FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission File Number 1-6922
GUILFORD MILLS, INC.
___________________________________________________
(Exact name of Registrant as specified in its charter)
Delaware 13-1995928
------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
4925 West Market Street, Greensboro, N.C. 27407
-----------------------------------------------
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code - (336) 316-4000
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 ( )
Number of shares of common stock outstanding
at March 29, 1998 - 25,835,528
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Page 2
GUILFORD MILLS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 29,1998
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
The condensed consolidated financial statements included herein have
been prepared by Guilford Mills, Inc. (the "Company" or "Guilford"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The Condensed Consolidated Balance Sheet as of September 28, 1997
has been taken from the audited financial statements as of that date. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's latest annual report on Form 10-K for
the year ended September 28, 1997.
The condensed consolidated financial statements included herein reflect
all adjustments (none of which are other than normal recurring accruals) which
are, in the opinion of management, necessary for a fair presentation of the
information included. The following condensed consolidated financial statements
are included:
Consolidated Statements of Income for the twenty-six weeks ended March
29, 1998 and March 30, 1997
Consolidated Statements of Income for the thirteen weeks ended March
29, 1998 and March 30, 1997
Condensed Consolidated Balance Sheets as of March 29, 1998 and
September 28, 1997
Condensed Consolidated Statements of Cash Flows for the twenty-six
weeks ended March 29, 1998 and March 30, 1997
Condensed Notes to Consolidated Financial Statements
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Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Twenty-Six Weeks Ended March 29, 1998 and March 30, 1997
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------
MARCH 29, March 30,
1998 1997
-------------------------------------------------------------------------------------
NET SALES $ 441,825 $ 430,007
-------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods sold 357,740 351,111
Selling and administrative 51,578 47,375
-------------------------------------------------------------------------------------
409,318 398,486
-------------------------------------------------------------------------------------
OPERATING INCOME 32,507 31,521
INTEREST EXPENSE 5,609 9,334
OTHER EXPENSE, NET 244 2,059
-------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX PROVISION 26,654 20,128
INCOME TAX PROVISION 9,306 7,244
-------------------------------------------------------------------------------------
NET INCOME $ 17,348 $ 12,884
-------------------------------------------------------------------------------------
NET INCOME PER SHARE:
Basic $ .68 $ .59
Diluted .67 .56
-------------------------------------------------------------------------------------
DIVIDENDS PER SHARE $ .22 $ .20
-------------------------------------------------------------------------------------
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Page 4
Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Thirteen Weeks Ended March 29, 1998 and March 30, 1997
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
-----------------------------------------------------------------------------------------------
MARCH 29, March 30,
1998 1997
-----------------------------------------------------------------------------------------------
NET SALES $ 228,448 $ 219,144
-----------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods sold 184,674 178,097
Selling and administrative 25,954 24,132
-----------------------------------------------------------------------------------------------
210,628 202,229
-----------------------------------------------------------------------------------------------
OPERATING INCOME 17,820 16,915
INTEREST EXPENSE 2,993 4,162
OTHER EXPENSE, NET 97 1,216
-----------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX PROVISION 14,730 11,537
INCOME TAX PROVISION 5,097 4,062
-----------------------------------------------------------------------------------------------
NET INCOME $ 9,633 $ 7,475
-----------------------------------------------------------------------------------------------
NET INCOME PER SHARE:
Basic $ .38 $ .34
Diluted .37 .32
-----------------------------------------------------------------------------------------------
DIVIDENDS PER SHARE $ .11 $ .10
-----------------------------------------------------------------------------------------------
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Page 5
Guilford Mills, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 29, 1998 and September 28, 1997
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
----------------------------------------------------------------------------------------------------
MARCH 29, September 28,
1998 1997
(UNAUDITED)
----------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 14,995 $ 24,349
Accounts receivable, net 180,812 167,347
Inventories 163,646 141,898
Other current assets 11,754 15,023
----------------------------------------------------------------------------------------------------
Total current assets 371,207 348,617
Property, net 316,368 308,523
Other assets 102,668 72,656
----------------------------------------------------------------------------------------------------
Total assets $ 790,243 $ 729,796
----------------------------------------------------------------------------------------------------
LIABILITIES
Short-term borrowings $ 52,990 $ 6,677
Current maturities of long-term debt 11,832 12,542
Other current liabilities 128,083 115,424
----------------------------------------------------------------------------------------------------
Total current liabilities 192,905 134,643
Long-term debt 121,880 134,560
Deferred income taxes and other deferred liabilities 53,611 51,697
----------------------------------------------------------------------------------------------------
Total liabilities 368,396 320,900
----------------------------------------------------------------------------------------------------
STOCKHOLDERS' INVESTMENT
Preferred stock -- --
Common stock 655 655
Capital in excess of par 117,947 117,110
Retained earnings 356,326 344,656
Other stockholders' investment (53,081) (53,525)
----------------------------------------------------------------------------------------------------
Total stockholders' investment 421,847 408,896
----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' investment $ 790,243 $ 729,796
----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying condensed notes to consolidated financial
statements.
<PAGE>
Page 6
Guilford Mills, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Twenty-Six Weeks Ended March 29, 1998 and March 30, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
----------------------------------------------------------------------------------------------------------------
MARCH 29, March 30,
1998 1997
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $17,348 $ 12,884
Depreciation and amortization 32,232 31,523
Other adjustments to net income, net (2,478) (65)
Net changes in operating assets and liabilities (33,861) (30)
----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,241 44,312
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property (39,248) (24,468)
Additions to acquisition purchase price (17,000) --
Other investing activities, net 7,677 645
----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (48,571) (23,823)
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (repayments), net 46,307 (8,807)
Payment of long-term debt (13,374) (12,765)
Other financing activities, net (7,320) (2,209)
----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 25,613 (23,781)
----------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 363 (871)
----------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,354) (4,163)
EQUIVALENTS
----------------------------------------------------------------------------------------------------------------
BEGINNING CASH AND CASH EQUIVALENTS 24,349 31,448
ENDING CASH AND CASH EQUIVALENTS $14,995 $27,285
----------------------------------------------------------------------------------------------------------------
Noncash transactions:
Accrual of remaining acquisition purchase price $17,000 --
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Page 7
GUILFORD MILLS, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1998
(In thousands except share data)
(Unaudited)
1. Seasonal Fluctuations -- Results for any portion of a year are not
necessarily indicative of the results to be expected for a full year, due to
seasonal aspects of the textile industry.
2. Per Share Information -- The Company has adopted the provisions of Statement
of Financial Accounting No. 128, "Earnings Per Share", and therefore has
restated prior period earnings per share data to conform to this statement.
Basic earnings per share information has been computed by dividing net income by
the weighted average number of shares of common stock, par value $.02 per share,
outstanding during the periods presented. The average shares used in computing
basic net income per share for the twenty-six weeks ended March 29, 1998 and
March 30, 1997 were 25,448,000 and 21,760,000, respectively. The average shares
used in computing basic net income for the thirteen weeks ended March 29, 1998
and March 30, 1997 were 25,444,000 and 21,849,000, respectively.
Diluted earnings per share information also considers as applicable (i) any
dilutive effect for stock options and restricted stock grants and (ii) the
dilutive effect, if any, assuming that the Company's convertible debentures were
converted at the beginning of the respective reporting period, with earnings
being increased by the interest expense, net of income taxes, that would not
have been incurred had conversion taken place. The average shares used in
computing diluted net income per share for the twenty-six weeks ended March 29,
1998 and March 30, 1997 were 25,874,000 and 25,259,000, respectively. The
average shares used in computing diluted net income per share for the thirteen
week period ended March 29, 1998 and March 30, 1997 were 25,889,000 and
25,385,000, respectively.
The reconciliations of the numerator (income available to common
stockholders) and the denominator (average number of common shares outstanding)
of the earnings per share calculations for the thirteen weeks and twenty-six
weeks ended on March 29, 1998 and March 30, 1997, respectively, are as follows
(net income and share amounts in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TWENTY-SIX WEEKS ENDED
------------------------
March 29, March 30,
1998 1997
------------------------------ -----------------------------
NET NET
INCOME SHARES EPS INCOME SHARES EPS
BASIC EPS $17,348 25,448 $0.68 $12,884 21,760 $0.59
===== =====
ADD EFFECT OF DILUTIVE SECURITIES:
Options and Restricted Stock -- 426 -- 134
6% Convertible Debt -- -- 1,205 3,365
----------------------------- -----------------------------
DILUTED EPS $17,348 25,874 $0.67 $14,089 25,259 $0.56
============================== =============================
THIRTEEN WEEKS ENDED
---------------------
March 29, March 30,
1998 1997
------------------------------ -----------------------------
NET NET
INCOME SHARES EPS INCOME SHARES EPS
BASIC EPS $9,634 25,444 $0.38 $7,475 21,849 $0.34
===== =====
ADD EFFECT OF DILUTIVE SECURITIES:
Options and Restricted Stock -- 445 -- 171
6% Convertible Debt -- -- 603 3,365
----------------------------- ----------------------------
DILUTED EPS $9,634 25,889 $0.37 $8,078 25,385 $0.32
============================== =============================
</TABLE>
<PAGE>
Page 8
3. Inventories -- Inventories are carried at the lower of cost or market. Cost
is determined by using the LIFO (last-in, first-out) method for the majority of
inventories. Cost for all other inventories has been determined principally by
the FIFO (first-in, first-out) method.
Inventories at March 29, 1998 and September 28, 1997 consisted of the
following:
<TABLE>
<CAPTION>
<S> <C> <C>
March 29, September 28,
1998 1997
------------------ -----------------
Finished Goods $ 60,253 $ 53,404
Raw Materials and work in process 113,905 98,499
Manufacturing supplies 8,864 8,758
------------------ -----------------
Total inventories valued at FIFO cost 183,022 160,661
Less -- Adjustments to reduce FIFO cost to LIFO cost, net (19,376) (18,763)
------------------ ----------------
Total inventories $163,646 $141,898
================== =================
</TABLE>
4. Accumulated Depreciation -- Accumulated depreciation at March 29,
1998 and September 28, 1997 was $435,790 and $409,654, respectively.
5. Other Assets -- On February 28, 1998, the Company entered into an agreement
to accelerate the payment of the contingent purchase price provisions
pursuant to the Stock Purchase Agreement, dated January 12, 1996 between
Guilford Mills, Inc. and Bruno Hofmann. This resulted in recording $34
million of cost in excess of net assets acquired related to the acquisition
of Hofmann Laces, Ltd. which is being amortized on a straight line basis
over the remaining estimated life of 38 years. Intangible assets increased
from $19.1 million at September 28, 1997 to $52.6 million as of March 29,
1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ----------------------
Net sales for the six months ended March 29, 1998 were $441.8 million,
an increase of $11.8 million, or 2.7%, over net sales of $430.0 million for the
six months ended March 30, 1997. Net sales for the second quarter of fiscal 1998
were $228.4 million, an increase of $9.3 million, or 4.2%, over net sales of
$219.1 million for the comparable period of the prior year.
For the six months ended March 29, 1998, net sales in the apparel
market declined slightly to $163.0 million as compared to $163.7 million for the
same period of the prior year. For the quarter ended March 29, 1998, net sales
in the apparel market increased 3.2%, to $87.6 million compared to $84.9 million
in the previous year. Sales of elastics/intimate apparel, including lace
products, increased for the quarter and the six month period primarily due to
continued market penetration and strong shapewear sales to key customers. Sales
of swimwear products decreased for the quarter and increased for the six month
period. This quarter's decrease was attributable to a softening of demand in
certain geographical locations due to unfavorable weather conditions and due to
a shift in consumer demand from value added printed fabrics to textured solids.
Sales of ready to wear fabrics decreased for the quarter and for the six month
period due to the continued allocation of production capacity to home fashion
products as well as lower demand for high quality fashion stretch velvets.
<PAGE>
Page 9
Sales of worldwide automotive fabrics increased 5.5% for the six month
period ended March 29, 1998 to $172.1 million from $163.2 million for the
comparable period of the prior year. Sales of worldwide automotive fabrics
increased 7.3% for the second quarter of fiscal 1998 to $86.3 million as
compared to $80.4 million for the same quarter of the previous year. Automotive
sales in the United States and Mexico increased for the current quarter and for
the six month period due to increased sales of certain platforms, pricing
adjustments and increased RV and van market share. This was partially offset by
a decline in Japanese transplant sales due to trim level selections and
temporary delivery delays. Automotive sales in Europe increased for the second
quarter and decreased slightly for the six-month period. The increase, primarily
attributable to the introduction of new woven and circular knit technologies
through product diversification initiatives and an increase in European car
build, has been offset by pricing pressures and the continued strength of the
sterling relative to other key European currencies over the six month period.
Home fashion sales for the first half of fiscal 1998 increased 20.9% to
$75.2 million as compared to $62.2 million in the prior year. Home fashion sales
for the quarter increased by 14.8% to $36.4 million from $31.7 million in the
prior year. The increase for the quarter and for the six month period in home
fashion sales is significantly attributable to the success of the cotton jersey
knit sheeting program and the introduction of new comforter products. These
increases were partially offset by declines in window and shower curtains,
mattress tickings and furniture products.
Sales of Industrial/Specialty market fabrics for the six month period
ended March 29, 1998 declined 23.0% to $31.5 million from $40.9 million in the
comparable period of the prior year. Sales for the second quarter declined by
18.1% to $18.1 million as compared to $22.1 million for the second quarter of
the previous year. This decline in the quarter and the six month period is
primarily attributable to a decrease in the sales volume of hook and loop
closure fabrics due to a decline in market share of a customer's premium diaper
product and resourcing of the European business to a local supplier.
Gross margin for the first six months of fiscal 1998 increased to $84.1
million, or 19.0% of net sales, compared to $78.9 million, or 18.3% of net
sales, for the first six months of fiscal 1997. For the quarter ended March 29,
1998, gross margin increased to $43.8 million, or 19.2% of net sales, from $41.0
million, or 18.7% of net sales, for the same quarter a year ago. The gross
margin increase and the increase in margin as a percentage of sales for the
quarter and the six month period ended March 29, 1998 resulted from certain
increased sales volumes, continued emphasis on value added products, and product
mix and cost improvements, especially in raw material price and usage. These
productivity improvements have been partially offset by pricing pressure on
specific products due to the current economics of the Asian market and continued
pricing pressures from automotive OEM's.
Selling and administrative expenses increased to $51.6 million, or
11.7% of net sales, for the six months ended March 29, 1998, compared to $47.4
million, or 11.0% of net sales, for the same period a year ago. For the quarter
ended March 29, 1998, selling and administrative expenses were $26.0 million, or
11.4% of net sales, compared to $24.1 million, or 11.0% of net sales, for the
same quarter a year ago. The increase in selling and administrative expenses for
the quarter and the six month period ended March 29, 1998 was attributable to
certain design, marketing and research and development efforts related to new
products, new technologies and cooperative developments . This increase was also
attributable to sales volume and promotion related increases especially related
to retail home fashions.
Interest expense for the six months ended March 29, 1998 was $5.6
million compared to $9.3 million for the same period a year ago. For the quarter
ended March 29, 1998, interest expense was $3.0 million compared to $4.2 million
for the quarter ended March 30, 1997. The decrease in interest expense was
primarily attributable to the decrease in long term debt as a result of the
conversion of the convertible debt.
Other expense, net for the six months ended March 29, 1998 was $0.2
million compared to $2.1 million for the same period a year ago. For the quarter
ended March 29, 1998 other expense, net was $0.1 million compared to $1.2
million for the same prior year period. This decrease for the quarter and six
month period is primarily attributable to sales of property, other investments
and insurance recoveries.
<PAGE>
Page 10
Income tax expense for the first six months of 1998 was $9.3 million,
or 34.9% of income before income taxes, compared to $7.2 million, or 36.0% of
income before income taxes for the same period a year ago. The decrease in the
effective tax rate was primarily due to the statutory rate reduction in Europe,
lower effective state tax rates and the full year impact of certain income tax
credits.
Net income for the six months ended March 29, 1998 was $17.3 million,
or $.68 per basic share, compared to $12.9 million, or $.59 per basic share, for
the comparable period of the previous year. For the quarter ended March 29,
1998, net income was $9.6 million, or $.38 per basic share, compared to net
income of $7.5 million, or $.34 per basic share, for the same quarter a year
ago.
Liquidity and Capital Requirements
- ------------------------------------
At March 29, 1998, working capital was $178.3 million compared to $214.0
million at September 28, 1997. The decrease in working capital was due to the
increase in short term borrowings and current liabilities to fund seasonal
inventory requirements and the accelerated contingent payment for the
acquisition of Hofmann Laces. The Company maintains flexibility with respect to
its seasonal working capital needs through a committed revolving credit facility
of $150 million and its continued access to other traditional sources of funds,
including uncommitted lines of credit aggregating $275 million, and the ability
to receive advances against its factored accounts receivable. At March 29, 1998,
no borrowings were outstanding against the Company's $150 million credit
facility, and the Company's borrowing availability under its uncommitted bank
lines of credit was $166 million. Management believes that the Company's
financial position and operating performance will continue to provide the
Company with the ability to obtain necessary capital from the appropriate
financial markets.
Contingencies and Future Operations
- ------------------------------------
Since January 1992, the Company has been involved in discussions with the
United States Environmental Protection Agency ("EPA") regarding remedial actions
at its Gold Mills, Inc. ("Gold") facility in Pine Grove, Pennsylvania which was
acquired in October 1986. Between 1988 and 1990, the Company implemented a
number of corrective measures at the facility in conjunction with the
Pennsylvania Department of Environmental Resources and incurred approximately
$3.5 million in costs. Subsequently, through negotiations with the EPA, Gold
entered into a Final Administrative Consent Order with the EPA, effective
October 14, 1992. Pursuant to such order, Gold has performed (i) certain
measures designed to prevent any potential threats to the environment at the
facility and (ii) an investigation to fully determine the nature of any release
of hazardous substances at the facility. The Company has not received a response
to its report filed with the EPA. Upon receipt of EPA comments, Gold will
conduct a study to evaluate alternatives for any corrective action which may be
necessary at the facility. The failure of Gold to comply with the terms of the
Consent Order may result in the imposition of monetary penalties against Gold.
In the fourth quarter of 1992, a pre-tax charge of $8.0 million was provided for
the estimated future cost of the additional remediation.
During the fourth quarter of 1992, the Company also received a Notice of
Violation from the North Carolina Division of Environmental Management
concerning ground water contamination on or near one of its North Carolina
facilities. The Company has voluntarily agreed to allow the installation of
monitoring wells at the site but denies that such contaminants originated from
the Company's operations or property. An additional pre-tax charge of $1.3
million was provided in the fourth quarter of 1992 to reflect the estimated
future costs of monitoring this and other environmental matters including the
removal of underground storage tanks at the Company's facilities. The Company
has removed substantially all underground storage tanks at its facilities. At
March 29, 1998, environmental accruals amounted to $5.5 million of which $4.5
million is non-current and is included in other deferred liabilities in the
balance sheet.
The Company is also involved in various litigation arising in the ordinary
course of business. Although the final outcome of these legal and environmental
matters cannot be determined, based on the facts presently known, it is
management's opinion that the final resolution of these matters will not have a
material adverse effect on the Company's financial position or future results of
operations.
<PAGE>
Page 11
The Asian economy has recently experienced significant market and economic
uncertainties. While the fundamentals of our core businesses are sound, we
remain cautious about the impact, if any, that the Asian crisis may have on
certain sectors of our business.
The Year 2000 issue affecting most entities, including the Company, results
from the possible inability of internal and external computer systems and
applications to recognize and process data pertaining to years after 1999. Over
the last five years, the Company has committed significant resources to the
reengineering of its business processes and information systems. The education,
identification, evaluation, implementation and testing of changes to systems and
applications to achieve Year 2000 compliance within the Company's operational,
manufacturing and financial areas has been a part of this process. The internal
client server technology, which has been or will be implemented in all of the
Company's operating facilities before the turn of the century provides one of
the internal solutions to identified Year 2000 concerns. Engineering and systems
professionals are identifying and rectifying embedded manufacturing Year 2000
system concerns, if any. The Company has continued to work with its customers,
suppliers, and third party service providers to identify external weaknesses and
provide solutions. The Company expects to successfully implement any systems and
programming changes necessary prior to the turn of the century. While the
Company has not completed segregation of the specific costs related to
completion of the Year 2000 tasks, management does not believe that the cost of
such actions will have a material effect on the Company's results of operations
or financial condition. There can be no assurance, however, that there will not
be a delay in, or increased costs associated with the implementations of such
changes. There is also no guarantee that all of the systems of other companies
on which Guilford's systems rely will be timely converted.
Safe Harbor-Forward-Looking Statements
- ---------------------------------------
From time to time, the Company may publish forward-looking statements
relative to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements.
All statements other than statements of historical fact included in this
document, including, without limitation the statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are,
or may be deemed to be, forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Important factors
that could cause actual results to differ materially from those discussed in
such forward-looking statements include:
1. general economic factors including, but not limited to,
changes in interest rates, foreign currency translation
rates, consumer confidence, housing starts, trends in
disposable income, changes in consumer demand for goods
produced, and cyclical or other downturns
2. the overall level of automotive production and the
production of specific car models
3. fashion trends
4. technological advances
5. cost and availability of raw materials, labor and other
resources
6. domestic and foreign competition
7. domestic and foreign governmental regulations
and trade policies
8. reliance on significant customers
9. success of marketing, advertising and promotional campaigns
10. inability to achieve cost reductions through consolidation
and restructuring of acquired companies
<PAGE>
Page 12
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings. Reference is made to Item 3 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 28, 1997, which item is
incorporated herein by reference.
Items 2. - 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No.
(10)(a)* Amended and Restated Employment Agreement, dated February 25, 1998,
by and among Raschel Fashion Interknitting, Ltd., Hofmann Laces, Ltd.,
Curtains and Fabrics, Inc. and Bruno Hofmann.
(10)(b) Second Amendment to Stock Purchase Agreement, dated February 25,
1998, by and between Guilford Mills, Inc. and Bruno Hofmann.
*Items denoted with an asterisk represent a management contract or
compensatory plan or agreement.
(b) Reports on Form 8-K:
Not Applicable
<PAGE>
Page 13
SIGNATURES
----------
Pursuant to the requirements 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.
GUILFORD MILLS, INC.
(Registrant)
Date: May 13, 1998 By: /s/ Terrence E. Geremski
---------------------------------
Terrence E. Geremski
Executive Vice President/
Chief Financial Officer
<PAGE>
Page 14
SIGNATURES
----------
Pursuant to the requirements 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.
GUILFORD MILLS, INC.
(Registrant)
By: /s/ Terrence E. Geremski
Date: May 13, 1998 ------------------------
Terrence E. Geremski
Executive Vice President/
Chief Financial Officer
EXHIBIT (10)(A)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into this
25th day of February, 1998 by and among BRUNO HOFMANN (the "Employee"), and
RASCHEL FASHION INTERKNITTING, LTD. ("RFI"), HOFMANN LACES, LTD. ("HLL") and
CURTAINS AND FABRICS, INC. ("CFI"), each a New York corporation and wholly owned
subsidiary of Guilford Mills, Inc., a Delaware corporation ("Guilford") (RFI,
HLL and CFI referred to singularly as a "Company" and collectively as the
"Companies").
WITNESSETH:
-----------
WHEREAS, the Employee is a party to an Employment Agreement, dated
January 17, 1996 (the "Original Employment Agreement"), with the Companies,
pursuant to which the Employee is currently serving as the President and Chief
Executive Officer of each of the Companies; and
WHEREAS, as of the date hereof, Guilford has paid the Employee the
first installment of the Earnout Price, as such term is defined in the Second
Amendment to the Stock Purchase Agreement, dated as of the date hereof, by and
between the Employee and Guilford; and
WHEREAS, Guilford and the Employee desire to modify the terms of the
Original Employment Agreement and, to that end, to enter into this Amended and
Restated Employment Agreement which shall supersede and replace the Original
Employment Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Employment and Term. The Companies hereby employ the Employee, and
the Employee hereby accepts employment by the Companies, in the capacities and
on the terms and subject to the conditions set forth herein, for the period
commencing on the date hereof and ending on December 31, 2000, unless terminated
earlier as provided herein (the "Employment Period"). During the Employment
Period the Employee shall serve as the General Manager of the Companies and in
such capacity, except as otherwise provided herein, be the senior most executive
officer of the Companies and have charge over the conduct of the business and
affairs of the Companies; PROVIDED, HOWEVER, that the Employee's duties,
responsibilities and authority with respect to the Companies' intimate apparel
business shall be limited to supervising and managing (i) research and
development efforts and (ii) the selection and utilization of manufacturing
equipment; and, PROVIDED, FURTHER, that the Executive, as defined herein, may
from time to time during the Employment Period modify the scope of the
Employee's executive duties and responsibilities, provided such duties and
responsibilities remain within the Employee's area of experience. With respect
to all duties and responsibilities for and on behalf of the Companies hereunder
during the Employment Period, the Employee shall be subject to the oversight and
direction of the Board of Directors of each Company and Guilford's Chief
Executive Officer and Chief Operating Officer or either such person's designee
provided such designee is a senior manager of Guilford (the foregoing persons
collectively hereinafter referred to as the "Executive"). Notwithstanding
anything to the
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<PAGE>
contrary contained herein, the Employee shall not, without the express written
consent of the Executive:
(i) Make any material change in the nature or operation of the
business of the Companies;
(ii) Cause or authorize any Company to borrow any money, enter
into any agreement for the borrowing of money, or to grant, or agree to grant,
any security interest in the assets of any Company;
(iii) Cause any Company to sell, lease or otherwise transfer
any of its assets, to incur any obligation or liability (absolute, accrued,
contingent or otherwise) or to enter into any transaction, except in the
ordinary course of business of such Company and consistent with past practices;
(iv) Cause any Company to make a loan or advance or to acquire
the stock, securities, assets or obligations of any person, except in the
ordinary course of business of such Company and consistent with past practices;
(v) Cause any Company to alter or revise any of its accounting
principles, procedures, methods or practices;
(vi) Cause any Company to pay or prepay any long term debt or
obligation, except in the ordinary course of business of such Company and
consistent with past practice or as required pursuant to the terms thereof;
(vii) Cause or authorize any Company to enter into any
agreement with, or commitment to, himself (including, without limitation, any
amendment or modification of this Agreement), or any Related Person, as defined
herein. The term "Related Person" shall mean (A) a Near Relative, as defined
herein, (B) a trust for the
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benefit of the Employee, or a Near Relative or (C) any corporation, partnership,
joint venture, or other entity or enterprise owned or controlled by any
combination of the Employee, or any Near Relative. The term "Near Relative"
shall mean a spouse, child, grandchild, sibling, parent, grandparent, uncle,
aunt, niece, nephew, or first cousin of the Employee or the spouse of any of the
foregoing;
(viii) Cause any Company to commence any litigation or
arbitration proceeding or settle any dispute of a material nature;
(ix) Cause any Company to take or implement any measure
relating in any way to the compliance by the Companies (in connection with the
operations of the Companies or the use of the real property leased, owned or
otherwise used or occupied by any Company) with applicable Environmental Laws,
as defined in the Stock Purchase Agreement; or
(x) Cause or authorize any Company to make any capital
expenditure outside of the standard approval and authorization process
applicable to capital expenditures made by Guilford's businesses;
provided, however, that nothing contained in this
Agreement shall be construed to prevent the Board of any Company from taking or
authorizing any action which would limit the authority and control of the
Employee over the operations of any Company, if the Board deems the taking or
authorization of such action is necessary or appropriate in order for the Board
to satisfy its fiduciary obligations under applicable law.
(b) While the performance of the Employee's duties may require
the Employee to travel, nothing herein shall require the Employee to maintain
his principal office in other than Cobleskill, New York or New York, New York.
The Employee
<PAGE>
4
further agrees to serve the Companies faithfully and to the best of his ability
in the capacity of General Manager, devoting all of his business time,
attention, knowledge, energy and skills to the performance and discharge of
his duties and responsibilities and agrees not to engage in any other business
activity whatsoever during the Employment Period, except pursuant to the terms
of the Consulting Agreement, dated January 17, 1996, between the Employee and
Guilford (the "Consulting Agreement"). The Employee shall be entitled to take
paid vacation periods during the Employment Period in accordance with the then
current policy applicable to executive employees of Guilford.
2. Compensation. In consideration for the Employee's execution and
delivery of this Agreement and his performance of the services to be rendered
hereunder, the Companies (as a group) agree to pay to the Employee a salary
during the Employment Period at the rate of Three Hundred and Five Thousand
Dollars ($305,000.00) per annum (the "Base Salary"), payable in equal monthly
installments, in accordance with Guilford's customary payroll practices, subject
to withholding for Federal, state and local income taxes, FICA, FUTA and other
legally required withholding taxes and contributions.
3. Termination.
------------
(a) Death. In the event of the death of the Employee during
the Employment Period, this Agreement shall automatically terminate and the
Companies shall have no further obligations hereunder, except to pay the
Employee's beneficiary or legal representative any amounts or provide any
benefits to which the Employee may otherwise have been entitled prorated to the
date of death.
(b) Disability. In the event of the Disability, as defined
herein, of the Employee during the Employment Period, the Companies shall have
the right, upon
5
<PAGE>
written notice to the Employee, to terminate the Employee's employment
hereunder, effective upon the giving of such notice (or such later date
as shall be specified in such notice). Upon such termination, the Companies
shall have no further obligations hereunder, except to pay the Employee any
amounts or provide the Employee any benefits to which the Employee may otherwise
have been entitled but for the Employee's Disability prorated to the effective
date of termination. The term "Disability" shall mean the Employee's inability
to perform effectively the substantial portion of his duties hereunder because
of a medical determination of physical or mental disability continuing for a
period of three consecutive months or for shorter periods aggregating three
months during any 12 month period during the Employment Period. Any such medical
determination of Disability shall be in writing and shall be from a medical
doctor acceptable to both the Executive and the Employee.
(c) Cause. The Companies shall have the right, upon written
notice to the Employee, to terminate the Employee's employment under this
Agreement for Cause, as defined herein, effective upon the giving of such notice
(or such later date as shall be specified in such notice), and the Companies
shall have no further obligations hereunder, except to pay the Employee any
amounts or provide the Employee any benefits to which the Employee may otherwise
have been entitled prorated to the effective date of termination. The term
"Cause" shall mean any of the following: (i) the Employee's material breach of,
or willful failure or refusal to perform and discharge, his duties,
responsibilities or obligations under this Agreement, after written notice to
the Employee by the Executive, specifying in reasonable detail the manner in
which the Employee has breached or refused to perform and discharge his duties
hereunder that is not cured or
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<PAGE>
waived, (ii) the Employee's refusal, after written notice, to obey any
reasonable direction of the Executive given in good faith and consistent with
the terms of this Agreement that is not cured or waived, (iii) a determination
by the Executive in exercise of his good faith business judgment that the
Employee has taken acts which constitute fraud, theft, dishonesty, embezzlement
or other misappropriation of property of any Company or unlawful appropriation
of a corporate opportunity of any Company or (iv) the conviction of or the
entry of a plea of nolo contendere by the Employee for any felony or any
misdemeanor involving moral turpitude.
The Employee's termination of employment with any Company for whatever
reason shall automatically terminate his employment with all other Companies.
4. Restrictive Covenants; Consulting Agreement.
--------------------------------------------
(a) The Employee acknowledges that he will have access at the
highest level to, and the opportunity to acquire knowledge of, valuable
confidential and proprietary information relating to the businesses of the
Companies, and, accordingly, the Employee hereby undertakes and covenants that
at all times during the Employment Period and, at the Companies' option (which
may be exercised by the giving of written notice on or before the effective date
of termination of the Employment Period) and subject to the payment of the
Post-Termination Amount, as defined herein, for a period of three years from the
date of termination of the Employment Period (the "Restrictive Period") for any
reason, the Employee shall:
(i) refrain, alone, or as a partner, member, employee
or agent of any partnership, or as an officer, employee, agent, director,
stockholder or investor (except as to not more than 5% of the outstanding stock
of any corporation the securities
7
<PAGE>
of which are traded on a securities exchange or in the over-the-counter market)
of any corporation, or in any other individual or representative capacity, from
directly or indirectly owning, managing, operating or controlling, or
participating in the ownership, management, operation or control of, or working
for or providing consulting services to (except pursuant to the Consulting
Agreement or Section 4(b) hereof), or permitting the use of his name by, any
business or activity in competition with the Business, as defined herein, within
the Territory, as defined herein; and
(ii) refrain, without first obtaining the written
consent of the relevant Company, from directly or indirectly: (x) soliciting,
enticing, persuading or inducing any employee, consultant, agent, independent
contractor or other person (other than secretarial and clerical personnel)
who is employed by any Company on the date the Employment Period terminates or
who has been employed by any Company during the 12 month period preceding such
termination date to become employed by any person, firm or corporation other
than any Company or approach any such person for any of the foregoing reasons
or (y) soliciting, for himself or others, any person or entity which is a
customer of the Business on the date the Employment Period terminates or which
had been a customer of the Business during the 12 month period preceding such
termination date.
The term "Post-Termination Amount" shall mean the
annual amount of One Hundred and One Thousand Six Hundred and Sixty Seven
Dollars ($101,667.00), payable during the Restrictive Period in equal monthly
installments in accordance with the normal payroll practices of the Companies
from time to time in effect, subject to applicable withholding requirements.
If, after exercising their option to
8
<PAGE>
have the covenants contained in this Section 4 apply during the Restrictive
Period, the Companies cease paying the Post-Termination Amount, then the
Employee shall no longer be subject to such covenants and the Companies shall
have no liability to the Employee for terminating the payment of the
Post-Termination Amount. The term "Business" shall mean the business of
developing, knitting, weaving, dyeing and finishing, designing, printing,
selling or marketing yarns, fabrics or lace for apparel or home furnishings
applications and any other business or businesses in which any of the Companies
were engaged during the Employment Period. The term "Territory" shall mean: the
United States of America, its territories and possessions, the Republic of
Mexico and Canada or any other territory that any Company conducted business in
during the Employment Period. The Employee hereby acknowledges that the Business
is national and international in scope and that the Companies have customers
throughout the Territory. Accordingly, the Employee acknowledges and agrees that
the scope of the covenants in this Section 4 are reasonable and necessary in
order to protect the interests of the Business sought to be protected hereby.
(b) At the Companies' option (which may be exercised by the
giving of written notice on or before the effective date of termination of the
Employment Period) and subject to the payment of the Post-Termination Amount as
set forth in Section 4(a) hereof, the Employee shall furnish during the
Restrictive Period to the Companies and their Affiliates such advisory and
consulting services within his area of experience, as may be assigned or
delegated to him from time to time by the Executive, PROVIDED, HOWEVER, that the
Employee shall only be required to provide such advisory and consulting services
during that part of the Restrictive Period in which Charles A. Hayes is
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<PAGE>
serving as Chairman of the Board of Guilford. The Employee shall furnish any
such consulting services faithfully and to the best of his ability on such dates
and at such times during the Restrictive Period as are reasonably requested by
the Executive. If, after exercising their option to have the Employee provide
consulting services as set forth in this Section 4(b) during the Restrictive
Period, the Companies cease paying the Post-Termination Amount, then the
Employee shall no longer be obligated to provide any advisory or consulting
services and the Companies shall have no liability to the Employee for
terminating the payment of the Post-Termination Amount.
5. Other Benefits.
---------------
(a) The compensation provided for hereunder shall be exclusive
of and in addition to any benefits which are or may become available to the
Employee, when and as the same are or become available to other employees of the
Companies according to his and their respective positions under, and pursuant to
the terms of, any incentive compensation plan, pension plan, group life
insurance plan, hospitalization plan, medical services plan, disability plan or
any other employee benefit plan, program or policy provided by any Company or
Guilford during the Employment Period, taking into account all service of the
Employee from and after April 1, 1976, the date upon which the Employee
organized the Business of the Companies or their predecessors, to the extent
that such service is otherwise taken into consideration under the applicable
plan, for purposes of determining whether the Employee has satisfied any service
requirement for eligibility, participation and any other purposes under the
plans (other than for purposes of benefit accruals). Any such plan, program or
policy shall be subject to amendment or termination, and the benefits thereunder
revocable, at any time to the extent, and in the
10
<PAGE>
same manner, as they may be subject to amendment, termination and revocation
with respect to other employees of the Companies.
(b) Notwithstanding anything herein to the contrary, the
Employee shall be eligible during the Employment Period to participate in
Guilford's 1991 Stock Option Plan and 1989 Restricted Stock Plan. During the
Employment Period, the Employee shall participate in Guilford's Short-Term
Incentive Compensation Plan for Key Managers, as such plan is amended from time
to time (the "Incentive Plan"), pursuant to which (based upon such plan's
current terms and conditions) the Employee shall be eligible to receive an
annual cash bonus (the "Bonus") in an amount equal to the product of the Base
Salary and .75 (the "Multiplier"), with the Multiplier subject to adjustment, in
accordance with a schedule applicable to all participants in the Incentive Plan,
based upon Guilford's actual fiscal year earnings per share results relative to
an earnings per share target established by Guilford's Board of Directors for
all participants in the Incentive Plan. The Bonus, if any, for any fiscal year
of Guilford ending during the Employment Period shall be payable at the same
time bonuses under the Incentive Plan are generally paid to employees of
Guilford; provided, however, that the Employee shall only be entitled to receive
a Bonus if he is then employed by the Companies at the time of payment, except
(i) for any Bonus to be paid with respect to Guilford's 2000 fiscal year, (ii)
if the Employee dies or becomes Disabled after the end of the Guilford fiscal
year for which the Bonus is being paid or (iii) the Employee dies or becomes
Disabled during any year of the Employment Period in which case any Bonus
payable for such year shall be pro-rated based on the number of days during such
year the Employee had been employed by the Companies prior to death or
Disability.
11
6. Expense Reimbursement. The Companies agree to reimburse the Employee
for all reasonable and necessary travel, entertainment and other Business
expenses, including first class air travel, which are incurred by the Employee
during the Employment Period, and during the Restrictive Period if the Companies
elect to have the Employment provide advisory and consulting services pursuant
to Section 4(b) hereof, in connection with the performance of the Employee's
duties hereunder, provided that such expenses are itemized and presented to the
Companies in writing in a form then prescribed by the Companies in their general
policies relating to reimbursement of employee business expenses.
7. Reports, Etc. All reports, recommendations, advice, records,
documents and other materials, whether written or in any other media, and all
copies thereof, prepared or obtained by the Employee or coming into his
possession prior to or during the course of his employment with any Company
which relate to any Company, any Affiliate, as defined herein, or the Business
shall be the sole and exclusive property of the Companies or Affiliates, as the
case may be, and the Employee shall, at the end of his employment with the
Companies, or at the request of any Company, Affiliate or the Executive during
such employment, promptly deliver all such materials to the Companies,
Affiliates or the Executive. Such reports and the information contained therein
shall be and remain the sole property of the Companies or the Affiliates, as the
case may be.
8. Confidentiality; Intellectual Property.
---------------------------------------
(a) Recognizing that the knowledge of the Companies' and its
Affiliates' customers, suppliers, agents, business methods, systems, plans,
policies, trade
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<PAGE>
secrets, knowledge, know-how, information, materials or documents are valuable
and unique assets, the Employee agrees that, during and after the Employment
Period, he shall not divulge, furnish or make accessible to any person, firm,
corporation or other entity for any reason or purpose whatsoever, directly or
indirectly, or use for the benefit of himself or others except in connection
with the Business of any Company, any such knowledge or information. The
provisions of this Paragraph 8 shall not apply to information which is or shall
become generally known to the public (except by reason of the Employee's breach
of his obligations hereunder) and information which the Employee is required to
disclose by law or by an order of a court of competent jurisdiction. If the
Employee is required by law or a court order to disclose such information, he
shall notify the Companies of such requirement and provide the Companies an
opportunity (if they so elect) to contest such law or court order.
(b) The Employee acknowledges that all developments, including, without
limitation, inventions, patentable or otherwise, discoveries, improvements,
patents, trade secrets, designs, reports, computer software, flow charts and
diagrams, procedures, data, documentation, ideas and writings and applications
thereof relating to the Business or planned business of the Companies or any
Affiliate that, alone or jointly with others, the Employee may conceive, create,
make, develop, reduce to practice or acquire during the Employment Period
(collectively, the "Developments") are the sole and exclusive property of the
applicable Company and the Employee hereby assigns to such Company all of his
right, title and interest in and to all such Developments. The Employee agrees
that he will promptly and fully disclose all future material Developments to the
Executive and, at any time upon request and at the expense of the Companies,
execute all
13
<PAGE>
instruments and papers and perform all acts whatsoever, which are
necessary or desired by the Companies or Guilford to vest and confirm in the
Companies or Guilford, as the case may be, and their respective successors,
assigns and nominees, fully and completely, all rights created or contemplated
by this section and which may be necessary or desirable to enable the Companies
or Guilford, as the case may be, and their respective successors, assigns and
nominees, to secure and enjoy the full benefits and advantages thereof.
The provisions of this Section 8 shall survive the termination of the
Employment Period for any reason whatsoever.
For purposes of this Agreement, the term "Affiliate" shall mean any
entity controlled by, controlling or under common control with any Company
including, without limitation, the Companies' ultimate parent.
9. Notices. All notices and other communications hereunder shall be
given in writing by hand delivery, sent via facsimile to the facsimile number
below with telephone confirmation, sent by overnight carrier or registered or
certified mail, return receipt requested, postage prepaid, addressed to the
party to receive the same at his or its respective address set forth below, or
at such other address as may from time to time be designated by any party to the
others hereunder in accordance with this Section 9:
If to the Employee:
Bruno Hofmann
c/o Hofmann Laces, Ltd.
Post Office Box 611
104 North Grand Street
Cobleskill, New York 12043
Fax No. (518) 234-8269
14
<PAGE>
With a copy to:
Hodgson, Russ, Andrews, Woods & Goodyear, LLP
6 Fremont Street
Gloversville, New York 12078
Attn: Mario J. Papa Esq.
Fax No. (518) 725-9875
If to the Companies:
c/o Guilford Mills, Inc.
4925 West Market Street
Greensboro, North Carolina 27407
Attn: Terrence E. Geremski
Fax No. (336) 316-4056
With a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Jeffrey E. Tabak, Esq.
Fax No. (212) 310-8007
All such notices and communications hereunder shall be effective and
deemed given if sent by overnight carrier, the next day; if sent via facsimile,
upon telephone confirmation of receipt; if mailed, when received, as evidenced
by the acknowledgment of receipt issued with respect thereto by the applicable
postal authorities, and, if delivered by hand, when received, as evidenced by
the signed acknowledgment of receipt of the person to whom such notice or
communication shall have been addressed.
10. Remedies. The parties hereby acknowledge and agree that the
executive and managerial services to be rendered by the Employee hereunder are
of such a special, unique and extraordinary character and that such services
have a peculiar value impossible of replacement and for the loss of which any
Company cannot be reasonably or adequately compensated in damages, and the
Employee acknowledges and agrees that
15
<PAGE>
any breach by him of the provisions of Section 4 or 8 hereof will cause the
Companies irreparable injury and damage. The Employee, therefore, expressly
agrees that in addition to any other remedies the Companies may have under this
Agreement or otherwise, any Company shall be entitled to injunctive and/or other
equitable relief to prevent an anticipatory or continuing breach of Section 4 or
8 hereof and to secure its enforcement. Nothing herein shall be construed as a
waiver by any Company of any right it may now have or hereafter acquire to
monetary damages by reason of any injury to its property, business or reputation
or otherwise arising out of any wrongful act or omission of the Employee
hereunder.
11. Construction; Severability. While the restrictions and covenants
set forth in Section 4 are considered by the parties to be reasonable in all
circumstances, it is recognized that restrictions and covenants of the nature in
question may fail for technical reasons unforeseen, and accordingly it is hereby
agreed and declared that if any of such restrictions or covenants shall be
adjudged to be void as going beyond what is reasonable in all circumstances for
the protection of the interests of the Business or for any other reason but
would be valid if part of the wording thereof were deleted or the periods (if
any) thereof reduced or the range of activities or area dealt with thereby
reduced in scope, such restriction or covenant shall apply with such
modifications as may be necessary to make it valid and effective. In case any
one or more of the provisions of this Agreement should be found to be invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
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<PAGE>
12. Entire Agreement. This Agreement supersedes and terminates any and
all prior agreements, arrangements and policies between the Employee and the
Companies with respect to the subject matter hereof including, without
limitation, the Original Employment Agreement.
13. Waiver. No failure by either party hereto 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 by either party preclude
any other or future exercise of that right or any other right hereunder by that
party.
14. Governing Law; Arbitration. This Agreement, and the respective
rights, duties and obligations of the parties hereunder, shall be governed by
and construed in accordance with the laws of the State of Delaware. Any
controversy or dispute arising out of or relating to this Agreement shall be
settled exclusively (except for claims seeking injunctive and/or equitable
relief pursuant to Section 10 hereof) by arbitration in accordance with the
rules of the American Arbitration Association under its commercial arbitration
rules before a panel of three arbitrators with experience in the textile
industry, with the Employee designating one arbitrator, the Companies
collectively designating one arbitrator and the two arbitrators jointly
selecting a third independent arbitrator. The parties agree that service of
process or notice of motion or other application in connection with any
arbitration shall be delivered personally. Any award or determination made by
the arbitrators as provided for hereunder shall be binding and conclusive upon
the Companies and the Employee. The Employee and each of the Companies shall
bear its own costs and expenses, including without limitation attorneys' fees,
incurred in connection with any such arbitration.
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<PAGE>
15. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. With respect to the Employee, the term "successors" as
used herein includes heirs, devisees, executors, custodians, guardians,
conservators and personal representatives. Notwithstanding the foregoing, the
obligations of the Employee may not be delegated and the Employee may not
assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this
Agreement, or any of his rights hereunder, and any such attempted delegation or
disposition shall be null and void and without effect. Any Company may assign
its rights under this Agreement to, and it shall inure to the benefit of and be
binding upon, any Affiliate which succeeds to all or substantially all of its
assets and business.
16. Amendment. This Agreement may not be amended, terminated or
superseded except by an agreement in writing among the Companies and the
Employee, provided, however, that the Employee shall not execute or authorize
any amendment to this Agreement on behalf of any Company.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original hereof but all of which
together shall constitute one and the same document.
[SIGNATURES APPEAR ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date first above written.
THE EMPLOYEE:
/s/ Bruno Hofmann
------------------------------------
Bruno Hofmann
THE COMPANIES:
Raschel Fashion Interknitting, Ltd.
By /s/ Terrence E. Geremski
---------------------------------
Name: Terrence E. Geremski
---------------------------------
Title: Vice President
---------------------------------
Hofmann Laces, Ltd.
By: /s/ Terrence E. Geremski
---------------------------------
Name: Terrence E. Geremski
---------------------------------
Title: Vice President
---------------------------------
Curtains and Fabrics, Inc.
By: /s/ Terrence E. Geremski
---------------------------------
Name: Terrence E. Geremski
---------------------------------
Title: Vice President
--------------------------------
19
<PAGE>
EXHIBIT (10)(B)
SECOND AMENDMENT
TO
STOCK PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT is entered into this
25th day of February, 1998 by and between GUILFORD MILLS, INC., a Delaware
corporation (the "Buyer"), and BRUNO HOFMANN (the "Seller").
WITNESSETH:
WHEREAS, pursuant to a Stock Purchase Agreement, dated January 12,
1996, between the Buyer and the Seller, as amended by Amendment No. 1, dated as
of January 17, 1996 (collectively, the "Stock Purchase Agreement"), the Buyer
purchased from the Seller 100% of the issued and outstanding shares of common
stock of each of Hofmann Laces, Ltd., Raschel Fashion Interknitting, Ltd. and
Curtains and Fabrics, Inc. (collectively hereinafter referred to as the
"Companies"); and
WHEREAS, the Buyer and the Seller desire to amend the Stock Purchase
Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Sections 1.2(e), (f), (g), (h), (i) and (j) of the Stock Purchase
Agreement are hereby deleted in their entirety and the following provision is
hereby substituted in its place as Section 1.2(e):
(e) The term "Earnout Price" shall mean an
amount equal to Thirty Four Million Four Hundred
Fifty Two Thousand Nine Hundred Fifty Five Dollars
($34,452,955.00). The Earnout Price shall be paid to
the Seller in two installments as follows: (i) the
first installment in an amount equal to Seventeen
Million Dollars ($17,000,000.00), to be paid to the
Seller on February 25, 1998 and (ii) the second
installment in an amount equal to Seventeen Million
Four Hundred Fifty Two Thousand Nine Hundred Fifty
Five Dollars ($17,452,955.00), to be paid to the
Seller on October 1, 1998, in each case with the
installment to be paid by the wire transfer of
immediately available funds into an account or
accounts designated by the Seller.
<PAGE>
2. The first sentence of Section 5.1 of the Stock Purchase Agreement is
hereby deleted in its entirety. The third, fourth and fifth sentences of Section
5.1 of the Stock Purchase Agreement are hereby deleted in their entirety and the
following provision is substituted in their place:
Any shares of Restricted Stock acquired by the Seller
shall be acquired for his own account, for investment
purposes only and not with a view to the distribution
thereof, as that phrase has meaning under the Act,
and the rules and regulations of the Commission. The
Seller shall not sell or make any other distribution
of the shares of Restricted Stock in violation of the
provisions of any applicable laws and regulations,
including, without limitation, the rules and
regulations of the Commission and state securities or
"blue sky" laws. The Seller shall not transfer any
shares of Restricted Stock in violation of the
transfer restriction set forth in Section 1.2(d)
hereof. The Seller covenants that from and after
February 25, 1998 until December 31, 2003, neither
he, any affiliate (as defined herein) of the Seller,
nor any group (as defined herein) of which the Seller
or any affiliate of the Seller becomes a member,
shall (i) individually or collectively acquire, or
offer, propose or agree to acquire beneficial
ownership (as defined herein) of more than Six
Hundred Thousand (600,000) shares of Common Stock
(the "Acquisition Maximum") or (ii) propose or
publicly announce or otherwise disclose an intent to
propose, or enter into or agree to enter into, singly
or with any other person or directly or indirectly,
(x) any form of business combination, acquisition, or
other transaction relating to the Buyer or any
affiliate thereof, (y) any form of restructuring,
recapitalization or similar transaction with respect
to the Buyer or any such affiliate, or (z) any
demand, request or proposal to amend, waive or
terminate this Section 5.1, (iii) make, or in any way
participate in, any solicitation of proxies with
respect to any shares of Common Stock (including by
the execution of action by written consent), become a
participant in any election contest with respect to
the Buyer, seek to influence any person with respect
to any shares of Common Stock or demand a copy of the
Buyer's list of its stockholders or other books and
records, or (iv) participate in or encourage the
formation of any partnership, syndicate, or other
group which seeks to effect control of the Buyer or
to circumvent any provision of this Section 5.1. In
the event of any change in the number of outstanding
shares of Common Stock through merger,
recapitalization, stock dividend, stock split,
split-up, split-off, spin-off or other like change
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in the capital structure of the Buyer, appropriate
adjustments shall be made to the Acquisition Maximum
in order to take into account the effect of such
change in capital structure on the number of
outstanding shares of Common Stock. The Seller
represents and warrants to the Buyer that as of
February 25, 1998 (i) he beneficially owns Six
Hundred Three Thousand One Hundred Fifty (603,150)
shares of Common Stock and (ii) he is not part of any
group. The term "affiliate" as used in this Section
5.1 shall have the meaning ascribed to it in Rule 405
under the Act. The term "group" as used in this
Section 5.1 shall have the meaning ascribed to it in
Section 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "1934 Act"). The term
"beneficial ownership" or "beneficially own" shall
have the meaning ascribed to such terms in Rule 13d-3
under the 1934 Act.
3. Section 5.2 of the Stock Purchase Agreement is hereby deleted in its
entirety.
4. Section 5.3 of the Stock Purchase Agreement is hereby deleted in its
entirety.
5. Section 5.4(a) of the Stock Purchase Agreement is hereby deleted in
its entirety. The second sentence of Section 5.4(b) of the Stock Purchase
Agreement is hereby deleted in its entirety. The Seller hereby resigns as a
member of the Board of Directors of each of the Companies.
6. Section 5.5 of the Stock Purchase Agreement is hereby deleted in its
entirety.
7. Section 5.7 of the Stock Purchase Agreement is hereby deleted in its
entirety.
8. The Buyer and the Seller acknowledge and agree that for purposes of
Section 6.3 of the Stock Purchase Agreement, the Subsequent Election Tax Cost,
as defined therein, is zero. Notwithstanding anything to the contrary contained
herein, the indemnity obligations set forth in Section 6.3(e) of the Stock
Purchase Agreement shall survive the execution and delivery of this Second
Amendment to Stock Purchase Agreement and shall continue in full force and
effect in accordance with their terms.
9. The penultimate sentence of Section 7.1(a) of the Stock Purchase
Agreement is hereby deleted in its entirety and the following provision is
substituted in its place:
Notwithstanding the foregoing, the Indemnification
Cap for each of Cobleskill Losses and Herkimer Losses
shall be
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Three Million Dollars ($3,000,000.00), if a
claim for indemnification for Herkimer Losses or
Cobleskill Losses is made between February 25, 1998
and October 1, 1998.
10. The last sentence of Section 7.1(c) of the Stock Purchase Agreement
is hereby deleted in its entirety and the following provision is substituted in
its place:
If the Buyer shall become entitled to indemnification
pursuant to this Section 7.1 before the Earnout Price
is paid in full, but the Seller or his legal
representative fails to pay to the Buyer such
indemnity payment within such ten day period, the
Buyer may deduct or offset against the Earnout Price
remaining to be paid the indemnity payment owing the
Buyer hereunder.
11. The following clause at the end of the first sentence of Section
7.1(e) of the Stock Purchase Agreement is hereby deleted in its entirety: "or
the proceeds from the Insurance Policy, as the case may be." The parties
acknowledge and agree that the representations and warranties contained in
Section 2.1(t) of the Stock Purchase Agreement shall survive until the Earnout
Price is paid in full.
12. Except as otherwise set forth herein, the Stock Purchase Agreement
remains unmodified and in full force and effect. To the extent not otherwise
defined, capitalized terms used herein shall have the meanings ascribed to them
in the Stock Purchase Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Second
Amendment to Stock Purchase Agreement as of the day and year first above
written.
THE BUYER:
GUILFORD MILLS, INC.
By: /s/ Terrence E. Geremski
-------------------------------
Name: Terrence E. Geremski
-------------------------------
Title: Executive Vice President
-------------------------------
and Chief Financial Officer
THE SELLER:
/s/ Bruno Hofmann
---------------------------------
Bruno Hofmann
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