SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
GUILFORD MILLS, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
GUILFORD MILLS, INC.
4925 West Market Street
Greensboro, North Carolina 27407
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On February 4, 1999
The Annual Meeting of Stockholders of Guilford Mills, Inc., a Delaware
corporation (the "Company"), will be held at the Embassy Suites Hotel, 204
Centreport Drive (near the Piedmont Triad International Airport), Greensboro,
North Carolina, on Thursday, February 4, 1999 at 10:00 a.m. for the following
purposes:
1. To elect three directors for three-year terms;
2. To consider and act upon a proposal to adopt an amendment to the
Company's Certificate of Incorporation increasing the number of
authorized shares of the Company's Common Stock, par value $.02 per
share, from 40,000,000 to 65,000,000 shares;
3. To ratify the selection of Arthur Andersen LLP as independent
auditors for the fiscal year ending October 3, 1999; and
4. To transact such other business as properly may come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on December 18,
1998 as the record date for the determination of stockholders entitled to notice
of and to vote at the meeting and at any adjournment or adjournments thereof.
Whether or not you plan to attend the meeting, please sign, date and
return the enclosed proxy which is being solicited by and on behalf of the Board
of Directors.
By Order of the Board of Directors
/s/ Sherry R. Jacobs
-----------------------------
Sherry R. Jacobs
Secretary
Greensboro, North Carolina
December 24, 1998
<PAGE>
GUILFORD MILLS, INC.
-------------
PROXY STATEMENT
-------------
ANNUAL MEETING OF STOCKHOLDERS
To Be Held On February 4, 1999
This Proxy Statement is furnished to the stockholders of Guilford Mills,
Inc. (the "Company") in connection with the solicitation of proxies by the Board
of Directors (the "Board") of the Company to be voted at the Annual Meeting of
Stockholders of the Company to be held at the Embassy Suites Hotel, 204
Centreport Drive (near the Piedmont Triad International Airport), Greensboro,
North Carolina, on Thursday, February 4, 1999 at 10:00 a.m. (the "Annual
Meeting"). Stockholders of record at the close of business on December 18, 1998
will be entitled to notice of and to vote at the Annual Meeting and at all
adjournments thereof.
The entire cost of soliciting proxies for the Annual Meeting will be borne
by the Company. In addition to solicitation by mail, proxies may be solicited
through personal calls upon, or telephone or facsimile communications with,
stockholders or their representatives by officers and other employees of the
Company, who will receive no additional compensation therefor.
Any stockholder giving a proxy has the power to revoke it at any time
before it is voted by giving written notice of such revocation to the Secretary
of the Company, by attending the Annual Meeting and voting in person or by
submitting a subsequently dated proxy. When a proxy is received, properly
executed, prior to the Annual Meeting, the shares represented thereby will be
voted at the Annual Meeting. If the accompanying form of proxy is signed but no
specification is made thereon, the shares represented thereby will be voted for
the nominees for director designated by the Board, the proposed amendment to the
Certificate of Incorporation and the ratification of the selection of Arthur
Andersen LLP as independent auditors for the fiscal year ending October 3, 1999.
If a specification has been made on the form of proxy, the shares will be voted
in accordance with the specification. The election of directors requires a
plurality of the votes cast, and the approval of the proposed amendment to the
Certificate of Incorporation requires the affirmative vote of sixty-six and
two-thirds percent (66 2/3%) of the shares of Common Stock outstanding and
entitled to vote for the election of directors. The ratification of the
selection of Arthur Andersen LLP requires the affirmative vote of a majority of
the shares present at the Annual Meeting in person or by proxy and entitled to
be cast. Abstentions and broker non-votes are not included in the tabulation of
the voting results on the election of directors. For issues requiring approval
of a majority of the shares present and entitled to be cast, abstentions have
the effect of votes in opposition and broker non-votes are not included in the
tabulation of the voting results. A broker non-vote typically occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner. Shares as to which a stockholder abstains or broker non-votes are
included for purposes of determining whether a quorum of shares is present at
the Annual Meeting.
The complete mailing address of the Company's principal executive offices
is P. O. Box 26969, Greensboro, North Carolina 27419-6969. The approximate date
on which this Proxy Statement and the form of proxy were first sent or given to
the stockholders of the Company was December 24, 1998. The Annual Report of the
Company for the fiscal year ended September 27, 1998, including audited
financial statements, has been sent to each stockholder.
<PAGE>
VOTING SECURITIES
On December 18, 1998, there were outstanding and entitled to vote 23,135,342
shares of the Company's common stock, par value $.02 per share (the "Common
Stock"), which constitutes the only class of capital stock outstanding.
Stockholders are entitled to one vote, exercisable in person or by proxy, for
each share of Common Stock owned on the record date of December 18, 1998. The
holders of a majority of the outstanding shares of the Common Stock represented
at the Annual Meeting will constitute a quorum.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Under the proxy rules, a beneficial owner of a security includes any person
who directly or indirectly has or shares voting power and/or investment power
with respect to such security or has the right to obtain such voting power
and/or investment power within 60 days. Except as otherwise noted, each
designated beneficial owner in this Proxy Statement has sole voting power and
investment power with respect to the shares beneficially owned by such person.
The following table sets forth information as of December 18, 1998 with
respect to each person who is known by the management of the Company to be the
beneficial owner of more than 5% of the Common Stock:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
------------------- -------------------- ----------------
<S> <C> <C>
Victor Posner
6917 Collins Avenue
Miami Beach, FL 33141 3,071,712 (1) 13.28
Charles A. Hayes
c/o Guilford Mills, Inc.
4925 West Market Street
Greensboro, NC 27407 1,346,485 (2)(3) 5.82
</TABLE>
- --------
(1) Such information is based upon (i) a copy of the report on Schedule 13D,
dated January 10, 1994, filed with the Securities and Exchange Commission
("SEC") and furnished to the Company by the beneficial owner and (ii) other
information, as of July 22, 1998, furnished to the Company by a representative
of the beneficial owner.
(2) Mr. Hayes, George Greenberg, a director of the Company, and Maurice
Fishman, a director of the Company, have entered into certain agreements
relating to the disposition of their shares of Common Stock. See "Stockholders'
Agreements" below.
(3) Includes (i) 11,250 shares of Common Stock subject to options granted to
Mr. Hayes under the formula provision of the Company's 1991 Stock Option Plan,
as amended (the "Option Plan"), (ii) 85,864 shares of restricted Common Stock
awarded to Mr. Hayes under the Company's 1989 Restricted Stock Plan (the
"Restricted Plan"), as to which Mr. Hayes has sole voting power (see "Executive
Compensation - Summary Compensation Table" below) and (iii) 700,000 shares of
Common Stock held by a family limited partnership (the "FLP"). Mr. Hayes has a
membership interest in a limited liability company, whose other members are all
relatives of Mr. Hayes, which serves as the sole general partner of the FLP. Mr.
Hayes has shared voting and investment power with respect to the shares of
Common Stock held by the FLP.
The following table sets forth certain information, as of December 18, 1998,
with respect to Common Stock beneficially owned by each director of the Company,
each person nominated or chosen to become a director, each of the executive
officers named in the Summary Compensation Table under the heading "Executive
Compensation" below and all directors and executive officers as a group:
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<PAGE>
<TABLE>
<CAPTION>
Percent
Amount and Nature of of
Name of Beneficial Owner Beneficial Ownership Class
- ------------------------ -------------------- -----
<S> <C> <C>
Directors and Director Nominees (1)(2)
- --------------------------------------
Charles A. Hayes ............................. 1,346,485(3) 5.82
George Greenberg ............................. 763,313(4) 3.30
Bruno Hofmann ................................ 573,150(5) 2.48
Maurice Fishman .............................. 536,130(6) 2.32
John A. Emrich ............................... 167,577 (14)
Terrence E. Geremski ......................... 106,371 (14)
Tomokazu Adachi .............................. 39,750 (14)
Dr. Jacobo Zaidenweber ....................... 34,950 (14)
Sherry R. Jacobs ............................. 31,668 (14)
Donald B. Dixon .............................. 26,625 (14)
Stephen C. Hassenfelt ........................ 25,954(7) (14)
Paul G. Gillease ............................. 20,625(8) (14)
Stig A. Kry .................................. 20,625 (14)
Grant M. Wilson .............................. 10,000 (14)
Non-Director Executive Officers (9)(10)
- ---------------------------------------
Byron McCutchen .............................. 17,741 (14)
Christopher J. Richard ....................... 15,236 (14)
All directors, director nominees and executive
officers as a group (consisting of 23 persons) 3,800,706(11)(12)(13) 16.28
</TABLE>
- --------
(1) The amount of shares beneficially owned by Ms. Jacobs and Messrs.
Greenberg, Fishman, Dixon, Adachi, Hassenfelt, Kry and Gillease includes 20,625
shares of Common Stock, and the amount of shares beneficially owned by Mr.
Geremski and Dr. Zaidenweber includes 11,250 shares of Common Stock, subject to
options granted to each such director under the Option Plan's formula provision.
See "Election of Directors - Additional Information" below. The amount of shares
beneficially owned by Mr. Emrich includes 3,000 shares of Common Stock subject
to options granted pursuant to discretionary provisions of the Option Plan.
(2) Includes 110,667 and 54,000 shares of restricted Common Stock awarded to
Messrs. Emrich and Geremski, respectively, under the Restricted Plan. Such
persons have sole voting power with respect to such shares. See "Executive
Compensation - Summary Compensation Table" below.
(3) See Footnotes 2 and 3 to previous table.
(4) Does not include 62,650 shares held by Mr. Greenberg's wife, as to which
beneficial ownership is disclaimed. See Footnote 2 to previous table.
(5) Includes 300,000 shares of restricted Common Stock paid to Mr. Hofmann in
connection with the sale of the capital stock of Hofmann Laces, Ltd., Raschel
Fashion Interknitting, Ltd. and Curtains and Fabrics, Inc. (collectively, the
"Hofmann Companies") to the Company. See "Certain Transactions" below. Mr.
Hofmann has sole voting power with respect to such shares.
(6) Does not include 68,398 shares held by Mr. Fishman's wife, as to which
beneficial ownership is disclaimed. See Footnote 2 to previous table. Mr.
Fishman will retire from the Board of Directors effective with the Annual
Meeting. See "Election of Directors" below.
(7) Does not include 637 shares held by Mr. Hassenfelt's wife, as to which
beneficial ownership is disclaimed.
(8) Does not include 646 shares held by Mr. Gillease's wife, as to which
beneficial ownership is disclaimed.
(9) The amount of shares beneficially owned by Messrs. McCutchen and Richard
includes 3,000 shares and 5,000 shares of Common Stock, respectively, subject to
options granted to such persons pursuant to the Option Plan.
3
<PAGE>
(10) Includes 12,000 shares and 8,400 shares of restricted Common Stock
awarded to Messrs. McCutchen and Richard, respectively, under the Restricted
Plan. Such persons have sole voting power with respect to such shares.
(11) Includes 215,750 shares of Common Stock subject to options granted
pursuant to the Option Plan.
(12) Excludes 132,331 shares owned by relatives of directors of the Company,
as to which beneficial ownership is disclaimed by such directors.
(13) Includes 270,931 shares of restricted Common Stock awarded to officers
under the Restricted Plan. Such persons have sole voting power with respect to
such shares.
(14) Less than one percent.
Stockholders' Agreements
Messrs. Fishman, Greenberg and Hayes have entered into a Stockholders'
Agreement dated as of June 22, 1990, as amended, relating to the disposition of
their shares of Common Stock (the "1990 Stockholders' Agreement"). Until June
22, 1999 (or its earlier termination as otherwise provided therein), none of
Messrs. Fishman, Greenberg and Hayes may transfer or otherwise dispose of,
except by gift, any or all of the shares of Common Stock beneficially owned by
any such stockholder, until such shares are offered first to the Company at the
same price and upon the same terms and conditions as those offered by a bona
fide purchaser or purchasers. The terms and provisions of the 1990 Stockholders'
Agreement apply to any shares of Common Stock owned by the stockholders on the
date of the 1990 Stockholders' Agreement or acquired thereafter and are binding
upon the heirs, successors and assigns of the stockholders.
Messrs. Fishman and Hayes have entered into a Stockholders' Agreement with
the Company dated as of April 30, 1991, as amended, relating to the acquisition
by the Company of certain of their shares of Common Stock. Until June 22, 1999
(or the earlier termination of the 1991 Stockholders' Agreement as provided
therein), the Company will, upon the death of either Mr. Fishman or Mr. Hayes,
purchase such number of shares of Common Stock beneficially owned by each such
person as equal $4,000,000 and $5,000,000, respectively. The purchase price for
each share of Common Stock will equal the average of the closing price for such
shares on the New York Stock Exchange for the 20 trading days preceding the date
of death.
ELECTION OF DIRECTORS
Directors and Nominees
The Board is divided into three classes, with the term of office of one class
expiring each year. At the last annual meeting of stockholders held on February
5, 1998, Messrs. Dixon, Geremski, Greenberg, Zaidenweber and Wilson were elected
as directors of the Company, each to serve for a three-year term until the first
annual meeting of stockholders held following the end of the Company's 2000
fiscal year and until his successor is elected and qualified. At the Annual
Meeting of Stockholders held on February 6, 1997, Ms. Jacobs and Messrs. Adachi,
Emrich, Hofmann and Kry were elected as directors of the Company, each to serve
for a three-year term until the first annual meeting of stockholders held
following the end of the Company's 1999 fiscal year and until her or his
successor is elected and qualified. Under the terms of the Stock Purchase
Agreement, dated January 12, 1996, between the Company and Mr. Hofmann, pursuant
to which the Company acquired 100% of the outstanding capital stock of the
Hofmann Companies from Mr. Hofmann (the "Hofmann Purchase Agreement"), the
Company agreed to nominate Mr. Hofmann for election as a director in such class.
At the annual meeting of stockholders held on February 1, 1996, Messrs. Fishman,
Gillease, Hassenfelt and Hayes were elected as directors of the Company, each to
serve for a three-year term until the first annual meeting of stockholders held
following the end of the Company's 1998 fiscal year and until his successor is
elected and qualified.
The Board has nominated Messrs. Gillease, Hassenfelt and Hayes for election
as directors of the Company, each to serve for a three-year term until the first
annual meeting of stockholders held following the end of the Company's 2001
fiscal year and until his successor is elected and qualified. Pursuant to the
terms of the Company's retirement policy for
4
<PAGE>
directors, Mr. Fishman will retire from the Board of Directors effective with
the Annual Meeting, resulting in a 13 member Board of Directors. Unless a
contrary specification is indicated, it is intended that the accompanying form
of proxy will be voted for the election of Messrs. Gillease, Hassenfelt and
Hayes. The Board does not contemplate that any of such persons will be unable,
or will decline, to serve; however, if any of such persons is unable or declines
to serve, the persons named in the accompanying proxy may vote for another
person, or persons, in their discretion.
The following table sets forth certain information with respect to each
director and each person nominated or chosen to become a director. Except as
otherwise indicated, each such person has held his or her present principal
occupation for the past five years and references to executive offices held are
with the Company:
<TABLE>
<CAPTION>
Name Age (1) Principal Occupation or Occupations Director Since
- ---- ------- ----------------------------------- --------------
<S> <C> <C> <C>
Director Nominees
- -----------------
Nominees for a Three-Year
Term Expiring at Annual
Meeting After 2001 Fiscal
Year
- -----------------------
Paul G. Gillease (2) 66 Consultant to the Company (from 1993 1993
to 1996); Vice President and General
Manager, DuPont Nylon, a division of
E. I. du Pont de Nemours and
Company, Inc. (from 1992 to 1993);
for more than five years prior
thereto, Vice President and General
Manager of DuPont Textiles, a
division of E. I. du Pont de Nemours
and Company, Inc.
Stephen C. Hassenfelt 48 Chairman and Chief Executive Officer 1989
of North Carolina Trust Company
Charles A. Hayes 63 Chairman of the Board and Chief 1963
Executive Officer (since 1976);
President and Chief Operating
Officer (from 1991 to 1995)
Continuing Directors
- --------------------
Class of Directors Whose
Term Expires at Annual
Meeting After 2000 Fiscal
Year
- -----------------------
Donald B. Dixon 70 Retired since 1984; for more than 1987
five years prior thereto, a partner
at Arthur Andersen LLP
Terrence E. Geremski 51 Executive Vice President and Chief 1993
Financial Officer (since 1997);
Senior Vice President, Chief
Financial Officer and Treasurer
(from 1996 to 1997); Vice President,
Chief Financial Officer and
Treasurer (from 1992 to 1996); Vice
President and Controller of Varity
Corporation (from 1989 to 1991); for
more than five years prior thereto,
the holder of various executive and
administrative positions with Dayton
Walther Corp.
George Greenberg (3) 76 Vice Chairman of the Board (since 1968
1989); retired since 1989; for more
than five years prior thereto, the
President and Chief Operating
Officer
Dr. Jacobo Zaidenweber 69 Chairman of the Board of Grupo 1995
Ambar, S.A. de C.V. (since 1965), a
subsidiary of the Company; Chairman
of the Board of Encajes Mexicano,
S.A. de C.V. (since 1992), a textile
manufacturer
- --------
(1) As of December 18, 1998.
(2) Mr. Gillease is a director of Pillowtex Corp. and Galey & Lord, Inc., each
of which has a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(3) Mr. Greenberg is a director of Nautica Enterprises, Inc., which has a class
of securities registered pursuant to Section 12 of the Exchange Act.
5
<PAGE>
Grant M. Wilson 57 Chairman of Cohasset Capital 1997
Corporation (since 1983), a
financial and managerial services
firm
Class of Directors Whose
Term Expires at Annual
Meeting After 1999 Fiscal
Year
- -----------------------
Sherry R. Jacobs 55 Secretary and acting General Counsel 1983
(since 1994); Managing Director,
Pencil, Inc., an educational
foundation (from 1995 to 1997);
Principal, Jonal, couturier (from
1989 to 1994)
Tomokazu Adachi 57 President of Japan Tech, Inc., an 1990
importer of textile machinery and
equipment
John A. Emrich 54 President and Chief Operating 1995
Officer (since 1995); Senior Vice
President and President/Automotive
Business Unit (from 1993 to 1995);
Vice President/Planning and Vice
President/Operations for the Apparel
and Home Fashions Business Unit
(from 1991 to 1993); Director of
Operations with FAB Industries (from
1990 to 1991)
Bruno Hofmann 59 General Manager of the Hofmann 1997
Companies (since 1998); President
and Chief Executive Officer of the
Hofmann Companies and predecessor
companies (from 1976 to 1998)
Stig A. Kry (4) 69 Chairman Emeritus, Kurt Salmon 1993
Associates, Inc., a management
consulting firm
</TABLE>
- --------
(4) Mr. Kry is a director of Oshkosh B' Gosh, Inc., which has a class of
securities registered pursuant to Section 12 of the Exchange Act.
Additional Information
During the last fiscal year, the Board's Audit Committee, which consists of
Messrs. Dixon, Hassenfelt and Fishman, held three meetings. The Audit
Committee's responsibilities include reviewing the Company's financial
statements and the accounting principles utilized by the Company, evaluating the
services of the Company's independent auditors and making recommendations with
respect to the retention of independent auditors, evaluating the adequacy of the
Company's system of internal controls and confirming the Company's full
cooperation with the independent auditors' annual examination of the Company's
financial statements.
In addition, during the last fiscal year, the Board's Compensation Committee,
which consists of Ms. Jacobs and Messrs. Hassenfelt and Wilson, held three
meetings. The functions of the Compensation Committee include making
recommendations to the Board regarding compensation for certain executive
officers of the Company and administering certain of the Company's benefit
plans. See "Executive Compensation - Report of the Compensation Committee of the
Board of Directors" below.
The Board's Nominating Committee, which is comprised of Messrs. Dixon, Hayes,
Adachi and Gillease, did not hold any meetings during the last fiscal year. The
duties of the Nominating Committee include identifying and interviewing
candidates to serve on the Board, making recommendations to the entire Board
regarding whether a candidate should be nominated to the Board and making
recommendations to the entire Board concerning compensation and other benefits
to be paid to directors. The Company's By-Laws, as amended (the "By-Laws"), set
forth procedures regarding the nomination of persons for election to the Board.
See "Miscellaneous - Stockholder Proposals" below. During the 1998 fiscal year,
an ad hoc sub-committee of the Nominating Committee, comprised of Messrs.
Adachi, Gillease and Kry, was appointed for purposes of evaluating the Company's
retirement policy for directors. Such sub-committee held two meetings during the
last fiscal year.
6
<PAGE>
Non-employee directors receive a quarterly retainer of $6,250 and $1,000 for
each Board meeting attended (other than routine telephonic Board meetings). A
non-employee chairman and each other non-employee member of a committee are paid
$3,000 and $2,000, respectively, for each committee meeting attended. During the
last fiscal year, the Board had a total of nine meetings, four of which were
held in person and five of which were held by means of a telephonic conference
call. All directors then in office attended at least 75% of the total number of
meetings of the Board and the committees on which they served during the last
fiscal year.
Ms. Jacobs is serving as Secretary and acting General Counsel of the Company
on an interim basis. Ms. Jacobs earned $12,472 during the 1998 fiscal year for
such service. In connection with the Company's acquisition of the Hofmann
Companies in January, 1996, Mr. Hofmann entered into a consulting agreement with
the Company pursuant to which he will provide certain consulting and advisory
services to the Company during a period ending on December 31, 2000. The Company
pays Mr. Hofmann an annual consulting fee of $100,000 for such services. Mr.
Hofmann is also a party to an employment agreement with the Hofmann Companies.
See "Certain Transactions" below.
The Company affords each director the opportunity to defer his or her
quarterly retainer. Pursuant to such arrangement, the quarterly retainer a
director would otherwise receive is credited to a separate account which accrues
interest. Upon his or her termination of service on the Board, the director will
be entitled to receive the amounts credited to his or her deferred compensation
account, together with interest accrued thereon. Currently, Mr. Dixon is the
only director who participates in the retainer deferral arrangement.
The Option Plan provides for the automatic grant of options not meeting the
requirements of incentive stock options ("Non-Qualified Options"), within the
meaning of Section 422 of the Internal Revenue Code of 1986 (the "Code"), to
directors who have served as such for a designated period of time. Specifically,
each person who has served as a non-employee director of the Company for two or
more consecutive years on the date of grant will automatically be granted (i)
upon the first date of grant after the completion of two consecutive years of
service as a director, an option to purchase 11,250 shares of Common Stock and
(ii) upon each of the dates of grant after the completion of such service prior
to the expiration of the Option Plan on August 28, 2001, an option to purchase
5,625 shares of Common Stock. (Pursuant to an Option Plan amendment, approved by
stockholders at the annual meeting held on February 6, 1997, employee directors
are no longer eligible to receive Non-Qualified Option grants pursuant to the
formula provision.) For each year, the date of grant will be the third trading
date following the later of (i) the date of the annual stockholders' meeting or
(ii) the date on which the Company's earnings for the fiscal quarter just prior
to such meeting date are released to the public. The purchase price of the
shares of Common Stock covered by the options granted to directors under the
formula provision will be the fair market value of the shares as of the date of
grant. Options granted to directors under the formula provision, which have a
five year term, will be exercisable with respect to 33-1/3% of the aggregate
number of shares initially subject to the option during each of the first,
second and third years of the option. Any exercisable portion of an option that
is not exercised will be carried forward through the term of the grant.
Notwithstanding the foregoing, in the event of a "change in control" of the
Company, as such term is defined in the Option Plan, all then outstanding
options will immediately become exercisable. In addition to the automatic grant
of options to non-employee directors according to the above formula, the Option
Plan also provides for the award, in the discretion of the Compensation
Committee, of options, and stock appreciation rights, to salaried key employees,
including employee directors, of the Company.
There are no family relationships among any of the directors and officers of
the Company.
EXECUTIVE COMPENSATION
Report of the Compensation Committee of the Board of Directors
The Compensation Committee of the Board administers the Company's
compensation program for executive officers. Specifically, the Committee serves
as the administrator of the Restricted Plan and the Option Plan. In addition,
the Committee makes recommendations to the entire Board regarding the
compensation package for each of the Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer ("CEO", "COO" and "CFO", respectively). The
Committee is also responsible for periodically reviewing, for adequacy and
continued
7
<PAGE>
appropriateness, the entire compensation package of other executive officers and
recommending to the Board any changes to such package. Further, the Committee's
approval is required for any proposed employment, severance, consulting or
retirement agreement with any executive officer.
In performing its duties, the Committee seeks to insure that the Company's
compensation program for executive officers attracts and retains qualified,
talented and highly motivated personnel, links executive compensation to
corporate performance and is administered in an equitable fashion. The Company's
executive officer compensation program consists of two major elements: (i) a
short-term component, consisting of base salary and a potential annual cash
bonus, intended to reward executives for current and past performance and (ii) a
long-term component, consisting of restricted stock and stock options, designed
to align further the interests of executives with those of stockholders in
general. In addition, in order to offer a competitive compensation program, the
Company maintains certain retirement plans such as a Qualified Profit-Sharing
Plan (the "Profit-Sharing Plan") and an Employee Stock Ownership Plan (the
"ESOP") and offers other benefits such as a split-dollar insurance program.
The Committee has considered the impact of Section 162(m) of the Code on the
Company's executive compensation program. Section 162(m) denies a public company
a deduction, except in limited circumstances, for compensation paid to "covered
employees", i.e., those employees named in the "Summary Compensation Table"
below, to the extent such compensation exceeds $1,000,000. The deduction
limitation contained in Section 162(m) does not apply to certain
performance-based compensation. The Committee does not currently intend to
recommend changes to the Company's benefit plans in order to qualify
compensation paid to covered employees for such exception.
Short-Term Component - Base Salary and Annual Bonus. The Committee evaluates
the base salary of each of the CEO, COO and CFO on a biennial basis, or more
frequently if appropriate, and recommends to the entire Board any changes in
such base salary levels. In making such evaluations and recommendations, the
Committee considers the historical pay practices of the Company, the officer's
leadership and advancement of the Company's long-term strategic plans and
objectives, and the salary levels of executives holding similar positions in
certain other textile companies. The Committee generally recommends salaries for
the Company's CEO, COO and CFO at levels exceeding the average salary level of
executives holding the same positions in such other companies. The textile
companies which the Company considers for comparative compensation purposes are
substantially similar to the companies included in the peer group index
described in the "Performance Graph" below.
The Company maintains for its executive officers and other key employees a
Short-Term Incentive Compensation Plan ("STIP"), which allows participants to
earn annual cash bonuses. The STIP conditions the amount of cash bonuses, for
all participants other than the CEO, on earnings per share and other performance
measures which are designed to take into account balance sheet management and
the different operating results among the Company's business units.
Specifically, the payment of annual cash bonuses under the STIP is determined
according to a formula based upon a percentage of an individual's base salary
and, depending on the participant, one or more of the following performance
measures: earnings per share, a matrix based upon corporate sales and net income
performance, a matrix based upon business unit sales and operating income
performance and other performance measures specific to a participant's
responsibilities. The matrix component of a participant's bonus, if any, under
the STIP is also subject to adjustment, plus or minus 20%, based upon the
Company's return on net assets. The bonus payable to the CEO, given the breadth
of his responsibilities, is based solely upon a percentage of his annual base
salary and the Company's earnings per share results. None of the executive
officers named in the "Summary Compensation Table" below received a bonus under
the STIP for the 1998 fiscal year.
Long-Term Component - Restricted Stock and Stock Options. In addition to the
short-term elements of the Company's executive compensation program described
above, the Company maintains certain equity based plans described below, the
benefits of which are linked to the Company's long-term performance. The
Committee believes that compensation in the form of Common Stock serves to align
further the interests of executives with the interests of stockholders.
Moreover, compensation which is "at risk," in that its amount is dependent upon
the Company's performance, provides a strong incentive for individuals to
achieve superior performance. Finally, long-term compensation helps balance the
Company's overall executive compensation program by encouraging executives to
focus on the Company's long term objectives and goals as well as the Company's
quarter to quarter results.
8
<PAGE>
In its capacity as the administrator of the Restricted Plan, the Committee
determines, among other things, which key employees will participate in the
Restricted Plan, any individual or corporate performance goals applicable to a
participant, the date on which awards will be made, the number of shares to be
awarded and the restrictions to be applicable to such shares. As the
administrator of the Option Plan, the Committee determines, among other things,
the employees who are to receive options, the date of grant of options, and
(subject to the terms of the Option Plan) the purchase price of each share
subject to such options.
Retirement Plans and Other Benefits. In addition to the foregoing components
of the executive compensation program, the Company maintains certain other plans
in which executives participate, including the Profit-Sharing Plan, the ESOP and
an excess benefit plan (which is designed to supplement certain of the Company's
other benefit plans). For the 1998 fiscal year, the Company contributed to the
Profit-Sharing Plan 6% of the aggregate compensation of all participants in such
plan. Contributions to the ESOP are made in the form of Common Stock or cash
used to purchase Common Stock and the amount of such contributions is dependent
upon the Company meeting the same earnings per share target established under
the STIP. Beginning with the 1997 fiscal year ESOP contribution, each
participant has the right to receive up to one-half of his contribution directly
from the Company in the form of cash. If the Company's actual earnings per share
fall within a range of the target earnings per share (either more or less), then
the Company will adjust its ESOP contribution, upward or downward, accordingly.
For the 1998 fiscal year, the Company did not make a contribution to the ESOP.
The Company also maintains for executives a split-dollar insurance program and a
supplemental executive retirement plan, which are described, respectively, in
Footnote 4 to the "Summary Compensation Table" and in "Other Benefit Plans"
below. The Company also offers to its executives a plan pursuant to which they
may be reimbursed, up to a designated amount, for personal tax and financial
planning expenses.
Stephen C. Hassenfelt (Chairman)
Sherry R. Jacobs
Grant M. Wilson
Performance Graph
Set forth below is a line graph comparing the five-year cumulative total
stockholder return on the Common Stock with the cumulative return of the
Standard & Poor's 500 Stock Index and with an index comprised of certain peer
group companies, assuming the reinvestment of dividends. The peer group index
represents the cumulative total return on the common stock of the following
textile companies: Burlington Industries, Inc., Collins & Aikman Corp., Concord
Fabrics Inc., Cone Mills Corp., Crown Crafts, Inc., Culp, Inc., Delta Woodside
Industries, Inc., Dixie Group, Inc., Dyersburg Corp., Fab Industries, Inc.,
Fieldcrest Cannon, Inc., Foamex International Inc., Galey & Lord, Inc., Johnston
Industries, Inc., Pillowtex Corp., Quaker Fabric Corp., Springs Industries,
Inc., Texfi Industries, Inc., Thomaston Mills, Inc., Unifi, Inc., Wellman, Inc.
and WestPoint Stevens Inc. (Fieldcrest Cannon, Inc was acquired by Pillowtex
Corp. during the last fiscal year and, therefore, the stockholder returns of
Fieldcrest Cannon, Inc. are included in only the first four years reflected in
the performance graph. The annual stockholder returns of each of Collins &
Aikman Corp., Foamex International Inc. and Quaker Fabric Corp. are included in
the last four years reflected in the performance graph because the stock of each
such company became publicly traded during the first year reflected in the
performance graph.) The return of each company included in the peer group index
has been weighted according to its respective stock market capitalization.
9
<PAGE>
[LINE CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS:]
FISCAL YEAR ENDING
---------------------------------------------------------------
09/30/93 09/30/94 09/30/95 09/30/96 09/30/97 09/30/98
---------------------------------------------------------------
GUILFORD MILLS $100.0 $104.0 $121.2 $115.4 $204.5 $119.2
- --------------------------------------------------------------------------------
S&P 500 $100.0 $103.7 $134.5 $161.8 $227.3 $247.8
- --------------------------------------------------------------------------------
PEER GROUP $100.0 $108.4 $104.9 $103.7 $148.3 $101.7
- --------------------------------------------------------------------------------
Note: Assumes an initial investment of $100 on September 30, 1993. Total return
includes reinvestment of dividends.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows for the fiscal years ended September 27, 1998,
September 28, 1997 and September 29, 1996, the cash compensation paid by the
Company, as well as certain other compensation paid or accrued for those
periods, to the Company's CEO and to the Company's four most highly compensated
executive officers (other than the CEO).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term All Other
Annual Compensation Compensation Compensation
------------------------------- ---------------------- ------------
Other Restricted
Annual Stock
Name and Principal Compens- Awards
Position Fiscal Year Salary ($) Bonus ($) ation($) ($)(3) Options (#) ($)(4)
- -------- ----------- ---------- --------- ------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles A. Hayes, Chairman 1998 675,000 0 -- 0 0 115,517
and Chief Executive Officer 1997 625,000 656,250 -- 2,294,178 105,000 104,549
1996 625,000 308,188(1) -- 0 5,625 234,489
John A. Emrich, President and 1998 566,667 0 -- 790,000 150,000 73,405
Chief Operating Officer 1997 450,000 489,375 191,758(2) 1,788,750 99,000 64,395
1996 450,000 67,500 -- 437,500 0 61,362
Terrence E. Geremski, 1998 325,000 0 -- 355,500 90,000 42,377
Executive Vice President and 1997 275,000 239,250 -- 894,375 75,000 42,533
Chief Financial Officer 1996 256,256 58,000 -- 0 11,250 34,277
Byron McCutchen, Senior 1998 270,000 0 -- 0 14,000 48,896
Vice President, President/ 1997 260,000 193,050 -- 298,125 18,000 51,094
Fibers Business Unit 1996 250,000 26,702 -- 0 0 31,649
Christopher J. Richard, 1998 237,500 0 -- 0 14,000 24,592
Vice President, President/U.S. 1997 150,000 83,025 -- 208,687 33,000 5,608
Automotive Business Unit (5)
</TABLE>
10
<PAGE>
- --------
(1) Mr. Hayes' bonus award for the 1996 fiscal year includes $191,000,
representing the value of certain appreciation rights based on the market value
of Common Stock on January 2, 1997 and the interest accrued thereon (and on the
related dividend equivalents) through the end of the 1997 fiscal year. The
rights, and dividend equivalents, will continue to earn interest until their
vesting date. Mr. Hayes will vest in, and be entitled to receive, the rights,
and related dividend equivalents and interest, 30 days after the date he is no
longer a "covered employee" within the meaning of Section 162(m) of the Code.
(2) This amount includes, among other items, (i) a payment of $100,000 for
certain moving related costs and expenses (including costs related to the sale
of a former residence) incurred in connection with Mr. Emrich's relocation from
the Company's New York City office to the Company's Kenansville, North Carolina
office and (ii) a tax reimbursement of $62,630 related to the preceding payment.
(3) The amounts shown in this column reflect the market value of the
restricted stock granted, under the terms of the Restricted Plan, to Messrs.
Hayes, Emrich, Geremski, McCutchen and Richard. (The market value is given as of
the date of grant of the restricted stock.)
The restricted stock awarded to an executive officer is held by an escrow
agent, appointed by the Company, until such officer vests in his award.
Similarly, the dividends paid on each share of restricted stock (which are paid
to the same extent as dividends on the Common Stock generally) are held by the
escrow agent until the executive vests in his restricted stock, at which time he
will also be entitled to receive the interest credited by the Company on such
dividends. Each executive officer who received a restricted stock award during
the 1997 fiscal year (the "1997 Restricted Award") vested in 20% of such award
on the date of grant. The balance of each executive's 1997 Restricted Award, as
well as the award made to Mr. Geremski during fiscal year 1998, will vest in
four annual installments, commencing in May, 2001. With respect to the
restricted stock granted to him during the 1996 fiscal year, Mr. Emrich has
vested in 18,000 shares and will vest in the balance of such award in equal
6,000 share increments on October 1 of each of 1999 and 2000. With respect to
the restricted stock granted to him during the 1998 fiscal year, Mr. Emrich
vested in 13,333 shares as of September 30, 1998 and will vest in the remaining
26,667 shares in two substantially equal installments on September 30, 1999 and
September 30, 2000. Notwithstanding the foregoing, upon a "change in control" of
the Company, as such term is defined in the Restricted Plan, the restrictions
applicable to an outstanding restricted stock award will lapse and the executive
will immediately vest in such award and in any dividends paid on such award and
then held in escrow, together with interest thereon. The Restricted Plan also
permits the Compensation Committee, in its discretion, to remove restrictions on
outstanding awards. Upon an executive's voluntary termination of employment or
termination of employment for cause, the executive will forfeit his rights in
any restricted stock, and in any dividends and interest thereon, not then
vested. If the executive's employment is terminated by the Company without cause
or by reason of death or disability, then the executive, or his estate, as the
case may be, will become vested in the restricted stock, and related dividends
and interest, on the date of such termination. As of the last day of the 1998
fiscal year, Messrs. Hayes, Emrich, Geremski, McCutchen and Richard held 85,864,
130,000, 54,000, 12,000 and 8,400 shares of restricted stock, respectively, at
an aggregate market value of $1,277,227, $1,933,750, $803,250, $178,500 and
$124,950, respectively (based upon a price of $14.875 per share the closing
price of the Common Stock on the last business day of the 1998 fiscal year).
(4) The components of the amounts shown in this column for the 1998 fiscal
year consist of the following:
(i) Contributions of $9,600 each to the accounts of Messrs. Hayes,
Emrich, Geremski, McCutchen and Richard, pursuant to the Profit-Sharing Plan.
(ii) Contributions of $70,275, $53,762, $24,255, $18,183 and $9,676 to
the accounts of Messrs. Hayes, Emrich, Geremski, McCutchen and Richard,
respectively, pursuant to the Company's excess benefit plan which is designed to
supplement the Profit-Sharing Plan and the ESOP.
(iii) With respect to Messrs. Emrich, Geremski, McCutchen and Richard,
the value of
11
<PAGE>
benefits under the Company's Senior Managers' Life Insurance Plan, a split
dollar plan, and with respect to Mr. Hayes, the value of benefits under a
separate split dollar arrangement with the Company. During the 1998 fiscal year,
each of Messrs. Emrich, Geremski, McCutchen and Richard paid the amount of the
premium associated with the term life component of his split dollar life
insurance coverage. With respect to Mr. Hayes, the Company paid, during the 1998
fiscal year, $18,880 in premiums for the term portion of his coverage, and paid
the remainder of the premium associated with the whole life component of the
coverage. For each named executive officer, the Company expects to recover the
premiums it pays. The following amounts reflect the benefits related to the
non-term portion of the premiums to be paid by the Company under the insurance
policies purchased on the lives of the named executives, in each case with the
non-term portion of the premium being treated as the present value of an
interest-free loan to age 65: Mr. Hayes - $9,485; Mr. Emrich - $10,043; Mr.
Geremski - $8,522; Mr. McCutchen - $21,113; and Mr. Richard - $5,316.
(iv) For the 1998 fiscal year, that portion of interest earned (that the
SEC considers to be at above market rates) on the deferred compensation accounts
of Mr. Hayes in the amount of $7,277.
(5) Mr. Richard joined the Company in January, 1997.
Stock Option Grants
The table below provides information regarding stock options granted during
the Company's 1998 fiscal year to the executive officers named in the "Summary
Compensation Table" above. (Mr. Hayes did not receive any option grants during
the 1998 fiscal year.)
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------
Percent of
Total
Number of Options
Securities Granted to Exercise Grant Date
Underlying Employees or Present
Options in Fiscal Base Price Expiration Value
Name Granted (#) Year (%) ($) Date (1) ($)(2)
---- ----------- -------- --- -------- ------
<S> <C> <C> <C> <C> <C>
John A. Emrich 150,000 45.51 19.53 6/24/08 649,950
Terrence E. Geremski 90,000 27.30 19.53 6/24/08 389,970
Byron McCutchen 14,000 4.25 19.53 6/24/08 60,662
Christopher J. Richard 14,000 4.25 19.53 6/24/08 60,662
</TABLE>
- --------
(1) The options granted to the named executive officers will be exercisable with
respect to 33 1/3% of the aggregate number of shares initially subject to the
option during each of the third, fourth and fifth years of the option. Any
exercisable portion of an option that is not exercised will be carried forward
through the ten year term of the grant. Notwithstanding the foregoing, upon a
"change in control" of the Company, as such term is defined in the Option Plan,
all then outstanding options will immediately become exercisable. Pursuant to
the terms of the Option Plan, the Compensation Committee also generally has the
authority to accelerate the right to exercise any outstanding options.
(2) The values in this column represent the grant date present value of the
options based upon application of the Black-Scholes option pricing model. The
material assumptions and adjustments used in estimating the present value
pursuant to such model are: (i) a volatility factor of 25%; (ii) a dividend
yield of 1.8%; (iii) a risk-free rate of return of 5.46%; (iv) a reduction of
30% to reflect the possibility of forfeiture prior to the expiration of the
option; and (v) an expected seven year option life. The actual value an
executive officer receives from a stock option is dependent on future market
conditions, and there can be no assurance that the value ultimately realized by
the executive will not be more or less than the amount reflected in the "Grant
Date Present Value" column.
Stock Option Exercises and Fiscal Year-End Stock Option Values
The table below shows the value of the options held by the persons named in
the "Summary Compensation Table" above at the end of the 1998 fiscal year. None
of such persons exercised any stock options during the 1998 fiscal year.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
-----------------------------------------------
AND FISCAL YEAR-END OPTION VALUES
---------------------------------
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Name Fiscal Year-End (#) Fiscal Year-End ($) (1)
---- ------------------- -----------------------
Exercisable/Unexercisable Exercisable/Unexercisable
------------------------- -------------------------
<S> <C> <C>
Charles A. Hayes 11,250/105,000 5,906/0
John A. Emrich 2,000/250,000 2,010/1,005
Terrence E. Geremski 11,250/165,000 56/0
Byron McCutchen 2,000/33,000 2,010/1,005
Christopher J. Richard 0/47,000 0/0
</TABLE>
- --------
(1) The values in this column represent the product of the number of options and
the excess, if any, of $14.875, the market value of the underlying Common Stock
on September 25, 1998 (the last business day of the 1998 fiscal year), over the
option exercise price.
Other Benefit Plans
Supplemental Retirement Plan. In 1992, the Company adopted the Senior
Managers' Supplemental Retirement Plan ("SERP") which provides for retirement
and death benefits to a select group of senior managers. The SERP provides that
upon retirement from the Company after attaining age 65, and after at least 60
months of service with the Company, participants will be entitled to receive a
specified dollar amount for a period of ten years following retirement ("Ten
Year Payments"). If the officer dies prior to the termination of his or her
employment or during the period while the Ten Year Payments are being made, the
full amount of the Ten Year Payments or the unpaid portion thereof, as the case
may be, will be paid according to the installment schedule to the officer's
designated beneficiary.
The SERP also provides that if the officer's employment with the Company
is terminated for any reason other than his or her death or disability (prior to
the officer attaining age 65) and the officer has been employed by the Company
for at least 60 months, the officer will be entitled to a reduced retirement
benefit commencing at age 65. Such reduced benefit will be based upon the
officer's total months of employment with the Company as compared with the total
months of employment the officer would have had with the Company if he or she
had remained in the employ of the Company until age 65. If, at the time of his
or her termination of employment with the Company for any reason other than
death or disability, the officer has been employed by the Company for less than
60 months following the effective date of the agreement, he or she will not be
entitled to any retirement benefits and his or her beneficiaries will not be
entitled to any death benefits. If an officer becomes disabled prior to
attaining age 65 and such disability continues until age 65, the officer will be
entitled to receive the full amount of the Ten Year Payments commencing at age
65, regardless of whether he or she has completed 60 months of service with the
Company.
The Company has purchased life insurance policies on the lives of all
executive officers participating in the SERP in amounts which are designed to
enable the Company ultimately to recover all sums paid pursuant to the SERP.
Such life insurance policies are held in trust for the benefit of such officers.
The following table sets forth the Ten Year Payments for each of the
executive officers named in the "Summary Compensation Table" above.
Name of Individual Ten Year Payments (Per Annum)
------------------ -----------------------------
Charles A. Hayes $345,000
John A. Emrich 125,000
Terrence E. Geremski 125,000
Byron McCutchen 125,000
Christopher J. Richard 125,000
13
<PAGE>
Severance Agreements. The Company has entered into severance agreements
with certain key managers, including each of the executive officers named in the
"Summary Compensation Table" above. The severance agreements, which expire on
August 31, 1999 (unless extended by the Board), provide for the payment of
specified compensation and benefits to such employees upon certain terminations
of their employment within two years after a change in control of the Company.
These severance agreements are intended to assure that management will continue
to act in the interest of the stockholders rather than be affected by personal
uncertainties during any attempts to effect a change in control of the Company,
and to enhance the Company's ability to attract and to retain executives.
The compensation and benefits which may be awarded under the severance
agreements include, among other specified items of compensation and other
benefits, a lump sum payment equal to three times an employee's highest annual
salary during the year preceding the change in control (including any bonuses
and contributions made on the employee's behalf to the Profit-Sharing Plan, ESOP
and excess benefit plan), and also include continuation of participation in the
Company's life, health, accident and disability and insurance plans for a period
of three years (or until the employee commences full-time substantially
equivalent employment with a new employer). If the total payments made to any
particular employee under a severance agreement would not be tax deductible by
the Company or would cause an "excess parachute payment" to exist within the
meaning of Section 280G of the Code, such payments will be reduced until no
portion of such payments would fail to be deductible by reason of being an
excess parachute payment. The severance agreements further provide that in order
for an employee to receive the benefits contemplated by the severance agreement,
if any person or organization takes steps designed to effect a change in control
of the Company, the employee will not voluntarily terminate his or her
employment and will continue to perform his or her regular duties, until such
person or organization has abandoned or terminated such effort to effect a
change in control.
Had a "change in control" taken place during the fiscal year ended
September 27, 1998, Messrs. Hayes, Emrich, Geremski, McCutchen and Richard would
have received, had their employment ceased on that date, lump sum payments in
the approximate amounts of $4,393,125, $3,659,938, $1,862,025, $1,528,065 and
$1,098,983, respectively.
Compensation Committee Interlocks and Insider Participation
Ms. Jacobs, a member of the Company's Compensation Committee, served as
Vice President/Administration and General Counsel of the Company from 1986 to
1989 and as Secretary of the Company from 1987 to 1989. From time to time since
1989 and, more recently, since the third quarter of the 1994 fiscal year, Ms.
Jacobs has served as Secretary and acting General Counsel of the Company on an
interim basis. See "Election of Directors" above.
Mr. Hassenfelt, Chairman of the Company's Compensation Committee, serves
as Chairman and Chief Executive Officer of North Carolina Trust Company. Mr.
Hayes is a member of the Board of Directors of North Carolina Trust Company, but
does not serve on the Compensation Committee of such Board.
CERTAIN TRANSACTIONS
During the 1998 fiscal year, the Company paid $150,000 in consulting fees
to Japan Tech, Inc., of which Mr. Adachi, a director of the Company, is the
President and controlling stockholder. In addition, in the ordinary course of
its business and through a series of arm's-length transactions, the Company
purchased machinery and equipment from Japan Tech, Inc. during the 1998 fiscal
year totaling $181,273.
In the ordinary course of business and through a series of arm's-length
transactions, during the 1998 fiscal year, the Company paid $1,143,808 for
forklifts and forklift repairs to Western Carolina Forklift, Inc., which is
controlled by David Hayes, the son of Charles A. Hayes, the Chairman and CEO of
the Company. Charles A. Hayes, together with George Greenberg, a director of the
Company, serve on the Board of Directors of Western Carolina Forklift, Inc.
During the 1997 calendar year, the Company paid $1,000,000 in settlement
of an action brought against Mr. Greenberg. Such settlement payment was made
pursuant to the indemnification obligations under the By-Laws. Mr. Greenberg,
who vigorously denied all liability in this action and elected to settle this
matter in order to avoid the
14
<PAGE>
expense and inconvenience of further litigation, agreed at the time of the
settlement to partially reimburse the Company in the amount of $100,000 for the
payments made by the Company in this action. In calendar year 1998, Mr.
Greenberg made such reimbursement to the Company.
Dr. Zaidenweber (a director of the Company) serves as the Chairman of the
Board of Grupo Ambar, S.A. de C.V., a subsidiary of the Company ("Grupo Ambar").
Dr. Zaidenweber, who is a minority stockholder of Grupo Ambar, receives an
annual salary of approximately $290,000 for his service as Chairman of the Board
of Grupo Ambar.
During the 1998 fiscal year, the Company exercised its right of first
refusal under the 1990 Stockholders' Agreement and purchased, based upon the
prevailing market price, an aggregate of 141,000, 100,000 and 20,625 shares of
Common Stock from Messrs. Hayes, Fishman and Greenberg, respectively. The
aggregate purchase price for such shares purchased from Messrs. Hayes, Fishman
and Greenberg was $4,065,312, $2,590,625 and $603,281, respectively.
During the 1998 fiscal year, the Company entered into an option agreement
with Tucci Associates, Inc. (the "Optionor"), pursuant to which the Optionor
granted the Company the exclusive right to acquire certain proprietary
technology. Nathan Dry, the Company's Vice President of Commercial Products,
owns 24.5% of the capital stock, and is the President, of the Optionor. In
consideration for the grant of the option, the Company paid the Optionor
$225,000. If it elects to exercise the option, then the Company will be required
to make an additional payment to the Optionor of either $2,975,000 or $4,975,000
depending upon, among other things, whether a patent is ultimately issued
relating to the proprietary technology.
Pursuant to the Hofmann Purchase Agreement, the Company acquired during
the 1996 fiscal year 100% of the issued and outstanding capital stock of the
Hofmann Companies from Bruno Hofmann, a director of the Company. In addition to
the purchase price paid at the closing of such acquisition, the Company also
agreed to pay Mr. Hofmann additional consideration in accordance with a formula
based on the Company's price-earnings' multiple and the Hofmann Companies'
performance through the end of calendar year 2000 (the "Contingent Payment").
During the 1998 fiscal year, the Company and Mr. Hofmann entered into an
amendment to the Hofmann Purchase Agreement, pursuant to which the Company
agreed to pay Mr. Hofmann a fixed amount in lieu of any Contingent Payment.
Pursuant to such amendment, the Company paid Mr. Hofmann the amount of
$17,000,000 in February, 1998 and the amount of $17,283,297 in October, 1998 as
additional purchase price for the capital stock of the Hofmann Companies, all in
lieu of any Contingent Payment. In connection with the Company's acquisition of
the Hofmann Companies, Mr. Hofmann entered into an employment agreement with the
Hofmann Companies pursuant to the amended terms of which he will serve as
General Manager of the Hofmann Companies for a period ending on December 31,
2000. The Hofmann Companies, as a group, pay Mr. Hofmann an annual base salary
of $305,000 in consideration for such services. Under the terms of his amended
employment agreement, Mr. Hofmann is also eligible to receive a cash bonus of up
to 75% of his annual base salary based upon the Company's earnings per share
results. Since the Company's acquisition of the Hofmann Companies, Mr. Hofmann
has not received any cash bonus from either the Company or the Hofmann
Companies.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and any persons holding more than 10% of the Company's
equity securities, to file with the SEC and the New York Stock Exchange reports
disclosing their initial ownership of the Company's equity securities, as well
as subsequent reports disclosing changes in such ownership. To the Company's
knowledge, based solely on a review of such reports furnished to it and written
representations by certain reporting persons that no other reports were
required, during the 1998 fiscal year, the Company's directors, executive
officers and greater than 10% beneficial owners complied with all Section 16(a)
filing requirements, except that (i) Mr. Gillease, a director of the Company,
did not timely report the sale of 9,000 shares of Common Stock, (ii) Mr.
Hofmann, a director of the Company, did not timely report the sale of 30,000
shares of Common Stock, (iii) Mr. Wilson, a director of the Company, did not
timely report the purchase of 10,000 shares of Common Stock, (iv) Nathan Dry, an
executive officer of the Company, did not timely report the sale by his wife of
906
15
<PAGE>
shares of Common Stock and (v) Deborah Poole, an executive officer of the
Company, did not timely report an option exercise with respect to 1,000 shares
of Common Stock and the sale of an aggregate of 2,531 shares of Common Stock.
PROPOSED AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION
The Board of Directors has unanimously approved, and recommends to the
stockholders for their adoption, an amendment to the Restated Certificate of
Incorporation of the Company (the "Charter") which would increase the number of
authorized shares of Common Stock from 40,000,000 to 65,000,000 shares (the
"Charter Amendment"). If the Charter Amendment is adopted by the stockholders,
the first sentence of Article FOURTH of the Charter would be amended to read in
its entirety as follows:
FOURTH: The corporation shall be authorized to issue two classes of stock
to be designated, respectively, "Common Stock" and "Preferred Stock"; the
total number of shares of all classes of stock which the corporation shall
have authority to issue shall be sixty-six million (66,000,000); the total
number of shares of Common Stock shall be sixty-five million (65,000,000)
and the par value of each share of Common Stock shall be two cents ($.02);
and the total number of shares of Preferred Stock shall be one million
(1,000,000) and the par value of each share of Preferred Stock shall be one
dollar ($1.00).
At present, the Company is authorized by its Charter to issue 40,000,000
shares of Common Stock, par value $.02 per share, and 1,000,000 shares of
Preferred Stock, par value $1.00 per share. If the Charter Amendment is adopted,
the authorization pertaining to Common Stock would be increased to 65,000,000
shares; the authorization of Preferred Stock would be unchanged. Par value of
the Common Stock and the Preferred Stock would be unchanged.
As of December 18, 1998, there were 32,750,094 issued shares of Common
Stock, of which 23,135,342 were outstanding and entitled to vote and 9,614,752
shares were held in the Company's treasury. In addition, a total of 3,132,273
shares are reserved for issuance under the Option Plan and the Restricted Plan.
No shares of Preferred Stock have been issued by the Company.
If the Charter Amendment is approved, the number of authorized but
unissued shares of Common Stock not earmarked for any particular purpose will be
29,117,633 (excluding 9,614,752 shares held in the Company's treasury), and the
Board of Directors will have the authority to issue such shares of Common Stock
for any proper corporate purpose without further stockholder approval, unless
such approval is required by applicable law or by the New York Stock Exchange.
Such authorized but unissued shares of Common Stock could be issued to take
advantage of future opportunities for equity financing, in connection with
possible acquisitions, for stock splits, stock dividends and other stock
distributions and for other corporate purposes. The Company has no specific
acquisition plans at this time and, except for issuance of shares of Common
Stock in connection with the Option Plan and Restricted Plan, the Company has no
immediate plans to issue any such stock. No stockholder will have any preemptive
rights to purchase or subscribe for any shares of Common Stock which may be
issued.
Although the proposal to authorize additional shares of Common Stock is
being made for the reasons stated above, the newly authorized shares also would
be available for issuance by the Board of Directors without further stockholder
approval in response to an actual or threatened takeover bid. The issuance of
such shares could have the effect of diluting the stock ownership of persons
seeking to obtain control of the Company and, therefore, the Charter Amendment
may have the effect of discouraging efforts to gain control of the Company in a
manner not approved by the Board of Directors. The Board is not aware of any
pending or threatened takeover bid for the Company and the Charter Amendment was
not designed or intended by the Board to discourage takeover efforts. Because
the Charter Amendment may discourage some takeover attempts, stockholders could
be deprived of opportunities to sell their shares at an increased price that
might result from a takeover attempt.
The Charter Amendment described in this section requires, for approval,
the affirmative vote of the holders of sixty-six and two-thirds (66 2/3%) or
more of the shares of Common Sock outstanding and entitled to vote for the
election of directors.
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THE BOARD RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS
CONSIDER AND APPROVE THE CHARTER AMENDMENT
RATIFICATION OF THE SELECTION OF
INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING OCTOBER 3, 1999
The Board has selected Arthur Andersen LLP to serve as independent
auditors to audit the financial statements of the Company for the fiscal year
ending October 3, 1999 and recommends that stockholders vote to ratify such
selection. Representatives of Arthur Andersen LLP are expected to attend the
Annual Meeting and will be afforded an opportunity to make a statement and to
respond to appropriate questions.
THE BOARD RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS
RATIFY THE SELECTION OF ARTHUR ANDERSEN LLP
MISCELLANEOUS
Stockholder Proposals
Any stockholder who wishes to present a proposal for action at the next
annual meeting and who wishes to have it set forth in the Proxy Statement and
identified in the form of proxy prepared by the Company must notify the Company
in such manner so that such notice is received by the Company by August 25, 1999
and in such form as is required under the rules and regulations promulgated by
the SEC.
A proposal submitted by a stockholder outside of the process of SEC Rule
14a-8 will not be considered timely unless notice of such proposal is received
by the Company at its principal executive offices prior to the notice date set
forth in the Company's advance notice By-Law provision described in the
following paragraph. The proxy to be solicited on behalf of the Company's Board
of Directors for the annual meeting to be held in 2000 may confer discretionary
authority to vote on any such proposal not considered to have been timely
received that nonetheless properly comes before the 2000 annual meeting.
Under the By-Laws, in order for business to be properly brought before the
next annual meeting, notice of such business must be received by the Secretary
of the Company not less than 60 days and not more than 90 days prior to such
meeting (provided that if less than 70 days notice or prior public disclosure of
the date of the meeting is given to stockholders, notice of such business must
be received by the Secretary of the Company no later than ten days following the
day on which notice of the date of the meeting was mailed or such public
disclosure was made, whichever occurs first). Such notice must contain (i) a
brief description of the business and the reasons for conducting it at the
meeting, (ii) the name and address of the stockholder proposing such business,
(iii) a representation that the proposing stockholder is a holder of record and
the number of shares of the Company that are beneficially owned by such
stockholder and (iv) a description of any material interest of such stockholder
in such business. The chairman of the meeting may disregard any business that he
or she determines was not properly brought before the meeting in accordance with
the By-Laws.
The By-Laws also provide that if a stockholder of the Company intends to
nominate at a meeting one or more persons for election to the Board, notice of
such nomination must be received by the Secretary of the Company not less than
60 days and not more than 90 days prior to such meeting (provided that if less
than 70 days notice or prior public disclosure of the date of the meeting is
given to stockholders, such nomination must be received by the Secretary of the
Company no later than ten days following the day on which notice of the date of
the meeting was mailed or such public disclosure was made, whichever occurs
first). Such notice must contain (a) as to each proposed nominee, (i) the name,
age and business and residence address of such nominee, (ii) the principal
occupation of such nominee, (iii) the number of shares, if any, of the Company
that are beneficially owned by such nominee and (iv) any other information that
must
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be disclosed pursuant to the proxy rules of the SEC if such person had been
nominated by the Board and (b) as to the proposing stockholder, (i) the name and
address of such stockholder, (ii) a representation that the proposing
stockholder is a holder of record of shares of the Company entitled to vote at
the meeting and the number of shares of the Company that are beneficially owned
by such stockholder, (iii) a representation that the proposing stockholder
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice and (iv) a description of all arrangements and
understandings between the stockholder and each nominee pursuant to which the
nominations are to be made by the stockholder. The chairman of the meeting may
disregard any nomination that he or she determines was not made in accordance
with the foregoing procedures. Pursuant to an amendment adopted by the Board of
Directors in November, 1998, the By-Laws also provide that no director may serve
as such beyond the age of 70, except that directors serving as such on September
5, 1998 may serve until the later of the expiration of their current term of
office or age 72.
Annual Report on Form 10-K
Any stockholder of record on December 18, 1998 who desires a copy of the
Company's 1998 Annual Report on Form 10-K, as filed with the SEC, may obtain a
copy (excluding exhibits) without charge by addressing a request to the
Secretary, Guilford Mills, Inc., P. O. Box 26969, Greensboro, North Carolina
27419-6969. A charge equal to the reproduction cost will be made if the exhibits
are requested.
Other Matters
The Board is not aware of any matters to be presented for action at the
Annual Meeting other than those described herein and does not intend to bring
any other matters before the Annual Meeting. However, if other matters shall
come before the Annual Meeting, it is intended that the holders of proxies
solicited hereby will vote thereon in their discretion.
By Order of the Board of Directors
/s/ Sherry R. Jacobs
--------------------------------
Sherry R. Jacobs
Secretary
Dated: December 24, 1998
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