February 4, 1998
Mr. J. Robert Philpott, Jr.
Director
Pluma, Inc.
c/o Philpott, Ball & Company
212 S. Tryon Street, Suite 1050
Charlotte, NC 28281
Subject: Organizational Assessment for Pluma, Inc., Phase II
Dear Bob:
This letter serves as the engagement letter for an Organizational Assessment to
be conducted for Pluma, Inc. ("Pluma") by Norelli & Company ("Norelli"). This
assessment, hereafter referred to as "Phase II", is to be conducted concurrently
with the Organizational Assessment being conducted pursuant to the engagement
letter dated December 29, 1997. Norelli accepts the engagement based on the
understanding that Pluma, Inc. is the client. For the purposes of this
engagement, we will report to you in your capacity as the individual designated
by the Board of Directors of Pluma, Inc. as the liaison between Pluma and
Norelli.
OBJECTIVE OF PLUMA'S BOARD
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The Board's objective is to identify the fundamental business, organizational,
and systems problems that have caused unexpected earnings surprises such as
those in the 4th quarter of 1997. Once the problems have been identified, the
Board would like assistance in designing and implementing solutions to the
problems.
SCOPE OF NORELLI'S ACTIVITIES
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To assist the Board in accomplishing its objective, Norelli expects to conduct
certain tasks as outlined below:
o analyze the 4th quarter variance from plan to determine the amounts
attributable to specific causes and/or events;
o analyze the lines of authority and responsibility for coordinating sales and
manufacturing activities;
Mr. J. Robert Philpott, Jr.
Engagement Letter
February 4, 1998
Page 2
o analyze the product mix and other assumptions behind the standard cost
system;
o chart the process and cycle times associated with each step required to
produce and deliver a garment to the customer;
o become familiar with the capabilities of the SAP system and assess the
reasonableness of management's expectations for the new system;
o conduct an assessment of the SAP installation process and progress toward
full functionality;
o present our findings tot he Board along with recommendations on how to
address the problems that we have identified.
NORELLI STAFF TIMING AND PROFESSIONAL FEE
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The Norelli team for this engagement will include me, John A. Magee, Senior Vice
President, and Mason Elder, Senior Research Analyst. John will serve as the
project manager and he will conduct all of the interviews in the information
gathering phase of the project. Mason will focus primarily on our analysis of
the SAP project, both its current status and on what the system can be expected
to provide once it is installed. We estimate that our professional fee for the
engagement will be Thirty Five Thousand Dollars ($35,000.00). The estimate
includes Five Thousand Dollars ($5,000.00) for an independent systems consulting
firm to assist us in analyzing the installation of the SAP system and the
reasonableness of management's expectations for the new SAP system.
We anticipate that we will have a preliminary report for you by the middle of
March. However, the nature of this engagement is such that we can not predict in
advance exactly what we will find. The information gathering phase of the
project may require more than the fifteen interviews we have estimated. Also,
the time required to identify the relevant issues and develop recommendations
will depend in part on what the issues are. As a result, it may take longer to
deliver a final report. Likewise, our estimate of the professional fee is not
intended to be a guaranteed maximum price for the work on Phase II. However, we
will not go beyond $30,000 without advising you of your progress and obtaining
authorization to proceed further. Out-of- pocket expenses will be billed at
cost. Our normal terms include progress billings each month for work completed
during the month.
Mr. J. Robert Philpott, Jr.
Engagement Letter
February 4, 1998
Page 3
If the terms of this proposal are acceptable to you, please so indicate by
signing below and returning a copy of this letter to me. We look forward to your
favorable reply.
Sincerely,
Ronald A. Norelli
President
Accepted on Behalf of Pluma, Inc. by:
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J. Robert Philpott, Jr. Date
Director