-----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, GCGfEQNGlC2XL0ECdfMjhmw3dBl2EdzZul6DGH8tJBGWafI9ADCgFtcxe9kAalrC 7o4VD4JMPlg0Urho9+wJDw== 0000950144-99-003723.txt : 19990402 0000950144-99-003723.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950144-99-003723 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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-K SEC ACT: SEC FILE NUMBER: 333-20013 FILM NUMBER: 99581180 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-K 1 WESTPOINT STEVENS INC 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1998 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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (706) 645-4000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE. SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Title of each Class Name of each exchange 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 (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.|_| The aggregate market value of voting stock held by nonaffiliates of the registrant was approximately $1,033,248,307 at March 19, 1999. The number of shares of Common Stock outstanding at March 19, 1999, was 55,543,959. (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date. 55,543,959 at March 19, 1999 DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive proxy statement to be mailed to stockholders in connection with the registrant's May 12, 1999 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. ================================================================================ 2 TABLE OF CONTENTS
Page No. Item 1. Business ............................................................................ 3 Item 2. Properties .......................................................................... 8 Item 3. Legal Proceedings ................................................................... 9 Item 4. Submission of Matters to a Vote of Security Holders ................................. 9 Item 5. Market for Registrant's Common Stock and Related Stockholder Matters ................ 9 Item 6. Selected Financial Data ............................................................. 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 8. Financial Statements and Supplementary Data ......................................... 19 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 40 Item 10. Directors and Executive Officers of the Registrant ................................. 40 Item 11. Executive Compensation ............................................................. 40 Item 12. Security Ownership of Certain Beneficial Owners and Management ..................... 40 Item 13. Certain Relationships and Related Transactions ..................................... 40 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ................... 40
2 3 ITEM 1. BUSINESS WestPoint Stevens Inc., a Delaware corporation organized in 1987 (the "Company"), is the successor corporation to West Point- Pepperell, Inc. through a series of mergers occurring in December 1993. The Company is engaged directly and indirectly through its subsidiaries in the manufacture, marketing and distribution of bed and bath home fashions ("Home Fashions") products. 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 "- Trademarks and Licenses." On October 30, 1998, an indirect wholly owned subsidiary of the Company purchased substantially all of the assets of Liebhardt Mills, Inc., a leading domestic manufacturer and marketer of bed pillows and related bedding products. The Company's management estimates that it has the largest market share (approximately 36%) in the domestic sheet and pillowcase market and the largest market share (approximately 43%) 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 February 8, 1999), 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. 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, - bed pillows, - mattress pads, - 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. 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, brand 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(R), 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 Home Collection, Sanderson, Larry Laslo, Joe Boxer, Glynda Turley, Designers Guild, Esprit and Star Wars. 3 4 A portion of the Company's sales is 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 11% 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 effect could be material. The following are the expiration dates for the licensing agreements discussed above: Ralph Lauren, December 31, 2000; Sanderson, March 31, 2000; Larry Laslo, March 31, 2000; Joe Boxer, January 1, 2002; Glynda Turley, December 31, 2001; Esprit, December 31, 2000; and Star Wars, September 30, 2001. 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 and marketing of the Company's Home Fashions products are conducted through a recently enhanced organizational format consisting of divisions for domestic sales, domestic marketing and international sales and marketing. Distribution specific teams are linked with product management, operations, customer service and distribution to service each segment of Retail. The Domestic Sales Division focuses on the following channels of distribution: - mass merchants; - department and specialty stores; - custom brands; - Ralph Lauren; - health and hospitality institutions; and - specialized areas, including freestanding window treatments and blankets. The Domestic Marketing Division is comprised of the following functions which create products and services in direct response to recognized consumer trends: - design; - operating; - marketing; - advertising; - licensing; - consumer research; - product innovation; and - corporate communications. The International Sales and Marketing Division is organized to tailor its products and operations to the unique needs of the consumers and retailers in the world's leading markets. Operating units include: - Europe - which has manufacturing facilities and sales offices located in England supplying European department stores for private label, company brands, and licensed programs such as Ralph Lauren Home Collection and Designers Guild. - Americas - which markets to all major stores in Canada, Mexico, and Latin America with US-made and foreign sourced products. - Asia - which obtains foreign sourced goods for the United States and European markets. 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. A national consumer and trade advertising campaign and comprehensive internet web site have served to enhance brand recognition. The Company 4 5 also provides its customers with suggested customized advertising materials designed to increase its product sales. A heightened focus on consumer research provides needed products on a continual basis. Approximately 86% of the Company's 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 Company's sales of Home Fashions products. 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 the Company in 1998. 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 44 geographically dispersed, value-priced outlets throughout the United States and in Canada, 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 category management 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. The Company recently formed a supply chain and logistics group encompassing customer service, replenishment systems planning, sourcing, distribution and transportation, which it believes will further increase its capabilities to provide its customers with superior service. CUSTOMERS The Company is pursuing strategic relationships with key 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 53% of the net sales of the Company during the fiscal year ended December 31, 1998. In 1998 sales to Dayton Hudson Corporation were 13% of the net sales of the Company and sales to Kmart were 11% of the net sales of the Company. 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. 5 6 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 $588 million to modernize its manufacturing and distribution systems and has spent approximately $147.5 million of that amount during 1998. In October 1998 the Company also purchased bed pillow and related bedding product manufacturing facilities from Liebhardt Mills, Inc. The capital expenditures have been used to, among other things, replace projectile looms with faster, more efficient air jet looms, replace ring spinning with open-end and air jet spinning, and further automate the Company's cut and sew operations. Air jet looms produce at higher speeds than projectile 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 the cutting and tucking of the filling yarn. The Company's new open-end and air jet 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 1999 which includes the purchase of additional electronic jacquard head weaving equipment and blanket manufacturing facilities and equipment, construction of new and expanded distribution centers and installation of dyeing and finishing equipment, and automated fabricating and material handling 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 (including its subsidiaries) owns and utilizes 24 manufacturing facilities located primarily in the Southeastern United States and leases 4 manufacturing facilities, including one in England. See "Item 2 - Properties." RAW MATERIALS The principal raw materials used in the manufacture of Home Fashions products are cotton of various grades and staple lengths, nylon and polyester in staple and filament form. Cotton, nylon 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 nylon and 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, 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; CYCLICALITY; INVENTORY Traditionally, the home fashions industry has been seasonal, with peak sales seasons in the summer and fall. In accordance with industry practice, the Company increases its Home Fashions' inventory levels during the first six months of the year to meet customer demands for the summer and fall peak seasons. The Company's commitment to EDI, Quick Response, and Vendor Managed Inventory, however, has facilitated a more even distribution of products throughout the calendar year and reduced the need to stockpile inventory to meet peak season demands. The home fashions industry is 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 the Company's unfilled customer orders believed by management to be firm was approximately $104.5 million at February 27, 1999, as compared with approximately $111.5 million at January 31, 1998. The Company does not believe that its backlogs are a meaningful indicator of its future business. 6 7 COMPETITION The home fashions industry is highly competitive. 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., a wholly-owned subsidiary of Pillowtex Corporation (collectively "Pillowtex/Fieldcrest"), 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 there has been an increase in the sale of imported Home Fashions in the domestic market and is actively pursuing its own foreign sourcing opportunities to meet the demand for such products. The Company does not believe that there is any significant foreign competition with its current domestic operations. There can be no assurance that foreign will not grow to a level that could have an adverse effect upon the Company's ability to compete effectively. OTHER OPERATIONS The Company's operations include Grifftex Chemicals ("Grifftex") which formulates chemicals primarily used in the Company's finishing processes and WestPoint Stevens Graphics ("Graphics") which prints product packaging and labeling. Neither Grifftex nor Graphics 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 16,900 active employees as of February 25, 1999. 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 relations and communications program that includes rules and regulations for employee conduct and procedures for employee complaints. This long-standing program 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 8 RECENT DEVELOPMENTS During 1998 the Company purchased approximately 3.8 million shares under the various stock repurchase programs at an average price of $28.43 per share. On February 11, 1999 the Board of Directors approved the purchase of up to three 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 nineteen million shares. At December 31, 1998, approximately 4.9 million shares, including the three million share increase announced in February 1999, remained to be purchased under these programs. The repurchased 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. Such risks and uncertainties may be attributable to important factors which include but are not limited to the following: product margins may vary from those projected; raw material prices may vary from those assumed; additional reserves may be required for bad debts, returns, allowances, governmental compliance costs, or litigation; there may be changes in the performance of financial markets or fluctuations in foreign currency exchange rates; unanticipated natural disasters could have a material impact upon results of operations; there may be changes in the general economic conditions which affect customer payment practices or consumer spending; competition for retail and wholesale customers, pricing and transportation of products may vary from time to time due to seasonal variations or otherwise; customer preferences for our products can be affected by competition, or general market demand for domestic or imported goods or the quantity, quality, price or delivery time of such goods; there could be an unanticipated loss of a material customer, or a material license; the availability and price of raw materials could be affected by weather, disease, energy costs or other factors; efforts to avoid adverse effects due to computer systems failing to function properly with respect to dates in the year 2000 and beyond could meet with varying degrees of success in operations and in transactions with customers, suppliers and financial institutions; and the ability to project risk factors may vary. In addition, consideration should be given to any other risks and uncertainties discussed in other documents filed by the Company with the Securities and Exchange Commission. For a discussion of the Company's year 2000 compliance program see "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operation." ITEM 2. PROPERTIES 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. The Company owns office space in West Point, Georgia and Lanett and Valley, Alabama, and leases various additional office space, including approximately 288,000 square feet in New York City, of which approximately 180,000 square feet is subleased to other tenants. The Company also owns or leases various administrative, storage and office space. The Company owns a chemical plant containing approximately 43,000 square feet of floor space from which Grifftex Chemicals operates. In addition the Company owns a printing facility consisting of 44,000 square feet in which Graphics prints product packaging and labeling. The Company and its subsidiaries own 24 manufacturing facilities located in Alabama, Florida, Georgia, Indiana, Maine, North Carolina, South Carolina and Virginia which contain in the aggregate approximately 9,569,000 square feet of floor space and lease 4 manufacturing facilities in Georgia, Nevada, South Carolina and England. The Company and its subsidiaries also own 9 distribution centers and warehouses for their operations which contain approximately 2,973,000 square feet of floor space. In addition, the Company and its subsidiaries lease 9 distribution outlets and warehouses containing approximately 658,000 square feet of floor space. WestPoint Stores owns 2 retail stores and leases its 42 other retail stores, all of which are dispersed throughout the United States and Canada. 8 9 ITEM 3. LEGAL PROCEEDINGS 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 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 1998, 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 (on a split basis), each quarterly period within the two most recent fiscal years were:
Quarter Ended Quotations ------------- ---------------------------------------------- 1998 1997 -------------------- ------------------- High/Ask Low/Bid High/Ask Low/Bid -------- ------- -------- ------- March 31 29 1/4 21 3/4 20 14 1/2 June 30 34 3/4 28 1/4 20 1/4 17 9/16 September 30 37 7/8 25 15/16 21 1/2 18 5/16 December 31 32 1/2 24 5/8 24 1/16 19
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. As of March 15, 1999, there were approximately 14,655 holders of the Company's Common Stock. Of that total, approximately 278 were stockholders of record and approximately 14,377 held their stock in nominee name. 9 10 ITEM 6. SELECTED FINANCIAL DATA The selected historical financial data presented below for 1998, 1997 and 1996 were derived from the Audited Consolidated Financial Statements of the Company and its subsidiaries for the years ended December 31, 1998, 1997 and 1996 (the "Consolidated Financial Statements"), and should be read in conjunction therewith, including the notes thereto and the other financial information included elsewhere herein. The statement of operations data reflect the discontinuance of the Alamac Knit Fabrics subsidiary and accordingly only reflect the operations of Home Fashions.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales $1,779.0 $1,657.5 $1,501.8 $1,418.2 $1,346.9 Gross earnings 474.7 419.8 372.4 359.1 331.9 Operating earnings (loss)(1) 248.3 214.9 188.5 26.3 (46.5) Interest expense 105.7 102.2 94.5 93.5 94.2 Income (loss) from continuing operations before income tax expense (benefit) and extraordinary item 141.7 110.2 91.0 (70.4) (153.7) Income (loss) from continuing operations before extraordinary item 90.6 69.3 58.0 (102.3) (173.7) Net income (loss) 40.0 78.0 57.7 (129.8) (203.4) Diluted net income (loss) per common share: Continuing operations 1.51 1.11 0.91 (1.57) (2.57) Discontinued operations -- .14 -- (.42) (.44) Extraordinary item - loss on extinguishment of debt(2) (.84) -- -- -- -- -------- -------- -------- -------- -------- Net income (loss) per common share .67 1.25 0.91 (1.99) (3.01) Diluted average common shares outstanding 59.9 62.7 63.7 65.4 67.6
DECEMBER 31, --------------------------------------------------------- 1998 1997 1996 1995 1994 -------- ------- ------- ------- -------- (IN MILLIONS) BALANCE SHEET DATA: Total assets $1,391.2 $1,291.1 $1,157.0 $1,143.0 $1,270.2 Working capital (3) 178.2 212.2 140.9 115.7 122.7 Total debt 1,335.4 1,187.7 1,099.0 1,148.0 1,083.0 Stockholders' equity (deficit) (487.5) (425.0) (451.9) (507.5) (339.0)
YEAR ENDED DECEMBER 31, ------------------------------------------------------- (IN MILLIONS, EXCEPT RATIOS) 1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ OTHER DATA: Depreciation and amortization:(4) Continuing operations $ 80.6 $ 71.7 $ 68.9 $ 69.3 $ 74.2 Discontinued operations -- 5.5 8.1 11.1 12.0 Amortization of excess reorganization value: Continuing operations -- -- -- 152.4 203.3 Discontinued operations -- -- -- 25.3 33.6 Capital expenditures: Continuing operations 147.5 148.9 94.9 92.4 84.5 Discontinued operations -- 3.2 5.0 9.8 24.5 Operating earnings from continuing operations before amortization of excess reorganization value(5) 248.3 214.9 188.5 178.7 156.8 Continuing operations adjusted net income (6) 90.6 69.3 58.0 50.1 35.0 Operating margin from continuing operations before amortization of excess reorganization value(7) 14.0% 13.0% 12.6% 12.6% 11.6%
See footnotes on following page. 10 11 (1) Operating earnings (loss) for the years ended December 31, 1995 and 1994 includes amortization of excess reorganization value of $152.4 million and $203.3 million, respectively. (2) The Company recorded an extraordinary item of $50.6 million, net of income taxes of $28.5 million, for the early extinguishment of debt. The extraordinary charge consisted primarily of tender premiums and the write-off of deferred debt costs. (3) Working capital at December 31, 1998, 1997, 1996, 1995 and 1994 includes the current portion of bank indebtedness and other long-term debt of $60.4 million, $41.4 million, $24.0 million, $73.0 million, and $48.0 million, respectively. (4) Excludes amortization of excess reorganization value. (5) Such amounts are presented to facilitate comparisons between periods since there were no charges for the years ended December 31, 1998, 1997 and 1996 for amortization of excess reorganization value. (6) Continuing operations adjusted net income represents net income from continuing operations, adjusted to remove the impact of the amortization of excess reorganization costs and before extraordinary item and discontinued operations. Adjusted continuing operations EPS for the years ended December 31, 1998, 1997, 1996, 1995 and 1994 was $1.51, $1.11, $.91, $.77 and $.52, respectively. (7) Operating margin before amortization of excess reorganization value represents operating earnings before amortization of excess reorganization value as a percentage of net sales for the periods presented. 11 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL During the second quarter of 1998, the Company entered into a series of financing transactions pursuant to which the Company reduced interest expense, extended debt maturities and improved financial flexibility. The components of the financing transactions included (i) the sale of $525 million of 7 7/8% Senior Notes due 2005 and $475 million of 7 7/8% Senior Notes due 2008, (ii) the tender offers and consent solicitations for all outstanding 8 3/4% Senior Notes due 2001 and 9 3/8% Senior Subordinated Debentures due 2005, (iii) the redemption of the 9% Sinking Fund Debentures due 2017 and (iv) the amendment and restatement of the existing bank revolving credit agreement to provide for a term of 6 1/2 years and an increased commitment to $550 million. During the third quarter of 1998, the Company amended the bank revolving credit agreement to provide for an increased commitment to $575 million. See Note 2 - Indebtedness and Financial Arrangements in the Notes to Consolidated Financial Statements for additional information concerning the Company's financing transactions. YEAR 2000 General Description of the Year 2000 Issue The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. In 1994, the Company began a company-wide project to replace all existing information systems with improved systems launched from a newer technology infrastructure and, as a by-product, make the new systems Year 2000 compliant. The Company presently believes that with replacements and modifications of existing software and certain hardware, the Year 2000 Issue can be mitigated. However, if such modifications and replacements are not made, or are not completed on a timely basis, the Year 2000 Issue could have a material impact on the operations of the Company. The Company's plan to resolve the Year 2000 Issue involves the following four phases: assessment, remediation, testing and implementation. To date, the Company has completed its assessment of all systems that could be significantly affected by the Year 2000. The completed assessment indicated that most of the Company's significant information technology systems could be affected. That assessment also indicated that in some cases software and hardware (embedded chips) used in production and manufacturing systems (hereafter also referred to as operating equipment) were also at risk. Affected systems included automated assembly lines and related robotics technologies used in various aspects of the manufacturing process. However, based on a review of its product line, the Company determined that none of the products it has sold and will continue to sell required remediation to be Year 2000 compliant. Accordingly, the Company does not believe that the Year 2000 Issue presents a material exposure as it relates to the Company's products. In addition, the Company has gathered information about the Year 2000 compliance status of its significant customers, suppliers and subcontractors and continues to monitor their compliance. Status of Progress in Becoming Year 2000 Compliant The Company is on schedule with its plan for addressing the Year 2000 Issue. By March 1, 1999, the Company had determined that 90% of its systems were Year 2000 compliant and has completed an assessment, remediation and testing of its most critical systems. All implementation is expected to be completed by June 1, 1999. The Company will include the Year 2000 Issue as part of its disaster recovery testing throughout the remainder of 1999. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 Issue The Company has surveyed key production, non-production, service, utility and communication suppliers to determine their state of readiness. Responses indicate most key vendors plan to be compliant in a timely manner. EDI interfaces with suppliers 12 13 GENERAL--CONTINUED Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 Issue (continued) are being tested, and early results indicate the Company's supplier interfaces and procurement systems are compliant. However, there can be no assurance that suppliers' systems, or their suppliers' systems, upon which the Company relies, will be ready in a timely manner and will not have a material effect on the Company. The Company has surveyed key customers who electronically interface with the Company via EDI to determine their state of readiness and plan for testing compliant interfaces. Responses received from a majority of key customers indicate that they expect to be compliant and able to test compliant interfaces. However, there can be no assurance that all customers' systems, upon which the Company relies, will be ready in a timely manner and will not have a material effect on the Company. To date, the Company is not aware of any third party with a Year 2000 Issue that will materially impact the Company's results of operations, liquidity or capital resources. However, the Company has no means of ensuring that third parties will be Year 2000 ready. The inability of third parties to complete their Year 2000 resolution process in a timely fashion could materially impact the Company. Costs, Risks and Contingency Plans for the Year 2000 Issue The Company has and will continue to utilize both internal and external resources to reprogram, or replace, test and implement the software and operating equipment for Year 2000 modifications. The total cost of the Year 2000 project is estimated at $650,000 and is being funded through operating cash flows. Of that amount, the Company estimates it has incurred approximately $550,000 to date, related to all phases of the Year 2000 project and not related to the systems improvement project started in 1994. The Company has a high dependence on computer processes such as electronic order and shipment information that automatically drive business processes, bar codes that cannot be reproduced manually, and machinery containing advanced technology requiring computerized controls. The Company's business transaction volume is concentrated among a few customers who also have a high dependence upon computers. Management of the Company believes it has an effective program in place to address the Year 2000 Issue in a timely manner, however, in the event that the Company does not complete all necessary remaining phases of the Year 2000 program, the Company may experience some difficulties in operating its equipment. In addition, disruptions in the economy generally resulting from Year 2000 Issues could have a material effect upon the Company. The Company is updating its contingency plans based on the current status of its progress toward becoming Year 2000 compliant. Contingency plans will continue to address potential needs during the actual transition of operations on January 1, 2000. In addition, the Company is planning the development of a Year 2000 business continuity plan for its critical business functions that will include potential failure by critical third parties to address the Year 2000 Issue. The costs of the Year 2000 project and the date on which management of the Company believes it will complete Year 2000 modifications are based on management's best estimates, which are derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no assurance that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. 13 14 RESULTS OF OPERATIONS The table below is a summary of the Company's operating results for the years ended December 31, 1998, 1997 and 1996. See Note 10 in the Notes to Consolidated Financial Statements for information concerning the Company's discontinued operations. The following discussion is limited to an analysis of the results of continuing operations (in millions of dollars and as percentages of net sales).
YEAR ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 -------- -------- -------- Net sales ............................................... $1,779.0 $1,657.5 $1,501.8 Gross earnings .......................................... $ 474.7 $ 419.8 $ 372.4 Operating earnings ...................................... $ 248.3 $ 214.9 $ 188.5 Interest expense ........................................ $ 105.7 $ 102.2 $ 94.5 Income from continuing operations ....................... $ 90.6 $ 69.3 $ 58.0 Income (loss) from discontinued operations .............. -- 2.6 (0.3) Gain on sale of discontinued operations ................. -- 6.1 -- Extraordinary item - loss on early extinguishment of debt (50.6) -- -- -------- -------- -------- Net income .............................................. $ 40.0 $ 78.0 $ 57.7 Gross margins ........................................... 26.7% 25.3% 24.8% Operating margins ....................................... 14.0% 13.0% 12.6%
1998 COMPARED WITH 1997 NET SALES. Net sales for the year ended December 31, 1998 increased $121.5 million, or 7.3%, to $1,779 million compared with net sales of $1,657.5 million for the year ended December 31, 1997. The increase in net sales resulted primarily from higher unit volume in 1998 compared with 1997. GROSS EARNINGS/MARGINS. Gross earnings for the year ended December 31, 1998 of $474.7 million increased $54.9 million, or 13.1%, compared with $419.8 million for 1997, and reflect gross margins of 26.7% in 1998 compared with 25.3% in 1997. Gross earnings and margins increased in 1998, primarily as a result of the increase in unit volume, a better mix of products sold and lower raw material costs offsetting cost increases related to depreciation expense and wages. OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses increased by $21.5 million, or 10.5%, for the year ended December 31, 1998, compared with the same period of 1997, and as a percentage of net sales represent 12.7% in 1998 and 12.4% in 1997. The increase in selling, general and administrative expenses for 1998 was due primarily to higher selling, administrative and warehousing/shipping expenses related to increased unit volume. Operating earnings for the year ended December 31, 1998 were $248.3 million, or 14.0% of sales, and increased $33.4 million, or 15.6%, compared with operating earnings of $214.9 million, or 13.0% of sales, for the year ended December 31, 1997. The increase resulted from the increase in gross earnings offset somewhat by the increase in selling, general and administrative expenses discussed above. INTEREST EXPENSE. Interest expense for the year ended December 31, 1998 of $105.7 million increased $3.5 million compared with interest expense for the year ended December 31, 1997. The increase was due primarily to higher average debt levels in the 1998 period compared with the corresponding 1997 average debt levels offset somewhat by lower interest rates as a result of the refinancing transactions in the second quarter of 1998. 14 15 RESULTS OF OPERATIONS--CONTINUED 1998 COMPARED WITH 1997--CONTINUED OTHER EXPENSE-NET. Other expense-net for the year ended December 31, 1998 decreased $1.5 million compared with 1997 and consists primarily of the amortization of deferred financing fees of $3.3 million in 1998 compared with $3.9 million in 1997 less certain miscellaneous income items in both years. INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal statutory rate primarily due to state income taxes and nondeductible items. INCOME FROM CONTINUING OPERATIONS. Income from continuing operations for the year ended December 31, 1998 was $90.6 million, or $1.51 per share diluted, compared with income from continuing operations of $69.3 million, or $1.11 per share diluted, for the year ended December 31, 1997. EXTRAORDINARY ITEM - LOSS ON EARLY EXTINGUISHMENT OF DEBT. As a result of the refinancing transactions discussed above, the Company recorded an extraordinary charge of $50.6 million, net of income taxes of $28.5 million, in the second quarter of 1998 related to the early extinguishment of debt. The extraordinary charge consisted primarily of tender premiums and the write-off of deferred debt fees. NET INCOME. Net income for the year ended December 31, 1998 was $40 million, or $.67 per share diluted, compared with net income of $78 million, or $1.25 per share diluted, for the year ended December 31, 1997. Diluted per share amounts are based on 59.9 million and 62.7 million average shares outstanding for the 1998 and 1997 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. 1997 COMPARED WITH 1996 NET SALES. Net sales for the year ended December 31, 1997 increased $155.7 million, or 10.4%, to $1,657.5 million compared with net sales of $1,501.8 million for the year ended December 31, 1996. The increase in net sales resulted primarily from higher unit volume (including acquisitions) in 1997 compared with 1996. GROSS EARNINGS/MARGINS. Gross earnings for the year ended December 31, 1997 of $419.8 million increased $47.4 million, or 12.7%, compared with $372.4 million for 1996, and reflect gross margins of 25.3% in 1997 compared with 24.8% in 1996. Gross earnings and margins increased in 1997, primarily as a result of the increase in unit volume and lower raw material costs. OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses increased by $21.1 million, or 11.5%, for the year ended December 31, 1997, compared with the same period of 1996, and as a percentage of net sales represent 12.4% in 1997 and 12.2% in 1996. The increase in selling, general and administrative expenses for 1997 was due primarily to acquisitions along with higher warehousing/shipping and advertising expenses. Operating earnings for the year ended December 31, 1997 were $214.9 million, or 13.0% of sales, and increased $26.4 million, or 14.0%, compared with operating earnings of $188.5 million, or 12.6% of sales, for the year ended December 31, 1996. The increase resulted from the increase in gross earnings offset somewhat by the increase in selling, general and administrative expenses discussed above. 15 16 RESULTS OF OPERATIONS--CONTINUED 1997 COMPARED WITH 1996--CONTINUED INTEREST EXPENSE. Interest expense for the year ended December 31, 1997 of $102.2 million increased $7.7 million compared with interest expense for the year ended December 31, 1996. The increase was due primarily to higher average debt levels in 1997 compared with the corresponding 1996 average debt levels. OTHER EXPENSE-NET. Other expense-net for the year ended December 31, 1997 decreased $0.5 million compared with 1996. Included in other expense-net for the years ended December 31, 1997 and 1996 are the amortization of deferred financing fees of $3.9 million in each year 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 and nondeductible items. INCOME FROM CONTINUING/DISCONTINUED OPERATIONS. Income from continuing operations for the year ended December 31, 1997 was $69.3 million, or $1.11 per share diluted, compared with income from continuing operations of $58 million, or $.91 per share diluted, for the year ended December 31, 1996. Income from discontinued operations for the year ended December 31, 1997 was $2.6 million, or $.04 per share diluted, compared with a loss from discontinued operations of $0.3 million for the year ended December 31, 1996. GAIN ON SALE OF DISCONTINUED OPERATIONS. During the third quarter of 1997 the Company recorded a gain on the sale of its Alamac Knit Fabrics subsidiary of $6.1 million, or $.10 per share diluted. NET INCOME. Net income for the year ended December 31, 1997 was $78 million, or $1.25 per share diluted, compared with net income of $57.7 million, or $.91 per share diluted, for the year ended December 31, 1996. Diluted per share amounts are based on 62.7 million and 63.7 million average shares outstanding for 1997 and 1996, 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. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Company expects to adopt the new Statement effective January 1, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. RISK MANAGEMENT AND MARKET SENSITIVE INSTRUMENTS The Company is exposed to various market risks, including changes in certain commodity prices and interest rates. These exposures primarily relate to the acquisition of raw materials and changes in interest rates. Commodities Risk. The Company selectively uses commodity futures contracts, forward purchase commodity contracts and option contracts to manage certain of its commodities exposures. Such contracts are used principally to manage the Company's exposure to cotton commodity price risk. The Company does not hold or issue derivative instruments for trading purposes. 16 17 RISK MANAGEMENT AND MARKET SENSITIVE INSTRUMENTS--CONTINUED At December 31, 1998, the Company, in its normal course of business, had entered into various commodity future contracts and forward purchase commodity contracts. At the end of 1998, a sharp decline in demand for cotton as a result of conditions in Asia as well as the termination of the U. S. government's subsidy program caused a steep decline in long-term cotton prices. Thus, based on year-end forward cotton prices, the Company's futures contracts and forward purchase contracts at December 31, 1998 (which covered a portion of its 1999 needs) had a net deferred loss of approximately $16.8 million. However, management believes that the Company's cost of cotton for 1999 will be at least as favorable as the cost of cotton in 1998. The hypothetical incremental loss in earnings for the combined commodity positions at December 31, 1998 is estimated to be approximately $35.6 million, assuming a decrease of 10% in commodity prices. The sensitivity analysis for commodities reflects the impact of a hypothetical 10% adverse change in the market price for such commodities. Actual commodity price volatility is dependent on many varied factors impacting supply and demand that are impossible to forecast. Therefore, actual changes in fair value over time could differ substantially from the hypothetical change disclosed above. Interest Rate Risk. Based on the Company's floating rate debt outstanding at December 31, 1998, a 100 basis point increase in market rates would increase interest expense and decrease income before income taxes by approximately $3.4 million. The amount was determined by calculating the effect of the hypothetical interest rate on the Company's floating rate debt. The fair market value of long-term fixed interest rate debt is also subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The estimated fair value of the Company's total long-term fixed-rate debt at December 31, 1998 was approximately $1,349.2 million, which exceeded its carrying value by approximately $13.8 million. A hypothetical 100 basis point decrease in the prevailing interest rates at December 31, 1998 would result in an increase in fair value of total long-term debt by approximately $60.6 million. Fair market values are determined from quoted market prices where available or based on estimates made by investment bankers. 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 25, 1999, the maximum commitment under the Senior Credit Facility was $575 million and the Company had unused borrowing availability under the Senior Credit Facility totaling $161.5 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 $147.5 million in 1998 on capital expenditures and intends to invest approximately $125 million in 1999. During 1998, the Company purchased approximately 3.8 million shares under its various stock repurchase programs, at an average price of $28.43 per share. As of February 11, 1999, the Board of Directors has approved the purchase of up to 19.0 million shares of the Company's common stock, subject to the Company's debt limitations. At December 31, 1998, approximately 4.9 million shares, including the 3.0 million share increase announced in February 1999, remained to be purchased under these programs. 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, 1998 and December 31, 1997, $145 million and $111.8 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 1999 is estimated to total approximately $7 million, compared with $6.5 million in 1998, and will be charged to selling, general and administrative expenses. 17 18 LIQUIDITY AND CAPITAL RESOURCES--CONTINUED Debt service requirements for interest payments in 1999 are estimated to total approximately $101.8 million (excluding amounts related to the Trade Receivables Program) compared with interest payments of $103.6 million in 1998. The Company's long-term indebtedness has no scheduled principal requirements during 1999. 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. 18 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Financial Statements for the years ended December 31, 1998, 1997 and 1996 Report of Ernst & Young LLP, Independent Auditors ....... 20 Consolidated Balance Sheets ............................. 21 - 22 Consolidated Statements of Income ....................... 23 Consolidated Statements of Stockholders' Equity (Deficit) 24 Consolidated Statements of Cash Flows ................... 25 Notes to Consolidated Financial Statements .............. 26 - 39
19 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, 1998 and 1997, and the related consolidated statements of income, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 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 9, 1999 20 21 WESTPOINT STEVENS INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, --------------------------- 1998 1997 ---------- ---------- ASSETS Current Assets Cash and cash equivalents ..................... $ 527 $ 17,433 Accounts receivable (less allowances of $19,251 and $18,213, respectively) ............... 70,086 92,990 Inventories ................................... 381,022 345,818 Prepaid expenses and other current assets ..... 18,051 22,227 ---------- ---------- Total current assets ................ 469,686 478,468 Property, Plant and Equipment Land .......................................... 6,593 6,463 Buildings and improvements .................... 305,959 270,360 Machinery and equipment ....................... 888,540 779,867 Leasehold improvements ........................ 9,939 11,257 ---------- ---------- 1,211,031 1,067,947 Less accumulated depreciation and amortization (434,092) (360,796) ---------- ---------- Net property, plant and equipment ... 776,939 707,151 Other Assets Deferred financing fees ....................... 21,102 19,231 Prepaid pension and other assets .............. 52,257 49,033 Goodwill ...................................... 71,227 37,223 ---------- ---------- Total other assets .................. 144,586 105,487 ---------- ---------- $1,391,211 $1,291,106 ========== ==========
See accompanying notes. 21 22 WESTPOINT STEVENS INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ---------------------------- 1998 1997 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Senior Credit Facility ............................. $ 60,400 $ 37,683 Accrued interest payable ........................... 4,777 6,820 Accounts payable ................................... 85,908 75,655 Other accrued liabilities .......................... 140,423 142,382 Current portion of long-term debt .................. -- 3,750 ---------- ---------- Total current liabilities .......... 291,508 266,290 Long-Term Debt .............................................. 1,275,000 1,146,250 Noncurrent Liabilities Deferred income taxes .............................. 236,328 217,178 Other liabilities .................................. 75,827 86,381 ---------- ---------- Total noncurrent liabilities ....... 312,155 303,559 Stockholders' Equity (Deficit) Common Stock and capital in excess of par value: Common Stock, $.01 par value; 200,000,000 and 75,000,000 shares authorized, respectively; 70,862,029 and 70,296,310 shares issued, respectively ... 341,489 337,069 Accumulated deficit ................................ (585,115) (625,047) Treasury stock; 14,576,744 and 10,895,242 shares at cost, respectively .................... (240,896) (134,223) Accumulated other comprehensive income (loss) ...... (2,930) (2,792) ---------- ---------- Total stockholders' equity (deficit) (487,452) (424,993) ---------- ---------- $1,391,211 $1,291,106 ========== ==========
See accompanying notes. 22 23 WESTPOINT STEVENS INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, --------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- Net sales ..................................................... $1,778,991 $1,657,511 $1,501,795 Cost of goods sold ............................................ 1,304,231 1,237,657 1,129,386 ---------- ---------- ---------- Gross earnings .......................................... 474,760 419,854 372,409 Selling, general and administrative expenses .................. 226,437 204,981 183,891 ---------- ---------- ---------- Operating earnings ...................................... 248,323 214,873 188,518 Interest expense .............................................. 105,677 102,172 94,505 Other expense-net ............................................. 968 2,461 2,976 ---------- ---------- ---------- Income from continuing operations before income tax expense and extraordinary item ....................... 141,678 110,240 91,037 Income tax expense ............................................ 51,125 40,982 33,085 ---------- ---------- ---------- Income from continuing operations before extraordinary item ... 90,553 69,258 57,952 Income (loss) from discontinued operations .................... -- 2,625 (287) Gain on sale of discontinued operations ....................... -- 6,138 -- Extraordinary item - loss on early extinguishment of debt (net of income tax benefit of $28,474) ................... (50,621) -- -- ---------- ---------- ---------- Net income .............................................. $ 39,932 $ 78,021 $ 57,665 ========== ========== ========== Basic net income (loss) per common share: Continuing operations ................................... $ 1.57 $ 1.14 $ .92 Discontinued operations ................................. -- .04 -- Gain on sale of discontinued operations ................. -- .10 -- Extraordinary item - loss on early extinguishment of debt (.88) -- -- ---------- ---------- ---------- Net income per common share ............................. $ .69 $ 1.28 $ .92 ========== ========== ========== Diluted net income (loss) per common share: Continuing operations ................................... $ 1.51 $ 1.11 $ .91 Discontinued operations ................................. -- .04 -- Gain on sale of discontinued operations ................. -- .10 -- Extraordinary item - loss on early extinguishment of debt (.84) -- -- ---------- ---------- ---------- Net income per common share ............................. $ .67 $ 1.25 $ .91 ========== ========== ========== Basic average common shares outstanding ....................... 57,791 61,078 62,656 Dilutive effect of stock options and stock bonus plan ... 2,158 1,576 1,018 ---------- ---------- ---------- Diluted average common shares outstanding ..................... 59,949 62,654 63,674 ========== ========== ==========
See accompanying notes. 23 24 WESTPOINT STEVENS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
COMMON STOCK ACCUMULATED AND CAPITAL OTHER IN COMPRE- EXCESS OF TREASURY STOCK HENSIVE COMMON PAR ------------------ ACCUMULATED INCOME SHARES VALUE SHARES AMOUNT DEFICIT (LOSS) TOTAL ------ ----------- ------ ------ ----------- ----------- --------- Balance, January 1, 1996 ........................ 69,194 $327,850 (5,242) $ (41,051) $(760,733) $(33,526) $(507,460) Comprehensive income: Net income ............................ -- -- -- -- 57,665 -- 57,665 Minimum pension liability adjustment .. -- -- -- -- -- 25,595 25,595 Foreign currency translation adjustment......................... -- -- -- -- -- (22) (22) --------- Comprehensive income ....................... 83,238 --------- Exercise of management stock options including tax benefit ................. 220 1,532 -- -- -- -- 1,532 Issuance of stock pursuant to Stock Bonus Plan including tax benefit ............ -- 12 116 1,226 -- -- 1,238 Purchase of treasury shares ................ -- -- (2,585) (30,491) -- -- (30,491) ------ -------- ------- --------- --------- -------- --------- Balance, December 31, 1996 ...................... 69,414 329,394 (7,711) (70,316) (703,068) (7,953) (451,943) Comprehensive income: Net income ............................ -- -- -- -- 78,021 -- 78,021 Minimum pension liability adjustment .. -- -- -- -- -- 5,595 5,595 Foreign currency translation adjustment......................... -- -- -- -- -- (434) (434) --------- Comprehensive income ....................... 83,182 --------- Exercise of management stock options including tax benefit ................. 882 7,649 (13) (282) -- -- 7,367 Issuance of stock pursuant to Stock Bonus Plan including tax benefit ............ -- 308 198 2,240 -- -- 2,548 Purchase of treasury shares ................ -- -- (3,369) (66,147) -- -- (66,147) ------ -------- ------- --------- --------- -------- --------- Balance, December 31, 1997 ...................... 70,296 337,351 (10,895) (134,505) (625,047) (2,792) (424,993) Comprehensive income: Net income ............................ -- -- -- -- 39,932 -- 39,932 Minimum pension liability adjustment .. -- -- -- -- -- 813 813 Foreign currency translation adjustment......................... -- -- -- -- -- (951) (951) --------- Comprehensive income ....................... 39,794 --------- Exercise of management stock options including tax benefit ................. 566 5,235 (57) (1,666) -- -- 3,569 Issuance of stock pursuant to Stock Bonus Plan including tax benefit ............ -- 851 212 2,421 -- -- 3,272 Purchase of treasury shares ................ -- -- (3,837) (109,094) -- -- (109,094) ------ -------- ------- --------- --------- -------- --------- Balance, December 31, 1998 ...................... 70,862 $343,437 (14,577) $(242,844) $(585,115) $ (2,930) $(487,452) ====== ======== ======= ========= ========= ======== =========
See accompanying notes. 24 25 WESTPOINT STEVENS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ----------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................................. $ 39,932 $ 78,021 $ 57,665 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and other amortization .............................. 80,567 77,225 76,988 Gain on sale of discontinued operations .......................... -- (6,138) -- Deferred income taxes ............................................ 19,588 34,508 26,153 Extraordinary item - loss on early extinguishment of debt ........ 79,095 -- -- Changes in assets and liabilities excluding the effect of acquisitions, dispositions and the Trade Receivables Program: Accounts receivable ........................................ (3,319) 1,566 3,939 Inventories ................................................ (31,677) (54,024) 20,817 Prepaid expenses and other current assets .................. 4,211 (6,760) 4,567 Accrued interest payable ................................... (2,043) 283 (118) Accounts payable and other accrued liabilities ............. 5,320 (18,113) (10,046) Other-net .................................................. (10,367) (22,976) (8,964) ----------- ----------- --------- Total adjustments ...................................................... 141,375 5,571 113,336 ----------- ----------- --------- Net cash provided by operating activities .................................. 181,307 83,592 171,001 ----------- ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ................................................... (147,463) (152,137) (99,943) Net proceeds from sale of business ..................................... -- 120,840 -- Net proceeds from sale of assets ....................................... 825 1,081 1,098 Purchase of businesses ................................................. (42,169) (57,170) -- ----------- ----------- --------- Net cash used for investing activities ..................................... (188,807) (87,386) (98,845) ----------- ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Senior Credit Facility: Borrowings .......................................................... 1,533,419 1,177,299 645,500 Repayments .......................................................... (1,360,702) (1,088,616) (694,500) Principal payments on long-term debt ................................... (1,025,000) -- -- Net proceeds from Trade Receivables Program ............................ 33,233 (21,233) 12,045 Purchase of Common Stock for treasury .................................. (110,760) (66,429) (30,491) Proceeds from sale of notes ............................................ 1,000,000 -- -- Proceeds from issuance of Common Stock ................................. 4,679 6,177 1,332 Fees associated with refinancing ....................................... (84,275) -- -- ----------- ----------- --------- Net cash provided by (used for) financing activities ....................... (9,406) 7,198 (66,114) ----------- ----------- --------- Net increase (decrease) in cash and cash equivalents ....................... (16,906) 3,404 6,042 Cash and cash equivalents at beginning of period ........................... 17,433 14,029 7,987 ----------- ----------- --------- Cash and cash equivalents at end of period ................................. $ 527 $ 17,433 $ 14,029 =========== =========== =========
See accompanying notes. 25 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, pillows, mattress pads, towels and related products. The Company conducts its operations in the consumer home fashions (bed and bath products) 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, 1998, 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 $0.5 million and $17.4 million are included in cash and cash equivalents at December 31, 1998 and 1997, 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, 1998 and 1997, approximately 83% and 84%, 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 $65.7 million and $53.4 million at December 31, 1998 and 1997, 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, ---------------------- 1998 1997 --------- --------- Finished goods ........... $ 170,896 $ 159,539 Work in progress ......... 160,995 139,410 Raw materials and supplies 59,466 58,876 LIFO reserve ............. (10,335) (12,007) --------- --------- $ 381,022 $ 345,818 ========= =========
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. 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 $79.5 million, $76.5 million, and $77.0 million in the years ended December 31, 1998, 1997 and 1996, respectively. 26 27 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES--CONTINUED Estimated useful lives for property, plant and equipment are as follows: Buildings and improvements ........ 10 to 40 Years Machinery and equipment ........... 3 to 18 Years Leasehold improvements ............ Lease Terms
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, 1998 and 1997, 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 Statement No. 109, Accounting for Income Taxes. Under Statement 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 defined benefit pension plans covering essentially all employees. 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. During 1998, the Company adopted Statement No. 132, Employers' Disclosures about Pensions and Other Post-retirement Benefits. Statement 132 standardizes employer disclosures about pension and other post-retirement plans; it does not change the measurement or recognition of such plans. Data from periods prior to 1998 have been restated for comparative purposes. See Note 3 - Employee Benefit Plans. The Company also sponsors an employee savings plan covering eligible employees who elect to participate. Participants in this plan make contributions as a percent of earnings. The Company matches certain amounts of employee contributions. 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 Statement No. 106, Employer's Accounting for Post Retirement Benefits Other Than Pensions and Statement No. 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. Pro forma information regarding net income and earnings per share, as calculated under the provisions of Statement No. 123, Accounting for Stock-Based Compensation, are disclosed in Note 6 - Stockholders' Equity. FAIR VALUE DISCLOSURES. Cash and cash equivalents: The carrying amounts reported in the balance sheets for cash and cash equivalents approximates its fair value. 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 $1,335 million and $1,188 million of outstanding debt at December 31, 1998 and 1997 was approximately $1,349.2 million and $1,235 million, respectively. 27 28 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES--CONTINUED ACQUISITIONS AND GOODWILL. The Company's acquisitions are accounted for under the purchase method of accounting. Under the purchase method of accounting, the results of operations of the acquired businesses are included in the accompanying consolidated financial statements as of their respective acquisition dates. The assets and liabilities of acquired businesses are included based on an allocation of the purchase price. The excess of the purchase price over identified assets is classified as goodwill and is amortized on a straight-line basis over a forty year period. During the year ended December 31, 1997, the Company acquired certain manufacturing facilities and other operations for approximately $57 million. The assets acquired consisted of property and equipment, inventories and other related assets. The excess of the purchase price over the assets acquired was approximately $38 million. In October 1998, the Company acquired the operations of a manufacturer of bedding products for approximately $42.2 million. The assets acquired consisted of property and equipment, inventories and other related assets. The excess of the purchase price over the assets acquired was approximately $35.1 million. Pro forma results have not been presented as they are not significantly different than reported amounts. IMPAIRMENT OF LONG-LIVED ASSETS. Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, 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. COMMON STOCK. On February 2, 1998, the Board of Directors declared a two-for-one split of the Company's common stock, effected in the form of a stock dividend payable on March 2, 1998 to stockholders of record on February 16, 1998. All agreements concerning stock options and other commitments payable in shares of the Company's common stock provide for the issuance of additional shares due to the declaration of the stock split. This stock split has been reflected in the Consolidated Statements of Stockholders' Equity (Deficit) at January 1, 1996. All references to number of shares, except shares authorized, and to per share information in the accompanying consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis. EARNINGS PER COMMON SHARE. Basic and diluted earnings per share are calculated in accordance with Statement No. 128, Earnings per Share. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the Statement 128 requirements. SEGMENT INFORMATION. The Company is in one business segment, the consumer home fashions business, and follows the requirements of Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. ACCOUNTING POLICIES NOT YET ADOPTED. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The statement will require the Company to recognize all derivatives on the balance sheet at fair value. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Statement of Position 98-1 provides guidance that requires the capitalization of certain costs incurred during an internal-use software development project. The Company plans to adopt Statement 133 at January 1, 2000 and Statement of Position 98-1 in 1999, but has not yet completed its analysis of the impact that these pronouncements may have on its financial statements. RECLASSIFICATIONS. Certain prior period amounts have been reclassified to conform with the 1998 presentation. 28 29 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS Indebtedness is as follows (in thousands of dollars):
DECEMBER 31, ------------------ 1998 1997 ------- ------- Short-term indebtedness Senior Credit Facility ............ $60,400 $37,683 9% Sinking Fund Debentures due 2017....................... -- 3,750 ------- ------- $60,400 $41,433 ======= =======
Long-term indebtedness Senior Credit Facility ....................... $ 275,000 $ 125,000 7 7/8% Senior Notes due 2005 ................. 525,000 -- 7 7/8% Senior Notes due 2008 ................. 475,000 -- 8 3/4% Senior Notes due 2001 ................. -- 400,000 9 3/8% Senior Subordinated Debentures due 2005.................................. -- 550,000 9% Sinking Fund Debentures due 2017 .......... -- 71,250 ---------- ---------- $1,275,000 $1,146,250 ========== ==========
On April 29, 1998, the Company announced cash tender offers and consent solicitations for all of its then outstanding 8 3/4% Senior Notes due 2001 and its 9 3/8% Senior Subordinated Debentures due 2005. The tender offers were consummated on June 9, 1998. The Company purchased the tendered notes with the proceeds from the issuance of $525 million of its 7 7/8% Senior Notes due 2005 and $475 million of its 7 7/8% Senior Notes due 2008 and with the proceeds from the refinancing of its existing Senior Credit Facility with an amended and restated Senior Credit Facility that provided for a term of 6 1/2 years and an increased commitment to $550 million. The issuance of the new notes and the amendment and restatement of the Senior Credit Facility were also consummated on June 9, 1998. On June 10, 1998, the Company announced the redemption of its 9% Sinking Fund Debentures due 2017 and the redemption was consummated on July 9, 1998 with available borrowings under the Senior Credit Facility. During the third quarter of 1998, the Company amended the Senior Credit Facility to provide for an increased commitment to $575 million. As a result of the refinancing transactions discussed above, the Company recorded an extraordinary charge of $50.6 million, net of income taxes of $28.5 million, related to the early extinguishment of debt. The extraordinary charge consisted primarily of tender premiums and the write-off of deferred debt fees. The Company's Senior Credit Facility with certain lenders (collectively, the "Banks") consists of a $575 million revolving credit facility ("Revolver") due November 30, 2004. The Company has included $275 million of Revolver in long-term debt at December 31, 1998 because the Company intends that at least that amount would remain outstanding during the next twelve months. Borrowing availability under the Senior Credit Facility was reduced by approximately $26.7 million of outstanding letters of credit at December 31, 1998. At the option of the Company, interest under the Senior Credit Facility will be payable monthly, either at the prime rate or at LIBOR plus 0.75%. Upon the Company achieving certain ratios of EBITDA (as defined) to cash interest expense, interest rates can be reduced up to 0.5%. At December 31, 1998, the interest rates under this facility were LIBOR plus 0.5%. The Company pays a facility fee in an amount equal to 0.25% 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. The 7 7/8% Senior Notes due 2005 and 7 7/8% Senior Notes due 2008 (together, the "Senior Notes") are general unsecured obligations of the Company and rank pari passu in right of payment with all existing or future unsecured and unsubordinated indebtedness of the Company and senior in right of payment to all subordinated indebtedness of the Company. 29 30 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS--CONTINUED The Senior Notes bear interest at the rate of 7 7/8% per annum, payable semi-annually on June 15 and December 15 of each year, commencing December 15, 1998. The Senior Notes are redeemable, in whole or in part, at any time at the option of the Company at 100% of the principal amount thereof plus the Make-Whole Premium (as defined) plus accrued and unpaid interest, if any, to the date of purchase. In addition, in the event of a Change of Control (as defined), the Company will be required to make an offer to purchase the notes at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. 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, a minimum interest coverage ratio and a minimum consolidated net worth (as defined). At December 31, 1998, the Company could have made restricted payments aggregating approximately $55.1 million. 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. In December 1998, the Company replaced its existing Trade Receivables Program with a new one-year agreement with an independent issuer of receivables backed commercial paper. This new agreement replaced an agreement that would have expired in May 1999. Under the terms of the new Trade Receivables Program, the Company has agreed to sell on an ongoing basis, and without recourse, an undivided ownership interest in its accounts receivable portfolio. The Company maintains the balance in the designated pool of accounts receivable sold by selling undivided interests in new receivables as existing receivables are collected. The new agreement permits the sale of up to $155 million of accounts receivable. The cost of the Trade Receivables Program is charged to selling and administrative expense in the accompanying Consolidated Statements of Income. At December 31, 1998 and 1997, $145.0 million and $111.8 million, respectively, of accounts receivable had been sold pursuant to the trade receivables programs and the sale is reflected as a reduction of accounts receivable in the accompanying Consolidated Balance Sheets. Excluding amounts related to the Revolver, there are no maturities of long-term debt for the next five years. 3. EMPLOYEE BENEFIT PLANS PENSION PLANS The following table sets forth data for the Company's pension plans and amounts recognized in the accompanying Consolidated Balance Sheets at December 31, 1998 and 1997 (in thousands of dollars):
YEAR ENDED DECEMBER 31, ------------------------ 1998 1997 --------- --------- Change in benefit obligation: Projected benefit obligation at beginning of year $ 311,001 $ 312,981 Service cost .................................... 7,838 7,138 Interest cost ................................... 23,080 24,410 Actuarial gains ................................. 15,040 9,829 Benefit payments ................................ (25,113) (26,210) Divestiture ..................................... -- (17,147) --------- --------- Projected benefit obligation at end of year ......... $ 331,846 $ 311,001 ========= ========= Change in plan assets: Fair value of plan assets at beginning of year .. $ 331,396 $ 299,892 Actual return on plan assets .................... 26,039 52,843 Employer contributions .......................... 8,417 17,622 Benefit payments ................................ (25,113) (26,210) Divestiture ..................................... -- (12,751) --------- --------- Fair value of plan assets at end of year ............ $ 340,739 $ 331,396 ========= =========
30 31 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. EMPLOYEE BENEFIT PLANS--CONTINUED PENSION PLANS--CONTINUED
DECEMBER 31, ----------------------- 1998 1997 --------- --------- Funded status: Projected benefit obligation .............. $(331,846) $(311,001) Fair value of assets ...................... 340,739 331,396 --------- --------- Funded status ............................. 8,893 20,395 --------- --------- Unrecognized amounts: Prior service cost ..................... (38) (56) Net actuarial losses ................... 42,729 21,796 Accumulated comprehensive income (loss) -- (1,291) --------- --------- Total unrecognized ..................... 42,691 20,449 --------- --------- Prepaid pension cost at year-end .............. $ 51,584 $ 40,844 ========= ========= Weighted average assumptions as of December 31: Discount rate ............................. 7.25% 7.75% Expected return on plan assets ............ 10.0% 10.0% Rate of compensation increase ............. 3.5% 3.5%
YEAR ENDED DECEMBER 31, ----------------------- 1998 1997 -------- -------- Components of net periodic pension cost (benefit): Service cost ................................. $ 7,838 $ 7,138 Interest cost ................................ 23,080 24,410 Expected return on plan assets ............... (32,177) (29,460) Net amortization ............................. 227 557 -------- -------- Net periodic pension cost (benefit) .............. $( 1,032) $ 2,645 ======== ========
Plan assets are primarily invested in United States Government and corporate debt securities and equity securities. At December 31, 1998, the Company's pension plans held 705,558 shares of the Company's common stock with an aggregate cost of $20 million and a market value of $22.3 million. At December 31, 1997, the Company's pension plans held investments in securities issued by the Company with a market value of $14.2 million. RETIREMENT SAVINGS PLAN The Company matches 50 percent of each 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 1998, 1997 and 1996, the Company charged $2.3 million, $2.2 million and $2.4 million, respectively, to expense in connection with the 401K Plan. 31 32 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. EMPLOYEE BENEFIT PLANS--CONTINUED 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, ------------------- 1998 1997 ------- ------- Accumulated post-retirement benefit obligation at beginning of year $17,517 $18,111 Service cost .................................................. 1 3 Interest cost ................................................. 1,194 1,369 Actuarial gains ............................................... (729) (144) Benefit payments .............................................. (1,810) (1,822) ------- ------- Accumulated post-retirement benefit obligation at end of year ..... $16,173 $17,517 ======= =======
Net periodic post-retirement benefit plans expense is not material during the three year period ended December 31, 1998. As of December 31, 1998, the actuarial assumptions include a discount rate of 7.25% and a medical care trend rate of 7.0% for 1999, grading down to 6% by 2002. 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, 1998 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, 1998 by an immaterial amount. 4. OTHER EXPENSE--NET Included in "Other expense-net" in the accompanying Consolidated Statements of Income for each of the years in the three year period ended December 31, 1998, 1997 and 1996, are the amortization and write-off of deferred financing fees of $3.3 million, $3.9 million and $3.9 million, respectively, less certain miscellaneous income items. 5. INCOME TAXES The Company accounts for income taxes in accordance with Statement 109; accordingly 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 related to continuing operations before extraordinary item consisted of the following (in thousands of dollars):
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1997 1996 ------- ------- ------- Current Federal $ 966 $ 2,945 $ 957 State . 792 2,302 630 Foreign (50) 461 621 Deferred ...... 49,417 40,247 30,492 ------- ------- ------- $51,125 $45,955 $32,700 ======= ======= =======
32 33 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. INCOME TAXES--CONTINUED Income tax expense (benefit) is included in the financial statements as follows (in thousands of dollars):
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1997 1996 -------- -------- -------- Continuing operations ................. $ 51,125 $ 40,982 $ 33,085 Discontinued operations ............... -- 1,368 (385) Gain on sale of discontinued operations......................... -- 3,605 -- -------- -------- -------- $ 51,125 $ 45,955 $ 32,700 ======== ======== ========
Income tax expense (benefit) differs from the statutory federal income tax rate of 35% for the following reasons (in thousands of dollars):
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1997 1996 -------- -------- -------- Income tax expense (benefit) at federal statutory income tax rate ........................................... $ 49,587 $ 43,391 $ 31,628 State income taxes (net of effect of federal income tax) ........................................ 1,232 2,264 1,183 Other-net .............................................. 306 300 (111) -------- -------- -------- Income tax expense ..................................... $ 51,125 $ 45,955 $ 32,700 ======== ======== ========
Components of the net deferred income tax liability are as follows (in thousands of dollars):
DECEMBER 31, ---------------------- 1998 1997 --------- --------- Deferred tax liabilities: Basis differences resulting from reorganization ................... $(148,501) $(137,783) Accelerated depreciation .......................................... (77,398) (69,620) Income taxes related to prior years, including interest ........... (17,264) (16,989) Nondeductible expenses ............................................ (37,948) (44,774) Other ............................................................. (1,424) (1,716) Deferred tax assets: Reserves for litigation, environmental, employee benefits and other...................................................... 37,543 45,244 Other ............................................................. 8,664 8,460 --------- --------- $(236,328) $(217,178) ========= =========
At December 31, 1998, the Company has estimated operating net loss carryforwards ("NOLs") expiring in 2004-2009 of approximately $271 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 are subject to limitation under Internal Revenue Code Section 382. 33 34 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. STOCKHOLDERS' EQUITY (DEFICIT) COMPREHENSIVE INCOME In 1998 the Company adopted Statement No. 130, Reporting Comprehensive Income. Statement 130 requires presentation of comprehensive income (net income plus changes in currency translation adjustments and minimum pension liability). The Company has changed the format of the Consolidated Statements of Stockholders' Equity (Deficit) to present comprehensive income for all periods. Components of accumulated other comprehensive income (loss) consist of the following (in thousands of dollars):
DECEMBER 31, -------------------------------- 1998 1997 1996 ------- ------- ------- Foreign currency translation adjustment ..... $(2,930) $(1,979) $(1,545) Minimum pension liability ................... -- (1,291) (10,171) Income tax benefit .......................... -- 478 3,763 ------- ------- ------- Accumulated other comprehensive income (loss).............................. $(2,930) $(2,792) $(7,953) ======= ======= =======
STOCK OPTIONS The Company has granted stock options under various stock plans to key employees and to non-employee directors. Also the Company granted certain contractual stock options which were not granted pursuant to any plan. The Omnibus Stock Incentive Plan (the "Omnibus Stock Plan"), an amendment and restatement of the 1993 Management Stock Option Plan, covers approximately 5.4 million shares of Common Stock, and also replaced the 1994 Non-Employee Directors Stock Option Plan after the 300,000 shares of Common Stock authorized under that plan had been granted. The Omnibus Stock Plan allows for six categories of incentive awards: options, stock appreciation rights, restricted shares, deferred shares, performance shares and performance units. Key employees are granted options under the various plans 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 various plans have been at a price which is approximately equal to fair market value on the date of grant. 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 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 using 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 1998, 1997 and 1996, respectively: risk-free interest rates of 5.6%, 6.1% and 6.2%; no dividend yield; volatility factors of the expected market price of the Company's common stock of .265, .25 and .29; and a weighted-average expected life of the option of 8 years. 34 35 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. STOCKHOLDERS' EQUITY (DEFICIT)--CONTINUED STOCK OPTIONS--CONTINUED 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. 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 1998 pro forma net income of $35.5 million (or pro forma diluted net income per share of $.59), 1997 pro forma net income of $75.5 million (or pro forma diluted net income per share of $1.20) and 1996 pro forma net income of $57.2 million (or pro forma diluted net income per share of $.90). 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, 1995 1,738 520 2,258 $ 6.57 Granted ............................ 1,776 -- 1,776 $13.34 Exercised and terminated ........... (134) (110) (244) $ 6.07 ------ ------ ------ ------ Options outstanding at December 31, 1996 3,380 410 3,790 $ 9.78 Granted ............................ 1,176 20 1,196 $20.07 Exercised and terminated ........... (514) (390) (904) $ 7.15 ------ ------ ------ ------ Options outstanding at December 31, 1997 4,042 40 4,082 $13.37 Granted ............................ 754 -- 754 $34.08 Exercised and terminated ........... (605) -- (605) $ 8.79 ------ ------ ------ ------ Options outstanding at December 31, 1998 4,191 40 4,231 $17.71 ====== ====== ====== ======
At December 31, 1998, options for 2,362,316 shares were exercisable. STOCK BONUS PLAN The Company sponsors an employee benefit plan, the WestPoint Stevens Inc. 1995 Key Employee Stock Bonus Plan (the "Stock Bonus Plan"), covering 2,000,000 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 1998, 1997 and 1996, respectively, bonus awards were deemed earned by forty-nine, forty-seven and fifty-three employees covering an aggregate of 266,121 shares, 398,456 shares and 643,464 shares of Common Stock. For performance year 1998 and earlier the Amended Stock Bonus Plan provided for vesting of the bonus awards of 20 percent on January 1 of the year following 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 $6.6 million, $4.4 million and $3.4 million to expense in 1998, 1997 and 1996, respectively, in connection with the Stock Bonus Plan. 35 36 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 sixteen 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 two years. The following is a schedule, by year, of future minimum lease payments as of December 31, 1998 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, 1999 ................................................... $ 24,112 2000 ................................................... 19,132 2001 ................................................... 13,634 2002 ................................................... 10,339 2003 ................................................... 8,579 Years subsequent to 2003 ............................... 11,970 -------- Total minimum lease payments ........................... 87,766 Minimum sublease rentals ............................... (3,206) -------- Net minimum lease payments required for operating leases $ 84,560 ========
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, ------------------------------- 1998 1997 1996 ------- ------- ------- Minimum lease payments $34,295 $30,662 $40,217 Less sublease rentals (3,738) (3,986) (4,761) ------- ------- ------- Rent expense ......... $30,557 $26,676 $35,456 ======= ======= =======
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 36 37 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. LITIGATION AND CONTINGENT LIABILITIES--CONTINUED 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. 9. CASH FLOW INFORMATION
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1997 1996 -------- -------- -------- (IN THOUSANDS OF DOLLARS) Supplemental disclosures of cash flow information: Cash paid during the period: Interest .......................................... $107,720 $107,410 $102,565 ======== ======== ======== Income taxes ...................................... $ 2,326 $ 9,444 $ 5,733 ======== ======== ========
10. DISCONTINUED OPERATIONS On August 27, 1997, the Company closed a transaction pursuant to which WestPoint Stevens sold its subsidiaries AIH Inc., Alamac Knit Fabrics, Inc. and Alamac Enterprises Inc. (collectively, "Alamac Knit Fabrics subsidiary"), other than cash, accounts receivable of approximately $42.5 million and a yarn mill located in Whitmire, S.C., to Dyersburg Corporation for approximately $126 million. The Whitmire facility was transferred by the Company to Home Fashions to support the Company's expansion of its sheeting production capacity. As a result of the transaction, the Company accounted for the Alamac Knit Fabrics subsidiary as a discontinued operation and the accompanying financial statements have been adjusted and restated accordingly. Data relative to Alamac Knit Fabrics subsidiary is as follows (in thousands of dollars):
YEAR ENDED PERIOD ENDED DECEMBER 31, AUGUST 27, 1997 1996 ---------------- ------------- Net sales .................................... $162,428 $222,019 ======== ======== Operating earnings ........................... $ 9,189 $ 7,051 ======== ======== Net income (loss) ............................ $ 2,625 $ (287) ======== ======== Gain on sale, net of income taxes of $3,605 .. $ 6,138 ======== Capital expenditures, including capital leases............................ $ 3,237 $ 4,998 ======== ======== Depreciation and other amortization .......... $ 5,501 $ 8,059 ======== ========
37 38 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. MAJOR CUSTOMER INFORMATION The Company's consumer home fashions products are sold primarily to domestic chain stores, mass merchants, department and specialty stores. Sales to two customers, as a percent of net sales, amounted to approximately 13% and 11% for the year ended December 31, 1998. Sales to two customers, as a percent of net sales, amounted to approximately 13% and 10% for the year ended December 31, 1997. Sales to three customers, as a percent of net sales, amounted to approximately 13%, 12% and 10% for the year ended December 31, 1996. During 1998, 1997 and 1996, the Company's six largest customers accounted for approximately 53%, 52% and 55%, respectively, of the Company's net sales. 38 39 WESTPOINT STEVENS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 12. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
QUARTER --------------------------------------------- FIRST SECOND THIRD FOURTH ----- ------ ----- ------ (IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1998 Net sales ................................................... $398.7 $437.0 $473.2 $470.1 Gross earnings .............................................. 99.5 113.3 134.4 127.6 Operating earnings .......................................... 44.4 52.6 79.3 72.0 Income from continuing operations ........................... 11.7 15.8 34.1 29.0 Extraordinary item - loss on early extinguishment of debt ... -- (50.6) -- -- ------ ------ ------ ------ Net income (loss) ........................................... 11.7 (34.8) 34.1 29.0 Basic net income (loss) per common share (1): Continuing operations ................................... .20 .27 .59 .51 Extraordinary item - loss on early extinguishment of debt -- (.87) -- -- ------ ------ ------ ------ Net income (loss) per common share ...................... .20 (.60) .59 .51 Diluted net income (loss) per common share (1): Continuing operations ................................... .19 .26 .57 .49 Extraordinary item - loss on early extinguishment of debt -- (.83) -- -- ------ ------ ------ ------ Net income (loss) per common share ...................... .19 (.57) .57 .49 YEAR ENDED DECEMBER 31, 1997 Net sales ................................................... $357.1 $395.8 $459.0 $445.6 Gross earnings .............................................. 89.2 96.2 122.1 112.3 Operating earnings .......................................... 38.5 43.1 69.2 64.1 Income from continuing operations ........................... 9.0 10.7 26.5 23.1 Income from discontinued operations ......................... 1.1 1.1 0.4 -- Gain on sale of discontinued operations ..................... -- -- 6.1 -- ------ ------ ------ ------ Net income .................................................. 10.1 11.8 33.0 23.1 Basic net income per common share (1): Continuing operations ................................... .14 .18 .43 .39 Discontinued operations ................................. .02 .01 .01 -- Gain on sale of discontinued operations ................. -- -- .10 -- ------ ------ ------ ------ Net income per common share ............................. .16 .19 .54 .39 Diluted net income per common share (1): Continuing operations ................................... .14 .17 .42 .38 Discontinued operations ................................. .02 .01 .01 -- Gain on sale of discontinued operations ................. -- -- .10 -- ------ ------ ------ ------ Net income per common share ............................. .16 .18 .53 .38
- ----------- (1)Net income (loss) per common share calculations for each of the quarters is based on the average common shares outstanding for each period. 39 40 PART III ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 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 1999 definitive proxy statement (under the caption "Board of Directors") to be filed with the Securities and Exchange Commission by April 9, 1999 (the "1999 Proxy Statement"). IDENTIFICATION OF EXECUTIVE OFFICERS The information called for in this item is incorporated by reference from the Company's 1999 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 1999 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 1999 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 1999 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, 1998.
PAGE ------- Report of Ernst & Young LLP, Independent Auditors ...... 20 Consolidated Balance Sheets ............................. 21 - 22 Consolidated Statements of Income ....................... 23 Consolidated Statements of Stockholders' Equity (Deficit) 24 Consolidated Statements of Cash Flows ................... 25 Notes to Consolidated Financial Statements .............. 26 - 39
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." 40 41 FINANCIAL STATEMENT SCHEDULES
PAGE ---- Schedule II -- Valuation and Qualifying Accounts.......... 46
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, 1998. EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 3.1 Restated Certificate of Incorporation of WestPoint Stevens Inc., as currently in effect, incorporated by reference to Exhibit 3(b) to the Registration Statement on Form S-4 (Commission File No. 333-59817) filed by the Company with the Securities and Exchange Commission on August 4, 1998. 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 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. 10.2 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. 10.3 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. 10.4 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. 10.5 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.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 10.6 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. 10.7 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. 10.8 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. 10.9 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. 10.10 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. 10.11 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. 10.12 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. 10.13 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. 10.14 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. 10.15 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. 10.16 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. 10.17 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. 10.18 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.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 10.19 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. 10.20 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. 10.21 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. 10.22 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. 10.23 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. 10.24 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., incorporated by reference to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996 (Commission File No. 0-21496) filed by the Company with the Commission. 10.25 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, incorporated by reference to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996 (Commission File No. 0-21496) filed by the Company with the Commission. 10.26 First Amendment to the WestPoint Stevens Inc. Supplemental Retirement Plan dated as of September 6, 1996, incorporated by reference to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996 (Commission File No. 0-21496) filed by the Company with the Commission. 10.27 Employment Agreement effective January 1, 1997 between the Company and Joseph L. Jennings superseding the Employment Agreement of February 1, 1993, incorporated by reference to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996 (Commission File No. 0-21496) filed by the Company with the Commission. 10.28 WestPoint Stevens Inc. Omnibus Stock Incentive Plan, incorporated by reference to the Company's 1997 Proxy Statement for the fiscal year ended December 31, 1996 (Commission File No. 0-21496) filed by the Company with the Commission. 10.29 Third Amendment Agreement, dated as of May 22, 1997, among the Company, as Borrower, 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, Scotiabank Inc., Wachovia Bank of Georgia, N.A., SunTrust Bank, Atlanta, AmSouth Bank of Alabama, and ABN AMRO Bank, N.V., incorporated by reference to the Form 10-Q for the quarterly period ended June 30, 1997 (Commission File No. 0-21496) filed by the Company with the Commission.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 10.30 Stock Purchase Agreement by and among Dyersburg Corporation, as Purchaser, Alamac Sub Holdings Inc., as Seller, AIH Inc. and Company dated as of July 15, 1997, incorporated by reference to the Current Report on Form 8-K (Commission File No. 0-21496) filed by the Company with the Commission on September 11, 1997. 10.31 Supplemental Agreement relating to Phase II Environmental Investigation among Alamac Sub Holdings Inc., AIH Inc., Company and Dyersburg Corporation dated as of July 15, 1997, incorporated by reference to the Current Report on Form 8-K (Commission File No. 0-21496) filed by the Company with the Commission on September 11, 1997. 10.32 Amendment to Stock Purchase Agreement among Alamac Sub Holdings Inc., AIH Inc., Company and Dyersburg Corporation dated as of August 15, 1997, incorporated by reference to the Current Report on Form 8-K (Commission File No. 0-21496) filed by the Company with the Commission on September 11, 1997. 10.33 Supplemental Environmental Indemnity among Alamac Sub Holdings Inc., AIH Inc., Company and Dyersburg Corporation dated as of August 20, 1997, incorporated by reference to the Current Report on Form 8-K (Commission File No. 0-21496) filed by the Company with the Commission on September 11, 1997. 10.34 Second Supplemental Environmental Indemnity among Alamac Sub Holdings Inc., AIH Inc., Company and Dyersburg Corporation dated as of August 27, 1997, incorporated by reference to the Current Report on Form 8-K (Commission File No. 0-21496) filed by the Company with the Commission on September 11, 1997. 10.35 Assignment and Assumption Agreement among Company (the "Assignor"), Alamac Knit Fabrics, Inc. (the "Assignee") and Dyersburg Corporation dated as of August 27, 1997, incorporated by reference to the Current Report on Form 8-K (Commission File No. 0-21496) filed by the Company with the Commission on September 11, 1997. 10.36 Letter Amendment Agreement, dated as of July 22, 1997, among the Company, as Borrower, NationsBank, N.A. (formerly known as NationsBank of North Carolina, N.A.), The Bank of New York, BankBoston, N.A. (formerly known as The First National Bank of Boston), The First National Bank of Chicago, Scotiabank Inc., Wachovia Bank of Georgia, N.A., SunTrust Bank, Atlanta, AmSouth Bank of Alabama and ABN AMRO Bank, N.A., incorporated by reference to the Form 10-Q for the quarterly period ended September 30, 1997 (Commission File No. 0-21496) filed by the Company with the Commission. 10.37 Letter Amendment Agreement, dated as of August 5, 1997, among the Company, as Borrower, NationsBank, N.A. (formerly known as NationsBank of North Carolina, N.A.), The Bank of New York, BankBoston, N.A. (formerly known as The First National Bank of Boston), The First National Bank of Chicago, Scotiabank Inc., Wachovia Bank of Georgia, N.A., SunTrust Bank, Atlanta, AmSouth Bank of Alabama, and ABN AMRO Bank, N.V., incorporated by reference to the Form 10-Q for the quarterly period ended September 30, 1997 (Commission File No. 0-21496) filed by the Company with the Commission. 10.38 Indenture dated as of June 9, 1998, between the Company and The Bank of New York, as trustee, for the 7-7/8% Senior Notes due 2005, incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission. 10.39 Form of Old 7-7/8% Senior Notes due 2005 (included in the Indenture incorporated by reference as Exhibit 10.38), incorporated by reference to Exhibit 4(b) to Registration Statement on Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission. 10.40 Form of Exchange 7-7/8% Senior Notes due 2005 (included in the Indenture incorporated by reference as Exhibit 10.38), incorporated by reference to Exhibit 4(c) to Registration Statement on Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission.
44 45
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 10.41 Registration Rights Agreement dated as of June 9, 1998 among the Company and the Initial Purchasers with respect to the Senior Notes due 2005, incorporated by reference to Exhibit 4(d) to Registration Statement on Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission. 10.42 Indenture for the 7-7/8% Senior Notes due 2008 dated as of June 9, 1998 between the Company and the Bank of New York, as Trustee, incorporated by reference to Exhibit 4(e) to Registration Statement on Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission. 10.43 Form of Old 7-7/8% Senior Notes due 2008 (included in the Indenture incorporated by reference as Exhibit 10.42), incorporated by reference to Exhibit 4(f) to Registration Statement on Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission. 10.44 Form of Exchange 7-7/8% Senior Notes due 2008 (included in the Indenture incorporated by reference as Exhibit 10.42), incorporated by reference to Exhibit 4(g) to Registration Statement on Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission. 10.45 Registration Rights Agreement dated June 9, 1998 among the Company and the Initial Purchasers with respect to the Senior Notes due 2008, incorporated by reference to Exhibit 4(h) to Registration Statement on Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission. 10.46 Letter Amendment Agreement, dated as of July 31, 1998, among the Company, WestPoint Stevens (UK) Limited, WestPoint Stevens (Europe) Limited, NationsBank., N.A., as agent and other financial institutions party thereto, incorporated by reference to the Form 10-Q for the quarterly period ended September 30, 1998 (Commission File No. 0-21496) filed by the Company with the Commission. 10.47 Letter Amendment Agreement, dated as of October 7, 1998 among the Company, WestPoint Stevens (UK) Limited, WestPoint Stevens (Europe) Limited, NationsBank, N.A., as agent and other financial institutions party thereto. 10.48 Amendment dated October 29, 1998 to the WestPoint Stevens Inc. 1995 Key Employee Stock Bonus Plan (As Amended). 10.49 Receivables Purchase Agreement dated as of December 18, 1998, by and between the Company and WPS Receivables Corporation. 10.50 Non-Negotiable Promissory Note, dated as of December 18, 1998, by WPS Receivables Corporation in favor of the Company. 10.51 Asset Interest Transfer Agreement, dated as of December 18, 1998, among WPS Receivables Corporation, the Company, Blue Ridge Funding Corporation and Wachovia Bank, N.A. 21 List of Subsidiaries of the Registrant. 23.1 Consent of Ernst & Young LLP, independent auditors. 27.1 Financial Data Schedule for the period ended December 31, 1998 (for SEC use only)
45 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(3) PERIOD (4) ------ -------- ---------- -------------- ---------- Year Ended December 31, 1998 Accounts receivable allowances: Doubtful accounts ............ $13,137 $ 1,627 $1,506(1) $ 90 $13,348 Cash and/or trade discounts and returns and allowances 5,076 334(2) -- 493 5,903 ------- ------- ------ ------ ------- $18,213 $ 1,961 $1,506 $ 583 $19,251 ======= ======= ====== ====== ======= Inventory reserves: Market and obsolescence ...... $21,050 $ 4,176(2) $ -- $1,900 $27,126 ======= ======= ====== ====== ======= Year Ended December 31, 1997 Accounts receivable allowances: Doubtful accounts ............ $12,536 $ 1,555 $1,001(1) $ 47 $13,137 Cash and/or trade discounts and returns and allowances 4,429 428(2) -- 219 5,076 ------- ------- ------ ------ ------- $16,965 $ 1,983 $1,001 $ 266 $18,213 ======= ======= ====== ====== ======= Inventory reserves: Market and obsolescence ...... $15,599 $ 2,252(2) $ -- $3,199 $21,050 ======= ======= ====== ====== ======= Year Ended December 31, 1996 Accounts receivable allowances: Doubtful accounts ............ $12,107 $ 615 $ 186(1) $ -- $12,536 Cash and/or trade discounts and returns and allowances 5,360 (931)(2) -- -- 4,429 ------- ------- ------ ------ ------- $17,467 $ (316) $ 186 $ -- $16,965 ======= ======= ====== ====== ======= Inventory reserves: Market and obsolescence ...... $16,810 $(1,211)(2) $ -- $ -- $15,599 ======= ======= ====== ====== =======
(1)Accounts written off, less recoveries of accounts previously written off. (2)Net change. (3)Additions relate to acquisitions closed during the period. (4)Reserves are deducted from assets to which they apply. 46 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 March 31, 1999 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) March 31, 1999 March 31, 1999 By /s/ Thomas J. Ward By /s/ J. Nelson Griffith ------------------------------------------ ----------------------------------------------- Thomas J. Ward J. Nelson Griffith President and Chief Operating Officer Controller (principal accounting officer) March 31, 1999 March 31, 1999 By /s/ Hugh M. Chapman By /s/ M. Katherine Dwyer ------------------------------------------ ----------------------------------------------- Hugh M. Chapman M. Katherine Dwyer Director Director March 31, 1999 March 31, 1999
47 48 By /s/ John G. Hudson By /s/ Charles W. McCall ------------------------------------------ ----------------------------------------------- John G. Hudson Charles W. McCall Director Director March 31, 1999 March 31, 1999 By /s/ Gerald B. Mitchell . By /s/ Phillip Siegel ------------------------------------------ ----------------------------------------------- Gerald B. Mitchell Phillip Siegel Director Director March 31, 1999 March 31, 1999 By /s/ John F. Sorte ------------------------------------------ John F. Sorte Director March 31, 1999
48 EX-10.47 2 LETTER AMENDMENT AGREEMENT 1 EXHIBIT 10.47 (NATIONSBANK LETTERHEAD) NationsBank, N.A. Charlotte, NC 28255 TEL 704 386-5000 October 7, 1998 WESTPOINT STEVENS INC. 507 West Tenth Street West Point, Georgia 31833 Attention: Mr. Morgan M. Schuessler Re: Revision of Definition of "Maximum Restricted Payment Amount" and Minimum Net Worth Covenant Dear Sirs: Reference is made to that certain Second Amended and Restated Credit Agreement, dated as of June 9, 1998, among WestPoint Stevens Inc. ("Borrower"), WestPoint Stevens (UK) Limited and WestPoint Stevens (Europe) Limited (the "Foreign Borrowers"), the various banks and lending institutions party thereto (the "Banks"), and NationsBank, N.A. as agent (the "Agent") for the Banks, as amended by that certain Amendment Agreement dated as of July 31, 1998 (as amended from time to time, the "Credit Agreement"). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. By their signatures below, the Borrower, the Foreign Borrowers and the Required Banks hereby agree that the existing definition of "Maximum Restricted Payment Amount" in Section 1.1 of the Credit Agreement shall be amended to read in its entirety as follows: "Maximum Restricted Payment Amount" means the sum of (i) $84,210,000, plus (ii) 50% of the Consolidated Net Income from and after March 31, 1998 until any relevant measurement date, plus (iii) the Net Cash Proceeds received by the Borrower from the exercise of stock warrants or options by employees or former employees of the Borrower in respect of Capital Stock of the Borrower from and after March 31, 1998, plus (iv) $21,790,978 (representing the Net Cash Proceeds received by Alamac Sub Holdings Inc. from the sale of its facility located in Whitmire, South Carolina), and (v) beginning with the fiscal quarter ending nearest December 31, 1998, minus the lesser of $50,000,000 or 50% of the Consolidated Net Income from and after October 1, 1998 until any relevant measurement date. 2 WestPoint Stevens Inc. October 7, 1998 Page 2 By their signatures below, the Borrower, the Foreign Borrowers and the Required Banks hereby agree that Section 7.11(a) be amended to read in its entirety as follows: Minimum Consolidated Net Worth. Have a Consolidated Net Worth as of the last day of each fiscal quarter of not less than (i) $205,000,000, (ii) increased on a cumulative basis as of the end of each fiscal quarter of the Consolidated Parties, commencing with the fiscal quarter ending June 30, 1998, by an amount equal to forty percent (40%) of Consolidated Net Income (to the extent positive) for the fiscal quarter then ended, and (iii)further increased on a cumulative basis as of the end of each fiscal quarter of the Consolidated Parties beginning with the fiscal quarter ending nearest December 31, 1998 by an amount equal to the lesser of (A) fifty percent (50%) of Consolidated Net Income (to the extent positive) for each such fiscal quarter or (B) $50,000,000. By their signatures below, each of the Subsidiary Guarantors acknowledges and consents to this revision in the definition of "Maximum Restricted Payment Amount" and each Subsidiary Guarantor agrees that this revision does not operate to reduce or discharge any of such Subsidiary's obligations under any of the Collateral Documents. Until this letter agreement shall have been executed by the Borrower, the Foreign Borrowers, the Subsidiary Guarantors, and the Required Banks, it shall not be effective in revising either the definition of "Maximum Restricted Payment Amount" or Section 7.11(a). Except for the revision to the definition of "Maximum Restricted Payment Amount" and the revision of Section 7.11(a) effected hereby upon the execution of this letter agreement by the Borrower, the Foreign Borrowers, the Subsidiary Guarantors, and the Required Banks, the Credit Agreement shall remain in full force and effect. Please execute this letter agreement and cause each of the Foreign Borrowers and the Subsidiary Guarantors to execute this letter agreement, and return such completed signature pages to the Agent at your earliest convenience. Sincerely, NATIONSBANK, N.A., in its capacity as the Agent By: /s/ David H. Dinkins ------------------------------- David H. Dinkins Title: Vice President ---------------------------- ACKNOWLEDGED AND AGREED: WESTPOINT STEVENS INC. By: /s/ Morgan M. Schuessler ------------------------------ Title: Executive Vice President Finance and Chief Financial Officer [Signatures Continued] 3 WestPoint Stevens Inc. October 7, 1998 Page 3 WESTPOINT STEVENS (UK) LIMITED By: /s/ Morgan M. Schuessler --------------------------------------- Morgan M. Schuessler Title: Director, Vice President & Treasurer ------------------------------------ WESTPOINT STEVENS (EUROPE) LIMITED By: /s/ Morgan M. Schuessler --------------------------------------- Morgan M. Schuessler Title: Director, Vice President & Treasurer ------------------------------------ WESTPOINT STEVENS STORES, INC. By: /s/ Morgan M. Schuessler --------------------------------------- Morgan M. Schuessler Title: Vice President & Treasurer ------------------------------------ J.P. STEVENS & CO., INC. By: /s/ Morgan M. Schuessler --------------------------------------- Morgan M. Schuessler Title: Vice President & Treasurer ------------------------------------ WEST POINT-PEPPERELL ENTERPRISES, INC. By: /s/ Edward J. Jones --------------------------------------- Edward J. Jones Title: Vice President & Assistant Treasurer ------------------------------------ J.P. STEVENS ENTERPRISES, INC. By: /s/ Edward J. Jones --------------------------------------- Edward J. Jones Title: Vice President & Assistant Treasurer ------------------------------------ ALAMAC HOLDINGS INC. By: /s/ Edward J. Jones --------------------------------------- Edward J. Jones Title: Vice President & Assistant Treasurer ------------------------------------ [Signatures Continued] 4 WestPoint Stevens Inc. October 7, 1998 Page 4 ALAMAC SUB HOLDINGS INC. By: /s/ Edward J. Jones --------------------------------------- Edward J. Jones Title: Vice President & Assistant Treasurer ------------------------------------ NATIONSBANK, N.A., as a Bank By: /s/ David H. Dinkins --------------------------------------- David H. Dinkins Title: Vice President ------------------------------------ THE BANK OF NEW YORK By: /s/ Ronald R. Reedy --------------------------------------- Ronald R. Reedy Title: Vice President ------------------------------------ THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Kirsten H. Hertel --------------------------------------- Kirsten H. Hertel Title: Vice President ------------------------------------ SCOTIABANC INC. By: /s/ P.M. Brown --------------------------------------- P. M. Brown Title: Relationship Manager ------------------------------------ WACHOVIA BANK, N.A. By: /s/ Reginald T. Dawson --------------------------------------- Title: Senior Vice President ------------------------------------ [Signatures Continued] 5 WestPoint Stevens Inc. October 7, 1998 Page 5 SOCIETE GENERALE By: /s/ Ralph Saheb --------------------------------------- Ralph Saheb Vice President Title: Southwest Operations Manager ------------------------------------ ABN AMRO BANK, N.V. By: /s/ Linda K. Davis --------------------------------------- Title: Vice President ------------------------------------ By: /s/ Robert A. Budnek --------------------------------------- Robert A. Budnek Title: Vice President ------------------------------------ SUNTRUST BANK, ATLANTA By: /s/ Laura Kahn --------------------------------------- Laura Kahn Title: Senior Vice President ------------------------------------ By: /s/ Brenda Zino --------------------------------------- Brenda Zino Title: Banking Officer ------------------------------------ FIRST UNION NATIONAL BANK By: /s/ Roger Pelz --------------------------------------- Title: Senior Vice President ------------------------------------ FLEET BANK, N.A. By: --------------------------------------- Title: ------------------------------------ [Signatures Continued] 6 WestPoint Stevens Inc. October 7, 1998 Page 6 AMSOUTH BANK By: --------------------------------------- Title: ------------------------------------ COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: /s/ Theodore W. Cox --------------------------------------- Theodore W. Cox Title: Vice President ------------------------------------ By: /s/ W. Jeffrey Vollack --------------------------------------- W. Jeffrey Vollack Senior Credit Officer Title: Senior Vice President ------------------------------------ NATIONAL WESTMINSTER BANK PLC By: /s/ R. Elsom --------------------------------------- R. Elsom Title: Senior Corporate Manager ------------------------------------ EX-10.48 3 AMEND KEY EMPLOYEE STOCK BONUS PLAN 1 EXHIBIT 10.48 AMENDMENT TO THE WESTPOINT STEVENS INC. 1995 KEY EMPLOYEE STOCK BONUS PLAN (As Amended) THIS AMENDMENT to the WestPoint Stevens Inc. 1995 Key Employee Stock Bonus Plan (As Amended) (the "Plan") is made the 29th day of October, 1998 by WestPoint Stevens Inc. (the "Company"). W I T N E S S E T H: WHEREAS, the Company maintains the Plan for the benefit of its eligible employees; WHEREAS, the Company's Board of Directors has the authority to amend or modify the Plan at any time and in any respect with certain limitations as stated in the Plan; and WHEREAS, the Company desires to amend the Plan as provided herein; and WHEREAS, the Board of Directors of the Company, acting within its authority has approved the amendment of the Plan as provided herein; NOW, THEREFORE, the Plan is hereby amended as follows by amending the first sentence of Section 7 to read as follows: Within the first 90 days of each Performance Year (or, in the case of the initial Performance Year, within 90 days of the date the Plan is approved by the Board), the Committee shall establish a vesting schedule that shall apply to the Bonus Awards granted for that Performance Year; provided, however, that not less than 10% of the shares subject to each Bonus Award shall become vested as of January 1 of the year immediately following the Performance Year and in each succeeding year. EX-10.49 4 RECEIVABLES PURCHASE AGREEMENT 1 EXHIBIT 10.49 EXECUTION COPY RECEIVABLES PURCHASE AGREEMENT dated as of December 18, 1998 by and between WESTPOINT STEVENS INC., as Seller and WPS RECEIVABLES CORPORATION, as Purchaser 2 TABLE OF CONTENTS
Page ARTICLE I AGREEMENT TO PURCHASE AND SELL.................................... 2 1.1 Agreement to Purchase and Sell.................................................................... 2 1.2 Timing of Purchases............................................................................... 3 1.3 Consideration for Purchases....................................................................... 3 1.4 No Recourse....................................................................................... 3 1.5 No Assumption of Obligations Relating to Receivables, Related Assets or Contracts.......................................................... 3 1.6 True Sales........................................................................................ 4 1.7 Savings Clause.................................................................................... 4 1.8 Addition of Sellers............................................................................... 4 1.9 Termination of Status as a Seller................................................................. 5 ARTICLE II CALCULATION OF PURCHASE PRICE.................................... 6 2.1 Calculation of Purchase Price..................................................................... 6 2.2 Definitions and Calculations Related to Purchase Price Percentage.................................................................................. 7 ARTICLE III PAYMENT OF PURCHASE PRICE; SERVICING, ETC............................. 8 3.1 Purchase Price Payments........................................................................... 8 3.2 The WPS Finco Note................................................................................ 9 3.3 Application of Collections and Other Funds........................................................ 10 3.4 Servicing of Receivables and Related Assets....................................................... 10 3.5 Payments and Computations, Etc.................................................................... 11 ARTICLE IV CONDITIONS TO PURCHASES....................................... 11 4.1 Conditions Precedent to Initial Purchase.......................................................... 11 4.2 Certification as to Representations and Warranties........................................................................................ 12 4.3 Effect of Payment of Purchase Price............................................................... 12 ARTICLE V REPRESENTATIONS AND WARRANTIES.................................... 13 5.1 Representations and Warranties of Seller.......................................................... 13 5.2 Representations and Warranties of WPS Finco....................................................... 20 ARTICLE VI GENERAL COVENANTS OF SELLER...................................... 20 6.1 Affirmative Covenants............................................................................. 20 6.2 Reporting Requirements............................................................................ 24 6.3 Negative Covenants................................................................................ 28
i 3
Page ARTICLE VII ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE TRANSFERRED ASSETS................................. 31 7.1 Rights of WPS Finco............................................................................... 31 7.2 Responsibilities of Seller........................................................................ 32 7.3 Further Action Evidencing Purchases............................................................... 32 7.4 Collection of Receivables; Rights of WPS Finco and Its Assignees.................................. 34 ARTICLE VIII TERMINATION............................................. 35 8.1 Termination by Seller............................................................................. 35 8.2 Automatic Termination............................................................................. 35 ARTICLE IX INDEMNIFICATION........................................... 35 9.1 Indemnities by Seller............................................................................. 35 9.2. Contribution...................................................................................... 37 ARTICLE X MISCELLANEOUS............................................ 38 10.1 Amendments; Waivers, Etc......................................................................... 38 10.2 Notices, Etc..................................................................................... 38 10.3 Cumulative Remedies.............................................................................. 39 10.4 Binding Effect; Assignability; Survival of Provisions....................................................................................... 39 10.5 Governing Law.................................................................................... 39 10.6 Costs, Expenses and Taxes........................................................................ 40 10.7 Consent to Jurisdiction; Waiver of Immunities.................................................... 40 10.8 Waiver of Jury Trial............................................................................. 41 10.9 Integration...................................................................................... 41 10.10 Execution in Counterparts....................................................................... 41 10.11 Acknowledgment and Consent...................................................................... 41 10.12 No Partnership or Joint Venture................................................................. 42 10.13 No Proceedings.................................................................................. 42 10.14 Severability of Provisions...................................................................... 42 10.15 Recourse to WPS Finco........................................................................... 43
ii 4 EXHIBITS EXHIBIT 3.2 Form of WPS Finco Note SCHEDULES SCHEDULE 5.1(f) Litigation and Other Proceedings SCHEDULE 5.1(n) Offices of the Sellers where Records are Maintained SCHEDULE 5.1(o) Lock-Box Banks and Accounts SCHEDULE 5.1(q) Legal Names APPENDICES APPENDIX A Definitions iii 5 THIS RECEIVABLES PURCHASE AGREEMENT (this "Purchase Agreement"), dated as of December 18, 1998, is made by and between WestPoint Stevens Inc., a Delaware corporation ("Seller"), and WPS Receivables Corporation, a Delaware corporation ("WPS Finco"). Except as otherwise specifically provided herein, capitalized terms used in this Purchase Agreement have the meanings ascribed to such terms in Appendix A hereto, and this Purchase Agreement shall be interpreted in accordance with the conventions set forth in Parts B, C and D of Appendix A. W I T N E S S E T H WHEREAS, Seller and WPS Finco entered into a Receivables Purchase Agreement dated as of December 10, 1993 and amended and restated as of May 27, 1994 (the "Original Purchase Agreement"), pursuant to which Seller agreed to sell Receivables that it owned on December 10, 1993 and from time to time thereafter owned, to WPS Finco, and WPS Finco agreed to purchase such Receivables from Seller from time to time; and WHEREAS, Seller exercised its termination rights under Section 8.1 of the Original Purchase Agreement and terminated such agreement; WHEREAS, WPS Finco continues to own all Receivable outstanding as of the close of business on the Effective Date and conveyed pursuant to the Original Purchase Agreement. (such Receivables, the "Previously Transferred Receivables"); WHEREAS, Seller and WPS Finco desire to enter into a new Receivables Purchase Agreement pursuant to which Seller will sell Receivables that it owns on the Effective Date and from time to time thereafter owns, to WPS Finco, and WPS Finco will purchase such Receivables from Seller on the Effective Date and thereafter from time to time, in each case, on the terms and conditions set forth herein; and WHEREAS, concurrent with this Purchase Agreement, WPS Finco, as Transferor, Seller, as Servicer, Blue Ridge Asset Funding Corporation, as Transferee ("Blue Ridge"), and Wachovia Bank, N.A., as Administrator (the "Administrator"), are entering into an Asset Interest Transfer Agreement pursuant to which WPS Finco will transfer to Blue Ridge an undivided interest in Pool Receivables and Related Assets (as defined therein), in order to, among other things, finance WPS Finco's purchases hereunder. 6 NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I AGREEMENT TO PURCHASE AND SELL SECTION 1.1 Agreement to Purchase and Sell. On the terms and subject to the conditions set forth in this Purchase Agreement (including the conditions to purchases set forth in Article IV), Seller agrees to sell, transfer, assign, set over and otherwise convey, and does hereby sell, to WPS Finco, and WPS Finco agrees to purchase, and does hereby purchase, from Seller, at the times set forth in Section 1.2, all of Seller's right, title and interest in, to and under: (a) each Receivable of Seller that exists and is owing to Seller as at the closing of Seller's business on the Effective Date (other than the Previously Transferred Receivables), (b) each Receivable created by Seller that arises during the period from and including the closing of Seller's business on the Effective Date but excluding the Purchase Termination Date, (c) all Related Security with respect to all Receivables described above, (d) all proceeds of the foregoing, including all funds received by any Person in payment of any amounts owed (including invoice prices, finance charges, interest and all other charges, if any) in respect of any Receivable described above or Related Security with respect to any such Receivable, or otherwise applied to repay or discharge any such Receivable (including insurance payments that Seller or the Servicer applies in the ordinary course of its business to amounts owed in respect of any such Receivable (it being understood that property insurance covering inventory is not so applied and is not included in this grant) and net proceeds of sale or other disposition of repossessed goods that were the subject of any such Receivable) or other collateral or property of any Obligor or any other party directly or indirectly liable for payment of such Receivables), and 2 7 (e) all Records relating to any of the foregoing; provided that the Seller shall be entitled to retain duplicates of such Records. As used herein, (i) "Purchased Receivables" means the items listed above in clauses (a) and (b) and the Previously Transferred Receivables; (ii) "Related Assets" means the items listed above in clauses (c), (d) and (e); and (iii) "Transferred Assets" means the Purchased Receivables and the Related Assets. SECTION 1.2 Timing of Purchases. (a) Effective Date Purchases. All of the Transferred Assets of Seller, other than the Previously Transferred Receivables (which have been previously transferred to WPS Finco) existing at the closing of its business on the Effective Date automatically (and without further action by any Person) shall be sold to WPS Finco on the Effective Date. (b) Regular Purchases. Except to the extent otherwise provided in Section 8.2, after the closing of Seller's business on the Effective Date until the closing of Seller's business on the Business Day immediately preceding the Purchase Termination Date, each Receivable and the Related Assets of Seller shall be deemed to have been sold to WPS Finco pursuant hereto immediately (and without further action by any Person) upon the creation of such Receivable. SECTION 1.3 Consideration for Purchases. On the terms and subject to the conditions set forth in this Purchase Agreement, WPS Finco agrees to make Purchase Price payments to Seller in accordance with Article III. SECTION 1.4 No Recourse. Except as specifically provided in this Purchase Agreement, the sale and purchase of Transferred Assets under this Purchase Agreement shall be without recourse to Seller; it being understood that Seller shall be liable to WPS Finco for all representations, warranties, covenants and indemnities made by Seller pursuant to the terms of this Purchase Agreement, all of which obligations are limited so as not to constitute recourse to Seller for the credit risk of the Obligors. SECTION 1.5 No Assumption of Obligations Relating to Receivables, Related Assets or Contracts. Neither WPS Finco, nor the Servicer, nor any of their respective assigns, shall have any obligation or liability to any Obligor or other customer or client of Seller (including any obligation to perform any of the obligations of Seller under any Receivable, related Contracts or any other related purchase orders or other agreements). No such 3 8 obligation or liability is intended to be assumed hereunder by WPS Finco, the Servicer, or any of their respective assigns, and any such assumption is expressly disclaimed. SECTION 1.6 True Sales. Seller and WPS Finco intend the transfers of Receivables hereunder to be true sales by Seller to WPS Finco that are absolute and irrevocable and that provide WPS Finco with the full benefits of ownership of the Receivables, and neither Seller nor WPS Finco intends the transactions contemplated hereunder to be, or for any purpose to be characterized as, loans from WPS Finco to Seller. SECTION 1.7 Savings Clause. If, notwithstanding the intention of the parties expressed in Section 1.6 above, the conveyance by Seller to WPS Finco of Receivables hereunder shall be characterized as a secured loan and not a sale, this Purchase Agreement shall constitute a security agreement under the UCC and other applicable law. For this purpose, Seller hereby grants WPS Finco a duly perfected, first priority security interest in all of Seller's right, title and interest in, to and under the Receivables and the Related Security with respect thereto, this Purchase Agreement and all proceeds of any thereof, to secure the timely payment and performance by Seller of all amounts owing to WPS Finco hereunder and any other obligations owing to WPS Finco hereunder. In the event this Purchase Agreement shall be characterized as a security agreement and upon a default by Seller hereunder, WPS Finco and its assignees shall have, in addition to the rights and remedies which they may have under this Purchase Agreement, all other rights and remedies provided to a secured creditor after default under the UCC and other applicable law, which rights and remedies shall be cumulative. SECTION 1.8 Addition of Sellers. Any Subsidiary of WestPoint Stevens may become an additional Seller hereunder and sell its accounts receivable and property of the types that constitute Receivables and Related Assets hereunder to WPS Finco if the Administrator (on behalf of Blue Ridge) consents to such addition. WestPoint Stevens and its Subsidiary that is proposed to be added as a Seller shall give to WPS Finco and the Administrator no less than forty-five days' prior written notice of the effective date of the addition of such Subsidiary as a Seller, and such Subsidiary shall provide the Administrator (on behalf of Blue Ridge) with reasonable access to its officers and to its books, records and accounting systems to enable the Administrator to conduct a due diligence review of the accounts receivable and accounting systems of such Subsidiary. Upon the Administrator granting its consent to the proposed addition, such addition shall become effective on the first Business Day 4 9 following the date on which the Subsidiary and the parties hereto shall have executed and delivered such agreements, instruments and other documents and such amendments or other modifications to the Transaction Documents, in form and substance reasonably satisfactory to WPS Finco and the Administrator, that WPS Finco or the Administrator reasonably determines are necessary or appropriate to effect such addition. SECTION 1.9 Termination of Status as a Seller. (a) At any time when more than one Person is a Seller, a Seller (other than WestPoint Stevens) may terminate its obligation to sell its Receivables and Related Assets to WPS Finco if: (i) such Seller (a "Terminating Seller") shall have given WPS Finco no less than thirty days' prior written notice of such Seller's intention to terminate such obligations; (ii) an Authorized Officer of the Terminating Seller shall have certified that the termination by the Terminating Seller of its status as a Seller will not have a Material Adverse Effect; and (iii) both immediately before and after giving effect to such termination by the Terminating Seller, no Liquidation Event or Unmatured Liquidation Event shall have occurred and be continuing or shall reasonably be expected to occur. Any termination by a Seller pursuant to this Section 1.9(a) shall become effective on the first Business Day that follows the day on which the requirements of foregoing clauses (a)(i) through (iii) shall have been satisfied (or such later date specified in the notice or certificate referred to in such clauses). Any termination by a Seller pursuant to this Section 1.9(a) shall terminate such Seller's right and obligation to sell Receivables and Related Assets hereunder to WPS Finco and WPS Finco's agreement, with respect to such Seller, to purchase such Receivables and Related Assets; provided, however, that such termination shall not relieve such Seller of any of its other Obligations, to the extent such Obligations relate to Receivables (and Related Assets with respect thereto) originated by such Seller prior to the effective date of such termination. (b) The right and obligation of a Seller (other than WestPoint Stevens) to sell its Receivables and Related Assets to WPS Finco shall terminate immediately if such Seller ceases to be a Subsidiary of WestPoint Stevens; provided, however, that such termination shall not relieve such Seller of any of its other 5 10 Obligations, to the extent such Obligations relate to Receivables (and Related Assets with respect thereto) originated by such Seller prior to the effective date of such termination. ARTICLE II CALCULATION OF PURCHASE PRICE SECTION 2.1 Calculation of Purchase Price. On the Effective Date, and thereafter on each Reporting Date, the Servicer shall deliver to WPS Finco, the Administrator and Seller, a Monthly Report with respect to WPS Finco's purchases of Receivables from Seller (i) that are to be made on the Effective Date (in the case of the Monthly Report to be delivered on the Effective Date) or (ii) that were made in the immediately preceding Reporting Period (in the case of each subsequent Monthly Report). On each day when Receivables are purchased by WPS Finco from Seller pursuant to Article I hereof, the "Purchase Price" to be paid to Seller on such day (in the case of the Effective Date), or on the next Business Day for the Receivables and Related Assets that are to be sold by Seller on such day, shall be determined in accordance with the following formula: PP = AUB x PPP where: PP = the aggregate Purchase Price for the Receivables and Related Assets purchased from Seller on such day, AUB = the "Aggregate Unpaid Balance" of the Receivables that are to be purchased from Seller on such day. For purposes of this calculation, "Aggregate Unpaid Balance" shall mean (i) for purposes of calculating the Purchase Price to be paid to Seller on the Effective Date, the sum of the Unpaid Balances of each Receivable generated by Seller, as measured as at the closing of Seller's business on the Effective Date, and (ii) for purposes of calculating the Purchase Price to be paid to Seller on each Business Day thereafter, the sum of the Unpaid Balances of each Receivable 6 11 to be purchased from Seller on such day, calculated at the time of such Receivable's generation and sale to WPS Finco, PPP = the Purchase Price Percentage applicable to the Receivables purchased from Seller on such day, as determined pursuant to Section 2.2. SECTION 2.2 Definitions and Calculations Related to Purchase Price Percentage. (a) "Purchase Price Percentage" for the Receivables to be sold by Seller on any day shall mean the percentage determined in accordance with the following formula: PPP = 100% - RRF where: PPP = the Purchase Price Percentage in effect on such day RRF = the Required Reserve Factor (expressed as a percentage) determined as of the most recent Reporting Date, pursuant to paragraph (b) below. The Purchase Price Percentage and the Required Reserve Factor shall be recomputed by the Servicer on each Reporting Date, in each case for the then most recent ended Reporting Period, and such recomputed amounts shall be used for purposes of calculating the Purchase Price payable to Seller for Receivables sold to WPS Finco through the next Reporting Date. 7 12 ARTICLE III PAYMENT OF PURCHASE PRICE; SERVICING, ETC. SECTION 3.1 Purchase Price Payments. (a) On the Effective Date and on the Business Day following each day on which any Receivables are purchased from Seller by WPS Finco pursuant to Article I hereof, on the terms and subject to the conditions of this Purchase Agreement, WPS Finco shall pay to Seller the Purchase Price for the Receivables and Related Assets purchased on such day, by WPS Finco from Seller by (i) making a cash payment to Seller to the extent that WPS Finco has cash available to make such payment pursuant to Section 3.3 and (ii) automatically increasing the principal amount outstanding under Seller's WPS Finco Note by the amount of the excess of the Purchase Price to be paid to Seller for such Receivables and Related Assets over the amount of any cash payment made on such day to Seller. (b) Non-Complying Receivables and Dilution Adjustment. If on any day (i) the Unpaid Balance of any Receivable sold to WPS Finco by Seller is: (A) reduced as a result of any defective, rejected or returned merchandise or services, any cash discount, incorrect billings, price rollbacks, freight charge discrepancies or any other adjustment by Seller or any Affiliate thereof, or as a result of any tariff or other governmental or regulatory action, or (B) reduced or canceled as a result of a setoff in respect of any claim by the Obligor thereof (whether such claim arises out of the same or a related or an unrelated transaction), or (C) reduced on account of the obligation of Seller or any Affiliate thereof to pay to the related Obligor any rebate or refund, or (D) less than the amount reported in the applicable Monthly Report (for any reason 8 13 other than such Receivable being paid by the Obligor thereof or becoming a Defaulted Receivable), or (ii) the representations and warranties made by Seller in Section 5.1(k) with respect to such Receivable were not true when made, then, the Purchase Price payable to Seller on the next Business Day or Days shall be reduced as follows (such reduction, a "NonComplying Receivables and Dilution Adjustment"): (A) in the case of clause (i) above, in the amount of such reduction or cancellation or the difference between the actual Unpaid Balance and the amount reported in the applicable Monthly Report, as applicable; and (B) in the case of clause (ii) above, in the amount of the Unpaid Balance of such Receivable. (c) If, on any day on or after the Purchase Termination Date, there is a positive Noncomplying Receivables and Dilution Adjustment and the principal amount of the WPS Finco Note has been reduced to zero (or Seller no longer holds the WPS Finco Note), Seller shall pay to WPS Finco in cash the amount of such Noncomplying Receivables and Dilution Adjustment on the next succeeding Business Day. SECTION 3.2 The WPS Finco Note. (a) On the Effective Date, WPS Finco shall deliver to Seller a promissory note, substantially in the form of Exhibit 3.2, payable to the order of Seller (such promissory note, as the same may be amended, supplemented, endorsed or otherwise modified from time to time, together with any promissory note issued from time to time in substitution therefor or renewal thereof in accordance with the Transaction Documents, the "WPS Finco Note"), which WPS Finco Note shall be subordinated to all payments now or hereafter arising under or in connection with the Asset Interest Transfer Agreement. The WPS Finco Note is payable in full on the date that is eighteen months after the Final Payout Date under the Asset Interest Transfer Agreement. The WPS Finco Note shall bear interest at a rate per annum equal to the Prime Rate in effect on the most recent Reporting Date. WPS Finco may prepay all or part of the outstanding balance of the WPS Finco Note from time to time without any premium or penalty, unless such prepayment would result in a default in WPS Finco's payment of any other amount required to be paid by it under any Transaction Document. 9 14 (b) The Servicer shall hold the WPS Finco Note for the benefit of Seller, and shall make all appropriate recordkeeping entries with respect to the WPS Finco Note or otherwise to reflect the payments on and adjustments thereto. The Servicer's books and records shall constitute rebuttable presumptive evidence of the principal amount of and accrued interest on the WPS Finco Note at any time. Seller hereby irrevocably authorizes the Servicer to mark the WPS Finco Note "CANCELLED" and to return the WPS Finco Note to WPS Finco upon the final payment thereof. SECTION 3.3 Application of Collections and Other Funds. If, on any day, WPS Finco receives (a) Collections that it is not required to hold in trust for, or remit to, the Servicer or the Administrator pursuant to the Asset Interest Transfer Agreement or (b) proceeds or transfers pursuant to the Asset Interest Transfer Agreement, WPS Finco shall apply such funds as follows: (i) first, to pay its existing expenses and to set aside funds for the payment of expenses that are then accrued; (ii) second, to pay the Purchase Price pursuant to Section 3.1 for Receivables and Related Assets purchased by WPS Finco from Seller on the Effective Date or in the applicable Reporting Period, as the case may be; and (iii) third, in such order as WPS Finco may elect, (A) to repay amounts owed by WPS Finco to Seller under the WPS Finco Note, or (B) to declare and pay dividends to Seller to the extent permitted by law. SECTION 3.4 Servicing of Receivables and Related Assets. Consistent with WPS Finco's ownership, as between the parties to this Purchase Agreement, of the Receivables and the Related Assets, WPS Finco shall have the sole right to service, administer and collect the Receivables, to assign such right and to delegate such right to others. Without limiting the generality of Section 10.11, Seller hereby acknowledges and agrees that WPS Finco shall assign to the Administrator (for the benefit of Blue Ridge) the rights and interests granted by Seller to WPS Finco hereunder and agrees to cooperate fully with the Servicer and the Administrator in the exercise of such rights. As more fully described in Section 7.4(b) hereof and in the Asset Interest Transfer Agreement, the Administrator may only exercise such rights in the place of WPS Finco (as assignee or otherwise) following the designation of a Servicer other than WestPoint Stevens pursuant to Section 8.01 of the Asset Interest Transfer Agreement or upon the occurrence and during the continuance of a Liquidation Event. 10 15 SECTION 3.5 Payments and Computations, Etc. All amounts to be paid by Seller to WPS Finco hereunder shall be paid in accordance with the terms hereof no later than 2:00 p.m. (New York time) on the day when due in Dollars in immediately available funds to an account that WPS Finco shall from time to time specify in writing. Payments received by WPS Finco after such time shall be deemed to have been received on the next Business Day. In the event that any payment becomes due on a day which is not a Business Day, then such payment shall be made on the next succeeding Business Day. Seller shall, to the extent permitted by law, pay to WPS Finco, on demand, interest on all amounts not paid when due hereunder at 1.0% per annum above the interest rate on the WPS Finco Note in effect on the date such payment was due; provided, however, that such interest rate shall not at any time exceed the maximum rate permitted by applicable law. All computations of interest payable hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. ARTICLE IV CONDITIONS TO PURCHASES SECTION 4.1 Conditions Precedent to Initial Purchase. The initial purchase hereunder is subject to the conditions precedent that (i) each of the conditions precedent to the execution, delivery and effectiveness of each other Transaction Document (other than a condition precedent in any such other Transaction Document relating to the effectiveness of this Purchase Agreement) shall have been fulfilled to the satisfaction of WPS Finco, and (ii) WPS Finco shall have received (or in the case of subsection (i) below, shall have delivered) each of the following, on or before the Effective Date, each (unless otherwise indicated) dated the Effective Date and each in form and substance satisfactory to WPS Finco: (a) Seller Assignment Certificate. A Seller Assignment Certificate in the form of Exhibit 4.1(a) from Seller, duly completed, executed and delivered by Seller; (b) Resolutions. A copy of the resolutions of the Board of Directors of Seller approving this Purchase Agreement and the other Transaction Documents to be delivered by Seller hereunder and the transactions contemplated hereby and thereby and addressing such other matters as may be required by WPS Finco, certified by its Secretary or Assistant Secretary, each as of a recent date acceptable to WPS Finco; 11 16 (c) Good Standing Certificate of Seller; Certificates as to Foreign Qualification of Seller. A good standing certificate for Seller, issued by the Secretary of State of Delaware and of each state in which Seller transacts business, is required to be in good standing and where the failure to be in good standing could materially and adversely affect the condition (financial or otherwise), properties, business or results of operations of Seller, each dated as of a recent date; (d) Incumbency Certificate. A certificate of the Secretary or Assistant Secretary of Seller certifying, as of the date of this Purchase Agreement, the names and true signatures of the officers authorized on Seller's behalf to sign this Purchase Agreement and the other Transaction Documents to be delivered by Seller hereunder; (e) Other Transaction Documents. Original copies, executed by each of the parties thereto in such reasonable number as shall be specified by WPS Finco, of each of the other Transaction Documents to be executed and delivered in connection herewith; and (f) Opinions of Counsel. The following opinions of counsel each in form and substance satisfactory to WPS Finco: (i) opinions of Weil, Gotshal & Manges LLP, special counsel to Seller as to enforceability and UCC validity matters and true sale and non-consolidation, and (ii) opinions of Sutherland, Asbill and Brennan, as to Georgia tax and UCC perfection and priority matters. SECTION 4.2 Certification as to Representations and Warranties. Seller, by accepting the Purchase Price paid for each purchase of Receivables generated by Seller and the Related Assets of Seller, shall be deemed to have certified, with respect to the Receivables and Related Assets to be sold by it on such day, that its representations and warranties contained in Article V (excluding, with respect to any day after the Effective Date, Section 5.1(i)) are true and correct on and as of such day, with the same effect as though made on and as of such day. SECTION 4.3 Effect of Payment of Purchase Price. Upon the payment of the Purchase Price (whether in cash or by an increase in the WPS Finco Note pursuant to Section 3.1) for any Purchase, title to the Receivables and the Related Assets included in such Purchase shall rest in WPS Finco, whether or not the conditions precedent to such Purchase were in fact satisfied; provided, however, that WPS Finco shall not be deemed to have waived any claim it may have under this Purchase Agreement for the failure by Seller in fact to satisfy any such condition precedent. 12 17 ARTICLE V REPRESENTATIONS AND WARRANTIES SECTION 5.1 Representations and Warranties of Seller. In order to induce WPS Finco to enter into this Purchase Agreement and to make purchases hereunder, Seller hereby makes the representations and warranties set forth in this Section 5.1 at the times and to the extent set forth in Section 4.2. (a) Organization and Good Standing. Seller is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware and has full power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted. Seller had at all relevant times, and now has, all necessary power, authority, and legal right to own and sell the Receivables and the Related Assets. (b) Due Qualification. Seller is duly qualified to do business and is in good standing as a foreign corporation (or is exempt from such requirement), and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualification, licenses or approvals and where the failure so to qualify, to obtain such licenses and approvals or to preserve and maintain such qualification, licenses or approvals could reasonably be expected to have a Material Adverse Effect. (c) Power and Authority; Due Authorization. Seller has (i) all necessary corporate power and authority to (A) execute and deliver this Purchase Agreement and the other Transaction Documents to which it is a party, (B) perform its obligations under this Purchase Agreement and the other Transaction Documents to which it is a party, and (C) sell and assign Receivables and the Related Assets on the terms and subject to the conditions herein and therein provided, (ii) duly authorized by all necessary corporate action such sale and assignment and the execution, delivery, and performance of this Purchase Agreement and the other Transaction Documents to which it is a party and the consummation of the transactions provided for in this Purchase Agreement and the other Transaction Documents to which it is a party and (iii) duly executed and delivered this Purchase Agreement and each other Transaction Document to which it is a party. 13 18 (d) Valid Sale; Binding Obligations. Each sale made by Seller pursuant to this Purchase Agreement constitutes a valid sale, transfer, and assignment of all of Seller's right, title and interest in, to and under the Receivables and the Related Assets of Seller to WPS Finco which is perfected and of first priority under the UCC and otherwise, enforceable against creditors of, and purchasers from, Seller and free and clear of any Adverse Claim (other than any Adverse Claim arising solely as a result of any action taken by WPS Finco hereunder (or by the Administrator on behalf of Blue Ridge under the Asset Interest Transfer Agreement); and this Purchase Agreement constitutes, and each other Transaction Document to which Seller is a party constitutes, a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) No Conflict or Violation. The execution, delivery and performance of, and the consummation of the transactions contemplated by, this Purchase Agreement and the other Transaction Documents to be signed by Seller and the fulfillment of the terms hereof and thereof will not (i) conflict with, violate, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, (A) the Certificate of Incorporation or the Bylaws of Seller or (B) any indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other material agreement or instrument to which Seller is a party or by which it or any of its properties is bound, (ii) result in the creation or imposition of any Adverse Claim upon any of the Receivables or Related Assets other than pursuant to this Purchase Agreement and the other Transaction Documents, or (iii) conflict with or violate any federal, state, local or foreign law or any decision, decree, order, rule, or regulation applicable to Seller or any of its properties of any court or of any federal, state, local or foreign regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over Seller or any of its properties, which conflict, violation, breach or default, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (f) Litigation and Other Proceedings. Except as described in Schedule 5.1(f) (as Schedule 5.1(f) may be 14 19 amended or supplemented from time to time pursuant to Section 6.2(e)), (i) there is no action, suit, proceeding or investigation pending or, to the best knowledge of Seller, threatened against Seller before any court, regulatory body, arbitrator, administrative agency, or other tribunal or governmental instrumentality and (ii) Seller is not subject to any order, judgment, decree, injunction, stipulation or consent order of or with any court or other government authority, that, in the case of each of the foregoing clauses (i) and (ii), (A) asserts the invalidity of this Purchase Agreement or any other Transaction Document, (B) seeks to prevent the sale of any Receivables or Related Assets by Seller to WPS Finco, or the consummation of any of the transactions contemplated by this Purchase Agreement or any other Transaction Document (C) seeks any determination or ruling that would materially and adversely affect the performance by Seller of its obligations under this Purchase Agreement or any other Transaction Document or the validity or enforceability of this Purchase Agreement or any other Transaction Document, (D) seeks to affect adversely the income tax attributes of the purchases hereunder or the Seller Assignment Certificate, in the case of each of the foregoing whether under the United States federal income tax system or any state income tax system, or (E) individually or in the aggregate for all such actions, suits, proceedings and investigations, could reasonably be expected to have a Material Adverse Effect. (g) Bulk Sales Act. No transaction contemplated by this Purchase Agreement or any other Transaction Document requires compliance with, or will be subject to avoidance under, any bulk sales act or similar law. (h) Government Approvals. All authorizations, consents, orders and approvals of, or other action by, any Governmental Authority that are required to be obtained by Seller, and all notices to and filings with any Governmental Authority that are required to be made by Seller, in the case of each of the foregoing in connection with the conveyance of Receivables and Related Assets or the due execution, delivery and performance by Seller of this Purchase Agreement or any other Transaction Document to which it is a party, and the consummation of the transactions contemplated by this Purchase Agreement, have been obtained or made and are in full force and effect, except where the failure to obtain or to make any such authorization, consent, order, approval, notice or filing, individually or in the aggregate for all such failures, could not reasonably be expected to have a Material Adverse Effect. 15 20 (i) Financial Condition. WestPoint Stevens Inc. hereby represents that its consolidated balance sheets as at December 31, 1997, and the related statements of income and shareholders' equity of WestPoint Stevens Inc. and its Consolidated Subsidiaries for the fiscal year then ended certified by, Ernst & Young, LLP, independent certified public accountants, copies of which have been furnished to WPS Finco, fairly present the consolidated financial condition and business of WestPoint Stevens Inc. and its Consolidated Subsidiaries as at such date and the consolidated results of the operations of WestPoint Stevens and its Consolidated Subsidiaries for the period ended on such date, all in accordance with GAAP consistently applied throughout the periods reflected therein, and since December 31, 1997 through the date of this Purchase Agreement there has been no material adverse change in the condition (financial or otherwise), business or operations of Seller; (j) Margin Regulations. No funds obtained by Seller under this Purchase Agreement will be used (i) for a purpose that violates or will conflict with or contravene any of Regulations T, U and X promulgated by the Board of Governors of the Federal Reserve System from time to time or (ii) to acquire any security in any transaction that is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended. (k) Quality of Title. (i) Immediately before each purchase to be made by WPS Finco hereunder, each Receivable and Related Asset of Seller which is then to be transferred to WPS Finco hereunder or thereunder, and the related Contracts, shall be owned by Seller free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by WPS Finco hereunder or by the Administrator on behalf of Blue Ridge under the Asset Interest Transfer Agreement); and Seller shall have made all filings and shall have taken all other action under applicable law in each relevant jurisdiction in order to protect and perfect the ownership interest of WPS Finco and its successors in such Receivables and Related Assets against all creditors of, and purchasers from, Seller. (ii) Whenever WPS Finco makes a purchase hereunder, it shall have acquired and shall at all times thereafter continuously maintain a valid and perfected first priority ownership interest in each Transferred Asset, free and clear of any Adverse Claim 16 21 (other than any Adverse Claim arising solely as the result of any action taken by WPS Finco hereunder or by the Administrator on behalf of Blue Ridge under the Asset Interest Transfer Agreement). (iii) No currently effective financing statement or other instrument similar in effect that covers all or part of any Receivable, any interest therein or any Related Asset with respect thereto is on file in any recording office except such as may be filed (A) in favor of Seller in accordance with the Contracts, (B) in favor of WPS Finco pursuant to this Purchase Agreement and, (C) in favor of the Administrative Agent for the benefit of Blue Ridge, in accordance with the Asset Interest Transfer Agreement. (iv) No purchase of an interest in any Receivable or Related Asset of Seller by WPS Finco from Seller constitutes a fraudulent transfer or fraudulent conveyance under the United States Bankruptcy Code or applicable state bankruptcy or insolvency laws or is otherwise void or voidable or subject to subordination under similar laws or principles or for any other reason. (v) The purchase of Receivables and Related Assets by WPS Finco from Seller constitutes a true and valid sale of such Receivables and Related Assets under applicable state law and true and valid assignments and transfers for consideration (and not merely a pledge of such Receivables and Related Assets for security purposes), enforceable against the creditors of Seller, and no Receivables or Related Assets transferred to WPS Finco hereunder shall constitute property of Seller. (l) Eligible Receivables. On the date of each Monthly Report which identifies a Receivable as an Eligible Receivable, such Receivable is an Eligible Receivable. (m) Accuracy of Information. All written information furnished prior to, on and after the Effective Date by Seller or any other WPS Person to WPS Finco, the Servicer or the Administrative Agent pursuant to or in connection with any Transaction Document or any transaction contemplated herein or therein shall not contain any untrue statement of a material fact or omit to state material facts necessary to make the statements made not misleading, in each case on the date such statement was made and in light of the circumstances under which such statements were made or such information was furnished. 17 22 (n) Offices. The principal place of business and chief executive office of Seller is located at the address set forth under Seller's signature hereto, and the offices where Seller keeps all Records and all Contracts, purchase orders and agreements related to the Receivables and the Related Assets (and all original documents relating thereto) are located at the addresses specified in Schedule 5.1(n) (or at such other locations, notified to the Servicer and the Administrative Agent in accordance with Section 6.1(f), in jurisdictions where all action required pursuant to Section 7.3 has been taken and completed). (o) Lock-Box Banks and Payment Instructions. The names and addresses of all Lock-Box Banks and the Concentration Bank, together with the account numbers of the Lock-Box Accounts and the Concentration Account at such Lock-Box Banks or Concentration Bank (as applicable) are accurately identified on Schedule 5.1(o) hereto and will be specified in such notices as shall have been delivered thereafter pursuant to Section 6.3(c). Each lock-box identified on Schedule 5.1(o) is subject to a Lock-Box/Collection Account Agreement that is in full force and effect and exclusive dominion and control of each such lock-box has been transferred to WPS Finco. Seller has not granted any Person, other than WPS Finco as contemplated by this Purchase Agreement, any currently effective right of dominion and control of any such lock-box or Lock-Box Account or the Concentration Account, or the right to take dominion and control of any such lock-box or Lock-Box Account or the Concentration Account at a future time or upon the occurrence of a future event. Seller has instructed all Obligors to submit all payments on the Receivables and Related Assets directly to one of the LockBox Accounts. Seller has and maintains accounting, administrative and operating procedures that permit identification of the Collections. (p) Compliance with Applicable Laws. Seller is in compliance in all respects with the requirements of all applicable laws, rules, regulations, and orders of all Governmental Authorities (federal, state, local or foreign, and including environmental laws), a violation of any of which, individually or in the aggregate for all such violations, could reasonably be expected to have a Material Adverse Effect. (q) Legal Names. During the past five years (i) Seller has not been known by or used any legal name other than its corporate name as of the date hereof, and (ii) Seller has not been the subject of any merger or other 18 23 corporate reorganization that resulted in a change of name, identity or corporate structure. Seller uses no trade names or assumed names other than its actual corporate name and the trade names and assumed names set forth in Schedule 5.1(q). (r) Investment Company Act. Seller is not, and is not controlled by, an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended. (s) Taxes. Seller has filed or caused to be filed all material tax returns and reports required by law to have been filed by it and has paid all taxes, assessments and governmental charges thereby shown to be owing, except any such taxes, assessments or charges (i) which are being diligently contested in good faith by appropriate proceedings, (ii) for which adequate reserves in accordance with GAAP shall have been set aside on its books and (iii) with respect to which no Lien has been imposed upon any Receivables or Related Assets. (t) Year 2000 Compliance. Seller has conducted a review and assessment of its and its Subsidiaries' computer applications and made inquiry of its key suppliers, vendors and customers with respect to the Year 2000 Problem and, based on that review and inquiry, Seller reasonably believes that the Year 2000 Problem will not result in a Material Adverse Effect. (u) Compliance with Credit and Collection Policy. With respect to each Receivable, the Seller has complied in all material respects with the Credit and Collection Policy. (v) Payments to Seller. With respect to each Receivable transferred to WPS Finco by Seller pursuant to this Purchase Agreement, Seller represents that the Purchase Price paid to it constitutes reasonably equivalent value in consideration for the Receivables originated by it and the Related Assets with respect thereto and such transfer was not made for or on account of antecedent debt. (w) Ownership of WPS Finco. Seller owns, directly or indirectly, 100% of the issued and outstanding capital stock of WPS Finco, free and clear of any Adverse Claim. Such capital stock is validly issued, fully paid and nonassessable, and there are no options, warrants or other rights to acquire securities of WPS Finco. 19 24 (x) Material Agreements. The Agreements listed on Schedule A to the opinion of Weil, Gotshal & Manges LLP of even date herewith are all of the agreements relating to the financing of the Seller. (y) Pay-Off of Previous Securitization. WestPoint Stevens Inc., in its capacity as servicer under the Amended and Restated Pooling and Servicing Agreement, dated as of December 10, 1993 and amended and restated as of May 27, 1994, by and among WPS Finco, WestPoint Stevens, Inc., as servicer, and The Chase Manhattan Bank, as successor in interest to Chemical Bank, as trustee, has computed the amounts necessary to satisfy in full all obligations due thereunder and under the related transaction documents in order to provide for the termination of such agreement and the trust created thereby (including, without limitation, all fees, expenses and prepayment premiums) and such computation is true and correct. SECTION 5.2 Representations and Warranties of WPS Finco. From the date hereof until the Purchase Termination Date, WPS Finco hereby represents and warrants that (a) (i) this Purchase Agreement has been duly executed and delivered by WPS Finco and (ii) constitutes WPS Finco's valid, binding and legally enforceable obligation, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law, and (b) the execution, delivery and performance of this Purchase Agreement does not violate any applicable law or any agreement to which WPS Finco is a party or by which its properties are bound. ARTICLE VI GENERAL COVENANTS OF SELLER SECTION 6.1 Affirmative Covenants. From the Effective Date until the first day following the Purchase Termination Date on which all Obligations of Seller shall have been finally and fully paid and performed and the Transferee's Total Investment shall have been reduced to zero, unless WPS Finco shall otherwise give its prior written consent, Seller hereby agrees that it will perform the covenants and agreements set forth in this Section 6.1. (a) Compliance with Laws, Etc. Seller will comply with all applicable laws, rules, regulations, judgments, decrees and orders (including those relating to the 20 25 Receivables, the Related Assets, the related Contracts and any other agreements related thereto), where the failure so to comply, individually or in the aggregate for all such failures, could reasonably be expected to have a Material Adverse Effect. (b) Preservation of Corporate Existence. Seller will preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualifications could reasonably be expected to have a Material Adverse Effect. (c) Receivables Reviews. Seller shall, during regular business hours upon not less than five Business Days' prior notice (unless a Liquidation Event has occurred and is continuing (or the Administrator, on Blue Ridge's behalf, reasonably believes in good faith that a Liquidation Event has occurred and is continuing), in which case one Business Day notice shall be required), permit WPS Finco or the Administrator and their respective agents or representatives, (i) to examine and make copies of and abstracts from, and to conduct accounting reviews of, all Records in the possession or under the control of Seller relating to the Receivables or Related Assets generated by Seller, and (ii) to visit the offices and properties of Seller for the purpose of examining such materials described in clause (i) next above, and to discuss matters relating to any Receivables or any Related Assets of Seller or Seller's performance hereunder with any of the Authorized Officers of Seller or, with the prior consent of an Authorized Officer of Seller, with employees of Seller having knowledge of such matters (the examinations set forth in the foregoing clauses (i) and (ii) being herein called a "Seller Receivables Review"). WPS or the Administrator Finco and its agents or representatives shall be entitled to conduct Seller Receivables Reviews whenever WPS Finco, in its reasonable judgment, deems a Seller Receivables Review appropriate. The costs and expenses of one such Seller Receivables Review in any one calendar year shall be paid by Seller, and the costs and expenses of any additional Seller Receivables Review during such calendar year shall be paid by WPS Finco unless a Liquidation Event shall have occurred and be continuing. (d) Keeping of Records and Books of Account. Seller shall maintain and implement administrative and operating procedures (including, an ability to recreate records 21 26 evidencing its Receivables and Related Assets in the event of the destruction of the originals thereof), and shall keep and maintain, all documents, books, records and other information which, in the reasonable determination of WPS Finco and the Administrator, are necessary or advisable in accordance with prudent industry practice and custom for transactions of this type for the collection of all Receivables and the Related Assets. Upon the request of WPS Finco or the Administrator made at any time after the occurrence and continuance of a Servicer Transfer Event, Seller will deliver copies of all books and records maintained pursuant to this Section 6.1(d) to the Administrator. Seller shall maintain at all times accurate and complete books, records and accounts relating to the Receivables, Related Assets and Contracts and all Collections thereon in which timely entries shall be made. Such books and records shall be marked to indicate the sales of all Receivables and Related Assets hereunder and shall include (i) all payments received and all credits and extensions granted with respect to such Receivables and (ii) the return, rejection, repossession, or stoppage in transit of any merchandise, the sale of which has given rise to a Receivable that has been purchased by WPS Finco. (e) Performance and Compliance with Receivables and Contracts. Seller will, at its expense, timely and fully perform and comply with all provisions, covenants and other promises required to be observed by it under the Contracts and all other agreements of Seller related to the Receivables and Related Assets, the breach of which provisions, covenants or promises could be reasonably expected to have a Material Adverse Effect. (f) Location of Records and Offices. Seller will keep its principal place of business and chief executive office, and the offices where it keeps all Records related to the Receivables and the Related Assets (and all original documents relating thereto), at the addresses referred to in Schedule 5.1(n) or, upon not less than 30 days' prior written notice given by Seller to WPS Finco, and the Administrator, at such other locations in jurisdictions where all action required by Section 7.3 shall have been taken and completed. (g) Credit and Collection Policies. Seller will comply in all material respects with its Credit and Collection Policy in regard to each Receivable of Seller and the Related Assets and the Contracts related to each such Receivable, where the failure so to comply, individually or 22 27 in the aggregate for all such failures, could reasonably be expected to have a Material Adverse Effect. (h) Separate Corporate Existence of WPS Finco. Seller hereby acknowledges that the Administrator, on behalf of Blue Ridge, is entering into the transactions contemplated by the Asset Interest Transfer Agreement in reliance upon WPS Finco's identity as a legal entity separate from Seller and the other WPS Persons. Therefore, from and after the date hereof until the first day following the Purchase Termination Date on which all Obligations of Seller shall have been fully paid and performed and the Transferee's Total Investment shall have been reduced to zero, Seller will, and will cause each other WPS Person to, take all reasonable steps to continue their respective identities as separate legal entities and to make it apparent to third Persons that each is an entity with assets and liabilities distinct from those of WPS Finco and that WPS Finco is not a division of the Servicer, Seller or any other Person. (i) Payment Instructions to Obligors. Seller will instruct all Obligors to submit all payments on all Receivables and Related Assets purchased by WPS Finco either (i) directly to one of the Lock-Box Accounts or (ii) directly to the Concentration Account. Seller will cause (i) all proceeds deposited directly to any Lock-Box Account to be transferred daily to the Concentration Account, and (ii) each such lock-box and Lock-Box Account and the Concentration Account to be subject at all times to a Lock- Box/Collection Account Agreement that is in full force and effect. Seller shall not grant any Person, other than WPS Finco or the Administrator, dominion and control of any such lock-box or Lock-Box Account or the Concentration Account, or the right to take dominion or control of any lock-box or Lock-Box Account or the Concentration Account at a future time or upon the occurrence of a future event. Seller shall maintain accounting, administrative and operating procedures that permit identification of the Collections. (j) Taxes. Seller will file all tax returns and reports required by law to be filed by it, will accrue in accordance with GAAP for all taxes payable by it and will pay all taxes and governmental charges shown on such tax returns and reports to be owing by it, prior to the date on which penalties attach thereto except any such taxes or charges which (i) are being diligently contested in good faith by appropriate proceedings, (ii) for which adequate reserves in accordance with GAAP have been set aside on their respective books and (iii) with respect to which no 23 28 Lien has been imposed upon any Receivables or Related Assets. (k) Reserved (l) Identification of Eligible Receivables. Seller will establish and maintain such procedures as are necessary for determining monthly whether each Receivable qualifies as an Eligible Receivable as of the date of Purchase and thereafter as of each Reporting Date, and for identifying all Receivables sold or to be sold in that month which are not Eligible Receivables. (m) Accuracy of Information. All written information furnished on and after the Effective Date by Seller or any other WPS Person to WPS Finco, the Servicer or the Administrator pursuant to or in connection with any Transaction Document or any transaction contemplated herein or therein shall not contain any untrue statement of a material fact or omit to state material facts necessary to make the statements made not misleading, in each case on the date such statement was made and in light of the circumstances under which such statements were made or such information was furnished. (n) Year 2000 Compliance. Seller will use its best efforts to meet the milestones contained in its Year 2000 Plan and will use its best efforts to have all of its and its Subsidiaries hardware and software systems Year 2000 Compliant and Ready (including all internal and external testing) on or before June 30, 1999. (o) Ownership Interest of WPS Finco. Seller shall take all necessary action to establish and maintain, in favor of WPS Finco or its assigns, a valid and perfected first priority undivided percentage ownership interest in all Receivables and the Related Assets to the full extent contemplated herein, free and clear of any Adverse Claims other than Adverse Claims in favor of WPS Finco or its assigns (including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC of all appropriate jurisdictions (or any comparable law) to perfect WPS Finco's or its assign's interest in such Receivables and Related Assets and such other action to perfect, protect or more fully evidence the interest of WPS Finco or its assigns as WPS Finco or its assigns may reasonably request). SECTION 6.2 Reporting Requirements. From the Effective Date until the first day following the Purchase Termination Date 24 29 on which all Obligations of Seller shall have been finally and fully paid and performed and the Transferee's Total Investment shall have been reduced to zero, Seller agrees that it will, unless WPS Finco and the Administrator, on behalf of Blue Ridge, shall otherwise give prior written consent, furnish to WPS Finco and the Administrator: (a) Quarterly Financial Statements. Within 50 days after the end of each of the first three fiscal quarters of each fiscal year of WestPoint Stevens, copies of the unaudited consolidated balance sheets of WestPoint Stevens and its Consolidated Subsidiaries as at the end of such fiscal quarter and the related unaudited statements of earnings and cash flows and stockholders' equity, in each case for such fiscal quarter and for the period from the beginning of such fiscal year through the end of such fiscal quarter, prepared in accordance with GAAP consistently applied throughout the periods reflected therein and certified (subject to year end adjustments) by the chief financial officer or chief accounting officer of WestPoint Stevens; (b) Annual Financial Statements. As soon as possible and in any event within 95 days after the end of each fiscal year of WestPoint Stevens, a copy of the consolidated balance sheet of WestPoint Stevens and its Consolidated Subsidiaries as at the end of such fiscal year and the related statements of earnings, stockholders' equity and cash flows of WestPoint Stevens and its Consolidated Subsidiaries for such fiscal year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year and prepared in accordance with GAAP consistently applied throughout the periods reflected therein, accompanied by an opinion of Ernst & Young, LLP, (or such other independent certified public accountants of a nationally recognized standing in the United States of America as shall be selected by Administrator), which opinion shall not be qualified in any material respect; (c) Liquidation Events. As soon as possible, and in any event within three Business Days after an Authorized Officer of Seller has obtained knowledge of the occurrence of any Liquidation Event or any Unmatured Liquidation Event, a written statement of an Authorized Officer of Seller describing such event and the action that Seller proposes to take with respect thereto, in each case in reasonable detail; (d) Material Adverse Effect. As soon as possible and in any event within three Business Days after an Authorized Officer of Seller has knowledge thereof, written notice that describes in reasonable detail any event or occurrence which, individually or in the aggregate for all such events or occurrences, has had, or that could reasonably be expected to have a Material Adverse Effect; (e) Proceedings. As soon as possible and in any event within five Business Days after an Authorized 25 30 Officer of Seller has knowledge thereof, written notice of (i) any litigation, investigation or proceeding of the type described in Section 5.1(f) not previously disclosed to WPS Finco and (ii) any judgment, settlement or other final disposition with respect to any such previously disclosed litigation, investigation or proceeding; (f) Reserved (g) Year 2000 Notices. Seller will deliver to WPS Finco: i. Simultaneously with the delivery of each set of annual and quarterly financial statements referred to in subsections (a) and (b) above, a statement of the chief executive officer, chief financial officer, controller, treasurer, assistant treasurer or chief technology officer to the effect that nothing has come to their attention to cause them to believe that Seller's Year 2000 Plan milestones have not been met in a manner such that Seller's and its Subsidiaries' hardware and software systems will not be Year 2000 Compliant and Ready in accordance with its Year 2000 Plan; and ii. Within five (5) Business Days after Seller becomes aware of any deviations from its Year 2000 Plan which would cause compliance with such Year 2000 Plan to be delayed or not achieved, a statement of the chief executive officer, chief financial officer, controller, treasurer, assistant treasurer or chief technology officer setting forth the details thereof and the action which Seller is taking or proposes to take with respect thereto. (h) Reports to Holders and Exchanges. In addition to the reports required by subsections (a), and (b) above, promptly upon WPS Finco's request, Seller will furnish to WPS Finco copies of any reports specified in such request which Seller sends to any of its securityholders, and any 26 31 reports or registration statements that Seller files with the Securities and Exchange Commission or any national securities exchange other than registration statements relating to employee benefit plans and to registrations of securities for selling securities, (i) ERISA. Promptly after the filing or receiving thereof, Seller will furnish to WPS Finco copies of all reports and notices with respect to any Reportable Event defined in Article IV of ERISA which Seller or any of its Subsidiaries files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which Seller or any of its Subsidiaries receives from the Pension Benefit Guaranty Corporation, (j) Review of Pool Receivables. As soon as available and in any event by the end of each fiscal year of Seller, Seller will furnish to WPS Finco a report, prepared by a Person reasonably acceptable to WPS Finco as of the end of such fiscal year, substantially in the form of the report delivered pursuant to Section 5.01(l) of the Asset Interest Transfer Agreement and covering such other matters as WPS Finco may reasonably request in order to protect the interests of WPS Finco under or as contemplated by this Purchase Agreement; provided that Seller shall not be required to furnish a report pursuant to this Section 6.2(i) for its fiscal year ending December 31, 1999 unless the Scheduled Maturity Date shall have been extended during such year pursuant to Section 1.06 of the Asset Interest Transfer Agreement; (k) Change in Business or Credit and Collection Policy. At least ten (10) Business Days prior to its effective date, Seller will furnish to WPS Finco notice of (i) any material change in the character of Seller's business, and (ii) any material change in the Credit and Collection Policy; (l) Ratings. Within one Business Day of obtaining knowledge thereof, Seller will furnish to WPS Finco notice of any downgrading or withdrawal of any rating of Seller's senior secured debt by any rating agency; and (m) Other. Promptly, from time to time, (i) such other information, documents, records or reports respecting the Receivables or the Related Assets or (ii) such other publicly available information respecting the condition or operations, financial or otherwise, of Seller, in each case as WPS Finco may from time to time reasonably request in 27 32 order to protect the interests of WPS Finco, the Administrative Agent or Blue Ridge under or as contemplated by this Purchase Agreement. SECTION 6.3 Negative Covenants. From the Effective Date until the first day following the Purchase Termination Date on which all Obligations of Seller shall have been finally and fully paid and performed and the Transferee's Total Investment shall have been reduced to zero, unless WPS Finco and the Administrator shall otherwise give their prior written consent (which consent shall not be unreasonably withheld or delayed), Seller hereby agrees that it will perform the covenants and agreements set forth in this Section 6.3. (a) Sales, Liens, Etc. Except as otherwise provided herein or in the Asset Interest Transfer Agreement, Seller will not (i) (A) sell, assign (by operation of law or otherwise) or otherwise transfer to any Person, (B) pledge any interest in, (C) grant, create, incur, assume or permit to exist any Adverse Claim to or in favor of any Person upon or with respect to, or (D) cause to be filed any financing statement or equivalent document relating to perfection that covers, any Transferred Asset or any Contract related to any Receivable, or upon or with respect to any Lock-Box Account or Concentration Account or any interest therein, (ii) assign to any Person any right to receive income from or in respect of any of the foregoing or (iii) assert any interest in any Transferred Receivable or any Contract relating to any Receivable, except as Servicer. In the event that Seller fails to keep any Transferred Assets free and clear of any Adverse Claim (other than Adverse Claims arising hereunder or under the Asset Interest Transfer Agreement, and other Adverse Claims permitted by any other Transaction Document), WPS Finco may (without limiting its other rights with respect to Seller's breach of its obligations hereunder) make reasonable expenditures necessary to release such Adverse Claim. WPS Finco shall be entitled to indemnification for any such expenditures pursuant to the indemnification provisions of Article IX. Alternatively, WPS Finco may deduct such expenditures as an offset to the Purchase Price owed to Seller hereunder. (b) Extension or Amendment of Receivables; Change in Credit and Collection Policy or Contracts. Seller will not extend, amend or otherwise modify the terms of any Receivable or Contract in a manner that materially adversely affects the collectibility of any Receivable or WPS Finco's or the Administrator's rights therein (except in its capacity as Servicer and then only to the extent permitted 28 33 under Section 8.02(c) of the Asset Interest Transfer Agreement) or (ii) make or permit to be made any change in the character of its business or in the Credit and Collection Policy that would, in either case, impair the collectibility of any significant portion of the Receivables or otherwise adversely affect the interests or remedies of WPS Finco's or the Administrator's rights therein unless with respect to any material change in accounting policies relating to Receivables, such change is made in accordance with GAAP. (c) Change in Payment Instructions to Obligors. Seller will not (i) add or terminate any bank as a Lock-Box Bank from those listed on Schedule 5.1(o) unless, prior to any such addition, termination or change WPS Finco and the Administrator shall have received not less than ten Business Days' prior written notice of such addition or termination and, not less than ten Business Days prior to the effective date of any such proposed addition, change or termination, WPS Finco and the Administrator shall have received (A) counterparts of the applicable type of Lock-Box/Collection Account Agreement with each new Lock-Box Bank, duly executed by such new Lock-Box Bank and all other parties thereto and (B) copies of all other agreements and documents signed by such Lock-Box Bank and such other parties with respect to any new Lock-Box Account, all of which agreements and documents shall be reasonably satisfactory in form and substance to WPS Finco and the Administrator, or (ii) make any change in its instructions to Obligors, given in accordance with Section 5.1(o), regarding payments to be made to Seller or payments to be made to any Lock-Box Bank or the Concentration Account, other than changes in such instructions which direct Obligors to make payments to another Lock-Box Account or Concentration Account (as applicable) at such Lock-Box or Concentration Bank. (d) Mergers, Consolidations, Sales, etc. Except for mergers or consolidations permitted by the Credit Agreement, Seller will not be a party to any merger or consolidation or, except as permitted by the Credit Agreement, purchase, lease or otherwise acquire (in one transaction or in a series of transactions) all or substantially all of the assets of any other Person (whether directly by purchase, lease or acquisition of all or substantially all of the assets of such Person or indirectly by purchase or other acquisition of all or substantially all of the capital stock of such other Person). Seller will give WPS Finco and the Administrator notice of any such permitted merger or consolidation promptly following completion thereof. Seller will not, directly or indirectly, transfer, assign, convey 29 34 or lease, whether in one transaction or in a series of transactions, all or substantially all of its assets except as permitted by the Credit Agreement, or sell or assign, with or without recourse, any Receivables or Related Assets, in each case other than pursuant to this Purchase Agreement. (e) Change in Name. Seller will not (i) change its corporate name, any trade name or corporate structure or (ii) change the name under or by which it does business in any manner which would or may make any financing statement filed by Seller in accordance herewith seriously misleading within the meaning of Section 9-402(7) of an applicable enactment of the UCC, in each case unless Seller shall have given WPS Finco, the Servicer and the Administrator 30 days' prior written notice thereof and unless, prior to any such change in name, Seller shall have taken and completed all action required by Section 7.3. (f) Certificate of Incorporation. Seller will not cause WPS Finco to amend its Certificate of Incorporation or Bylaws without the prior written consent of WPS Finco and the Administrator, which consent will not be unreasonably withheld or delayed. (g) Amendments to Transaction Documents. Seller will not amend or otherwise modify or supplement any Transaction Document to which it is a party unless WPS Finco and the Administrator shall have given its prior written consent to each such amendment, modification or supplement, which consent shall not be unreasonably withheld or delayed. (h) Accounting for Purchases. Seller shall prepare its financial statements in accordance with GAAP. Seller shall not prepare any financial statements which account for the transactions contemplated in this Purchase Agreement in any manner other than as a sale of the Purchased Assets by Seller to WPS Finco, or in any other respect account for or treat the transactions contemplated in this Purchase Agreement (including but not limited to accounting and, where taxes are not consolidated, for tax reporting purposes) in any manner other than as a sale of the Transferred Assets by Seller to WPS Finco. (i) Receivables Not to be Evidenced by Promissory Notes. Seller shall not take any action to cause or permit any Receivable to become evidenced by any "instrument" (as defined in the applicable UCC), except in connection with the collection of any such Receivable which is overdue provided that the original of such instrument is delivered to WPS Finco, duly endorsed. 30 35 (j) Deposits to Lock-Box Accounts and Concentration account. Seller shall not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any LockBox Account or Concentration Account, any cash or cash proceeds other than Collections of Receivables. To the extent that any such funds nevertheless are deposited into any of such Lock-box Accounts or Concentration Account, the Seller shall promptly identify any such funds, or shall cause such funds to be so identified, to WPS Finco, the Servicer and the Administrator (following which notice, WPS Finco shall cause the Servicer to return all such funds to the Seller). ARTICLE VII ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE TRANSFERRED ASSETS SECTION 7.1 Rights of WPS Finco. (a) Subject to Section 7.4(b), Seller hereby authorizes WPS Finco, the Servicer and/or their respective designees to take any and all steps in Seller's name and on behalf of Seller that WPS Finco, the Servicer and/or their respective designees determine are reasonably necessary or appropriate to collect all amounts due under any and all Transferred Assets, including endorsing the name of Seller on checks and other instruments representing Collections and enforcing such Receivables and Related Assets. (b) Except as set forth in Section 3.1(c) with respect to Noncomplying Receivables and Dilution Adjustments to the Purchase Price, WPS Finco shall have no obligation to account for, to replace, to substitute or to return any Transferred Asset to Seller. WPS Finco shall have no obligation to account for, or to return Collections, or any interest or other finance charge collected pursuant thereto, to Seller, irrespective of whether such Collections and charges are in excess of the Purchase Price for such Purchased Assets. (c) WPS Finco shall have the unrestricted right to further assign, transfer, deliver, hypothecate, subdivide or otherwise deal with the Transferred Assets, and all of WPS Finco's right, title and interest in, to and under this Purchase Agreement, on whatever terms WPS Finco shall determine, pursuant to the Asset Interest Transfer Agreement or otherwise. (d) WPS Finco shall have the sole right to retain any gains or profits created by buying, selling or holding the Transferred 31 36 Assets and shall have the sole risk of and responsibility for losses or damages created by such buying, selling or holding. SECTION 7.2 Responsibilities of Seller. Anything herein to the contrary notwithstanding: (a) Seller agrees to deliver directly to the Servicer (for WPS Finco's account), within one Business Day after receipt thereof, any Collections that it receives, in the form so received, and agrees that all such Collections shall be deemed to be received in trust for WPS Finco and shall be maintained and segregated separate and apart from all other funds and moneys of Seller until delivery of such Collections to the Servicer. (b) Seller shall perform all of its obligations hereunder and under the Contracts related to the Receivables and Related Assets to the same extent as if such Receivables had not been sold hereunder, and the exercise by WPS Finco or its designee or assignee of WPS Finco's rights hereunder or in connection herewith shall not relieve Seller from any of its obligations under the Contracts or Related Assets related to the Receivables. (c) Seller hereby grants to WPS Finco an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of Seller all steps necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by Seller or transmitted or received by WPS Finco (whether or not from Seller) in connection with any Transferred Asset. (d) To the extent that Seller does not own the computer software that Seller uses to account for Receivables, Seller shall use reasonable efforts to provide WPS Finco and the Administrator with such licenses, sublicenses and/or assignments of contracts as WPS Finco or the Administrator shall require with regard to all services and computer hardware or software used by Seller that relate to the servicing of the Receivables or the Related Assets. SECTION 7.3 Further Action Evidencing Purchases. Seller agrees that from time to time, at its expense, it will promptly, upon reasonable request, execute and deliver all further instruments and documents, and take all further action, in order to perfect, protect or more fully evidence the purchase by WPS Finco of the Receivables and the Related Assets under this Purchase Agreement, or to enable WPS Finco to exercise or enforce any of its rights hereunder or under any other Transaction 32 37 Document. Seller further agrees that from time to time, at its expense, it will promptly, upon request, take all action that WPS Finco, the Servicer or the Administrator may reasonably request in order to perfect, protect or more fully evidence such purchase of the Receivables and the Related Assets or to enable WPS Finco or the Administrator, on Blue Ridge's behalf (as the assignee of WPS Finco), to exercise or enforce any of its rights hereunder or under any other Transaction Document. Without limiting the generality of the foregoing, upon the request of WPS Finco, Seller will: (a) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as WPS Finco or the Administrator may reasonably determine to be necessary or appropriate; and (b) place on its computer systems and records which store information relating to and evidencing the Receivables the following legend: "THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO WPS RECEIVABLES CORPORATION PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT, DATED AS OF DECEMBER 18, 1998, BETWEEN WESTPOINT STEVENS INC. AND WPS RECEIVABLES CORPORATION; AND SUCH RECEIVABLES HAVE BEEN TRANSFERRED TO WACHOVIA BANK, N.A., AS ADMINISTRATOR ON BEHALF OF BLUE RIDGE ASSET FUNDING CORPORATION PURSUANT TO AN ASSET INTEREST TRANSFER AGREEMENT, DATED AS OF DECEMBER 18, 1998, AMONG WPS RECEIVABLES CORPORATION, AS TRANSFEROR, WESTPOINT STEVENS INC., AS INITIAL SERVICER, BLUE RIDGE ASSET FUNDING CORPORATION, AS TRANSFEREE AND WACHOVIA BANK, N.A., AS ADMINISTRATOR." Seller hereby authorizes WPS Finco or its designee to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Receivables and Related Assets of Seller, in each case whether now existing or hereafter generated by Seller. Except for material performance obligations of Seller to any Obligor hereunder or under any of the Contracts, if (i) Seller fails to perform any of its agreements or obligations under this Purchase Agreement and does not remedy such failure within the applicable cure period, if any, and (ii) WPS Finco in good faith reasonably believes that the performance of such agreements and obligations is necessary or appropriate to protect the interests of WPS Finco under this Purchase Agreement, then WPS Finco or its designee may (but shall not be required to) perform, or cause performance of, 33 38 such agreement or obligation and the reasonable expenses of WPS Finco or its designee or assignee incurred in connection with such performance shall be payable by Seller as provided in Section 9.1. SECTION 7.4 Collection of Receivables; Rights of WPS Finco and Its Assignees. (a) Seller hereby transfers to WPS Finco ownership of, and the exclusive dominion and control over, each of the Lock-Box Accounts owned by Seller, and Seller hereby agrees to take any further action that WPS Finco or the Administrator (as assignee of WPS Finco) may reasonably request in order to effect or complete such transfer. (b) WPS Finco may, at any time, direct the Obligors of Receivables, or any of them, to pay all amounts payable under any Transferred Asset directly to the Administrator or its designees. Furthermore, Seller shall, at the request of WPS Finco and at Seller's expense, promptly give notice of Blue Ridge's interest in the Receivables of such Obligor and the Related Assets to each such Obligor and direct that payments be made directly to the Administrator or its designee, which notice shall be acceptable in form and substance to WPS Finco. In addition, Seller hereby authorizes WPS Finco to take any and all steps in Seller's name and on behalf of Seller that are necessary or desirable, in the reasonable determination of WPS Finco, to collect all amounts due under any and all Transferred Assets, including endorsing Seller's name on checks and other instruments representing Collections and enforcing the Receivables, Related Assets and the Contracts related to such Receivables. The Administrator, on Blue Ridge's behalf, may exercise any of the foregoing rights in the place of WPS Finco (as assignee or otherwise) at any time following the designation of a Servicer other than WestPoint Stevens pursuant to Section 8.01 of the Asset Interest Transfer Agreement or the occurrence and continuance of a Liquidation Event. (c) At any time when (i) a Liquidation Event shall have occurred and remain continuing or (ii) a Servicer other than WestPoint Stevens has been designated pursuant to Section 8.01 of the Asset Interest Transfer Agreement, Seller shall, at WPS Finco's request, assemble all of the Records which evidence the Receivables and Related Assets originated by Seller and the Contracts related to such Receivables, or which are otherwise necessary or desirable to collect such Receivables or Related Assets, and make the same available to WPS Finco or the Administrator at a place selected by the Administrator or its designee. 34 39 ARTICLE VIII TERMINATION SECTION 8.1 Termination by Seller. Prior to the Termination Date, Seller may terminate its agreement to sell Receivables hereunder to WPS Finco by giving WPS Finco and the Administrator not less than thirty Business Days' prior written notice of Seller's election not to continue to sell Receivables to WPS Finco. Upon receipt of a termination notice from Seller, WPS Finco shall notify the Administrator and Blue Ridge that it is electing to reduce the Transferee's Total Investment to zero pursuant to Section 3.02 of the Asset Interest Transfer Agreement as early as is practicable. The sale of Receivables under this Purchase Agreement will not cease until the Transferee's Total Investment shall have been reduced to zero. SECTION 8.2 Automatic Termination. The agreement of Seller to sell Receivables hereunder, and the agreement of WPS Finco to purchase Receivables from Seller hereunder, shall terminate automatically as a result of a bankruptcy proceeding being filed by or against Seller or WPS Finco. ARTICLE IX INDEMNIFICATION SECTION 9.1 Indemnities by Seller. Without limiting any other rights which any RPA Indemnified Party (as defined below) may have hereunder or under applicable law, Seller severally agrees to indemnify WPS Finco, each of its successors, permitted transferees and assigns, and all officers, directors, shareholders, controlling Persons, employees and agents of any of the foregoing (each of the foregoing Persons being individually called a "RPA Indemnified Party"), forthwith on demand, from and against any and all damages, losses, claims (whether on account of settlements or otherwise), judgments, liabilities and related reasonable costs and expenses (including reasonable attorneys' fees and disbursements) awarded against or incurred by any of them arising out of or as a result of any of the following (all of the foregoing being collectively called "RPA Indemnified Losses"): (a) any representation or warranty made in writing by Seller (or any of its Authorized Officers) under or in connection with any of the Transaction Documents, any Monthly Report or any other information or report delivered by Seller or the Servicer (for so long as the Servicer is a WPS Person) shall have been false, incorrect or materially 35 40 misleading when made or deemed made or omitted to state material facts necessary to make the statements made not misleading; (b) the failure by Seller to comply with any applicable law, rule or regulation with respect to any Receivable or any Related Asset or to comply with any Contract related thereto, or the nonconformity of any Receivable, the related Contract or any Related Assets with any such applicable law, rule or regulation; (c) the failure to vest and maintain vested in WPS Finco and its assigns a first priority perfected ownership interest in the Receivables, the Related Assets, the related Collections and the proceeds of each of the foregoing, free and clear of any Adverse Claim (other than an Adverse Claim created in favor of WPS Finco pursuant to this Purchase Agreement or in favor of the Administrator on behalf of Blue Ridge pursuant to the Asset Interest Transfer Agreement), whether existing at the time of the sale of such Receivable or at any time thereafter; (d) any failure of Seller to perform its duties or obligations in accordance with the provisions of the Transaction Documents; (e) any products liability claim, personal injury or property damage suit, environmental liability claim or any other claim or action by a party other than WPS Finco or a WPS Person of whatever sort, whether sounding in tort, contract or any other legal theory, arising out of or in connection with the goods or services that are the subject of any Receivable or the Related Assets with respect thereto or Collections thereof; (f) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables or the Related Assets or Collections, whether at the time of any sale or at any subsequent time; (g) any dispute, claim, offset or defense (other than the discharge in bankruptcy) of an Obligor to the payment of any Receivable or Related Asset, or Related Asset, including a defense based on such Receivable's or the related Contract's not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms or any other claim resulting from the sale of the merchandise or services related to such Receivable or the 36 41 furnishing or failure to furnish such merchandise or services; (h) any tax or governmental fee or charge (other than franchise taxes and taxes on or measured by the net income of WPS Finco or any of its assignees), all interest and penalties thereon or with respect thereto, and all reasonable out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of the Receivables or any Related Asset connected with any such Receivables or in any goods which secure any such Receivable or Related Asset; (i) any transfer by Seller of any interest in any Receivable other than the transfer of Receivables and related property by the Seller to WPS Finco pursuant to this Purchase Agreement; and (j) any claim of breach by any Seller of any related Contract with respect to any Receivable. Notwithstanding the foregoing (and with respect to clause (ii) below, without prejudice to the rights that WPS Finco may have pursuant to the other provisions of this Purchase Agreement or the provisions of any of the other Transaction Documents), in no event shall any RPA Indemnified Party be indemnified for any RPA Indemnified Losses (i) resulting from gross negligence or willful misconduct on the part of such RPA Indemnified Party, (ii) to the extent the same includes losses in respect of Receivables and reimbursement therefor that would constitute credit recourse to Seller for the amount of any Receivable or Related Asset not paid by the related Obligor, (iii) resulting from the action or omission of the Servicer (unless the Servicer is a WPS Person), (iv) to the extent that the same are or result from lost profits (except to the extent any such lost profits are incurred under Sections 4.02 or 4.03 of the Asset Interest Transfer Agreement), (v) to the extent the same are or result from taxes on or measured by the net income of such RPA Indemnified Party and (vi) to the extent the same constitute consequential, special or punitive damages (except to the extent any such consequential, special or punitive damages are actually imposed on an RPA Indemnified Party as a result of a claim brought by a third party). Section 9.2. Contribution. If for any reason the indemnification provided in Section 9.1 is unavailable to a RPA Indemnified Party or is insufficient to hold a RPA Indemnified Party harmless, then Seller shall contribute to the maximum 37 42 amount payable or paid to such RPA Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such RPA Indemnified Party on the one hand and Seller on the other hand, but also the relative fault of such RPA Indemnified Party (if any) and Seller and any other relevant equitable considerations. ARTICLE X MISCELLANEOUS SECTION 10.1 Amendments; Waivers, Etc. (a) The provisions of this Purchase Agreement may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and signed by WPS Finco and Seller (with respect to an amendment) or by WPS Finco (with respect to a waiver or consent by it) and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This Purchase Agreement shall not be amended unless WPS Finco shall have delivered the proposed amendment to the Administrative Agent at least ten Business Days (or such shorter period as shall be acceptable to the Administrative Agent) prior to the execution and delivery thereof. (b) No failure or delay on the part of WPS Finco, any RPA Indemnified Party, or the Administrative Agent or any other third party beneficiary referred to in Section 10.12(a) in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on Seller in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by WPS Finco or the Administrative Agent under this Purchase Agreement shall, except as may otherwise be stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval under this Purchase Agreement shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 10.2 Notices, Etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by express mail or courier or by certified mail, postage prepaid, or by facsimile, to the intended party at the address or facsimile number of such 38 43 party set forth under its name on the signature pages hereof or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto given in accordance with this Section 10.2. Copies of all notices and other communications provided for hereunder shall be delivered to the Administrative Agent at its address for notices set forth in the Asset Interest Transfer Agreement. All notices and communications provided for hereunder shall be effective, (a) if personally delivered, or sent by express mail or courier or if sent by certified mail, when received, and (b) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means. SECTION 10.3 Cumulative Remedies. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Without limiting the foregoing, Seller hereby authorizes WPS Finco, at any time and from time to time, to the fullest extent permitted by law, to set-off, against any Obligations of WPS Finco to Seller that are then due and payable or that are not then due and payable by WPS Finco to Seller but have then accrued, any and all indebtedness or other obligations (i) at any time owing to WPS Finco by Seller or (ii) that are not then due and payable from WPS Finco to Seller but have then accrued. SECTION 10.4 Binding Effect; Assignability; Survival of Provisions. This Purchase Agreement shall be binding upon and inure to the benefit of WPS Finco, Seller and their respective successors and permitted assigns. Seller may not assign any of its rights hereunder or any interest herein without the prior written consent of WPS Finco and of the Administrator (on Blue Ridge's behalf). This Purchase Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the earlier of (i) the first date following the Purchase Termination Date, (ii) the date on which the Transferee's Total Investment shall have been reduced to zero pursuant to Section 3.02 of the Asset Interest Transfer Agreement, and all Obligations of Seller hereunder shall have been finally and fully paid and performed and (iii) such other later time as the parties hereto shall agree. The rights and remedies with respect to any breach of any representation and warranty made by Seller pursuant to Article V and the indemnification and payment provisions of Article IX and Section 10.6 shall be continuing and shall survive any termination of this Purchase Agreement. SECTION 10.5 Governing Law. THIS PURCHASE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS 39 44 PRINCIPLES, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF WPS FINCO IN THE RECEIVABLES AND THE RELATED ASSETS ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 10.6 Costs, Expenses and Taxes. In addition to the obligations of Seller under Article IX, Seller, severally with respect to itself, agrees to pay on demand: (a) all reasonable out-of-pocket and other costs and expenses in connection with the enforcement of this Purchase Agreement, the Seller Assignment Certificate or the other Transaction Documents by WPS Finco or any successor in interest to WPS Finco; and (b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution and delivery by Seller, and the filing and recording, of this Purchase Agreement or the other Transaction Documents, and agrees to indemnify each RPA Indemnified Party against any liabilities with respect to or resulting from any delay in paying or the omission to pay such taxes and fees. SECTION 10.7 Consent to Jurisdiction; Waiver of Immunities. EACH PARTY HERETO HEREBY ACKNOWLEDGES AND AGREES THAT: (A) IT IRREVOCABLY (I) SUBMITS TO THE JURISDICTION, FIRST, OR ANY UNITED STATES FEDERAL COURT, AND SECOND, IF FEDERAL JURISDICTION IS NOT AVAILABLE, OF ANY GEORGIA STATE COURT, IN EITHER CASE, SITTING IN FULTON COUNTY, GEORGIA, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS PURCHASE AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, (II) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED ONLY IN SUCH GEORGIA STATE OR FEDERAL COURT AND NOT IN ANY OTHER COURT, (III) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING, (IV) CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SPECIFIED FOR NOTICES HEREUNDER, AND (V) TO THE EXTENT ALLOWED BY LAW, AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. (B) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY WAIVES SUCH 40 45 IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH THIS PURCHASE AGREEMENT. SECTION 10.8 Waiver of Jury Trial. EACH PARTY HERETO EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR RELATING TO THIS PURCHASE AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), ACTIONS OF EITHER OF THE PARTIES HERETO OR ANY OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS PURCHASE AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SECTION 10.9 Integration. This Purchase Agreement and the other Transaction Documents contain a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and thereof and shall together constitute the entire agreement between the parties hereto with respect to the subject matter hereof and thereof, superseding all prior oral or written understandings. SECTION 10.10 Execution in Counterparts. This Purchase Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. SECTION 10.11 Acknowledgment and Consent. (a) Seller acknowledges that, contemporaneously herewith, WPS Finco is selling, transferring, assigning, setting over and otherwise conveying to the Administrator on behalf of Blue Ridge an Asset Interest in the outstanding pool of Receivables and Related Assets sold by Seller to WPS Finco from time to time pursuant to this Purchase Agreement. Seller hereby consents to the sale, transfer, assignment, set over and conveyance to the Administrator on behalf of Blue Ridge by WPS Finco of the Asset Interest, and all of WPS Finco's rights, remedies, powers and privileges, and all claims of WPS Finco against Seller, under or with respect to this Purchase Agreement and the other Transaction Documents (whether arising pursuant to the terms of this Purchase Agreement or otherwise available at law or in equity), including (i) the right of WPS Finco, at any time, to enforce this Purchase Agreement against Seller and the obligations of Seller hereunder, and (ii) the right, at any time, to give or withhold any and all consents, requests, notices, directions, approvals, demands, 41 46 extensions or waivers under or with respect to this Purchase Agreement, any other Transaction Document or the obligations in respect of Seller thereunder to the same extent as WPS Finco may do. Each of the parties hereto acknowledges and agrees that the Administrator (on behalf of Blue Ridge) and Blue Ridge are third party beneficiaries of the rights of WPS Finco arising hereunder and under the other Transaction Documents to which Seller is a party. Seller hereby acknowledges and agrees that it has no claim to or interest in any of the Lock-Box Accounts or the Concentration Account. (b) Seller hereby agrees to execute all agreements, instruments and documents, and to take all other action, that WPS Finco or the Administrator reasonably determines is necessary or appropriate to evidence its consent described in paragraph (a) above. To the extent that WPS Finco, individually or through the Servicer, has granted or grants powers of attorney to the Administrator under the Asset Interest Transfer Agreement, Seller hereby grants a corresponding power of attorney on the same terms to WPS Finco. Seller hereby acknowledges and agrees that WPS Finco, in all of its capacities, shall assign to the Administrator for the benefit of Blue Ridge such powers of attorney and other rights and interests granted by Seller to WPS Finco hereunder and agrees to cooperate fully with the Administrator in the exercise of such rights. SECTION 10.12 No Partnership or Joint Venture. Nothing contained in this Purchase Agreement shall be deemed or construed by the parties hereto or by any third person to create the relationship of principal and agent or of partnership or of joint venture. SECTION 10.13 No Proceedings. Seller hereby agrees that it will not institute against WPS Finco or Blue Ridge, or join any other Person in instituting against WPS Finco or Blue Ridge, any insolvency or bankruptcy proceeding (namely, any proceeding of the type referred to in the definition of "Event of Bankruptcy") so long as Commercial Paper Notes shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such Commercial Paper Notes shall have been outstanding. The foregoing shall not limit the right of Seller to file any claim in or otherwise take any action with respect to any insolvency proceeding that was instituted against WPS Finco or Blue Ridge by any Person other than Seller or any other WPS Person. SECTION 10.14 Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Purchase Agreement or any of the other Transaction Documents shall for any reason whatsoever be held invalid, then such 42 47 covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Purchase Agreement or such other Transaction Document (as applicable) and shall in no way affect the validity or enforceability of the other provisions of this Purchase Agreement or any of the other Transaction Documents. SECTION 10.15 Recourse to WPS Finco. Except to the extent expressly provided otherwise in the Transaction Documents, the obligations of WPS Finco under the Transaction Documents to which it is a party are solely the obligations of WPS Finco, and no recourse shall be had for payment of any fee payable by or other obligation of or claim against WPS Finco that arises out of any Transaction Document to which WPS Finco is a party against any director, officer or employee of WPS Finco. The provisions of this Section 10.15 shall survive the termination of this Purchase Agreement. (SIGNATURE PAGE FOLLOWS) 43 48 IN WITNESS WHEREOF, the parties have caused this Receivables Purchase Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. WESTPOINT STEVENS INC. By: /s/ Nelson Griffith ----------------------------------------- Name: J. Nelson Griffith Title: Controller Address: 507 West 10th Street Post Office Box 71 West Point, GA 31833 Attention: J. Nelson Griffith Telephone: (706) 645-4213 Facsimile: (706) 645-4066 WPS RECEIVABLES CORPORATION By: /s/ Nelson Griffith ----------------------------------------- Name: J. Nelson Griffith Title: Vice President/Assistant Treasurer Address: 507 West 10th Street Post Office Box 71 West Point, GA 31833 Attention: J. Nelson Griffith Telephone: (706) 645-4213 Facsimile: (706) 645-4066 EX-10.50 5 NON-NEGOTIABLE PROMISSORY NOTE 1 EXHIBIT 10.50 NON-NEGOTIABLE PROMISSORY NOTE New York, New York December 18, 1998 FOR VALUE RECEIVED, the undersigned, WPS RECEIVABLES CORPORATION, a Delaware corporation ("WPS Finco"), promises to pay to WESTPOINT STEVENS INC., a Delaware corporation (the "Seller"), on the terms and subject to the conditions set forth herein and in the Receivables Purchase Agreement referred to below, the aggregate unpaid Purchase Price of all Receivables and Related Assets purchased by WPS Finco pursuant to the Receivables Purchase Agreement (subject to adjustment pursuant to Section 3.1(c) of such Receivables Purchase Agreement). Such amount and accrued interest thereon as shown in the records of the Servicer will be rebuttable presumptive evidence of the principal amount and accrued interest thereon owing under this Note. 1. Purchase Agreement. This Note is the WPS Finco Note described in, and is subject to the terms and conditions set forth in, that certain Receivables Purchase Agreement dated as of December 18, 1998 (as the same may be amended, supplemented, amended and restated or otherwise modified in accordance with its terms, the "Purchase Agreement"), between the Seller and WPS Finco. Reference is hereby made to the Purchase Agreement for a statement of certain other rights and obligations of WPS Finco and the Seller. 2. Definitions. Capitalized terms used (but not defined) herein have the meaning ascribed thereto in Appendix A to the Purchase Agreement or Appendix A to the Asset Interest Transfer Agreement. In addition, as used herein, the following terms have the following meanings: "Administrator" means Wachovia Bank, N.A. in its capacity as administrator under the Asset Interest Transfer Agreement; and its successors under the Asset Interest Transfer Agreement. "Bankruptcy Proceedings" has the meaning set forth in clause (a) of paragraph 7 hereof. "Final Maturity Date" means the date occurring eighteen months after the Purchase Termination Date. "Junior Liabilities" means all obligations of WPS Finco to the Seller under this Note. "Senior Interests" means all obligations of WPS Finco to the Administrator, Transferee and the other Indemnified Parties, howsoever created, arising or evidenced, whether 2 direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, including, without limitation, all interest, fees and other charges that accrue after the commencement of a Bankruptcy Proceeding whether or not allowed as a claim in such proceeding. "Senior Interest Holders" means, collectively, the Administrator, Transferee and each other Indemnified Party. "Subordination Provisions" means, collectively, the provisions of paragraph 7 hereof. 3. Interest. Subject to the Subordination Provisions, WPS Finco promises to pay interest on the aggregate unpaid principal amount of this Note outstanding on each day at a rate per annum equal to the rate of interest publicly announced from time to time by Bankers Trust Company or any successor as its "reference rate." 4. Interest Payment Dates. Subject to the Subordination Provisions, WPS Finco shall pay accrued interest on this Note on each Settlement Date and on the Final Maturity Date. Subject to the Subordination Provisions, WPS Finco also shall pay accrued interest on the principal amount of each prepayment hereof on the date of each such prepayment. 5. Basis of Computation. Interest accrued hereunder shall be computed for the actual number of days elapsed on the basis of a 360-day year. 6. Principal Payment Dates. Subject to the Subordination Provisions, any unpaid principal of this Note shall be paid on the Final Maturity Date. Subject to the Subordination Provisions, the principal amount of and accrued interest on this Note may be prepaid on any Business Day without premium or penalty. 7. Subordination Provisions. WPS Finco covenants and agrees, and the Seller, by its acceptance of this Note, likewise covenants and agrees, that the payment of all Junior Liabilities is hereby expressly subordinated in right of payment to the payment and performance of the Senior Interests to the extent and in the manner set forth in Section 7.03(g)(iv) of the Asset Interest Transfer Agreement and this paragraph 7: (a) In the event of any dissolution, winding up, liquidation, readjustment, reorganization or other similar event relating to WPS Finco, whether voluntary or involuntary, partial or complete, and whether in bankruptcy, insolvency, receivership or other similar proceedings, or upon an assignment for the benefit of creditors, or any other marshalling of the assets and liabilities of WPS Finco or any sale of all or substantially all of the assets of WPS 2 3 Finco except pursuant to the Asset Interest Transfer Agreement (such proceedings being herein collectively called "Bankruptcy Proceedings" and individually called a "Bankruptcy Proceeding"), the Senior Interests shall first be paid and performed in full and in cash before the Seller shall be entitled to receive and to retain any payment or distribution in respect of the Junior Liabilities. In order to implement the foregoing: (x) all payments and distributions of any kind or character in respect of the Junior Liabilities to which the Seller would be entitled except for this clause (a) shall be made directly to the Administrator (for the benefit of the Senior Interest Holders); (y) if a Bankruptcy Proceeding has been commenced, the Seller shall promptly file a claim or claims, in the form required in any Bankruptcy Proceedings, for the full outstanding amount of the Junior Liabilities, and shall use reasonable efforts to cause said claim or claims to be approved and all payments and other distributions in respect thereof to be made directly to the Administrator (for the benefit of the Senior Interest Holders) until the Senior Interests shall have been paid and performed in full and in cash; and (z) the Seller hereby irrevocably agrees that the Trust (or the Administrator acting on the Trust's behalf), in the name of the Seller or otherwise, may demand, sue for, collect, receive and receipt for any and all such payments or distributions, and file, provide and vote or consent in any such Bankruptcy Proceedings with respect to any and all claims of the Seller relating to the Junior Liabilities, in each case until the Senior Interests shall have been paid and performed in full and in cash. (b) In the event that the Seller receives any payment or other distribution of any kind or character from WPS Finco or from any other source whatsoever in respect of the Junior Liabilities in contravention of Section 7.03(g) of the Asset Interest Transfer Agreement or after the commencement of any Bankruptcy Proceeding, such payment or other distribution shall be received in trust for the Senior Interest Holders and shall be turned over by the Seller to the Administrator (for the benefit of the Senior Interest Holders) forthwith, until all Senior Interests shall have been paid and performed in full and in cash. All payments and distributions received by the Administrator in respect of the Junior Liabilities, to the extent received in or converted into cash, may be applied by the Administrator (for the benefit of the Senior Interest Holders) first to the payment of any and all reasonable expenses (including reasonable attorneys' fees and legal expenses) paid or incurred by the Administrator or the Senior Interest Holders in enforcing these Subordination Provisions, or in endeavoring to collect or realize upon the Junior Liabilities, and any balance thereof shall, solely as between the Seller and the Senior Interest Holders, be 3 4 applied by the Administrator toward the payment of the Senior Interests in a manner determined by the Administrator to be in accordance with the Asset Interest Transfer Agreement; but as between WPS Finco and its creditors, no such payments or distributions of any kind or character shall be deemed to be payments or distributions in respect of the Senior Interests. (c) Upon the final payment in full and in cash of all Senior Interests, the Seller shall be subrogated to the rights of the Senior Interest Holders to receive payments or distributions from WPS Finco that are applicable to the Senior Interests until the Junior Liabilities are paid in full. (d) These Subordination Provisions are intended solely for the purpose of defining the relative rights of the Seller, on the one hand, and the Senior Interest Holders, on the other hand. Nothing contained in these Subordination Provisions or elsewhere in this Note is intended to or shall impair, as between WPS Finco, its creditors (other than the Senior Interest Holders) and the Seller, WPS Finco's obligation, which is unconditional and absolute, to pay the Junior Liabilities as and when the same shall become due and payable in accordance with the terms hereof and of the Purchase Agreement or to affect the relative rights of the Seller and creditors of WPS Finco (other than the Senior Interest Holders). (e) The Seller shall not, until the Senior Interests have been finally paid and performed in full and in cash, (i) cancel, waive, forgive, transfer or assign, or commence legal proceedings to enforce or collect, or subordinate to any obligation of WPS Finco, howsoever created, arising or evidenced, whether director or indirect, absolute or contingent, or now or hereafter existing, or due or to become due, other than the Senior Interests, the Junior Liabilities or any rights in respect hereof or (ii) convert the Junior Liabilities into an equity interest in WPS Finco, unless, in the case of each of clauses (i) and (ii) above, the Seller shall have received the prior written consent of the Administrator in each case. (f) The Seller shall not, without the advance written consent of the Administrator, commence, or join with any other Person in commencing, any Bankruptcy Proceedings with respect to WPS Finco until at least one year and one day shall have passed since the Senior Interests shall have been finally paid and performed in full and in cash. (g) If, at any time, any payment (in whole or in part) made with respect to any Senior Interest is rescinded or must be restored or returned by a Senior Interest Holder 4 5 (whether in connection with any Bankruptcy Proceedings or otherwise), these Subordination Provisions shall continue to be effective or shall be reinstated, as the case may be, as though such payment had not been made. (h) As between the Seller and the Senior Interest Holders, each of the Senior Interest Holders may, from time to time, at its sole discretion, without notice to the Seller, and without waiving any of its rights under these Subordination Provisions, take any or all of the following actions: (i) retain or obtain an interest in any property to secure any of the Senior Interests; (ii) retain or obtain the primary or secondary obligations of any other obligor or obligors with respect to any of the Senior Interests; (iii) extend or renew for one or more periods (whether or not longer than the original period), alter, increase or exchange any of the Senior Interests, or release or compromise any obligation of any nature with respect to any of the Senior Interests; (iv) amend, supplement, amend and restate, or otherwise modify any Transaction Document; and (v) release its security interest in, or surrender, release or permit any substitution or exchange for all or any part of any rights or property securing any of the Senior Interest, or extend or renew for one or more periods (whether or not longer than the original period), or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such rights or property. (i) By its acceptance hereof, the Seller hereby waives: (i) notice of acceptance of these Subordination Provisions by any of the Senior Interest Holders; (ii) notice of the existence, creation, non-payment or non-performance of all or any of the Senior Interests; and (iii) all diligence in enforcement, collection or protection of, or realization upon, the Senior Interests, or any thereof, or any security therefor. (j) These Subordination Provisions constitute a continuing offer from WPS Finco to all Persons who become the holders of, or who continue to hold, Senior Interest; and these Subordination Provisions are made for the benefit of the Senior Interest Holders, and the Administrator may proceed to enforce such provisions on behalf on each of such Persons. 8. General. No failure or delay on the part of the Seller in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No amendment, modification or waiver of, or consent with respect to, any provision of this Note shall in any event be effective unless 5 6 (a) the same shall be in writing and signed and delivered by WPS Finco and the Seller, and (b) all consents required for such actions under the Transaction Documents shall have been received by the appropriate Persons. 9. Limitation on Interest. Notwithstanding anything in this Note to the contrary, WPS Finco shall never be required to pay unearned interest on any amount outstanding hereunder, and shall never be required to pay interest on the principal amount outstanding hereunder, at a rate in excess of the maximum nonusurious interest rate that may be contracted for, charged or received under applicable federal or state law (such maximum rate being herein called the "Highest Lawful Rate"). If the effective rate of interest which would otherwise be payable under this Note would exceed the Highest Lawful Rate, or the Seller shall receive any unearned interest or shall receive monies that are deemed to constitute interest which would increase the effective rate of interest payable by WPS Finco under this Note to a rate in excess of the Highest Lawful Rate, then (i) the amount of interest which would otherwise be payable by WPS Finco under this Note shall be reduced to the amount allowed by applicable law, and (ii) any unearned interest paid by WPS Finco or any interest paid by WPS Finco in excess of the Highest Lawful Rate shall be refunded to WPS Finco. Without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received by the Seller under this Note that are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate shall be made, to the extent permitted by applicable usury laws (now or hereafter enacted), by amortizing, prorating and spreading in equal parts during the actual period during which any amount has been outstanding hereunder all interest at any time contracted for, charged or received by the Seller in connection herewith. If at any time and from time to time (i) the amount of interest payable to the Seller on any date shall be computed at the Highest Lawful Rate pursuant to the provisions of the foregoing sentence, and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to the Seller would be less than the amount of interest payable to the Seller computed at the Highest Lawful Rate, then the amount of interest payable to the Seller in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate until the total amount of interest payable to the Seller shall equal the total amount of interest which would have been payable to the Seller if the total amount of interest had been computed without giving effect to the provisions of the foregoing sentence. 10. No Negotiation. This Note is not negotiable. 6 7 11. Restrictions on Transfer, Etc. Except to the extent expressly provided otherwise in the Transaction Documents, the Seller shall not create or permit to exist any Adverse Claim with respect to this Note or any interest herein and shall not sell or otherwise transfer or dispose of this Note or any interest herein. Except to the extent expressly provided otherwise in the Transaction Documents, no Person other than the Seller, on its own behalf and not for the benefit of any other Person, may enforce any rights of the Seller arising under or in connection with this Note. 12. GOVERNING LAW. THIS NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK, AND SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. 13. Captions. Paragraph captions used in this Note are provided solely for convenience of reference and shall not affect the meaning or interpretation of any provisions of this Note. WPS RECEIVABLES CORPORATION, a Delaware corporation By: /s/ Nelson Griffith ----------------------------- Name: J. Nelson Griffith Title: Vice President/Assistant Treasurer EX-10.51 6 ASSET INTEREST TRANSFER AGREEMENT 1 EXHIBIT 10.51 ================================================================================ ASSET INTEREST TRANSFER AGREEMENT DATED AS OF DECEMBER 18, 1998 AMONG WPS RECEIVABLES CORPORATION AS TRANSFEROR AND WESTPOINT STEVENS INC. AS INITIAL SERVICER AND BLUE RIDGE ASSET FUNDING CORPORATION AS TRANSFEREE AND WACHOVIA BANK, N.A. AS ADMINISTRATOR ================================================================================ 2 TABLE OF CONTENTS ARTICLE I TRANSFERS AND REINVESTMENTS SECTION 1.01 Commitments to Transfer; Limits on Transferee's Obligations......-2- SECTION 1.02 Transfer Procedures; Assignment of Transferee's Interests........-3- SECTION 1.03 Reinvestments of Certain Collections; Payment of Remaining Collections......................................................-3- SECTION 1.04 Asset Interest...................................................-6- SECTION 1.05 Adjustments of Transfer Limit....................................-7- ARTICLE II COMPUTATIONAL RULES SECTION 2.01 Selection of Asset Tranches......................................-8- SECTION 2.02 Computation of Transferee's Total Investment and Transferee's Tranche Investment...............................................-8- SECTION 2.03 Computation of Concentration Limits and Unpaid Balance...........-9- SECTION 2.04 Liquidity Fundings; Computation of Earned Discount...............-9- SECTION 2.05 Estimates of Earned Discount Rate, Fees, etc.....................-9- ARTICLE III SETTLEMENTS SECTION 3.01 Settlement Procedures...........................................-10- SECTION 3.02 Deemed Collections; Reduction of Transferee's Total Invest ment, Etc.......................................................-13- SECTION 3.03 Payments and Computations, Etc..................................-17- SECTION 3.04 Treatment of Collections and Deemed Collections.................-17- ARTICLE IV FEES AND YIELD PROTECTION SECTION 4.01 Fees............................................................-18- SECTION 4.02 Yield Protection................................................-18- SECTION 4.03 Funding Losses..................................................-21-
-i- 3 ARTICLE V CONDITIONS OF TRANSFERS SECTION 5.01 Conditions Precedent to Initial Transfer........................-22- SECTION 5.02 Conditions Precedent to All Transfers and Reinvestments.........-25- ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.01 Representations and Warranties of Transaction Parties...........-26- ARTICLE VII GENERAL COVENANTS OF TRANSACTION PARTIES SECTION 7.01 Affirmative Covenants of Transaction Parties....................-32- SECTION 7.02 Reporting Requirements of Transaction Parties...................-36- SECTION 7.03 Negative Covenants of Transaction Parties.......................-39- SECTION 7.04 Separate Corporate Existence of Transferor......................-42- ARTICLE VIII ADMINISTRATION AND COLLECTION SECTION 8.01 Designation of Servicer.........................................-46- SECTION 8.02 Duties of Servicer..............................................-47- SECTION 8.03 Rights of the Administrator.....................................-48- SECTION 8.04 Responsibilities of Transaction Parties.........................-50- SECTION 8.05 Further Action Evidencing Transfers and Reinvestments...........-50- ARTICLE IX SECURITY INTEREST SECTION 9.01 Grant of Security Interest......................................-52- SECTION 9.02 Further Assurances..............................................-52- SECTION 9.03 Remedies........................................................-52- ARTICLE X LIQUIDATION EVENTS SECTION 10.01 Liquidation Events..............................................-52- SECTION 10.02 Remedies........................................................-55-
-ii- 4 ARTICLE XI THE ADMINISTRATOR SECTION 11.01 Authorization and Action........................................-56- SECTION 11.02 Administrator's Reliance, Etc...................................-56- SECTION 11.03 Wachovia and Affiliates.........................................-57- ARTICLE XII ASSIGNMENT OF PURCHASER'S INTEREST SECTION 12.01 Restrictions on Assignments.....................................-57- SECTION 12.02 Rights of Assignee..............................................-58- SECTION 12.03 Terms and Evidence of Assignment................................-58- ARTICLE XIII INDEMNIFICATION SECTION 13.01 Indemnities by Transferor.......................................-58- SECTION 13.02 Indemnities by Servicer.........................................-61- ARTICLE XIV MISCELLANEOUS SECTION 14.01 Amendments, Etc.................................................-62- SECTION 14.02 Notices, Etc....................................................-62- SECTION 14.03 No Waiver; Remedies.............................................-62- SECTION 14.04 Binding Effect; Survival........................................-63- SECTION 14.05 Costs, Expenses and Taxes.......................................-63- SECTION 14.06 No Proceedings..................................................-64- SECTION 14.07 Confidentiality of Transferor Information.......................-64- SECTION 14.08 Confidentiality of Program Information..........................-67- SECTION 14.09 Captions and Cross References...................................-69- SECTION 14.10 Integration.....................................................-69- SECTION 14.11 GOVERNING LAW...................................................-69- SECTION 14.12 WAIVER OF JURY TRIAL............................................-69- SECTION 14.13 CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES...................-70- SECTION 14.14 Execution in Counterparts.......................................-71- SECTION 14.15 No Recourse Against Other Parties...............................-71-
-iii- 5 APPENDICES APPENDIX A Definitions -iv- 6 SCHEDULES SCHEDULE 6.01(m) List of Offices of Servicer and Transferor where Records Are Kept SCHEDULE 6.01(n) List of Lock-Box Banks and Concentration Bank SCHEDULE 14.02 Notice Addresses -v- 7 EXHIBITS EXHIBIT 1.02(a) Form of Transfer Request EXHIBIT 5.01(h) Form of Opinion of Special Counsel for Transaction Parties EXHIBIT A Form of Lock Box/Collection Account Agreement EXHIBIT B Form of Certificate of Financial Officer EXHIBIT C Form of Monthly Report -vi- 8 ASSET INTEREST TRANSFER AGREEMENT Dated as of December 18, 1998 THIS IS ASSET INTEREST TRANSFER AGREEMENT, among: (1) WPS Receivables Corporation, a Delaware corporation (together with its successors and permitted assigns, "Transferor"), (2) WestPoint Stevens Inc., a Delaware corporation (together with its successors, "WestPoint"), as initial servicer hereunder (in such capacity, together with any successor servicer appointed pursuant to Section 8.01, "Servicer"; WestPoint, in its capacity as Servicer, together with Transferor, each a "Transaction Party" and collectively, the "Transaction Parties"), (3) BLUE RIDGE ASSET FUNDING CORPORATION, a Delaware corporation (together with its successors and assigns, "Transferee"), (4) WACHOVIA BANK, N.A., a national banking association ("Wachovia"), as administrative agent for Transferee (in such capacity, together with any successors thereto in such capacity, the "Administrator"). Unless otherwise indicated, capitalized terms used in this Agreement are defined in Appendix A. Background 1. Transferor is a wholly-owned direct subsidiary of WestPoint. 2. WestPoint is a home fashions consumer products company, with a comprehensive line of branded and licensed products for the bedroom and bathroom. 3. WestPoint and Transferor have entered into the Sale Agreement pursuant to which WestPoint has transferred and hereafter will transfer, to Transferor all of its right, title and interest in and to certain Receivables and certain related property. 9 4. Transferor, WestPoint and Chase Manhattan Bank, as trustee (the "Trustee") for the WestPoint Stevens Receivables Master Trust (the "Trust") have entered into the Reconveyance Agreement, pursuant to which the Trustee, on behalf of the Trust, has reconveyed all of the right, title and interest of the Trust in and to the Receivables to Transferor. 5. Subject to the terms and conditions contained in this Agreement, Transferor shall transfer to the Administrator, on behalf of Transferee, and the Administrator shall accept, from time to time an undivided percentage interest, referred to herein as the Asset Interest, in Pool Receivables and related property. 6. Transferor and Transferee also desire that, subject to the terms and conditions of this Agreement, certain of the daily Collections in respect of the Asset Interest be reinvested in Pool Receivables, which reinvestment shall constitute part of the Asset Interest. 7. Wachovia has been requested, and is willing, to act as the Administrator under this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto hereby agree as follows: ARTICLE I TRANSFERS AND REINVESTMENTS SECTION 1.01 Commitments to Transfer; Limits on Transferee's Obligations. Upon the terms and subject to the conditions of this Agreement (including, without limitation, Article V), from time to time prior to the Termination Date, Transferor may request a transfer to the Administrator, on Transferee's behalf, and the Administrator, on Transferee's behalf, shall accept, from Transferor ownership interests in Pool Receivables and Related Assets (each being a "Transfer"); provided that no Transfer shall be made by the Administrator, on Transferee's behalf, if, after giving effect thereto, (a) the transfer price of such Transfer exceeds the lesser of (i) the result obtained by multiplying the Net Pool Balance as of the date of such Transfer by the Advance Rate and (ii) the Transfer Limit, (b) the Aggregate Outstandings would exceed the Transfer Limit, or (c) the Asset Interest would exceed 100%; and provided, further that each Transfer made pursuant to this Section 1.01 shall have a transfer price equal to at least $1,000,000 and shall be an integral multiple of $100,000. -2- 10 SECTION 1.02 Transfer Procedures; Assignment of Transferee's Interests. (a) Transfer Request. Each Transfer from Transferor by the Administrator, on Transferee's behalf, shall be made on notice from Transferor to the Administrator received by the Administrator not later than 12:00 noon (New York City time) two (2) Business Days prior to the date of such proposed Transfer. Each such notice of a proposed Transfer shall be substantially in the form of Exhibit 1.02(a) and shall specify, among other items, the desired amount and date of such Transfer. The Administrator shall promptly upon receipt notify the Transferee of any such notice. (b) Funding of Transfer. On the date of each Transfer, Transferee shall, upon satisfaction of the applicable conditions set forth in Article V, make available to Transferor the amount of the Transfer in same day funds by wire transfer to an account of Transferor designated in writing by Transferor. (c) Assignment of Asset Interests. Transferor hereby transfers, assigns and conveys to the Administrator, on Transferee's behalf, effective on and as of the date of each Transfer and each Reinvestment by the Administrator, on Transferee's behalf, hereunder the Asset Interest in the Pool Receivables and Related Assets. SECTION 1.03 Reinvestments of Certain Collections; Payment of Remaining Collections. (a) On the close of business on each day during the period from the date of the first Transfer to the Termination Date, Servicer will, out of all Collections received on such day from Pool Receivables and Related Assets: (i) set aside and hold in trust for the benefit of Transferee (or its assigns) that portion of the Collections attributable to the Asset Interest; (ii) out of the portion of such Collections allocated to the Asset Interest pursuant to clause (i), segregate, set aside and hold in trust for Transferee an amount equal to the sum of the estimated amount of Earned Discount accrued in respect of each Asset Tranche (based on rate information provided by the Administrator pursuant to Section 2.05), all other amounts due to Transferee or the Administrator hereunder and the Servicer's Fee (in each case, accrued through such day) and not so previously set aside; -3- 11 (iii) apply the Collections allocated to the Asset Interest pursuant to Section 1.03(a)(i) and not required to be set aside pursuant to Section 1.03(a)(ii) to a transfer to the Administrator, on Transferee's behalf, by Transferor of ownership interests in Pool Receivables and Related Assets (each such purchase being a "Reinvestment"); provided that: (A) if after giving effect to such Reinvestment, (1) the then Asset Interest would exceed 100% or (2) the Aggregate Outstandings would exceed the Transfer Limit, then Servicer shall not reinvest, but shall set aside and hold in trust for the benefit of Transferee, a portion of such Collections which, together with other Collections previously set aside and then so held, shall equal the amount necessary to reduce the Asset Interest to not more than 100% and the Aggregate Outstandings to an amount equal to or less than the Transfer Limit; and (B) if any of the conditions precedent to Reinvestment set forth in clauses (a), (b) and (d) of Section 5.02, subject to the proviso set forth therein, are not satisfied, then Servicer shall not reinvest any of such remaining Collections, but shall set them aside and hold them in trust for the benefit of Transferee; and (iv) pay to Transferor (A) the remaining portion of Collections not allocated to the Asset Interest pursuant to Section 1.03(a)(i), and (B) the Collections applied to Reinvestment pursuant to Section 1.03(a)(iii). (b) Unreinvested Collections. Servicer shall segregate, set aside and hold in trust for the benefit of Transferee all Collections which, pursuant to Section 1.03(a)(iii), may not be reinvested in the Pool Receivables and Related Assets. If, prior to the date when such Collections are required to be paid to the Administrator for the benefit of Transferee pursuant to Section 1.03(c)(iv), the amount of Collections so set aside exceeds the amount, if any, necessary to reduce the Aggregate Outstandings to an amount equal to or less than the Transfer Limit and the Asset Interest to not more than 100%, and the conditions precedent to Reinvestment set forth in clauses (a), (b) and (d) of Section 5.02, subject to the proviso set forth -4- 12 therein, are satisfied, then Servicer shall apply such Collections (or, if less, a portion of such Collections equal to the amount of such excess) to the making of a Reinvestment. (c) Payment of Amounts Set Aside. (i) Servicer shall pay all amounts of Collections set aside pursuant to Section 1.03(a)(ii) in respect of Earned Discount on an Asset Tranche funded by a Liquidity Funding to the Administrator, on Transferee's behalf, on the last day of the then current Yield Period for such Asset Tranche as provided in Section 3.01. (ii) Servicer shall pay all amounts of Collections set aside pursuant to Section 1.03(a)(ii) in respect of Earned Discount on any Asset Tranche funded by Commercial Paper Notes to the Administrator, on Transferee's behalf, on the last day of the then current CP Tranche Period for such Asset Tranche, as provided in Section 3.01. (iii) Servicer shall pay all amounts of Collections set aside pursuant to Section 1.03(a)(ii) and not applied pursuant to clauses (i) or (ii) above to the Administrator, on Transferee's behalf, on each Settlement Date for each Settlement Period, as provided in Section 3.01. (iv) Servicer shall pay all amounts set aside pursuant to Section 1.03(b) to the Administrator for the account of Transferee (A) on the last day of the then current Yield Period for any Asset Tranche funded by a Liquidity Funding, as provided in Section 3.01, in an amount not exceeding the Transferee's Tranche Investment of such Asset Tranche, and (B) on the last day of the then current CP Tranche Period for any Asset Tranche funded by Commercial Paper Notes, as provided in Section 3.01, in an amount not exceeding the Transferee's Tranche Investment of such Asset Tranche; provided, however, no payment shall be made under clause (B) above unless the Transferee's Tranche Investments of all Asset Tranches, if any, funded by Liquidity Fundings shall have been reduced to zero. (d) Funds Under Sale Agreement. Upon the written request of the Administrator, on Transferee's behalf, given at any time when (i) based -5- 13 on the most recent Monthly Report, the Asset Interest would exceed 100% or the Aggregate Outstandings would exceed the Transfer Limit, or (ii) a Liquidation Event or Unmatured Liquidation Event shall have occurred and be continuing, Transferor shall set aside all funds that under the Sale Agreement would be applied to repay principal of the Subordinated Notes owing to the Originators. Transferor may make withdrawals of such funds only for the purposes of (i) at any time, purchasing Receivables from the Originators in accordance with the Sale Agreement; (ii) on the Settlement Date for any Settlement Period, making payments to reduce Transferee's Total Investment in accordance with the last sentence of Section 3.01(c)(ii), and (iii) on the Settlement Date for any Settlement Period, if, on the basis of the most recent Monthly Report, and after giving effect to any payment made to Servicer to reduce Transferee's Total Investment on such date pursuant to the last sentence of Section 3.01(c)(ii), the Aggregate Outstandings does not exceed the Transfer Limit and the Asset Interest does not exceed 100%, and provided that no Liquidation Event or Unmatured Liquidation Event shall have occurred and be continuing, repaying principal of the Subordinated Notes in accordance with this Agreement and the Sale Agreement. (e) Notwithstanding subsections (a) and (b) above, if a Liquidation Event has not occurred and is continuing, the daily calculations, allocations, and segregation specified in such paragraphs shall not be required, provided that, any amounts otherwise required to be segregated pursuant to such paragraphs shall be, notwithstanding this subsection (e), held in trust by the Servicer for the benefit of the Transferee (or its assigns). SECTION 1.04 Asset Interest (a) Components of Asset Interest. On any date the Asset Interest will represent Transferee's undivided percentage ownership interest in all then outstanding Pool Receivables and all Related Assets with respect to such Pool Receivables as at such date. (b) Computation of Asset Interest. On any date, the Asset Interest will be equal to a percentage, expressed as the following fraction: PTI+RR ------ NPB where: PTI = the then Transferee's Total Investment; RR = the then Required Reserve; and NPB = the then Net Pool Balance; -6- 14 provided, however, that the Asset Interest during the Liquidation Period shall be deemed to equal 100%. (c) Frequency of Computation. The Asset Interest shall be computed (i) as provided in Section 3.01(c), as of the Cut-Off Date for each Settlement Period, and (ii) on each Settlement Date, after giving effect to the payments made pursuant to Section 3.01. In addition, the Administrator may require Servicer to provide a Monthly Report, based on the information then available to Servicer, for purposes of computing the Asset Interest or the Transfer Limit as of any other date, and Servicer agrees to do so within five (5) (or three (3), if a Liquidation Event has occurred and is continuing) Business Days of its receipt of the Administrator's request, provided that Servicer shall not be required to provide such Monthly Report more frequently than monthly (or weekly, if the Borrowing Availability is less than $30,000,000 or a Liquidation Event has occurred and is continuing). SECTION 1.05 Adjustments of Transfer Limit. Transferor may, upon at least thirty (30) Business Days' prior written notice to the Administrator, terminate in whole or reduce in part, the unused portion of the Transfer Limit; provided that each partial reduction of the Transfer Limit shall be in an amount equal to $5,000,000 or an integral multiple thereof. SECTION 1.06 Extension of Scheduled Maturity Date. Not less than 90 days prior to the then existing Scheduled Maturity Date, the Administrator will, in consultation with Transferor, undertake a review of Transferor to determine whether the Scheduled Maturity Date may be extended, during which review Transferor may request such extension. Notwithstanding, the immediately preceding sentence, neither Transferee nor any Liquidity Bank shall have a commitment or obligation to extend the Scheduled Maturity Date. If Transferee and the Liquidity Banks agree, after consultation with the Administrator and in their sole discretion, to extend the Scheduled Maturity Date, they shall so advise the Administrator and the Administrator shall notify Transferor in writing by not later than the date that is 60 days prior to the then existing Scheduled Maturity Date. In the event the Administrator, on behalf of Transferee and the Liquidity Banks, shall fail to advise Transferor on or prior to the date that is 60 days prior to the then existing Scheduled Maturity Date, Transferee's request to extend the Scheduled Maturity Date shall be deemed to have been declined. Upon execution by Transferor, the Administrator, Transferee and the Liquidity Banks of an agreement in writing setting forth the parties agreement to extend the Scheduled Maturity Date, the "Scheduled Maturity Date" shall thereupon become the date as specified in such agreement. As of no date during the term of this Agreement shall the period from such date to the Scheduled Maturity Date then in effect exceed a period of 364 days. -7- 15 ARTICLE II COMPUTATIONAL RULES SECTION 2.01 Selection of Asset Tranches. The Administrator shall, at the reasonable direction of Transferor, and from time to time for purposes of computing Earned Discount, divide the Asset Interest into Asset Tranches, and the applicable Earned Discount Rate may be different for each Asset Tranche. Transferee's Total Investment shall be allocated to each Asset Tranche by the Administrator, on Transferee's behalf and pursuant to the reasonable direction of Transferor (unless a Liquidation Event has occurred and is continuing), to reflect the funding sources for the Asset Interest, so that: (a) there will be an Asset Tranche equal to the excess of Transferee's Total Investment over the aggregate amount allocated at such time pursuant to clause (b) below, which Asset Tranche shall reflect the portion of the Asset Interest funded by Commercial Paper Notes; and (b) there will be one or more Asset Tranches, selected by the Administrator, on Transferee's behalf and at the reasonable direction of Transferor (unless a Liquidation Event has occurred and is continuing), reflecting the portion of the Asset Interest funded by outstanding Liquidity Fundings. SECTION 2.02 Computation of Transferee's Total Investment and Transferee's Tranche Investment. In making any determination of Transferee's Total Investment and any Transferee's Tranche Investment, the following rules shall apply: (a) Transferee's Total Investment shall not be considered reduced by any allocation, setting aside or distribution of any portion of Collections unless such Collections shall have been actually delivered hereunder to the Administrator, on Transferee's behalf; (b) Transferee's Total Investment shall not be considered reduced by any distribution of any portion of Collections if at any time such distribution is rescinded or must otherwise be returned for any reason; and (c) if there is any reduction in Transferee's Total Investment, there shall be a corresponding reduction in a Transferee's Tranche Investment with respect to one or more Asset Tranches selected by the Administrator, on Transferee's behalf, in its reasonable discretion. -8- 16 SECTION 2.03 Computation of Concentration Limits and Unpaid Balance. The Obligor Concentration Limits, Special Concentration Limits and the aggregate Unpaid Balance of Pool Receivables of any Obligor and its Affiliated Obligors (if any) shall be calculated as if such Obligor and its Affiliated Obligors were one Obligor. SECTION 2.04 Liquidity Fundings; Computation of Earned Discount. (a) It is the intent of Transferee to fund the Asset Interest by the issuance of Commercial Paper Notes. If Transferee is unable, or determines that it is undesirable, to issue Commercial Paper Notes to fund the Asset Interest, or is unable to repay such Commercial Paper Notes upon the maturity thereof, Transferee will draw on Liquidity Fundings to fund the Asset Interest to the extent available. (b) In making any determination of Earned Discount, the following rules shall apply: (i) the Administrator, on Transferee's behalf, shall determine the Earned Discount accruing with respect to each Asset Tranche, and each CP Tranche Period therefor (or, in the case of an Asset Tranche funded by Liquidity Fundings, each Yield Period), in accordance with the definition of Earned Discount; (ii) no provision of this Agreement shall require the payment or permit the collection of Earned Discount in excess of the maximum permitted by applicable law; and (iii) Earned Discount for any Asset Tranche shall not be considered paid by any distribution if at any time such distribution is rescinded or must otherwise be returned for any reason. SECTION 2.05 Estimates of Earned Discount Rate, Fees, etc. For purposes of determining the amounts required to be set aside by Servicer pursuant to Section 1.03, the Administrator, on Transferee's behalf, shall notify Servicer (and, if WestPoint is not Servicer, Transferor) from time to time of the Transferee's Tranche Investment of each Asset Tranche, the Earned Discount Rate applicable to -9- 17 each Asset Tranche and the rates at which fees and other amounts are accruing hereunder. It is understood and agreed that (i) the Earned Discount Rate for any Asset Tranche may change from one applicable Yield Period or CP Tranche Period to the next, and the Bank Rate used to calculate the Earned Discount Rate may change from time to time during an applicable Yield Period, (ii) certain rate information provided by the Administrator to Servicer shall be based upon the Administrator's good faith estimate, (iii) the amount of Earned Discount actually accrued with respect to an Asset Tranche during any CP Tranche Period (or in the case of an Asset Tranche funded by Liquidity Fundings, any Yield Period) may exceed, or be less than, the amount set aside with respect thereto by Servicer, and (iv) the amount of fees or other amounts payable which have accrued hereunder with respect to any Settlement Period may exceed, or be less than, the amount set aside with respect thereto by Servicer. Failure to set aside any amount so accrued shall not relieve Servicer of its obligation to remit Collections to the Administrator, for the benefit of Transferee, with respect to such accrued amount, as and to the extent provided in Section 3.01. ARTICLE III SETTLEMENTS SECTION 3.01 Settlement Procedures. The parties hereto will take the following actions with respect to each Settlement Period: (a) Monthly Report. Servicer shall deliver to the Administrator, on Transferee's behalf, on the 15th day of each month (or if such day is not a Business Day, the next succeeding Business Day thereafter) (each a "Reporting Date")), a Monthly Report; provided, however, that at any time during which the Borrowing Availability is less than $30,000,000 or a Liquidation Event has occurred and is continuing, Servicer shall deliver a Monthly Report at any time and from time to time upon the Administrator's request (but in no event more frequently than weekly) and, upon the Administrator's request, each such Monthly Report shall be accompanied by an electronic file in a form satisfactory to the Administrator. (b) Earned Discount; Other Amounts Due. On or before 12:00 noon, Atlanta, Georgia time on the Business Day before the last day of each CP Tranche Period or Yield Period, as the case may be, the Administrator shall notify Servicer of the amount of Earned Discount accrued with respect to any Asset Tranche corresponding to such CP Tranche Period or Yield Period, as the case may be. Servicer shall pay to the Administrator, for the benefit of Transferee, the amount of such Earned Discount on the last day of such CP Tranche Period or Yield Period. On or before 12:00 noon, Atlanta, Georgia time, on the Business Day before each -10- 18 Reporting Date, the Administrator, on Transferee's behalf, shall notify Servicer of all fees and other amounts accrued and payable by Transferor under this Agreement during the prior calendar month, (other than amounts described in Section 3.01(c) below). Servicer shall pay to the Administrator, for the benefit of Transferee, the amount of fees and other amounts (to the extent of Collections attributable to the Asset Interest during such Settlement Period) on the Settlement Date for such month. Such payments shall be made (A) out of amounts set aside pursuant to Section 1.03 for such payment, (B) in the case of amounts other than Earned Discount, to the extent that amounts were not set aside pursuant to Section 1.03 for such payment, out of funds paid by Servicer to Transferor (which amounts Transferor hereby agrees to pay to Servicer), and (C) in the case of Earned Discount, to the extent that funds were not set aside pursuant to Section 1.03 for such payment (because the actual Earned Discount for such month was greater than the estimated Earned Discount used in calculating the Asset Interest during such month), out of funds paid by Servicer to Transferor (which amounts Transferor hereby agrees to pay to Servicer), up to the aggregate amount of Collections applied to Reinvestment under Section 1.03(a) or (b) during such month. (c) Asset Interest Computations. (i) On the Reporting Date for each Settlement Period, Servicer shall compute, as of the related Cut-Off Date and based upon the assumptions in the next sentence, (A) the Asset Interest, (B) the amount of the reduction or increase (if any) in the Asset Interest since the immediately preceding Cut-Off Date, (C) the excess (if any) of the Asset Interest over 100%, and (D) the excess (if any) of the Aggregate Outstandings over the Transfer Limit. Such calculation shall be based upon the assumptions that (x) the information in the Monthly Report is correct, and (y) Collections set aside pursuant to Section 1.03(b) will be paid to the Administrator, for the benefit of Transferee, on the Settlement Date for such Settlement Period. (ii) If, according to the computations made pursuant to clause (i) above, the Asset Interest exceeds 100% or the Aggregate Outstandings exceeds the Transfer Limit, then on the Settlement Date for such Settlement Period, Servicer shall pay to the Administrator, for the benefit of Transferee, (to the extent of Collections during the related Settlement Period attributable to all Asset Tranches and not previously paid to the Administrator) the amount necessary to reduce the Aggregate Outstandings to the Transfer -11- 19 Limit or less and the Asset Interest to not more than 100%, subject, however, to the proviso to Section 1.03(c)(iv). Such payment shall be made out of amounts set aside pursuant to Section 1.03 for such purpose and, to the extent such amounts were not so set aside, the Transferor hereby agrees to pay such amounts to the Servicer to the extent of Collections applied to Reinvestment under Section 1.03 during the relevant Settlement Period. (iii) In addition to the payments described in clause (ii) above, during the Liquidation Period, Servicer shall pay to the Administrator, for the benefit of Transferee, all amounts set aside pursuant to Section 1.03 (A) on the last day of the current Yield Period for any Asset Tranche funded by a Liquidity Funding, in an amount not exceeding the Transferee's Tranche Investment of such Asset Tranche, and (B) after reduction to zero of the Transferee's Tranche Investments of the Asset Tranches, if any, funded by Liquidity Fundings, on the last day of each CP Tranche Period, in an amount not exceeding the Transferee's Tranche Investment of the Asset Tranches funded by Commercial Paper Notes. (d) Order of Application. (i) On each Settlement Date the Administrator, on Transferee's behalf, shall apply the funds received by the Administrator pursuant to Section 1.03 and this Section 3.01 to the items specified in the subclauses below, in the order of priority of such subclauses: (i) to accrued Earned Discount, plus any previously accrued Earned Discount not paid; (ii) to the accrued and unpaid Servicer's Fee (if Servicer is not Transferor or its Affiliate); (iii) to the Program Fee and the Unused Fee accrued during such Settlement Period, plus any previously accrued Program Fee and the Unused Fee not paid; (iv) to other accrued and unpaid amounts owing to Transferee or the Administrator hereunder (except Earned Discount on any Asset Tranche funded by a Liquidity Funding which has accrued but is not yet overdue under Section 1.03(c)); -12- 20 (v) to the purchase price of each Reinvestment made in accordance with Section 1.03(a)(iii); (vi) to the reduction of Transferee's Total Investment, to the extent such reduction is required under Section 3.01(c); and (vii) to the accrued and unpaid Servicer's Fee (if Servicer is Transferor or its Affiliate). (ii) On and after the Termination Date, the Administrator shall apply all amounts received by it pursuant to Section 1.03 and this Section 3.01 to the reduction of the Transferee's Total Investment and any other amounts owed hereunder to Transferee or its assigns and the Administrator. (e) Non-Distribution of Servicer's Fee. The Administrator hereby consents (which consent may be revoked at any time after the occurrence and during the continuance of a Liquidation Event), to the retention by the Servicer of the amounts (if any) set aside pursuant to Section 1.03 in respect of the Servicer's Fee, in which case no distribution shall be made in respect of Servicer's Fee pursuant to Section 3.01(d). (f) Delayed Payment. If on any day described in this Section 3.01 (or in Section 1.03(c) in respect of accrued Earned Discount on Asset Tranches funded by Liquidity Fundings or by the issuance of Commercial Paper Notes), because Collections during the relevant CP Tranche Period or Yield Period were less than the aggregate amounts payable, Servicer shall not make any payment otherwise required, the next available Collections in respect of the Asset Interest shall be applied to such payment, and no Reinvestment shall be permitted hereunder until such amount payable has been paid in full. SECTION 3.02 Deemed Collections; Reduction of Transferee's Total Investment, Etc. (a) Deemed Collections. If on any day (i) the Unpaid Balance of any Pool Receivable is: -13- 21 (A) reduced as a result of any defective, rejected or returned merchandise or services, any cash discount, incorrect billings, price rollbacks, freight charge discrepancies or any other adjustment by any Transaction Party, any Originator or any Affiliate thereof, or as a result of any tariff or other governmental or regulatory action, or (B) reduced or canceled as a result of a setoff in respect of any claim by the Obligor thereof (whether such claim arises out of the same or a related or an unrelated transaction), or (C) reduced on account of the obligation of any Transaction Party, any Originator or any Affiliate thereof to pay to the related Obligor any rebate or refund, or (D) less than the amount included in calculating the Net Pool Balance for purposes of any Monthly Report (for any reason other than such Receivable becoming a Defaulted Receivable or Collections being applied to such Unpaid Balance), or (ii) any of the representations or warranties of Transferor set forth in Section 6.01(k) or 6.01(o) were not true when made with respect to any Pool Receivable, or any of the representations or warranties of Transferor set forth in Section 6.01(k) or 6.01(o) are no longer true with respect to any Pool Receivable, or any Pool Receivable is repurchased by any Originator pursuant to the Sale Agreement, then, on such day, Transferor shall be deemed to have received a Collection of such Pool Receivable: (x) in the case of clause (i) above, in the amount of such reduction or cancellation or the difference between the actual Unpaid Balance and the amount included in calculating such Net Pool Balance, as applicable; and (y) in the case of clause (ii) above, in the amount of the Unpaid Balance of such Pool Receivable. -14- 22 Collections deemed received by Transferor under this Section 3.02(a) are herein referred to as "Deemed Collections". (b) Transferor's Optional Reduction of Transferee's Total Investment. Subject to subsection (iii) below, Transferor may at any time elect to reduce the Transferee's Total Investment as follows: (i) Partial Reductions. If Transferor elects to reduce the Transferee's Total Investment in part, but not to zero: (A) Transferor shall give the Administrator, on Transferee's behalf, at least five (5) Business Days' prior written notice of such reduction (including the amount of such proposed reduction and the proposed date on which such reduction will commence), (B) the amount of any such reduction shall be in an amount of $1,000,000 or an integral multiple thereof, (C) on the proposed date of commencement of such reduction and on each day thereafter, Servicer shall refrain from reinvesting Collections pursuant to Section 1.03 until the amount thereof not so reinvested shall equal the desired amount of reduction, (D) Servicer shall hold such Collections in trust for Transferee, pending payment to the Administrator, as provided in Section 1.03, and (E) after giving effect to such reduction, Transferee's Total Investment will be at least equal to $25,000,000. (ii) Reduction to Zero. If Transferor shall elect to reduce the Transferee's Total Investment to zero: -15- 23 (A) Transferor shall give the Administrator at least 30 days prior written notice of such reduction, specifying the proposed date on which such reduction will occur, and (B) Transferee (and any Liquidity Bank to the extent any part of the Asset Interest has been assigned to such Liquidity Bank) shall reassign and reconvey to Transferor the Asset Interest and Transferor shall pay to Transferee (or such Liquidity Bank, as applicable) in consideration thereof, a transfer price equal to the sum of (i) the then outstanding Transferee's Total Investment, (ii) all accrued and unpaid Earned Discount, all amounts owed under the Fee Letter, and all other amounts owed hereunder (whether or not due or accrued), in each case, through the date of such reassignment and reconveyance and payable in immediately available funds. Such reassignment and reconveyance shall be without representation, warranty or recourse of any kind, by, on the part of, or against the Administrator, Transferee or any assignee of Transferee. Upon payment of the transfer price in accordance with this Section 3.02(b)(ii), the interest of the Administrator, Transferee and, to the extent applicable, each Liquidity Bank in the Pool Receivables and Related Assets shall be deemed reassigned and reconveyed to Transferor and, the Administrator shall execute all agreements and other documents reasonably requested by Transferor in order to evidence such reassignment and reconveyance. Notwithstanding the foregoing, Transferor shall remain liable for all obligations hereunder which survive termination of this Agreement. (iii) Conditions to Reduction. Any reduction of the Transferee's Total Investment pursuant to this Section 3.02(b) shall be subject to the following conditions precedent: (A) Transferor shall use reasonable efforts to attempt to choose a reduction amount, and the date of commencement thereof, so that -16- 24 such reduction shall commence and conclude in the same Settlement Period, and (B) Transferor shall pay all amounts required to be paid by Transferor pursuant to Section 4.03 in connection with such reduction. SECTION 3.03 Payments and Computations, Etc. (a) Payments. All amounts to be paid or deposited by Transferor or Servicer to the Administrator or any other Person hereunder (other than amounts payable under Section 4.02) shall be paid or deposited in accordance with the terms hereof no later than 12:00 noon (Atlanta, Georgia time) on the day when due in lawful money of the United States of America in same day funds to the Transferee in care of Wachovia Bank, N.A., ABA #053100494, Account #8735-098787, for credit: Blue Ridge Asset Funding Corporation, Reference: WestPoint Stevens Inc., Attention: Deborah Williams (404) 332-4363, or to such other account at the bank named therein or at such other bank as the Administrator on behalf of Transferee may designate by written notice to the Person making such payment. (b) Late Payments. Transferor or Servicer, as applicable, shall, to the extent permitted by law, pay to the Person to whom payment is due, interest on all amounts not paid or deposited when due hereunder equal to the Default Rate, payable on demand, provided, however, that such interest rate shall not at any time exceed the maximum rate permitted by applicable law. (c) Method of Computation. All computations of interest, Earned Discount, any fees payable under Section 4.01 and any other fees payable by Transferor to Transferee or the Administrator hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed. SECTION 3.04 Treatment of Collections and Deemed Collections. Transferor shall forthwith deliver to Servicer all Deemed Collections, and Servicer shall hold or distribute such Deemed Collections as Earned Discount, accrued Servicer's Fee, repayment of Transferee's Total Investment, and to other accrued amounts owing hereunder to the same extent as if such Deemed Collections had actually been received on the date of such delivery to Servicer. If Collections are then being paid to the Administrator, on Transferee's behalf, or its designee, or lock-boxes or accounts directly or indirectly owned or controlled by the Administrator, Servicer -17- 25 shall forthwith cause such Deemed Collections to be paid to the Administrator, on Transferee's behalf, or its designee or to such lock-boxes or accounts, as applicable, or as the Administrator shall request. So long as Transferor shall hold any Collections (including Deemed Collections) required to be paid to Servicer or the Administrator, it shall segregate such Collections and hold such Collections in trust and shall clearly mark its records to reflect such trust. ARTICLE IV FEES AND YIELD PROTECTION SECTION 4.01 Fees. Transferor shall pay to Transferee certain fees from time to time in amounts and payable on such dates as are set forth in the letter dated on or about the date hereof (as amended from time to time, the "Fee Letter") between Transferor and the Administrator. SECTION 4.02 Yield Protection. (a) If any Regulatory Change occurring after the date hereof (A) shall subject an Affected Party to any tax, duty or other charge with respect to the Asset Interest owned by or funded by it, or any obligations or right to make Transfers or Reinvestments or to provide funding therefor, or shall change the basis of taxation of payments to the Affected Party of any Transferee's Total Investments or Earned Discount owned by, owed to or funded in whole or in part by it or any other amounts due under this Agreement in respect of the Asset Interest owned by or funded by it or its obligations or rights, if any, to make Transfers or Reinvestments or to provide funding therefor (except for (1) taxes based on, or measured by, net income, or changes in the rate of tax on or determined by reference to the overall net income, of such Affected Party, in each case, imposed by any jurisdiction in which the overall net income of such Affected Party is subject to taxation on the date hereof or the date on which such Affected Party becomes a party hereto or acquires an interest hereunder, as applicable or, (2) franchise taxes, taxes on, or in the nature of, doing business taxes or capital taxes); or -18- 26 (B) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Federal Reserve Board, but excluding any reserve included in the determination of Earned Discount), special deposit, insurance assessment or similar requirement against any Affected Party in respect of the assets which are of the type constituting the Asset Interest, deposits or obligations with or for the account of any Affected Party or with or for the account of any affiliate (or entity deemed by the Federal Reserve Board to be an affiliate) of any Affected Party, or credit extended by any Affected Party; or (C) shall change the amount of capital maintained or required or requested or directed to be maintained by any Affected Party in respect of its assets which are of the type constituting the Asset Interest; or (D) shall impose any other condition affecting any Asset Interest owned or funded in whole or in part by any Affected Party, or its obligations or rights, if any, to make Transfers or Reinvestments or to provide funding therefor; and the result of any of the foregoing is or would be (x) to increase the cost to, or to impose a cost on, (1) an Affected Party funding or making or maintaining any Transfers or Reinvestments, any purchases, reinvestments, or loans or other extensions of credit under the Liquidity Agreement, or any commitment of such Affected Party with respect to any of the foregoing, or (2) the Administrator for continuing its or Transferor's relationship with Transferee, in each case, in an amount deemed to be material by such Affected Party, (y) to reduce the amount of any sum received or receivable by an Affected Party under this Agreement or under the Liquidity Agreement, or -19- 27 (z) in the reasonable determination of such Affected Party, to reduce the rate of return on the capital of an Affected Party as a consequence of its obligations hereunder or arising in connection herewith to a level below that which such Affected Party could otherwise have achieved, then, within thirty (30) days after demand by such Affected Party (which demand shall be accompanied by a certificate setting forth, in such reasonable detail as shall reasonably be requested by Transferor, the basis of such demand and the methodology for calculating, and the calculation of, the amounts claimed by the Affected Party), Transferor shall pay directly to such Affected Party such additional amount or amounts as will compensate such Affected Party for such additional or increased cost or such reduction. (b) Each Affected Party will promptly notify Transferor and the Administrator of any event of which it has knowledge (including any future event that, in the judgment of such Affected Party, is reasonably certain to occur) which will entitle such Affected Party to compensation pursuant to this Section 4.02. No failure to give or delay in giving such notification shall adversely affect the rights of any Affected Party to such compensation; provided that Transferor shall not be required to compensate any Affected Party pursuant to this Section 4.02 for any increased costs or reductions incurred more than 60 days prior to the date that such Affected Party notifies Transferor of the Regulatory Change giving rise to such increased costs or reductions and of such Affected Party's intention to claim compensation therefor; provided further that, if the Regulatory Change giving rise to such increased costs or reductions is retroactive, then the 60-day period referred to above shall be extended to include the period of retroactive effect thereof. (c) In determining any amount provided for or referred to in this Section 4.02, an Affected Party may use any reasonable averaging and attribution methods (consistent with its ordinary business practices) that it (in its reasonable discretion) shall deem applicable. Any Affected Party when making a claim under this Section 4.02 shall submit to Transferor the above-referenced certificate as to such additional or increased cost or reduced return (including calculation thereof in reasonable detail), which statement shall, in the absence of demonstrable error, be conclusive and binding upon Transferor. (d) If any Affected Party requests compensation under this Section 4.02, then such Affected Party, to the extent applicable, shall use reasonable efforts to designate a different lending office for funding its portion of the Asset Interest if, in the judgement of such Affected Party, such designation (i) would eliminate or reduce amounts payable pursuant to this Section 4.02 in the future and -20- 28 (ii) would not subject such Affected Party to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Affected Party. Transferor hereby agrees to pay all reasonable costs and expenses incurred by any Affected Party in connection with any such designation. SECTION 4.03 Funding Losses. (a) In the event that Transferee or any Liquidity Bank shall actually incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by Transferee or such Liquidity Bank to make any Transfer or Liquidity Funding (as applicable) or maintain any Transfer or Liquidity Funding (as applicable)) (such loss or expense, "Broken Funding Costs") as a result of (i) any settlement with respect to Transferee's Tranche Investment of any Asset Tranche being made on any day other than the scheduled last day of an applicable CP Tranche Period or Yield Period with respect thereto (it being understood that the foregoing shall not apply to any portion of the Transferee's Total Investment that is accruing Earned Discount calculated by reference to the Alternate Base Rate), or (ii) any Transfer not being made in accordance with a request therefor under Section 1.02, then, upon written notice from the Administrator to Transferor and Servicer, Transferor shall pay to Servicer, and Servicer shall pay to the Administrator for the account of Transferee or such Liquidity Bank (as applicable), the amount of such Broken Funding Costs. Such written notice (which shall include the methodology for calculating, and the calculation of, the amount of such loss or expense, in reasonable detail) shall, in the absence of demonstrable error, be conclusive and binding upon the Transferor and Servicer. (b) In the event Transferor shall be required to pay any Broken Funding Costs pursuant to Section 4.03(a)(i) in connection with any required reduction of the Aggregate Outstandings or the Asset Interest pursuant to the terms hereof, Transferor may, in lieu of paying such Broken Funding Costs, deposit an amount (the "Defeasance Amount") equal to the amount necessary to reduce the Aggregate Outstandings and the Asset Interest to the level otherwise required hereunder to an account in the name of the Administrator, maintained at Wachovia (the "Collateral Account"). The Administrator shall invest the proceeds in the Collateral Account in one or more Permitted Investments as directed by Transferor by written notice to the Administrator, which Permitted Investments shall have a maturity approximating the time period until the end of the applicable CP Tranche Period or Yield Period relating to the Asset Tranche required to be reduced. The sole use of the principal of each Permitted Investment shall be to satisfy in full the Transferee's Total Investment and Earned Discount that will be owing at the conclusion of the applicable CP Tranche Period or Yield Period, and Transferor is entitled only to such interest as may be generated by the Permitted Investments. In addition, (i) the Administrator will -21- 29 purchase each Permitted Investment at the price offered to it in the usual course of its business; (ii) Transferor shall not be entitled to interest for any period of time for which the Administrator is unable to invest a Defeasance Amount in a Permitted Investment; (iii) the Administrator makes no representation with respect to the nominal or real rate of return associated with any Permitted Investment to be purchased hereunder; (iv) Transferor shall bear all risks relating to the real return that each Permitted Investment may generate; (iv) Transferor may not require the Administrator to sell any Permitted Investment prior to its date of maturity; (v) the Administrator shall not make any payments of interest to Transferor prior to the termination of the applicable CP Tranche Period or Yield Period; and (vi) Transferor shall be responsible for the payment of all taxes associated with the interest payable on each Permitted Investment. ARTICLE V CONDITIONS OF TRANSFERS SECTION 5.01 Conditions Precedent to Initial Transfer. The initial Transfer pursuant to this Agreement is subject to the condition precedent that the Administrator, on Transferee's behalf, shall have received, on or before the date of such initial Transfer, the following each (unless otherwise indicated) dated such date and in form and substance reasonably satisfactory to the Administrator: (a) Executed counterparts to this Agreement, duly executed by each of the parties hereto; (b) The Sale Agreement, duly executed by the parties thereto and a copy of each document delivered pursuant to Section 4.1 thereof; (c) A certificate of the Secretary or Assistant Secretary of each Transaction Party certifying (i) the Articles or Certificate of Incorporation of such Transaction Party, duly certified by the Secretary of State of such Transaction Party's state of incorporation, as of a recent date acceptable to Administrator, on Transferee's behalf, (ii) a copy of the by-laws of such Transaction Party, (iii) the names and true signatures of the officers of such Transaction Party authorized on its behalf to sign this Agreement and the other Transaction Documents to be delivered by it hereunder (on which certificate the Administrator and Transferee may conclusively rely until such time as the Administrator, on Transferee's behalf, shall receive from such Transaction Party a revised certificate meeting the requirements of this subsection (c)(iii)) and (iv) a copy of the resolutions of the Board of Directors of such -22- 30 Transaction Party approving the Transaction Documents to be delivered by it and the transactions contemplated hereby and thereby; (d) Copies of good standing certificates for each Transaction Party, issued as of a recent date acceptable to the Administrator, on Transferee's behalf, by the Secretaries of State of the state of incorporation of such Transaction Party and the state where such Transaction Party's principal place of business is located; (e) (i) Proper financing statements (Form UCC-1), in such form as the Administrator, on Transferee's behalf, may reasonably request, naming each Originator as the debtor and seller of the Pool Receivables originated by it and Related Assets, Transferor as the secured party and purchaser thereof and Transferee as assignee, duly executed by each party and (ii) proper financing statements (Form UCC-1), in such form as the Administrator, on Transferee's behalf, may reasonably request, naming Transferor as the debtor and transferor of an undivided percentage interest in the Pool Receivables and Related Assets and the Administrator, on behalf of Transferee, as the secured party and transferee thereof, duly executed by each party, or other, similar instruments or documents, as may be necessary or, in the opinion of the Administrator, on Transferee's behalf, desirable under the UCC or any comparable law of all appropriate jurisdictions to perfect the sale by the Originators to Transferor of, and Transferee's undivided percentage interest in, the Pool Receivables and Related Assets; (f) Search reports from a Person satisfactory to the Administrator (i) listing all effective financing statements that name any Transaction Party and any Originator as debtor and that are filed in the jurisdictions in which filings were made pursuant to Section 5.01(e) and in such other jurisdictions that the Administrator shall reasonably request, together with copies of such financing statements (none of which, except for any of the financing statements described in Section 5.01(e) shall cover any Pool Receivables or Related Assets), and (ii) listing all tax liens and judgment liens (if any) filed against any debtor referred to in clause (i) above in the jurisdictions described therein and showing no evidence of such liens; (g) A copy of the Subordinated Note, duly executed by Transferor; (h) Favorable opinions of Weil, Gotshal & Manges LLP, counsel to the Transaction Parties and the Originators, in substantially the form of Exhibit 5.01(h); -23- 31 (i) A favorable opinion of Weil, Gotshal & Manges LLP, counsel to the Transaction Parties and the Originators, as to: (i) the existence of a "true sale" of the Pool Receivables from the Originators to Transferor under the Sale Agreement; and (ii) the inapplicability of the doctrine of substantive consolidation to Transferor and WestPoint in connection with any bankruptcy proceeding involving any Transaction Party; (j) Favorable opinions of Sutherland, Asbill and Brennan LLP, as to Georgia UCC perfection and priority matters; (k) A pro forma Monthly Report, prepared as of November 30, 1998; (l) A report in form and substance satisfactory to the Administrator, on Transferee's behalf, from the Initial Due Diligence Contractor as to a pre-closing due diligence completed by the Initial Due Diligence Contractor; (m) The Liquidity Agreement, in form and substance satisfactory to the Administrator, on Transferee's behalf, duly executed by Transferee, the Liquidity Agent and each Liquidity Bank; (n) with respect to WestPoint, a consolidated balance sheet, income statement and statement of shareholders' equity as at December 31, 1997, together with a certification of the vice president, controller, chief financial officer, treasurer or assistant treasurer of WestPoint in the form attached hereto as Exhibit B; (o) An executed copy of a Lock Box/Collection Account Agreement with respect to each Lock-Box Account and the Concentration Account; (p) An executed copy of the Reconveyance Agreement, in form and substance satisfactory to the Administrator, on Transferee's behalf, duly executed by the parties thereto; (q) A notice relating to the initial Transfer hereunder, substantially in the form of Exhibit 1.02(a); -24- 32 (r) Executed copies of any third-party consents or releases (including, without limitation, any UCC-3 termination statements) necessary or in the Administrator's discretion advisable in connection with any Transaction Party's or any Originator's execution, delivery and performance of any Transaction Document to which it is a party; and (s) Such other agreements, instruments, certificates, opinions and other documents as the Administrator may reasonably request. SECTION 5.2 Conditions Precedent to All Transfers and Reinvestments. Each Transfer (including the initial Transfer) and each Reinvestment shall be subject to the further conditions precedent that on the date of such Transfer or Reinvestment the following statements shall be true (and Transferor, by accepting the proceeds of such Transfer or by receiving the proceeds of such Reinvestment, and each other Transaction Party, upon such acceptance or receipt by Transferor, shall be deemed to have certified that): (a) the representations and warranties contained in Section 6.01 are correct on and as of such day as though made on and as of such day and shall be deemed to have been made on such day, (b) no event has occurred and is continuing, or would result from such Transfer or Reinvestment, that constitutes a Liquidation Event or Unmatured Liquidation Event, (c) after giving effect to each proposed Transfer or Reinvestment, the Aggregate Outstandings will not exceed the Transfer Limit and the Asset Interest will not exceed 100%; (d) the Termination Date shall not have occurred, (e) in the case of a Transfer, the Administrator shall have timely received an appropriate notice of the proposed Transfer in accordance with Section 1.02(a), and (f) the Administrator shall have received such other documents as it may have reasonably requested in accordance with Section 7.02(k); provided, however, the absence of the occurrence and continuance of an Unmatured Liquidation Event shall not be a condition precedent to any Reinvestment or any Transfer on any day which does not cause the Transferee's Total Investment, after -25- 33 giving effect to such Reinvestment or Transfer, to exceed the Transferee's Total Investment as of the opening of business on such day. ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.01 Representations and Warranties of Transaction Parties. Each Transaction Party represents and warrants as to itself, as of the date hereof and as of each day throughout the term of this Agreement, as follows: (a) Organization and Good Standing; Ownership. Each Transaction Party has been duly organized and is validly existing as a corporation in good standing under the laws of the state of its incorporation, with the corporate power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted. Transferor had at all relevant times, and now has, all necessary power, authority, and legal right to acquire and own the Pool Receivables and Related Assets. (b) Due Qualification. Each Transaction Party is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualification, licenses or approvals, except where the failure to be so qualified or have such licenses or approvals could not reasonably be expected to have a Material Adverse Effect. (c) Power and Authority; Due Authorization. Each Transaction Party (i) has all necessary corporate power, authority and legal right (A) to execute and deliver this Agreement and the other Transaction Documents to which it is a party and to perform its obligations hereunder and thereunder, (B) in the case of Servicer, to service the Receivables and the Related Assets in accordance with the Credit and Collection Policy, this Agreement and the Sale Agreement, and (C) in the case of Transferor, to transfer, assign and convey the Asset Interest on the terms and conditions herein provided, (ii) has duly authorized by all necessary corporate action the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party and, in the case of Transferor, the sales and assignments described in clause (i)(C) above and (iii) has duly executed and delivered this Agreement and each other Transaction Document to which such Transaction Party is a party. -26- 34 (d) Valid Sale; Binding Obligations. (i) This Agreement constitutes a valid sale, transfer, and assignment of the Asset Interest (or a valid grant of a security interest in the Receivables and Related Assets) to the Administrator on Transferee's behalf, enforceable against creditors of, and purchasers from, Transferor, and (ii) this Agreement and each other Transaction Document signed by such Transaction Party constitutes, a legal, valid and binding obligation of such Transaction Party, enforceable against such Transaction Party in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws from time to time in effect affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) No Violation. The consummation of the transactions contemplated by this Agreement and the other Transaction Documents to which such Transaction Party is a party and the fulfillment of the terms hereof and thereof will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the articles or certificate of incorporation or by-laws of such Transaction Party, or any indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument to which such Transaction Party is a party or by which it or any of its properties is bound, (ii) result in the creation or imposition of any Lien upon any of such Transaction Party's properties pursuant to the terms of any such indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument, other than this Agreement and the other Transaction Documents, or (iii) violate any law or any order, rule, or regulation applicable to such Transaction Party of any court or of any federal, state or foreign regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over such Transaction Party or any of its properties. (f) No Proceedings. There are no proceedings or investigations pending, or, to such Transaction Party's knowledge, threatened, before any court, regulatory body, arbitrator, administrative agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement or any other Transaction Document to which such Transaction Party is a party, (ii) seeking to prevent the sale and assignment of the Receivables and the related rights and other property with respect thereto under the Sale Agreement or the Reconveyance Agreement or of the Asset Interest under this Agreement or the consummation of any of the other transactions contemplated by this Agreement or any other Transaction Document to which such Transaction Party is a party or (iii) that could reasonably be expected to have a Material Adverse Effect of the type described in clauses (ii), (iii), and (iv) of the definition of "Material Adverse Effect." There are no proceedings or -27- 35 investigations pending as of the date hereof, or, to such Transaction Party's knowledge, threatened as of the date hereof, before any court, regulatory body, arbitrator, administrative agency, or other tribunal or governmental instrumentality that could reasonably be expected to have a Material Adverse Effect of the type described in clause (i) of the definition of "Material Adverse Effect." (g) Bulk Sales Act. No transaction contemplated hereby requires compliance with any bulk sales act or similar law. (h) Government Approvals. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by such Transaction Party of this Agreement and each other Transaction Document to which it is a party, except, in the case of Transferor, for (i) the filing of the UCC financing statements referred to in Article V, and (ii) the filing of any UCC continuation statements and amendments from time to time required in relation to any UCC financing statements filed in connection with this Agreement, as provided in Section 8.05, all of which, at the time required in Article V or Section 8.05, as applicable, shall have been duly made (except in the case of any such UCC statement referred to in Article V, in which case such UCC statement shall have been duly made within a reasonable time after the date hereof) and shall be in full force and effect. (i) Financial Condition. The consolidated balance sheets of WestPoint and its consolidated Subsidiaries as at December 31, 1997, and the related statements of income and shareholders' equity of WestPoint and its consolidated Subsidiaries for the fiscal year then ended, certified by Ernst & Young, LLP, independent certified public accountants, copies of which have been furnished to the Administrator, fairly present in all material respects the consolidated financial condition of WestPoint and its consolidated Subsidiaries as at such date and the consolidated results of the operations of WestPoint and its consolidated Subsidiaries for the period ended on such date, all in accordance with GAAP consistently applied. As of the date hereof, there has been no material adverse change in the financial condition, business or operations of WestPoint and its consolidated Subsidiaries since the date of such financial statements. On the date hereof, Transferor is, and on the date of each Transfer and Reinvestment (both before and after giving effet to such Transfer or Reinvestment), Transferor shall be solvent. (j) Use of Proceeds. No funds obtained by such Transaction Party under this Agreement or any other Transaction Document will be used (i) for a purpose that violates or will conflict with or contravene any of Regulations T, U and X promulgated by the Board of Governors of the Federal Reserve System from time -28- 36 to time or (ii) to acquire any security in any transaction that is subject to Section 13 or 14 of the Securities and Exchange Act of 1934, as amended. (k) Quality of Title. (i) Each Pool Receivable, together with the Related Assets, is owned by Transferor free and clear of any Lien (other than any Lien arising solely as the result of any action taken by Transferee (or any assignee thereof) or by the Administrator). When the Administrator, on behalf of Transferee, makes a Transfer or Reinvestment, it shall have acquired and shall at all times thereafter continuously maintain a valid and perfected first priority undivided percentage ownership interest to the extent of the Asset Interest in each Pool Receivable and each Related Asset with respect thereto, free and clear of any Lien (other than any Lien arising as the result of any action taken by Transferee (or any assignee thereof) or by the Administrator). (ii) No currently effective financing statement or other instrument similar in effect covering any Pool Receivable, any interest therein or the Related Assets with respect thereto is on file in any recording office except such as may be filed (1) in favor of the Originators in accordance with any Contract, (2) in favor of Transferor in connection with the Sale Agreement or (3) in favor of Transferee or the Administrator in accordance with this Agreement or in connection with any Lien arising solely as the result of any action taken by Transferee (or any assignee thereof) or by the Administrator. (l) Accuracy of Information. No information heretofore or contemporaneously furnished in writing (if prepared by such Transaction Party, or to the extent information therein was supplied by such Transaction Party) by or on behalf of such Transaction Party to the Administrator or the Transferee for purposes of, pursuant to, or in connection with, this Agreement and any other Transaction Document or any transaction contemplated hereby or thereby was, and no other such written information furnished by such Transaction Party to the Administrator or Transferee will be, inaccurate in any material respect as of the date it was furnished or (except as otherwise disclosed to the Administrator or Transferee at such time) as of the date as of which such information is dated or certified, or contained or will contain any material misstatement of fact or omitted or will omit to state any material -29- 37 fact necessary to make such information not materially misleading, in light of the circumstances under which such information was furnished. (m) Offices. The principal places of business and chief executive offices of Servicer and Transferor are located at the respective addresses set forth on Schedule 14.02, and the offices where Servicer and Transferor keep all their books, records and documents evidencing Pool Receivables, the related Contracts and all purchase orders and other agreements related to such Pool Receivables are located at the addresses specified in Schedule 6.01(m) (or at such other locations, notified to the Administrator, on Transferee's behalf, in accordance with Section 7.01(f), in jurisdictions where all action required by Section 8.05 has been taken and completed). (n) Lock-Box Accounts and Concentration Account. The names and addresses of all the Lock-Box Banks and the Concentration Bank, together with the account numbers of the Lock-Box Accounts and the Concentration Account at such Lock-Box Banks or Concentration Bank (as applicable), are specified in Schedule 6.01(n) (or have been notified to and approved by the Administrator, on Transferee's behalf, in accordance with Section 7.03(d)). Transferor or the Servicer has instructed (or has caused the Originators to instruct) all Obligors to pay all Collections directly to a segregated lock-box identified on Schedule 6.01(n). All proceeds remitted to any such lock-box will be deposited directly by the applicable Lock-Box Bank into a Lock-Box Account and all such funds deposited to the Lock-Box Accounts will be transferred daily to the Concentration Account. Each lock-box identified on Schedule 6.01(n) and each Lock-Box Account is subject to a Lock-Box/Collection Account Agreement that is in full force and effect and exclusive dominion and control of each such lock-box and Lock-Box Account has been transferred to Transferor. Transferor has not granted any Person, other than the Administrator as contemplated by this Agreement, any currently effective right of dominion and control of any such lock-box or Lock-Box Account or the Concentration Account, or the right to take dominion and control of any such lock-box or Lock-Box Account or the Concentration Account at a future time or upon the occurrence of a future event. Each Transaction Party has and maintains accounting, administrative and operating procedures that permit identification of the Collections. (o) Eligible Receivables. Each Receivable included in the Net Pool Balance as an Eligible Receivable is an Eligible Receivable on such date. (p) Year 2000 Compliance. Each Transaction Party has conducted a review and assessment of its and its Subsidiaries' computer applications and made inquiry of its key suppliers, vendors and customers with respect to the Year -30- 38 2000 Problem and, based on that review and inquiry, such Transaction Party believes that the Year 2000 Problem will not result in a Material Adverse Effect. (q) Compliance with Credit and Collection Policy. With respect to each Pool Receivable, each of Transferor, Servicer and each Originator has complied in all material respects with the Credit and Collection Policy. (r) Payments to Originators. With respect to each Receivable transferred to Transferor by the Originators pursuant to the Sale Agreement, Transferor has given reasonably equivalent value to each Originator in consideration for the Receivables originated by it and the Related Assets with respect thereto and such transfer was not made for or on account of antecedent debt. No transfer by any Originator of any Receivable is or may be voided under any section of the Bankruptcy Reform Act of 1978 (11 U.S.C. ss.ss. 101 et. seq.), as amended. (s) Net Pool Balance. On each Settlement Date, after giving effect to the payments made under Section 3.01(c), the Net Pool Balance is at least equal to the sum of (i) the Transferee's Total Investment, plus (ii) the Required Reserve. On each day other than a Settlement Date, if the Net Pool Balance is less than the sum of (i) the Transferee's Total Investment, plus (ii) the Required Reserve, the Borrowing Availability is at least equal to $30,000,000. (t) Names. In the past five years, Transferor has not used any corporate names, trade names or assumed names other than the name in which it has executed this Agreement. (u) Ownership of Transferor. WestPoint owns, directly or indirectly, 100% of the issued and outstanding capital stock of Transferor, free and clear of any Lien. Such capital stock is validly issued, fully paid and nonassessable, and there are no options, warrants or other rights to acquire securities of Transferor. (v) Investment Company. Transferor is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended from time to time, or any successor statute. (w) Taxes. Such Transaction Party has filed all material tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except any such taxes which are not yet delinquent or are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with generally accepted accounting principles shall have been set aside on its books. -31- 39 (x) Compliance with Applicable Laws. Such Transaction Party is in compliance, in all respects, with the requirements of all applicable laws, rules, regulations, and orders of all governmental authorities (including, without limitation, Regulation Z, laws, rules and regulations relating to usury, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy and all other consumer laws, if any, applicable to the Pool Receivables and related Contracts), except where such noncompliance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. ARTICLE VII GENERAL COVENANTS OF TRANSACTION PARTIES SECTION 7.01 Affirmative Covenants of Transaction Parties. From the date hereof until the Final Payout Date, unless the Administrator shall otherwise consent in writing: (a) Compliance With Laws, Etc. Each Transaction Party will comply with all applicable laws, rules, regulations and orders, including those with respect to the Pool Receivables and related Contracts and other agreements related thereto, except where the failure to so comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (b) Preservation of Corporate Existence. Each Transaction Party will preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification could reasonably be expected to have a Material Adverse Effect. (c) Reviews. Each Transaction Party will at any time and from time to time, at such Transaction Party's expense, upon not less than five (5) Business Days' notice (unless a Liquidation Event has occurred and is continuing (or the Administrator, on Transferee's behalf, reasonably believes in good faith that a Liquidation Event has occurred and is continuing), in which case one (1) Business Days' notice shall be required) during regular business hours, permit the Administrator, on Transferee's behalf, or any of its agents or representatives, (i)(A) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of such Transaction Party relating to Pool Receivables and the Related Assets, including, -32- 40 without limitation, the Contracts and purchase orders and other agreements related thereto, and (B) to visit the offices and properties of such Transaction Party for the purpose of examining such materials described the foregoing clause (A), and discussing matters relating to Pool Receivables and the Related Assets or such Transaction Party's financial condition, performance hereunder or under any other Transaction Document or performance under any Contract, in each case, with any of the officers or employees of such Transaction Party having knowledge of such matters; (ii) to meet with the independent auditors of such Transaction Party to review with such auditors the books and records of such Transaction Party with respect to the Pool Receivables and Related Assets; and (iii) without limiting the provisions of clause (i) or (ii) next above, from time to time, at the expense of such Transaction Party, permit certified public accountants or other auditors acceptable to the Administrator to conduct a review of such Transaction Party's books and records with respect to the Pool Receivables and Related Assets; provided, that, so long as no Liquidation Event has occurred and is continuing, (x) such reviews shall not be done more than four (4) times in any one calendar year and (y) the Transaction Parties shall only be responsible for the costs and expenses of one such review in any one calendar year. (d) Keeping of Records and Books of Account. Servicer will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Pool Receivables (including, without limitation, records adequate to permit the daily identification of outstanding Unpaid Balances by Obligor and related debit and credit details of the Pool Receivables). (e) Performance and Compliance with Receivables and Contracts. Each Transaction Party will, at its expense, timely and fully perform and comply with all provisions, covenants and other promises required to be observed by it under the Contracts and all other agreements related to the Pool Receivables and the Related Assets, the breach of which provisions, covenants or promises could reasonably be expected to have a Material Adverse Effect. (f) Location of Records. Each Transaction Party will keep its principal place of business and chief executive office, and the offices where it keeps its records concerning or related to the Pool Receivables at the address(es) of Servicer and Transferor referred to in Section 6.01(m) or, upon 30 days' prior written notice to the Administrator, at such other locations in jurisdictions where all action required by Section 8.05 shall have been taken and completed. -33- 41 (g) Credit and Collection Policies. Each Transaction Party will comply in all material respects with the Credit and Collection Policy in regard to each Pool Receivable and all related Contracts. (h) Sale Agreement. Transferor will (i) perform and comply with all of its covenants and agreements set forth in the Sale Agreement, (ii) enforce the rights and remedies accorded to Transferor under the Sale Agreement, and (iii) enforce the performance by the Originators of their respective obligations under the Sale Agreement. (i) Collections. The Servicer shall instruct (or shall cause Transferor to instruct) all Obligors to pay all Collections directly to a segregated lock-box identified on Schedule 6.01(n). Transferor shall cause (i) all proceeds remitted to any such lock-box to be deposited directly by the applicable Lock-Box Bank into a Lock-Box Account, (ii) all proceeds deposited to any Lock-Box Account to be transferred daily to the Concentration Account, and (iii) each such lock-box and Lock-Box Account to be subject at all times to a Lock-Box/Collection Account Agreement that is in full force and effect. Transferor shall not grant any Person, other than the Administrator as contemplated by Section 8.05 of this Agreement, dominion and control of any such lock-box or Lock-Box Account or the Concentration Account, or the right to take dominion and control of any such lock-box or Lock-Box Account or the Concentration Account at a future time or upon the occurrence of a future event. Transferor shall maintain accounting, administrative and operating procedures that permit identification of the Collections. (j) Ownership Interest of Transferor. Transferor shall take all necessary action to vest legal and equitable title to the Receivables and the Related Assets purchased under the Sale Agreement irrevocably in Transferor, free and clear of any Liens other than Liens in favor of the Administrator on behalf of Transferee and its assigns (including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC of all appropriate jurisdictions (or any comparable law) to perfect Transferor's interest in such Receivables and Related Assets and such other action to perfect, protect or more fully evidence the interest of Transferor as the Administrator may reasonably request). (k) Ownership Interest of Transferee. Transferor shall take all necessary action to establish and maintain, in favor of the Administrator on behalf of Transferee, a valid and perfected first priority undivided percentage ownership or security interest in all Pool Receivables and the Related Assets to the full extent contemplated herein, free and clear of any Liens other than Liens in favor of the Administrator on behalf of Transferee and its assigns (including, without limitation, -34- 42 the filing of all financing statements or other similar instruments or documents necessary under the UCC of all appropriate jurisdictions (or any comparable law) to perfect the Administrator's and Transferee's interest in such Pool Receivables and Related Assets and such other action to perfect, protect or more fully evidence the interest of the Administrator and Transferee as Transferee or the Administrator may reasonably request). (l) Payments under Sale Agreement. With respect to each Receivable purchased by Transferor from the Originators, such sale shall be effected under, and in strict compliance with the terms of the Sale Agreement, including, without limitation, the terms relating to the amount and timing of payments to be made to the Originators in respect of the purchase price for such Receivable. (m) Year 2000 Compliance. Each Transaction Party will use its best efforts to meet the milestones contained in its Year 2000 Plan and will use its best efforts to have all hardware and software systems of such Transaction Party and its Subsidiaries Year 2000 Compliant and Ready (including all internal and external testing) on or before June 30, 1999. (n) Marking of Data Processing Reports. Transferor will on or prior to December 24, 1998 (and shall deliver to the Administrator on or before such date a certificate of an authorized officer certifying compliance with this subsection (n)) place on its computer systems and records which store information relating to and which evidence the Pool Receivables, and take all steps reasonably necessary to ensure that there shall remain on such computer systems and records the following legend (or the substantive equivalent thereof): THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO WPS RECEIVABLES CORPORATION PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT, DATED AS OF DECEMBER 18, 1998, AS AMENDED FROM TIME TO TIME, BETWEEN WESTPOINT STEVENS INC. AND WPS RECEIVABLES CORPORATION; AND AN OWNERSHIP AND SECURITY INTEREST IN THE RECEIVABLES DESCRIBED HEREIN AND IN SUCH RECEIVABLES PURCHASE AGREEMENT HAS BEEN GRANTED AND ASSIGNED TO WACHOVIA BANK, N.A., AS ADMINISTRATOR ON BEHALF OF BLUE RIDGE ASSET FUNDING CORPORATION, PURSUANT TO AN ASSET INTEREST TRANSFER AGREEMENT, DATED AS OF DECEMBER 18, 1998, AMONG WPS RECEIVABLES CORPORATION, BLUE RIDGE ASSET FUNDING CORPORATION, AND WACHOVIA BANK, N.A., AS THE ADMINISTRATOR. -35- 43 SECTION 7.02 Reporting Requirements of Transaction Parties. From the date hereof until the Final Payout Date, unless the Administrator, on Transferee's behalf, shall otherwise consent in writing: (a) Quarterly Financial Statements-WestPoint. WestPoint will furnish to the Administrator (whether or not WestPoint is then acting as Servicer hereunder), as soon as available and in any event within 50 days after the end of each of the first three quarters of each fiscal year of WestPoint, copies of its consolidated balance sheets and related statements of income and statements of cash flow, showing the financial condition of WestPoint and its consolidated Subsidiaries as of the close of such fiscal quarter and the results of its operations and the operations of such Subsidiaries during such fiscal quarter and the then elapsed portion of the fiscal year, together with an officer's certificate in the form attached hereto as Exhibit B executed by the controller, chief financial officer or treasurer of WestPoint. (b) Annual Financial Statements-WestPoint. WestPoint will furnish to the Administrator (whether or not WestPoint is then acting as Servicer hereunder) as soon as available and in any event within 95 days after the end of each fiscal year of WestPoint, copies of its consolidated balance sheets and related statements of income and statements of cash flow, showing the financial condition of WestPoint and its consolidated Subsidiaries as of the close of such fiscal year and the results of its operations and the operations of such Subsidiaries during such year, all audited by Ernst & Young, LLP or other independent public accountants of recognized national standing reasonably acceptable to the Administrator and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present the financial condition and results of operations of WestPoint on a consolidated basis (except as noted therein) in accordance with GAAP consistently applied. (c) Year 2000 Notices. Each Transaction Party will deliver to the Administrator on behalf of Transferee: (i) Simultaneously with the delivery of each set of annual and quarterly financial statements referred to in subsections (a) and (b) above, a statement of the chief executive officer, chief financial officer, controller, treasurer, assistant treasurer or chief technology officer to the effect that nothing has come to their attention to cause them to believe that such Transaction Party's Year 2000 Plan milestones have not been met in a manner such that such Transaction Party's and its Subsidiaries' hardware and software systems will not be Year 2000 Compliant and Ready in accordance with its Year 2000 Plan; and -36- 44 (ii) Within five (5) Business Days after such Transaction Party becomes aware of any deviations from its Year 2000 Plan which would cause compliance with such Year 2000 Plan to be delayed or not achieved, a statement of the chief executive officer, chief financial officer, controller, treasurer, assistant treasurer or chief technology officer setting forth the details thereof and the action which such Transaction Party is taking or proposes to take with respect thereto. (d) Reports to Holders and Exchanges. In addition to the reports required by subsections (a) and (b) above, promptly upon the Administrator's request, WestPoint will furnish to the Administrator, on Transferee's behalf, copies of any reports specified in such request which WestPoint sends to any of its securityholders, and any reports or registration statements that WestPoint files with the Securities and Exchange Commission or any national securities exchange other than registration statements relating to employee benefit plans and to registrations of securities for selling securities. (e) ERISA. Promptly after the filing or receiving thereof, each Transaction Party will furnish to the Administrator, on Transferee's behalf, copies of all reports and notices with respect to any Reportable Event defined in Article IV of ERISA which any Transaction Party files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which such Transaction Party receives from the Pension Benefit Guaranty Corporation. (f) Liquidation Events, etc. As soon as possible and in any event within three (3) Business Days after obtaining knowledge of the occurrence of any Liquidation Event or any Unmatured Liquidation Event that is not reasonably likely to be cured, each Transaction Party will furnish to the Administrator, on Transferee's behalf, a written statement of the chief financial officer, controller, treasurer, assistant treasurer or chief accounting officer of such Transaction Party setting forth details of such event and the action that such Transaction Party has taken or will take with respect thereto. (g) Litigation; Judgements. As soon as possible and in any event within ten (10) Business Days of any Transaction Party's knowledge thereof, such Transaction Party will furnish to the Administrator, on Transferee's behalf, -37- 45 notice of (i) any litigation, investigation or proceeding which may exist at any time which could reasonably be expected to have a Material Adverse Effect, (ii) any development in previously disclosed litigation which development could reasonably be expected to have a Material Adverse Effect, (iii) as to Servicer, the entry of one or more judgements or decrees against Servicer for the payment of money in the aggregate amount of $10,000,000 or more and which is not covered by insurance or as to which the insurance carrier has denied its responsibility and (iv) as to Transferor the entry of any judgement or decree against Transferor for the payment of money. (h) Review of Pool Receivables. As soon as available and in any event by the end of each fiscal year of Transferor commencing with Transferor's fiscal year ending December 31, 1999, Transferor will furnish to the Administrator, on Transferee's behalf, a report, prepared by a Person reasonably acceptable to the Administrator, as of the end of such fiscal year, substantially in the form of the report delivered pursuant to Section 5.01(l) and covering such other matters as the Administrator may reasonably request in order to protect the interests of the Administrator or Transferee under or as contemplated by this Agreement; provided that Transferor shall not be required to furnish a report pursuant to this Section 7.02(h) for its fiscal year ending December 31, 1999 unless the Scheduled Maturity Date shall have been extended during such year pursuant to Section 1.06. (i) Change in Business or Credit and Collection Policy. At least ten (10) Business Days prior to its effective date, each Transaction Party will furnish to the Administrator, on Transferee's behalf, notice of (i) any material change in the character of such Transaction Party's business, and (ii) any material change in the Credit and Collection Policy. (j) Ratings. Within one Business Day of obtaining knowledge thereof, each Transaction Party will furnish to the Administrator, on Transferee's behalf, notice of any downgrading or withdrawal of any rating of WestPoint's senior secured debt by any rating agency. (k) Other. Promptly, from time to time, each Transaction Party will furnish to the Administrator, on Transferee's behalf, such other information, documents, records or reports respecting the Pool Receivables or the condition or operations, financial or otherwise, of such Transaction Party as the Administrator may from time to time reasonably request in order to protect the interests of the Administrator or Transferee or any Affected Party under or as contemplated by this Agreement. -38- 46 SECTION 7.03 Negative Covenants of Transaction Parties. From the date hereof until the Final Payout Date, without the prior written consent of the Administrator: (a) Sales, Liens, Etc. (i) No Transaction Party will, except as otherwise provided herein and in the other Transaction Documents, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien upon or with respect to, any Pool Receivable or any Related Asset, or any interest therein, or any account to which any Collections of any Pool Receivable are sent, or any right to receive income or proceeds from or in respect of any of the foregoing and (ii) Servicer will not assert any interest in the Pool Receivables, except as Servicer. (b) Extension or Amendment of Receivables. No Transaction Party will, except as otherwise permitted in Section 8.02(c), extend, amend or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any material term or condition of any Contract related thereto in any way that materially adversely affects the collectibility of any Pool Receivable or the Administrator's and Transferee's rights therein. (c) Change in Business or Credit and Collection Policy. No Transaction Party will make or permit to be made any change in the character of its business or in the Credit and Collection Policy that would, in either case, impair the collectibility of any significant portion of the Pool Receivables or otherwise materially adversely affect the interests or remedies of the Administrator or Transferee under this Agreement or any other Transaction Document, unless with respect to any material change in accounting policies relating to Receivables, such change is made in accordance with GAAP. (d) Change in Payment Instructions to Obligors. No Transaction Party will add or terminate any bank as a Lock-Box Bank or as the Concentration Bank from those listed in Schedule 6.01(n) or make any change in its instructions to Obligors regarding payments to be made to Transferor or Servicer or payments to be made to any Lock-Box Bank or the Concentration Account (except for a change in instructions solely for the purpose of directing Obligors to make such payments to another existing Lock-Box Bank or Concentration Bank), unless (i) the Administrator shall have received at least ten (10) days' prior written notice of such addition, termination or change and (ii) with respect to the addition of a new Lock-Box Account, Lock-Box Bank or Concentration Account, the Administrator shall have received a duly executed Lock-Box/Collection Account Agreement with each new Lock-Box Bank or Concentration Bank. -39- 47 (e) Deposits to Lock-Box Accounts and Concentration Account. No Transaction Party will deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account or Concentration Account, any cash or cash proceeds other than Collections of Pool Receivables. (f) Changes to Other Documents. Transferor will not enter into any amendment, waiver or modification of, or supplement to, the Sale Agreement, the Transferor's Certificate of Incorporation or the Transferor's Bylaws. (g) Issuances of Equity; Restricted Payments by Transferor. Transferor will not (i) issue or otherwise transfer any of the capital stock of Transferor to any Person other than WestPoint, (ii) purchase or redeem any shares of the capital stock of Transferor, (iii) declare or pay any dividends thereon (other than stock dividends), make any distribution to stockholders or set aside any funds for any such purpose, except that Transferor may declare or pay dividends or make distributions to its stockholders if, both before and after giving effect to such payment, the Aggregate Outstandings do not exceed the Transfer Limit, the Asset Interest does not exceed 100% and Transferor's net worth (determined in accordance with GAAP) is not less than $4,800,000 (iv) pay any principal amount of any Subordinated Note, except that Transferor may pay all or a portion of such principal amount on the Settlement Date for any Settlement Period, after making any payment required to be made by Transferor on such Settlement Date in accordance with the last sentence of Section 3.01(c)(ii) and Section 3.01(c)(iii) if after giving effect to such payment the Aggregate Outstandings do not exceed the Transfer Limit and the Asset Interest does not exceed 100% and Transferor's net worth (determined in accordance with GAAP) is not less than $4,800,000. (h) Transferor Indebtedness. Transferor will not incur or permit to exist any indebtedness or liability on account of deposits or advances or for borrowed money or for the deferred purchase price of any property or services or in connection with any securitization of receivables, except (A) indebtedness of Transferor to the Originators incurred in accordance with the Sale Agreement, (B) indebtedness of Transferor to Transferee and its assigns pursuant to the terms of this Agreement, (C) current accounts payable arising under the Transaction Documents and not overdue and (D) other current accounts payable arising in the ordinary course of business and not overdue, in an aggregate amount at any time outstanding not to exceed $4,500. (i) Negative Pledges. No Transaction Party will enter into or assume any agreement (other than this Agreement and the other Transaction -40- 48 Documents) prohibiting the creation or assumption of any Lien upon any Pool Receivables or Related Assets, whether now owned or hereafter acquired, except as contemplated by the Transaction Documents, or otherwise prohibiting or restricting any transaction contemplated hereby or by the other Transaction Documents. (j) Change of Name. Transferor will not change its name, any trade name or corporate structure, or commence the use of any new trade name unless it has given the Administrator at least 30 days' prior written notice thereof and has taken all steps necessary to continue the perfection of the Administrator's and Transferee's interest, including the filing of amendments to the UCC financing statements filed pursuant to Section 5.01(e). (k) Mergers, Consolidations, Dispositions and Acquisitions. (i) WestPoint will not merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or substantially all of the assets of any other Person (whether directly by purchase, lease or other acquisition of all or substantially all of the assets of such Person or indirectly by purchase or other acquisition of all or substantially all of the capital stock of such other Person) or sell, transfer or otherwise assign (in one transaction or a series of transactions) all or substantially all of WestPoint's assets (or capital stock) to any other Person, except, in each case, as and to the extent permitted under the Credit Agreement. (ii) Transferor will not merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or substantially all of the assets of any other Person (whether directly by purchase, lease or other acquisition of all or substantially all of the assets of such Person or indirectly by purchase or other acquisition of all or substantially all of the capital stock of such other Person), or sell, transfer or otherwise assign (in one transaction or a series of transactions) all or substantially all of Transferor's assets (or capital stock) to any other Person other than the acquisition of the Pool Receivables and Related Assets pursuant to the Sale Agreement and the sale of an interest in the Pool Receivables and Related Assets hereunder. -41- 49 (l) Pool Receivables Not to be Evidenced by Promissory Notes. No Transaction Party will take any action to cause or permit any Pool Receivable to become evidenced by any "instrument" (as defined in the applicable UCC) , except in connection with the collection of any such Pool Receivable which is overdue provided that the original of such instrument is delivered to the Administrator, duly endorsed. (m) Net Receivables Balance. Transferor shall not permit the Net Pool Balance to be less than an amount equal to the sum of (i) the Transferee's Total Investment plus (ii) the Required Reserve at any time when the Borrowing Availability is less than $30,000,000 SECTION 7.04 Separate Corporate Existence of Transferor. Each Transaction Party hereby acknowledges that Transferee and the Administrator are entering into the transactions contemplated hereby in reliance upon Transferor's identity as a legal entity separate from WestPoint and its other Affiliates. Therefore, each Transaction Party shall take all steps specifically required by this Agreement or reasonably required by the Administrator to continue Transferor's identity as a separate legal entity and to make it apparent to third Persons that Transferor is an entity with assets and liabilities distinct from those of its WestPoint and Affiliates, and is not a division of WestPoint or any other Person. Without limiting the foregoing, each Transaction Party will take such actions as shall be required in order that: (i) Transferor will be a limited purpose corporation whose primary activities are restricted in its certificate of incorporation to purchasing or otherwise acquiring from the Originators, owning, holding, granting security interests, or selling interests, in Receivables in the Receivables Pool and Related Assets, entering into agreements for the selling or transferring and servicing of the Receivables Pool, and conducting such other activities as it deems necessary or appropriate to carry out its primary activities; (ii) Not less than one member of Transferor's Board of Directors (the "Independent Director") shall be an individual who is not at such time, and shall not have been at any time during the preceding three years (and is not an associate, as defined below, of), (x) a director, officer, employee or affiliate of WestPoint or any of its subsidiaries or affiliates, or of any major creditor (as hereinafter defined) thereof, or (y) the direct, indirect or beneficial owner at the time of such individual's appointment as an Independent Director or at any time thereafter while serving as an Independent Director, of -42- 50 common stock of WestPoint, or (z) a relative of any person described in the foregoing clauses (x) or (y). For purposes of this paragraph (ii), (A) the term "major creditor" shall mean a financial institution to which WestPoint or any of its subsidiaries or affiliates has outstanding indebtedness for borrowed money in a sum sufficiently large as would reasonably be expected to influence the judgment of the Independent Director adversely to the interest of Transferor when its interests are adverse to those of WestPoint or any of its subsidiaries or affiliates, (B) the term "affiliate of a person" means a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified, and (C) the term "associate," when used to indicate a relationship with any person, means (1) a corporation or organization of which such person is an officer, director or partner or is, directly or indirectly, the beneficial owner of ten percent or more of any class of equity securities, (2) any trust or other estate in which such person serves as trustee or in a similar capacity, and (3) any spouse, parent, sibling, child, niece, nephew or cousin of such person or any spouse of any of the foregoing. (iii) The certificate of incorporation of Transferor shall provide that (a) at least one member of Transferor's Board of Directors shall be an Independent Director, (b) Transferor shall not, without the affirmative vote of 100% of the members of its Board of Directors, institute proceedings to be adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against it, or file a petition seeking or consent to reorganization or relief under any applicable federal or state law relating to bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction whether now or hereinafter in effect, or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or similar official) of Transferor or a substantial part of its property, or make any assignment for the benefit of creditors, or admit in writing its inability to pay its debts generally as they become due, or take corporate action in furtherance of any such action, and (c) the provisions described in clauses (a) and (b) of this paragraph (iii), cannot be amended without the prior written consent of the Independent Director; -43- 51 (iv) The Independent Director shall not at any time serve as a trustee in bankruptcy for Transferor or any Affiliate thereof; (v) Any employee, consultant or agent of Transferor will be compensated from Transferor's funds for services provided to Transferor. Transferor will not engage any agents other than its attorneys, auditors and other professionals, and a servicer and any other agent contemplated by the Transaction Documents for the Receivables Pool, which servicer will be fully compensated for its services by payment of the Servicer's Fee, and certain organizational expenses in connection with the formation of Transferor; (vi) Transferor will contract with Servicer to perform for Transferor all operations required on a daily basis to service the Receivables Pool. Transferor will pay Servicer the Servicer's Fee pursuant hereto. Transferor will not incur any material indirect or overhead expenses for items shared with WestPoint (or any other Affiliate thereof) which are not reflected in the Servicer's Fee. To the extent, if any, that Transferor (or any other Affiliate thereof) share items of expenses not reflected in the Servicer's Fee, for legal, auditing and other professional services and directors' fees, such expenses will be allocated to the extent practical on the basis of actual use or the value of services rendered, and otherwise on a basis reasonably related to the actual use or the value of services rendered, it being understood that WestPoint shall pay all expenses relating to the preparation, negotiation, execution and delivery of the Transaction Documents, including, without limitation, legal, rating agency and other fees; (vii) Transferor's operating expenses will not be paid by any other Transaction Party or other Affiliate of Transferor; (viii) Transferor will have its own stationery; (ix) The books of account, financial reports and corporate records of Transferor will be maintained separately from those of WestPoint and each other Affiliate of Transferor; -44- 52 (x) Any financial statements of any Transaction Party or Affiliate thereof which are consolidated to include Transferor will contain detailed notes clearly stating that (A) all of Transferor's assets are owned by Transferor, and (B) Transferor is a separate corporate entity with its own separate creditors that will be entitled to be satisfied out of Transferor's assets prior to any value in Transferor becoming available to Transferor's equity holders; and the accounting records and the published financial statements of WestPoint or any of its Affiliates will clearly show (which, solely in the case of published financial statements, may be by footnote) that, for accounting purposes, the Pool Receivables and Related Assets have been sold by the Originators to the Transferor; (xi) Transferor's assets will be maintained in a manner that facilitates their identification and segregation from those of WestPoint and the other Affiliates; (xii) Each Affiliate of Transferor will strictly observe corporate formalities in its dealings with Transferor, and, except as permitted pursuant to this Agreement with respect to Collections, funds or other assets of Transferor will not be commingled with those of any of its Affiliates; (xiii) No Affiliate of Transferor will maintain joint bank accounts with Transferor or other depository accounts with Transferor to which any such Affiliate (other than in its capacity as the Servicer hereunder or under the Sale Agreement) has independent access; (xiv) No Affiliate of Transferor shall, directly or indirectly, name Transferor or enter into any agreement to name Transferor as a direct or contingent beneficiary or loss payee on any insurance policy covering the property of any Affiliate of Transferor; (xv) Each Affiliate of Transferor will maintain arm's length relationships with Transferor, and each Affiliate of Transferor that renders or otherwise furnishes services or merchandise to Transferor will be compensated by Transferor at market rates for such services or merchandise; -45- 53 (xvi) No Affiliate of Transferor will be, nor will it hold itself out to be, responsible for the debts of Transferor or the decisions or actions in respect of the daily business and affairs of Transferor. WestPoint and Transferor will immediately correct any known misrepresentation with respect to the foregoing and they will not operate or purport to operate as an integrated single economic unit with respect to each other or in their dealing with any other entity; (xvii) Transferor will keep correct and complete books and records of account and minutes of the meetings and other proceedings of its stockholder and board of directors, as applicable, and the resolutions, agreements and other instruments of Transferor will be continuously maintained as official records by Transferor; and (xviii) Each of Transferor, on the one hand, and each Originator, on the other hand, will conduct its business solely in its own corporate name and in such a separate manner so as not to mislead others with whom they are dealing; provided that, subject to Section 8.03(a), Servicer may service the Pool Receivables in its own name. ARTICLE VIII ADMINISTRATION AND COLLECTION SECTION 8.01 Designation of Servicer. (a) WestPoint as Initial Servicer. The servicing, administering and collection of the Pool Receivables shall be conducted by the Person designated as Servicer hereunder from time to time in accordance with this Section 8.01. Until the Administrator, on Transferee's behalf, gives to WestPoint a Successor Notice, WestPoint is hereby designated as, and hereby agrees to perform the duties and obligations of, Servicer pursuant to the terms hereof. (b) Successor Notice: Servicer Transfer Events. Upon the occurrence and during the continuance of a Liquidation Event, the Administrator may, by written notice to WestPoint (a "Successor Notice"), designate a new Servicer (a "Servicer Transfer Event"). Upon WestPoint's receipt of a Successor Notice, WestPoint agrees that it will terminate its activities as Servicer hereunder in a manner that the Administrator believes will facilitate the transition of the performance of such activities to the new Servicer, and the Administrator (or its designee) shall assume -46- 54 each and all of WestPoint's obligations to service and administer the Pool Receivables, on the terms and subject to the conditions herein set forth, and WestPoint shall use its best efforts to assist the Administrator (or its designee) in assuming such obligations. Without limiting the foregoing, each of WestPoint and Transferor agrees, at its expense, to use its best efforts to provide the new Servicer with access (including, to the extent necessary licenses, sub-licenses and/or assignments of contracts), whether or not at the offices and properties of WestPoint, to all computer software (including its servicing software, NMC, and its claims software, CHICOR), necessary or useful in collecting or billing Receivables, solely for use in collecting and billing Pool Receivables. (c) Subcontracts. Servicer may, without the prior consent of the Administrator, subcontract with any other Person for servicing, administering or collecting an immaterial amount of the Pool Receivables, provided that Servicer shall remain liable for the performance of the duties and obligations of Servicer pursuant to the terms hereof and such subservicing arrangement may be terminated at the Administrator's request, on Transferee's behalf, at anytime after a Successor Notice has been given. SECTION 8.02 Duties of Servicer. (a) Appointment; Duties in General. Each of Transferor, Transferee and the Administrator hereby appoints the Servicer, as from time to time designated pursuant to Section 8.01, as its agent to enforce its rights and interests in and under the Pool Receivables, the Related Assets and the related Contracts. Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect each Pool Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. (b) Allocation of Collections; Segregation. Servicer shall segregate and set aside for the account of Transferor and Transferee their respective allocable shares of the Collections of Pool Receivables in accordance with Section 1.03. If instructed by the Administrator, on Transferee's behalf, after the occurrence of a Liquidation Event, Servicer shall segregate and deposit into the Concentration Account, Transferee's share of Collections of Pool Receivables, on the second Business Day following receipt by Servicer of such Collections in immediately available funds. (c) Modification of Receivables. So long as no Liquidation Event and no Unmatured Liquidation Event shall have occurred and be continuing, -47- 55 WestPoint, while it is Servicer, may, in accordance with the Credit and Collection Policy, (i) extend the maturity or adjust the Unpaid Balance of any Defaulted Receivable as WestPoint may reasonably determine to be appropriate to maximize Collections thereof, and (ii) adjust the Unpaid Balance of any Receivable to reflect the reductions or cancellations described in the first sentence of Section 3.02(a). (d) Documents and Records. Each Transaction Party shall deliver to Servicer, and Servicer shall hold in trust for Transferor and Transferee in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) that evidence or relate to Pool Receivables. (e) Certain Duties to Transferor. Servicer shall in accordance with Section 1.03, turn over to Transferor (i) that portion of Collections of Pool Receivables representing Transferor's undivided percentage interest therein and (ii) the Collections of any Receivable which is not a Pool Receivable. Servicer, if other than WestPoint or any other Transaction Party or Affiliate thereof, shall, as soon as practicable upon demand, deliver to Transferor all documents, instruments and records in its possession that evidence or relate to Receivables of Transferor other than Pool Receivables, and copies of documents, instruments and records in its possession that evidence or relate to Pool Receivables, whereupon Transferor shall hold such documents, instruments and records in trust for the benefit of itself and Transferee in accordance with their respective interests therein. (f) Termination. Servicer's authorization under this Agreement shall terminate upon the Final Payout Date. (g) Power of Attorney. Transferor hereby grants to Servicer an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of Transferor all steps which are necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by Transferor or transmitted or received by Transferee (whether or not from Transferor) in connection with any Pool Receivable. SECTION 8.03 Rights of the Administrator. (a) Notice to Obligors. At any time when a Liquidation Event or a Servicer Transfer Event has occurred and is continuing, the Administrator may notify the Obligors of Pool Receivables, or any of them, of the ownership of the Asset Interest by Transferee. -48- 56 (b) Notice to Lock-Box Banks and Concentration Bank. The Administrator is hereby authorized, upon the occurrence of a Liquidation Event or a Servicer Transfer Event, to give notice to the Lock-Box Banks as provided in the Lock-Box/Collection Account Agreements, of the transfer to the Administrator of dominion and control over the lock-boxes and related accounts to which the Obligors of Pool Receivables make payments. Transferor and Servicer hereby transfer to the Administrator, effective when the Administrator shall give such notice, the exclusive dominion and control over such lock-boxes and accounts, and shall take any further action that the Administrator may reasonably request to effect such transfer. (c) Rights on Servicer Transfer Event. At any time following the designation of a Servicer other than WestPoint pursuant to Section 8.01: (i) The Administrator may direct the Obligors of Pool Receivables, or any of them, to pay all amounts payable under any Pool Receivable directly to the Administrator or its designee. (ii) Any Transaction Party shall, at the Administrator's request and at such Transaction Party's expense, give notice of Transferee's ownership and security interests in the Pool Receivables to each Obligor of Pool Receivables pursuant to Section 8.03(a) and direct that payments be made directly to the Administrator or its designee. (iii) Each Transaction Party shall, at the Administrator's request, (A) assemble all of the documents, instruments and other records (including, without limitation, computer programs, tapes and disks) which evidence the Pool Receivables, the Related Assets and the related Contracts, or which are otherwise necessary or desirable to collect such Pool Receivables, and make the same available to the successor Servicer at a place selected by the Administrator, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections in a manner acceptable to the Administrator and promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the successor Servicer. (iv) Each Transaction Party and Transferee hereby authorizes the Administrator, on Transferee's behalf, and grants to the Administrator an irrevocable power of attorney (which -49- 57 shall terminate on the Final Payout Date), to take any and all steps in such Transaction Party's name and on behalf of such Transaction Party and Transferee which are necessary or desirable, in the determination of the Administrator, to collect all amounts due under any and all Pool Receivables, including, without limitation, endorsing any Transaction Party's name on checks and other instruments representing Collections and enforcing such Pool Receivables and the related Contracts. SECTION 8.04 Responsibilities of Transaction Parties. Anything herein to the contrary notwithstanding: (a) Contracts. Each Transaction Party shall remain responsible for performing all of its obligations (if any) under the Contracts related to the Pool Receivables and under the related agreements to the same extent as if the Asset Interest had not been sold hereunder, and the exercise by the Administrator or its designee of its rights hereunder shall not relieve any Transaction Party from such obligations. (b) Limitation of Liability. The Administrator and Transferee shall not have any obligation or liability with respect to any Pool Receivables, Contracts related thereto or any other related agreements, nor shall any of them be obligated to perform any of the obligations of any Transaction Party or any Originator or any Affiliate thereof. SECTION 8.05 Further Action Evidencing Transfers and Reinvestments. (a) Further Assurances. Each Transaction Party agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action that the Administrator or its designee may reasonably request in order to perfect, protect or more fully evidence the Transfers hereunder and the resulting Asset Interest, or to enable Transferee or the Administrator or its designee to exercise or enforce any of their respective rights hereunder or under any Transaction Document in respect thereof. Without limiting the generality of the foregoing, each Transaction Party will: (i) upon the reasonable request of the Administrator, execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate; and -50- 58 (ii) mark its computer systems and records which store information relating to and which evidence such Pool Receivables and related Contracts with a legend, acceptable to the Administrator, evidencing that the Asset Interest has been sold in accordance with this Agreement. (b) Additional Financing Statements; Performance by Administrator. Each Transaction Party hereby authorizes the Administrator, on Transferee's behalf, or its designee to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Pool Receivables and the Related Assets now existing or hereafter arising in the name of any Transaction Party. If any Transaction Party fails to promptly execute and deliver within 10 days to the Administrator, on Transferee's behalf, any financing statement or continuation statement or amendment thereto or assignment thereof reasonably requested by the Administrator, on Transferee's behalf, each Transaction Party hereby authorizes the Administrator, on Transferee's behalf, to execute such statement on behalf of such Transaction Party. If any Transaction Party fails to perform any of its agreements or obligations under this Agreement, the Administrator or its designee may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the reasonable expenses of the Administrator or its designee incurred in connection therewith shall be payable by the Transaction Parties as provided in Section 14.05. (c) Continuation Statements; Opinion. Without limiting the generality of Section 8.05(a), Transferor will, not earlier than six (6) months and not later than three (3) months prior to the fifth anniversary of the date of filing of the financing statements referred to in Section 5.01(e) or any other financing statement filed pursuant to this Agreement or in connection with any Transfer hereunder, if the Final Payout Date shall not have occurred: (i) execute and deliver and file or cause to be filed an appropriate continuation statement with respect to such financing statement; and (ii) deliver or cause to be delivered to the Administrator an opinion of the counsel for Transaction Parties, in form and substance reasonably satisfactory to the Administrator, confirming and updating the opinions delivered pursuant to Section 5.01(h) (to the extent such opinion relates to the validity of the security interest created hereunder) and Section 5.01(j) to the effect that the Asset Interest hereunder continues to be a valid and perfected ownership or security interest, subject to no other Liens of record except as provided herein or otherwise permitted hereunder. -51- 59 ARTICLE IX SECURITY INTEREST SECTION 9.01 Grant of Security Interest. To secure all obligations of Transferor arising in connection with this Agreement and each other Transaction Document, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent, including, without limitation, all Indemnified Amounts, payments on account of Collections received or deemed to be received and fees, in each case pro rata according to the respective amounts thereof, Transferor hereby assigns and pledges to the Administrator and its successors and assigns, for the benefit of the Secured Parties, and hereby grants to the Administrator, for the benefit of the Secured Parties, a security interest in, all of Transferor's right, title and interest now or hereafter existing in, to and under (a) all the Pool Receivables and Related Assets (and including specifically any undivided interest therein retained by Transferor hereunder), (b) the Sale Agreement and the other Transaction Documents and (c) all proceeds of any of the foregoing. SECTION 9.02 Further Assurances. The provisions of Section 8.05 shall apply to the security interest granted under Section 9.01 as well as to the Transfers, Reinvestments and all the Asset Interests hereunder. SECTION 9.03 Remedies. Upon the occurrence of a Liquidation Event, the Administrator shall have, with respect to the collateral granted pursuant to Section 9.01, and in addition to all other rights and remedies available to the Administrator under this Agreement and the other Transaction Documents or other applicable law, all the rights and remedies of a secured party upon default under the UCC. ARTICLE X LIQUIDATION EVENTS SECTION 10.01 Liquidation Events. The occurrence and continuation of any of the following events shall be "Liquidation Events" hereunder: (a) (i) Servicer (if any Transaction Party or Affiliate thereof is Servicer) shall fail to perform or observe any term, covenant or agreement that is an obligation of Servicer hereunder (other than as referred to in clause (ii) below or in other paragraphs of this Section 10.01) and such failure shall remain unremedied for five (5) Business Days or (ii) Servicer or Transferor shall fail to make any payment or -52- 60 deposit to be made by it hereunder when due in respect of Earned Discount or the Transferee's Total Investment or interest accruing at the Default Rate, or any Transaction Party shall fail to observe, perform or comply with Section 7.02 or (iii) Servicer or Transferor shall fail to make any payment or deposit to be made by it hereunder other than as described in the foregoing clause, (ii) and such failure shall remain unremedied for three (3) Business Days; or (b) (i) Any representation or warranty made or deemed to be made by any Transaction Party (or any of its officers) under this Agreement (other than any representation or warranty set forth in Sections 6.01 (k), (l) and (o)) or any other Transaction Document or other information or report delivered pursuant hereto or thereto shall prove to have been false or incorrect in any material respect when made; or (ii) any representation or warranty made or deemed to be made by any Transaction Party (or any of its officers) in Sections 6.01 (k), (l) and (o) shall prove to have been false or incorrect in any material respect when made and such inaccuracy remains unremedied for five (5) Business Days; or (c) Any Transaction Party shall fail to perform or observe any term, covenant or agreement contained in this Agreement or any of the other Transaction Documents (other than as described in Section 10.01(a)) on its part to be performed or observed and any such failure shall remain unremedied for five (5) Business Days; or (d) WestPoint or any other Originator shall (1) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness when the aggregate unpaid principal amount is in excess of $10,000,000, when and as the same shall become due and payable or (2) fail to observe or perform any term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any Indebtedness (including any guaranty of such Indebtedness) if the effect of any failure referred to in this clause (2) is to cause such Indebtedness to become due prior to its stated maturity; or (ii) Transferor shall (1) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness when and as the same shall become due and payable or (2) fail to observe or perform any term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any Indebtedness (including any guaranty of such Indebtedness) if the effect of any failure referred to in this clause (2) is to cause, or permit the holder or holders of such Indebtedness or a trustee on its or their behalf (with or without the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due prior to its stated maturity; or -53- 61 (e) An Event of Bankruptcy shall have occurred with respect to Servicer, any Originator or any Transaction Party or any Subsidiary of any of them; or (f) The Dilution Ratio at any Cut-Off Date exceeds 5.25%; or (g) The Default Ratio at any Cut-Off Date exceeds 1.0%; or (h) The Delinquency Ratio at any Cut-Off Date exceeds 1.25%; or (i) On any Settlement Date, after giving effect to the payments made under Section 3.01(c), (i) the Asset Interest exceeds 100% or (ii) sum of the Aggregate Outstandings exceeds the Transfer Limit and in each case, such excess remains unremedied for three (3) Business Days; or (j) The Borrowing Availability shall equal less than $30,000,000 at any time when the Net Pool Balance is less than the sum of (i) Transferee's Total Investment, plus (ii) the Required Reserve; or (k) Any Transaction Party is subject to a Change in Control other than as permitted under the Credit Agreement; or (l) The Internal Revenue Service shall file notice of a lien pursuant to Section 6323 of the Internal Revenue Code with regard to any of the Pool Receivables or Related Assets and such lien shall not have been released within seven (7) days, or the Pension Benefit Guaranty Corporation shall, or shall indicate its intention to, file notice of a lien pursuant to Section 4068 of the Employee Retirement Income Security Act of 1974 with regard to any of the Pool Receivables or Related Assets; or (m) the Servicer, any Originator or Transferor shall make any material and adverse change in the policies as to origination of Receivables or in the Credit and Collection Policy, except with the prior written consent of the Administrator; or (n) the Administrator, on behalf of Transferee, for any reason, does not have a valid, perfected first priority interest in the Pool Receivables and the Related Assets; or -54- 62 (o) (i) a final judgment or judgments shall be rendered against WestPoint or any other Originator for the payment of money with respect to which an aggregate amount in excess of $10,000,000 is not covered by insurance and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of WestPoint or such Originator to enforce any such judgment; or (ii) a final judgment or judgments shall be rendered against Transferor for the payment of money; or (p) any of the following events or conditions, if such event or condition could reasonably be expected to have a Material Adverse Effect: (i) any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, shall exist with respect to any Plan, or any lien shall arise on the assets of any Consolidated Party or any ERISA Affiliate in favor of the PBGC or a Plan; (ii) an ERISA Event shall occur with respect to a Single Employer Plan, which is, in the reasonable opinion of the Administrator, likely to result in the termination of such Plan for purposes of Title IV of ERISA; (iii) an ERISA Event shall occur with respect to a Multiemployer Plan or Multiple Employer Plan, which is, in the reasonable opinion of the Administrator, likely to result in (A) the termination of such Plan for purposes of Title IV of ERISA, or (B) any Consolidated Party or any ERISA Affiliate incurring liability in connection with a withdrawal from, reorganization of (within the meaning of Section 4241 of ERISA), or insolvency or (within the meaning of Section 4245 of ERISA) such Plan; or (iv) any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility shall occur which may subject any Consolidated Party or any ERISA Affiliate to any liability under Section 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which any Consolidated Party or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability; or (q) an Event of Default shall occur under the Sale Agreement. SECTION 10.02 Remedies. (a) Optional Liquidation. Upon the occurrence of a Liquidation Event (other than a Liquidation Event described in Section 10.01(e)), the Administrator shall, at the request, or may with the consent, of Transferee, by notice to Transferor declare the Termination Date to have occurred and the Liquidation Period to have commenced. -55- 63 (b) Automatic Liquidation. Upon the occurrence of a Liquidation Event described in Section 10.01(e), the Termination Date shall occur and the Liquidation Period shall commence automatically. (c) Additional Remedies. Upon any Termination Date pursuant to this Section 10.02, no Transfers or Reinvestments thereafter will be made, and the Administrator, the Transferee and Wachovia shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of each applicable jurisdiction and other applicable laws, which rights shall be cumulative. ARTICLE XI THE ADMINISTRATOR SECTION 11.01 Authorization and Action. Pursuant to agreements entered into with the Administrator, Transferee has appointed and authorized the Administrator (or its designees) to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrator by the terms hereof, together with such powers as are reasonably incidental thereto. SECTION 11.02 Administrator's Reliance, Etc. The Administrator and its directors, officers, agents or employees shall not be liable for any action taken or omitted to be taken by it or them in good faith under or in connection with the Transaction Documents (including, without limitation, the servicing, administering or collecting of Pool Receivables as Servicer pursuant to Section 8.01), except for its or their own breach of the applicable terms of the Transaction Documents or its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, the Administrator: (a) may consult with legal counsel (including counsel for Transferor), independent certified public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to Transferee or any other holder of any interest in Pool Receivables and shall not be responsible to Transferee or any such other holder for any statements, warranties or representations made by any Transaction Party in or in connection with any Transaction Document; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Transaction Document on the part of any Transaction Party or to inspect the property (including the books and records) of any Transaction Party; (d) shall not be responsible to Transferee or any other holder of any interest in Pool Receivables for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Transaction Document; and (e) shall incur no liability -56- 64 under or in respect of this Agreement by acting upon any notice (including notice by telephone where permitted herein), consent, certificate or other instrument or writing (which may be by facsimile or telex) in good faith believed by it to be genuine and signed or sent by the proper party or parties. SECTION 11.03 Wachovia and Affiliates. Wachovia and any of its Affiliates may generally engage in any kind of business with any Transaction Party or any obligor, any of their respective Affiliates and any Person who may do business with or own securities of any Transaction Party or any Obligor or any of their respective Affiliates, all as if Wachovia was not the Administrator, and without any duty to account therefor to Transferee or any other holder of an interest in Pool Receivables, but in any event subject to Section 14.07. ARTICLE XII ASSIGNMENT OF PURCHASER'S INTEREST SECTION 12.01 Restrictions on Assignments. (a) No Transaction Party may assign its rights, or delegate its duties hereunder or any interest herein without the prior written consent of the Administrator. Transferee may not assign its rights hereunder (although it may delegate its duties hereunder to the extent expressly indicated herein) or the Asset Interest (or any portion thereof) to any Person without the prior written consent of Transferor, which consent shall not be unreasonably withheld; provided, however, that Transferee may assign all or any part of its rights and interests in the Transaction Documents, together with all or any part of its interest in the Asset Interest, to any Liquidity Bank, Wachovia, or any Affiliate thereof, or to any "bankruptcy remote" special purpose entity, the business of which is administered by Wachovia or any Affiliate thereof (which assignee shall then be subject to this Article XII). The Administrator agrees to discuss the addition of any party as a Liquidity Bank with Transferor prior to such addition. (b) Transferor agrees to advise the Administrator within five (5) Business Days after notice to Transferor of any proposed assignment by Transferee of the Asset Interest (or any portion thereof), not otherwise permitted under Section 12.01(a), of Transferor's consent or non-consent to such assignment, and if it does not consent, the reasons therefor. If Transferor does not consent to such assignment, Transferee may immediately or at any time thereafter assign such Asset Interest (or portion thereof) to any Person or Persons permitted under Section 12.01(a). -57- 65 SECTION 12.02 Rights of Assignee. Upon the assignment by Transferee in accordance with this Article XII, the assignee receiving such assignment shall have all of the rights of Transferee with respect to the Transaction Documents and the Asset Interest (or such portion thereof as has been assigned). SECTION 12.03 Terms and Evidence of Assignment. Any assignment of the Asset Interest (or any portion thereof) to any Person which is otherwise permitted under this Article XII shall be upon such terms and conditions as Transferee and the assignee may mutually agree, and may be evidenced by such instrument(s) or document(s) as may be satisfactory to Transferee, the Administrator and the assignee. ARTICLE XIII INDEMNIFICATION SECTION 13.01 Indemnities by Transferor. (a) General Indemnity. Without limiting any other rights which any such Person may have hereunder or under applicable law, Transferor hereby agrees to indemnify each of Wachovia, both individually and as the Administrator, Transferee, the Liquidity Banks, the Liquidity Agent, each of their respective Affiliates, and all successors, transferees, participants and assigns and all officers, directors, shareholders, controlling persons, employees and agents of any of the foregoing (each an "Indemnified Party"), forthwith on demand, from and against any and all damages, losses, claims, liabilities, judgments and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them arising out of or relating to the Transaction Documents or the ownership or funding of the Asset Interest or in respect of any Pool Receivable or any Contract, excluding, however, (a) resulting from gross negligence or willful misconduct on the part of such Indemnified Party or (b) recourse (except as otherwise specifically provided in this Agreement) to Transferor for non-payment of the Pool Receivables due to credit problems of the Obligors thereof. Without limiting the foregoing, Transferor shall indemnify each Indemnified Party for Indemnified Amounts arising out of or relating to: (i) the transfer by any Transaction Party of any interest in any Receivable other than the transfer of Receivables and related property by the Originators to Transferor pursuant to the Sale Agreement, the transfer of an Asset Interest to Transferee pursuant to this Agreement and the grant of a security interest to Transferee pursuant to Section 9.01; -58- 66 (ii) any representation or warranty made by any Transaction Party (or any of its officers) under or in connection with this Agreement or any other Transaction Document or any other information or report delivered by or on behalf of any Transaction Party pursuant hereto or thereto, which shall have been false, incorrect or misleading in any material respect when made or deemed made or delivered, as the case may be; (iii) the failure by any Transaction Party to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract, or the nonconformity of any Pool Receivable or the related Contract with any such applicable law, rule or regulation; (iv) the failure to vest and maintain vested in Transferee and its assigns (or the Administrator on behalf of Transferee) an undivided percentage ownership or security interest, to the extent of the Asset Interest, in the Receivables in, or purporting to be in, the Receivables Pool, free and clear of any Lien, other than any Lien arising solely as a result of an act of Transferee or the Administrator, whether existing at the time of any Transfer or Reinvestment of such Asset Interest or at any time thereafter; (v) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool, whether at the time of any Transfer or Reinvestment or at any time thereafter; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy) of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including, without limitation, a defense based on such Receivables or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services; -59- 67 (vii) any matter described in clause (i) or (ii) of Section 3.02(a); (viii) any failure of any Transaction Party, as Servicer or otherwise, to perform its duties or obligations in accordance with the provisions of Article III or Article VIII; (ix) any products liability claim arising out of or in connection with merchandise or services that are the subject of any Pool Receivable; (x) any claim of breach by any Transaction Party of any related Contract with respect to any Pool Receivable; (xi) any tax or governmental fee or charge (but not including taxes upon or measured by net income), all interest and penalties thereon or with respect thereto, and all out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of any Asset Interest, or any other interest in the Pool Receivables or in any goods which secure any such Pool Receivables; and (xii) amounts in respect of Dilution to the extent such amounts exceed the Dilution Reserve. (b) Contest of Tax Claim; After-Tax Basis. If any Indemnified Party shall have notice of any attempt to impose or collect any tax or governmental fee or charge for which indemnification will be sought from any Transaction Party under Section 13.01(a)(xi), such Indemnified Party shall give prompt and timely notice of such attempt to Transferor and Transferor shall have the right, at its expense, to participate in any proceedings resisting or objecting to the imposition or collection of any such tax, governmental fee or charge. Indemnification hereunder shall be in an amount necessary to make the Indemnified Party whole after taking into account any tax consequences to the Indemnified Party of the payment of any of the aforesaid taxes (including any deduction) and the receipt of the indemnity provided hereunder or of any refund of any such tax previously indemnified hereunder, including the effect of such tax, deduction or refund on the amount of tax measured by net income or profits which is or was payable by the Indemnified Party. -60- 68 (c) Contribution. If for any reason the indemnification provided above in this Section 13.01 is unavailable to an Indemnified Party or is insufficient to hold an Indemnified Party harmless, then Transferor shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and Transferor on the other hand but also the relative fault of such Indemnified Party as well as any other relevant equitable considerations. SECTION 13.02 Indemnities by Servicer. Without limiting any other rights which any Indemnified Party may have hereunder or under applicable law, the Servicer hereby agrees to indemnify each of the Indemnified Parties forthwith on demand, from and against any and all Indemnified Amounts awarded against or incurred by any of them arising out of or relating to the Servicer's performance of, or failure to perform, any of its obligations under or in connection with any Transaction Document, or any representation or warranty made by Servicer (or any of its officers) under or in connection with any Transaction Document or any other information or report delivered by or on behalf of Servicer, which shall have been false, incorrect or misleading in any material respect when made or deemed made or delivered, as the case may be, or the failure of the Servicer to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract. Notwithstanding the foregoing, in no event shall any Indemnified Party be awarded any Indemnified Amounts (a) to the extent determined by a court of competent jurisdiction to have resulted from gross negligence or willful misconduct on the part of such Indemnified Party or (b) recourse for (except as otherwise specifically provided in this Agreement) to Servicer for non-payment of the Pool Receivables due to the credit problems of the Obligors thereof. If for any reason the indemnification provided above in this Section 13.02 (and subject to the exceptions set forth therein) is unavailable to an Indemnified Party or is insufficient to hold an Indemnified Party harmless, then the Servicer shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and the Servicer on the other hand but also the relative fault of such Indemnified Party as well as any other relevant equitable considerations. -61- 69 ARTICLE XIV MISCELLANEOUS SECTION 14.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by any Transaction Party therefrom shall in any event be effective unless the same shall be in writing and signed by (a) each Transaction Party, the Administrator and the Transferee (with respect to an amendment), or (b) the Administrator and the Transferee (with respect to a waiver or consent by them) or any Transaction Party (with respect to a waiver or consent by it), as the case may be, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The parties acknowledge that, before entering into such an amendment or granting such a waiver or consent, Transferee may also be required to obtain the approval of some or all of the Liquidity Banks or to obtain confirmation from certain rating agencies that such amendment, waiver or consent will not result in a withdrawal or reduction of the ratings of the Commercial Paper Notes. SECTION 14.02 Notices, Etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by express mail or courier or by certified mail, postage prepaid, or by facsimile, to the intended party at the address or facsimile number of such party set forth on Schedule 14.02 or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, (a) if personally delivered or sent by express mail or courier or if sent by certified mail, when received, and (b) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means. SECTION 14.03 No Waiver; Remedies. No failure on the part of the Administrator, any Affected Party, any Indemnified Party, Transferee or any other holder of the Asset Interest (or any portion thereof) to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Without limiting the foregoing, Wachovia, individually, and as Administrator, and each Liquidity Bank is hereby authorized by Transferor, upon the occurrence of a Liquidation Event, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand provisional or final) at any time held and other indebtedness at any -62- 70 time owing by Wachovia and such Liquidity Bank to or for the credit or the account of Transferor, now or hereafter existing under this Agreement, to amounts owed to the Administrator, any Affected Party, any Indemnified Party or Transferee, or their respective successors and assigns. SECTION 14.04 Binding Effect; Survival. This Agreement shall be binding upon and inure to the benefit of each Transaction Party, the Administrator, Transferee and their respective successors and assigns, and the provisions of Section 4.02 and Article XIII shall inure to the benefit of the Affected Parties and the Indemnified Parties, respectively, and their respective successors and assigns; provided, however, nothing in the foregoing shall be deemed to authorize any assignment not permitted by Section 12.01. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Final Payout Date. The rights and remedies with respect to any breach of any representation and warranty made by Transferor pursuant to Article VI and the indemnification and payment provisions of Article XIII and Sections 4.02, 14.05, 14.06, 14.07, 14.08 and 14.15 shall be continuing and shall survive any termination of this Agreement. SECTION 14.05 Costs, Expenses and Taxes. In addition to its obligations under Article XIII, Transaction Parties jointly and severally agree to pay on demand: (a) all costs and expenses incurred by the Administrator, any Liquidity Bank, the Transferee and their respective Affiliates in connection with: (i) the negotiation, preparation, execution and delivery of this Agreement and the other Transaction Documents, any amendment of or consent or waiver under any of the Transaction Documents which is requested or proposed by any Transaction Party (whether or not consummated), or the enforcement by any of the foregoing Persons of, or any actual breach of, this Agreement or any of the other Transaction Documents, including, without limitation, the reasonable fees and expenses of counsel to any of such Persons incurred in connection with any of the foregoing or in advising such Persons as to their respective rights and remedies under any of the Transaction Documents in connection with any of the foregoing, and (ii) the administration (including periodic auditing as provided for herein) of this Agreement and the other Transaction Documents, including, without limitation, all reasonable -63- 71 out-of-pocket expenses (including reasonable fees and expenses of independent accountants), incurred in connection with any review of any Transaction Party's books and records either prior to the execution and delivery hereof or pursuant to Section 7.01(c)(iii) or 7.02(j) provided that such amounts shall not include any amount relating to the general overhead expenses of any party hereto; and (b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or the other Transaction Documents (and the Transaction Parties, jointly and severally, agree to indemnify each Indemnified Party against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees). SECTION 14.06 No Proceedings. Servicer hereby agrees that it will not institute against Transferor, or join any Person in instituting against Transferor, and each Transaction Party, Servicer and Wachovia (individually or as Administrator) each hereby agrees that it will not institute against Transferee, or join any other Person in instituting against Transferee, any insolvency proceeding (namely, any proceeding of the type referred to in the definition of Event of Bankruptcy) so long as any Commercial Paper Notes issued by Transferee shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such Commercial Paper Notes shall have been outstanding. SECTION 14.07 Confidentiality of Transferor Information. (a) Confidential Transferor Information. Each party hereto (other than the Transaction Parties) acknowledges that certain of the information provided to such party by or on behalf of the Transaction Parties in connection with this Agreement and the transactions contemplated hereby is or may be confidential, and each such party severally agrees that, unless WestPoint shall otherwise agree in writing, and except as provided in Section 14.07(b), such party will not disclose to any other person or entity any nonpublic information provided by any Transaction Party or obtained by such party in connection herewith, including: (i) any information regarding, or copies of, any nonpublic financial statements, reports, schedules and other information furnished by any Transaction Party to Transferee or the Administrator (A) prior to the date hereof in connection with such party's due diligence relating to the Transaction Parties and the transactions contemplated hereby, or (B) pursuant to Section 3.01, 5.01, 6.01(i), 7.01(c) or 7.02, or -64- 72 (ii) any other information regarding any Transaction Party which is designated by any Transaction Party to such party in writing as confidential, (the information referred to above, whether furnished by any Transaction Party or any attorney for or other representative thereof (each a "Transferor Information Provider"), is collectively referred to as the "Transferor Information"); provided, however, "Transferor Information" shall not include any information which is or becomes generally available to the general public or to such party on a non-confidential basis from a source other than any Transferor Information Provider, or which was known to such party on a non-confidential basis prior to its disclosure by any Transferor Information Provider. (b) Disclosure. Notwithstanding Section 14.07(a), each party may disclose any Transferor Information: (i) to any of such party's independent attorneys, consultants and auditors, and to any dealer or placement agent for Transferee's commercial paper, who (A) in the good faith belief of such party, have a need to know such Transferor Information, and (B) are informed by such party of the confidential nature of the Transferor Information and the terms of this Section 14.07 and has agreed, verbally or otherwise, to be bound by the provisions of this Section 14.07, (ii) to any Liquidity Bank, any actual or potential assignees of, or participants in, any rights or obligations of Transferee, any Liquidity Bank or the Administrator under or in connection with this Agreement who has agreed to be bound by the provisions of this Section 14.07, (iii) to any rating agency that maintains a rating for Transferee's commercial paper or is considering the issuance of such a rating, for the purposes of reviewing the credit of Transferee in connection with such rating, (iv) to any other party to this Agreement (and any independent attorneys, consultants and auditors of such party), for the purposes contemplated hereby, -65- 73 (v) as may be required by any municipal, state, federal or other regulatory body having or claiming to have jurisdiction over such party, in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party, (vi) subject to Section 14.07(c), in the event such party is legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand or similar process) to disclose such Transferor Information, or (vii) in connection with the enforcement of this Agreement or any other Transaction Document. In addition, Transferee and the Administrator may disclose on a "no name" basis to any actual or potential investor in Transferee's Commercial Paper Notes information regarding the nature of this Agreement, the basic terms hereof (including without limitation the amount and nature of Transferee's commitment and Transferee's Total Investment with respect to the Asset Interest and any other credit enhancement provided by any Transaction Party hereunder), the nature, amount and status of the Pool Receivables, and the current and/or historical ratios of losses to liquidations and/or outstandings with respect to the Receivables Pool. (c) Legal Compulsion. In the event that any party hereto (other than any Transaction Party) or any of its representatives is requested, or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process), to disclose any of the Transferor Information, such party will (or will cause its representative to): (i) provide WestPoint with prompt written notice so that (A) WestPoint may seek a protective order or other appropriate remedy, or (B) WestPoint may, if it so chooses, agree that such party (or its representatives) may disclose such Transferor Information pursuant to such request or legal compulsion; and (ii) unless WestPoint agrees that such Transferor Information may be disclosed, make a timely objection to the request or compulsion to provide such Transferor Information on the basis that such Transferor Information is confidential and subject to the agreements contained in this Section 14.07. -66- 74 In the event such protective order or remedy is not obtained, or WestPoint agrees that such Transferor Information may be disclosed, such party will furnish only that portion of the Transferor Information which (in such party's good faith judgment) is legally required to be furnished and will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be afforded the Transferor Information. (d) This Section 14.07 shall survive termination of this Agreement. SECTION 14.08 Confidentiality of Program Information. (a) Confidential Information. Each party hereto acknowledges that Wachovia, individually and in its capacity as Administrator, regards the structure of the transactions contemplated by this Agreement to be proprietary, and each such party agrees that: (i) it will not disclose without the prior consent of Wachovia (other than to the directors, employees, auditors, counsel or affiliates (collectively, "representatives") of such party, each of whom shall be informed by such party of the confidential, nature of the Program Information (as defined below) and of the terms of this Section 14.08), (A) any information regarding the pricing in, or copies of, this Agreement, any other Transaction Document or any transaction contemplated hereby or thereby, (B) any information regarding the organization, business or operations of Transferee generally or the services performed by Wachovia as the Administrator for Transferee, or (C) any information which is furnished by Wachovia to such party and which is designated by Wachovia to such party in writing or otherwise as confidential or not otherwise available to the general public (the information referred to in clauses (A), (B) and (C) is collectively referred to as the "Program Information"); provided, however, that such party may disclose any such Program Information (I) to any other party to this Agreement (and any independent attorneys, consultants and auditors of any such party) for the purposes contemplated hereby, (II) as may be required by any municipal, state, federal or other regulatory body having or claiming to have jurisdiction over such party, including, without limitation, the Securities and Exchange Commission, (III) in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party, (IV) subject to Section 14.08(c), in the event such party is legally compelled (by interrogatories, requests for information or copies, subpoena, -67- 75 civil investigative demand or similar process) to disclose any such Program Information, or (V) in financial statements as required by GAAP; (ii) it will use the Program Information solely for the purposes of evaluating, administering and enforcing the transactions contemplated by this Agreement and making any necessary business judgments with respect thereto; and (iii) it will, upon demand, return (and cause each of its representatives to return) to Wachovia, all documents or other written material received from Wachovia in connection with (a)(i)(B) or (C) above and all copies thereof made by such party which contain the Program Information. (b) Availability of Confidential Information. This Section 14.08 shall be inoperative as to such portions of the Program Information which are or become generally available to the public or such party on a non-confidential basis from a source other than Wachovia or were known to such party on a non-confidential basis prior to its disclosure by Wachovia. (c) Legal Compulsion to Disclose. In the event that any party or anyone to whom such party or its representatives transmits the Program Information is requested or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) other than in the case of clause (II) of the proviso to Section 14.08(a)(i) to disclose any of the Program Information, such party will (i) provide Wachovia with prompt written notice so that Wachovia may seek a protective order or other appropriate remedy and/or, if it so chooses, agree that such party may disclose such Program Information pursuant to such request or legal compulsion; and (ii) unless Wachovia agrees that such Program Information may be disclosed, make a timely objection to the request or confirmation to provide such Program Information on the basis that such Program Information is confidential and subject to the agreements contained in this Section 14.08. -68- 76 In the event that such protective order or other remedy is not obtained, or Wachovia agrees that such Program Information may be disclosed, such party will furnish only that portion of the Program Information which (in such party's good faith judgment) is legally required to be furnished and will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Program Information. (d) Survival. This Section 14.08 shall survive termination of this Agreement. SECTION 14.09 Captions and Cross References. The various captions (including, without limitation, the table of contents) in this Agreement are provided solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement. Unless otherwise indicated, references in this Agreement to any Section, Appendix, Schedule or Exhibit are to such Section of or Appendix, Schedule or Exhibit to this Agreement, as the case may be, and references in any Section, subsection, or clause to any subsection, clause or subclause are to such subsection, clause or subclause of such Section, subsection or clause. SECTION 14.10 Integration. This Agreement and the other Transaction Documents contain a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire understanding among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings. SECTION 14.11 GOVERNING LAW. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF PURCHASER IN THE RECEIVABLES OR RELATED PROPERTY IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 14.12 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT -69- 77 DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL NOT BE TRIED BEFORE A JURY. SECTION 14.13 CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. EACH PARTY HEREBY ACKNOWLEDGES AND AGREES THAT: (A) IT IRREVOCABLY (I) SUBMITS TO THE JURISDICTION, FIRST, OF ANY UNITED STATES FEDERAL COURT, AND SECOND, IF FEDERAL JURISDICTION IS NOT AVAILABLE, OF ANY GEORGIA STATE COURT, IN EITHER CASE SITTING IN FULTON COUNTY, GEORGIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, (II) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED ONLY IN SUCH GEORGIA STATE OR FEDERAL COURT AND NOT IN ANY OTHER COURT, (III) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING, (IV) CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SPECIFIED IN SECTION 14.02; AND (V) TO THE EXTENT ALLOWED BY LAW, AGREES THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION 14.13 SHALL AFFECT PURCHASER'S OR THE ADMINISTRATOR'S RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING ANY ACTION OR PROCEEDING AGAINST TRANSFEROR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS. (B) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, -70- 78 ATTACHMENT IN AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH THIS AGREEMENT. SECTION 14.14 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. SECTION 14.15 No Recourse Against Other Parties. The obligations of the Transferee under this Agreement are solely the corporate obligations of the Transferee. No recourse shall be had for the payment of any amount owing by the Transferee under this Agreement or for the payment by the Transferee of any fee in respect hereof or any other obligation or claim of or against the Transferee arising out of or based upon this Agreement, against Wachovia or against any employee, officer, director, incorporator or stockholder of the Transferee. For purposes of this Section 14.15, the term "Wachovia" shall mean and include Wachovia Bank, N.A. and all affiliates thereof and any employee, officer, director, incorporator, stockholder or beneficial owner of any of them; provided, however, that the Transferee shall not be considered to be an affiliate of the Wachovia for purposes of this paragraph. Each of the Transferor, the Servicer and the Administrative Agent agrees that the Transferee shall be liable for any claims that such party may have against the Transferee only to the extent the Transferee has excess funds after providing for payment of the Commercial Paper Notes and to the extent such assets are insufficient to satisfy the obligations of the Transferee hereunder, the Transferee shall have no liability with respect to any amount of such obligations remaining unpaid and such unpaid amount shall not constitute a claim against the Transferee. Any and all claims against the Transferee or the Administrative Agent shall be subordinate to the claims of the holders of Commercial Paper and the Liquidity Banks (other than the Administrator). [SIGNATURE PAGE FOLLOWS] -71- 79 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers, as of the date first above written. WPS RECEIVABLES CORPORATION, as Transferor By: /s/ Nelson Griffith ---------------------------------------------- Name: J. Nelson Griffith Title: Vice President/Assistant Treasurer WESTPOINT STEVENS INC., as initial Servicer By: /s/ Nelson Griffith ---------------------------------------------- Name: J. Nelson Griffith Title: Controller BLUE RIDGE ASSET FUNDING CORPORATION, as Transferee By: /s/ Victoria A. Dudley ---------------------------------------------- Name: Victoria A. Dudley Title: Attorney-In-Fact, Senior Vice President of Wachovia Bank, N.A. WACHOVIA BANK, N.A., as Administrator By: /s/ Victoria A. Dudley ---------------------------------------------- Name: Victoria A. Dudley Title: Senior Vice President EX-21 7 LIST OF SUBSIDIARIES OF WESTPOINT STEVENS INC 1 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% J.P. Stevens Enterprises, Inc. Delaware 100% Alamac Holdings Inc. Delaware 100% Liebhardt Inc. Delaware 100% WestPoint Stevens (Asia) Inc. British Virgin Islands 100% WestPoint Stevens (Japan) Inc. Japan 100% WestPoint Stevens Stores Inc. Georgia 100% WestPoint Stevens (UK) Limited England 100% WestPoint Stevens (Europe) Limited England 100% Lexward Properties Limited England 100% P.J. Flower Inc. New Jersey 100% DPC Associates Limited England & Wales 100% WPS Receivables Corporation Delaware 100% WPSI Inc. Delaware 100%
EX-23.1 8 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 WESTPOINT STEVENS INC. CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-69209, Form S-8 No. 333-63339, Form S-8 No. 33-85718, Form S-8 No. 33-95580 and Form S-8 No. 333-27913) pertaining to (i) the Retirement Savings Value Plan For Employees of WestPoint Stevens Inc. and Retirement Savings Value Plan For Employees of Liebhardt Inc., (ii) the 1995 Key Employee Stock Bonus Plan, (iii) the Retirement Savings Value Plan For Employees of WestPoint Stevens Inc., (iv) the 1995 Key Employee Stock Bonus Plan and (v) the Omnibus Stock Incentive Plan, respectively, of our report dated February 9, 1999, 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, 1998. /s/ Ernst & Young LLP Columbus, Georgia March 26, 1999 EX-27.1 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONSOLIDATED BALANCE SHEET FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 527 0 89,337 19,251 381,022 469,686 1,211,031 434,092 1,391,211 291,508 1,275,000 0 0 709 (488,161) 1,391,211 1,778,991 1,778,991 1,304,231 1,304,231 968 0 105,677 141,678 51,125 90,553 0 (50,621) 0 39,932 .69 .67
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