
                                                            ---------    ---------
         Total current assets ..........................      42,307       37,891
PROPERTY AND EQUIPMENT, net ............................      17,422       15,334
DEFERRED CUSTOMER ACQUISITION COSTS ....................      24,664       19,485
DEFERRED DEBT ISSUANCE COSTS,less accumulated 
     amortization of $3,684 and $2,016 in 1996 and 1995,
     respectively ......................................       7,185        8,853
DEFERRED INCOME TAXES ..................................         375           --
OTHER ASSETS ...........................................         647        1,297
                                                            ---------    ---------
TOTAL ..................................................    $ 92,600     $ 82,860
                                                            =========    =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:

     Current portion of long-term debt .................    $  8,637     $  3,421
     Current portion of capital lease obligations ......       1,627        1,402
     Accounts payable ..................................       7,885        3,948
     Accrued expenses and other current liabilities ....       5,442        5,682
     Accrued interest ..................................       4,703        4,858
     Accrued coupon redemption costs ...................       5,044        6,117
     Deferred income taxes .............................       8,380        6,540
     Income taxes payable ..............................          --          129
                                                            ---------    ---------
          Total current liabilities ....................      41,718       32,097
LONG-TERM DEBT, Less current portion ...................     129,142      142,565
CAPITAL LEASE OBLIGATIONS, Less current portion ........       4,299        3,705
ACCRUED COUPON REDEMPTION COSTS ........................         495          521
DEFERRED INCOME TAXES ..................................          --        6,508
                                                             --------    ---------
          Total liabilities ............................     175,654      185,396
COMMITMENTS AND CONTINGENT LIABILITIES                       --------    ---------
REEDEMABLE EQUITY SECURITIES ...........................         768          384
                                                            ---------     --------
STOCKHOLDERS' DEFICIENCY:
     Preferred stock, $.01 par value, 12,000,000 shares
     authorized: 4,000,000 shares designated as pay-in-
     kind preferred stock,stated at liquidation value of
     $10 per share; 25% cumulative,(liquidation 
     preference of $63,082 and $49,842 in 1996 and 1995,
     respectively), 3,739,782 shares issued and
     outstanding ......................................       37,398       37,398
     Common stock, voting, $.01 par value: 3,000,000
      shares authorized, 1,321,522 shares issued and
      outstanding ......................................          13           13
     Common stock, Class A, non-voting, $.01 par value:
      500,000 shares authorized, 75,652 shares issued
      and outstanding ..................................           1            1
     Additional paid-in capital ........................      16,669       16,753
     Compensatory stock options outstanding ............      22,938           --
     Accumulated deficit ...............................    (159,894)    (155,588)
     Restricted stock ..................................        (947)      (1,499)
     Foreign currency translation adjustment ...........          --            2
                                                            ---------    ---------
       Stockholders' deficiency ........................     (83,822)    (102,920)
                                                            ---------    ---------
TOTAL ..................................................    $ 92,600     $ 82,860
                                                            =========    =========
<FN>
           See notes to condensed consolidated financial statements.
</FN>
</TABLE>
                                       17
<PAGE>


              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                             (Dollars in thousands)
                                    <TABLE>
<CAPTION>
                                                                                    1996          1995         1994
                                                                                   ------        ------       ------   

<S>                                                                              <C>          <C>          <C>      
NET REVENUES .................................................................   $ 162,763    $ 136,299    $ 118,560
                                                                                 ----------   ----------   ----------
COSTS AND EXPENSES:
     Cost of sales ...........................................................      75,184       60,982       52,485
     Administrative and general expenses .....................................      11,404       10,200       13,616
     Provision for doubtful accounts .........................................      10,057        7,788        5,643
     Marketing costs .........................................................      22,055       17,442       15,542
     Coupon redemption costs .................................................       4,140        5,969        6,397
     Depreciation and amortization ...........................................       2,996        2,493        3,141
     Compensation related to stock options ...................................      22,938           --           --
     Expenses related to stock offering and acquisition ......................       1,587           --           --
     Other (income) expenses .................................................         (41)          (2)         123
                                                                                 ----------   ----------   ---------- 
                                                                                       
OPERATING INCOME .............................................................      12,443       31,427       21,613
     Interest income .........................................................         327          378          314
     Interest expense ........................................................      18,466       19,749        4,811
                                                                                 ----------   ----------   ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION (BENEFIT) FOR INCOME
 TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE ............................      (5,696)      12,056       17,116
PROVISION (BENEFIT) FOR INCOME TAXES .........................................      (1,390)       4,560        6,648
                                                                                 ----------   ----------   ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF
 ACCOUNTING CHANGE ...........................................................      (4,306)       7,496       10,468
LOSS FROM DISCONTINUED OPERATIONS (net of income tax provision of $8).........          --           --         (329)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS (net of income tax
  benefit of $83) ............................................................          --           --         (230)
                                                                                 ----------   ----------   ---------- 
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE .................       (4,306)       7,496        9,909
CUMULATIVE EFFECT OF ACCOUNTING CHANGE .......................................          --           --         (163)
                                                                                 ----------   ----------   ----------
NET INCOME (LOSS) ............................................................   ($  4,306)   $   7,496    $   9,746
                                                                                 ==========   ==========   ==========  
<FN>
                 See notes to consolidated financial statements

</FN>
</TABLE>
                                       18
<PAGE>


<TABLE>
                                                                 
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                             (Dollars in thousands)
<CAPTION>
                                                                                                      1996         1995         1994
                                                                                                  ----------------------------------
OPERATING ACTIVITIES:
<S>                                                                                              <C>           <C>          <C>    
   Net income (loss) ........................................................................... $ (4,306)     $ 7,496      $ 9,746
   Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:
      Depreciation and amortization ............................................................    2,996        2,493        3,141
      Amortization of debt issue costs and discounts ...........................................    1,852        1,848          358
      Compensation related to stock options ....................................................   22,938           --           --
      Deferred income taxes ....................................................................   (5,043)       1,882        1,672
      Cumulative effect of change in accounting principle ......................................       --           --          163
      (Gain) loss on sale and abandonments of property and equipment ...........................       (3)          (2)         123
      Loss from discontinued operations ........................................................       --           --          329
      Loss on disposal of discontinued operations ..............................................       --           --          230
      Amortization of restricted stock .........................................................      552           --           --
      Amortization of deferred customer acquisition costs ......................................   17,994       15,574       13,495
      Debt issuance costs ......................................................................       --          (23)     (10,845)
      (Increase) decrease in operating assets, net of effects from discontinued operations:
            Accounts receivable ................................................................   (3,231)      (2,052)      (2,663)
            Inventories ........................................................................   (5,724)      (1,527)         410
            Payments for deferred customer acquisition costs ...................................  (23,083)     (17,902)     (12,099)
            Prepaid and other current assets ...................................................     (488)        (312)        (718)
            Other assets .......................................................................      298          (56)        (356)
      Increase (decrease) in operating liabilities, net of effects from discontinued operations:
            Accounts payable, accrued expenses and other liablilities ..........................    3,842        1,142        4,340
            Income taxes payable ...............................................................     (129)         129         (671)
            Accrued coupon redemption costs ....................................................   (1,099)        (150)         199
      Operating activities of discontinued operations ..........................................       --           --         (599)
                                                                                                   ------       ------        ------
                  Net cash provided by operating activities ....................................    7,366        8,540        6,255
                                                                                                   ------       ------        ------
INVESTING ACTIVITIES:
   Acquisitions of property and equipment ......................................................   (2,522)      (1,019)      (1,989)
   Proceeds from sales of property and equipment ...............................................       39            6          106
   Proceeds from disposal of discontinued operations to Stockholder .............................      --           --        3,158
   Proceeds from sale of assets to Stockholder .................................................       --           --        3,960
   Decrease in assets held for sale to Stockholder .............................................       --           --          647
                                                                                                   -------      -------     --------
                  Net cash provided by (used in) investing activities ..........................   (2,483)      (1,013)       5,882
                                                                                                   -------      -------     --------
FINANCING ACTIVITIES:
   Net repayment of note payable to bank .......................................................       --           --       (2,300)
   Proceeds from bank and other financing .....................................................        --           --       80,000
   Payments on bank and other financing ........................................................   (8,391)      (3,364)      (4,941)
   Payments on capital leases ..................................................................   (1,519)      (1,256)      (2,682)
   Payments of costs associated with issuance of stock .........................................       --          (33)      (2,601)
   Capital contribution from Stockholder .......................................................       --           --          690
   Issuance of Preferred stock .................................................................       --           --       36,478
   Issuance of Common stock ....................................................................       --           --       16,902
   Issuance of Redeemable Equity Securities, net of costs to issue .............................       --          185           45
   Issuance of Units ...........................................................................       --           --       69,146
   Stock redemptions and purchases of Treasury stock ...........................................       --           --     (198,983)
   Purchase price adjustment of Treasury stock .................................................       --          (88)          --
   Proceeds from stock subscription ............................................................       --          125           --
                                                                                                  --------      -------      -------
                  Net cash used in financing activities ........................................   (9,910)      (4,431)      (8,246)
                                                                                                  --------      -------      -------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ...........................................   (5,027)       3,096        3,891
Cash and cash equivalents at beginning of year .................................................    6,987        3,891           --
                                                                                                  --------     --------     --------
Cash and cash equivalents at end of year .......................................................  $ 1,960      $ 6,987      $ 3,891
                                                                                                  ========     ========     ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the year for:
      Interest .................................................................................  $16,719      $15,111      $ 2,436
                                                                                                 =========    =========     ========
      Income taxes .............................................................................  $ 4,102      $ 2,261      $ 4,833
                                                                                                 =========    =========     ========
                                       19
<PAGE>


                                                               
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                             (Dollars in thousands)

(Continued)

                                                                               
                                                                               


<FN>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:


Capital lease  obligations of $2,338,  $2,103 and $776 were entered into for new
equipment during 1996, 1995 and 1994, respectively.

In  1996,  two  officers  of the  Company  were  granted  approximately  $300 of
redeemable equity securities as additional compensation.

During 1995,  in  connection  with the  issuance of  redeemable  common  shares,
certain  agreements  were  amended and  executed in order that  preferred  stock
issued in 1995 and 1994 would be  redeemable  under the same basic  terms of the
redeemable  common  stock.  Due to the  change in terms of the  preferred  stock
agreement,  10,218  shares  issued in October  1994 with a value net of issuance
costs  of $97 were  reclassified  from  preferred  stock  to  redeemable  equity
securities in 1995.

Units issued in connection with the Recapitalization Agreement in 1994 consisted
of one  senior  subordinated  note and one share of Class A, non  voting  common
stock.  Based on the issue price of the Units and the relative fair market value
of the notes and the shares at the time of issuance, the Company determined that
$67,962 related to the notes issued and $1,184 related to the shares issued.

                 See notes to consolidated financial statements
</FN>
</TABLE>
                                       20
<PAGE>
<TABLE>

              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                             (Dollars in thousands)

<CAPTION>
                                                                           PREFERRED STOCK
                                                ----------------------------------------------------------------            
                                                        PIK                  CLASS A               CLASS B
                                                --------------------   --------------------    ---------------- 
                                                Shares      Amount       Shares      Amount      Shares    Amount

<S>                                                                      <C>          <C>        <C>         <C> 
BALANCE, January 1, 1994                                                 100,000      $100       100,000     $520
Net income
Gain on sale of assets to
  Stockholder recognized as
  capital contribution (see Note 3)
Purchase of shares for treasury
Retirement of shares in treasury                                        (100,000)     (100)     (100,000)    (520)
Reclassification of Class A Common 
  Stock  into Common Stock and
  effect of stock split of Common
   Stock on approximately a
  62.22 to 1 basis (see Note 3)
Issuance of Common Stock (see
  Notes 3 and 19)
Issuance of PIK Preferred Stock
  (see Notes 3 and 20)                           3,637,602   $36,376
Issuance of shares in connection
  with debentures (see Note 3)
Issuance of shares in connection
  with management grant (see
  Notes 3 and 19)                                  102,180     1,022
Issuance of shares in connection
  with Recapitalization (see Note 3)                10,218       102
Costs associated with issuance of
  stock
                                                 --------------------    -----------------      ----------------- 
BALANCE December 31, 1994                        3,750,000    37,500          --        --            --       --
Net income
Amendment of preferred stock
   agreement resulting in certain
   redeemable preferred equity
   securities                                      (10,218)    (102)
Additional costs associated with
  previously purchased and retired
  treasury stock
Costs associated with issuance of
  stock
Accretion of preference value over
  carrying value of redeemable
  preferred stock
Receipt of stock subscription
Foreign currency translation
                                                -------------------      -----------------      -----------------  
BALANCE December 31, 1995                        3,739,782   37,398           --        --            --       --            
Net loss
Compensation under restricted
  stock awards
Stock options granted
Accretion of preference value over
  carrying value of redeemable
  preferred stock
Foreign currency translation
                                                -------------------     -----------------      -----------------  
BALANCE December 31, 1996                        3,739,782  $37,398           --     $ --            --     $ --
                                                ===================     =================      =================
<FN>

                 See notes to consolidated financial statements.
</FN>
</TABLE>

                                       21

<PAGE>
<TABLE>
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                             (Dollars in thousands)

<CAPTION>
                                                                     COMMON STOCK                                
                                                 ---------------------------------------------------------
                                                                       CLASS A,            CLASS A,    
                                                                        VOTING            NON VOTING   
                                                 ----------------   ---------------    ------------------
                                                 Shares    Amount   Shares   Amount    Shares      Amount        
                                                 ----------------   ---------------    ------------------ 
<S>                                                                 <C>        <C>                       
BALANCE, January 1, 1994              *                             183,100    $183        --          --
Net income                        
Gain on sale of assets to
  Stockholder recognized as
  capital contribution (see Note 3)
Purchase of shares for treasury                                                                                  
Retirement of shares in treasury                                   (178,396)   (178)                            
Reclassification of Class A Common
  Stock  into Common Stock and
  effect of stock split of Common
   Stock on approximately a
  62.22 to 1 basis (see Note 3)                    292,600     $3    (4,704)     (5)
Issuance of Common Stock (see
  Notes 3 and 19)                                1,000,660     10                        5,652         --
Issuance of PIK Preferred Stock
  (see Notes 3 and 20)
Issuance of shares in connection
  with debentures (see Note 3)                                                          70,000         $1
Issuance of shares in connection
  with management grant (see
  Notes 3 and 19)                                   28,262     -- 
Issuance of shares in connection
  with Recapitalization (see Note 3)
Costs associated with issuance of
  stock
                                                 ----------------   ---------------    ------------------
BALANCE December 31, 1994                        1,321,522     13        --      --     75,652          1         
Net income
Amendment of preferred stock
   agreement resulting in certain
   redeemable preferred equity
   securities
Additional costs associated with
  previously purchased and retired
  treasury stock
Costs associated with issuance of
  stock
Accretion of preference value over
  carrying value of redeemable
  preferred stock
Receipt of stock subscription
Foreign currency translation
                                                 ----------------   ---------------    ------------------
BALANCE December 31, 1995                        1,321,522     13        --      --     75,652          1         
Net loss
Compensation under restricted
  stock awards
Stock options granted
Accretion of preference value over
  carrying value of redeemable
  preferred stock
Foreign currency translation
                                                 ----------------   ---------------    ------------------
BALANCE December 31, 1996                        1,321,522    $13       --     $ --     75,652         $1         
                                                 ================   ===============    ==================
<FN>
                See notes to consolidated financial statements.

</FN>
</TABLE>

                                                         
                                       22

<PAGE>
<TABLE>
             HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                             (Dollars in thousands)

<CAPTION>
                                                              TREASURY STOCK
                                              ---------------------------------------------------
                                                    PREFERRED                COMMON                                   Retained
                                                      STOCK                   STOCK                     Additional    Earnings
                                              ---------------------          -------                     Paid-In      (Accum. 
                                              Class A       Class B          Class A       Amount        Capital      Deficit) 
                                              ---------------------          --------------------        -------      ---------
<S>                                            <C>           <C>             <C>         <C>              <C>         <C>      
BALANCE, January 1, 1994                       94,540        90,575          161,059     ($18,615)        $4,638      $  39,492
Net income                                                                                                                9,746
Gain on sale of assets to
  Stockholder recognized as
  capital contribution (see Note 3)                                                                          690
Purchase of shares for treasury                 5,460         9,425           17,337     (198,983)
Retirement of shares in treasury             (100,000)     (100,000)        (178,396)     217,598         (4,566)      (212,234)  
Reclassification of Class A Common
  Stock  into Common Stock and
  effect of stock split of Common
   Stock on approximately a
  62.22 to 1 basis (see Note 3)                                                                                2
Issuance of Common Stock (see
  Notes 3 and 19)                                                                                         17,017
Issuance of PIK Preferred Stock
  (see Notes 3 and 20)
Issuance of shares in connection
  with debentures (see Note 3)                                                                             1,183
Issuance of shares in connection
  with management grant (see
  Notes 3 and 19)                                                                                            477
Issuance of shares in connection
  with Recapitalization (see Note 3)
Costs associated with issuance of
  stock                                                                                                   (2,601)
                                              ---------------------          --------------------        -------      ---------
BALANCE December 31, 1994                          --            --               --           --         16,840       (162,996)
Net income                                                                                                                7,496
Amendment of preferred stock
   agreement resulting in certain
   redeemable preferred equity
   securities
Additional costs associated with
  previously purchased and retired
  treasury stock                                                                                                            (88)
Costs associated with issuance of
  stock                                                                                                      (35)
Accretion of preference value over
  carrying value of redeemable
  preferred stock                                                                                            (52)
Receipt of stock subscription
Foreign currency translation
                                              ---------------------          --------------------        -------      ---------
BALANCE December 31, 1995                          --            --               --           --         16,753       (155,588)
Net loss                                                                                                                 (4,306)
Compensation under restricted
  stock awards
Stock options granted
Accretion of preference value over
  carrying value of redeemable
  preferred stock                                                                                            (84)
Foreign currency translation
                                              ---------------------          --------------------        -------      ---------
BALANCE December 31, 1996                          --            --               --      $    --        $16,669       (159,894)
                                              =====================          ====================        =======      =========
<FN>
                 See notes to consolidated financial statements.

</FN>
</TABLE>
                                       23


<PAGE>
<TABLE>

              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                             (Dollars in thousands)

                                                                                
<CAPTION>
                                                                                Compensatory  
                                                   Stock                            Stock            Foreign
                                                Subscription    Restricted         Options          Currency
                                                Receivables       Stock          Outstanding       Translation        Total
                                                ------------    ----------      ------------       -----------       -------     
<S>              <C>                                                                                                 <C>     
BALANCE, January 1, 1994                                                                                             $26,318 
Net income                                                                                                             9,746 
Gain on sale of assets to
  Stockholder recognized as
  capital contribution (see Note 3)                                                                                      690
Purchase of shares for treasury                                                                                     (198,983)     
Retirement of shares in treasury                                                                                          --
Reclassification of Class A Common
  Stock  into Common Stock and
  effect of stock split of Common
   Stock on approximately a
  62.22 to 1 basis (see Note 3)                                                                                           --
Issuance of Common Stock (see
  Notes 3 and 19)                                      $(125)                                                         16,902   
Issuance of PIK Preferred Stock
  (see Notes 3 and 20)                                                                                                36,376
Issuance of shares in connection
  with debentures (see Note 3)                                                                                         1,184
Issuance of shares in connection
  with management grant (see
  Notes 3 and 19)                                                  $(1,499)                                               --
Issuance of shares in connection
  with Recapitalization (see Note 3)                                                                                     102 
Costs associated with issuance of
  stock                                                                                                               (2,601)  
                                                ------------    ----------      ------------       -----------       -------
BALANCE December 31, 1994                               (125)       (1,499)               --                --      (110,266)
Net income                                                                                                             7,496 
Amendment of preferred stock
   agreement resulting in certain
   redeemable preferred equity
   securities                                                                                                           (102) 
Additional costs associated with
  previously purchased and retired
  treasury stock                                                                                                         (88) 
Costs associated with issuance of
  stock                                                                                                                  (35)
Accretion of preference value over
  carrying value of redeemable
  preferred stock                                                                                                        (52)  
Receipt of stock subscription                            125                                                             125
Foreign currency translation                                                                                $2             2
                                                ------------    ----------      ------------       -----------       -------
BALANCE December 31, 1995                                 --        (1,499)               --                 2      (102,920)     
Net loss                                                                                                              (4,306)
Compensation under restricted
  stock awards                                                         552                                               552
Stock options granted                                                                $22,938                          22,938  
Accretion of preference value over
  carrying value of redeemable
  preferred stock                                                                                                        (84) 
Foreign currency translation                                                                                (2)           (2)
                                                ------------    ----------      ------------       -----------       -------
BALANCE December 31, 1996                              $  --       $  (947)          $22,938             $  --      $(83,822)      
                                                ============    ==========      ============       ===========       =======
<FN>
                See notes to consolidated financial statements.
</FN>
</TABLE>


                                       24



<PAGE>

                                                       
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)


1.     ORGANIZATION

       Hosiery  Corporation  of  America,  Inc.  and  subsidiaries  is a company
       incorporated  in the State of Delaware  and is engaged in the direct mail
       marketing,  manufacturing  and  distribution  of  quality  women's  sheer
       hosiery products to consumers throughout the United States and the United
       Kingdom.  The Company  markets women's sheer hosiery through a continuous
       product  shipment  or  "continuity"  program.  The  Company's  continuity
       program  involves  mailing to customers a specially  priced  introductory
       hosiery offer,  the acceptance of which enrolls  customers in the program
       and results in additional  shipments of hose on a regular and  continuous
       basis upon payment of a prior hose shipment. The Company's  manufacturing
       operations  supply  approximately  87% of all the hosiery required by the
       Company's continuity program.


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Principles  of  Consolidation  - The  consolidated  financial  statements
       include  the  accounts  of Hosiery  Corporation  of  America,  Inc.  (the
       "Company") and its subsidiaries.  All significant  intercompany  accounts
       and transactions have been eliminated.

       Revenue  Recognition  - Revenue less  allowance for returns is recognized
       when merchandise is shipped. The Company provides for returns at the time
       of shipment based upon historical experience.

       Cash and Cash Equivalents - Cash and cash equivalents consist of cash and
       other short-term  securities purchased with maturities of less than three
       months.

       Inventories  -  Inventories  are  stated at the lower of cost  (first-in,
       first-out) or market.

       Property and  Equipment - Property and  equipment are stated at cost less
       accumulated  depreciation.  Depreciation  is provided on a  straight-line
       basis using estimated lives of 31 years for buildings,  5 to 10 years for
       machinery and equipment, 5 to 7 years for furniture and fixtures and 3 to
       5 years for  automobiles.  Leasehold  improvements are amortized over the
       shorter  of the  estimated  useful  life or the lease  periods  which are
       generally 15 to 18 years.  Effective January 1, 1994, the Company changed
       its  estimate of the useful  lives of certain  computer  equipment.  This
       change was made to better reflect the estimated  period during which such
       assets  would  remain in  service.  This change  resulted  in  additional
       depreciation   expense  for  the  year  ended   December  31,  1994,   by
       approximately $700.

       Deferred Customer Acquisition Costs - Deferred customer acquisition costs
       consist of marketing  costs  (postage,  printed  material,  customer list
       rentals,  etc.) of the initial  shipment to a customer and similar  costs
       associated  with the  resolicitation  of previously  canceled  customers.
       These costs are  aggregated by promo- tional program and are amortized on
       an  accelerated  basis based upon the  estimated  current year revenue in
       proportion to the expected future revenue  generated by these  customers.
       Approximately  56% of these costs are  amortized  in the first 12 months,
       69% within 18 months,  and 78% within 24  months.  The loss  incurred  on
       front end  shipments to customers is charged to operations at the time of
       the front end shipment.

       Software  Costs  -  Software  costs,  principally  internally  developed,
       consist of the expenses  associated with the development  (computer time,
       license, programming time) of material software projects with a long-term
       benefit  and are  included  in the  consolidated  balance  sheet as Other
       Assets. Such assets are amortized on a straight-line basis over a 5 to 10
       year period.  Effective January 1, 1994, the Company changed its estimate
       of the  useful  life of  software  costs for new  software  to 7 years to
       better reflect the estimated  period during which such assets will remain
       in service.

                                       25
<PAGE>


              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)

       Derivative Financial  Instruments - The Company enters into interest rate
       caps to manage exposure to fluctuations in interest rates.  Premiums paid
       on caps are amortized to interest expense over the term of the cap.

       Deferred  Debt  Issuance  Costs - Debt  issuance  costs  represent  costs
       associated  with bank  borrowings  and notes and are amortized  using the
       effective interest method over the terms of the related borrowings.

       Income Taxes - The Company uses the liability  method of  accounting  for
       income  taxes in  accordance  with SFAS No.  109,  Accounting  for Income
       Taxes.  Under the liability method,  deferred income taxes are determined
       based upon enacted tax laws and rates applied to the differences  between
       the financial statement and tax basis of assets and liabilities.

       Postemployment  Benefits - Effective January 1, 1994, the Company adopted
       Statement  of  Financial  Accounting  Standards  No. 112 (SFAS No.  112),
       Employers' Accounting for Postemployment  Benefits. SFAS No. 112 requires
       the expected cost of providing  benefits to former or inactive  employees
       after employment but before  retirement be accrued if certain  conditions
       are  met.  The  Company  provides  sick  pay,  long-term  disability  and
       severance  benefits for certain  employees.  The  liability  for benefits
       accrued at January 1, 1994 of approximately  $163, net of tax of $87, has
       been  reflected in the  consolidated  statement of income as a cumulative
       effect of change in accounting.

       Impairment of Long-Lived  Assets - Effective January 1, 1996, the Company
       adopted  Statement of Financial  Accounting  Standards  No. 121 (SFAS No.
       121),  Accounting  for  the  Impairment  of  Long-Lived  Assets  and  for
       Long-Lived Assets to Be Disposed Of. This standard  prescribes the method
       for  asset  impairment  evaluation  for  long-lived  assets  and  certain
       identifiable intangibles that are either held and used or to be disposed.
       The  implementation  of this  standard  did not  have  an  effect  on the
       Company's financial position or results of operations.

       Accounting for  Stock-Based  Compensation - As permitted by SFAS No. 123,
       Accounting  for  Stock-Based  Compensation,  the  Company  has  chosen to
       measure  stock-based  compensation  expense in accordance with the method
       prescribed by Accounting  Principles Board Opinion No. 25, Accounting for
       Stock Issued to Employees.

       Foreign Currency Translation - Foreign entities translate monetary assets
       and liabilities at year-end exchange rates while  non-monetary  items are
       translated  at  historical   rates.   Income  and  expense  accounts  are
       translated  at the average  rates in effect  during the year,  except for
       depreciation  and certain  marketing  expenses  which are  translated  at
       historical  rates.  Gains or losses from  changes in  exchange  rates are
       recognized in income in the year of occurrence.

       Use  of  Estimates  -  The  preparation  of  the  Company's  consolidated
       financial  statements in conformity  with generally  accepted  accounting
       principles   necessarily   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.

                                      26
<PAGE>


              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)

       Reclassifications  -  Certain  reclassifications  were  made to the prior
       year's  consolidated  financial  statements to conform to classifications
       used in the current period.


3.     RECAPITALIZATION

       On July 19, 1994, an affiliate of Kelso & Company,  Inc.  ("Kelso"),  the
       Company and Joseph A. Murphy,  the sole  stockholder  of the Company (the
       "Stockholder"),  entered  into  a  Recapitalization  and  Stock  Purchase
       Agreement   (the   "Recapitalization   Agreement").   Pursuant   to   the
       Recapitalization  Agreement, the Company repurchased from the Stockholder
       (the  "Repurchase")  for  approximately  $191.2  million,  which includes
       approximately  $0.9  million  in  post-closing  adjustments  (net of $7.8
       million  received from the Stockholder for the purchase of certain assets
       (see below)), all of its then outstanding shares of preferred stock and a
       substantial  portion of its then  outstanding  shares of common stock. On
       October  17,  1994,  the Company  effected  the  recapitalization  of its
       capital  stock  (the  "Recapitalization"),   pursuant  to  which  certain
       affiliates  and  designees  of Kelso and  certain  members  of  operating
       management of the Company (collectively, the "Investor Group"), purchased
       a controlling  equity interest in the Company.  The Company  effected the
       Repurchase  with  the  proceeds  of the  Financing  (as  defined  below).
       Following the  consummation of the Repurchase (and after giving effect to
       the  purchase  of common  stock by the  Investor  Group  pursuant  to the
       Financing),  the Investor Group owned  approximately 74% of the Company's
       common stock,  with the Stockholder  retaining  approximately  21% of the
       Company's common stock.

       The Company obtained the funds necessary to effect the Repurchase,  repay
       certain  existing  indebtedness  of the  Company  and  pay the  fees  and
       expenses incurred in connection with the Recapitalization  primarily from
       the  proceeds  of  a  financing  (the  "Financing")  which  included  (i)
       borrowings of $80.0 million under a credit agreement, consisting of $80.0
       million of term loan facilities (the "Term Loan  Facilities") and a $15.0
       million  revolving  credit  facility,  entered  into  among the  Company,
       Bankers  Trust  Company,  and the banks  signatory  thereto,  (ii)  gross
       proceeds of approximately $69.1 million from the issuance and sale of the
       Units (each unit consisting of one Senior Subordinated Note and one share
       of Class A Common  Stock),  (iii) gross proceeds of  approximately  $36.5
       million from the sale to the  Investor  Group of shares of a new class of
       pay-in-kind  preferred  stock of the  Company  for cash,  and (iv)  gross
       proceeds of  approximately  $17.1  million  from the sale to the Investor
       Group of shares of Common  Stock for  cash.  The  Company  also  utilized
       working  capital of  approximately  $2.0 million to pay fees and expenses
       incurred in connection with the  Recapitalization.  In addition,  certain
       members of the Company's  management were granted restricted  pay-in-kind
       preferred  stock  and  restricted   common  stock  of  $1,022  and  $478,
       respectively (see Note 19).

       The  Recapitalization  and Stock Purchase Agreement  contained  customary
       representations,  warranties and  conditions.  The  Recapitalization  and
       Stock  Purchase  Agreement  also  provided  that,  at  or  prior  to  the
       consummation  of the  Acquisition,  the Stockholder and the Company enter
       into an Escrow  agreement  pursuant to which,  among other things,  $10.0
       million  of the  aggregate  purchase  price  paid by the  Company  to the
       Stockholder  pursuant  to the  Repurchase  be held in escrow to provide a
       source  of   payment  to  satisfy   the   Stockholder's   indemnification
       obligations under the Recapitalization and Stock Purchase Agreement.

                                       27
<PAGE>


              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)


3.     RECAPITALIZATION (continued)

       Prior to the  Recapitalization,  the  Company had  authorized  classes of
       voting and  non-voting  common stock,  with shares of voting stock issued
       and outstanding.  As part of the Recapitalization,  such non-voting stock
       was retired and such voting stock was changed and reclassified from Class
       A Common  Stock,  par  value  $1.00 per  share,  into one share of Common
       Stock,  par value $.01 per share.  In addition,  in  connection  with the
       Recapitalization,  the Company issued and sold shares of non-voting Class
       A  Common  Stock,  a small  number  of which  was  purchased  by  certain
       designees  of Kelso,  and the  remainder of which was sold in the form of
       Shares as part of the Units.  Upon the occurrance of any Conversion Event
       (as defined,  e.g., any transfer of shares of Class A Common Stock to any
       persons who are not affiliates of the transferor),  each share of Class A
       Common Stock shall be convertible  into one share of the Company's Common
       Stock.  Subsequent to the Recapitalization,  the Company effected a stock
       split of its Common Stock on approximately a 62.22-to-1 basis.

       In  connection  with  the  Recapitalization,  the  Company  sold for cash
       certain  assets  which  were  not  used in its  hosiery  business  to the
       Stockholder. The assets were sold at fair value ($7.8 million) as of July
       19, 1994, which approximated their then net book value.  Certain of these
       assets,  including the Company's Book, Bag, and Overseas Divisions,  were
       restated in the  financial  statements  as  discontinued  operations  and
       classified  as net assets of  discontinued  operations.  The remainder of
       these assets were  classified in the financial  statements as assets held
       for sale to  stockholder.  (See Note 4.) Upon final  consummation  of the
       sale on October 17, 1994, the carrying value of these assets had declined
       by  approximately  $690  resulting  in a gain on the sale.  This gain was
       reflected  as  a  capital  contribution  in  the  accompanying  financial
       statements.


4.     DISCONTINUED OPERATIONS AND DISPOSAL OF A LINE OF BUSINESS

       On July 9, 1994, as part of the Company's  Recapitalization,  the Company
       discontinued the remainder of its Book Division,  along with its Overseas
       and Bag Divisions.

       Summary results of the Book, Bag, and Overseas Divisions were as follows:

                                                      1996       1995     1994
                                                      ----       ----     ----
                 
                  Net revenues...................  $    --    $    --    $  389
                  Loss before income taxes.......       --         --      (321)
                  Provision for income taxes ....       --         --         8
                  Net loss.......................       --         --      (329)

                                       28

<PAGE>


              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)


5.     PROVISION FOR COUPON REDEMPTION

       As part of the marketing  program,  the Company issues coupons to program
       participants  based upon the  products  purchased  or the referral of new
       customers to the  Company.  Customers  may redeem  coupons for free gifts
       from a program  catalog once they have  collected the required  number of
       coupons.  During 1996,  customers with an average of 32 coupons  redeemed
       for a free  gift  (31  coupons  in 1995)  after a  collection  period  of
       approximately  four years.  The  estimated  future costs for this program
       have been determined  based on historical  customer  redemption  patterns
       applicable to outstanding coupons and average gift costs.

6.     INVENTORIES

                                                            1996      1995  
                                                          -------   -------
       Raw materials .................................    $   537   $   787
       Work-in-process................................      2,258     1,602
       Finished goods.................................     10,656     5,763
       Promotional and packing material ..............      2,087     1,662
                                                          -------   -------
                                                          $15,538   $ 9,814
                                                          =======   =======
7      PROPERTY AND EQUIPMENT
                                                            1996      1995
                                                          -------   -------

       Land and buildings .............................   $ 6,627   $ 5,873
       Machinery and equipment ........................    19,086    15,990
       Furniture and fixtures .........................     1,937     1,598
       Leasehold improvements .........................     3,759     3,728
       Automobiles.....................................       628       569
                                                           ------    ------
                                                           32,037    27,758
       Less accumulated depreciation and amortization .    14,615    12,424
                                                          -------   -------
                                                          $17,422   $15,334
                                                          =======   =======
       
       Property and equipment  includes  assets  acquired under capital  leases,
       principally   machinery  and  equipment   having  a  net  book  value  of
       approximately  $6,418  and  $5,618  as of  December  31,  1996 and  1995,
       respectively.  Related  accumulated  depreciation  and  amortization  was
       $4,636 and $3,116,  respectively.  Depreciation and amortization  expense
       for capital lease assets for 1996,  1995 and 1994 was $1,529,  $1,077 and
       $1,810, respectively.

8.     OTHER ASSETS

                                                               1996       1995
                                                               ----       ----

       Software, net of accumulated amortization of
        approximately $5,638 and $5,387, respectively....      $549      $ 800
       Deposits.............................................      9        327
       Mailing list rights, net of accumulated
        amortization of $4,733..............................     --         90
       Miscellaneous other..................................     89         80
                                                               ----     ------ 
                                                               $647     $1,297
                                                               ====     ======
                                       29
<PAGE>


              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)


9.     OTHER (INCOME) EXPENSES
<TABLE>

       Included in other (income) expenses are the following:
<CAPTION>
                                                                  1996          1995          1994
                                                                  ----          ----          ----
<S>                                                              <C>           <C>           <C>  
                              Gain on foreign exchange ........  $ (39)        $ --          $  --
                              Miscellaneous (income)expenses ..     (2)          (2)           123
                                                                 ------        -----         -----
                                                                 $ (41)        $ (2)         $ 123
                                                                 ======        =====         =====
</TABLE>

10.    LONG-TERM DEBT
<TABLE>

<CAPTION>
                                                                                1996          1995
                                                                                ----          ----
<S>                                                                            <C>           <C>     
        Amounts due under revolving credit and term loan agreement .......     $ 68,450      $ 76,725
        13.75% Senior Subordinated Notes due August 2002 .................       68,337        68,153
        Serial  bonds issued by the South Carolina Jobs-Economic
            Development Authority with interest rates ranging from 5.8% to
            7.1%  payable  beginning  July  1993  in  quarterly  principal
            payments and semi-annual payments to the trustee of the Bonds.
            Bonds are collateralized by a letter of credit and a building
            addition in South Carolina....................................          992         1,108
                                                                               --------      --------
        
        Total long-term debt .............................................      137,779       145,986
        Less current portion .............................................        8,637         3,421
                                                                               --------      --------
           TOTAL LONG-TERM PORTION .......................................     $129,142      $142,565
                                                                               ========      ========
</TABLE>
  
         On October 17, 1994, the Company  entered into a revolving  credit and
         term loan agreement with a group of banks. Outstanding borrowings at
         December 31, 1996 and 1995 are $68,450 and $76,725,  respectively. The
         facility  is  secured  by  substantially  all of the assets of Hosiery
         Corporation of America. The facility is also subject to the continuing
         guarantees of the subsidiaries of Hosiery Corporation of America.  The
         revolving  credit and term loan  portions of the facility have maximum
         borrowings  of $15,000 and $80,000,  respectively.  The term loans are
         segregated  into two  series,  A Term  Loans  and B Term  Loans,  each
         totaling $40,000. The revolving credit facility expires on October 17,
         1999.  The Company can borrow based on a formula  which  comprises the
         sum of 80% of accounts receivable and 50% of inventory. Interest under
         the  agreement is payable at the banks' prime lending rate plus 1.75%.
         There were no borrowings  outstanding under this agreement at December
         31,  1996  and  1995.  The A  Term  Loans  are  payable  in  quarterly
         installments  ranging  from $375 to $3,750,  with a final  payment due
         October  17,  1999.  The B  Term  Loans  are  payable  in  semi-annual
         installments  ranging from $200 to $10,000,  with a final  payment due
         July 31, 2001.  Interest is generally payable quarterly and is charged
         at a premium  ranging  from 1.75% to 2.25% over the Base Rate or 2.75%
         to 3.25% over the  Eurodollar  Rate as defined.  The rate in effect at
         December 31, 1996 ranged from 8.38% to 9.06%.  Additionally,  fees are
         charged  on the  average  daily  amount of unused  commitment  and are
         payable  quarterly.   Under  the  terms  of  the  agreement,   certain
         restrictions  are placed on  additional  borrowings,  the  purchase of
         property  and  equipment,  the  payment  of  cash  dividends  and  the
         disposition of assets. The Company has also agreed to maintain certain
         financial ratios as defined in the agreement. 
                                       30
<PAGE>


              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)


10.    LONG-TERM DEBT (continued)

       During 1994, the Company sold the 13.75% Senior  Subordinated Notes, with
       a principal  amount of $70,000,  at a discount,  which  discount is being
       amortized using the interest method over the life of the notes.  Interest
       is payable  semi-annually.  The Notes were sold in  denominations  of one
       thousand  dollars,  each of which contained one share  (collectively  the
       "Shares") of the Company's  Class A Non Voting  Common  Stock,  par value
       $.01 per share.  The Notes and the Shares  were  immediately  detachable.
       Beginning  October 1,  1997,  the Notes,  or a portion  thereof,  will be
       subject  to  redemption  at  the  option  of  the  Company  at  specified
       redemption  prices  ranging from 100% to 112% of the aggregate  principal
       amounts of Notes so redeemed.  Upon the occurence of a Change of Control,
       as defined,  each holder of the Notes shall have the right to require the
       Company to repurchase  such holder's  Notes at a purchase  price equal to
       101% of the aggregate  principal  amount thereof.  Under the terms of the
       agreement,  certain restrictions are placed on additional borrowings, the
       purchase of property and equipment, the payment of cash dividends and the
       disposition of assets.

       The Company was in compliance  with all debt covenants  noted above as of
       December 31, 1996.

       The Company was contingently  liable for outstanding letters of credit in
       the amount of approximately $1,292 as of December 31, 1996.

       On January 17, 1995, the Company  purchased an interest rate cap for $149
       from Bankers Trust  Company.  This cap protects  $30,000 of the Term Loan
       Debt from an increase in interest rates over 10%. The cap is based on the
       LIBOR and pays the excess  interest  over 10%.  The term of the  interest
       rate cap is three years.

       Maturities  of long-term  debt  consisted of the following as of
        December 31, 1996:

           1997 ....................$    8,637 
           1998 ....................    14,301     
           1999 ....................    10,772     
           2000 ....................    16,753     
           2001 ....................    18,572     
           Thereafter ..............    68,744 
                                      --------         
                                      $137,779
                                      ========  
  
                                     31
<PAGE>
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)

11.    INCOME TAXES

       The provision for income taxes (benefit) consists of the following:

                                                  1996       1995       1994
                                                  ----       ----       ----
            Federal:
              Current .......................   $ 3,474    $2,432     $4,491
              Deferred ......................    (5,215)    2,053      1,110
                                                -------    ------     ------
                                                 (1,741)    4,485      5,601
                                                -------    ------     ------
            States:
              Current .......................       179       246        485
              Deferred ......................       172      (171)       562
                                                --------    ------    ------
                                                    351        75      1,047
                                                --------    ------    ------
                                                $(1,390)    $4,560    $6,648
                                                ========    ======    ======

       The  components  of  net  deferred  tax  liabilities   consisted  of  the
       following:

                                                              1996        1995
                                                              ----        ----
            Deferred tax liabilities:
                 Deferred customer acquisition costs ..... $  8,206    $ 6,064
                 Accounts receivable......................    6,770      5,010
                 Property and equipment...................      349        741
                 Other assets.............................      713         42
                 Other current assets.....................    2,251      1,689
                 Accrued coupon redemption costs .........      308         98
                                                           --------    -------
                                                             18,597     13,644
                                                           --------    -------
            Deferred tax assets:
                 Accrued expenses.........................     (757)      (583)
                 Stock option.............................   (9,821)        --
                 Other....................................      (14)       (13)
                                                            -------    -------
                                                            (10,592)      (596)
                                                            -------    -------
                                                            $ 8,005    $13,048
                                                            =======    =======

       The following is a reconciliation  of the federal  statutory rate and the
       Company's effective tax rate:
<TABLE>

<CAPTION>
                                                                1996                   1995                   1994
                                                                ----                   ----                   ----
<S>                                                     <C>           <C>        <C>         <C>       <C>         <C>
            Tax provision (benefit) at
                statutory rate ..................       $(1,937)     (34.0)%     $4,099      34.0%     $5,820      34.0%
            State taxes, net of federal benefit .           232        4.1          160       1.3         540       3.2
            Other................................           315        5.5          301       2.5         288       1.7
                                                          -----      ------       -----      -----      -----    -----
            Provision for income taxes...........       $(1,390)     (24.4)%     $4,560      37.8%     $6,648      38.9%
                                                         =======      =====       =====      =====      =====      ====
</TABLE>
            

12.    REDEEMABLE EQUITY SECURITIES

       In connection with the Recapitalization,  the Company issued 2,826 shares
       of voting common stock,  $.01 par value, to management  stockholders  for
       cash. The Company is obligated to redeem these shares from the management
       stockholders  upon the death,  disability or termination of employment of
       the holder. The redeemable common stock was recorded at fair value on the
       date of issuance, less issuance costs, totaling
                                       32
<PAGE>


              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)

12.    REDEEMABLE EQUITY SECURITIES (continued)

       $45. During 1995, the Company issued an additional 4,048 shares of voting
       common stock,  $.01 par value,  for cash under the same basic terms.  The
       redeemable  common  stock  was  recorded  at fair  value  on the  date of
       issuance,  less issuance  costs,  totaling  $63. In  connection  with the
       issuance of redeemable  common shares in 1995,  certain  agreements  were
       amended  and  executed  in order that 14,643  shares of  preferred  stock
       issued for cash in 1995 and 10,218  shares of preferred  stock issued for
       cash in October  1994 would be  redeemable  under the same basic terms of
       the redeemable common stock. Each preferred share has a $.01 par value, a
       stated value at  liquidation  of $10 and  cumulative  dividends of 25% of
       additional  shares  of PIK  preferred  stock or  fractions  thereof.  The
       redeemable  preferred  stock was  recorded  at fair  value on the date of
       issuance or  amendment  providing  for their  redemption,  less  issuance
       costs,  totaling  $224.  The  excess  of the  preference  value  over the
       carrying  value is being  accreted  by  periodic  charges  to  Additional
       Paid-In  Capital over the life of the issue.  The  redemption  provisions
       expire the  earlier of the fifth  anniversary  of the  October  17,  1994
       Recapitalization  or the closing of an initial  public  offering  for the
       Company's common stock.

       In 1996,  two officers of the Company were granted 4,434 shares of voting
       common stock, $.01 par value, as additional compensation.  The Company is
       obligated to redeem these shares under the same basic terms as previously
       issued redeemable stock. The redeemable common stock was recorded at fair
       value on the date of issuance. This resulted in an increase in redeemable
       equity securities of approximately $300.

13.    TREASURY STOCK

       Pursuant  to the  Recapitalization  Agreement  (see Note 3), the  Company
       repurchased from the Stockholder for approximately $199.0 million,  which
       includes approximately $0.9 million in post-closing  adjustments,  all of
       its then outstanding  shares of Preferred Stock (5,460 Class A shares and
       9,425 Class B shares) and 17,337  shares of its then  outstanding  Common
       Stock.  These  shares  along  with  all  previously  acquired  shares  of
       Preferred  and Common Stock were then  retired.  During 1995,  additional
       post closing  adjustments  totaling  $88 were made to the purchase  price
       relating to the retired treasury shares.

14.    LEASE COMMITMENTS

       The Company leases premises under cancelable and noncancelable  operating
       leases with lease terms expiring through 2007. Future minimum payments by
       year and in the aggregate under all  noncancelable  capital and operating
       leases having initial or remaining terms of one year or more consisted of
       the following at December 31, 1996:

           Year ending                                  Capital       Operating
           December 31,                                 Leases          Leases
           ------------                                 -------       ---------
           1997.....................................    $1,854        $  1,487
           1998.....................................     1,367           1,481
           1999.....................................     1,163           1,381
           2000.....................................       758             950
           2001.....................................       643             920
           Thereafter...............................       727           4,915
                                                         -----         -------
                                                         6,512         $11,134
           Amount representing imputed interest ....       586         =======
                                                         -----         
           Present value of net minimum lease payments   5,926
           Less current portion ....................     1,627
                                                         -----   
                                                        $4,299
                                                         =====   
       Rental  expense under all operating  leases for the years ended  December
       31, 1996,  1995 and 1994, was  approximately  $1,593,  $1,281 and $1,451,
       respectively.

                                       33
<PAGE>


              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)


15.    COMMITMENTS AND CONTINGENCIES

       The Company has entered into  employment  agreements with certain members
       of management.

       The  Company  has agreed to pay Kelso an annual fee of $263 each year for
       financial  advisory  services  and to reimburse  Kelso for  out-of-pocket
       expenses incurred. Non-officer directors of the Company, other than those
       directors who are affiliated with Kelso,  will be paid an annual retainer
       of $20. In addition, all out-of-pocket expenses of non-officer directors,
       including  those  directors  who are  affiliated  with Kelso,  related to
       meetings  attended,  will  be  reimbursed  by  the  Company.  Non-officer
       directors,  including those directors affiliated with Kelso, will receive
       no additional compensation for their services as directors of the Company
       except as described above.

       The Company is involved in, or has been involved in,  litigation  arising
       in the normal  course of its  business.  The  Company can not predict the
       timing or outcome of these claims and proceedings. Currently, the Company
       is not  involved in any  litigation  which is expected to have a material
       effect on the  financial  position  of the  business  or the  results  of
       operations and cash flows of the Company except as discussed below.

       The Company has received  inquiries from thirteen state regulatory groups
       (the "States") concerning aspects of the Company's promotional materials,
       including  whether  the terms of the  Company's  promotional  offers  are
       sufficiently  disclosed in such  materials.  In January 1997, nine of the
       States,  acting as a  multi-state  group,  proposed an  Assurance  to the
       Company  which  seeks  to:  require  a change  in the  disclosure  in the
       Company's  promotional  materials  regarding  the initial and  subsequent
       hosiery shipments; require the Company to make certain disclosures in its
       promotional  materials if the Company offers free samples or operates any
       form  of  continuity  sales  plan;  prohibit  the  Company  from  seeking
       collection  against any consumer who receives a solicitation  that is not
       in  compliance  with the terms of the  Assurance;  require  that  certain
       additional  disclosures be made should the Company  continue to operate a
       referral program;  and prohibit  misrepresentation in connection with the
       sale of the  Company's  products.  The Assurance  also seeks  unspecified
       money  damages  and  requires  that  refunds be made to  customers  under
       certain  circumstances,  however  such money  damages and refunds are not
       expected to be material to the Company's  financial  condition or results
       of  operations.  Discussions  with the States are  ongoing.  The  Company
       believes it will be able to reach an acceptable  resolution of the issues
       raised  by the  States.  However,  no  assurance  can be  given  that  an
       acceptable resolution will be reached.

       In response to the inquiries from the FTC and the States, the Company has
       made changes in its solicitation  materials which, based on experience to
       date, will have a material adverse effect on its domestic response
       rates.  However,  response  rates are only one of  several  factors  that
       affect the  Company's  results of  operations.  The  Company is unable to
       predict what the ultimate outcome of its discussions with the States will
       be or whether  such outcome  will have a material  adverse  effect on its
       revenues or profitability. State regulators from time to time contact the
       Company with inquiries regarding the Company's  promotional materials and
       state  regulators  could  require  additional  changes  to the  Company's
       promotional  materials,  and no assurance  can be given that such changes
       will not be significant or will not have a material adverse effect on the
       Company's future financial condition or results of operations.


                                       34
<PAGE>



              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)


16.    PROFIT SHARING PLAN

       The Company has a profit sharing plan covering all employees and those of
       its subsidiaries.  Eligible employees can participate as of January 1 and
       July 1 after twelve months of service. Employee contributions are made on
       a pretax basis under Section  401(k) of the Internal  Revenue  Code.  The
       Company's  contribution  is at the  discretion of the Board of Directors.
       The expense  associated with the employer  contribution was approximately
       $480, $442 and $430 in 1996, 1995 and 1994, respectively.

       All  contributions and investments are held in a trust for the benefit of
       plan  participants.  All  employees  are  100%  vested  in  their  pretax
       contributions  and  earnings  thereon,  but become  vested in the Company
       contributions and earnings at a rate based on years of service, with full
       vesting after five years.


17.    FAIR VALUE OF FINANCIAL INSTRUMENTS

       The Company values the financial instruments as required by SFAS No. 107,
       Disclosures  about Fair Value of  Financial  Instruments.  The  following
       methods  and  assumptions  were used to  estimate  the fair value of each
       class of financial instrument:

       Cash and Cash  Equivalents,  Accounts  Receivable,  Accounts  Payable and
       Accrued  Expenses.  The  carrying  amount of these items are a reasonable
       estimate  of their fair  values  because of the short  maturity  of these
       instruments.

       Long-term  Debt  including  Current  Maturities.  The  fair  value  of 
       the Company's  long-term  debt is  based  on the  quoted  market  price
       on the subordinated  notes and on current interest rates that are 
       available to the Company  for debt not  quoted on an  exchange.  At  
       December  31,  1996 the Company  had a  carrying  amount  of  long-term 
       debt  of  $137,779  and an estimated fair value of $146,442.


18.    STOCK OPTION PLAN

       On June 28,  1996,  the Board of  Directors  approved and adopted a stock
       option  plan (the  "Option  Plan"),  providing  for the grant to  certain
       employees of the Company and its  subsidiaries  of options to purchase up
       to  215,369  shares  of  Common  Stock.  On June 28,  1996,  the Board of
       Directors  granted  options to purchase an aggregate of 215,369 shares of
       Common Stock. The exercise price with respect to 199,458 shares is $30.00
       per share.  The exercise  price with respect to 15,911 shares will be the
       price per share  obtained  in an initial  public  offering.  All  options
       vested on the date of such grant and are only exercisable upon an initial
       public  offering of the Common Stock or certain change of control events.
       Options  expire  10  years  from the  date of the  grant of such  option,
       subject to earlier termination by the Board of Directors.


                                       35
<PAGE>


              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)


18.    STOCK OPTION PLAN (continued)

       A summary of the status of the Company's stock option plan as of December
       31,  1996 and changes  during the year  ending on that date is  presented
       below:
<TABLE>

                                                       Options with Exercise        Options with Exercise
                                                           Price Equal to            Price Less Than the
                                                          Market Price of              Market Price of
                                                        Stock on Grant Date        Stock at Date of Grant
                                                       ---------------------       ----------------------
<CAPTION>
                                                                       Weighted                     Weighted
                                                                        Average                      Average
                                                                       Exercise                     Exercise
                                                           Shares         Price         Shares         Price
                                                           ------      --------         ------      --------  
<S>                                                        <C>          <C>            <C>            <C>    
         Outstanding at beginning of year                     -0-                          -0-

         Granted                                           15,911       $145.00        199,458        $30.00

         Exercised                                             --                           --

         Cancelled                                             --            --             --            --
                                                           ------       -------        -------        ------

         Outstanding at end of year                        15,911       $145.00        199,458        $30.00
                                                           ======       =======        =======        ======

         Options exercisable at year end                     -0-                           -0-
                                                           ======                      =======      
         Weighted average fair value of options
            granted during the year                       $145.00                      $145.00
                                                          =======                      =======
<FN>

       At December 31, 1996,  there were no options  available for future grants
       under the Option Plan.

       The  following   table   summarizes   information   about  stock  options
       outstanding at December 31, 1996:
</FN>
</TABLE>

                                        Options Outstanding
                           ------------------------------------------------
                                                Weighted
                                                 Average           Weighted
         Range of              Number           Remaining           Average
         Exercise           Outstanding        Contractual         Exercise
          Prices            at 12/31/96            Life              Price
         --------           -----------        -----------         --------- 

          $ 30.00             199,458           9.5 years           $ 30.00
           145.00              15,911           9.5 years            145.00
                              --------
                              215,369
                              ========
       At December 31, 1996, there were no exercisable  options under the Option
       Plan.

       The  Company  applies   Accounting   Principles  Board  Opinion  No.  25,
       "Accounting  for Stock Issued to  Employees," in accounting for its plan.
       Accordingly,  the difference  between the fair market value of the Common
       Stock, which for financial  reporting purposes was based on the estimated
       fair value at the date of grant,  and the exercise price of such options,
       has been recorded as compensation expense totaling $22,938

                                       36
<PAGE>


              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)


18.    STOCK OPTION PLAN (continued)

       in the Company's  financial  statements for the year ending  December 31,
       1996.  Had  compensation  cost for the  Company's  stock option plan been
       determined  based on the fair value at the grant dates,  consistent  with
       the method of SFAS No. 123,  "Accounting for  Stock-Based  Compensation,"
       the Company's net loss for the year ending December 31, 1996,  would have
       been increased to the pro forma amounts indicated below:

       Net loss:

                           As reported                        ($4,306)
                                                              ========   
                           Pro forma                          ($5,321)
                                                              ========    

       The fair value of each option  granted  during 1996 is  estimated  on the
       date of grant  using  the  Black-Scholes  option-pricing  model  with the
       following assumptions: (i) no dividend yield, (ii) no expected volatility
       as the Company's stock is not publically traded, (iii) risk-free interest
       rate of 6.46%, and (iv) expected life of 5.5 years.

19.    RELATED PARTIES TRANSACTIONS

       In connection with the Recapitalization, certain members of the Company's
       management  were  granted  restricted  pay-in-kind  preferred  stock  and
       restricted  common stock of $1,022 and $478,  respectively.  Compensation
       associated  with the grant of these shares was measured by the difference
       between the aggregate  price of the  restricted  shares and the aggregate
       fair value of the shares on the measurement  date.  Such  compensation is
       being recognized ratably over the six-year period for which services must
       be performed in order for these individuals to receive the shares without
       restriction.  The Company is  recognizing  compensation  expense over six
       years commencing October 17, 1994, which is the date the Company effected
       the  Recapitalization  and granted the  restricted  shares.  Compensation
       expense  related to these shares for the period  ended  December 31, 1996
       and 1995 totaled $250 in each year.

       In connection  with the  Recapitalization,  on October 17, 1994,  certain
       designees of Kelso  acquired  shares of the Company's  Common Stock.  The
       proceeds  from the sale of  these  shares  were  received  subsequent  to
       December 31, 1994.

       During 1994 and 1995,  certain officers of the Company acquired shares of
       both the Company's  common and preferred  stock. In 1996, two officers of
       the  Company   were  granted   shares  of  common  stock  as   additional
       compensation  totalling  approximately $300. These shares are included in
       the accompanying balance sheets as redeemable equity securities.

       Kelso provides  financial  advisory services to the Company for an annual
       fee. Payment for these services and  reimbursement  of expenses  totalled
       $268 in 1996 and $308 in 1995.


                                       37
<PAGE>


              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                  (Dollars in thousands, except per share data)


20.    PREFERRED STOCK

       The PIK  Preferred  Stock is entitled to  cumulative  dividends,  payable
       solely in additional  shares of PIK Preferred Stock, at an estimated rate
       of 25% per annum when,  as and if declared by the Board of  Directors  of
       the Company.  Cumulative dividends on preferred shares that have not been
       declared  since the  Recapitalization  total  approximately  2.6  million
       shares of  preferred  stock.  The PIK  Preferred  Stock has an  aggregate
       liquidation   preference   of   approximately   $37.4  million  plus  the
       liquidation preference of additional shares of PIK Preferred Stock issued
       in payment of dividends on the PIK  Preferred  Stock and the  liquidation
       preference in respect of accumulated and unpaid dividends, whether or not
       declared.  The PIK  Preferred  Stock is  redeemable  at the option of the
       Company in whole or in part at any time for a  redemption  price equal to
       the  liquidation  prefer- ence thereof  plus all  accumulated  and unpaid
       dividends,  whether  or not  declared,  to the  date  of  redemption.  In
       addition,  the PIK Preferred Stock has no voting rights,  except that the
       PIK  Preferred  Stock is entitled to vote,  as a separate  class,  in the
       event of any merger,  consolidation,  or sale of all or substantially all
       of  the  Company's  assets,  any  amendment  to  the  Company's  Restated
       Certificate  of  Incorporation  or any  authroization  or issuance by the
       Company of  capital  stock  ranking  senior to or pari passu with the PIK
       Preferred  Stock with respect to dividends or  liquidation  preference or
       securities  convertible  into or  exchangeable  or  exercisable  for such
       capital stock.


21.    QUARTERLY INFORMATION (UNAUDITED)

       Summarized  quarterly  financial  data for  1996  and 1995 are set  forth
       below:
<TABLE>


<CAPTION>
                                     March 31       June 30      September 30      December 31      Total
                                     --------       -------      ------------      -----------      -----
1996

<S>                                    <C>           <C>             <C>               <C>        <C>     
Net Revenues.........................  $40,099       $42,623         $38,611           $41,430    $162,763
Gross Profit.........................   19,187        22,783          21,996            23,613      87,579
Operating Income (Loss)..............    6,135       (12,779)         10,208             8,879      12,443
Net Income (Loss)....................      933       (10,545)          3,486             1,820      (4,306)

1995

Net Revenues.........................  $33,608       $36,526         $32,902           $33,263    $136,299
Gross Profit.........................   16,489        20,593          18,674            19,561      75,317
Operating Income.....................    5,349         9,331           7,130             9,617      31,427
Net Income...........................      175         2,789           1,504             3,028       7,496

</TABLE>
                                       38
<PAGE>


ITEM 9.    CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
           DISCLOSURE

         None.

                                                     PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The Company's  executive officers and directors,  as well as additional
information with respect to those persons, are set forth in the table below.

Name                   Age      Position
---------------        ---      ------------------------------------------------
John F. Biagini         53      Chairman, Chief Executive Officer and President
Darrell Edwards         38      Vice President and Director of Marketing
Robert M. Henry         49      Senior Vice President, Systems and Operations
Arthur Hughes           55      Vice President and Chief Financial Officer
William J. Kelly        47      Senior Vice President, International Operations
Hans Lengers            51      President, U.S. Textile Corporation and Director
Robert Mooney           54      Vice President, General Counsel and Secretary
Frank K. Bynum, Jr.     34      Director
Michael B. Goldberg     50      Director
Joseph A. Murphy        53      Director


         Directors  shall be elected by a plurality  of the votes cast at annual
meetings  of  stockholders  (except  in the case of  vacancies  on the  Board of
Directors).  All  directors of the Company serve for the term for which they are
elected or until their successors are duly elected and qualified or until death,
retirement,  resignation,  or removal. All executive officers hold office at the
pleasure  of  the  Board  of  Directors.  See  "--Stockholders   Agreement"  and
"--Employment Agreements."

         Non-officer  directors of the Company,  other than those  directors who
are  affiliated  with Kelso,  will be paid on annual  retainer  of  $20,000.  In
addition, all out-of-pocket  expenses of non-officer directors,  including those
directors who are affiliated  with Kelso,  related to meetings  attended will be
reimbursed by the Company.  Non-officer  directors,  including  those  directors
affiliated  with  Kelso,  will  receive  no  additional  compensation  for their
services as directors of the Company except as described above.  Officers of the
Company who serve as directors do not receive compensation for their services as
directors other than the compensation they receive as officers of the Company.

         There  are  no  family  relationships  among  directors  and  executive
officers of the Company.  For certain information  regarding the stock ownership
of the  Company,  see  "Security  Ownership  of  Certain  Beneficial  Owners and
Management."

         The business experience for at least the last five years of each of the
directors and executive officers is as follows:

          Mr.  Biagini  has been  the  Chairman,  Chief  Executive  Officer  and
President of the Company since  consummation of the  Recapitalization.  Mr.
Biagini  served as President and Chief  Operating  Officer since June 1992.From 
March 1988 to June 1992,  Mr.  Biagini was Vice President of Marketing of the
Company.  Before  joining the Company in March 1988, Mr. Biagini was President 
of the Direct  Marketing  Division of Harlequin  Enterprises from 1983 to 1988
and served in various United States and  international  direct mail assignments
for Reader's Digest Association from 1972 to 1983.

                                       39
<PAGE>


          Mr.  Edwards has been the Vice  President and Director of Marketing of
     the Company since consummation of the Recapitalization.  Mr. Edwards served
     as Vice President and Director of Marketing  since he joined the company in
     October 1992.  Before joining the Company in October 1992, Mr. Edwards held
     various magazine marketing  positions for Reader's Digest Association since
     at least 1989.
   
          Mr. Henry has been Senior Vice President,  Systems and Operations,  of
     the Company since July 1996. From September 1995 until June 1996, Mr. Henry
     was Senior Vice  President,  Business  Development.  From 1993 to 1995,  he
     served as Chairman,  Marketing  Services,  for Bates  Advertising U.S. From
     1990 to 1993,  Mr. Henry was Vice Chairman and Chief  Operating  Officer of
     McCaffrey and McCall Advertising.
   
          Mr. Hughes has been the Vice President and Chief Financial  Officer of
     the Company  since August 1995.  Mr.  Hughes  served as Vice  President and
     Controller of the Company from 1990 to August 1995.
   
          Mr. Kelly has been Senior Vice President, International Operations, of
     the Company since July 1996.  From December 1993 until June 1996, Mr. Kelly
     was Vice  President,  Systems  and  Operations.  From  November  1988 until
     December 1993, Mr. Kelly was Vice President, Systems and Programming.
   
          Mr. Lengers has been the President of U.S.  Textile  Corporation  (the
     Company's  wholly-owned  manufacturing  subsidiary)  and a Director  of the
     Company since 1978, and is one of the founders of U.S. Textile Corporation.
      
          Mr. Mooney has been the Vice President,  General Counsel and Secretary
     of the Company  since  consummation  of the  Recapitalization.  Mr.  Mooney
     served as the Vice President and General  Counsel since joining the Company
     in September 1988. Before joining the Company in September 1988, Mr. Mooney
     served as the Company's outside counsel for several years.
       
          Mr. Bynum has been a Director of the Company since the consummation of
     the  Recapitalization.  Mr. Bynum has been a Vice  President of Kelso since
     July 1991, and was an Associate of Kelso from October 1987 to July 1991. He
     is a director of URS  Logistics,  Inc.,  IXL Holdings,  Inc., and Universal
     Outdoor Holdings, Inc.
        
          Mr. Goldberg has been a Director of the Company since  consummation of
     the  Recapitalization.  Mr. Goldberg has been a Managing  Director of Kelso
     since October 1991. Mr. Goldberg served as a Managing  Director and jointly
     managed  the  merger  and  acquisitions  department  at  The  First  Boston
     Corporation  from 1989 to May 1991.  Mr.  Goldberg was a partner at the law
     firm of  Skadden,  Arps,  Slate,  Meagher  & Flom  from  1980 to 1989.  Mr.
     Goldberg is a director of General Medical Corporation, URS Logistics, Inc.,
     and Universal Outdoor Holdings, Inc.
       
          Mr.  Murphy has been a Director of the Company since  consummation  of
     the  Recapitalization.  Mr. Murphy joined the Company in September  1980 as
     Chief  Operating  Officer.  In December  1983,  Mr.  Murphy was promoted to
     President and Chief Executive Officer and was simultaneously elected to the
     Board of Directors. In June 1992, Mr. Murphy ceased serving as President of
     the Company but continued to serve as Chairman and Chief Executive Officer,
     a  position  from  which  he  resigned   prior  to   consummation   of  the
     Recapitalization.
                                       40
<PAGE>



         On December 22, 1993,  Kelso and its chief executive  officer,  without
admitting  or  denying  the  findings   contained   therein,   consented  to  an
administrative  order in  respect of  Commission  inquiry  relating  to the 1990
acquisition of a portfolio  company by a Kelso  affiliate.  The order found that
Kelso's tender offer filing in connection  with the  acquisition  did not comply
fully with the Commission's  tender offer reporting  requirements,  and required
Kelso and its chief executive  officer to comply with these  requirements in the
future.

         In connection with the  transactions  effected by the  Recapitalization
Agreement, the Company paid Kelso a fee of $2.625 million for financial advisory
services and  reimbursed it for  out-of-pocket  expenses  incurred in connection
with rendering such services.  In addition,  the Company has agreed to pay Kelso
an annual fee of  $262,500  each year for  financial  advisory  services  and to
reimburse it for out-of-pocket expense incurred.  The Company has also agreed to
indemnify  Kelso  against  certain  claims,  losses,  damages,  liabilities  and
expenses which may arise, in connection  with rendering such financial  advisory
services.

          The Company has a Compensation Committee,  which currently consists of
three directors:  John Biagini,  Frank Bynum and Michael Goldberg.  Messrs.
Bynum and Goldberg are neither officers nor employees of the Company or any
of its affiliates.

Stockholders Agreement

         The Stockholders Agreement provides, among other things, that, (subject
to changes that may be made from and after such time with respect to the members
and size of the Board of Directors in  accordance  with the  Company's  Restated
Certificate of Incorporation and By-Laws), the Company's Board of Directors will
consist of five members, including (i) two officers of the Company designated by
Kelso  from  certain  management  stockholders  of the  Company,  (ii) two other
individuals  designated  by Kelso (who may be affiliates of Kelso) and (iii) the
Stockholder.  In  addition,  Kelso and the  Stockholder  agreed  pursuant to the
Stockholders  Agreement that (i) so long as the  Stockholder  and certain of his
transferees  collectively  own 10% or more of the outstanding  Common Stock, the
Stockholder shall be a director of the Company and (ii) so long as Kelso and its
affiliates  collectively  are  the  largest  stockholders  of  the  Company  and
collectively  own at least 35% of the  outstanding  stock of the Company,  Kelso
shall be entitled to elect a majority of the Board of  Directors of the Company.
Under the Company's Restated Certificate of Incorporation and By-Laws, the Board
of  Directors  shall  consist of not less than three (3) nor more than eight (8)
members, and following  consummation of the Recapitalization shall be fixed from
time to time by resolution of the Board of Directors  (the "Board  Resolution"),
or by resolution  adopted by the vote of a majority of the  stockholders  of the
Common  Stock  or by  consent  executed  on  behalf  of such  stockholders  (the
"Stockholder Resolution"); provided, that in the event of a conflict between the
Board  Resolution and the Stockholder  Resolution,  the  Stockholder  Resolution
shall govern.  The Stockholders  Agreement also limits transfers of Common Stock
and Class A Common Stock by certain  parties  thereto,  and provides for certain
tag-along,  drag-along and registration  rights. (The Stockholders  Agreement is
dated as of October 17, 1994. The original  signatories thereto are the Company;
the Stockholder,  Joseph A. Murphy;  Kelso Investment  Associates V, L.P.; Kelso
Equity Partners V, L.P.; as well as John F. Biagini, CEO of the Company and Hans
Lengers, President of U.S. Textile Corporation.)

                                       41
<PAGE>


 ITEM 11.  EXECUTIVE COMPENSATION

         The  following  table sets forth the total  compensation  earned by the
Chief Executive Officer and the four most highly compensated  executive officers
of the Company for the fiscal year ended December 31, 1996, as well as the total
compensation earned by such individuals for the two previous fiscal years.
<TABLE>

SUMMARY COMPENSATION TABLE
---------------------------
                                               Annual Compensation         Long-Term Compensation
                                               -------------------        -----------------------
<CAPTION>
                                                                          Restricted      Securities         All
                                                                            Stock         Underlying        Other
Name                              Year        Salary       Bonus (b)      Awards (c)     Options (d)    Compensationn
----                              ----        ------       ---------      ----------     -----------    -------------

<S>                               <C>        <C>            <C>           <C>                   <C>        <C>       
John F. Biagini                   1996       $352,794       $400,000      $       --            94,676     $ 7,164(a)
   Chairman of the Board,         1995        340,622        250,000              --                --       7,182(a)
   Chief Executive Officer        1994        321,194        200,000       1,000,000                --      12,486(a)
   and President

Hans Lengers                      1996        419,439             --              --            47,339       1,789(a)
   President, U.S. Textile        1995        402,663             --              --                --       1,800(a)
   Corporation                    1994        391,696             --         499,000                --       1,882(a)

Robert M. Henry                   1996        253,869         16,500                            17,344          --
   Senior Vice President,         1995         74,687             --              --                --          --
   Systems and Operations         1994             --             --              --                --          --

William J. Kelly                  1996        222,842         30,000              --            17,344       7,164(a)
   Senior Vice President,         1995        210,652         24,250              --                --       7,182(a)
   International Operations       1994        205,281         26,500              --                --       9,779(a)

Arthur Hughes                     1996        159,587         50,000              --            21,322       7,164(a)
   Vice President and             1995        133,786         34,200              --                --       4,833(a)
   Chief Financial Officer        1994        110,846         19,200              --                --       4,412(a)
                                                                                  
<FN>

----------------
(a)  Amounts represent Company contributions to the 401(k) Plan, which is a defined contribution plan.
(b)  Represents amounts awarded as cash/stock bonuses.
(c)  Represents compensation associated with restricted stock awards for certain officers.  See "Management
     Stock-Purchase and Restricted Stock Award Agreements" below.
(d)  Represents  options  granted to certain  officers under the Company's 
      Stock Option Plan.
</FN>
</TABLE>

Long-Term Compensation

Management Stock Purchase and Restricted Stock Award Agreements

         Prior to the  closing  of the  Recapitalization,  Mr.  Biagini  and Mr.
Lengers  entered  into  Management  Stock  Purchase and  Restricted  Stock Award
Agreements with the Company (the  "Management  Stock  Agreements"),  pursuant to
which Mr. Biagini was granted 18,841 shares of Common Stock and 68,120 shares of
PIK Preferred  Stock,  and Mr.  Lengers was granted 9,421 shares of Common Stock
and 34,060  shares of PIK  Preferred  Stock in  addition to the shares of Common
Stock and PIK  Preferred  Stock  purchased by Messrs.  Biagini and Lengers.  The
Common Stock was sold at $16.92 per share and the PIK Preferred  Stock at $10.00
per share to the original investor group. Compensation with respect to the grant
of shares will be recognized ratably over the six-year period for which services
must be performed in order for Messrs. Biagini and Lengers to receive the shares
without  restriction.  No dividends  will be paid on any restricted  stock.  The
above table displays all outstanding  shares of restricted stock.  Additionally,
in 1995 the management group was offered limited opportunities to purchase stock
at the same price as Messers. Biagini and Lengers which resulted in net proceeds
to the Company of $190 thousand.

                                       42
<PAGE>

<TABLE>

                        OPTION GRANTS IN LAST FISCAL YEAR

                                                                                      Potential Realized Value
                                                                                          at Assumed Annual
                                                                                           Rates of Stock
                                                                                         Price Appreciation
                             Individual Grants                                             for Option Term
---------------------------------------------------------------------------- --------------------------------------------
<CAPTION>
                                       % of
                                       Total
                       Number of      Options
                      Securities      Granted to
                      Underlying      Employees  Exercise or
                        Options          in       Base Price    Expiration
Name                    Granted      Fiscal Year  ($/Share)       Date              0%             5%            10%
                                    

<S>                        <C>             <C>     <C>            <C>          <C>            <C>            <C>        
John F. Biagini            86,721          40.27   $   30.00      6/28/06      $9,972,915     $17,880,979    $30,013,501
John F. Biagini             7,955           3.69      145.00 (1)
                                                 
Hans Lengers               43,361          20.13       30.00      6/28/06       4,986,515       8,940,592     15,006,924
Hans Lengers                3,978           1.84      145.00 (1)

Robert M. Henry            17,344           8.05       30.00      6/28/06       1,994,560       3,576,155      6,002,631

William J. Kelly           17,344           8.05       30.00      6/28/06       1,994,560       3,576,155      6,002,631

Arthur C. Hughes           17,344           8.05       30.00      6/28/06       1,994,560       3,576,155      6,002,631
Arthur C. Hughes            3,978           1.84      145.00 (1)
<FN>

(1)      Options  exercisable  at a price per share to be obtained in an initial
         public  offering.  The grant date market value is assumed to be $145.00
         per share based on a proposed  transaction  with a shareholder that was
         being  contemplated  at the time the  option was  granted.  There is no
         current public market for these securities.
</FN>
</TABLE>

<TABLE>

                                           FISCAL YEAR-END OPTION VALUES

<CAPTION>
                                          Number of Securities
                                         Underlying Unexercised              Value of Unexercised
                                               Options at                    In-the-Money Options
                                          December 31, 1996 (#)            at December 31, 1996 ($)
                                          ---------------------            ------------------------

Name                                    Exercisable/Unexercisable         Exercisable/Unexercisable
----                                    -------------------------         ------------------------- 
<S>                                             <C>                              <C>        
John F. Biagini                                 0/94,676                         0/9,972,915
Hans Lengers                                    0/47,339                         0/4,986,515
Arthur Hughes                                   0/21,322                         0/1,994,560
William J. Kelly                                0/17,344                         0/1,994,560
Robert Henry                                    0/17,344                         0/1,994,560
</TABLE>

         There is no public  market for the  common  stock of the  Company.  The
value utilized for the In-the-Money Options as of December 31, 1996 was based on
the grant date market value, assumed to be $145.00 per share based on a proposed
transaction  with a  shareholder  that was  being  contemplated  at the time the
option was granted.

                                       43
<PAGE>
Employment Agreements

         In August 1980, Hans Lengers entered into an Employment  Agreement with
the  Company's  manufacturing   subsidiary,   U.S.  Textile  Corporation  ("U.S.
Textile"),  pursuant to which he is employed as  President  and Chief  Executive
Officer of U.S.  Textile and to manage and operate its  business and affairs for
his lifetime,  such  agreement  having been amended on September  12, 1994.  Mr.
Lengers is not entitled to receive  compensation upon the voluntary  termination
of his employment with U.S. Textile.  In addition,  the Company may abrogate the
terms and  conditions of the  Employment  Agreement for good cause as defined by
the law of North  Carolina,  and in any event,  the  Employment  Agreement  will
terminate  upon Mr.  Lengers'  death,  adjudicated  incompetency,  bankruptcy or
physical or mental  inability to perform his duties  thereunder.  The  agreement
provides for a base salary of $5,000 per month and  additional  compensation  in
the  amount  that  25.0%  of the U.S.  Textile  net  profits  exceed  such  base
compensation,  such that the sum of the base  compensation  and this  additional
compensation does not exceed $250,000 per annum,  adjusted each year for cost of
living  increases.  The Consumer Price Index for Urban Wage Earners and clerical
workers is used as the index to compute  cost of living  increases.  The ceiling
for Mr.  Lengers'  salary in 1996 was  $419,439.  In addition,  Mr.  Lengers has
agreed  during  the time of his  employment  not to  devote  any of his time and
efforts to the affairs of any other business in direct competition with U.S.
Textile.

         In August 1992,  Arthur C. Hughes entered into an Executive  Employment
Agreement  with the Company  pursuant to which he is employed as Vice  President
and Chief Financial Officer of the Company. The initial term of the agreement is
five years.  The  agreement  provides  for an initial base salary of $97,825 and
6.5% annual increases. In addition, Mr. Hughes is entitled to receive a bonus as
defined by the President  and the Board of Directors to be  calculated  based on
the results of the fiscal year in  particular  on achieving  budgeted  corporate
profits (35%) and achieving  management  objectives that are developed each year
(65%).  Mr.  Hughes is also  entitled to  participate  in all standard  employee
benefits  provided  by the  Company  and to use an  automobile  provided  by the
Company.

         In September 1995, Robert M. Henry entered into an Executive Employment
Agreement  with the  Company  pursuant  to which he is  employed  as Senior Vice
President,  Systems and Operations of the Company.  The term of the agreement is
indefinite.  The agreement  provides for an initial base salary of $250,000.  In
addition,  Mr. Henry is entitled to receive a bonus the amount of which is based
on achieving  objectives  defined by the  President and the  performance  of the
Company  against  annual  corporate  targets.  Mr.  Henry  is also  entitled  to
participate in all standard employee benefits provided by the Company, to use an
automobile  provided by the Company,  and to participate in the Company's  Stock
Option Plan on terms and conditions enjoyed by other executive officers.

         All three aforementioned  employment  agreements require a successor to
the employer  thereunder to assume the  respective  obligations of such employer
under the applicable agreement.

     Compensation   Committee   Interlocks   and   Insider   Participations   in
Compensation Decisions

     Mr. Biagini was the Chairman,  President and Chief Executive Officer of the
Company  during the last fiscal  year.  Mr.  Goldberg is a Managing  Director of
Kelso and Mr. Bynum is a Vice President of Kelso. Messrs. Goldberg and Bynum are
both limited  partners of the general  partment of KIAV and limited  partners of
KEPV.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT

         The following  table sets forth  information  as of March 15, 1997 with
respect  to  the  beneficial   ownership  of  shares  of  Common  Stock  of  all
stockholders  of the Company who are known by the  Company to  beneficially  own
more than 5% of any such class, by each director, by each executive officer
                                       44
<PAGE>


of the Company named in the summary  compensation table and by all directors and
executive  officers of the Company as a group,  as determined in accordance with
Rule 13d-3(i) under the Securities Exchange Act of 1934, as amended.  The Common
Stock  set  forth in the  following  table  includes  voting  Common  Stock  and
non-voting Class A Common Stock. Except as indicated in the footnotes below, all
shares of Common Stock are voting Common Stock. Prior to the consummation of the
Recapitalization,  all of the issued and outstanding  shares of Common Stock and
Old Preferred Stock were owned by the Stockholder.

<TABLE>
                                                                                         Percentage of Shares      
         Name and Address                                     Number of Shares             of Common Stock
         of Beneficial Owner                                   of Common Stock               Outstanding
         -------------------                                  ----------------            ------------------- 
<S>                                                                  <C>                        <C>   
         Kelso Investment Associates V, L.P. (a)(b).......           995,932                    70.71%
         Kelso Equity Partners V, L.P. (a)(b).............           995,932                    70.71%
         Joseph S. Schuchert(b)...........................             (d)                       (d)
         Frank T. Nickell(b)(c)...........................             (d)                       (d)
         George E. Matelich(b)............................             (d)                       (d)
         Thomas R. Wall, IV(b)(c).........................             (d)                       (d)
         Michael B. Goldberg(b)(c)(e).....................             --                          --
         Frank K. Bynum, Jr.(b)(e)........................             --                          --
         Joseph A. Murphy(f)..............................           292,600                    20.77%
         John F. Biagini(f)(g)(h).........................            23,681                     1.68%
         Hans Lengers(f)(g)(h)............................            11,841                      .84%
         William J. Kelly(f)(g)...........................               188                      .01%
         Robert Henry(f)(g)...............................               942                      .07%
         Arthur C. Hughes(f)(g)...........................               471                      .03%
         All directors and executive officers of the
             Company as a group(f)(g).....................           332,170                    23.58%
<FN>
(a)   As part of the 1994 Recapitalization,  KIAV and KEPV acquired respectively
      960,634 and 40,026  shares of Common Stock,  representing  68.6% and 0.9%,
      respectively, of the shares of Common Stock outstanding. Subsequent to the
      1994  Recapitalization,  KEPV transferred  4,728 shares of Common Stock to
      certain  family trusts of Messrs.  Wall and Goldberg for which Mr. Nickell
      serves as trustee.  The Kelso  Affiliates,  due to their  common  control,
      could be  deemed  to  beneficially  own each of the  other's  shares,  but
      disclaim such beneficial ownership.
(b)   The business  address for such  person(s)  is c/o Kelso & Company,  320
      Park Avenue, 24th Floor, New York, New York 10022.
(c)   Excludes  4,728 shares of Common Stock owned by certain  family trusts
      of Messrs.  Wall and Goldberg,  which may be deemed to be beneficially
      owned by each of Messrs.  Wall and Goldberg,  but each  disclaims such
      beneficial  ownership.  Mr. Nickell serves as trustee for these family
      trusts of Messrs.  Wall and Goldberg,  and as such these shares may be
      deemed  to be  beneficially  owned  by Mr.  Nickell,  but Mr.  Nickell
      disclaims such beneficial ownership. (d) Messrs.  Schuchert,  Nickell,
      Matelich  and Wall may be  deemed  to share  beneficial  ownership  of
      shares of Common Stock and PIK Preferred Stock owned of record by KIAV
      and KEPV, by virtue of their status as general partners of the general
      partner  of KIAV and  general  partners  of KEPV.  Messrs.  Schuchert,
      Nickell,  Matelich  and Wall share  investment  and voting  power with
      respect to securities owned by the KIAV and KEPV.  Messrs.  Schuchert,
      Nickell,  Matelich and Wall disclaim beneficial ownership of shares of
      Common Stock and PIK Preferred Stock owned of record by KIAV and KEPV.
(e)   Messrs.  Goldberg and Bynum may be deemed to share beneficial ownership of
      shares of Common Stock owned of record by KIAV and KEPV by viture of their
      status as limited  partners of the general  partner of KIAV and as limited
      partners of KEPV. Messrs. Goldberg and Bynum disclaim beneficial ownership
      of such securities.
      Mr. Goldberg and Mr. Bynum are directors of the Company.
(f)   The business address of such person(s) is Hosiery  Corporation of America,
      Inc., 3369 Progress Drive, Bensalem, Pennsylvania 19020.
(g)   Each of such  persons  may hold  options  granted  under the option  plan.
      Shares of Common Stock  subject to such  options are not  reflected in the
      table.
(h)   In addition, prior to the closing of the Recapitalization, Messrs. Biagini
      and Lengers acquired in the aggregate  approximately 3.0% of the shares of
      PIK Preferred Stock issued in the Recapitalization.  The amounts of Common
      Stock  beneficially  owned by Messrs.  Biagini and Lengers as reflected in
      the above table and PIK Preferred  Stock  acquired by Messrs.  Biagini and
      Lengers as described in the preceding  sentence include grants made by the
      Company  prior to the  consummation  of the  Recapitalization  to  Messrs.
      Biagini and Lengers of an aggregate  of 28,262  shares of Common Stock and
      approximately  2.7% of the  shares of PIK  Preferred  Stock,  in each case
      subject to certain restrictions.
</FN>
</TABLE>
                                       45
<PAGE>


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Set forth  below is a summary of certain  agreements  and  arrangements
entered  into  by the  Company  and  related  parties  in  connection  with  the
Recapitalization.

Investor Relationships

         Kelso affiliates  beneficially own 70.7% of the shares of common equity
of the Company as described  under  "Security  Ownership  of Certain  Beneficial
Owners  and  Management".  The  Company  has agreed to  indemnify  Kelso and its
affiliates  against certain claims,  losses,  damages,  liabilities and expenses
which  may  arise  in  connection  with  the  transactions  contemplated  by the
Recapitalization  Agreement.  The Company has also agreed to pay Kelso an annual
fee of $262,500  each year for financial  advisory  services and to reimburse it
for out-of-pocket expenses incurred, and to indemnify it against certain claims,
losses,  damages,  liabilities  and expenses which may arise, in connection with
rendering such services.  Kelso's out-of-pocket  expenses in connection with its
services  rendered during 1996 and 1995 were  approximately  $5,000 and $46,000,
respectively.

         Certain Kelso  affiliates are parties to a stockholders  agreement.  In
addition,  certain affiliates of Kelso, the Company and certain investors in the
Company's  stock who are  designees  of Kelso  entered  into  Letter  Agreements
(collectively,  the "Letter  Agreements"),  each of which,  among other  things,
provides for certain  restrictions  on the transfer of stock by such  investors.
The Company has a stockholders agreement which provides, among other things, for
certain restrictions on the transfer of the Company's stock.

The Recapitalization and Related Transactions

         The  Recapitalization  Agreement  contains  customary  representations,
warranties,  indemnities  and  conditions.  In  addition,  the  Recapitalization
Agreement  provides that the Stockholder,  on the one hand, and Company,  on the
other,  will, subject to certain  limitations set forth therein,  indemnify each
other and their respective stockholders,  subsidiaries, affiliates, officers and
directors and their  respective  successors  and assigns,  from,  against and in
respect of any damages, losses, deficiencies,  liabilities,  costs and expenses,
incurred as a result of any (i) misrepresentations or breaches of warranties set
forth in the Recapitalization Agreement or in any certificate delivered pursuant
thereto and (ii) non-fulfillment of certain agreements or covenants set forth in
the Recapitalization Agreement. The representations and warranties and covenants
and  agreements to which such  indemnification  relates are standard and include
representations   and   warranties   with   respect  to   ownership   of  stock,
capitalization,  financial statements,  absence of defaults under agreements and
violations  of law  and  similar  matters.  In  addition,  the  Recapitalization
Agreement  provides for similar  indemnification by the Stockholder with respect
to certain other matters, including, among other things, claims by third parties
resulting  from or arising  out of certain  activities  in  connection  with the
Stockholder's  auction and sale of the Company and certain liabilities  incurred
as a result of the operations (or relating to the assets) which were transferred
to the Stockholder prior to the Recapitalization (as described below) or arising
out of such transfer. Under the Recapitalization Agreement, such indemnification
is subject to certain baskets and deductibles and, in general,  has an aggregate
limit of $15 million.

         The  Recapitalization  Agreement also provided for the  Stockholder and
the Company to enter into an Escrow  Agreement  pursuant  to which,  among other
things,  $10 million of the aggregate  purchase price paid by the Company to the
Stockholder  pursuant to the Repurchase is held in escrow to provide a source of
payment to  satisfy  the  Stockholder's  indemnification  obligations  under the
Recapitalization  Agreement.  In addition,  the  Stockholder  has pledged to the
Company  the shares of Common  Stock  which were not  purchased  by the  Company
pursuant to the Repurchase and which the Stockholder  continues to own following
the consummation of the  Recapitalization  (such shares represent  approximately
21% of the Company's Common Stock outstanding  following the consummation of the
Recapitalization).

                                       46
<PAGE>



         In connection with the Recapitalization, the Company transferred to the
Stockholder  certain  assets  consisting  primarily  of the  stock of all of its
non-hosiery related subsidiaries, some of which are inactive businesses, certain
receivables,  equipment leased to one of the non-hosiery  subsidiaries,  certain
life insurance  policies,  four owned or leased  automobiles  and three owned or
leased personal  computers.  None of the assets  transferred to the Stockholder,
except the life insurance policies and loans thereon, automobiles and computers,
were used in the Company's hosiery business.

                                       47
<PAGE>


                                                      PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

A.   The following documents are filed as a part of this Report:

     (1) and (2) Financial Statements and Financial Statement Schedule--see
     Index to Financial Statements and Financial Statement Schedule appearing on
     Page 15.

     (3) Exhibits, including those incorporated by reference. The following
     is a list of  exhibits  filed as part of this  Annual  Report  on Form
     10-K.  Where so indicated by footnote,  exhibits which were previously
     filed are  incorporated  by reference.  For exhibits  incorporated  by
     reference,  the  location  of the  exhibit in the  previous  filing is
     indicated.
<TABLE>

<CAPTION>
                   EXHIBITS                                 INCORPORATION BY REFERENCE

<S>        <C>                                              <C>                              
           3.1     Restated Certificate of Incorporation    Exhibit 3.1 to Registration Statement No.
                   of the Company                           33-87392 on Form S-1 dated May 15, 1995.

           3.2     Certificate of Designation, Powers,      Exhibit 3.2 to Registration Statement
                   Preferences and Rights of Pay-in-Kind    No. 33-87392 on Form S-1 Dated May 15,
                   Preferred Stock                          1995

           3.3     Amendment to the Restated                Exhibit 3.3 to Registration Statement
                   Certificate of Incorporation of          No. 33-87392 on Form S-1 dated May 15,
                   the Company                              1995

           3.4     Amendment to the Restated                Exhibit 3.1 to Report 10-Q for the quarter
                   Certificate of Incorporation of          ended September 30, 1995
                   the Company

           3.5     By Laws of the Company                   Exhibit 3.4 to Registration Statement No.
                                                            33-87392 on Form S-1 dated May 15, 1995

           4.1     Indenture dated as of October 17,        Exhibit 4.1 to Registration Statement No.
                   1994 between the Company and             33-87392 on Form S-1 dated May 15, 1995
                   United States Trust Company of
                   New York, as Trustee

           4.2     Credit Agreement dated as of October     Exhibit 4.1 to Registration Statement No.
                   17, 1994, among the Company;             33-87392 on Form S-1 dated May 15, 1995
                   National Westminster Bank PLC, as
                   Co-Agent; Nations Bank of North
                   Carolina, N.A., as Co-Agent; Bankers
                   Trust Company, as Agent; and the
                   financial institutions listed on the
                   signature pages thereto

           10.1    Executive Employment Agreement           Exhibit 10.2 to Registration Statement No.
                   between Hosiery Corporation of           33-87392 on Form S-1 dated May 15, 1995
                   America, Inc. and Arthur C. Hughes,
                   dated as of August 3, 1992

                                       48
<PAGE>



                  EXHIBITS                                  INCORPORATION BY REFERENCE

         10.2     Employment Agreement between U.S.         Exhibit 10.3 to Registration Statement No.
                  Textile Corporation and Hans              33-87392 on Form S-1 dated May 15, 1995
                  Lengers, dated as of August 29, 1980, and an Amendment thereto
                  among U.S. Textile Corporation., the Company and Hans Lengers,
                  dated as of September 12, 1994

         10.3     Executive Employment Agreement            Exhibit 10.4 to Registration Statement No.
                  between the Company and Robert            33-87392 on Form S-1 dated May 15, 1995
                  J. Mooney, dated as of September 16,
                  1993

         10.4     Executive Employment Agreement            Exhibit 10.4 to Form 10-K dated
                  between the Company and Robert            March 26, 1996
                  M. Henry, dated as of August 7, 1995

         10.5     Management Stock Subscription             Exhibit 10.5 to Form 10-K dated
                  Agreement dated August 14, 1995           March 26, 1996

         10.6     Stock Option Plan                         Exhibit 10.3 to Form 10-Q dated
                                 August 12, 1996

         10.7     Executive Employment Agreement            Exhibit 10.1 to Form 10-Q dated
                  between the Company and Suzanne M.        November 12, 1996
                  Roper, dated as of July 30, 1996

        *21.1     Subsidiaries of the Registrant

        *27.0     Financial Data Schedule

</TABLE>


         *  Filed herewith.


B.       Reports on Form 8-K filed during the quarter ended December 31, 1996:

         None.





                                       49
<PAGE>


SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  on the 24th day of
March, 1997.

                      HOSIERY CORPORATION OF AMERICA, INC.
                              /s/ ARTHUR C. HUGHES
                         BY: ___________________________
                                Arthur C. Hughes
                                                       Vice President and Chief
                                                            Financial Officer

         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 indicated on the 14th day of March, 1996.

Signatures                                           Title

/s/ JOHN F. BIAGINI
______________________________  Chairman of the Board, Chief Executive Officer
John F. Biagini                      and President (Principal Executive Officer)



______________________________  President, U.S. Textile Corporation and Director
Hans Lengers


/s/ ARTHUR C. HUGHES
______________________________   Vice President and Chief Financial Officer
Arthur C. Hughes                   (Principal Financial and Accounting Officer)


/s/ FRANK K. BYNUM, JR.
______________________________   Director
Frank K. Bynum, Jr.


/s/ MICHAEL B. GOLDBERG
______________________________   Director
Michael B. Goldberg



______________________________   Director
Joseph A. Murphy



By:  __________________________
        (Name)
         Attorney-in-Fact for each of the
         persons indicated

                                       50
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors
Hosiery Corporation of America, Inc.
Bensalem, Pennsylvania

We have audited the consolidated  financial statements of Hosiery Corporation of
America,  Inc., and its subsidiaries (the "Company") as of December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996, and
have issued our report thereon dated February 28, 1997;  such report is included
elsewhere in this Form 10-K. Our audits also included the consolidated financial
statement  schedule  of the  Company  referred  to in Item 8. This  consolidated
financial statement schedule is the responsibility of the Company's  management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such consolidated  financial statement schedule,  when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.





Deloitte & Touche LLP
Philadelphia, Pennsylvania

February 28, 1997


                                      S-1
<PAGE>


                        
SCHEDULE I
<TABLE>

                      HOSIERY CORPORATION OF AMERICA, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                             (Dollars in thousands)



<CAPTION>
                                                        Balance at      Charged to                     Balance at
                                                       Beginning of     Costs and        Amounts         End of
                                                          Period         Expenses      Written Off       Period
                                                      -------------     ----------     -----------     ---------- 
YEAR ENDED DECEMBER 31, 1996
<S>                                                       <C>            <C>              <C>            <C>   
  Allowance for Uncollectible Accounts...............     $1,263         $10,057          $9,780         $1,540
                                                          ======         =======          ======         ======
YEAR ENDED DECEMBER 31, 1995
  Allowance for Uncollectible Accounts...............      $ 923         $ 7,788          $7,448         $1,263
                                                           =====         =======          ======         ======
YEAR ENDED DECEMBER 31, 1994
  Allowance for Uncollectible Accounts...............     $1,060         $ 5,643          $5,780          $ 923
                                                          ======         =======          ======          =====

</TABLE>





                                      S-2
<PAGE>



                                  EXHIBIT INDEX


                   EXHIBITS


           21.1    Subsidiaries of the Registrant