-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G8QiKh8mivVUIVxNR6Jgdaiw5fB5lpEKAj3rZb0gHM/IM/ewysoTFND1+J7BsmHB i25lyaSF72DnP27nRThyIQ== 0000950144-97-001226.txt : 19970222 0000950144-97-001226.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950144-97-001226 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTPOINT STEVENS INC CENTRAL INDEX KEY: 0000852952 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED TEXTILE PRODUCTS [2390] IRS NUMBER: 363498354 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 333-20013 FILM NUMBER: 97528927 BUSINESS ADDRESS: STREET 1: 507 W TENTH ST CITY: WEST POINT STATE: GA ZIP: 31833 BUSINESS PHONE: 7066454000 MAIL ADDRESS: STREET 1: P O BOX 71 CITY: WEST POINT STATE: GA ZIP: 31833 10-K405 1 WESTPOINT STEVENS INC. FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO 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 for ____________ to ____________ COMMISSION FILE NO. 0-21496 WESTPOINT STEVENS INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-3498354 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 507 WEST TENTH STREET, WEST POINT, GEORGIA 31833 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (706) 645-4000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE. SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock, $.01 par value NASDAQ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to be the best of the Registrant's knowledge, in definitive proxy or information 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 voting stock held by nonaffiliates of the registrant was approximately $607,550,895 at February 3, 1997. The number of shares of Common Stock outstanding at February 3, 1997, was 30,916,288. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN A BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No --- --- DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive proxy statement to be mailed to stockholders in connection with the registrant's May 14, 1997 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. ================================================================================ 2 TABLE OF CONTENTS
Page No. -------- Item 1. Business....................................................................................... 1 Item 2. Properties..................................................................................... 8 Item 3. Legal Proceedings.............................................................................. 9 Item 4. Submission of Matters to a Vote of Security Holders............................................ 10 Item 5. Market for Registrant's Common Stock and Related Stockholder Matters........................... 10 Item 6. Selected Financial Data........................................................................ 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 13 Item 8. Financial Statements and Supplementary Data.................................................... 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 38 Item 10. Directors and Executive Officers of the Registrant............................................. 38 Item 11. Executive Compensation......................................................................... 38 Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 38 Item 13. Certain Relationships and Related Transactions................................................. 38 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 38
3 ITEM 1. BUSINESS WestPoint Stevens Inc., a Delaware corporation organized in 1987 (the "Company"), is engaged directly and indirectly through its subsidiaries in the manufacture, marketing and distribution of products in two industry segments: bed and bath home fashions products ("Home Fashions") and knitted fabrics for the apparel industry. See "Reorganization," "Recent Developments," and "Item 8. Financial Statements and Supplementary Data" included elsewhere herein for information regarding certain matters concerning the bankruptcy reorganization of the Company (the "Reorganization") consummated on September 16, 1992 under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"), the Company's recapitalization consummated in May 1993 (the "Recapitalization"), the Company's refinancings consummated in December 1993 (the "Refinancing") and November 1994 which resulted in the Company's present secured credit facility (the "Senior Credit Facility"), the public offering of trade receivables participation certificates by the Company's receivables subsidiary in May 1994 under a trade receivables program (the "Trade Receivables Program"), and the adoption by the Company of a second stock repurchase program in May 1995, which was expanded in November 1995, and further expanded in August 1996. GENERAL The Company manufactures and markets Home Fashions products for distribution to chain and department stores, mass merchants and specialty stores. Home Fashions products are manufactured and distributed under owned trademarks and pursuant to various licensing agreements. See "- Home Fashions - Trademarks and Licenses." The Company's wholly-owned subsidiary, Alamac Knits Fabrics, Inc. ("Alamac"), produces knitted fabrics supplied primarily to manufacturers of men's, women's and children's apparel. HOME FASHIONS The Company is the largest producer in the domestic bed and bath towel market. The Company's management estimates that it has the largest market share (approximately 36%) in the domestic sheet and pillowcase market and the second largest market share (approximately 35%) in the domestic bath towel market. Such estimates are calculated by the Company based on United States government data (source: United States Census Bureau Current Industrial Report dated January 14, 1997), publicly available information about the Company's competitors and information in trade publications. In addition, according to such United States government data, each of these markets had over $1 billion in annual sales during each of the past five years. Home Fashions accounted for approximately 87% of the Company's consolidated net sales for the fiscal year ended December 31, 1996. See Note 10 "Segment and Major Customer Information" in the Notes to Consolidated Financial Statements of the Company elsewhere herein for a summary of certain operating information for the Home Fashions segment. For a discussion of the Company's overall financial condition, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." PRODUCTS The Company manufactures and markets a broad range of bed and bath products, including decorative sheets and towels, designer sheets and accessories, sheets and towels for institutions, blankets, private label sheets and towels, bedskirts, bedspreads, comforters, duvet covers, drapes, valances, throw pillows, shower curtains and table covers. Such products are made from a variety of fabrics, such as chambray, twill, sateen, flannel, linen, cotton and cotton blends and are available in a wide assortment of colors and patterns. The Company has positioned itself as a single-source supplier to retailers of bed and bath products, offering a broad assortment of products across multiple price points. Such product and price point breadth allows the Company to provide a comprehensive product offering for each major distribution channel. 1 4 TRADEMARKS AND LICENSES The Company's products are marketed under well-known and firmly established trademarks, brand names and private labels. The Company uses trademarks, trade names and private labels as merchandising tools to assist its customers in coordinating their product offerings and differentiating their products from those of their competitors. Home Fashions' trademarks include ATELIER MARTEX(R), MARTEX(R), UTICA(R), STEVENS(TM), LADY PEPPERELL(R) and VELLUX(R). In addition, certain Home Fashions' products are manufactured and sold pursuant to licensing agreements under designer names that include, among others, Ralph Lauren, Sanderson, Larry Laslo, Julie Ingleman and Halston. A portion of the Company's sales are derived from licensed designer brands. The license agreements for the Company's designer brands generally are for a term of two or three years; some of the licenses are automatically renewable for additional periods, provided that certain sales thresholds set forth in the license agreements are met. No single license has accounted for more than 9% of the Company's total sales volume during any of the last five fiscal years. Although the Company has no reason to believe that it will lose any of its licenses, the loss of a significant license could have an adverse effect upon the Company's business, which could be material. The following are the expiration dates for the licensing agreements discussed above: Ralph Lauren, December 31, 1997; Sanderson, March 31, 1998; Larry Laslo, March 31, 1998; Julie Ingleman, December 31, 1997; and Halston, December 31, 1998. MARKETING The Company is committed to developing and maintaining integral relationships with its customers through "Strategic Partnering," a program designed to improve customers' operating results by leveraging the Company's merchandising, manufacturing and inventory management skills. Strategic Partnering includes Electronic Data Interchange ("EDI") direct electronic entry systems, "Quick Response" and "Vendor Managed Inventory" customer delivery programs and point-of-sale processing. The Company incorporates Strategic Partnering into its planning, manufacturing and shipping systems, in order to enable it to efficiently and economically anticipate and respond to customers' inventory requirements. As a result, the Company is better able to plan and forecast its own production and inventory requirements. Sales of the Company's Home Fashions products in the United States are conducted by business units consisting of marketing, merchandising, management information systems, finance and sales staff members under the supervision of an account executive. Business units are linked by a centralized manufacturing logistics and planning group and designer and administration groups. Each business unit focuses on one of the following channels of distribution: mass merchants; department and specialty stores; custom brands; Ralph Lauren; health and hospitality institutions; international and other. This organization allows the Company to tailor its services and resources to the different requirements of each channel of distribution and customer. The Company works closely with its major customers to assist them in merchandising and promoting its products to the consumer. In addition, the Company periodically meets with its customers in an effort to maximize product exposure and sales and to jointly develop merchandise assortments and plan promotional events specifically tailored to the customer. The Company provides merchandising assistance with store layouts, fixture designs, advertising and point-of-sale displays. The Company also provides its customers with suggested customized advertising materials designed to increase its product sales. Approximately 90% of the Home Fashions' sales are made to retail establishments in the United States, including chain and department stores, mass merchants, and specialty bed and bath stores. Finished products are distributed to retailers directly from the Company's plants. Distribution to hospitals and other healthcare establishments accounts for most of the remaining portion of the Home Fashions' sales. Certain institutional products also are sold directly and through distributors to major hotel and motel chains, and to laundry supply businesses. In addition to domestic sales, the Company distributes its Home Fashions products for eventual sale to certain foreign markets, principally Canada, Mexico, the United Kingdom, continental Europe, the Middle East and the Far East. International operations accounted for less than 5% of the total revenues of Home Fashions in 1996. In January 1997, the Company purchased P.J. Flower & Co. Limited ("Flower") through a recently formed English subsidiary. Flower is an English 2 5 company that manufactures, markets and distributes home fashions products in Europe and had approximately $20 million in annual sales for 1996. The Company intends to continue its efforts to increase its foreign sales. In addition, certain products of the Company are sold through WestPoint Stevens Stores Inc., a wholly-owned subsidiary of the Company ("WestPoint Stores"). WestPoint Stores currently consists of 36 geographically dispersed, value-priced outlets, some of which are located in factory outlet shopping centers. The products sold in WestPoint Stores are first quality (including overstocks), seconds, discontinued items and other products. INVENTORY MANAGEMENT, ELECTRONIC COMMUNICATION AND DELIVERY The Company uses EDI, Quick Response and Vendor Managed Inventory replenishment programs, point-of-sale data and the latest available technology in retail warehouse and shelf space management to minimize inventory and maximize floor stock turnover for its customers. The Company's EDI system allows customers to place orders, and allows the Company to fill, track and bill orders, all by computer. This system enables the Company to ship products on a Quick Response basis so that customers can maintain lower inventories and react rapidly to changes in product demand. In addition, the Company is using Vendor Managed Inventory and dedicating certain manufacturing facilities to servicing key strategic customers. The Company anticipates that these programs will result in lower transportation expense and reduced distribution complexities for its customers. Through the use of the Nielsen Spaceman III space analysis program, the Company supports its customers' efforts to improve operating results through efficient inventory and shelf space management. The Company's objective is to provide its customers with 100% delivery reliability in terms of order quantities and delivery schedules. The Company believes that the use of in-house transportation has enabled the Company to maintain a high level of on-time delivery. CUSTOMERS The Company is pursuing strategic relationships with large, high volume merchandisers. An important component of the Company's strategy is to increase its share of shelf and floor space by strengthening its partnership with its customers. The Company is working closely with retailers and is sharing information and business practices with them to improve service and achieve higher profitability for both the retailer and the Company. The Company's Home Fashions products are sold to chain stores, including, among others, J.C. Penney Company, Inc. ("J.C. Penney"), and Sears Roebuck & Co., Inc. ("Sears"); mass merchants such as Wal-Mart Stores, Inc. ("Wal-Mart"), Kmart Corporation ("Kmart") and Target Stores (a division of Dayton Hudson Corporation); and department and specialty stores, including Federated Department Stores and Mervyn's (also a division of Dayton Hudson Corporation). The above named customers, which are the Company's six largest customers, accounted for approximately 54% of the net sales of Home Fashions and 47% of the net sales of the Company during the fiscal year ended December 31, 1996. Sales to the Dayton Hudson Corporation and to J.C. Penney each represented approximately 11% of the net sales of the Company in 1996. Each of such customers has purchased goods from the Company in each of the last 10 years. Although the Company has no reason to believe that it will lose the business of any of its largest customers, a loss of any of the largest accounts (or a material portion of any thereof) would have an adverse effect upon the Company's business, which could be material. ALAMAC Alamac manufactures and sells knitted fabrics primarily to manufacturers of men's, women's and children's apparel. Based on United States government data (source: United States Census Bureau Current Industrial Report dated September 3, 1996), publicly available information about Alamac's competitors and information in trade publications, management believes that Alamac supplies approximately 11% of the knitted fabric in the markets it serves. Alamac accounted for approximately 13% of the Company's net sales for the fiscal year ended December 31, 1996. See Note 10 "Segment and Major Customer Information" in the Notes to Consolidated Financial Statements of the Company elsewhere herein for a summary of certain operating information for Alamac. For a discussion of the 3 6 Company's overall financial condition, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." PRODUCTS Alamac's knitted fabrics are available in a full range of colors, pattern layouts and weight/width options and are produced in 50/50 poly-cotton, 100% cotton and cotton-rich blends. Primary fabrications are jersey, interlock, fleece, double knit and rib. Alamac's current product mix is comprised of piece-dyed solids and yarn-dyed fancies. These products are sold under the Alamac name to branded and private label manufacturers. Alamac markets highly-styled, customized seasonal knit lines. Support services include seasonal color and fabric direction, conceptual fashion lines, computerized design capability, rapid sample production, customized delivery schedules, EDI and customer service programs. Alamac has recently begun to pursue Vendor Managed Inventory opportunities. Alamac develops exclusively designed knitted lines to meet the fashion needs of both apparel manufacturers and retailers. Alamac receives additional fashion input from its customers who work closely with Alamac throughout the styling process in developing new fabrics which address the customers' needs in terms of design, fiber content, texture, weight and price. Alamac manufactures its products pursuant to each customer's specifications. As a result, risks associated with maintaining high levels of inventory are reduced at Alamac. Alamac's product strategy has been to emphasize high quality and fashion-oriented customized seasonal knitted fabric lines. Alamac pioneered the use of CAD/CAM (computer aided design/computer aided manufacturing) design technologies which have reduced product development time and expense and have enabled Alamac to deliver fabric samples in as little as two weeks. PATENTS AND TRADEMARKS The Company and its subsidiaries own other United States trademarks used in Alamac's operations, including ALAMAC(R) and ALASET(TM). In addition, Alamac produces a full range of SANITECH(TM) knit fabrics with an antimicrobial treatment. MARKETING Alamac currently sells to branded and private label manufacturers including Health-Tex, Inc., Osh-Kosh B'Gosh, Inc., and Garan, Inc. Alamac currently sells 35% of its fabrics to the childrenswear manufacturers, 31% to the womenswear manufacturers, and 34% to the menswear manufacturers. In addition, Alamac is focusing its efforts to increase sales in speciality markets such as manufacturers of employee uniforms and golf apparel and on the higher-margin specialty retailer segment, including manufacturers of coordinated sportswear. In light of this strategic shift, Alamac has increased its capabilities to manufacture 100% cotton knits. Alamac has established and maintained credibility with its customers through Strategic Partnering relationships that employ EDI, Quick Response and point-of-sale data. Alamac's sales force, headquartered in New York City with regional offices in Atlanta, Dallas and Los Angeles, sells to and services approximately 250 accounts primarily throughout the United States market and, to a lesser degree, the Caribbean basin, Mexico and Europe. The sales force is organized by specific product lines (childrenswear, womenswear and menswear), with a manager and sales team responsible for accounts within each product line. In addition, two separate sales teams cover the retail/chain market and the international market. The sales force works closely with Alamac's merchandising department to ensure market exposure and follow-up of ongoing product styling. Costing, order delivery schedules, product forecasting and specific customer needs also are addressed by the sales teams. Alamac distributes its knitted fabrics from a centralized distribution center located in Lumberton, North Carolina. Alamac believes that the use of Company transportation has enabled it to maintain a high level of on-time delivery of fabrics. Alamac also exports knitted fabrics to the Caribbean basin, Mexico and Europe. 4 7 CUSTOMERS No single customer of Alamac represented 10% or more of the net sales of the Company for the fiscal year ended December 31, 1996. Although Alamac's management has no reason to believe that it will lose the business of any of its largest customers, a loss of any of Alamac's largest accounts (or a material portion of any thereof) could have a significant effect on Alamac's business. Management does not believe, however, that any such loss would have an adverse effect on the Company's business taken as a whole. Alamac also supports a close working relationship with major retailers to provide fabric, fashion and color direction, quality standard specifications and customer service programs where required. Retail chains and catalog houses that also are important to Alamac's distribution are: Wal-Mart; J.C. Penney; KMart; Mervyn's; Target Stores; Lands' End, Inc.; Sears; and L.L. Bean, Inc. MANUFACTURING The Company currently uses the latest manufacturing and distribution equipment and technologies in its mills. Management therefore believes that the Company is one of the most efficient manufacturers in the home fashions industry. Over the past five years, the Company has spent approximately $453 million to modernize its manufacturing and distribution systems and has spent approximately $100 million of that amount during 1996. The capital expenditures have been used to, among other things, replace shuttle looms with faster, more efficient projectile and air jet looms, replace ring spinning with open-end and air jet spinning, purchase new high speed multicolor printing equipment, and further automate the Company's cut and sew operations. Air jet and projectile looms produce at higher speeds than shuttle looms, yielding fewer defects, requiring less maintenance and providing cleaner and safer working environments. Using air jet technology, compressed air propels the filling yarn at high speeds, with robotics handling fabric cutting and tucking. The Company's new open-end spinning machines use computerized monitors and sensors which track and analyze the work, streamline information gathering and detect defects immediately to improve yarn quality. The Company intends to invest $125 million in capital improvements in the aggregate in 1997 which includes the continued conversion of the Company's older projectile looms to higher speed air jet looms, construction and installation of dyeing and finishing plant and equipment, and automated fabricating equipment and distribution management systems which will further eliminate labor-intensive and costly manufacturing steps and improve distribution efficiency. These capital programs have resulted, and are expected to continue to result, in improved product quality, increased efficiency and capacity, lower costs and quicker response time to customer orders. The Company utilizes 21 manufacturing facilities, all of which are owned by the Company and located primarily in the Southeastern United States and with the acquisition of P.J. Flower & Co. Limited, leases one manufacturing facility in England. See "Item 2. Properties." Alamac maintains a vertically integrated operation, with five manufacturing plants located in North Carolina and South Carolina. RAW MATERIALS The principal raw materials used in the manufacture of Home Fashions and Alamac products are cotton of various grades and staple lengths and polyester in staple and filament form. Cotton and polyester presently are available from several sources in quantities sufficient to meet the Company's requirements. The Company is not dependent on any one supplier as a source of raw materials. Since cotton is an agricultural product, its supply and quality are subject to weather patterns, disease and other factors. The price of cotton is also influenced by supply and demand considerations, both domestically and worldwide, and by the cost of polyester. Although the Company has always been able to acquire sufficient quantities of cotton for its operations in the past, any shortage in the cotton supply by reason of weather, disease or other factors could adversely affect the Company's operations. The price of man-made fibers such as polyester is influenced by demand, manufacturing capacity and costs, petroleum prices, cotton prices and the cost of polymers used in producing man-made fibers. Any significant prolonged petrochemical shortages could significantly affect the availability of man-made fibers and cause a substantial increase in demand for cotton, 5 8 resulting in decreased availability and, possibly, increased price. The Company also purchases substantial quantities of dyes and chemicals. Dyes and chemicals have been and are expected to continue to be available in sufficient supply from a wide variety of sources. SEASONALITY; INVENTORY; CYCLICALITY Traditionally, the home fashions industry has been seasonal, with peak sales seasons in the spring and fall. The Company's commitment to EDI, Quick Response, and Vendor Managed Inventory, however, has facilitated, in the Home Fashions segment, a more even distribution of products throughout the calendar year. Alamac's fashion lines are developed for two primary retail selling seasons: spring and fall. Two supplemental lines are added for the transitional seasons of summer and the Christmas/winter holiday season. Historically, Alamac's customer orders are stronger during the first four months of the calendar year, corresponding to demand for fabrics to be sold (as finished apparel) during the following fall retail selling season and orders generally increase again from July through October in anticipation of the spring retail season. In accordance with industry practice, the Company increases its Home Fashions' inventory levels during the winter and summer to meet customer demands for the spring and fall peak seasons. These increases, however, are moderate due to continued improvements in EDI and Quick Response, which have reduced the need to stockpile inventory to meet peak season demands. Because Alamac produces fabrics to meet specific customer orders and specifications, more than 95% of its sales are made to order. There are no major fluctuations in Alamac's inventory during the production seasons of the calendar year. Alamac is therefore not generally subject to risks associated with maintaining high inventory levels. The home fashions and apparel fabrics industries are also cyclical. While the Company's performance may be negatively affected by downturns in consumer spending, management believes the effects thereof are mitigated by the Company's large market shares and broad distribution base. BACKLOG ORDERS The backlog of Home Fashions' unfilled customer orders believed by management to be firm was approximately $97.9 million at February 1, 1997, as compared with approximately $74.8 million at February 3, 1996. Alamac's backlog of unfilled customer orders believed by management to be firm was approximately $29.8 million at February 1, 1997, as compared with approximately $21.6 million at February 3, 1996. The Company does not believe that its backlogs are a meaningful indicator of its future business. COMPETITION Both the home fashions and the apparel fabrics industries are highly competitive. In both segments, the Company competes on the basis of price, quality and customer service, among other factors. In the sheet and towel markets, the Company competes primarily with Fieldcrest Cannon, Inc. ("Fieldcrest Cannon") and Springs Industries, Inc. ("Springs"). In the other bedding and accessories markets, the Company competes with many companies, most of which are much smaller in size than the Company. The Company has pursued a competitive strategy focused on providing the best fashion, quality, service and value to its customers and to the ultimate consumer. The Company believes that competition from foreign manufacturers does not materially impact the current operations of Home Fashions. Alamac has built customer loyalty and expanded its competitive edge by focusing on competitive pricing, product innovation, product quality, on-time delivery, customized Quick Response programs, EDI, customized fabric design, fashion direction and individualized customer service programs. Alamac's direct competitors consist of other domestic and foreign knitting mills, converters, commission knit package operations and vertically integrated apparel manufacturers. Major domestic competitors include the Dyersburg Corporation, the Stevcoknit Division of Delta Woodside Industries, Inc. and the Caro Knit Group of Dixie Yarns, Inc. While competition from foreign 6 9 manufacturers has not materially impacted the operations of Alamac, competition from foreign manufacturers of finished knitted fabric and garments are expected to increase in future years and may impact the markets in which Alamac's customers compete. The Company does not believe that there is any significant foreign competition with its current operations. There can be no assurance, however, if such foreign competition develops that the Company will effectively compete. OTHER OPERATIONS The Company's operations include Grifftex Chemicals ("Grifftex"). Grifftex formulates chemicals primarily used in the Company's finishing processes. Grifftex does not represent a material portion of the Company's business. RESEARCH AND DEVELOPMENT Management believes that research and development in product innovation and differentiation is important to maintain the Company's competitive edge. The Company continually seeks to develop new specialty finishing techniques that would improve fabric quality and enhance fabric aesthetics. Research also is conducted to develop new products in response to changing customer demands and environmental concerns. The Company did not make any material expenditures for Company sponsored research and development activities during the last three fiscal years. ENVIRONMENTAL MATTERS The Company is subject to various federal, state and local environmental laws and regulations governing, among other things, the discharge, storage, handling and disposal of a variety of hazardous and non-hazardous substances and wastes used in or resulting from its operations, including, but not limited to, the Water Pollution Control Act, as amended; the Clean Air Act, as amended; the Resource Conservation and Recovery Act, as amended; the Toxic Substances Control Act; and the Comprehensive Environmental Response, Compensation and Liability Act (known as "CERCLA"), as amended. The Company's operations also are governed by laws and regulations relating to employee safety and health, principally the Occupational Safety and Health Act and regulations thereunder which, among other things, establish exposure limitations for cotton dust, formaldehyde, asbestos and noise, and regulate chemical and ergonomic hazards in the workplace. Although the Company does not expect that compliance with any of the aforementioned laws and regulations will have a material adverse effect on its capital expenditures, earnings or competitive position in the foreseeable future, there can be no assurances that environmental requirements will not become more stringent in the future or that the Company will not incur significant costs in the future to comply with such requirements. EMPLOYEES The Company (including its subsidiaries) employed approximately 16,920 active employees as of February 1, 1997. Of these employees, approximately 15,500 were employed in the Company's manufacturing operations, approximately 340 in sales and approximately 1,080 in administration. The Company believes that its relations with all of its employees are excellent. The Company has not experienced a strike or work stoppage by any of its unionized employees during the past 15 years. The Company has developed an efficient employee communications system that includes rules and regulations for employee conduct and procedures for employee complaints. This long-standing system focuses on and, in the view of management, has resulted in, strong employee relations practices, good working conditions, progressive personnel policies and expansive safety programs. 7 10 REORGANIZATION The Company, through its subsidiaries, acquired approximately 95% of the outstanding common stock of West Point-Pepperell, Inc. ("WestPoint") pursuant to a tender offer (the "Tender Offer"), which was consummated on April 5, 1989. At the time of the Tender Offer, it was anticipated that substantially all of the Tender Offer financing would be refinanced and the remaining common stock of WestPoint held by public shareholders would be acquired by the Company in a merger. Due to the Company's inability to refinance the Tender Offer financing and to effect the "back end" merger with WestPoint contemplated by the Tender Offer, the Company defaulted on its obligations with respect to the Tender Offer financing. On June 9, 1992, following receipt of pre-petition approval by the requisite creditors and securityholders, the Company filed a voluntary petition for relief under Chapter 11, Title 11 of the United States Bankruptcy Code. On September 4, 1992, the bankruptcy court issued an order confirming the Joint Plan of Reorganization of the Company and certain of its subsidiaries other than WestPoint (the "Plan"), which was consummated on September 16, 1992. From April 1989 to October 1992, WestPoint's operating plan called for concentrating on the Home Fashions Division and, consequently, WestPoint's other operations, including the operations of Alamac, were treated as discontinued. WestPoint reinstated Alamac as a continuing operation as of October 1, 1992, and on June 29, 1993, Alamac was incorporated as a wholly owned subsidiary of WestPoint and certain assets were transferred to Alamac effective July 5, 1993. In December 1993, the Company simplified its corporate and capital structures by (a) refinancing all of its outstanding consolidated bank indebtedness and certain of its other indebtedness, and (b) effecting a series of mergers (the "Merger"), with the Company as the ultimate surviving corporation changing its name to WestPoint Stevens Inc. RECENT DEVELOPMENTS In November 1994, the Company adopted a program providing for the repurchase of up to 1 million shares of Common Stock. On March 22, 1995, the Company announced it had completed the repurchase of 1 million shares at an average price of approximately $13.89 per share. In May 1995, the Company adopted a second program providing for the repurchase of up to 1 million more shares of Common Stock. This program was expanded to include an additional 2 million shares of Common Stock in November 1995. In August 1996 this program was further expanded to include an additional 1 million shares of Common Stock. At December 31, 1996, approximately 1.6 million shares remained to be purchased under this program. The repurchase of shares include open market purchases and private transactions. The repurchased shares are held in the Company's treasury for general corporate purposes. OTHER FACTORS Except for historical information contained herein, certain matters set forth in this Annual Report on Form 10-K are forward looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. Potential risks and uncertainties include such factors as the financial strength of the retail industry, the level of consumer spending, the competitive pricing environment within the home fashions' industry and the success of planned advertising, marketing and promotional campaigns. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission. ITEM 2. PROPERTIES GENERAL The Company's properties are owned or leased directly and indirectly through its subsidiaries. Management believes that the Company's facilities and equipment are in good condition and sufficient for current operations. 8 11 The Company owns office space in West Point, Georgia and Lanett and Valley, Alabama, and leases various additional office space, including approximately 332,000 square feet in New York City, of which approximately 169,000 square feet is subleased to other tenants. The Company also owns or leases various administrative, storage and office space. The Company also owns a chemical plant containing approximately 39,000 square feet of floor space from which Grifftex Chemicals operates. HOME FASHIONS The Company owns 21 Home Fashions manufacturing facilities located in Alabama, Florida, Georgia, Maine, North Carolina, South Carolina and Virginia which contain in the aggregate approximately 8,565,000 square feet of floor space. The Company also owns 8 distribution centers and warehouses for Home Fashions operations which contain approximately 2,499,000 square feet of floor space. In addition, the Company leases 5 Home Fashions distribution outlets and warehouses containing approximately 323,000 square feet of floor space. WestPoint Stores owns 2 retail stores and leases its 34 other retail stores, all of which are dispersed throughout the United States. In addition, the Company, through its subsidiary Flower, leases a manufacturing facility containing approximately 21,000 square feet, a warehouse containing approximately 56,000 square feet and office space containing approximately 10,000 square feet in England. Also, Flower's U.S. subsidiary leases a warehouse containing approximately 12,500 square feet in New Jersey. ALAMAC Alamac owns 5 manufacturing facilities. These facilities are located in North Carolina and South Carolina and contain in the aggregate approximately 1,769,000 square feet of floor space. Alamac also leases approximately 36,000 square feet of warehouse space. ITEM 3. LEGAL PROCEEDINGS On July 12, 1995, the United States District Court, Eastern District of North Carolina, granted final approval of the settlement of a class action lawsuit against J.P. Stevens & Co., Inc. ("Stevens"). The action involved claims of racial discrimination in hiring, promotion and placement dating to the late 1960's. West Point-Pepperell, Inc., predecessor to the Company, assumed liability for this litigation upon its acquisition of Stevens. The settlement requires payment of $20 million to the class, payable in three equal installments, plus certain other fees and costs. The final payment was made on January 2, 1997. The Company is subject to various federal, state and local environmental laws and regulations governing, among other things, the discharge, storage, handling and disposal of a variety of hazardous and non-hazardous substances and wastes used in or resulting from its operations and potential remediation obligations thereunder. Certain of the Company's facilities (including certain facilities no longer owned or utilized by the Company) have been cited or are being investigated with respect to alleged violations of such laws and regulations. The Company believes that it has adequately provided in its financial statements for any expenses and liabilities that may result from such matters. The Company also is insured with respect to certain of such matters. The Company's operations are governed by laws and regulations relating to employee safety and health which, among other things, establish exposure limitations for cotton dust, formaldehyde, asbestos and noise, and regulate chemical and ergonomic hazards in the workplace. Although the Company does not expect that compliance with any of such laws and regulations will adversely affect the Company's 9 12 operations, there can be no assurance such regulatory requirements will not become more stringent in the future or that the Company will not incur significant costs in the future to comply with such requirements. The Company and its subsidiaries are involved in various other legal proceedings, both as plaintiff and as defendant, which are normal to their business. It is the opinion of management that the aforementioned actions and claims, if determined adversely to the Company, will not have a material adverse effect on the financial condition or operations of the Company taken as a whole. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of fiscal 1996, no matters were submitted by the Company to a vote of its stockholders. ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Common Stock of the Company is listed on the National Association of Securities Dealers Automated Quotation System - National Market System ("NASDAQ") under the symbol WPSN. Such listing became effective on August 2, 1993. Prior thereto, the Company's Common Stock was not listed or admitted to unlisted trading privileges on a national securities exchange or included for quotation through an inter-dealer quotation system of a registered national securities association, and there was a limited trading market for the Common Stock. High (ask) and low (bid) quotations, as reported, each quarterly period within the two most recent fiscal years were:
Quarter Ended Quotations ------------- ------------------------ 1996 1995 -------------- ------------- High/Ask Low/Bid High/Ask Low/Bid -------- ------- -------- ------- March 31............... 21-5/8 17-1/2 15 13-1/8 June 30................ 25 19-1/4 19 15 September 30........... 29-1/2 22-3/8 23-1/2 17-1/2 December 31............ 30-1/4 26-1/4 22-1/2 17-3/4
The Company has not declared any cash dividends on its Common Stock during the past two fiscal years. Under its existing credit facility the Company is permitted to pay dividends from excess cash flow as defined in the credit facility. The Company does not expect to pay dividends to its stockholders in the near future. As of February 3, 1997, there were approximately 13,628 holders of the Company's Common Stock. Of that total, approximately 177 were stockholders of record and approximately 13,451 held their stock in nominee name. ITEM 6. SELECTED FINANCIAL DATA The selected historical financial data presented below for 1996, 1995 and 1994 were derived from the Audited Consolidated Financial Statements of the Company and its subsidiaries for the years ended December 31, 1996, 1995 and 1994 (the "Consolidated Financial Statements"), and should be read in conjunction therewith, including the notes thereto and the other financial information included elsewhere herein. Information for periods subsequent to September 30, 1992 was prepared under the principles of "Fresh Start" reporting and is not comparable to the information for prior periods. Accordingly, a bold vertical line has been used to separate such information. The statement of operations data reflect the discontinuance of all operations other than Home Fashions and the Alamac Knits Subsidiary. The balance sheet data prior to September 30, 1992 have not been reclassified for management's decision in October 1992 to reinstate the Alamac Knits Subsidiary as a continuing operation. 10 13
YEAR ENDED THREE || NINE DECEMBER 31, MONTHS ENDED || MONTHS ENDED ---------------------------------------------- DECEMBER 31, || SEPTEMBER 30, 1996 1995 1994 1993(1) 1992 || 1992(2) ---------------------------------------------- ------------- || ------------- || (IN MILLIONS, EXCEPT PER SHARE DATA) || || STATEMENT OF || OPERATIONS DATA: || Net sales $1,723.8 $1,649.9 $1,596.8 $1,501.0 $394.0 || $1,102.1 Gross earnings 397.9 384.0 368.0 355.3 90.0 || 255.6 Operating earnings (loss)(3) 195.6 5.0 (65.8) (258.4) 9.3 || 87.5 Interest expense 102.4 101.3 102.1 98.2 30.7 || 177.9 Income (loss) from || operations before income || tax expense (benefit) and || extraordinary items 90.4 (99.4) (180.8) (372.8) (21.7) || (704.7) Income (loss) from || operations before || extraordinary items 57.7 (129.8) (203.4) (321.6) (25.2) || (728.9) || Net income (loss) 57.7 (129.8) (203.4) (402.3) (25.2) || 422.6 || Net income (loss) per common share(4) 1.81 (3.97) (6.02) (12.55) (0.87) || - || Weighted average shares outstanding 31.8 32.7 33.8 32.1 29.1 ||
DECEMBER 31, ---------------------------------------------------------- 1996 1995 1994 1993 1992(2) ---------- ---------- ---------- ---------- ---------- (IN MILLIONS) BALANCE SHEET DATA: Total assets $ 1,157.0 $ 1,143.0 $ 1,270.2 $ 1,512.9 $ 1,979.9 Working capital (deficiency)(5) 140.9 115.7 122.7 159.7 (646.4) Total debt 1,099.0 1,148.0 1,083.0 1,112.5 1,088.5 Stockholders' equity (deficit) (450.4) (505.9) (337.2) (140.3) 232.0
YEAR ENDED THREE || NINE DECEMBER 31, MONTHS ENDED || MONTHS ENDED ------------------------------------ DECEMBER 31, || SEPTEMBER 30, (IN MILLIONS, EXCEPT RATIOS) 1996 1995 1994 1993(1) 1992 || 1992(2) -------- -------- -------- -------- ------------- || ------------- || OTHER DATA: || Depreciation and amortization(6) $ 77.0 $ 80.4 $ 86.2 $ 82.8 $ 22.7 || $ 84.5 Amortization of excess reorganization || value (2) - 177.7 236.9 221.6 31.9 || - Restructuring expense - - - 200.0 - || - Reorganization expense - - - - - || 612.5 Capital expenditures 99.9 102.2 109.0 89.0 16.2 || 36.3 Operating earnings before amortization || of excess reorganization value, || goodwill amortization and || restructuring expense(7) 195.6 182.7 171.1 163.2 41.1 || 107.6 Operating margin before amortization || of excess reorganization value, || goodwill amortization and || restructuring expense(8) 11.3% 11.1% 10.7% 10.9% 10.4% || 9.8%
See footnotes on following page. 11 14 (1)The results for the year ended December 31, 1993 include restructuring expense of $200 million ($117.8 million after minority interest and income taxes). The charge related to (a) the closing and consolidation of certain facilities; (b) the write-off of certain equipment; and (C) severance, outplacement and other costs associated with plant closures and overhead reductions. (2)Upon the consummation of a "prepackaged" plan of reorganization, the Company established a new basis of accounting ("Fresh Start"). In Fresh Start reporting, the Company's assets and liabilities were evaluated and stated at their fair values as of September 30, 1992. The resulting adjustments to the Company's consolidated assets and liabilities, primarily reflecting reorganization expenses of approximately $612.5 million and an extraordinary gain on debt discharge of approximately $1,142 million, increased the Company's stockholders' equity by approximately $1,800 million. The total reorganization value of the Company was based on management's estimate of the fair value of the Company's debt and Common Stock. These estimates resulted in management's estimated reorganization value of approximately $1 billion, of which the Excess Reorganization Value was $637.5 million. (3)Operating earnings (loss) for the year ended December 31, 1995 includes amortization of excess reorganization value of $177.7 million, for the year ended December 31, 1994 includes amortization of excess reorganization value of $236.9 million, for the year ended December 31, 1993 includes restructuring expense of $200 million, amortization of excess reorganization value of $221.6 million and, for the three months ended December 31, 1992 includes amortization of excess reorganization value of $31.9 million. (4)Per share amounts for periods prior to October 1, 1992, have not been presented because they are not meaningful due to the implementation of "Fresh Start" reporting. (5)Working capital (deficiency) for the years ended December 31, 1996, 1995, 1994, 1993 and 1992 includes the current portion of bank indebtedness and other long-term debt of $24.0 million, $73.0 million, $48.0 million, $18.0, and $998.1 million, respectively. (6)Excludes amortization of excess reorganization value. (7)Such amounts are presented to facilitate comparisons between periods since there were no charges in the 1996 period for amortization of excess reorganization value, goodwill amortization or restructuring expense. (8)Operating margin before amortization of excess reorganization value, goodwill amortization and restructuring expense represents operating earnings before amortization of excess reorganization value, goodwill amortization and restructuring expense as a percentage of net sales for the periods presented. 12 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The table below sets forth net sales, gross earnings, operating earnings (loss), interest expense and net income (loss) of the Company for the years ended December 31, 1996, 1995, and 1994 (in millions of dollars and as percentages of net sales).
YEAR ENDED DECEMBER 31, ----------------------------------- 1996 1995 1994 ---------- ---------- ---------- Net sales: Home Fashions .............................................. $ 1,501.8 $ 1,418.2 $ 1,346.9 Alamac Knits Subsidiary .................................... 222.0 231.7 249.9 ---------- ---------- ---------- Total ...................................................... $ 1,723.8 $ 1,649.9 $ 1,596.8 Gross earnings ....................................................... $ 397.9 $ 384.0 $ 368.0 Operating earnings (loss) ............................................ $ 195.6 $ 5.0 $ (65.8) Interest expense ..................................................... $ 102.4 $ 101.3 $ 102.1 Net income (loss) .................................................... $ 57.7 $ (129.8) $ (203.4) Gross margins ........................................................ 23.1% 23.3% 23.0% Operating earnings before amortization of excess reorganization value: Home Fashions .............................................. $ 188.5 $ 178.7 $ 156.8 Alamac Knits Subsidiary .................................... 7.1 4.0 14.3 ---------- ---------- ---------- Total ...................................................... $ 195.6 $ 182.7 $ 171.1 Operating margins before amortization of excess reorganization value: Home Fashions .............................................. 12.6% 12.6% 11.6% Alamac Knits Subsidiary .................................... 3.2% 1.7% 5.7% Total ...................................................... 11.3% 11.1% 10.7%
13 16 RESULTS OF OPERATIONS--CONTINUED 1996 COMPARED WITH 1995 NET SALES. Net sales for the year ended December 31, 1996 increased $73.9 million, or 4.5%, to $1,723.8 million compared with net sales of $1,649.9 million for the year ended December 31, 1995. Home Fashions net sales of $1,501.8 million were $83.6 million, or 5.9%, higher than net sales for the same period of 1995, and resulted primarily from higher unit volume in the 1996 period compared with the 1995 period. Alamac Knits Subsidiary net sales of $222 million were $9.7 million, or 4.2%, lower than net sales for the same period of 1995, and resulted primarily from lower unit volume in the 1996 period compared with the 1995 period. GROSS EARNINGS/MARGINS. Gross earnings for the year ended December 31, 1996 of $397.9 million increased $13.9 million, or 3.6%, compared with $384 million for the same period of 1995 and reflect gross margins of 23.1% in the 1996 period compared with 23.3% in the 1995 period. Gross earnings increased in 1996 primarily as a result of the increase in Home Fashions unit volume and decreases in operating costs of our Alamac Knits Subsidiary, both offset somewhat by a wage increase effective the beginning of the second quarter, higher raw material costs, and production challenges due to high customer demand and capacity constraints in the last half of 1996. The Company is expanding its sheet and towel facilities in order to meet the increased customer demand. OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses increased by $1 million, or 0.5%, for the year ended December 31, 1996, compared with the same period of 1995, and as a percentage of net sales represent 11.7% in 1996 and 12.2% in 1995. The increase in expenses for 1996 was due primarily to higher warehousing/shipping and advertising expenses, offset somewhat by lower selling and trade receivables program expenses along with lower administrative expenses. Operating earnings were $195.6 million for the year ended December 31, 1996 compared with operating earnings of $5 million for the same period of 1995 which includes the amortization of excess reorganization value of $177.7 million. Operating earnings increased as a result of the increase in gross earnings offset somewhat by the increase in selling, general and administrative expenses, and the complete amortization of excess reorganization value in 1995 as discussed herein. INTEREST EXPENSE. Interest expense for the year ended December 31, 1996 of $102.4 million increased $1.1 million compared with interest expense for the year ended December 31, 1995. The increase is due primarily to higher average debt levels in the 1996 period compared with the corresponding 1995 average debt levels offset somewhat by lower interest rates on the Company's variable rate bank debt. OTHER EXPENSE-NET. Other expense-net for the year ended December 31, 1996 decreased $0.3 million compared with the same period in 1995. Included in other expense-net for the years ended December 31, 1996 and 1995 are the amortization of deferred financing fees of $3.9 million in each period less certain miscellaneous income items. INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal statutory rate primarily due to state income taxes, nondeductible items and the effects of amortization of excess reorganization value in 1995. NET INCOME. Net income for the year ended December 31, 1996 was $57.7 million, or $1.81 per share. In the year ended December 31, 1995, the net loss was $129.8 million, or $3.97 per share, including amortization of excess reorganization value of $177.7 million, or $5.43 per share. Excess reorganization value was completely amortized in 1995. Per share amounts are based on 31.8 million and 32.7 million average shares outstanding for the 1996 and 1995 periods, respectively. The decrease in the average shares outstanding was primarily the result of the purchase by the Company of shares under the stock repurchase programs. OPERATING EARNINGS BEFORE CERTAIN CHARGES. Operating earnings for the year ended December 31, 1996 were $195.6 million, or 11.3% of sales, and increased $12.9 million, or 7.1%, compared with operating earnings (before the amortization of excess reorganization value) of $182.7 million, or 11.1% of sales, for the same period of 1995. The increase resulted from the increase in gross earnings offset somewhat by the increase in selling, general and administrative expenses discussed above. Home Fashions operating earnings for 1996 of $188.5 million increased $9.8 million, or 5.5% compared with the same period of 1995 and reflect operating margins of 12.6% in both 1996 and 1995. Alamac Knits operating earnings for 1996 of $7.1 million increased $3.1 million compared with the same period of 1995 and reflect operating margins of 3.2% in 1996 and 1.7% in 1995. 14 17 RESULTS OF OPERATIONS--CONTINUED 1995 COMPARED WITH 1994 NET SALES. Net sales for the year ended December 31, 1995 increased $53.1 million, or 3.3%, to $1,649.9 million compared with net sales of $1,596.8 million for the year ended December 31, 1994. Home Fashions net sales of $1,418.2 million were $71.3 million, or 5.3%, higher than net sales for the same period of 1994, and resulted primarily from better pricing and higher unit volume in the 1995 period compared with the 1994 period. Alamac Knits Subsidiary net sales of $231.7 million were $18.2 million, or 7.3%, lower than net sales for the same period of 1994, and resulted primarily from lower unit volume in the 1995 period compared with the 1994 period. GROSS EARNINGS/MARGINS. Gross earnings for the year ended December 31, 1995 of $384 million increased $16 million, or 4.3%, compared with $368 million for the same period of 1994 and reflect gross margins of 23.3% in 1995 compared with 23% in 1994. Gross earnings and margins increased in 1995 compared with 1994 despite substantially higher raw material costs, a 4% wage increase effective the beginning of 1995, and reduced plant operating schedules at our Alamac Knits Subsidiary (reflecting the retail weakness for apparel fabrics) in 1995 compared with 1994. The increase in gross margins reflects the substantial cost reductions implemented through a $300 million modernization program that was completed in 1995 and price increases in 1995 to offset the continuing rise in raw material costs. OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses increased by $4.4 million, or 2.3%, for the year ended December 31, 1995, compared with the same period of 1994, and as a percentage of net sales represent 12.2% in 1995 and 12.3% in 1994. The increase in expenses for 1995 was due primarily to the higher sales volume (including shipping/warehousing costs and costs related to the Trade Receivables Program) and a 4% wage increase effective the beginning of 1995. The amortization of excess reorganization value, which was completely amortized as of September 30, 1995, was $177.7 million in 1995, compared with $236.9 million in 1994. The Company's operating earnings (loss) were $5 million for the year ended December 31, 1995 and ($65.8) million for the same period of 1994, as a result of the above. INTEREST EXPENSE. Interest expense for the year ended December 31, 1995 of $101.3 million decreased $0.8 million compared with interest expense for the year ended December 31, 1994. The decrease is due primarily to lower average debt levels in the 1995 period compared with the corresponding 1994 average debt levels and lower interest rates on the Company's variable rate bank debt. OTHER EXPENSE-NET. Other expense-net decreased $9.9 million for the year ended December 31, 1995 compared with the same period in 1994. Included in other expense-net for the years ended December 31, 1995 and 1994 are the amortization and write-off of deferred financing fees of $3.9 million and $13.6 million, respectively. INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal statutory rate primarily due to the effects of amortization of excess reorganization value, nondeductible items and state income taxes. NET INCOME. The net loss for the year ended December 31, 1995 was $129.8 million, or $3.97 per share, including amortization of excess reorganization value of $177.7 million, or $5.43 per share. In the corresponding period of 1994, the net loss was $203.4 million, or $6.02 per share, including amortization of excess reorganization value of $236.9 million, or $7.01 per share, the write-off of deferred financing fees of $5.4 million (net of applicable taxes), or $.16 per share, related to the bank agreement that was refinanced in the fourth quarter of 1994. Excess reorganization value (a non-cash charge against earnings) was being amortized on a straight-line basis and was completely amortized as of September 30, 1995. Per share amounts are based on 32.7 million and 33.8 million average shares outstanding for the 1995 and 1994 periods, respectively. The decrease in the average shares outstanding was primarily the result of the purchase by the Company of shares under the stock repurchase programs. 15 18 RESULTS OF OPERATIONS--CONTINUED 1995 COMPARED WITH 1994--CONTINUED OPERATING EARNINGS BEFORE CERTAIN CHARGES. Operating earnings before amortization of excess reorganization value for the year ended December 31, 1995 were $182.7 million and increased $11.6 million, or 6.7%, compared with operating earnings before amortization of excess reorganization value of $171.1 million for the same period of 1994, primarily as a result of the increase in gross earnings offset somewhat by the increase in selling, general and administrative expenses discussed above. Home Fashions operating earnings of $178.7 million increased $21.9 million, or 14% compared with the same period of 1994 and reflect operating margins of 12.6% in 1995 and 11.6% in 1994. Alamac Knits operating earnings of $4 million decreased $10.3 million compared with the same period of 1994 and reflect operating margins of 1.7% in 1995 and 5.7% in 1994. The increase in Home Fashions operating earnings more than offset the decrease in Alamac Knits operating earnings. EFFECTS OF INFLATION The Company believes that the relatively moderate rate of inflation over the past few years has not had a significant impact on its sales or profitability. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity are expected to be cash from its operations and funds available under the Senior Credit Facility. At February 5, 1997, the maximum commitment under the Senior Credit Facility was approximately $350 million and the Company had unused borrowing availability under the Senior Credit Facility totaling approximately $190 million. The Senior Credit Facility contains covenants which, among other things, limit indebtedness and require the maintenance of certain financial ratios and minimum net worth as defined. The Company's principal uses of cash for the next several years will be operating expenses, capital expenditures and debt service requirements related primarily to interest payments. The Company spent approximately $100 million in 1996 on capital expenditures and intends to invest an additional $125 million in 1997. During 1996 the Company purchased approximately 1.3 million shares under the various stock repurchase programs, at an average price of $23.59 per share. In August 1996 the Board of Directors approved the purchase of up to one million additional shares of the Company's common stock, subject to the Company's debt limitations, which brings the total shares that have been approved for purchase to five million shares. At December 31, 1996, approximately 1.6 million shares remained to be purchased. Cash contributions in 1997 to the Company's pension plans are estimated to total approximately $12.1 million, compared with actual contributions in 1996 of $21.3 million, including the effect of the changes in the actuarial assumptions relating to the Company's pension plans (see Note 3 "Employee Benefit Plans - Pension Plans" in the Notes to Consolidated Financial Statements included elsewhere herein). The Company, through a "bankruptcy remote" receivables subsidiary, has a Trade Receivables Program which provides for the sale of accounts receivable, on a revolving basis. At December 31, 1996 and 1995, $133 million and $121 million, respectively, had been sold under this program and the sale is reflected as a reduction of accounts receivable in the Company's Consolidated Balance Sheets. The cost of the Trade Receivables Program in 1997 is estimated to total approximately $8 million, compared with $7.4 million in 1996, and will be charged to selling, general and administrative expenses. Debt service requirements for interest payments in 1997 are estimated to total approximately $103 million (excluding amounts related to the Trade Receivables Program) compared with payments of $102.6 million in 1996. There are no debt service requirements in 1997 related to required principal amortization. Management believes that cash from the Company's operations and borrowings under its credit agreements will provide the funding necessary to meet the Company's anticipated requirements for capital expenditures and operating expenses and to enable it to meet its anticipated debt service requirements. 16 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Financial Statements for the years ended December 31, 1996, 1995 and 1994 Report of Ernst & Young, Independent Auditors.......................... 18 Consolidated Balance Sheets............................................ 19-20 Consolidated Statements of Operations.................................. 21 Consolidated Statements of Stockholders' Equity (Deficit).............. 22 Consolidated Statements of Cash Flows.................................. 23 Notes to Consolidated Financial Statements............................. 24-37
17 20 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS BOARD OF DIRECTORS AND STOCKHOLDERS WESTPOINT STEVENS INC. We have audited the accompanying consolidated balance sheets of WestPoint Stevens Inc. as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the index at Item 14 (a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of WestPoint Stevens Inc. at December 31, 1996 and 1995, and the consolidated 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. Also, in our opinion, the related financial statement schedule, when considered in relation to the financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/Ernst & Young LLP Columbus, Georgia February 5, 1997 18 21 WESTPOINT STEVENS INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ------------------------- 1996 1995 ---------- ---------- ASSETS Current Assets Cash and cash equivalents ....................... $ 14,029 $ 7,987 Accounts receivable (less allowances of $22,861 and $22,895, respectively) ................. 66,949 82,933 Inventories ..................................... 299,651 320,468 Prepaid expenses and other current assets ....... 14,939 19,506 ---------- ---------- Total current assets .................. 395,568 430,894 Property, Plant and Equipment Land ............................................ 8,271 8,431 Buildings and improvements ...................... 276,935 258,257 Machinery and equipment ......................... 737,253 666,284 Leasehold improvements .......................... 13,902 13,325 ---------- ---------- 1,036,361 946,297 Less accumulated depreciation and amortization (330,393) (262,112) ---------- ---------- Net property, plant and equipment ..... 705,968 684,185 Other Assets Deferred financing fees ......................... 23,108 26,987 Prepaid pension and other assets ................ 32,355 902 ---------- ---------- Total other assets .................... 55,463 27,889 ---------- ---------- $1,156,999 $1,142,968 ========== ==========
See accompanying notes. 19 22 WESTPOINT STEVENS INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Senior Credit Facility ............................. $ 24,000 $ 73,000 Accrued interest payable ........................... 6,525 6,643 Accounts payable ................................... 73,475 75,020 Other accrued liabilities .......................... 150,715 160,532 ----------- ----------- Total current liabilities .......... 254,715 315,195 Long-Term Debt .............................................. 1,075,000 1,075,000 Noncurrent Liabilities Deferred income taxes .............................. 179,057 136,755 Other liabilities .................................. 98,625 121,955 ----------- ----------- Total noncurrent liabilities ....... 277,682 258,710 Stockholders' Equity (Deficit) Common Stock and capital in excess of par value: Common Stock, $.01 par value; 75,000,000 shares authorized; 34,707,250 and 34,597,050 shares issued, respectively ... 329,394 327,850 Accumulated deficit ................................ (703,068) (760,733) Treasury stock; 3,855,549 and 2,621,150 shares at cost, respectively .................... (70,316) (41,051) Minimum pension liability adjustment, net of taxes of $3,763 and $20,034, respectively ...... (6,408) (32,003) ----------- ----------- Total stockholders' equity (deficit) (450,398) (505,937) ----------- ----------- $ 1,156,999 $ 1,142,968 =========== ===========
See accompanying notes. 20 23 WESTPOINT STEVENS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ---------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Net sales .................................. $ 1,723,814 $ 1,649,878 $ 1,596,792 Cost of goods sold ......................... 1,325,904 1,265,886 1,228,801 ----------- ----------- ----------- Gross earnings ....................... 397,910 383,992 367,991 Selling, general and administrative expenses 202,341 201,308 196,852 Amortization of excess reorganization value - 177,675 236,892 ----------- ----------- ----------- Operating earnings (loss) ............ 195,569 5,009 (65,753) Interest expense ........................... 102,447 101,308 102,052 Other expense-net .......................... 2,757 3 ,099 12,959 ----------- ----------- ----------- Income (loss) from operations before income tax expense ................ 90,365 (99,398) (180,764) Income tax expense ......................... 32,700 30,450 22,600 ----------- ----------- ----------- Net income (loss) .................... $ 57,665 $ (129,848) $ (203,364) =========== =========== =========== Net income (loss) per common share ......... $ 1.81 $ (3.97) $ (6.02) =========== =========== =========== Average number of common and common equivalent shares outstanding .......... 31,783 32,699 33,775 =========== =========== ===========
See accompanying notes. 21 24 WESTPOINT STEVENS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
COMMON STOCK AND CAPITAL IN MINIMUM EXCESS OF TREASURY STOCK PENSION COMMON PAR ------------------- ACCUMULATED LIABILITY SHARES VALUE SHARES AMOUNT DEFICIT ADJUSTMENT TOTAL ------ --------- ------ ------- ----------- ---------- --------- Balance, January 1, 1994 ..................... 34,266 $ 323,727 (491) $(4,417) $(427,521) $ (32,072) $(140,283) Exercise of management stock options .... 53 666 - - - - 666 Purchase of treasury shares ............. - - (172) (2,377) - - (2,377) Net loss ................................ - - - - (203,364) - (203,364) Change in minimum pension liability adjustment ......................... - - - - - 8,158 8,158 ------ --------- ------ -------- --------- --------- --------- Balance, December 31, 1994 ................... 34,319 324,393 (663) (6,794) (630,885) (23,914) (337,200) Exercise of management stock options including tax benefit .............. 278 3,490 - - - - 3,490 Purchase of treasury shares ............. - - (1,958) (34,257) - - (34,257) Redemption of purchase rights ........... - (33) - - - - (33) Net loss ................................ - - - - (129,848) - (129,848) Change in minimum pension liability adjustment ......................... - - - - - (8,089) (8,089) ------ --------- ------ -------- --------- --------- --------- Balance, December 31, 1995 ................... 34,597 327,850 (2,621) (41,051) (760,733) (32,003) (505,937) Exercise of management stock options including tax benefit .............. 110 1,532 - - - - 1,532 Issuance of stock pursuant to Stock Bonus Plan including tax benefit ......... - 12 58 1,226 - - 1,238 Purchase of treasury shares ............. - - (1,293) (30,491) - - (30,491) Net income .............................. - - - - 57,665 - 57,665 Change in minimum pension liability adjustment .......................... - - - - - 25,595 25,595 ------ --------- ------ -------- --------- --------- --------- Balance, December 31, 1996 ................... 34,707 $ 329,394 (3,856) $(70,316) $(703,068) $ (6,408) $(450,398) ====== ========= ==== ======= ========= ========= =========
See accompanying notes. 22 25 WESTPOINT STEVENS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ----------------------------------- 1996 1995 1994 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ....................................................... $ 57,665 $(129,848) $(203,364) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Amortization of excess reorganization value ....................... - 177,675 236,892 Depreciation and other amortization ............................... 76,988 80,379 86,220 Deferred income taxes ............................................. 26,153 26,172 15,492 Changes in assets and liabilities excluding the effect of the Trade Receivables Program: Accounts receivable ......................................... 3,939 (2,694) (20,451) Inventories ................................................. 20,817 (23,105) 2,408 Prepaid expenses and other current assets ................... 4,567 (5,522) (3,808) Accrued interest payable .................................... (118) 113 (1,184) Accounts payable and other accrued liabilities .............. (10,046) 15,971 (4,122) Other-net ................................................... (8,964) (34,398) 5,822 --------- --------- --------- Total adjustments ....................................................... 113,336 234,591 317,269 --------- --------- --------- Net cash provided by operating activities ................................... 171,001 104,743 113,905 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures .................................................... (99,943) (102,197) (109,019) Net proceeds from sale of assets ........................................ 1,098 3,066 11,922 --------- --------- --------- Net cash used for investing activities ...................................... (98,845) (99,131) (97,097) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Senior Credit Facility: Borrowings ........................................................... 645,500 564,500 538,500 Repayments ........................................................... (694,500) (499,500) (568,000) Proceeds from Trade Receivables Program ................................. 12,045 (391) 8,690 Proceeds from issuance of Common Stock .................................. 1,332 2,600 666 Purchase of Common Stock for treasury ................................... (30,491) (34,257) (2,377) Payment of deferred taxes ............................................... - (32,500) - Redemption of purchase rights ........................................... - (33) - Collection of notes receivable .......................................... - - 4,682 Fees associated with refinancing ........................................ - - (4,732) --------- --------- --------- Net cash provided by (used for) financing activities ........................ (66,114) 419 (22,571) --------- --------- --------- Net increase (decrease) in cash and cash equivalents ........................ 6,042 6,031 (5,763) Cash and cash equivalents at beginning of period ............................ 7,987 1,956 7,719 --------- --------- --------- Cash and cash equivalents at end of period .................................. $ 14,029 $ 7,987 $ 1,956 ========= ========= =========
See accompanying notes 23 26 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES BUSINESS. WestPoint Stevens Inc. (the "Company") is a manufacturer and marketer of bed and bath products, including sheets, pillowcases, comforters, blankets, bedspreads, towels and related products and is also a leading domestic manufacturer of knitted apparel fabrics. The Company conducts its operations in two principal industry segments: bed and bath products and knitted fabrics for the apparel industry. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements of the Company include the accounts of the Company and all of its subsidiaries. All material intercompany accounts and transactions have been eliminated. USE OF ESTIMATES. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and trade accounts receivable. The Company maintains cash and cash equivalents and certain other financial instruments with various financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Company's investment strategy. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company's customer base. However, as of December 31, 1996, substantially all of the Company's receivables were from companies in the retail industry. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Short-term investments (consisting primarily of commercial paper and certificates of deposit) totaling approximately $14 million and $8 million are included in cash and cash equivalents at December 31, 1996 and 1995, respectively. These investments are carried at cost, which approximates market value. INVENTORIES. Inventory costs include material, labor and factory overhead. Inventories are stated at the lower of cost or market (net realizable value). At December 31, 1996 and 1995, approximately 85% and 88%, respectively, of the Company's inventories are valued at the lower of cost or market using the "dollar value" last-in, first-out ("LIFO") method. The remainder of the inventories (approximately $44.1 million and $37.3 million at December 31, 1996 and 1995, respectively) are valued at the lower of cost (substantially first-in, first-out method) or market. Inventories consist of the following (in thousands of dollars):
DECEMBER 31, ---------------------- 1996 1995 -------- -------- Finished goods............................................. $134,690 $145,790 Work in progress........................................... 114,140 123,878 Raw materials and supplies................................. 71,038 68,138 LIFO reserve............................................... (20,217) (17,338) -------- -------- $299,651 $320,468 ======== ========
PROPERTY, PLANT AND EQUIPMENT. As a result of the adoption of Fresh Start reporting, as of September 30, 1992, property, plant and equipment were adjusted to their estimated fair values and historical accumulated depreciation was eliminated. Additions since September 30, 1992 are stated at cost. 24 27 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES--CONTINUED PROPERTY, PLANT AND EQUIPMENT (CONTINUED). Depreciation is computed over estimated useful lives using the straight-line method for financial reporting purposes and accelerated methods for income tax reporting. Depreciation expense was approximately $77.0 million, $80.4 million, and $86.2 million in the years ended December 31, 1996, 1995 and 1994, respectively. Estimated useful lives for property and equipment are as follows: Buildings and improvements...................................... 10 to 40 Years Machinery and equipment......................................... 3 to 18 Years Leasehold improvements.......................................... Lease Terms
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCATED TO IDENTIFIABLE ASSETS ("Excess Reorganization Value"). In September 1992, the Company completed a "prepackaged" plan of reorganization (the "Plan") and in accordance with SOP 90-7 the Company established a new basis of accounting ("Fresh Start"). In Fresh Start reporting, the Company's assets and liabilities were adjusted to their fair values as of September 30, 1992. The excess of the reorganization value over the value of identifiable assets, $637.5 million, was reported as Excess Reorganization Value at September 30, 1992. Excess Reorganization Value has been amortized on a straight-line basis over three years and was fully amortized by September 1995. HEDGING TRANSACTIONS. The Company engages in hedging activities within the normal course of its business. Management has been authorized to manage exposure to price fluctuations relevant to the purchase of cotton through the use of a variety of derivative nonfinancial instruments. Derivative nonfinancial instruments require or permit settlement by the delivery of commodities and include exchange traded commodity futures contracts and options. Gains and losses on these hedges, which were not material at December 31, 1996 and 1995, are deferred and subsequently recognized in income as cost of goods sold in the same period as the hedged item. The Company does not hold or issue derivative instruments for trading purposes. INCOME TAXES. The Company accounts for income taxes under FAS 109, Accounting for Income Taxes. Under FAS 109, deferred income taxes are provided at the enacted marginal rates on the differences between the financial statement and income tax bases of assets and liabilities. PENSION PLANS. The Company has a number of defined benefit pension plans covering essentially all employees who are not covered by certain collective bargaining agreements. The benefits are based on years of service and compensation. The Company's practice is to fund amounts which are required by the Employee Retirement Income Security Act of 1974. The Company also sponsors an employee savings plan covering certain employees. Participants in this plan elect to make contributions as either a percent of earnings or a basic contribution. For the periods prior to December 31, 1994, there were no contributions by the Company for this plan. The Company amended the plan to provide for Company contributions beginning in 1995 (see Note 3 "Employee Benefit Plans - Retirement Savings Plan"). OTHER EMPLOYEE BENEFITS. The Company accounts for post-retirement and post-employment benefits in accordance with FAS 106, Employer's Accounting for Post Retirement Benefits Other Than Pensions and FAS 112, Employer's Accounting for Postemployment Benefits. STOCK BASED COMPENSATION. The Company grants stock options for a fixed number of shares in accordance with certain of its benefit plans. The Company accounts for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly, recognizes no compensation expense for the stock option grants if the exercise price is equal to or more than the fair value of the shares at the date of grant. FAIR VALUE DISCLOSURES. Cash and cash equivalents: The carrying amounts reported in the balance sheets for cash and cash equivalents approximates its fair value. 25 28 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES--CONTINUED Accounts receivable and accounts payable: The carrying amounts reported in the balance sheets for accounts receivable and accounts payable approximate their fair value. Long-term and short-term debt: The fair value of the Company's outstanding debt is estimated based on the quoted market prices for the same issues or on the current rates offered to the Company for debt of similar issues. The fair value of the $1,099 million and $1,148 million of outstanding debt at December 31, 1996 and 1995 was approximately $1,127 million and $1,142 million, respectively. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS. In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted Statement 121 in the first quarter of 1996, and the effect of adoption was not material. NET INCOME (LOSS) PER COMMON SHARE. The computation of net income (loss) per common share is based on the weighted average number of common and common equivalent shares (stock options) outstanding each period. 2. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS Indebtedness is as follows (in thousands of dollars):
DECEMBER 31, ----------------------- 1996 1995 ---------- ---------- Short-term indebtedness Senior Credit Facility Revolver .............................. $ 24,000 $ 73,000 ========== ========== Long-term indebtedness Senior Credit Facility Revolver ........................... $ 50,000 $ 50,000 8-3/4% Senior Notes due 2001 ............... 400,000 400,000 9-3/8% Senior Subordinated Debentures due 2005 ................................ 550,000 550,000 9% Sinking Fund Debentures due 2017 ........ 75,000 75,000 ---------- ---------- $1,075,000 $1,075,000 ========== ==========
The Company's Senior Credit Facility with certain lenders (collectively, the "Banks") consists of a $349.6 million revolving credit facility ("Revolver") due May 23, 2001. The Company has included $50 million of Revolver in long-term debt at December 31, 1996 because the Company intends that at least that amount would remain outstanding during 1997. At the option of the Company, interest under the Senior Credit Facility will be payable either at the prime rate or at LIBOR plus 1.25%. Upon the Company achieving certain ratios of EBITDA (as defined) to cash interest expense, interest rates can be reduced up to 0.5%. The Company pays a commitment fee in an amount equal to 0.375% of the unused portion of each Bank's commitment under the Revolver. The loans under the Senior Credit Facility are secured by the pledge of all the stock of the Company's material subsidiaries and a first priority lien on substantially all of the assets of the Company, other than the Company's accounts receivable. 26 29 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS--CONTINUED A subsidiary of the Company has a credit facility with the Banks that provides $25 million of revolving credit loans. Borrowings under this facility reduce the amounts available under the Senior Credit Facility. No amounts were outstanding under this facility at December 31, 1996. The 8-3/4% Senior Notes due 2001 (the "Notes") are general unsecured obligations of the Company and rank senior in right of payment to the 9-3/8% Senior Subordinated Debentures due 2005 (the "Debentures") and pari passu in right of payment with all indebtedness of the Company under the Senior Credit Facility and all other existing or future Senior Indebtedness of the Company. The Debentures are general unsecured obligations of the Company and subordinate in right of payment to the Notes and all other existing and future Senior Indebtedness of the Company, including indebtedness under the Senior Credit Facility, pari passu with any future senior subordinated indebtedness and senior to any future subordinated indebtedness of the Company. The Notes bear interest at the rate of 8-3/4% per annum, payable semi-annually on June 15 and December 15 of each year. The Notes are redeemable, in whole or in part at any time on or after December 15, 1998, at the option of the Company, at the redemption prices, as defined, together with accrued and unpaid interest to the date of redemption. The Debentures bear interest at the rate of 9-3/8% per annum, payable semi-annually on June 15 and December 15 of each year. The Debentures are redeemable, in whole or in part at any time on or after December 15, 1998, at the option of the Company, at the redemption prices, as defined, together with accrued and unpaid interest to the date of the redemption. In addition, in the event of a Change of Control (as defined), the Company will be obligated to make an offer to redeem a holder's Notes or Debentures at a redemption price of 101% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption. The Company may also redeem each of the Notes or Debentures upon a Change of Control at a redemption price equal to the greater of 101% of the principal amount thereof, together with accrued interest thereon to the date of redemption or 100% of the principal amount thereof, plus a Make-Whole Premium (as defined). The Company's credit agreements contain a number of customary covenants including, among others, restrictions on the incurrence of indebtedness, transactions with affiliates, and certain asset dispositions. Certain provisions require the Company to maintain certain financial ratios, such as a minimum current ratio, and a minimum interest coverage ratio. A minimum consolidated net worth, as defined, is also mandated. At December 31, 1996, the Company could make restricted payments aggregating approximately $5.7 million. The Company, through a "bankruptcy remote" receivables subsidiary ("Receivables Subsidiary"), has a trade receivables program ("Trade Receivables Program") which provides for the sale of accounts receivable, on a revolving basis. At December 31, 1996 and 1995, $133 million and $121 million, respectively had been sold under this program and the sale is reflected as a reduction of accounts receivable in the accompanying Consolidated Balance Sheets. The Trade Receivables Program was financed through the issuance of (a) $115 million of Floating Rate Class A Trade Receivables Participation Certificates ("Class A Certificates"); (b) $18 million of Floating Rate Class B Trade Receivables Participation Certificates ("Class B Certificates"); and (c) $27 million of Investor Revolving Certificates. The Class A Certificates and Class B Certificates bear interest at LIBOR plus .27% and LIBOR plus .57%, respectively, and the Investor Revolving Certificates bear interest at LIBOR plus .375%. The expected final payment date of amounts outstanding under the Trade Receivables Program is May 18, 1999, but earlier termination could occur upon the occurrence of certain defined events. The cost of the Trade Receivables Program is charged to selling and administrative expense. The Trade Receivables Program requires the Company and Receivables Subsidiary to perform certain servicing obligations with respect to the existing and future trade receivables sold by the Company. The Company is not subject to any financial covenants under the Trade Receivables Program, but the documentation for the Trade Receivables Program provides for early termination of the Trade Receivables Program and early payment of the securities issued thereunder upon certain events, which include the incurrence of losses or delinquencies on the receivables in excess of certain levels or the bankruptcy or insolvency of the Company. 27 30 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS--CONTINUED Excluding amounts related to the Revolver, maturities of long-term debt for 1998, 1999 and 2000 are $3.75 million per year and $403.75 million in 2001. In connection with the refinancing of its Senior Credit Facility on November 23, 1994, the Company wrote-off deferred financing fees of $8.9 million ($5.4 million after income taxes). 3. EMPLOYEE BENEFIT PLANS PENSION PLANS Pension expense related to the Company's defined benefit plans, is comprised of the following (in thousands of dollars):
YEAR ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- Service cost-benefits earned during period ......... $ 8,244 $ 6,174 $ 7,428 Interest cost on projected benefit obligation ...... 24,255 23,757 22,731 Deferred actuarial gains (losses) .................. (1,170) 33,038 (22,285) -------- -------- -------- Subtotal ........................................... 31,329 62,969 7,874 Actual (returns) losses on plan assets ............. (22,276) (49,969) 5,026 -------- -------- -------- Total defined benefit plan expense ................. $ 9,053 $ 13,000 $ 12,900 ======== ======== ======== Actuarial assumptions for pension expense: Discount rate .............................. 7.25% 8.5% 7% Average rate of increase in compensation levels ........................... 4% 4% 4% Expected long-term rate of return on plan assets ........................... 10% 8.5% 8.5%
28 31 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. EMPLOYEE BENEFIT PLANS PENSION PLANS--CONTINUED The following table sets forth the funded status of the Company's pension plans and amounts recognized in the accompanying Consolidated Balance Sheets at December 31, 1996 and 1995 (in thousands of dollars):
DECEMBER 31, ------------------------------------------------ 1996 1995 ----------------------------- ----------- ASSETS ACCUMULATED ACCUMULATED EXCEED BENEFITS BENEFITS ACCUMULATED EXCEED EXCEED BENEFITS ASSETS ASSETS ----------- ----------- ----------- Actuarial present value of projected benefit obligation: Vested ...................................................... $ 85,620 $ 200,902 $ 312,899 Nonvested ................................................... 3,835 5,706 3,696 --------- --------- --------- Accumulated benefit obligation ...................................... 89,455 206,608 316,595 Effect of projected future salary increases ......................... - 16,918 23,633 --------- --------- --------- Projected benefit obligation ........................................ 89,455 223,526 340,228 Plan assets at fair value ........................................... 102,718 197,174 281,443 --------- --------- --------- Projected benefit obligation less than (in excess of) plan assets ................................................. 13,263 (26,352) (58,785) Unrecognized net actuarial losses ................................... 15,458 27,089 75,670 Minimum pension liability adjustment ................................ - (10,171) (52,037) --------- --------- --------- Pension related asset (liability) included in Consolidated Balance Sheets ................................ $ 28,721 $ (9,434) $ (35,152) ========= ========= ========= Actuarial assumptions for funded status information: Discount rate ............................................... 8.25% 8.25% 7.25% Average rate of increase in compensation levels ............. - 3.5% 4%
At December 31, 1996, the Company changed the discount rate to 8.25% from 7.25% which decreased the projected benefit obligation by approximately $38.5 million. At December 31, 1995, the Company changed the discount rate to 7.25% from 8.5% which increased the projected benefit obligation by approximately $43.5 million. The provisions of Financial Accounting Standards Board Statement No. 87 Employee Accounting for Pensions (SFAS No. 87) require recognition in the balance sheet of an additional minimum liability for pension plans with accumulated benefits in excess of plan assets. At December 31, 1996 and 1995, minimum pension liability adjustments of $10.2 million ($6.4 million after related income taxes) and $52.0 million ($32.0 million after related income taxes), respectively, are included in the accompanying Consolidated Balance Sheets. Plan assets are primarily invested in United States Government and corporate debt securities, equity securities and fixed income insurance contracts. At December 31, 1996 and 1995, the Company's pension plans held Notes and Debentures of the Company with a market value of $17.0 million and $13.2 million, respectively. 29 32 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. EMPLOYEE BENEFIT PLANS--CONTINUED RETIREMENT SAVINGS PLAN The Company amended its Retirement Savings Value Plan (the "401K Plan") effective January 1, 1995, to provide that the Company will match 50 percent of employee's before-tax contributions up to two percent of the employee's compensation. Company contributions may be made either in cash or in shares of Common Stock of the Company. During both 1996 and 1995, the Company charged $2.4 million to expense in connection with the 401K Plan. OTHER POST-RETIREMENT BENEFIT PLANS In addition to sponsoring defined benefit pension plans, the Company sponsors various defined benefit post-retirement plans that provide health care and life insurance benefits to certain current and future retirees. All such post-retirement benefit plans are unfunded. The following table presents the status of post-retirement plans (in thousands of dollars):
DECEMBER 31, ---------------------- 1996 1995 ------- ------- Accumulated post-retirement benefit obligation: Retirees ............................................................... $17,815 $20,707 Fully eligible active plan participants ................................ 209 370 Other active plan participants ......................................... 87 168 Unrecognized net gain .................................................. 4,627 1,808 ------- ------- Accrued post-retirement benefit obligation ..................................... $22,738 $23,053 ======= =======
Net periodic post-retirement benefit plans expense includes the following components (in thousands of dollars):
YEAR ENDED DECEMBER 31, --------------------------------------- 1996 1995 1994 ------- ------- ------- Service cost attributed to service during the period ............................... $ 3 $ 5 $ 6 Interest cost on accumulated post-retirement benefit plan obligations .............. 1,377 1,569 1,433 Amortization of unrecognized gain .................................................. (61) (142) (51) ------- ------- ------- Net periodic post-retirement benefit plans cost .................................... $ 1,319 $ 1,432 $ 1,388 ======= ======= =======
As of December 31, 1996, the actuarial assumptions include a discount rate of 8.25% and a medical care trend rate of 8.7% for 1997, grading down to 6% by 2000. These trend rates reflect the Company's prior experience and management's expectation of future rates. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated post-retirement benefit plans obligations as of December 31, 1996 by approximately $0.5 million, and the aggregate service and interest cost components of net periodic post-retirement benefit cost for the year ended December 31, 1996 by an immaterial amount. The Company continues to evaluate post-retirement plan redesign options that may reduce the ongoing annual expense of post-retirement benefits cost covered by FAS 106 and FAS 112. 4. OTHER EXPENSE--NET Included in "Other expense-net" in the accompanying Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994, are the amortization and write-off of deferred financing fees of $3.9 million, $3.9 million and $13.6 million, respectively. 30 33 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. INCOME TAXES The Company accounts for income taxes under FAS 109. Under FAS 109, deferred income taxes are provided at the enacted marginal rates on the difference between the financial statement and income tax bases of assets and liabilities. Deferred income tax provisions or benefits are based on the change in the deferred tax assets and liabilities from period to period. The total provision (benefit) for income taxes consisted of the following (in thousands of dollars):
YEAR ENDED DECEMBER 31, ------------------------------------- 1996 1995 1994 -------- -------- -------- Current Federal ..................................... $ 957 $ 2,311 $ 600 State ....................................... 630 2,475 1,819 Foreign ..................................... 621 (145) 273 Deferred ............................................ 30,492 25,809 19,908 -------- -------- -------- $ 32,700 $ 30,450 $ 22,600 ======== ======== ========
Income tax expense from operations differs from the statutory federal income tax rate of 35% for the following reasons (in thousands of dollars):
YEAR ENDED DECEMBER 31, ------------------------------------- 1996 1995 1994 -------- -------- -------- Income tax expense (benefit) at federal statutory income tax rate .............................................................. $ 31,628 $(34,789) $(63,267) State income taxes (net of effect of federal income tax) ........................................................... 1,183 1,586 2,185 Interest on prior years' taxes ............................................ - 2,051 3,700 Amortization of Excess Reorganization Value ............................... - 62,187 82,912 Other-net ................................................................. (111) (585) (2,930) -------- -------- -------- Income tax expense ........................................................ $ 32,700 $ 30,450 $ 22,600 ======== ======== ========
Components of the net deferred income tax liability are as follows (in thousands of dollars):
DECEMBER 31, ---------------------- 1996 1995 --------- --------- Deferred tax liabilities: Basis differences resulting from reorganization ................... $(108,634) $(109,226) Accelerated depreciation .......................................... (75,930) (73,768) Income taxes related to prior years, including interest ........... (18,755) (16,122) Nondeductible expenses ............................................ (42,503) (31,337) Other ............................................................. (4,715) (5,038) Deferred tax assets: Reserves for litigation, environmental, employee benefits and other 62,057 92,043 Other ............................................................. 9,423 6,693 --------- --------- $(179,057) $(136,755) ========= =========
31 34 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. INCOME TAXES--CONTINUED At December 31, 1996, the Company has estimated operating loss carryforwards ("NOLs") expiring in 2004-2009 of approximately $443 million available to reduce future federal taxable income. Due to the ownership change which occurred September 16, 1992 in connection with a reorganization, the utilization of NOLs generated prior to this date will be significantly limited. During prior years, the Internal Revenue Service (the "Service") issued Revenue Agent's Reports to Cluett, Peabody & Co., Inc., J. P. Stevens & Co., Inc., and West Point - Pepperell, Inc. asserting income tax deficiencies and additions to tax totaling approximately $89 million related to tax years 1979 and 1982 through 1989. This amount did not include interest which accrues from the dates the taxes were due until the dates of the payments. During 1995, the Company reached agreements with the Service concerning all of the Revenue Agent's Reports. As a result, the Company made payments in December, 1995, totaling approximately $33 million, which includes interest of approximately $19 million that was tax deductible. This liability had been accrued in previous periods and, accordingly, no additional income tax expense has been recognized in 1995 related to the agreements. 6. STOCKHOLDERS' EQUITY STOCK OPTIONS The Company has granted stock options in accordance with (a) the 1993 Management Stock Option Plan (the "1993 Stock Option Plan") and, (b) the 1994 Non-Employee Directors Stock Option Plan (the "1994 Directors Stock Option Plan") and also has granted certain other stock options which were contractual options not granted pursuant to any plan. The 1993 Stock Option Plan covers approximately 1.9 million shares of Common Stock (approximately 700,000 shares of which are subject to further shareholder approval at the Company's May 14, 1997 Annual Meeting of Stockholders) and the 1994 Directors Stock Option Plan covers 150,000 shares of Common Stock. Key employees are granted options under the 1993 Stock Option Plan at terms (purchase price, expiration date and vesting schedule) established by a committee of the Board of Directors. Options granted either in accordance with contractual arrangements or pursuant to the 1993 Stock Option Plan have been at a price which is approximately equal to fair market value on the date of grant. Non-employee directors are granted options under the 1994 Directors Stock Option Plan at a price which is approximately equal to fair market value on the date of grant and such options are exercisable on the date of grant for a period of ten years. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by Statement 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.2% and 7%; no dividend yield; volatility factors of the expected market price of the Company's common stock of .29 and .29; and a weighted-average expected life of the option of 8 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 32 35 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. STOCKHOLDERS' EQUITY--CONTINUED STOCK OPTIONS--CONTINUED For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Pro forma stock based compensation costs resulted in 1996 pro forma net income of $57.2 million (or pro forma net income per share of $1.80) and 1995 pro forma net loss of $130.2 million (or pro forma net loss per share of $3.98). Changes in outstanding options were as follows:
NUMBER OF SHARES (IN THOUSANDS) WEIGHTED AVERAGE ---------------------------------------------- OPTION PRICE QUALIFIED PLANS CONTRACTUAL TOTAL PER SHARE --------------- ----------- ------ --------- Options outstanding at December 31, 1994 813 510 1,323 $12.22 Granted 94 - 94 $14.96 Exercised and terminated (38) (250) (288) $ 9.46 ------ ------ ------ ------ Options outstanding at December 31, 1995 869 260 1,129 $13.14 Granted 888 - 888 $26.68 Exercised and terminated (67) (55) (122) $12.13 ------ ------ ------ ------ Options outstanding at December 31, 1996 1,690 205 1,895 $19.56 ====== ====== ====== ======
At December 31, 1996, options for 883,600 shares were exercisable. STOCK BONUS PLAN During 1995, the Company's Board of Directors approved the WestPoint Stevens Inc. 1995 Key Employee Stock Bonus Plan (the "Stock Bonus Plan") covering 500,000 shares of the Company's Common Stock. Under the Stock Bonus Plan, the Company may grant bonus awards of shares of Common Stock to key employees based on the Company's achievement of targeted earnings levels during the Company's fiscal year. For 1996 and 1995, respectively, bonus awards were deemed earned by fifty-three and thirty-nine employees covering an aggregate of 321,732 and 338,468 shares of Common Stock. The Stock Bonus Plan provides for vesting of the bonus awards of 20 percent in the year of award and 20 percent in each of the next four years if the employee continues employment with the Company. The Company charged $3.4 million and $1.4 million to expense in 1996 and 1995, respectively, in connection with the Stock Bonus Plan. 7. LEASE COMMITMENTS The Company's operating leases, including sublease arrangements with divested operations, consist of land, sales offices, manufacturing equipment, warehouses and data processing equipment with expiration dates at various times during the next thirteen years. Some of the operating leases stipulate that the Company can (a) purchase the properties at their then fair market values or (b) renew the leases at their then fair rental values. Some of the Company's leases, principally sales office space and manufacturing equipment, are sublet to others under leases expiring over the next four years. 33 36 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. LEASE COMMITMENTS--CONTINUED The following is a schedule, by year, of future minimum lease payments as of December 31, 1996 under operating leases, including sublease arrangements, that have initial or remaining noncancellable lease terms in excess of one year (in thousands of dollars):
YEAR ENDING DECEMBER 31, ------------------------ 1997........................................... $ 26,959 1998........................................... 26,202 1999........................................... 21,865 2000........................................... 16,448 2001........................................... 10,917 Years subsequent to 2001....................... 26,627 -------- Total minimum lease payments................... 129,018 Minimum sublease rentals....................... (5,720) -------- Net minimum lease payments required for operating leases........................... $123,298 ========
The following schedule shows the composition of total rental expense for all operating leases, except those with terms of one month or less that were not renewed (in thousands of dollars):
YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 -------- -------- -------- Minimum lease payments .................... $ 40,217 $ 42,070 $ 38,616 Less sublease rentals ..................... (4,761) (7,464) (7,028) -------- -------- -------- Rent expense .............................. $ 35,456 $ 34,606 $ 31,588 ======== ======== ========
8. LITIGATION AND CONTINGENT LIABILITIES The Company is subject to various federal, state and local environmental laws and regulations governing, among other things, the discharge, storage, handling and disposal of a variety of hazardous and non-hazardous substances and wastes used in or resulting from its operations and potential remediation obligations thereunder. Certain of the Company's facilities (including certain facilities no longer owned or utilized by the Company) have been cited or are being investigated with respect to alleged violations of such laws and regulations. The Company is cooperating fully with relevant parties and authorities in all such matters. The Company believes that it has adequately provided in its financial statements for any expenses and liabilities that may result from such matters. The Company also is insured with respect to certain of such matters. The Company's operations are governed by laws and regulations relating to employee safety and health which, among other things, establish exposure limitations for cotton dust, formaldehyde, asbestos and noise, and regulate chemical and ergonomic hazards in the workplace. Although the Company does not expect that compliance with any of such laws and regulations will adversely affect the Company's operations, there can be no assurance such regulatory requirements will not become more stringent in the future or that the Company will not incur significant costs in the future to comply with such requirements. The Company and its subsidiaries are involved in various other legal proceedings, both as plaintiff and as defendant, which are normal to its business. It is the opinion of management that the aforementioned actions and claims, if determined adversely to the Company, will not have a material adverse effect on the financial condition or operations of the Company taken as a whole. 34 37 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. CASH FLOW INFORMATION
YEAR ENDED DECEMBER 31, ------------------------------------ 1996 1995 1994 -------- -------- -------- (IN THOUSANDS OF DOLLARS) Supplemental disclosures of cash flow information: Cash paid during the period: Interest ........................................ $102,565 $101,195 $103,236 ======== ======== ======== Income taxes .................................... $ 5,733 $ 4,433 $ 5,429 ======== ======== ========
10. SEGMENT AND MAJOR CUSTOMER INFORMATION The Company is engaged in the manufacturing and marketing of products in two industry segments, consumer home fashions and knitted apparel fabrics, through Home Fashions and the Alamac Knits Subsidiary, respectively. Intersegment sales, export sales and foreign operations each comprise less than 10% of consolidated totals. "Other assets" consist mainly of prepaid pension costs, deferred financing fees and other corporate assets. 35 38 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. SEGMENT AND MAJOR CUSTOMER INFORMATION--CONTINUED Segment information is as follows (in thousands of dollars):
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1996 1995 1994 ----------- ----------- ----------- Net sales Home Fashions .................................... $ 1,501,795 $ 1,418,157 $ 1,346,857 Alamac Knits Subsidiary .......................... 222,019 231,721 249,935 ----------- ----------- ----------- Total .................................................... $ 1,723,814 $ 1,649,878 $ 1,596,792 =========== =========== =========== Operating earnings before amortization of excess reorganization value Home Fashions .................................... $ 188,518 $ 178,722 $ 156,770 Alamac Knits Subsidiary .......................... 7,051 3,962 14,369 ----------- ----------- ----------- Total .................................................... $ 195,569 $ 182,684 $ 171,139 =========== =========== =========== Operating earnings (loss) Home Fashions .................................... $ 188,518 $ 26,276 $ (46,498) Alamac Knits Subsidiary .......................... 7,051 (21,267) (19,255) ----------- ----------- ----------- Total .................................................... $ 195,569 $ 5,009 $ (65,753) =========== =========== =========== Assets employed at period end Home Fashions .................................... $ 957,385 $ 962,456 $ 1,052,359 Alamac Knits Subsidiary .......................... 144,173 147,263 183,975 Other ............................................ 55,441 33,249 33,901 ----------- ----------- ----------- Total .................................................... $ 1,156,999 $ 1,142,968 $ 1,270,235 =========== =========== =========== Capital expenditures, including capital leases Home Fashions .................................... $ 94,945 $ 92,440 $ 84,544 Alamac Knits Subsidiary .......................... 4,998 9,757 24,475 ----------- ----------- ----------- Total .................................................... $ 99,943 $ 102,197 $ 109,019 =========== =========== =========== Amortization of excess reorganization value Home Fashions .................................... $ 152,446 $ 203,268 Alamac Knits Subsidiary .......................... 25,229 33,624 ----------- ----------- Total .................................................... $ 177,675 $ 236,892 =========== =========== Depreciation and other amortization Home Fashions .................................... $ 68,929 $ 69,262 $ 74,244 Alamac Knits Subsidiary .......................... 8,059 11,117 11,976 ----------- ----------- ----------- Total .................................................... $ 76,988 $ 80,379 $ 86,220 =========== =========== ===========
36 39 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. SEGMENT AND MAJOR CUSTOMER INFORMATION--CONTINUED Products of Home Fashions are sold primarily to domestic chain stores, mass merchants, department and specialty stores. Products of Alamac Knits Subsidiary are sold to branded and private label manufacturers who cover virtually all segments of the knitted apparel market. Sales to two customers as a percent of net sales, amounted to approximately 11% each for the year ended December 31, 1996. Sales to two customers as a percent of net sales, amounted to approximately 10% each for the year ended December 31, 1995. Sales to two customers as a percent of net sales, amounted to approximately 11% and 10% for the year ended December 31, 1994. During 1996, the Company's six largest customers accounted for approximately 47% of the Company's net sales. 11. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
QUARTER ------------------------------------------- FIRST SECOND THIRD FOURTH ------ ------ ------ ------ (IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1996 - ---------------------------- Net sales ............................................. $383.0 $421.0 $464.8 $455.0 Gross earnings ........................................ 89.3 91.4 112.3 104.9 Net income ............................................ 8.0 8.7 21.7 19.3 Net income per common share (1) ....................... .25 .27 .68 .61 YEAR ENDED DECEMBER 31, 1995 - ---------------------------- Net sales ............................................. $376.2 $396.5 $454.4 $422.8 Gross earnings ........................................ 88.0 89.2 108.5 98.3 Net income (loss) ..................................... (52.6) (52.2) (40.9) 15.9 Net income (loss) per common share (1) ................ (1.58) (1.59) (1.26) .49
(1)Net income (loss) per common share calculations for each of the quarters is based on the weighted average number of common and common equivalent shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year net income (loss) per common share amount. 37 40 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT IDENTIFICATION OF DIRECTORS The information called for in this item is incorporated by reference from the Company's 1997 definitive proxy statement (under the caption "Board of Directors") to be filed with the Securities and Exchange Commission by April 11, 1997 (the "1997 Proxy Statement"). IDENTIFICATION OF EXECUTIVE OFFICERS The information called for in this item is incorporated by reference from the Company's 1997 Proxy Statement (under the caption "Management"). ITEM 11. EXECUTIVE COMPENSATION The information called for by this item is incorporated by reference from the Company's 1997 Proxy Statement (under the caption "Executive Compensation"). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by this item is incorporated by reference from the Company's 1997 Proxy Statement (under the caption "Security Ownership of Certain Beneficial Owners and Management"). ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by this item is incorporated by reference from the Company's 1997 Proxy Statement (under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Certain Relationships and Related Transactions"). PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS AND SCHEDULES FINANCIAL STATEMENTS. Consolidated Financial Statements for the three years ended December 31, 1996.
PAGE ---- Report of Ernst & Young LLP, Independent Auditors .......... 18 Consolidated Balance Sheets ................................ 19-20 Consolidated Statements of Operations ...................... 21 Consolidated Statements of Stockholders' Equity (Deficit)... 22 Consolidated Statements of Cash Flows ...................... 23 Notes to Consolidated Financial Statements ................. 24-37
All financial statements required to be filed as part of this Annual Report on Form 10-K are filed under "Item 8. Financial Statements and Supplementary Data." 38 41 FINANCIAL STATEMENT SCHEDULES
PAGE ---- Schedule II -- Valuation and Qualifying Accounts............ 44
Note: All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (b) REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the quarter ended December 31, 1996. EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2.1 Debtors' Joint Plan of Reorganization, dated June 9, 1992, proposed by West Point Acquisition Corp. (since renamed WestPoint Stevens Inc.), West Point Subsidiary Corp. (since renamed Valley Fashions Subsidiary Corp.) and West Point Tender Corp. (since renamed Valley Fashions Tender Corp.), incorporated by reference to the Current Report on Form 8-K (Commission File No. 1-4990) filed by West Point-Pepperell, Inc. with the Commission on October 1, 1992. 3.1 Restated Certificate of Incorporation of WestPoint Stevens Inc., as currently in effect, incorporated by reference to the Post-Effective Amendment No. 1 Registration Statement on Form S-1 (Commission File No. 33-77726) filed by the Company with the Securities and Exchange Commission on May 19, 1994. 3.2 Amended and Restated By-laws of WestPoint Stevens Inc., as currently in effect, incorporated by reference to the Post-Effective Amendment No. 1 to Registration Statement on Form S-1 (Commission File No. 33-77726) filed by the Company with the Securities and Exchange Commission on May 19, 1994. 4 Form 15 (Commission File No. 0-21496) filed by the Company with the Commission on May 25, 1995, incorporated by reference herein. 10.1 Indenture, dated as of December 10, 1993, between the Company and First Trust National Association, as trustee, for the 8 3/4% Senior Notes due 2001, incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (Commission File No. 0-21496) filed by the Company with the Commission. 10.2 Form of 8 3/4% Senior Notes due 2001 (included in the Indenture filed as Exhibit 10.1), incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (Commission File No. 0-21496) filed by the Company with the Commission. 10.3 Indenture, dated as of December 10, 1993, between the Company and the Bank of New York, as trustee, for the 9 3/8% Subordinated Debentures due 2005, incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (Commission File No. 0-21496) filed by the Company with the Commission. 10.4 Form of 9 3/8% Subordinated Debentures due 2005 (included in the Indenture filed as Exhibit 10.3), incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (Commission File No. 0-21496) filed by the Company with the Commission.
39 42
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.5 Rights Agreement, dated as of September 16, 1992, between the Company, The Bank of New York, as rights agent, as amended by Amendment No. 1 to Rights Agreement, dated as of March 12, 1993, and Amendment No. 2 to Rights Agreement, dated as of December 10, 1993, incorporated by reference to the Registration Statement on Form 10/A (Commission File No. 0-21496) filed by the Company on January 6, 1994. 10.6 Form of Restated Plan Registration Rights Agreement dated as of May 7, 1993, among the Company and the Existing Holders (as defined therein), incorporated by reference to the Registration Statement on Form 10 (Commission File No. 0-21496) filed by the Company on July 1, 1993. 10.7 Form of Registration Rights Agreement, dated as of May 7, 1993, among the Company and the Purchaser (as defined therein) incorporated by reference to Exhibit 1 to the Form of Securities Purchase Agreement filed as Exhibit 10.13 to the Registration Statement on Form 10 (Commission File No. 0-21496) filed by the Company with the Commission on July 1, 1993. 10.8 Amended and Restated Credit Agreement, dated as of May 7, 1993, by and among West Point-Pepperell, Inc., the banks listed on the signature pages thereof, Bankers Trust Company, as administrative agent, and The Chase Manhattan Bank, N.A., Citicorp USA, Inc., NationsBank of North Carolina, Inc., The Bank of New York and The Bank of Nova Scotia, as co-agents, incorporated by reference to the Registration Statement on Form 10 (Commission File No. 0-21496) filed by Valley Fashions Corp. with the Commission on July 1, 1993. 10.9 Employment Agreement, dated as of March 8, 1993, between West Point-Pepperell, Inc. and Holcombe T. Green, Jr., together with Letter, dated as of March 8, 1993, from the Company to Holcombe T. Green, Jr., incorporated by reference to the Registration Statement on Form 10 (Commission File No. 0-21496) filed by Valley Fashions Corp. (since renamed WestPoint Stevens Inc.) with the Commission on July 1, 1993. 10.10 Employment Agreement, dated as of April 1, 1993, between West Point-Pepperell, Inc. and Morgan M. Schuessler, together with Letter, dated as of April 1, 1993, from the Company to Morgan M. Schuessler, incorporated by reference to the Registration Statement on Form 10 (Commission File No. 0-21496) filed by Valley Fashions Corp. (since renamed WestPoint Stevens Inc.) with the Commission on July 1, 1993. 10.11 Employment Agreement, dated as of February 1, 1993, between West Point-Pepperell, Inc. and Joseph L. Jennings, Jr., incorporated by reference to the Registration Statement on Form 10 (Commission File No. 0-21496) filed by the Company with the Commission on July 1, 1993. 10.12 Employment Agreement, dated as of March 8, 1993, between West Point-Pepperell, Inc. and Thomas J. Ward, incorporated by reference to the Registration Statement on Form 10 (Commission File No. 0-21496) filed by the Company with the Commission on July 1, 1993. 10.13 Form of directors and officers Indemnification Agreement with West Point-Pepperell, Inc., incorporated by reference to the Registration Statement on Form S-1 (Commission File No. 33-69858) filed by the Company with the Commission on October 1, 1993. 10.14 1993 Management Stock Option Plan, incorporated by reference to the Registration Statement on Form 10 (Commission File No. 0-21496) filed by the Company with the Commission on July 1, 1993.
40 43
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.15 Description of 1993 Senior Management Incentive Plan, incorporated by reference to the Company's 1994 Proxy Statement (Commission File No. 0-21496) filed by the Company with the Commission. 10.16 West Point-Pepperell, Inc. Supplemental Retirement Plan for Eligible Executives, as amended, incorporated by reference to the Schedule 14D-9 dated November 3, 1988 (Commission File No. 1-4490) filed by West Point-Pepperell, Inc. with the Commission. 10.17 West Point-Pepperell, Inc. Supplemental Executive Retirement Plan, as amended, incorporated by reference to the Schedule 14D-9 dated November 3, 1988 (Commission File No. 1-4490) filed by West Point-Pepperell, Inc. with the Commission. 10.18 Indenture, dated as of March 1, 1987, between J.P. Stevens & Co., Inc. and The Bank of New York, as trustee, for the 9% Sinking Fund Debentures due 2017 including the First and Second Supplemental Indentures thereto, incorporated by reference to the Registration Statement on Form S-1 (Commission File No. 33-69858) filed by the Company with the Commission on October 1, 1993. 10.19 Credit Agreement, dated as of December 1, 1993, among Valley Fashions Corp., Bankers Trust Company as Administrative Agent, the Co-Agents parties thereto and the other financial institutions parties thereto as amended on December 10, 1993, incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (Commission File No. 0-21496) filed by the Company with the Commission. 10.20 Revolving Certificate Purchase Agreement, dated as of December 1, 1993, among WPS Receivables Corporation, the Company, the Co-Agents and Revolving Purchasers named therein, Bankers Trust Company, as Administrative Agent, and NationsBank of North Carolina, N.A., as Agent, incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (Commission File No. 0-21496) filed by the Company with the Commission. 10.21 Amendment No. 1 to the Revolving Certificate Purchase Agreement, dated as of December 10, 1993, among WPS Receivables Corporation, the Company, the Co-Agents and Revolving Purchasers named therein, Bankers Trust Company, as Administrative Agent, and NationsBank of North Carolina, N.A., as Agent, incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (Commission File No. 0-21496) filed by the Company with the Commission. 10.22 Pooling and Servicing Agreement, dated as of December 10, 1993, among, WPS Receivables Corporation, as transferor, the Company, as the initial Servicer, and Chemical Bank, as Trustee, incorporated by reference to the Current Report on Form 8-K (Commission File No. 0-21496) filed by the Company with the Commission on December 10, 1993. 10.23 Receivables Purchase Agreement, dated as of December 10, 1993, among WPS Receivables Corporation, as Purchaser, and the Company and Alamac Knit Fabrics, Inc., as Sellers, incorporated by reference to the Current Report on Form 8-K (Commission File No. 0-21496) filed by the Company with the Commission on December 10, 1993. 10.24 Form of Securities Purchase Agreement, dated as of March 12, 1993, among the Company, New Street Capital Corporation, Magten Asset Management Corporation and each Other Holder (as defined therein), incorporated by reference to the Registration Statement on Form 10 (Commission File No. 0-21496) filed by the Company with the Commission on July 1, 1993.
41 44
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.25 Amended and Restated Credit Agreement dated November 23, 1994, among the Company, NationsBank of North Carolina, N.A. as Administrative Agent, the Co-Agents parties thereto and the other financial institutions parties thereto, incorporated by reference to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 1994 (Commission File No. 0-21496) filed by the Company with the Commission. 10.26 WestPoint Stevens Inc. 1994 Non-Employee Directors Stock Option Plan, incorporated by reference to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 1994 (Commission File No. 0-21496) filed by the Company with the Commission. 10.27 Amended and Restated Pooling and Servicing Agreement, dated as of May 27, 1994, among WPS Receivables Corporation, the Company and Chemical Bank, incorporated by reference to the Registration Statement on Form S-1, Amendment No. 2 (Commission File No. 33- 76956) filed by WPS Receivables Corporation with the Commission on May 24, 1994. 10.28 Revolving Certificate Purchase Agreement, dated as of May 27, 1994, among WPS Receivables Corporation, the Company, the Co-Agents and Revolving Purchasers named therein, Bankers Trust Company, as Administrative Agent, and NationsBank of North Carolina, N.A., as Agent, incorporated by reference to the Registration Statement on Form S-1, Amendment No. 3 (Commission File No. 33-76956) filed by WPS Receivables Corporation with the Commission on May 16, 1994. 10.29 Amended and Restated Receivables Purchase Agreement, dated as of May 27, 1994, among WPS Receivables Corporation, as Purchaser, and the Company and Alamac Knit Fabrics, Inc., as Sellers, incorporated by reference to the Registration Statement on Form S-1, Amendment No. 3 (Commission File No. 33-76956) filed by WPS Receivables Corporation with the Commission on May 16, 1994. 10.30 Series 1994-1 Supplement, dated as of May 27, 1994, to the Amended and Restated Pooling and Servicing Agreement, among WPS Receivables Corporation, the Company and Chemical Bank, incorporated by reference to the Registration Statement on Form S-1, Amendment No. 3 (Commission File 33-76956) filed by WPS Receivables Corporation with the Commission on May 16, 1994. 10.31 Series 1994-R Supplement, dated as of May 27, 1994, to the Amended and Restated Pooling and Servicing Agreement, among WPS Receivables Corporation, the company and Chemical Bank, incorporated by reference to the Registration Statement on Form S-1, Amendment No. 3 (Commission File No. 33-76956) filed by WPS Receivables Corporation with the Commission on May 16, 1994. 10.32 WestPoint Stevens Inc. Amended and Restated 1994 Non-Employee Directors Stock Option Plan, incorporated by reference to the Form 10-Q for the quarterly period ended June 30, 1995 (Commission File No. 0-21496) filed by the Company with the Commission on August 9, 1995. 10.33 Description of Senior Management Incentive Plan, incorporated by reference to the Company's 1995 Proxy Statement (Commission File No. 0-21496) filed by the Company with the Commission on April 7, 1995. 10.34 WestPoint Stevens Inc. 1995 Key Employee Stock Bonus Plan, incorporated by reference to the Registration Statement Form S-8 (Registration No. 33-95580) filed by the Company on August 11, 1995.
42 45
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.36 Amendment Agreement dated December 4, 1995 among the Company, NationsBank, N.A., The Bank of New York, The First National Bank of Boston, The First National Bank of Chicago, The Nippon Credit Bank, Ltd., Wachovia Bank of Georgia, N.A., Trust Company Bank, AmSouth Bank of Alabama and ABN AMRO Bank, N.V., incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (Commission File No. 0-21496) filed by the Company with the Commission. 10.37 Form of directors and officers Indemnification Agreement with the Company, incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (Commission File No. 0-21496) filed by the Company with the Commission. 10.38 WestPoint Stevens Inc. 1995 Key Employee Stock Bonus Plan (As Amended), incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (Commission File No. 0-21496) filed by the Company with the Commission. 10.39 Tax Settlement Form 870-AD between WestPoint Stevens Inc. (successor-in-interest to Cluett, Peabody & Co., Inc.) and the Internal Revenue Service dated December 11, 1995, incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (Commission File No. 0-21496) filed by the Company with the Commission. 10.40 Tax Settlement Form 870-AD between WestPoint Stevens Inc. (successor-in-interest to West Point-Pepperell, Inc.) and the Internal Revenue Service dated August 29, 1995, incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (Commission File No. 0-21496) filed by the Company with the Commission. 10.41 Tax Settlement Form 870-AD between J.P. Stevens & Co., Inc. and the Internal Revenue Service dated August 29, 1995, incorporated by reference to the Annual Report on Form 10- K for the fiscal year ended December 31, 1995 (Commission File No. 0-21496) filed by the Company with the Commission. 10.42 Second Amendment and Waiver Agreement dated as of January 23, 1997, among the Company, NationsBank, N.A. (formerly known as NationsBank of North Carolina, N.A., the Bank of New York, The First National Bank of Boston, The First National Bank of Chicago, The Nippon Credit Bank, Ltd., Wachovia Bank of Georgia, N.A., SunTrust Bank, Atlanta (formerly known as Trust Company Bank), AmSouth Bank of Alabama, and ABN AMRO Bank, N.V. 10.43 Credit Agreement dated as of January 23, 1997, among WestPoint Stevens (UK) Limited, P.J. Flower & Co. Limited, as the Borrowers, the Company as Guarantor, the several lenders identified on the signature pages thereto and such other lenders as may from time to time become a party thereto and NationsBank, N.A., as agent for the Lenders 10.44 First Amendment to the WestPoint Stevens Inc. Supplemental Retirement Plan dated as of September 6, 1996 10.45 Employment Agreement effective January 1, 1997 between the Company and Joseph L. Jennings superseding the Employment Agreement of February 1, 1993. 11 Statement re: Computation of earnings per share 21 List of Subsidiaries of the Registrant. 23 Consent of Ernst & Young LLP, independent auditors. 27 Financial Data Schedule (for SEC use only)
43 46 WESTPOINT STEVENS INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF PERIOD EXPENSES DEDUCTIONS ADJUSTMENTS PERIOD(3) -------- -------- -------- -------- -------- Year Ended December 31, 1996 Accounts receivable allowances: Doubtful accounts....................... $ 16,357 $ 1,913 $ 1,174(1) $ - $ 17,096 Cash and/or trade discounts and returns and allowances.......... 6,538 (773)(2) - - 5,765 -------- -------- -------- -------- -------- $ 22,895 $ 1,140 $ 1,174 $ - $ 22,861 ======== ======== ======== ======== ======== Year Ended December 31, 1995 Accounts receivable allowances: Doubtful accounts....................... $ 12,015 $ 6,486 $ 2,144(1) $ - $ 16,357 Cash and/or trade discounts and returns and allowances.......... 5,638 900(2) - - 6,538 -------- -------- -------- -------- -------- $ 17,653 $ 7,386 $ 2,144 $ - $ 22,895 ======== ======== ======== ======== ======== Year Ended December 31, 1994 Accounts receivable allowances: Doubtful accounts....................... $ 10,496 $ 2,596 $ 920(1) $ (157) $ 12,015 Cash and/or trade discounts and returns and allowances.......... 6,885 (1,247)(2) - - 5,638 -------- -------- -------- -------- -------- $ 17,381 $ 1,349 $ 920 $ (157) $ 17,653 ======== ======== ======== ======== ========
(1)Accounts written off, less recoveries of accounts previously written off. (2)Net change. (3)Reserves are deducted from assets to which they apply. 44 47 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. WESTPOINT STEVENS INC. (Registrant) By: /s/ Holcombe T. Green, Jr. ------------------------------------ Holcombe T. Green, Jr. Chairman of the Board and Chief Executive Officer February 13, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Holcombe T. Green, Jr. By: /s/ Morgan M. Schuessler ------------------------------------------ --------------------------------------- Holcombe T. Green, Jr. Morgan M. Schuessler Chairman of the Board and Chief Executive Executive Vice President/Finance Officer (principal executive officer) and Chief Financial Officer (principal financial officer) February 13, 1997 February 13, 1997 By: /s/ Joseph L. Jennings, Jr. By: /s/ J. Nelson Griffith ------------------------------------------ --------------------------------------- Joseph L. Jennings, Jr. J. Nelson Griffith Vice Chairman of the Board Controller (principal accounting officer) February 13, 1997 February 13, 1997 By: /s/ M. Katherine Dwyer By: /s/ John G. Hudson ------------------------------------------ --------------------------------------- M. Katherine Dwyer John G. Hudson Director Director February 13, 1997 February 13, 1997 By: /s/ Charles W. McCall By: /s/ Douglas T. McClure ------------------------------------------ --------------------------------------- Charles W. McCall Douglas T. McClure Director Director February 13, 1997 February 13, 1997
45 48 By: /s/ Gerald B. Mitchell By: /s/ Phillip Siegel ------------------------------------------ --------------------------------------- Gerald B. Mitchell Phillip Siegel Director Director February 13, 1997 February 13, 1997 By: /s/ John F. Sorte ------------------------------------------ John F. Sorte Director February 13, 1997
46 EX-10.42 2 2ND AMENDMENT & WAIVER AGREEMENT 1 EXHIBIT 10.42 SECOND AMENDMENT AND WAIVER AGREEMENT THIS SECOND AMENDMENT AND WAIVER AGREEMENT (this "Amendment"), dated as of January 23, 1997, is among WestPoint Stevens Inc., a Delaware corporation (the "Borrower"), NationsBank, N.A. (formerly known as NationsBank of North Carolina, N.A. and referred to herein as "NationsBank"), The Bank of New York, The First National Bank of Boston, The First National Bank of Chicago, The Nippon Credit Bank, Ltd., Wachovia Bank of Georgia, N.A., SunTrust Bank, Atlanta (formerly known as Trust Company Bank), AmSouth Bank of Alabama, and ABN AMRO Bank, N.V. (collectively, the "Banks"), and NationsBank in its capacities as the administrative agent for the Banks (the "Administrative Agent" or the "Agent") and as trustee ("Trustee") for the Secured Parties (as hereafter defined). W I T N E S S E T H: WHEREAS, pursuant to that certain Amended and Restated Credit Agreement, dated as of November 23, 1994, as amended by that certain Amendment Agreement dated as of December 4, 1995 (the "Existing Credit Agreement"), among the parties hereto, the Banks have agreed to make loans to the Borrower; WHEREAS, the Borrower, the Banks and the Agent desire to make certain additional amendments to the Existing Credit Agreement; NOW, THEREFORE, based upon the foregoing, and for good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, the parties hereby agree as follows: PART I DEFINITIONS SUBPART 1.1. Certain Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment, including its preamble and recitals, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Amended Collateral Trust Agreement" means the Existing Collateral Trust Agreement as amended hereby. "Amended Credit Agreement" means the Existing Credit Agreement as amended hereby. "Amendment Effective Date" is defined in Subpart 4.1. "Borrower Subsidiaries" means each of the Subsidiaries of the Borrower. "Existing Collateral Trust Agreement" means that certain Amended and Restated Collateral Trust Agreement, dated as of November 23, 1994, by and among the Borrower, each of the Borrower Subsidiaries, the Trustee, each of the Lenders, and IBJ Schroder Bank & Trust Company in its capacity as Stevens Indenture Trustee. "Trustee" means NationsBank, not in its individual capacity but in its capacity as trustee for the Secured Parties (as defined in the Existing Collateral Trust Agreement). 2 SUBPART 1.2. Other Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment, including its preamble and recitals, have the meanings provided in the Amended Credit Agreement. PART II AMENDMENTS TO EXISTING CREDIT AGREEMENT Effective on (and subject to the occurrence of) the Amendment Effective Date, the Existing Credit Agreement is hereby amended in accordance with this Part II. Except as so amended, the Existing Credit Agreement shall continue in full force and effect. SUBPART 2.1 Amendments to the Introduction. The first paragraph of the Existing Credit Agreement is amended to read in its entirety as follows: This Amended and Restated Credit Agreement, dated as of November 23, 1994, as amended as of December 4, 1995 pursuant to that certain Amendment Agreement, and as further amended as of January 23, 1997 pursuant to that certain Second Amendment and Waiver Agreement, is entered into by and among WestPoint Stevens Inc., a Delaware corporation (the "Borrower"), NationsBank, N.A. (formerly known as NationsBank of North Carolina, N.A. and referred to herein as "NationsBank"), The Bank of New York, The First National Bank of Boston, The First National Bank of Chicago, The Nippon Credit Bank, Ltd., Wachovia Bank of Georgia, N.A., SunTrust Bank, Atlanta (formerly known as Trust Company Bank) (collectively, other than NationsBank, the "Co-Agent Banks"), AmSouth Bank of Alabama, ABN AMRO Bank, N.V. and any other lending institutions, if any, listed on the signature pages hereof (together with NationsBank, the Co-Agent Banks and any Assignee (as hereinafter defined) pursuant to the terms of this Agreement, collectively, "Banks" and each individually, a "Bank"), and NationsBank, as the administrative agent for the Banks (the "Administrative Agent" or the "Agent"). SUBPART 2.2 New Definitions Added to Article I. Article I of the Existing Credit Agreement is hereby amended by inserting, in the alphabetically appropriate places, the following definitions: "Dollar Amount" means (a) with respect to Dollars or an amount denominated in Dollars, such amount, and (b) with respect to an amount of Pounds Sterling or an amount denominated in Pounds Sterling, the Dollar Equivalent of such amount on the date of determination thereof. "Dollar Equivalent" means, on any date, with respect to an amount denominated in Pounds Sterling, the amount of Dollars into which the Agent could, in accordance with its practice from time to time in the interbank foreign exchange market, convert such amount of Pounds Sterling at its spot rate of exchange (inclusive of all reasonable related costs of conversion) applicable to the relevant transaction at or about 10:00 A.M., Charlotte, North Carolina time, on such date. "European Borrowers" means collectively WestPoint Stevens UK and Flower. "Flower" means P.J. Flower & Co. Limited, an English corporation and a wholly-owned subsidiary of WestPoint Stevens (UK). 2 3 "Foreign Currency Committed Amount" has the meaning ascribed to such term in Section 2.1(a) of the Foreign Currency Credit Agreement. "Foreign Currency Credit Agreement" means that certain Credit Agreement dated as of January 23, 1997 by and among WestPoint Stevens (UK), Flower, the Borrower as guarantor, NationsBank as agent, and the Banks, pursuant to which the Banks have agreed to make revolving credit and letter of credit facilities available to the European Borrowers. "Foreign Currency Loan Reserve" means, as of the date of any determination thereof from time to time, an amount equal to the Dollar Amount of the sum of (i) the outstanding principal balances of Foreign Currency Loans and (ii) the Foreign Currency LOC Obligations, as such terms are defined in the Foreign Currency Credit Agreement. "Second Amendment Agreement" means that Second Amendment and Waiver Agreement to this Credit Agreement, dated as of January 23, 1997, among the Borrower, the Agent and the Banks, amending this Agreement as then in effect. "WestPoint Stevens (UK)" means WestPoint Stevens (UK) Limited, an English corporation and a wholly-owned subsidiary of the Borrower. SUBPART 2.3 Amendment of the Definition of "Loan Documents." Article I is further amended by deleting in its entirety the existing definition of "Loan Documents" and replacing it, in the appropriate alphabetical place, with the following new definition: "Loan Documents" means, collectively this Agreement, the Notes, the Collateral Trust Agreement, the other Collateral Documents, the Letters of Credit, the Applications/Notices, and the Foreign Currency Credit Agreement, as the same may be amended, modified, supplemented or restated from time to time. SUBPART 2.4 Amendment of the Definition of "Secondary Borrowing Base". Article I is further amended by deleting in its entirety the existing definition of "Secondary Borrowing Base" and replacing it, in the appropriate alphabetical place, with the following new definition: "Secondary Borrowing Base" means the amount equal to (i) 50% of Eligible Inventory less (ii) the sum of (a) the Alamac Reserve and (b) the Foreign Currency Loan Reserve. SUBPART 2.5 Amendment to Section 3.4(a). Section 3.4(a) is amended in its entirety so that such Section now reads as follows: (a) The Borrower shall pay to the Administrative Agent for pro rata distribution to each Bank (based on its Revolver Pro Rata Share) a commitment fee (collectively, the "Commitment Fees") for the period commencing on the Initial Borrowing Date to and including the Revolver Termination Date computed at a rate equal to 3/8 of 1% per annum of the difference between (i) the average daily amount of Revolving Loan Commitments and (ii) the sum of the average daily outstanding principal amount of the Revolving Loans and the average daily aggregate amount available for drawing under all outstanding Letters of Credit; provided, however, for purposes of this subparagraph (ii), Swing Line Loans shall not be counted as outstanding Revolving Loans. For the avoidance of any doubt, in the calculation of the amount 3 4 of Commitment Fees owing by the Borrower to the Banks, the amount of the Alamac Reserve and the Foreign Currency Loan Reserve shall not be counted as outstanding Revolving Loans or otherwise affect or reduce the amount of Commitment Fees owing by the Borrower to the Banks hereunder. SUBPART 2.6 Amendments to Section 9.8(c). Section 9.8(c) is amended in its entirety so that such Section now reads as follows: (c) Subject to paragraph (f) of this Section 9.8, any Bank may at any time assign to one or more banks or other entities ("Assignees") all or any part of its Credit Exposure, provided that (i) unless assigned to an Affiliate of such Bank or another Bank, it assigns all of its Credit Exposure or a portion of its Credit Exposure in an amount not less than $10,000,000 (calculated treating Revolving Loans and participating interests in Letters of Credit as not being in addition to the Revolving Loan Commitments), (ii) after such assignment, such Bank and its Affiliates continue to hold at least $10,000,000 (calculated treating Revolving Loans and participating interests in Letters of Credit as not being in addition to the Revolving Loan Commitments) of Credit Exposure or have reduced their Credit Exposure to $0, (iii) each Bank must sell and each Assignee must purchase an identical percentage interest in the Primary Revolving Loan Credit Exposure and the Secondary Revolving Loan Credit Exposure, (iv) simultaneously with the sale of its Credit Exposure or any portion of its Credit Exposure to any Assignee, each Bank must sell, to the same such Assignee, the same percentage in its share of the Revolving Committed Amount under the Alamac Credit Agreement (as such term is defined therein) as the percentage of its Credit Exposure which it assigns hereunder, to such Assignee, (v)simultaneously with the sale of its Credit Exposure or any portion of its Credit Exposure to any Assignee, each Bank must sell, to the same such Assignee, the same percentage in its share of the Foreign Currency Committed Amount as the percentage of its Credit Exposure which it assigns hereunder, to such Assignee, and (vi) any Assignee, other than an Affiliate of such Bank or another Bank, must be reasonably acceptable to the Administrative Agent and the Borrower. Such acceptance shall not be unreasonably delayed or withheld and, in the case of the Borrower, such acceptance shall be deemed to have occurred unless the Borrower gives the Administrative Agent notice of its objection to such Assignee within 24 hours after the Administrative Agent sends the Borrower notice of the assignment pursuant to the next sentence. In the event of any assignment, the assignor Bank shall give notice to the Administrative Agent, the Administrative Agent shall send notice of the same by telecopy to the Borrower, and the assignor Bank shall deliver to the Administrative Agent, for its acceptance and recording in its records, an assignment agreement substantially in the form of Exhibit 9.8 hereto, together with a processing and recordation fee of $3,000 (or if the Assignee is a Bank, $1,500); provided that in the case of any assignment pursuant to Section 2.9(e) the Assignee shall pay such processing and recording fee, and, notwithstanding any provision of this Agreement to the contrary, the Borrower shall not be required to pay any such processing and recording fee under any circumstances. Within five (5) Business Days of receipt thereof, the Administrative Agent shall, if such assignment agreement has been fully executed by the Assignee and the assignor Bank and completed and is in substantially the form of Exhibit 9.8 hereto, execute such assignment agreement and, as agent for the Borrower for the sole purpose of maintaining a register (the "Register") on which it enters the Credit Exposure of each Bank hereunder, record such assignment in the Register. No assignment shall be effective unless it has been recorded on the Register as provided in this Section 9.8(c). The Borrower, the Administrative Agent and the Banks shall treat each Bank for which Credit Exposure is recorded on the Register as the holder of such Credit Exposure for all purposes of this Agreement notwithstanding notice to the contrary. Notwithstanding the foregoing, the failure of the Administrative Agent to make such recording in 4 5 respect of an assignment pursuant to this Section 9.8(c) or any error with respect to such recording shall not limit or otherwise affect the obligations of the Borrower hereunder nor shall such failure or error affect the rights of the Borrower hereunder or under applicable law. The Borrower, the Banks, and the Administrative Agent agree that to the extent of any assignment, the Assignee shall be deemed to have the same rights and benefits with respect to the Borrower under this Agreement and the same rights of set-off and obligation to share pursuant to Section 9.6 as it would have had if it were a Bank that was an original signatory to this Agreement, provided that the Borrower, the Banks and the Administrative Agent shall be entitled to continue to deal solely and directly with the assignor Bank in connection with the interests so assigned to the Assignee until the assignment agreement and any required fee, as described above, shall have been delivered to the Administrative Agent by the assignor Bank and the Assignee and the assignment shall have become effective as described above. Upon the assignment of Credit Exposure provided for hereby, the assignor Bank shall be relieved of its obligations hereunder to the extent of such assignment. Upon receipt of any Note representing Credit Exposure assigned pursuant to this Section 9.8(c), the Borrower agrees to issue a new Note for such Credit Exposure payable to the Assignee (or its registered assigns) and a new Note for any unassigned portion of such Credit Exposure to the assignor Bank (or its registered assigns). PART III AGREEMENTS AFFECTING COLLATERAL TRUST AGREEMENT SUBPART 3.1. Amendment to Definitions of Collateral Trust Agreement. Effective on (and subject to the occurrence of ) the Amendment Effective Date, the Existing Collateral Trust Agreement is hereby amended in accordance with this Subpart 3.1. Except as so amended, and subject to the waivers contained in Subpart 3.2 hereof, the Existing Collateral Trust Agreement shall continue in full force and effect. SUBPART 3.1.1. Amendment to Definition of "Debt Instruments." Section 1.1(a) of the Existing Collateral Trust Agreement is amended by deleting in its entirety the existing definition of "Debt Instruments" and replacing it, in the appropriate alphabetical place, with the following new definition: "Debt Instruments" means (i) the Restated Credit Agreement, any notes issued pursuant thereto and the other agreements, documents and instruments executed in connection therewith, and any amendments, supplements, or restatements thereof, including, without limitation, the Restated Guaranties, the Foreign Currency Credit Agreement and the notes issued pursuant thereto, and liabilities of up to $10,000,000 outstanding at any time under interest rate swap agreements with Banks permitted by the Restated Credit Agreement, and (ii) the Stevens Indenture, the Stevens Debentures and the other documents and instruments executed in connection therewith. SUBPART 3.2. Limited Waiver of Requirements of Section 2.2(b) and (c) of Collateral Trust Agreement. Effective on (and subject to the occurrence of ) the Amendment Effective Date, the Banks, which in the aggregate constitute the Required Secured Parties as defined in the Existing Collateral Trust Agreement, hereby waive the Borrower's compliance with Section 2.2(b) and (c) of the Existing Collateral Trust Agreement to the limited extent that such provisions (i) would otherwise require the Borrower to pledge to the Trustee the capital stock of WestPoint Stevens (UK); (ii) would otherwise require WestPoint Stevens (UK) to pledge to the Trustee the capital stock of Flower; (iii) would otherwise require WestPoint Stevens (UK) and Flower to guaranty the Secured Debt; and (iv) would otherwise require WestPoint 5 6 Stevens (UK) and Flower to grant liens and security interests on their respective assets in favor of the Trustee to secure the Secured Debt. Such waiver is effective only with respect to Flower and WestPoint Stevens (UK) and does not relate to any other application, prospective or otherwise, of the requirements of such Section. PART IV CONDITIONS TO EFFECTIVENESS SUBPART 4.1. Amendment Effective Date. This Amendment shall be and become effective on such date (the "Amendment Effective Date") when all of the conditions set forth in this Subpart 4.1 shall have been satisfied, and thereafter, this Amendment shall be known, and may be referred to, as the "Amendment Agreement." SUBPART 4.1.1. Execution of Counterparts. The Agent shall have received counterparts of this Amendment, each of which shall have been duly executed on behalf of the Borrower, the Agent and each Bank. SUBPART 4.1.2. Certified Resolutions. The Agent shall have received resolutions of the Board of Directors of the Borrower authorizing this Amendment, such resolutions to be certified by the Secretary or Assistant Secretary of the Borrower. SUBPART 4.1.3. Closing Certificate. The Agent shall have received a certificate from the Borrower certifying that (i) no Default or Event of Default exists as of the Amendment Effective Date, and (ii) the representations and warranties of the Borrower made in or pursuant to the Loan Documents are true in all material respects on and as of the Amendment Effective Date. SUBPART 4.1.4. Trustee Certificates. In accordance with Section 11.1 of the Existing Collateral Trust Agreement, the Trustee shall have received a certificate executed by the president or any vice president of the Borrower to the effect that the amendments to the Existing Collateral Trust Agreement effected by this Amendment will not result in a breach of any provision or covenant contained in the Restated Credit Agreement. SUBPART 4.1.5. Documentation. All documents executed or submitted pursuant hereto shall be satisfactory in form and substance to the Agent and its counsel. The Agent and its counsel shall have received all information, and such counterpart originals or such certified or other copies of such originals, as the Agent may reasonably request, and all legal matters incident to the transactions contemplated by this Amendment shall be satisfactory to the Agent. In addition, the Agent shall have received such other agreements, documents or instruments (including legal opinions) as it may from time to time reasonably request. SUBPART 4.2 Acknowledgement and Agreement of Borrower Subsidiaries. Each of the undersigned Borrower Subsidiaries, as parties to the Restated Guaranties and the Collateral Documents, hereby (a) acknowledge, agree to, and join in the execution and delivery of this Amendment, including without limitation the amendment of the Existing Collateral Trust Agreement effected hereby, and confirm and agree that the Restated Guaranties and the Collateral Documents are, and shall continue to be, in full force and effect except as amended hereby; (b) ratify and confirm in all respects their respective obligations thereunder, except that, upon the effectiveness of, and on and after the date of, this Amendment, all references in the Collateral Documents and the Restated Guaranties to the "Restated Credit Agreement," 6 7 "thereunder," "thereof" or words of like import referring to the Existing Credit Agreement (as defined in this Amendment) shall mean the Amended Credit Agreement (as defined in this Amendment), and all references to the Collateral Trust Agreement, "thereunder," thereof," or words of like import referring to the Collateral Trust Agreement shall mean the Amended Collateral Trust Agreement (as defined in this Amendment). PART V MISCELLANEOUS SUBPART 5.1 Cross-References. References in this Amendment to any Part or Subpart are, unless otherwise specified, to such Part or Subpart of this Amendment. SUBPART 5.2 Instrument Pursuant to Existing Credit Agreement. This Amendment is a document executed pursuant to the Existing Credit Agreement and shall (unless otherwise expressly indicated therein) be construed, administered and applied in accordance with the terms and provisions of the Existing Credit Agreement. SUBPART 5.3 Primary Subsidiaries. The Borrower, the Lenders, and the Agent acknowledge and agree that each of the European Borrowers constitutes a "Primary Subsidiary" within the meaning of the Amended Credit Agreement. SUBPART 5.4 Notes and Loan Documents. The Borrower hereby confirms and agrees that the Notes and the other Loan Documents are, and shall continue to be, in full force and effect, and hereby ratifies and confirms in all respects its obligations thereunder, except that, upon the effectiveness of, and on and after the date of, this Amendment, all references in each Note and each other Loan Document to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Existing Credit Agreement shall mean the Amended Credit Agreement. SUBPART 5.5 Counterparts, Effectiveness, Etc. This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. SUBPART 5.6 Governing Law; Entire Agreement. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. SUBPART 5.7 Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 7 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective duly authorized officers as of the day and year first above written. WESTPOINT STEVENS INC. ATTEST: By By ----------------------------- ----------------------------------- Title Title -------------------------- -------------------------------- NATIONSBANK, N.A., in its individual capacity, as Agent and as Trustee By ---------------------------------- Title ------------------------------- THE BANK OF NEW YORK By ---------------------------------- Title ------------------------------- THE FIRST NATIONAL BANK OF BOSTON By ---------------------------------- Title ------------------------------- THE FIRST NATIONAL BANK OF CHICAGO By ---------------------------------- Title ------------------------------- [Signatures Continue] 9 THE NIPPON CREDIT BANK, LTD. By ---------------------------------- Title ------------------------------- WACHOVIA BANK OF GEORGIA, N.A. By ---------------------------------- Title ------------------------------- SUNTRUST BANK, ATLANTA By ---------------------------------- Title: Vice President By ---------------------------------- Title ------------------------------- AMSOUTH BANK OF ALABAMA By ---------------------------------- Title ------------------------------- ABN AMRO BANK, N.V. By ---------------------------------- Title ------------------------------- [Signatures Continue] 9 10 BORROWER SUBSIDIARIES: ALAMAC KNIT FABRICS, INC. By ---------------------------------- Title ------------------------------- WESTPOINT STEVENS STORES, INC. (formerly known as WestPoint Pepperell Stores, Inc.) By ---------------------------------- Title ------------------------------- J.P. STEVENS & CO., INC. By ---------------------------------- Title ------------------------------- WESTPOINT-PEPPERELL ENTERPRISES, INC. By ---------------------------------- Title ------------------------------- J.P. STEVENS ENTERPRISES, INC. By ---------------------------------- Title ------------------------------- [Signatures Continue] 11 WESTPOINT STEVENS (CANADA) LTD. By ---------------------------------- Title ------------------------------- ALAMAC HOLDINGS INC. By ---------------------------------- Title ------------------------------- AIH INC. By ---------------------------------- Title ------------------------------- ALAMAC ENTERPRISES INC. By ---------------------------------- Title ------------------------------- ALAMAC SUB HOLDINGS INC. By ---------------------------------- Title ------------------------------- EX-10.43 3 CREDIT AGREEMENT 1 EXHIBIT 10.43 CREDIT AGREEMENT Dated as of January 23, 1997 among WESTPOINT STEVENS (UK) LIMITED and P. J. FLOWER & CO. LIMITED as Borrowers, WESTPOINT STEVENS INC. as Guarantor, THE SEVERAL LENDERS FROM TIME TO TIME PARTY HERETO AND NATIONSBANK, N.A., as Agent 2 CREDIT AGREEMENT THIS CREDIT AGREEMENT dated as of January 23, 1997 (the "Credit Agreement"), is by and among WESTPOINT STEVENS (UK) LIMITED ("UK Holdings"), a limited liability company incorporated in England, P. J. FLOWER & CO. LIMITED ("Flower"), a limited liability company incorporated in England (Flower and UK Holdings hereinafter may each be referred to as a "Borrower" or, collectively, as the "Borrowers"), WESTPOINT STEVENS INC., a Delaware corporation (the "Guarantor"), the several lenders identified on the signature pages hereto and such other lenders as may from time to time become a party hereto (the "Lenders") and NATIONSBANK, N.A., as agent for the Lenders (in such capacity, the "Agent"). W I T N E S S E T H WHEREAS, pursuant to that certain Amended and Restated Credit Agreement, dated as of November 23, 1994, among the Guarantor (as borrower thereunder), the Lenders, and the Agent, the Lenders have extended to the Guarantor (as borrower) certain revolving credit and letter of credit facilities (as amended from time to time, the "WestPoint Credit Agreement"); WHEREAS, UK Holdings is a wholly-owned subsidiary of the Guarantor, and Flower is a wholly-owned subsidiary of UK Holdings; WHEREAS, the Guarantor, UK Holdings, and Flower have requested the Lenders to provide certain foreign currency revolving credit and letter of credit facilities to UK Holdings and Flower, such facilities to be denominated in pounds sterling; WHEREAS, the Lenders and the Agent have agreed to provide such foreign currency revolving credit and letter of credit facilities to UK Holdings and Flower upon the terms and conditions contained in this Credit Agreement; and WHEREAS, it is the express intention of the Lenders, the Agent, the Guarantor, and the Borrowers that this Credit Agreement shall supplement the WestPoint Credit Agreement by allowing UK Holdings and Flower to borrow and obtain letters of credit in pounds sterling, and although this Credit Agreement supplements the facilities provided to the Guarantor (as a borrower) under the WestPoint Credit Agreement, no term, condition, or other provision of this Credit Agreement shall limit, modify, impair or affect any term, condition or other provision of the WestPoint Credit Agreement; NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1 DEFINITIONS 1.1 Definitions. As used in this Credit Agreement, the following terms shall have the meanings specified below unless the context otherwise requires: 3 "Bankruptcy Event" means, with respect to any Person, the occurrence of any of the following with respect to such Person: (i) a court or governmental agency having jurisdiction in the premises shall enter a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, administrator, sequestrator (or similar official) of such Person or for any substantial part of its Property or ordering the winding up or liquidation of its affairs; or (ii) there shall be commenced against such Person an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, administrator, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed, undischarged or unbonded for a period of sixty (60) consecutive days; or (iii) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, administrator, sequestrator (or similar official) of such Person general assignment for the benefit of creditors; or (iv) such Person shall be unable to, or shall admit in writing its inability to, pay its debts generally as they become due. "Borrower" or "Borrowers" has the meaning ascribed to such terms in the Recitals hereof, together with any successors and permitted assigns. "Borrowers' Obligations" means the sum of (i) Foreign Currency Loans, (ii) Foreign LOC Obligations, and (iii) all other charges, fees, expenses and liabilities of the Borrowers arising hereunder or in connection herewith. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina are authorized or required by law to close, and such day shall also be a day on which dealings in Pounds Sterling are being carried on between banks in London, England. "Closing Date" means January 23, 1997. "Commitment" means, with respect to each Lender, the commitment of such Lender to make Foreign Currency Loans up to the amount of its Foreign Currency Commitment Percentage of the Foreign Currency Committed Amount (including the commitment of such Lender to participate in the Foreign Letters of Credit), and "Commitments" means such commitments of the Lenders collectively. "Credit Documents" means a collective reference to this Credit Agreement, the Foreign Currency Notes, the LOC Documents, and all other related agreements and documents issued or delivered hereunder or thereunder or pursuant hereto or thereto. "Credit Party" means any of the Borrowers and the Guarantor. "Default" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. 2 4 "Determination Date" means: (a) the date two Business Days prior to the date any Foreign Currency Loan is made or any Foreign Letter of Credit is issued; (b) the date two Business Days prior to the date any Foreign Currency Loan is continued from the current Interest Period for such Foreign Currency Loan into a subsequent Interest Period; (c) the date of any drawing under any Foreign Letter of Credit; (d) the last Business Day of each month; or (e) the date of any reduction of the Foreign Currency Committed Amount pursuant to the terms of Section 3.4(a). "Dollar Amount" means (a) with respect to Dollars or an amount denominated in Dollars, such amount and (b) with respect to an amount of Pounds Sterling or an amount denominated in Pounds Sterling, the Dollar Equivalent of such amount on the applicable date contemplated in this Credit Agreement. "Dollar Equivalent" means, on any date, with respect to an amount denominated in Pounds Sterling, the amount of Dollars into which the Agent could, in accordance with its practice from time to time in the interbank foreign exchange market, convert such amount of Pounds Sterling at its spot rate of exchange (inclusive of all reasonable related costs of conversion) applicable to the relevant transaction at or about 10:00 A.M., Charlotte, North Carolina time, on such date. "Eligible Assignee" means any Lender or Affiliate or subsidiary of a Lender, and any other commercial bank, financial institution or "accredited investor" (as defined in Regulation D of the Securities and Exchange Commission) reasonably acceptable to the Agent and the Borrowers. "Event of Default" means such term as defined in Section 9.1. "Eurocurrency Rate" means, for the Interest Period for each Foreign Currency Loan comprising part of the same borrowing (including conversions, extensions and renewals), a per annum interest rate equal to the sum of (i) the per annum rate of interest determined by the Agent on the basis of the offered rates for deposits in Pounds Sterling (for a period of time corresponding to such Interest Period and commencing on the first day of such Interest Period) which appear on Telerate Page 3750 (or such other page as may replace that page on that service) as of 11:00 a.m. (London time) two Business Days before the first day of such Interest Period (provided that if at least two such offered rates appear on Telerate Page 3750 (or such other page as may replace that page on that service), the rate in respect of such Interest Period will be the arithmetic mean of such offered rates) plus (ii) the MLA Cost. If for any reason the foregoing rates are unavailable from the Telerate service, then the Eurocurrency Rate shall be equal to the sum of (i) a market rate for the applicable Foreign Currency Loan for the applicable Interest Period as reasonably determined by the Agent plus (ii) the MLA Cost. "Foreign Currency Commitment Percentage" means, for any Lender, the percentage identified as its Foreign Currency Commitment Percentage on Schedule 2.1(a), as such percentage 3 5 may be modified in connection with any assignment made in accordance with the provisions of Section 11.3. "Foreign Currency Committed Amount" shall have the meaning assigned to such term in Section 2.1(a). "Foreign Currency Equivalent" means, on any date, with respect to an amount denominated in Dollars, the amount of Pounds Sterling into which the Agent could, in accordance with its practice from time to time in the interbank foreign exchange market, convert such amount of Dollars at its spot rate of exchange (inclusive of all reasonable related costs of conversion) applicable to the relevant transaction at or about 10:00 A.M., Charlotte, North Carolina time, on such date. "Foreign Currency Loans" shall have the meaning assigned to such term in Section 2.1(a). "Foreign Currency Note" means a promissory note of a Borrower in favor of a Lender delivered pursuant to Section 2.1(e) and evidencing the Foreign Currency Loans of such Lender to such Borrower, as such promissory note may be amended, modified, restated or replaced from time to time. "Foreign Letter of Credit" means any letter of credit issued by the Issuing Lender for the account of either Borrower in accordance with the terms of Section 2.2. "Foreign LOC Commitment" means the commitment of the Issuing Lender to issue Foreign Letters of Credit in an aggregate face amount at any time outstanding (together with the amounts of any unreimbursed drawings thereon) of up to the Foreign LOC Committed Amount. "Foreign LOC Committed Amount" shall have the meaning assigned to such term in Section 2.2. "Foreign LOC Obligations" means, at any time, the sum of (i) the maximum amount which is, or at any time thereafter may become, available to be drawn under Foreign Letters of Credit then outstanding, assuming compliance with all requirements for drawings referred to in such Foreign Letters of Credit plus (ii) the aggregate amount of all drawings under Foreign Letters of Credit honored by the Issuing Lender but not theretofore reimbursed. "Guarantor" means WestPoint Stevens Inc. "Interest Payment Date" means, for any Foreign Currency Loan, the last day of each Interest Period for such Foreign Currency Loan and the Termination Date, and in addition where the applicable Interest Period is more than 3 months, then also the date 3 months from the beginning of the Interest Period, and each 3 months thereafter. If an Interest Payment Date falls on a date which is not a Business Day, the Interest Payment Date shall be deemed to be the next succeeding Business Day, except that where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day. "Interest Period" means a period of one, two, three or six months' duration, as the applicable Borrower may elect, commencing, in each case, on the date of the borrowing (including conversions, extensions and renewals), provided, however, (A) if any Interest Period would end on 4 6 a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except that where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day), (B) no Interest Period shall extend beyond the Termination Date, and (C) where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, the Interest Period shall end on the last Business Day of such calendar month. "Interim Foreign Currency Rate" means, for any day, with respect to any Foreign Currency Loan, any participation in a Foreign Letter of Credit or any unreimbursed drawing under a Foreign Letter of Credit, a rate per annum equal to the sum of (i) the average rate at which overnight deposits in Pounds Sterling and approximately equal in principal amount to the applicable Foreign Currency Loan or Foreign Letter of Credit are obtainable by the Agent (or, in the case of any Foreign Letter of Credit, the Issuing Lender) on such day in the interbank market, adjusted to reflect any direct or indirect costs of obtaining such deposits plus (ii) the MLA Cost. The Interim Foreign Currency Rate shall be determined for each day by the Agent or Issuing Lender, as appropriate, and such determination shall be conclusive absent manifest error. "Issuing Lender" means NationsBank. "Lenders" means each of the Persons identified as a "Lender" on the signature pages hereto, and each Person which may become a Lender by way of assignment in accordance with the terms hereof, together with their successors and permitted assigns. "LOC Documents" means, with respect to any Foreign Letter of Credit, such Foreign Letter of Credit, any amendments thereto, any documents delivered in connection therewith, any application therefor, and any agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Foreign Letter of Credit) governing or providing for (i) the rights and obligations of the parties concerned or at risk or (ii) any collateral security for such obligations. "MLA Cost" means, with respect to any Foreign Currency Loan made by any Lender, the cost imputed to such Lender of compliance with the Mandatory Liquid Assets requirements of the Bank of England during the Interest Period applicable to such Foreign Currency Loan, expressed as a rate per annum and determined in accordance with Schedule 1.1A. "NationsBank" means NationsBank, N.A. and its successors. "Notice of Borrowing" means a written notice of borrowing in substantially the form of Schedule 1.1B, as required by Section 2.1(b)(i). "Notice of Extension" means the written notice of extension in substantially the form of Schedule 1.1C as required by Section 3.2. "Participation Interest" means, the extension of credit by a Lender by way of a purchase of a participation in any Foreign Letters of Credit or Foreign LOC Obligations as provided in Section 2.2(c) or Section 2.2(f), or in any Foreign Currency Loans as provided in Section 3.12. "Pounds Sterling" means the lawful currency of the United Kingdom. 5 7 "Qualifying Lender" means any Lender which (i) as of the Closing Date, is a bank for the purposes of section 349 Income and Corporation Taxes Act 1988 of the United Kingdom (which under current law has the meaning given in Section 840A of such Act) and (ii) as of the Closing Date, will be within the charge to United Kingdom corporation tax as respects payments of interest to be received by it under this Credit Agreement and the Foreign Currency Notes. "Regulation G, T, U, or X" means Regulation G, T, U or X, respectively, of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Reimbursing Borrower" shall have the meaning assigned to such term in Section 2.2(d). "Reimbursement Date" shall have the meaning assigned to such term in Section 2.2(d). "Required Lenders" means, as of the date of determination thereof, the Lenders having 51% or more of the aggregate principal amount of the Commitments then outstanding. "Requirement of Law" means, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents (including, in the case of the Borrowers, their Memorandum of Association and Articles of Association) of such Person , and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its material property. "Termination Date" means the earliest to occur of (i) May 23, 2001, (ii) the date upon which the Foreign Currency Committed Amount shall have been reduced to $0 pursuant to this Credit Agreement or (iii) the occurrence of the "Revolver Termination Date" within the meaning of the WestPoint Credit Agreement. "WestPoint Credit Agreement" has the meaning ascribed to such term in the Recitals hereof. "WestPoint Letters of Credit" means collectively the Commercial Letters of Credit and Standby Letters of Credit outstanding pursuant to the terms of the WestPoint Credit Agreement and documents related thereto. "WestPoint Loan" means the Revolving Loans outstanding pursuant to the terms of the WestPoint Credit Agreement. 1.2 Other Capitalized Terms. Any capitalized term which is not otherwise defined herein shall have the meaning ascribed to such term in the WestPoint Credit Agreement. 1.3 Computation of Time Periods. For purposes of computation of periods of time hereunder, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." 1.4 Accounting Terms. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall be prepared, in accordance with GAAP applied on a consistent basis. 6 8 SECTION 2 CREDIT FACILITIES ----------------- 2.1 Foreign Currency Loan Facility. ------------------------------- (a) Foreign Currency Commitment. Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein, each Lender severally agrees to make available to the Borrowers such Lender's Foreign Currency Commitment Percentage of revolving credit loans in Pounds Sterling ("Foreign Currency Loans") from time to time from the Closing Date until the Termination Date, or such earlier date as the Commitments shall have been terminated as provided herein for the purposes hereinafter set forth; provided, however, that the Dollar Amount (as determined as of the most recent Determination Date) of the aggregate amount of Foreign Currency Loans outstanding at any time shall not exceed TWENTY MILLION DOLLARS ($20,000,000.00) (the "Foreign Currency Committed Amount"); provided, further, (i) with regard to each Lender individually, the Dollar Amount of such Lender's outstanding Foreign Currency Loans shall not exceed such Lender's Foreign Currency Commitment Percentage of the Foreign Currency Committed Amount, (ii) with regard to the Lenders collectively, the sum of the Dollar Amount (as determined as of the most recent Determination Date) of the aggregate principal amount of outstanding Foreign Currency Loans plus the Dollar Amount (as determined as of the most recent Determination Date) of Foreign LOC Obligations outstanding shall not at any time exceed the Foreign Currency Committed Amount and (iii) with regard to the Lenders collectively, the aggregate principal amount of outstanding WestPoint Loans plus WestPoint Letters of Credit plus the Dollar Amount (as determined as of the most recent Determination Date) of the aggregate principal amount of outstanding Foreign Currency Loans plus the Dollar Amount (as determined as of the most recent Determination Date) of Foreign LOC Obligations outstanding shall not exceed the Total Commitments. Foreign Currency Loans may be repaid and reborrowed in accordance with the provisions hereof; provided, however, that no more than 5 separate Foreign Currency Loans shall be outstanding hereunder at any time. For purposes hereof, Foreign Currency Loans with different Interest Periods shall be considered as separate Foreign Currency Loans, even if they begin on the same date, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new Foreign Currency Loan with a single Interest Period. (b) Foreign Currency Loan Borrowings. --------------------------------- (i) Notice of Borrowing. Either Borrower shall request a Foreign Currency Loan borrowing by written notice (or telephonic notice promptly confirmed in writing) to the office of the Agent specified in Section 3.13(b) not later than 12:00 Noon (London. time) on the third Business Day prior to the date of the requested borrowing. Each such request for borrowing shall be irrevocable and shall specify (A) that a Foreign Currency Loan is requested, (B) the date of the requested borrowing (which shall be a Business Day), (C) the aggregate principal amount to be borrowed, and (D) the Interest Period(s) therefor. If the Borrower(s) shall fail to specify in any such Notice of Borrowing an applicable Interest Period, then such notice shall be deemed to be a request for an Interest Period of one month. The Agent shall give notice to each Lender promptly upon 7 9 receipt of each Notice of Borrowing pursuant to this Section 2.1(b)(i), the contents thereof and each Lender's share of any borrowing to be made pursuant thereto. (ii) Minimum Amounts. Each Foreign Currency Loan shall be in a minimum aggregate amount equal to (A) with respect to the initial Loans of UK Holdings, the Foreign Currency Equivalent of $4,000,000 and integral multiples of $750,000 in excess thereof (or the remaining amount of the Foreign Currency Committed Amount, if less), and (B) with respect to all other Loans, the Foreign Currency Equivalent of $1,500,000 and integral multiples of $750,000 in excess thereof (or the remaining amount of the Foreign Currency Committed Amount, if less). (iii) Advances. Each Lender will make its Foreign Currency Commitment Percentage of each Foreign Currency Loan borrowing available to the Agent as specified in Section 3.13(b), or in such other manner as the Agent may specify in writing, by 1:00 P.M. (London time) on the date specified in the applicable Notice of Borrowing in Pounds Sterling and in funds immediately available to the Agent. Such borrowing will then be made available to the applicable Borrower by the Agent by crediting the account of such Borrower on the books of the Agent with the aggregate of the amounts made available to the Agent by the Lenders and in like funds as received by the Agent. (c) Repayment. The principal amount of all Foreign Currency Loans shall be due and payable in full in Pounds Sterling on the Termination Date. The obligations of each Borrower to pay or repay any amounts under this Credit Agreement shall be several. (d) Interest. Subject to the provisions of Section 3.1, Foreign Currency Loans shall bear interest at a per annum rate equal to the Eurocurrency Rate plus the Borrowing Margin applicable to Eurodollar Rate Loans. Interest on Foreign Currency Loans shall be payable (in Pounds Sterling) in arrears on each Interest Payment Date. (e) Foreign Currency Notes. The Foreign Currency Loans made by each Lender shall be evidenced by a duly executed promissory note of each Borrower to each Lender in substantially the form of Schedule 2.1(e). (f) Financial Assistance Prohibition. Flower will use the proceeds of the Foreign Currency Loans and will use the Foreign Letters of Credit solely for the working capital purposes of Flower. Flower will not use any proceeds of the Foreign Currency Loans nor any Foreign Letter of Credit (i) to lend any sum to UK Holdings, (ii) for any purpose which may be unlawful financial assistance for the purposes of Part V, Chapter VI of the Companies Act 1985 or any other applicable legislation, or (iii) for any other unlawful purpose. 2.2 Foreign Letter of Credit Subfacility. ------------------------------------- (a) Issuance. Subject to the terms and conditions hereof and of the LOC Documents, if any, and any other terms and conditions which the Issuing Lender may reasonably require, the Lenders will participate in the issuance by the Issuing Lender, from time to time and in Pounds Sterling, of such Foreign Letters of Credit from the date five (5) Business Days subsequent to the Closing Date until the date five (5) Business Days prior to the Termination Date as either Borrower may request, in a form acceptable to the Issuing Lender; provided, however, that (i) the 8 10 Dollar Amount (as determined as of the most recent Determination Date) of the Foreign LOC Obligations outstanding shall not at any time exceed TEN MILLION DOLLARS ($10,000,000) (the "Foreign LOC Committed Amount"), (ii) the sum of the Dollar Amount (as determined as of the most recent Determination Date) of the aggregate principal amount of outstanding Foreign Currency Loans plus the Dollar Amount (as determined as of the most recent Determination Date) of Foreign LOC Obligations outstanding shall not at any time exceed the Foreign Currency Committed Amount and (iii) with regard to the Lenders collectively, the aggregate principal amount of outstanding WestPoint Loans plus WestPoint Letters of Credit plus the Dollar Amount (as determined as of the most recent Determination Date) of the aggregate principal amount of outstanding Foreign Currency Loans plus the Dollar Amount (as determined as of the most recent Determination Date) of Foreign LOC Obligations outstanding shall not exceed the Total Commitments. No Foreign Letter of Credit shall (x) have an original expiry date more than one year from the date of issuance or (y) as originally issued or as extended, have an expiry date extending beyond the Termination Date. Each Foreign Letter of Credit shall comply with the related LOC Documents. The issuance and expiry dates of each Foreign Letter of Credit shall be a Business Day. (b) Notice and Reports. The request for the issuance of a Foreign Letter of Credit shall be submitted by a Borrower to the Issuing Lender at least three (3) Business Days prior to the requested date of issuance. The Issuing Lender will, at least quarterly and more frequently upon request, disseminate to each of the Lenders and the Borrowers a detailed report specifying the Foreign Letters of Credit which are then issued and outstanding and any activity with respect thereto which may have occurred since the date of the prior report, and including therein, among other things, the beneficiary, the face amount and the expiry date as well as any payment or expirations which may have occurred. (c) Participation. Each Lender, upon issuance of a Foreign Letter of Credit, shall be deemed to have purchased without recourse a risk participation from the Issuing Lender in such Foreign Letter of Credit and the obligations arising thereunder, in each case in an amount equal to its pro rata share of the obligations under such Foreign Letter of Credit (based on the respective Foreign Currency Commitment Percentages of the Lenders) and shall absolutely, unconditionally and irrevocably be obligated to pay in Pounds Sterling to the Issuing Lender and discharge when due, its pro rata share of the obligations arising under such Foreign Letter of Credit. Without limiting the scope and nature of each Lender's participation in any Foreign Letter of Credit, to the extent that the Issuing Lender has not been reimbursed as required hereunder or under any such Foreign Letter of Credit, each such Lender shall pay to the Issuing Lender in Pounds Sterling its pro rata share of such unreimbursed drawing in same day funds on the date three (3) Business Days after notification by the Issuing Lender of an unreimbursed drawing pursuant to the provisions of subsection (d) hereof. The obligation of each Lender to so reimburse the Issuing Lender shall be absolute and unconditional and shall not be affected by the occurrence of a Default, an Event of Default or any other occurrence or event. Any such reimbursement shall not relieve or otherwise impair the obligation of the Reimbursing Borrower to reimburse the Issuing Lender under any Foreign Letter of Credit, together with interest as hereinafter provided. (d) Reimbursement. In the event of any drawing under any Foreign Letter of Credit, the Issuing Lender will promptly notify the Borrowers. The Borrower at whose request such Foreign Letter of Credit was issued (the "Reimbursing Borrower") promises to reimburse the Issuing Lender, on or prior to the date that is three Business Days after any drawing under any Foreign Letter of Credit (the "Reimbursement Date"), an amount equal to such drawing in same 9 11 day funds (prior to the Reimbursement Date, the unreimbursed amount of such drawing shall bear interest at a per annum rate equal to the Interim Foreign Currency Rate plus the Borrowing Margin applicable to Eurodollar Rate Loans). Unless the Reimbursing Borrower shall immediately notify the Issuing Lender that it intends to otherwise reimburse the Issuing Lender for such drawing, the Reimbursing Borrower shall be deemed to have requested that the Lenders make a Foreign Currency Loan on the Reimbursement Date in the amount of the drawing as provided in subsection (f) below on the related Foreign Letter of Credit, the proceeds of which will be used to satisfy the related reimbursement obligations. If the applicable Borrower shall fail to reimburse the Issuing Lender as provided hereinabove, the unreimbursed amount of such drawing shall bear interest at a per annum rate equal to the Interim Foreign Currency Rate plus the Borrowing Margin applicable to Eurodollar Rate Loans plus two percent (2%). Each Borrower's reimbursement obligations hereunder shall be absolute and unconditional under all circumstances irrespective of any rights of setoff, counterclaim or defense to payment such Borrower may claim or have against the Issuing Lender, the Agent, the Lenders, the beneficiary of the Foreign Letter of Credit drawn upon or any other Person, including without limitation any defense based on any failure of such Borrower or any other Credit Party to receive consideration or the legality, validity, regularity or unenforceability of the Foreign Letter of Credit. The Issuing Lender will notify the other Lenders on the Reimbursement Date of the amount of any unreimbursed drawing and each Lender shall promptly pay, within three (3) Business Days of the Reimbursement Date, to the Agent for the account of the Issuing Lender in Pounds Sterling and in immediately available funds, the amount of such Lender's pro rata share of such unreimbursed drawing. If such Lender does not pay such amount to the Issuing Lender in full within three (3) Business Days of the Reimbursement Date, such Lender shall, on demand, pay to the Agent for the account of the Issuing Lender interest on the unpaid amount during the period from the date three (3) Business Days after the Reimbursement Date until such Lender pays such amount to the Issuing Lender in full at a rate per annum equal to the Interim Foreign Currency Rate. Each Lender's obligation to make such payment to the Issuing Lender, and the right of the Issuing Lender to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and without regard to the termination of this Credit Agreement or the Commitments hereunder or under the WestPoint Credit Agreement, the existence of a Default or Event of Default or the acceleration of the obligations of the Borrowers hereunder and shall be made without any offset, abatement, withholding or reduction whatsoever. Simultaneously with the making of each such payment by a Lender to the Issuing Lender, such Lender shall, automatically and without any further action on the part of the Issuing Lender or such Lender, acquire a participation in an amount equal to such payment (excluding the portion of such payment constituting interest owing to the Issuing Lender) in the related unreimbursed drawn portion of the Foreign LOC Obligation and in the interest thereon and in the related LOC Documents, and shall have a claim against the applicable Borrower with respect thereto. (e) Interim Interest. In the event of any drawing under any Foreign Letter of Credit, unless the Reimbursing Borrower shall reimburse the Issuing Lender for such drawing in full on such date, the unpaid amount of such drawing shall bear interest for the account of the Issuing Lender at the Interim Foreign Currency Rate plus the Borrowing Margin applicable to Eurodollar Rate Loans. Interest shall accrue for each day from and including the date of any drawing under any Foreign Letter of Credit to, but excluding, the date of payment in full of such drawing (including by way of a Foreign Currency Loan pursuant to subsection (f) hereof). (f) Repayment with Foreign Currency Loans. On any day on which a Borrower shall have requested, or been deemed to have requested, a Foreign Currency Loan advance to reimburse 10 12 a drawing under a Foreign Letter of Credit, the Agent shall give notice to the Lenders that a Foreign Currency Loan has been requested or deemed requested by such Borrower to be made in connection with a drawing under a Foreign Letter of Credit, in which case a Foreign Currency Loan advance shall be made to such Borrower by all Lenders on the respective Reimbursement Date (notwithstanding any termination of the Commitments pursuant to Section 9.2) pro rata based on the respective Foreign Currency Commitment Percentages of the Lenders (determined before giving effect to any termination of the Commitments pursuant to Section 9.2) and the proceeds thereof shall be paid directly to the Issuing Lender for application to the respective Foreign LOC Obligations. Each such Lender hereby irrevocably agrees to make its pro rata share of each such Foreign Currency Loan immediately upon any such request or deemed request in the amount, in the manner and on the date specified in the preceding sentence notwithstanding (i) the amount of such borrowing may not comply with the minimum amount for advances of Foreign Currency Loans otherwise required hereunder, (ii) whether any conditions specified in Section 5.2 are then satisfied, (iii) whether a Default or an Event of Default then exists, (iv) failure of any such request or deemed request for Foreign Currency Loans to be made by the time otherwise required hereunder, (v) whether the date of such borrowing is a date on which Foreign Currency Loans are otherwise permitted to be made hereunder, (vi) any rights that such Lender may have in respect of such Foreign Currency Loans under Section 3.7, or (vii) any termination of the Commitments relating thereto immediately prior to or contemporaneously with such borrowing. In the event that any Foreign Currency Loan cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of a Bankruptcy Event with respect to either Borrower or any other Credit Party), then each such Lender hereby agrees that it shall forthwith purchase (as of the date such borrowing would otherwise have occurred, but adjusted for any payments received from the Borrowers or the Guarantor on or after such date and prior to such purchase) from the Issuing Lender in Pounds Sterling such participation in the outstanding Foreign LOC Obligations as shall be necessary to cause each such Lender to share in such Foreign LOC Obligations ratably (based upon the respective Foreign Currency Commitment Percentages of the Lenders (determined before giving effect to any termination of the Commitments pursuant to Section 9.2)), provided that at the time any purchase of participation pursuant to this sentence is actually made, the purchasing Lender shall be required to pay to the Issuing Lender, to the extent not paid to the Issuer by the Borrowers or the Guarantor in accordance with the terms of subsection (d) above, interest on the principal amount of participation purchased for each day from and including the day upon which such borrowing would otherwise have occurred to but excluding the date of payment for such participation, at the rate equal to the Interim Foreign Currency Rate. (g) Renewal, Extension. The renewal or extension of any Foreign Letter of Credit shall, for purposes hereof, be treated in all respects the same as the issuance of a new Foreign Letter of Credit hereunder. (h) Uniform Customs and Practices. The Issuing Lender may have the Foreign Letters of Credit be subject to The Uniform Customs and Practice for Documentary Credits, as published as of the date of issue by the International Chamber of Commerce (the "UCP"), in which case the UCP may be incorporated therein and deemed in all respects to be a part thereof. (i) Indemnification; Nature of Issuing Lender's Duties. --------------------------------------------------- (i) In addition to its other obligations under this Section 2.2, each Borrower hereby agrees to pay, and protect, indemnify and save each Lender (including the Issuing Lender) harmless from and against, any and all claims, demands, liabilities, damages, 11 13 losses, costs, charges and expenses (including reasonable attorneys' fees) that such Lender may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Foreign Letter of Credit or (B) the failure of such Lender to honor a drawing under a Foreign Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions, herein called "Government Acts"). (ii) As between the Borrowers and the Lenders (including the Issuing Lender), the Borrowers shall assume all risks of the acts, omissions or misuse of any Foreign Letter of Credit by the beneficiary thereof. No Lender (including the Issuing Lender) shall be responsible: (A) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Foreign Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Foreign Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (C) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (D) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under a Foreign Letter of Credit or of the proceeds thereof; and (E) for any consequences arising from causes beyond the control of such Lender, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of the Issuing Lender's rights or powers hereunder. (iii) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by any Lender (including the Issuing Lender), under or in connection with any Foreign Letter of Credit or the related certificates, if taken or omitted in good faith, shall not put such Lender under any resulting liability to the Borrowers or any other Credit Party. It is the intention of the parties that this Credit Agreement shall be construed and applied to protect and indemnify each Lender (including the Issuing Lender) against any and all risks involved in the issuance of the Foreign Letters of Credit, all of which risks are hereby assumed by the Borrowers (on behalf of itself and each of the other Credit Parties), including, without limitation, any and all Government Acts. No Lender (including the Issuing Lender) shall, in any way, be liable for any failure by such Lender or anyone else to pay any drawing under any Foreign Letter of Credit as a result of any Government Acts or any other cause beyond the control of such Lender. (iv) Nothing in this subsection (i) is intended to limit the reimbursement obligations of the Borrowers contained in subsection (d) above. The obligations of the Borrowers under this subsection (i) shall survive the termination of this Credit Agreement. No act or omissions of any current or prior beneficiary of a Foreign Letter of Credit shall in any way affect or impair the rights of the Lenders (including the Issuing Lender) to enforce any right, power or benefit under this Credit Agreement. (v) Notwithstanding anything to the contrary contained in this subsection (i), the Borrowers shall have no obligation to indemnify any Lender (including the Issuing Lender) in respect of any liability incurred by such Lender (A) arising solely out of the 12 14 gross negligence or willful misconduct of such Lender or (B) caused by such Lender's unlawful failure to pay under any Foreign Letter of Credit. (j) Responsibility of Issuing Lender. It is expressly understood and agreed that the obligations of the Issuing Lender hereunder to the Lenders are only those expressly set forth in this Credit Agreement and that the Issuing Lender shall be entitled to assume that the conditions precedent set forth in Section 5.2 have been satisfied unless it shall have acquired actual knowledge that any such condition precedent has not been satisfied; provided, however, that nothing set forth in this Section 2.2 shall be deemed to prejudice the right of any Lender to recover from the Issuing Lender any amounts made available by such Lender to the Issuing Lender pursuant to this Section 2.2 in the event that it is determined by a court of competent jurisdiction that the payment with respect to a Foreign Letter of Credit constituted gross negligence or willful misconduct on the part of the Issuing Lender. (k) Conflict with LOC Documents. In the event of any conflict between this Credit Agreement and any LOC Document, this Credit Agreement shall control. SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES ---------------------------------------------- 3.1 Default Rate. Upon the occurrence, and during the continuance, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Foreign Currency Loans and any other amounts owing hereunder or under the other Credit Documents shall bear interest, payable on demand, at a per annum rate 2% plus the rate which would otherwise be applicable. 3.2 Extension. Subject to the terms of Section 5.2, the Borrowers shall have the option, on any Business Day, to extend existing Foreign Currency Loans into a subsequent permissible Interest Period; provided, however, that (i) Foreign Currency Loans may be extended only if no Default or Event of Default is in existence on the date of extension, (ii) all Foreign Currency Loans shall be subject to the terms of the definition of "Interest Period" set forth in Section 1.1 and shall be in such minimum amounts as provided in Section 2.1(b)(ii), and (iii) no more than 5 separate Foreign Currency Loans shall be outstanding hereunder at any time; provided, that for purposes hereof, Foreign Currency Loans with different Interest Periods shall be considered as separate Foreign Currency Loans, even if they begin on the same date, although borrowings and extensions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new Foreign Currency Loan with a single Interest Period. Each such extension shall be effected by the appropriate Borrower by giving a Notice of Extension (or telephonic notice promptly confirmed in writing) to the office of the Agent specified in Section 3.13(b) prior to 11:00 A.M. (London time) on the third Business Day prior to the date of the proposed extension, specifying the date of the proposed extension, the Foreign Currency Loans to be so extended and the applicable Interest Periods with respect thereto. Each request for extension shall constitute a representation and warranty by the Borrowers of the matters specified in subsections (ii), (iii), (iv) and (v) of Section 5.2(a). In the event a Borrower fails to request extension of any Foreign Currency Loan in accordance with this Section, or any extension is not permitted or required by this Section, then such Foreign Currency Loan shall be automatically continued as a Foreign Currency Loan for an Interest Period of one month. The Agent shall give each Lender notice as promptly as practicable of any such proposed extension affecting any Foreign Currency Loan. 13 15 3.3 Prepayments. ------------ (a) Voluntary Prepayments. The Borrowers shall have the right to prepay Foreign Currency Loans in whole or in part from time to time without premium or penalty; provided, however, that (i) Foreign Currency Loans may only be prepaid on three Business Days' prior written notice to the Agent and specifying the applicable Foreign Currency Loans to be prepaid; (ii) any prepayment of Foreign Currency Loans will be subject to Section 3.10; and (iii) each partial prepayment of Foreign Currency Loans shall be in a minimum principal amount of $1,000,000 (or the Foreign Currency Equivalent thereof) and integral multiples of $1,000,000 (or the Foreign Currency Equivalent thereof) in excess thereof. Subject to the foregoing terms, amounts prepaid hereunder shall be applied as the prepaying Borrower may elect. (b) Mandatory Prepayments. ---------------------- (i) If on any Determination Date, the sum of the Dollar Amount of the aggregate Foreign Currency Loans outstanding plus the Dollar Amount of Foreign LOC Obligations outstanding exceeds (as the result of fluctuations in applicable foreign exchange rates or otherwise) the then Foreign Currency Committed Amount, the Borrowers promise to make a mandatory prepayment, in Pounds Sterling, of the Foreign Currency Loans to the Agent in an aggregate Dollar Amount equal to the excess of (x) the amount equal to the sum of the Dollar Amount of the aggregate Foreign Currency Loans outstanding plus the Dollar Amount of Foreign LOC Obligations outstanding over (y) the Foreign Currency Committed Amount. (c) General. All prepayments made pursuant to this Section 3.3 shall be subject to Section 3.10, shall be applied first to Foreign Currency Loans in direct order, shortest to longest, of Interest Period maturities and shall be accompanied by accrued interest on the principal amount being prepaid to the date of prepayment and all other amounts due and payable hereunder with respect to such Foreign Currency Loans. Amounts prepaid may be reborrowed in accordance with the provisions hereof. 3.4 Termination and Reduction of Foreign Currency Committed Amount. -------------------------------------------------------------- (a) Voluntary Reductions. The Borrowers may from time to time permanently reduce or terminate the Foreign Currency Committed Amount in whole or in part (in minimum aggregate amounts of $1,500,000 or in integral multiples of $750,000 in excess thereof (or, if less, the full remaining amount of the then applicable Foreign Currency Committed Amount)) upon three Business Days' prior written notice to the Agent; provided, however, no such termination or reduction shall be made which would reduce the Foreign Currency Committed Amount to an amount less than the Dollar Amount (as determined as of the most recent Determination Date) of the aggregate principal amount of outstanding Foreign Currency Loans plus the Dollar Amount (as determined as of the most recent Determination Date) of Foreign LOC Obligations outstanding. The Agent shall promptly notify each of the Lenders of receipt by the Agent of any notice from the Borrowers pursuant to this Section 3.4(a). 14 16 (b) Termination Date. The Commitments of the Lenders and the Issuing Lender shall automatically terminate on the Termination Date. 3.5 Letter of Credit Fees. Each Borrower shall pay to the Agent for the account of the Lenders (based on their respective Pro Rata Shares of the Foreign Letters of Credit), quarterly in arrears on or prior to the day ten (10) days after the last day of each calendar quarter, a per annum fee equal to the applicable Borrowing Margin for Eurodollar Rate Loans (calculated on the basis of a year of 365 days, for actual days elapsed) of the average daily aggregate amount available for drawing during the period from and including the first day of such calendar quarter through the last day of such calendar quarter under all outstanding commercial Foreign Letters of Credit requested by such Borrower and a per annum fee equal to the applicable Borrowing Margin for Eurodollar Rate Loans (calculated on the basis of a year of 365 days, for actual days elapsed) of the average daily aggregate amount available for drawing during the period from and including the first day of such calendar quarter through the last day of such calendar quarter under all outstanding standby Foreign Letters of Credit requested by such Borrower. In addition, each Borrower shall pay the standard service charges for Foreign Letters of Credit issued from time to time by the Issuing Lender including a facing fee of .125% of the face amount of each Foreign Letter of Credit. Such additional fees shall be paid to the Issuing Lender for its own account. All such fees shall be payable when due in immediately available funds and shall be nonrefundable. 3.6 Capital Adequacy. If, after the date hereof, any Lender has determined that the adoption or the becoming effective of, or any change in, or any change by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof in the interpretation or administration of, any applicable law, rule or regulation regarding capital adequacy, or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy), then, upon notice and detailed explanation from such Lender to the applicable Borrower, such Borrower shall be obligated to pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. Each determination by any such Lender of amounts owing under this Section shall, absent manifest error, be conclusive and binding on the parties hereto. 3.7 Unavailability. --------------- (a) If prior to the first day of any Interest Period, the Agent shall have determined (which determination shall be conclusive and binding upon the Borrowers) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurocurrency Rate for such Interest Period, the Agent shall give telecopy or telephonic notice thereof to the Borrowers and the Lenders as soon as practicable thereafter. If such notice is given, (A) any such Foreign Currency Loans requested to be made on the first day of such Interest Period shall be deemed rescinded and (B) any such Foreign Currency Loans shall be repaid in full by the Borrowers on the first day of such Interest Period. Until such notice has been withdrawn by the Agent, no further Foreign Currency Loans shall be made or continued. (b) If prior to the first day of any Interest Period, any Lender shall inform the Agent that deposits in Pounds Sterling are not available in the relevant market to any Lender, the Agent shall give telecopy or telephonic notice thereof to the Borrowers and the Lenders as soon as 15 17 practicable thereafter. If such notice is given, (i) any Foreign Currency Loans requested to be made on the first day of such Interest Period shall be deemed rescinded and (ii) any outstanding Foreign Currency Loans shall be repaid in full by the Borrowers on the first day of such Interest Period. Until such notice has been withdrawn by the Agent, no further Foreign Currency Loans shall be made or continued. (c) If prior to the issuance of any Foreign Letter of Credit, the Agent shall have determined (which determination shall be conclusive and binding upon the Borrowers) that, with respect to the requested Foreign Letter of Credit, Pounds Sterling in the amount of any Lender's participation interest in such Foreign Letter of Credit is not, and/or during the term of such Foreign Letter of Credit will not be, available to any such Lender, then (i) the Agent shall notify the Borrowers and the Lenders of such circumstances and (ii) the Issuing Lender shall have no obligation to issue, and the Lenders shall have no obligation to participate in, such Foreign Letter of Credit. 3.8 Requirements of Law. If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof applicable to any Lender, or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, in each case made subsequent to the Closing Date (or, if later, the date on which such Lender becomes a Lender): (a) shall subject such Lender to any tax of any kind whatsoever with respect to any Foreign Letter of Credit, any Foreign Currency Loans made by it or its obligation to make Foreign Currency Loans, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 3.9 (including Non-Excluded Taxes imposed solely by reason of any failure of such Lender to comply with its obligations under Section 3.9(b)) and changes in taxes measured by or imposed upon the overall net income, or franchise tax (imposed in lieu of such net income tax), of such Lender or its applicable lending office, branch, or any affiliate thereof); (b) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurocurrency Rate hereunder; or (c) shall impose on such Lender any other condition (excluding any tax of any kind whatsoever); and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, continuing or maintaining Foreign Currency Loans or issuing or participating in Foreign Letters of Credit or to reduce any amount receivable hereunder in respect thereof, then, in any such case, upon notice to the applicable Borrower from such Lender, through the Agent, in accordance herewith, the applicable Borrower shall be obligated to promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall provide prompt notice thereof to the applicable Borrower, through the Agent, certifying (x) that one of the events described in this paragraph (a) has occurred and describing in reasonable detail the nature of such event, (y) as to the increased cost or reduced amount resulting from such event and (z) as 16 18 to the additional amount demanded by such Lender and a reasonably detailed explanation of the calculation thereof. Such a certificate as to any additional amounts payable pursuant to this subsection submitted by such Lender, through the Agent, to a Borrower shall be conclusive and binding on the parties hereto in the absence of manifest error. This covenant shall survive the termination of this Credit Agreement and the payment of the Foreign Currency Loans and all other amounts payable hereunder. 3.9 Taxes. ------ (a) Except as provided below in this subsection, all payments made by a Borrower under this Credit Agreement and any Foreign Currency Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any court, or governmental body, agency or other official, excluding taxes measured by or imposed upon the overall net income of any Lender or its applicable lending office, or any branch or affiliate thereof, and all franchise taxes, branch taxes, taxes on doing business or taxes on the overall capital or net worth of any Lender or its applicable lending office, or any branch or affiliate thereof, in each case imposed in lieu of net income taxes, imposed: (i) by the jurisdiction under the laws of which such Lender, applicable lending office, branch or affiliate is organized or is located, or in which its principal executive office is located, or any nation within which such jurisdiction is located or any political subdivision thereof; or (ii) by reason of any connection between the jurisdiction imposing such tax and such Lender, applicable lending office, branch or affiliate other than a connection arising solely from such Lender having executed, delivered or performed its obligations, or received payment under or enforced, this Credit Agreement or any Foreign Currency Notes. If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts payable to the Agent or any Lender hereunder or under any Foreign Currency Notes, (A) the amounts so payable to the Agent or such Lender shall be increased to the extent necessary to yield to the Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Credit Agreement and any Foreign Currency Notes, provided, however, that each Borrower shall be entitled to deduct and withhold any Non-Excluded Taxes and shall not be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof if such Lender fails to comply with the requirements of paragraph (b) of this subsection whenever any Non-Excluded Taxes are payable by a Borrower, and (B) as promptly as possible thereafter the applicable Borrower shall send to the Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by such Borrower showing payment thereof. If a Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, such Borrower shall indemnify the Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Agent or any Lender as a result of any such failure. The agreements in this subsection shall survive the termination of this Credit Agreement and the payment of the Foreign Currency Loans and all other amounts payable hereunder. (b) Each Lender that is not incorporated under the laws of the United States of America or a state thereof shall: (X)(i) on or before the date of any payment by a Borrower under this Credit Agreement or Foreign Currency Notes to such Lender, deliver to the Borrowers and the 17 19 Agent (A) two (2) duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, certifying that it is entitled to receive payments under this Credit Agreement and any Foreign Currency Notes without deduction or withholding of any United States federal income taxes and (B) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be, certifying that it is entitled to an exemption from United States backup withholding tax; (ii) deliver to the Borrowers and the Agent two (2) further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrowers; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Borrowers or the Agent; or (Y) in the case of any such Lender that is not a "bank" within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, (i) represent to the Borrowers (for the benefit of the Borrowers and the Agent) that it is not a bank within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, (ii) agree to furnish to the Borrowers on or before the date of any payment by the Borrowers, with a copy to the Agent two (2) accurate and complete original signed copies of Internal Revenue Service Form W-8, or successor applicable form certifying to such Lender's legal entitlement at the date of such certificate to an exemption from U.S. withholding tax under the provisions of Section 881(c) of the Internal Revenue Code with respect to payments to be made under this Credit Agreement and any Foreign Currency Notes (and to deliver to the Borrowers and the Agent two (2) further copies of such form on or before the date it expires or becomes obsolete and after the occurrence of any event requiring a change in the most recently provided form and, if necessary, obtain any extensions of time reasonably requested by the Borrower or the Agent for filing and completing such forms), and (iii) agree, to the extent legally entitled to do so, upon reasonable request by the Borrowers, to provide to the Borrowers (for the benefit of the Borrowers and the Agent) such other forms as may be reasonably required in order to establish the legal entitlement of such Lender to an exemption from withholding with respect to payments under this Credit Agreement and any Foreign Currency Notes; unless in any such case any change in treaty, law or regulation has occurred after the date such Person becomes a Lender hereunder which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Borrowers and the Agent. (c) Each Lender (other than any Qualifying Lender) shall, as soon as is reasonably practicable after the Closing Date, file a form FD 13 with the United States Internal Revenue Service in relation to payments made or to be made by the Borrowers under this Credit Agreement and any Foreign Currency Notes. If the United States Internal Revenue Service determines that the form FD 13 filed by such Lender does not establish that the Lender is entitled to receive payments made by the Borrowers under this Credit Agreement and the Foreign Currency Notes as at the date of delivery thereof without deduction or withholding of United Kingdom withholding taxes, such Lender shall, within forty-five (45) days after a written request from the Borrowers, offer such 18 20 reasonable assistance as the Borrowers may request in order to establish such Lender's entitlement (if any) to receive payments made by the Borrowers under this Credit Agreement and any Foreign Currency Notes without deduction or withholding of United Kingdom withholding taxes. No Borrower shall be required to pay any amounts to any Lender in respect of any deduction or withholding of United Kingdom withholding taxes otherwise payable under this Section 3.9 (and a Borrower, if required by law to do so, shall be entitled to withhold such amounts and pay such amounts to the government of the United Kingdom) if the obligation to pay such additional amounts would not have arisen but for a failure by such Lender to provide the Borrowers with the requested forms or other reasonable assistance. (d) Each Person that shall become a Lender or a participant of a Lender pursuant to Section 11.3 shall, upon the effectiveness of the related transfer, be required to provide all of the forms, certifications and statements required pursuant to this Section 3.9, provided that in the case of a participant of a Lender the obligations of such participant of a Lender pursuant to this subsection (b) shall be determined as if the participant of a Lender were a Lender except that such participant of a Lender shall furnish all such required forms, certifications and statements to the Lender from which the related participation shall have been purchased. 3.10 Indemnity. Each Borrower promises to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur (other than through such Lender's gross negligence or willful misconduct) as a consequence of (a) default by such Borrower in making a borrowing of, or continuation of, Foreign Currency Loans after such Borrower has given a notice requesting the same in accordance with the provisions of this Credit Agreement, (b) default by such Borrower in making any scheduled payment of a Foreign Currency Loan or any prepayment of a Foreign Currency Loan after such Borrower has given a notice thereof in accordance with the provisions of this Credit Agreement or (c) the making by such Borrower of a prepayment of Foreign Currency Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed or continued, for the period from the date of such prepayment or of such failure to borrow or continue to the last day of the applicable Interest Period (or, in the case of a failure to borrow or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Foreign Currency Loans provided for herein (excluding, however, the Borrowing Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurocurrency market. The covenants of the Borrowers set forth in this Section 3.10 shall survive the termination of this Credit Agreement and the payment of the Foreign Currency Loans and all other amounts payable hereunder. 3.11 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) Loans. Each Foreign Currency Loan, each payment or prepayment of principal of any Foreign Currency Loan or reimbursement obligations arising from drawings under Foreign Letters of Credit, each payment of interest on the Foreign Currency Loans or reimbursement obligations arising from drawings under Foreign Letters of Credit, each payment of the Foreign Letter of Credit fee (other than the fees expressly for the own account of the Issuing Lender), each reduction of the Foreign Currency Committed Amount and each extension of any Foreign Currency Loan, shall be allocated pro rata among the Lenders in accordance with the respective principal amounts of their outstanding Foreign Currency Loans and Participation Interests. 19 21 (b) Advances. Unless the Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its Foreign Currency Commitment Percentage of such borrowing available to the Agent, the Agent may assume that such Lender is making such amount available to the Agent, and the Agent may, in reliance upon such assumption, make available to the appropriate Borrower a corresponding amount. If such amount is not made available to the Agent by such Lender within the time period specified therefor hereunder, such Lender shall pay to the Agent, on demand, such amount with interest thereon at a rate equal to the Interim Foreign Currency Rate for the period until such Lender makes such amount immediately available to the Agent. A certificate of the Agent submitted to any Lender with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. If such Lender's Foreign Currency Commitment Percentage of such borrowing is not made available to the Agent by such Lender within two Business Days of the date of the related borrowing, the Agent shall notify the Borrowers of the failure of such Lender to make such amount available to the Agent and the Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to Foreign Currency Loans hereunder), on demand, from the appropriate Borrower. 3.12 Sharing of Payments. The Lenders agree among themselves that, in the event that any Lender shall obtain payment in respect of any Foreign Currency Loan, Foreign LOC Obligations or any other obligation owing to such Lender under this Credit Agreement through the exercise of a right of setoff, banker's lien or counterclaim, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, in excess of its pro rata share of such payment as provided for in this Credit Agreement, such Lender shall promptly purchase from the other Lenders a participation in such Foreign Currency Loans, Foreign LOC Obligations and other obligations in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all Lenders share such payment in accordance with their respective ratable shares as provided for in this Credit Agreement. The Lenders further agree among themselves that if payment to a Lender obtained by such Lender through the exercise of a right of setoff, banker's lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be restored, each Lender which shall have shared the benefit of such payment shall, by repurchase of a participation theretofore sold, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Lender whose payment shall have been rescinded or otherwise restored. The Borrowers agree that any Lender so purchasing such a participation may, to the fullest extent permitted by law, exercise all rights of payment, including setoff, banker's lien or counterclaim, with respect to such participation as fully as if such Lender were a holder of such Foreign Currency Loan, Foreign LOC Obligations or other obligation in the amount of such participation. Except as otherwise expressly provided in this Credit Agreement, if any Lender or the Agent shall fail to remit to the Agent or any other Lender an amount payable by such Lender or the Agent to the Agent or such other Lender pursuant to this Credit Agreement on the date when such amount is due, such payments shall be made together with interest thereon for each date from the date such amount is due until the date such amount is paid to the Agent or such other Lender at a rate per annum equal to the Interim Foreign Currency Rate. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 3.12 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders under this Section 3.12 to share in the benefits of any recovery on such secured claim. 3.13 Payments, Computations, Etc. ---------------------------- 20 22 (a) Currency of Payments. Each payment on account of an amount due from any Credit Party hereunder or under any other Credit Document shall be made by such Credit Party to the Agent for the pro rata account of the Lenders entitled to receive such payment as provided herein in the currency in which such amount is denominated. Without limiting the terms of the preceding sentence, accrued interest on any Foreign Currency Loans and all fees owing with respect to Foreign Letters of Credit shall be payable in Pounds Sterling. Upon request, the Agent will give the Credit Parties a statement showing the computation used in calculating such amount, which statement shall be conclusive in the absence of manifest error. The obligation of each Credit Party to make each payment on account of such amount in the currency in which such amount is denominated shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment, which is expressed in or converted into any other currency, except to the extent such tender or recovery shall result in the actual receipt by the Agent of the full amount in the appropriate currency payable hereunder. Each Credit Party agrees that its obligation to make each payment on account of such amount in the currency in which such amount is denominated shall be enforceable as an additional or alternative claim for recovery in such currency of the amount (if any) by which such actual receipt shall fall short of the full amount of such currency payable hereunder, and shall not be affected by judgment being obtained for such amount. (b) Place and Manner of Payments. Except as otherwise specifically provided herein, all payments hereunder shall be made to the Agent in immediately available funds, without offset, deduction, counterclaim or withholding of any kind, prior to 2:00 P.M. (London time) on the date due at the office of the Agent at 35 New Broad Street, GB1-001-01-01, London, England EC2M 1NH or at such other place as may be designated by the Agent to the Borrowers in writing. Payments received after such time shall be deemed to have been received on the next succeeding Business Day. The Agent may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the applicable Borrower maintained with the Agent (with notice to the Borrowers). Each Borrower shall, at the time it makes any payment under this Credit Agreement, specify to the Agent the Foreign Currency Loans, Foreign LOC Obligations, fees, interest or other amounts payable by such Borrower hereunder to which such payment is to be applied (and in the event that it fails so to specify, or if such application would be inconsistent with the terms hereof, the Agent shall distribute such payment to the Lenders in such manner as the Agent may determine to be appropriate in respect of obligations owing by such Borrower hereunder, subject to the terms of Section 3.11). The Agent will distribute such payments to such Lenders, if any such payment is received prior to 12:00 Noon (Charlotte, North Carolina time) on a Business Day in like funds as received prior to the end of such Business Day and otherwise the Agent will distribute such payment to such Lenders on the next succeeding Business Day. Whenever any payment hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day (subject to accrual of interest and fees for the period of such extension), except that if the extension would cause the payment to be made in the next following calendar month, then such payment shall instead be made on the next preceding Business Day. Except as expressly provided otherwise herein, all computations of interest and fees shall be made on the basis of actual number of days elapsed over a year of 365 days. Interest shall accrue from and include the date of borrowing, but exclude the date of payment. 21 23 SECTION 4 GUARANTY -------- 4.1 The Guarantee. The Guarantor hereby guarantees to each Lender and the Agent as hereinafter provided the prompt payment of the Borrowers' Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof. The Guarantor hereby further agrees that if any of the Borrowers' Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise), the Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Borrowers' Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of such extension or renewal. 4.2 Obligations Unconditional. The obligations of the Guarantor under Section 4.1 are absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Credit Documents, or any other agreement or instrument referred to therein, or any substitution, release, impairment or exchange of any other guarantee of or security for any of the Borrowers' Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 4.2 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. The Guarantor agrees that it shall have no right of subrogation, indemnity, reimbursement or contribution against either Borrower of the Borrowers' Obligations for amounts paid under this Section 4 until such time as the Lenders have been paid in full, all Commitments under this Credit Agreement have been terminated and no Person or Governmental Authority shall have any right to request any return or reimbursement of funds from the Lenders in connection with monies received under the Credit Documents. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantor hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Guarantor, the time for any performance of or compliance with any of the Borrowers' Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of any of the Credit Documents or any other agreement or instrument referred to therein shall be done or omitted; (iii) the maturity of any of the Borrowers' Obligations shall be accelerated, or any of the Borrowers' Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Credit Documents or any other agreement or instrument referred to therein shall be waived or any other guarantee of any of the Borrowers' Obligations or any security therefor shall be released, impaired or exchanged in whole or in part or otherwise dealt with; or (iv) any of the Borrowers' Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of the Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of the Guarantor). 22 24 With respect to its obligations hereunder, the Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Lender exhaust any right, power or remedy or proceed against any Person under any of the Credit Documents or any other agreement or instrument referred to therein, or against any other Person under any other guarantee of, or security for, any of the Borrowers' Obligations. 4.3 Reinstatement. The obligations of the Guarantor under this Section 4 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Borrowers' Obligations is rescinded or must be otherwise restored by any holder of any of the Borrowers' Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and the Guarantor agrees that it will indemnify the Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees and expenses of counsel) incurred by the Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. 4.5 Remedies. The Guarantor agrees that, to the fullest extent permitted by law, as between the Guarantor, on the one hand, and the Agent and the Lenders, on the other hand, the Borrowers' Obligations may be declared to be forthwith due and payable as provided in Section 9.2 (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 9.2) for purposes of Section 4.1 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Borrowers' Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Borrowers' Obligations being deemed to have become automatically due and payable), the Borrowers' Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantor for purposes of Section 4.1. 4.6 Continuing Guarantee. The guarantee in this Section 4 is a continuing guarantee, and shall apply to all Borrowers' Obligations whenever arising. SECTION 5 CONDITIONS ---------- 5.1 Closing Conditions. The obligation of the Lenders to enter into this Credit Agreement and to make the initial Foreign Currency Loans or the Issuing Lender to issue the initial Foreign Letter of Credit, whichever shall occur first, shall be subject to satisfaction of the following conditions (in form and substance acceptable to the Lenders): (a) The Agent shall have received original counterparts of this Credit Agreement executed by each of the parties hereto; (b) The Agent shall have received appropriate original Foreign Currency Notes for each Lender, executed by each Borrower; (c) The Agent shall have received all documents it may reasonably request relating to the existence and good standing of each of the Credit Parties, the corporate or other necessary 23 25 authority for and the validity of the Credit Documents, and any other matters relevant thereto, all in form and substance reasonably satisfactory to the Agent; (d) The Agent shall have received a certificate executed by the chief financial officer of the Borrowers as of the Closing Date stating that immediately after giving effect to this Credit Agreement and the other Credit Documents, (i) each Borrower on a consolidated basis is Solvent, (ii) no Default or Event of Default exists and (iii) the representations and warranties set forth in Section 6 are true and correct in all material respects; (e) The Agent shall have received a legal opinion of Weil, Gotshal & Manges LLP, counsel for the Credit Parties, dated as of the Closing Date and substantially in the form of Schedule 5.1(e); (f) The acquisition of Flowers by UK Holdings shall have been consummated on terms and conditions reasonably satisfactory to the Agent; and (g) The Agent shall have received such other documents, agreements or information which may be reasonably requested by the Agent (including, without limitation, an opinion of English counsel for the Credit Parties, in form and substance reasonably satisfactory to the Agent). 5.2 Conditions to all Extensions of Credit. The obligations of each Lender to make or extend any Foreign Currency Loan and of the Issuing Lender to issue or extend Foreign Letters of Credit (including the initial Foreign Currency Loans and the initial Foreign Letter of Credit) are subject to satisfaction of the following conditions in addition to satisfaction on the Closing Date of the conditions set forth in Section 5.1: (i) The applicable Borrower shall have delivered (A) in the case of any Foreign Currency Loan, an appropriate Notice of Borrowing or Notice of Extension or (B) in the case of any Foreign Letter of Credit, the Issuing Lender shall have received an appropriate request for issuance in accordance with the provisions of Section 2.1(b) or of Section 2.2(b); (ii) The representations and warranties set forth in Section 6 shall be, subject to the limitations set forth therein, true and correct in all material respects as of such date (except for those which expressly relate to an earlier date); (iii) There shall not have been commenced against either Borrower or the Guarantor an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed, undischarged or unbonded; (iv) No Default or Event of Default shall exist and be continuing either prior to or after giving effect thereto; and (v) Immediately after giving effect to the making of such Foreign Currency Loan (and the application of the proceeds thereof) or to the issuance of such Foreign Letter 24 26 of Credit, as the case may be, (A) the sum of the Dollar Amount (as determined as of the most recent Determination Date) of the aggregate principal amount of outstanding Foreign Currency Loans plus the Dollar Amount (as determined as of the most recent Determination Date) of Foreign LOC Obligations outstanding shall not exceed the aggregate Foreign Currency Committed Amount and (B) the aggregate principal amount of outstanding WestPoint Loans plus WestPoint Letters of Credit plus the Dollar Amount (as determined as of the most recent Determination Date) of the aggregate principal amount of outstanding Foreign Currency Loans plus the Dollar Amount (as determined as of the most recent Determination Date) of Foreign LOC Obligations outstanding shall not exceed the Total Commitments. The delivery of each Notice of Borrowing, each Notice of Extension and each request for a Foreign Letter of Credit pursuant to Section 2.1(b) or Section 2.2(b) shall constitute a representation and warranty by the requesting Borrower of the correctness of the matters specified in subsections (ii), (iii), (iv), and (v) above. SECTION 6 REPRESENTATIONS AND WARRANTIES ------------------------------ The Credit Parties hereby represent to the Agent and each Lender that: 6.1 Organization; Existence; Compliance with Law. Each of the Credit Parties (a) is a corporation duly organized, validly existing and is in good standing under the laws of the jurisdiction of its incorporation or organization, (b) has the corporate or other necessary power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign entity and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, other than in such jurisdictions where the failure to be so qualified and in good standing would not be reasonably expected to have a material adverse effect, and (d) is in compliance with all material Requirements of Law. 25 27 6.2 Power; Authorization; Enforceable Obligations. Each of the Credit Parties has the corporate or other necessary power and authority, and the legal right, to make, deliver and perform the Credit Documents to which it is a party, and, in the case of the Borrowers, to obtain extensions of credit hereunder. Each of the Credit Parties has taken all necessary corporate action to authorize the borrowings and other extensions of credit on the terms and conditions of this Credit Agreement and to authorize the execution, delivery and performance of the Credit Documents to which it is a party. No consent or authorization of, filing with, notice to or other similar act by or in respect of, any Governmental Authority or any other Person is required to be obtained or made by or on behalf of any Credit Party in connection with the borrowings or other extensions of credit hereunder or with the execution, delivery, performance, validity or enforceability of the Credit Documents to which such Credit Party is a party, except for consents, authorizations, notices and filings described in Schedule 6.2, all of which have been obtained or made or have the status described in such Schedule 6.2. This Credit Agreement has been, and each other Credit Document to which any Credit Party is a party will be, duly executed and delivered on behalf of the Credit Parties. This Credit Agreement constitutes, and each other Credit Document to which any Credit Party is a party when executed and delivered will constitute, a legal, valid and binding obligation of such Credit Party enforceable against such party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 6.3 No Legal Bar. The execution, delivery and performance of the Credit Documents by the Credit Parties, the borrowings or other extensions of credit hereunder and the use of the proceeds thereof (a) will not violate any Requirement of Law or contractual obligation of any Credit Party, (b) will not result in, or require, the creation or imposition of any Lien on any of the properties or revenues of any Credit Party pursuant to any such Requirement of Law or contractual obligation, and (c) will not violate or conflict with any provision of any Credit Party's articles of incorporation, charter, by-laws or similar organizational documents (including, in the case of the Borrowers, their Memorandum of Association and Articles of Association). 6.4 Governmental Regulations, Etc. (a) No part of the Foreign Letters of Credit or proceeds of the Foreign Currency Loans will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation G or Regulation U, or for the purpose of purchasing or carrying or trading in any securities. If requested by any Lender or the Agent, each of the Borrowers will furnish to the Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in Regulation U. No indebtedness being reduced or retired out of the proceeds of the Foreign Currency Loans was or will be incurred for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U or any "margin security" within the meaning of Regulation T. "Margin stock" within the meaning of Regulation U does not constitute more than 25% of the value of the consolidated assets of the Borrowers. None of the transactions contemplated by this Credit Agreement (including, without limitation, the direct or indirect use of the proceeds of the Foreign Currency Loans) will violate or result in a violation of the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or regulations issued pursuant thereto, or Regulation G, T, U or X. (b) Neither Borrower is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940, each as amended. In addition, neither Borrower is (i) an "investment company" registered or required to be 26 28 registered under the Investment Company Act of 1940, as amended, and is not controlled by such a company, or (ii) a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. (c) This Credit Agreement and each Foreign Currency Note is in proper legal form for the enforcement hereof or thereof against the Borrowers, and to ensure the legality, validity, enforceability, priority or admissibility in evidence of this Credit Agreement and the Foreign Currency Notes it is not necessary that this Credit Agreement, the Foreign Currency Notes or any other Credit Document be filed, registered or recorded with, or executed or notarized before, any court or other authority in the United Kingdom or that any registration charge or stamp or similar tax be paid on or in respect of this Credit Agreement, the Foreign Currency Notes or any other Credit Document. 6.5 Taxes. There are no income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, imposed, levied, collected, withheld or assessed by any English court, or governmental body, agency or other official either (a) on or by virtue of the execution or delivery of this Credit Agreement, the Foreign Currency Notes or any other Credit Document or (b) on any payment to be made by the Borrower under this Credit Agreement, the Foreign Currency Notes or any other Credit Document. SECTION 7 AFFIRMATIVE COVENANTS --------------------- Each Credit Party hereby covenants and agrees that so long as this Credit Agreement is in effect or any amounts payable hereunder or under any other Credit Document shall remain outstanding, and until all of the Commitments hereunder shall have terminated: 7.1 Incorporated Affirmative Covenants. Each Credit Party shall, and the Guarantor shall cause each other Credit Party to, fully honor and perform each of the affirmative covenants set forth in Section 5.1 of the WestPoint Credit Agreement, each of which covenants are hereby expressly incorporated herein by reference. 7.2 Financial Statements. Each Borrower will furnish, or cause to be furnished, to the Agent: (a) Annual Financial Statements. As soon as available, and in any event within 95 days after the close of each fiscal year of UK Holdings, a consolidated and consolidating balance sheet of UK Holdings and its Subsidiaries, as of the end of such fiscal year, together with related consolidated and consolidating statements of income, operations and retained earnings and of cash flows for such fiscal year, setting forth in comparative form consolidated and consolidating figures as of the end of and for the preceding fiscal year, all such financial information to be in form and detail reasonably satisfactory to the Agent and such financial statements shall have been prepared in accordance with GAAP, except as disclosed to the Lenders and accepted by the Required Lenders. All such statements shall be accompanied by a certificate of the chief financial officer of UK Holdings to the effect that such annual financial statements fairly present in all material respects the financial condition of and results of operations for UK Holdings and its Subsidiaries and have been prepared in accordance with GAAP, except as disclosed to the Lenders and accepted by the Required Lenders. 27 29 (b) Quarterly Financial Statements. As soon as available, and in any event within 50 days after the close of each fiscal quarter of each Borrower and its Subsidiaries (other than the fourth fiscal quarter, in which case 95 days after the end thereof) a consolidated and consolidating balance sheet of UK Holdings and its Subsidiaries, as of the end of such fiscal quarter, together with related consolidated and consolidating statements of income, operations and retained earnings and of cash flows for such fiscal quarter in each case setting forth in comparative form consolidated and consolidating figures for the corresponding date or period of the preceding fiscal year, all such financial information described above to be in reasonable form and detail reasonably acceptable to the Agent, and accompanied by a certificate of the chief financial officer of the UK Holdings to the effect that such quarterly financial statements fairly present in all material respects the financial condition of and results of operations for UK Holdings and its Subsidiaries and have been prepared in accordance with GAAP, except as disclosed to the Lenders and accepted by the Required Lenders. SECTION 8 NEGATIVE COVENANTS ------------------ Each Credit Party hereby covenants and agrees that, so long as this Credit Agreement is in effect or any amounts payable hereunder or under any other Credit Document shall remain outstanding, and until all of the Commitments hereunder shall have terminated, it shall, and the Guarantor shall cause each other Credit Party to, fully honor and comply with each of the negative covenants set forth in Section 5.2 of the WestPoint Credit Agreement, each of which covenants are hereby expressly incorporated herein by reference; provided, however, that, on or prior to the Closing Date, the Borrowers shall be permitted to enter into any sale and leaseback transaction related to the acquisition of Flower by UK Holdings. SECTION 9 EVENTS OF DEFAULT ----------------- 9.1 Events of Default. An Event of Default shall exist upon the occurrence of any of the following specified events (each an "Event of Default"): (a) Payment. Any Credit Party shall (i) default in the payment when due of any principal of any of the Foreign Currency Loans or of any reimbursement obligations arising from drawings under Foreign Letters of Credit, or (ii) default, and such default shall continue for five (5) or more days, in the payment when due of any interest on the Foreign Currency Loans or on any reimbursement obligations arising from drawings under Foreign Letters of Credit, or of any fees or other amounts owing hereunder, under any of the other Credit Documents or in connection herewith or therewith; or (b) Guaranty. The guaranty given by the Guarantor hereunder or any provision thereof shall cease to be in full force and effect, or the Guarantor shall deny or 28 30 disaffirm such Guarantor's obligations under such guaranty, or the Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any guaranty (including Section 4 hereof); or (c) Representations. Any representation, warranty or statement made or deemed to be made by any Credit Party herein, in any of the other Credit Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was deemed to have been made; or (d) Bankruptcy Event. Any Bankruptcy Event shall occur with respect to any Credit Party; or (e) Ownership. The Guarantor shall cease to own directly or indirectly all of the outstanding capital stock of either of the Borrowers; or (f) Incorporated Events of Default. There shall occur and be continuing any Event of Default under and as defined in the WestPoint Credit Agreement. 9.2 Acceleration; Remedies. Upon the occurrence of an Event of Default, and at any time thereafter unless and until such Event of Default has been waived by the requisite Lenders (pursuant to the voting conditions of Section 11.6) or cured to the satisfaction of the requisite Lenders (pursuant to the voting procedures in Section 11.6), the Agent shall, upon the request and direction of the Required Lenders, by written notice to the Credit Parties take any of the following actions without prejudice to the rights of the Agent or any Lender to enforce its claims against the Credit Parties, except as otherwise specifically provided for herein: (i) Termination of Commitments. Declare the Commitments terminated whereupon the Commitments shall be immediately terminated. (ii) Acceleration. Declare the unpaid principal of and any accrued interest in respect of all Foreign Currency Loans, any reimbursement obligations arising from drawings under Foreign Letters of Credit and any and all other indebtedness or obligations of any and every kind owing by the Borrowers to any of the Lenders hereunder to be due whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each of the Borrowers. (iii) Cash Collateral. Direct (A) the Borrowers to pay to the Agent additional cash, to be held by the Agent, for the benefit of the Lenders, in a cash collateral account as additional security for the Foreign LOC Obligations in respect of subsequent drawings under all then outstanding Foreign Letters of Credit in an amount equal to the maximum aggregate amount which may be drawn under all Foreign Letters of Credits then outstanding. (iv) Enforcement of Rights. Enforce any and all rights and interests created and existing under the Credit Documents and all rights of set-off. Notwithstanding the foregoing, if a Bankruptcy Event shall occur with respect to any Credit Party, then the Commitments shall automatically terminate and all Foreign Currency Loans, all reimbursement obligations arising from drawings under Foreign Letters of Credit, all accrued interest in respect thereof, all 29 31 accrued and unpaid fees and other indebtedness or obligations owing to the Lenders hereunder automatically shall immediately become due and payable without the giving of any notice or other action by the Agent. SECTION 10 AGENCY PROVISIONS ----------------- Each of the terms, conditions, and provisions of Article VIII of the WestPoint Credit Agreement are hereby expressly incorporated herein by reference and applied with equal force to this Credit Agreement, including without limitation the appointment of the Agent, the rights of indemnification, resignation of the Agent, and the nature of the duties of the Agent. Any successor Agent appointed pursuant to Article VIII of the WestPoint Credit Agreement shall automatically replace and succeed the Agent hereunder. SECTION 11 MISCELLANEOUS ------------- 11.1 Notices. Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (i) when delivered, (ii) when transmitted via telecopy (or other facsimile device) to the number set out below, (iii) the Business Day following the day on which the same has been delivered prepaid to a reputable national overnight air courier service, or (iv) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address, in the case of the Borrowers, the Guarantor and the Agent, set forth below, and, in the case of the Lenders, set forth on Schedule 2.1(a), or at such other address as such party may specify by written notice to the other parties hereto: 30 32 if to the Borrowers or the Guarantor: WestPoint Stevens, Inc. 507 W. 10th Street P.O. Box 71 West Point, Georgia 31833 Attn: Morgan Scheussler Telephone: (706) 645-4230 Telecopier: (706) 645-4969 with a copy to the Legal Department at the above address. if to the Agent: NationsBank, N.A. NationsBank Corporate Center, 8th Floor 100 North Tryon Street Charlotte, NC 28255 Attn: J. Timothy Martin Senior Vice President Telephone: (704) 386-8385 Telecopy: (704) 386-1270 11.2 Right of Set-Off. Subject to Section 3.12, in addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default which is continuing, unremedied and unwaived, each Lender is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Lender (including, without limitation branches, agencies or Affiliates of such Lender wherever located) to or for the credit or the account of any Credit Party against obligations and liabilities of such Credit Party to such Lender hereunder, under the Foreign Currency Notes, under the other Credit Documents or otherwise, irrespective of whether such Lender shall have made any demand hereunder and although such obligations, liabilities or claims of such Lender to such Credit Party, or any of them, may be contingent or unmatured, and any such set-off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of such Lender subsequent thereto. Each of the Credit Parties hereby agrees that any Person purchasing a participation in the Foreign Currency Loans and Commitments hereunder pursuant to Section 11.3(c) or Section 3.12 may exercise all rights of set-off with respect to its participation interest as fully as if such Person were a Lender hereunder. 11.3 Benefit of Agreement. --------------------- (a) Generally. This Credit Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided that none of the Credit Parties may assign and transfer any of its interests or obligations without prior written consent of the Lenders; provided further that the rights of each Lender to transfer, assign or grant participations in its rights and/or obligations hereunder shall be limited as set forth in this Section 11.3, provided however that nothing herein shall prevent or prohibit any Lender from (i) pledging its Foreign Currency Loans hereunder to a Federal Reserve Bank in support of 31 33 borrowings made by such Lender from such Federal Reserve Bank, or (ii) granting assignments or participations in such Lender's Foreign Currency Loans and/or Commitments hereunder to its parent company and/or to any affiliate of such Lender which is at least 50% owned by such Lender or its parent company. (b) Assignments. Each Lender may, with the prior written consent of the Borrowers and the Agent, which consent shall not be unreasonably withheld or delayed (provided that no consent shall be required during the existence and continuation of an Event of Default), assign all or a portion of its rights and obligations hereunder pursuant to an assignment agreement substantially in the form of Exhibit 11.3(b) to one or more Eligible Assignees; provided that (i) any such assignment shall be in a minimum aggregate amount of $2,000,000 (or, if less, the remaining amount of the Commitment being assigned by such Lender) and in integral multiples of $1,000,000 above such amount, (ii) each such assignment shall be of a constant, not varying, percentage of all of the assigning Lender's rights and obligations under the Commitment being assigned, and (iii) any such assignment is accompanied by an assignment by such Lender to such Eligible Assignee(s) of an equal percentage of all of the assigning Lender's rights, obligations and commitments under the WestPoint Credit Agreement. Any assignment hereunder shall be effective upon satisfaction of the conditions set forth above and delivery to the Agent of a duly executed assignment agreement together with a transfer fee of $3,500 payable to the Agent for its own account. Upon the effectiveness of any such assignment, the assignee shall become a "Lender" for all purposes of this Credit Agreement and the other Credit Documents and, to the extent of such assignment, the assigning Lender shall be relieved of its obligations hereunder to the extent of the Foreign Currency Loans and Commitment components being assigned. Along such lines each Borrower agrees that upon notice of any such assignment and surrender of the appropriate Foreign Currency Note or Foreign Currency Notes, it will promptly provide to the assigning Lender and to the assignee separate Foreign Currency Notes substantially in the form of the original Foreign Currency Note or Foreign Currency Notes (but with notation thereon that it is given in substitution for replacement notes thereof). (c) Participations. Each Lender may sell, transfer, grant or assign participations in all or any part of such Lender's interest and obligations hereunder; provided that (i) such selling Lender shall remain a "Lender" for all purposes under this Credit Agreement (such selling Lender's obligations under the Credit Documents remaining unchanged) and the participant shall not constitute a Lender hereunder, (ii) no such participant shall have, or be granted, rights to approve any amendment or waiver relating to this Credit Agreement or the other Credit Documents except to the extent any such amendment or waiver would (A) reduce the principal of or rate of interest on or in respect of any Foreign Currency Loans or any Foreign LOC Obligations or any fees in which such participant is participating, (B) postpone the date fixed for any payment of principal (including extension of the Termination Date or the date of any mandatory prepayment), interest or fees in which such participant is participating, or (C) release all or substantially all of the collateral or guaranties (except as expressly provided in the Credit Documents) supporting any of the Foreign Currency Loans, Foreign LOC Obligations or Commitments in which such participant is participating, (iii) sub-participations by such participant (except to an Affiliate, parent company or Affiliate of a parent company of such participant) shall be prohibited and (iv) any such participations shall be in a minimum aggregate amount of $1,000,000 (or, if less, the remaining amount of the Commitment being participated by such Lender) of the Commitments and in integral multiples of $1,000,000 in excess thereof. In the case of any such participation, such participant shall not have any rights under this Credit Agreement or the other Credit Documents (such participant's rights against the selling Lender in respect of such participation to be those set forth in 32 34 the participation) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation. 11.4 No Waiver; Remedies Cumulative. No failure or delay on the part of the Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between any of the Credit Parties shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Agent or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle the Borrowers or any other Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agent or the Lenders to any other or further action in any circumstances without notice or demand. 11.5 Payment of Expenses, etc. Each Borrower agrees to: (i) pay all reasonable out-of-pocket costs and expenses of the Agent in connection with the negotiation, preparation, execution and delivery and administration of this Credit Agreement and the other Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and expenses of Moore & Van Allen, special counsel to the Agent) and any amendment, waiver or consent relating hereto and thereto including, but not limited to, any such amendments, waivers or consents resulting from or related to any work-out, renegotiation or restructure relating to the performance by the Credit Parties under this Credit Agreement and of the Agent and the Lenders in connection with enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, in connection with any such enforcement, the reasonable fees and disbursements of counsel for the Agent and each of the Lenders); (ii) pay and hold each of the Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify each Lender, its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, any investigation, litigation or other proceeding (whether or not any Lender is a party thereto) related to the entering into and/or performance of any Credit Document or the use of proceeds of any Foreign Currency Loans (including other extensions of credit) hereunder or the consummation of any other transactions contemplated in any Credit Document, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of gross negligence or willful misconduct on the part of the Person to be indemnified). 11.6 Amendments, Waivers and Consents. Neither this Credit Agreement nor any other Credit Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such amendment, change, waiver, discharge or termination is in writing entered into by, or approved in writing by, the Required Lenders, provided that no such amendment, change, waiver, discharge or termination shall, without the consent of each Lender, (i) extend the scheduled maturities (including the final maturity and any mandatory prepayments) of any Foreign Currency Loan, or any portion thereof, or reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) thereon or fees hereunder or reduce the principal amount thereof, or increase the Commitments of the Lenders over the amount thereof in effect (it being understood and agreed that a waiver of any Default or Event of Default or of a mandatory 33 35 reduction in the total Commitments shall not constitute a change in the terms of any Commitment of any Lender), (ii) release the Guarantor from its guaranty obligations hereunder (except as expressly provided in the Credit Documents), (iii) amend, modify or waive any provision of this Section or Section 3.6, 3.9, 3.10, 3.11, 3.12, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 9.1, 9.2, 11.2, 11.3, 11.5 or 11.9, (iv) reduce any percentage specified in, or otherwise modify, the definition of "Foreign Currency Equivalent," "Determination Date," "Dollar Amount," "Dollar Equivalent," or "Required Lenders" or (v) consent to the assignment or transfer by any Borrower or the Guarantor of any of its rights and obligations under (or in respect of) this Credit Agreement or any other Credit Document. No provision of Section 2.2 may be amended without the consent of the Issuing Lender, and no provision of Section 10 may be amended without the consent of the Agent. 11.7 Counterparts. This Credit Agreement may be executed in any number of counterparts, each of which where so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Credit Agreement to produce or account for more than one such counterpart. 11.8 Headings. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement. 11.9 Survival of Indemnification. All indemnities set forth herein, including, without limitation, in Section 2.2(i), 3.9, 3.10, or 11.5 shall survive the execution and delivery of this Credit Agreement, and the making of the Foreign Currency Loans, the issuance of the Foreign Letters of Credit, the repayment of the Foreign Currency Loans, Foreign LOC Obligations and other obligations under the Credit Documents and the termination of the Commitments hereunder. 11.10 Governing Law; Submission to Jurisdiction; Venue; Arbitration. -------------------------------------------------------------- (a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any legal action or proceeding with respect to this Credit Agreement or any other Credit Document may be brought in the courts of the State of North Carolina in Mecklenburg County, or of the United States for the Western District of North Carolina, and, by execution and delivery of this Credit Agreement, each of the Credit Parties hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of such courts. Each of the Credit Parties further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address set out for notices pursuant to Section 11.1, such service to become effective 30 days after such mailing. Nothing herein shall affect the right of the Agent or any Lender to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against any Credit Party in any other jurisdiction. (b) Each of the Credit Parties hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Credit Agreement or any other Credit Document brought in the courts referred to in subsection (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 34 36 (c) TO THE EXTENT PERMITTED BY LAW, THE AGENT, EACH OF THE LENDERS AND EACH OF THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. (d) (i) Without limiting the generality of subsections (a), (b) and (c) of this Section 11.10, each Borrower agrees that any controversy or claim with respect to it arising out of or relating to this Credit Agreement or any of the other Credit Documents may, at the option of the Agent and the Lenders, be settled immediately by submitting the same to binding arbitration in Charlotte, North Carolina (or such other place as the parties may agree) in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Upon the request and submission of any controversy or claim for arbitration hereunder, the Agent shall give the Borrowers not less than 45 days written notice of the request for arbitration, the nature of the controversy or claim, and the time and place set for arbitration. Each Borrower agrees that such notice is reasonable to enable it sufficient time to prepare and present its case before the arbitration panel. Judgment on the award rendered by the arbitration panel may be entered in any court in which any action could have been brought or maintained, including without limitation any court of the State of North Carolina in Mecklenburg County, or of the United States for the Western District of North Carolina. The expenses of arbitration shall be paid by the Borrowers. (ii) The provisions of subsection (d)(i) above are intended to comply with the requirements of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"). To the extent that any provisions of such subsection (d)(i) are not consistent with or fail to conform to the requirements set out in the Convention, such subsection (d)(i) shall be deemed amended to conform to the requirements of the Convention. (iii) Each Borrower hereby specifically consents and submits to the jurisdiction of the courts of the State of North Carolina in Mecklenburg County, or of the United States for the Western District of North Carolina, for purposes of entry of a judgment or arbitration award entered by the arbitration panel. (iv) The Borrowers hereby irrevocably appoint Corporation Service Network, with an address on the date hereof at 327 Hillsborough Street, Raleigh, NC 27603 (the "Domestic Process Agent"), as process agent in its name, place and stead to receive and forward service of any and all writs, summonses and other legal process in any suit, action or proceeding brought in the State of North Carolina, agree that such service in any such suit, action or proceeding may be made upon the Domestic Process Agent and agree to take all such action as may be necessary to continue said appointment in full force and effect or to appoint another agent so that the Borrowers will at all times have an agent in the State of North Carolina for service of process for the above purposes. 11.11 Severability. If any provision of any of the Credit Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 35 37 11.12 Entirety. This Credit Agreement together with the other Credit Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents or the transactions contemplated herein and therein. 11.13 Survival of Representations and Warranties. All representations and warranties made by the Credit Parties herein shall survive delivery of the Foreign Currency Notes and the making of the Foreign Currency Loans and the issuance of the Foreign Letters of Credit hereunder. 11.14 Binding Effect; Termination of Credit Agreement. ------------------------------------------------ (a) This Credit Agreement shall become effective at such time on or after the Closing Date when it shall have been executed by the Borrowers, the Guarantor and the Agent, and the Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of each Lender, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of the Borrowers, the Guarantor, the Agent and each Lender and their respective successors and assigns. (b) The term of this Credit Agreement shall be until no Foreign Currency Loans, Foreign LOC Obligations or any other amounts payable hereunder or under any of the other Credit Documents shall remain outstanding and until all of the Commitments hereunder shall have expired or been terminated. 11.15 Judgment Currency. ------------------ (a) Each Credit Party's obligations hereunder to make payments in Dollars or in Pounds Sterling (the "Obligation Currency") shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency, except to the extent that such tender or recovery results in the effective receipt by the Agent or a Lender of the full amount of the Obligation Currency expressed to be payable to the Agent or such Lender under this Credit Agreement. If, for the purpose of obtaining or enforcing judgment against any Credit Party in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than the Obligation Currency (such other currency being hereinafter referred to as the "Judgment Currency") an amount due in the Obligation Currency, the conversion shall be made, at the Dollar Equivalent or the Foreign Currency Equivalent, as applicable, determined in each case as of the Business Day immediately preceding the day on which the judgment is given (such Business Day being hereinafter referred to as the "Judgment Currency Conversion Date"). (b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, such amount payable by the applicable Credit Party shall be reduced or increased, as applicable, such that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date. 36 38 [Signature Page to Follow] 37 39 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Credit Agreement to be duly executed and delivered as of the date first above written. BORROWERS: WESTPOINT STEVENS (UK) LIMITED - --------- By -------------------------------- Title ----------------------------- P.J. FLOWER & CO. LIMITED By -------------------------------- Title ----------------------------- GUARANTOR: WESTPOINT STEVENS INC. - --------- By -------------------------------- Title ----------------------------- [Signatures Continue] S-1 40 LENDERS: NATIONSBANK, N.A., - ------- individually in its capacity as a Lender and in its capacity as Agent Foreign Currency Commitment Percentage: By 13.141631325% --------------------------------- Name ------------------------------- Title ------------------------------ Address: NationsBank, N.A. 100 North Tryon Street NC 1-007-08-11 Charlotte, N.C. 28255 Attn: J. Timothy Martin Telephone: (704) 386-8385 Telecopier: (704) 386-1270 THE BANK OF NEW YORK Foreign Currency Commitment Percentage: By 13.141631342% --------------------------------- Name ------------------------------- Title ------------------------------ Address: The Bank of New York One Wall Street, 22nd Floor New York, New York 10286 Attn: Gregory Batson Telephone: (212) 635-6898 Telecopier: (212) 635-6434 [Signatures Continue] S-2 41 THE FIRST NATIONAL BANK OF BOSTON Foreign Currency Commitment Percentage: By 13.141631342% --------------------------------- Name ------------------------------- Title ------------------------------ Address: The First National Bank of Boston 115 Perimeter Center Place, N.E. Suite 500 Atlanta, Georgia 30346 Attn: Stephen Y. McGehee Telephone: (770) 390-6524 Telecopier: (770) 393-4166 THE FIRST NATIONAL BANK OF CHICAGO Foreign Currency Commitment Percentage: By 14.285714288% --------------------------------- Name ------------------------------- Title ------------------------------ Address: The First National Bank of Chicago One First National Plaza Chicago, Illinois 60670-0424 Attn: Courtenay R. Wood Telephone: (312) 732-1563 Telecopier: (312) 732-5435 [Signatures Continue] S-3 42 THE NIPPON CREDIT BANK, LTD. Foreign Currency Commitment Percentage: By 13.141631342% --------------------------------- Name ------------------------------- Title ------------------------------ Address: The Nippon Credit Bank, Ltd. 245 Park Avenue, 30th Floor New York, New York 10167 Attn: Clifford Abramsky Telephone: (212) 984-1238 Telecopier: (212) 490-3895 WACHOVIA BANK OF GEORGIA, N.A. Foreign Currency Commitment Percentage: By 14.285714288% --------------------------------- Name ------------------------------- Title ------------------------------ Address: Wachovia Bank of Georgia, N.A. 191 Peachtree Street, N.E., 30th Floor Atlanta, GA 30303-1757 Attn: Commercial Group Telephone: (404) 332-1382 Telecopier: (404) 332-6920 [Signatures Continue] S-4 43 SUNTRUST BANK, ATLANTA Foreign Currency Commitment Percentage: By 9.995403241% --------------------------------- Name: Wes Burton Title: Vice President By --------------------------------- Name ------------------------------- Title ------------------------------ Address: SunTrust Bank, Atlanta 25 Park Place, NE, 23rd Floor Mail Code 126 Atlanta, Georgia 30302 Attn: Wes Burton Telephone: (404) 724-3893 Telecopier: (404) 588-8833 AMSOUTH BANK OF ALABAMA Foreign Currency Commitment Percentage: By 4.290311048% --------------------------------- Name ------------------------------- Title ------------------------------ Address: AmSouth Bank of Alabama 1900 5th Avenue North Birmingham, Alabama 35203 Attn: Alan Lott Telephone: (205) 583-4474 Telecopier: (205) 583-4436 [Signatures Continue] S-5 44 ABN AMRO BANK, N.V., ATLANTA AGENCY Foreign Currency Commitment Percentage: By 4.576331784% --------------------------------- Name ------------------------------- Title ------------------------------ By --------------------------------- Name ------------------------------- Title ------------------------------ Address: ABN AMRO Bank, N.V. Atlanta Agency One Ravinia Drive, Suite 1200 Atlanta, GA 30346 Attn: Mark Clegg Telephone: (770) 399-7399 Telecopier: (770) 399-7397 S-6 45 SCHEDULE 1.1A ------------- CALCULATION OF THE MLA COST (a) The MLA Cost for any Foreign Currency Loan made by any Lender is calculated in accordance with the following formula: BY + L(Y-X) + S(Y-Z) % per annum = MLA Cost --------------------- 100 - (B+S) where on the day of application of the formula: B is the percentage of such Lender's eligible liabilities which the Bank of England requires such Lender to hold on a non-interest-bearing deposit account in accordance with its cash ratio requirements; Y is the interest rate applicable to such Foreign Currency Loan; L is the percentage of eligible liabilities which the Bank of England requires such Lender to maintain as secured money with members of the London Discount Market Association and/or as secured call money with certain money brokers and gilt-edged primary market makers; X is the rate at which secured Pounds Sterling deposits in the relevant amount may be placed by such Lender with members of the London Discount Market Association and/or as secured call money with certain money brokers and gilt-edged primary market makers at or about 11:00 a.m. on that day for the relevant period; S is the percentage of such Lender's eligible liabilities which the Bank of England requires such Lender to place as a special deposit; and Z is the interest rate per annum allowed by the Bank of England on special deposits. (b) For the purposes of this Schedule 1.1A: (i) "eligible liabilities" and "special deposits" have the meanings given to them at the time of application of the formula by the Bank of England; (ii) "relevant period" means: (A) in relation to any Foreign Currency Loan bearing interest on the basis of the Eurocurrency Rate, (1) if its Interest Period is 3 months or less, that Interest Period and (2) if its Interest Period is more than three months, each successive period of three months and any necessary shorter period comprised in that Interest Period; or (B) in relation to any Foreign Currency Loan bearing interest on the basis of the Interim Foreign Currency Rate, each day that such Foreign Currency Loan is outstanding. 46 (c) In application of the formula, B, Y, L, X, S and Z are included in the formula as figures and not as percentages, e.g. if B=0.5% and Y=15%, BY is calculated as 0.5 x 15. (d) (i) The formula is applied (A) in relation to any Foreign Currency Loan bearing interest on the basis of the Eurocurrency Rate, on the first day of each Interest Period of such Foreign Currency Loan and (B) in relation to any Foreign Currency Loan bearing interest on the basis of the Interim Foreign Currency Rate, on each day. (ii) Each rate calculated in accordance with the formula is, if necessary, rounded upward to four decimal places. (e) If the Agent determines that a change in circumstances has rendered, or will render, the formula inappropriate, the Agent shall notify the Borrower of the manner in which the MLA Cost will subsequently be calculated. The manner of calculation so notified by the Agent shall, in the absence of manifest error, be binding on all the parties. 47 SCHEDULE 1.1B ------------- FORM OF NOTICE OF BORROWING NationsBank, N.A., as Agent for the Lenders 35 New Broad Street GB1-001-01-01 London, England EC2M 1NH Ladies and Gentlemen: The undersigned, [WestPoint Stevens (U.K.) Limited] or [P.J. Flower & Co. Limited] refers to the Credit Agreement dated as of January 23, 1997 (as it may be amended, modified, extended or restated from time to time, the "Credit Agreement"), among the Borrowers, the other Credit Parties party thereto, the Lenders party thereto and NationsBank, N.A., as Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The undersigned hereby gives you notice that it requests a Foreign Currency Loan advance in accordance with the provisions of Section 2.1 of the Credit Agreement and in connection therewith sets forth below the terms on which such Foreign Currency Loan advance is requested to be made: (A) Date of Borrowing (which is a Business Day) _______________________ (B) Principal Amount of Borrowing _______________________ (C) Interest Period and the last day thereof _______________________ The delivery of this Notice of Borrowing shall constitute a representation and warranty by the undersigned of the correctness of the matters specified in subsections (ii), (iii), (iv), and (v) of Sections 5.2. Very truly yours, [WESTPOINT STEVENS (U.K.) LIMITED] [P.J. FLOWER & CO. LIMITED] By: Title: 48 SCHEDULE 1.1C ------------- FORM OF NOTICE OF EXTENSION NationsBank, N.A., as Agent for the Lenders 35 New Broad Street GB1-001-01-01 London, England EC2M 1NH Ladies and Gentlemen: The undersigned, [WestPoint Stevens (U.K.) Limited] [P.J. Flower & Co. Limited], refers to the Credit Agreement dated as of January 23, 1997 (as amended, modified, extended or restated from time to time, the "Credit Agreement"), among the Borrowers, the other Credit Parties party thereto, the Lenders and NationsBank, N.A., as Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The undersigned hereby gives notice pursuant to Section 3.2 of the Credit Agreement that it requests an extension of a Foreign Currency Loan outstanding under the Credit Agreement, and in connection herewith sets forth below the terms on which such extension is requested to be made: (A) Date of Extension (which is the last day of the the applicable Interest Period) _______________________ (B) Principal Amount of Extension _______________________ (C) Interest Period and the last day thereof _______________________ The delivery of this Notice of Extension shall constitute a representation and warranty by the undersigned of the correctness of the matters specified in subsections (ii), (iii), (iv), and (v) of Sections 5.2. Very truly yours, [WESTPOINT STEVENS (U.K.) LIMITED] [P.J. FLOWER & CO. LIMITED] By: Title: 49 SCHEDULE 2.5(E) --------------- FORM OF FOREIGN CURRENCY NOTE January 23, 1997 FOR VALUE RECEIVED, [WESTPOINT STEVENS (UK) LIMITED] [P.J. FLOWER & CO. LIMITED], a limited liability company incorporated in England (the "Borrower"), hereby promises to pay to the order of __________________________, its successors and assigns (the "Lender"), at the office of NationsBank, N.A., as Agent (the "Agent"), at 35 New Broad Street, GB1-001-01-01, London, England ECM 12H (or at such other place or places as the holder hereof may designate), at the times set forth in the Credit Agreement, dated as of January 23, 1997, among the Borrower, [WestPoint Stevens (UK) Limited/P.J. Flower & Co.], WestPoint Stevens Inc., the Lenders and the Agent (as it may be amended, modified, extended or restated from time to time, the "Credit Agreement"; all capitalized terms not otherwise defined herein shall have the meanings set forth in the Credit Agreement), but in no event later than the Termination Date, the aggregate unpaid principal amount of all Foreign Currency Loans made by the Lender to the Borrower pursuant to the Credit Agreement, and to pay interest from the date hereof on the unpaid principal amount hereof at said place and account, on the dates and at the rate in accordance with Section 2.1(d) of the Credit Agreement. Each payment on account of an amount due from the Borrower hereunder shall be made in Pounds Sterling at the place and time of payment set forth in Section 3.13(b) of the Credit Agreement. Without limiting the terms of the preceding sentence, accrued interest on any Foreign Currency Loan shall be payable in Pounds Sterling. Upon the occurrence and during the continuance of an Event of Default the balance outstanding hereunder shall bear interest as provided in Section 3.1 of the Credit Agreement. Further, in the event the payment of all sums due hereunder is accelerated under the terms of the Credit Agreement, this Foreign Currency Note, and all other indebtedness of the Borrower to the Lender shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Foreign Currency Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees. All borrowings evidenced by this Foreign Currency Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on Schedule A attached hereto and incorporated herein by reference, or on a continuation thereof which shall be attached hereto and made a part hereof; provided, however, that any failure to endorse such information on such schedule or continuation thereof shall not in any manner affect the obligation of the Borrower to make payments of principal and interest in accordance with the terms of this Foreign Currency Note. THIS FOREIGN CURRENCY NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 50 IN WITNESS WHEREOF, the Borrower have caused this Foreign Currency Note to be duly executed by its duly authorized officer as of the day and year first above written. [WESTPOINT STEVENS (UK) LIMITED] [P.J. FLOWER & CO. LIMITED] By ------------------------------------- Title ---------------------------------- 51 SCHEDULE A TO THE FOREIGN CURRENCY NOTE DATED JANUARY 23, 1997
Unpaid Name of Principal Person Interest Payments Balance Making Date Period Principal Interest of Note Notation - ---- ------ --------- -------- ------- --------
EX-10.44 4 1ST AMENDMENT TO SUPPLEMENTAL RETIREMENT PLAN 1 WESTPOINT STEVENS INC. EXHIBIT (10.44) - FIRST AMENDMENT TO THE WESTPOINT STEVENS INC. SUPPLEMENTAL RETIREMENT PLAN THIS FIRST AMENDMENT to the WestPoint Stevens Inc. Supplemental Retirement Plan (the "Plan") is made on this 6th day of September, 1996, by WestPoint Stevens Inc. (the "Company") W I T N E S S E T H: WHEREAS, the Company maintains the Plan to provide supplemental retirement benefits to a select group of management or highly compensated employees of the Company; and WHEREAS, Section 7.1 of the Plan provides that the Company has the right to amend the Plan at any time and from time to time in any fashion, subject to the limitations stated therein; and WHEREAS, the Board of Directors of the Company on August 15, 1996 approved the amendment of the Plan to limit the amount of compensation that may be taken into account for purposes of determining a participant's accrued benefit under the Plan; NOW, THEREFORE, the Plan is amended as follows: 1. Section 3.1 of the Plan is hereby amended effective January 1, 1996 to read as follows: 3.1 Participation. Each Eligible Employee shall become a Participant in the Plan as of the date that such Eligible Employee is approved for participation by the Committee in its sole discretion. 2. Section 4.1 of the Plan is amended effective January 1, 1996 by adding a new subsection 4.1(c) to read as follows: (c) Notwithstanding subsection (a)(1) or anything in the Pension Plan to the contrary, the compensation taken into account under the Plan for Plan Years beginning on or after January 1, 1996 shall not exceed the lesser of (i) $300,000 or (ii) one-hundred twenty percent (120%) of the Participant's base salary. The provisions of this subsection (c) shall not reduce any Participant's Accrued Benefit determined as of August 15, 1996. In addition, the provisions of this subsection (c) shall not apply to Holcombe T. Green, Jr., Joseph L. Jennings, Jr., Thomas J. Ward, Morgan M. Schuessler and William F. Crumley. 3. Except as specified herein, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Amendment effective on the date first written above. WESTPOINT STEVENS INC. By: /s/ Holcombe T. Green, Jr. ---------------------------------------- Title: Chairman and Chief Executive Officer -------------------------------------- EX-10.45 5 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.45 [LETTERHEAD] WESTPOINT STEVENS HOLCOMBE T. GREEN, JR. CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER May 28, 1996 Personal and Confidential Mr. Joseph L. Jennings WestPoint Stevens Inc. P.O. Box 71 West Point, GA 31833 Dear Joe: You have indicated that you would like to avoid the daily responsibilities associated with your present position as President and Chief Operating Officer of WestPoint Stevens Inc., and in response thereto, I have proposed the following arrangement with respect to your employment by the Company in 1997-98: 1. Effective January 1, 1997, you would serve as Vice-Chairman of the company, reporting directly to me. As such, you would have no daily responsibilities but would be available, as your time allowed, to assist me from time to time with certain special projects. For example, I would like for you to assist me with the supervision of Alamac, our cotton purchases, and the India joint venture. You would also continue to serve as WestPoint's member of the ATMI Board of Directors and would represent the Company in various community Boards and functions in the West Point, Georgia area. You would continue, as your time permitted, to assist the Company with its sales and customer relations, especially with the larger accounts where you have personal contacts. 2 - 2 - 2. You would maintain your present office and secretary and be eligible for all your current benefits. If you moved from West Point, Georgia, you would be furnished with an office and secretarial assistance at a Company location of your choice. 3. You would be paid $120,000 annually as your base salary and would be eligible to participate in the incentive bonus program and stock bonus program. You would keep all of your current stock options, subject to their normal terms. 4. If you decide to sell your home in West Point, Georgia, you would sell the house to the Company for your cost, including all improvements paid by you, plus $50,000. You would, of course, remain a member of the Board of Directors of WestPoint Stevens Inc. Please let me know if this arrangement is satisfactory with you. This agreement supersedes your current employment agreement with the Company effective as of January 1, 1997. Sincerely, /s/ Holcombe T. Green, Jr. Holcombe T. Green, Jr. HTGjr:rj EX-11 6 STATEMENT RE: COMPUTATION OF EARNINGS 1 WESTPOINT STEVENS INC. EXHIBIT (11) - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED DECEMBER 31, ------------------------------------------ 1996 1995 1994 --------- --------- --------- Primary: Average shares outstanding .................................... 31,277 32,699 33,775 Shares issuable under 1995 Key Employee Stock Bonus Plan ........................... 50 - - Net effect of dilutive stock options - based on the treasury stock method using average market price ....................... 456 - - --------- --------- --------- Total ......................................................... 31,783 32,699 33,775 ========= ========= ========= Net income (loss) ............................................. $ 57,665 $(129,848) $(203,364) ========= ========= ========= Per share amount .............................................. $ 1.81 $ (3.97) $ (6.02) ========= ========= =========
Fully diluted earnings per share calculations are not presented as dilution is less than 3%. EX-21 7 LIST OF SUBSIDIARIES 1 WESTPOINT STEVENS INC. EXHIBIT (21) - LIST OF SUBSIDIARIES OF WESTPOINT STEVENS INC.
% OF SECURITIES OWNED BY NAME INCORPORATED IMMED. PARENT - ---- ------------ ------------- West Point-Pepperell Enterprises, Inc. Delaware 100% J.P. Stevens & Co., Inc. Delaware 100% WestPoint Stevens (Canada) Ltd. Canada 100% (1)J.P. Stevens & Co., Limited England 100% J.P. Stevens Enterprises, Inc. Delaware 100% Alamac Holdings Inc. Delaware 100% Alamac Sub Holdings Inc. Delaware 100% AIH Inc. Delaware 100% Alamac Enterprises Inc. Delaware 100% Alamac Knit Fabrics, Inc. Delaware 100% WestPoint Stevens Stores Inc. Georgia 100% WestPoint Stevens (UK) Limited England 100% P.J. Flower & Co. Limited England 100% Artway Designs Limited England 100% Lexward Properties Limited England 100% P.J. Flower Inc. New Jersey 100% WPS Receivables Corporation Delaware 100% WPSI Inc. Delaware 100%
(1)To be dissolved EX-23 8 CONSENT OF ERNST & YOUNG 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-85718, Form S-8 No. 33-80806 and Form S-8 No. 33-95580) pertaining to (i) the Retirement Savings Plan for Employees of WestPoint Stevens Inc., (ii) the WestPoint Stevens Inc. 1993 Management Stock Option Plan and (iii) the 1995 Key Employee Stock Bonus Plan, respectively, of our report dated February 5, 1997, with respect to the consolidated financial statements and schedule of WestPoint Stevens Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 1996. Columbus, Georgia /s/ Ernst & Young LLP February 13, 1997 EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONSOLIDATED BALANCE SHEET FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 14,029 0 89,810 22,861 299,651 395,568 1,036,361 (330,393) 1,156,999 254,715 1,075,000 0 0 346 450,744 1,156,999 1,723,814 1,723,814 1,325,904 1,325,904 2,757 0 102,447 90,365 32,700 57,665 0 0 0 57,665 1.81 1.81
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