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 April 4, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 April 4, 1999 - 22,560,481
<PAGE>
GUILFORD MILLS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 4, 1999
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 27, 1998 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 27, 1998.
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. For comparative purposes, certain amounts have been
reclassified to conform to fiscal 1999 presentation. The following condensed
consolidated financial statements are included:
Consolidated Statements of Income for the thirteen weeks ended April 4, 1999
and March 29, 1998
Consolidated Statements of Income for the twenty-seven weeks ended
April 4, 1999 and the twenty-six weeks ended March 29, 1998
Condensed Consolidated Balance Sheets as of April 4, 1999 and
September 27, 1998
Condensed Consolidated Statements of Cash Flows for the twenty-seven
weeks ended April 4, 1999 and the twenty-six weeks ended March 29, 1998
Condensed Notes to Consolidated Financial Statements
<PAGE>
Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Thirteen Weeks Ended April 4, 1999 and March 29, 1998
(In thousands except per share data)
(Unaudited)
------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 4, March 29,
1999 1998
------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 218,270 $ 228,448
------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods sold 180,264 186,259
Selling and administrative 25,984 25,033
------------------------------------------------------------------------
206,248 211,292
------------------------------------------------------------------------
OPERATING INCOME 12,022 17,156
INTEREST EXPENSE 4,246 2,993
OTHER EXPENSE, NET 1,630 97
------------------------------------------------------------------------
INCOME BEFORE INCOME TAX PROVISION 6,146 14,066
INCOME TAX PROVISION 1,391 4,813
------------------------------------------------------------------------
NET INCOME $ 4,755 $ 9,253
========================================================================
NET INCOME PER SHARE:
Basic $ .21 $ .36
Diluted .21 .36
========================================================================
DIVIDENDS PER SHARE $ .11 $ .11
========================================================================
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Twenty-Seven Weeks Ended April 4, 1999
and Twenty-Six Weeks Ended March 29, 1998
(In thousands except per share data)
(Unaudited)
------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 4, March 29,
1999 1998
(27 Weeks) (26 Weeks)
------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 433,183 $ 441,825
------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods sold 359,024 361,103
Selling and administrative 53,383 50,832
------------------------------------------------------------------------
412,407 411,935
------------------------------------------------------------------------
OPERATING INCOME 20,776 29,890
INTEREST EXPENSE 8,373 5,609
OTHER EXPENSE, NET 2,707 244
------------------------------------------------------------------------
INCOME BEFORE INCOME TAX PROVISION 9,696 24,037
INCOME TAX PROVISION 2,578 8,293
------------------------------------------------------------------------
NET INCOME $ 7,118 $ 15,744
========================================================================
NET INCOME PER SHARE:
Basic $ .31 $ .62
Diluted .31 .61
========================================================================
DIVIDENDS PER SHARE $ .22 $ .22
========================================================================
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Guilford Mills, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
April 4, 1999 and September 27, 1998
(In thousands)
------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 4, September 27,
1999 1998
(Unaudited)
------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 13,700 $ 30,447
Accounts receivable, net 168,854 164,555
Inventories 150,512 153,006
Other current assets 12,280 13,901
------------------------------------------------------------------------
Total current assets 345,346 361,909
------------------------------------------------------------------------
Property, net 323,898 326,941
Other assets 104,107 100,607
------------------------------------------------------------------------
Total assets $ 773,351 $ 789,457
========================================================================
LIABILITIES
Short-term borrowings $ 61,463 $ 55,128
Current maturities of long-term debt 637 811
Other current liabilities 97,069 94,692
------------------------------------------------------------------------
Total current liabilities 159,169 150,631
------------------------------------------------------------------------
Long-term debt 176,600 176,872
Other non-current liabilities 60,701 76,777
------------------------------------------------------------------------
Total long-term liabilities 237,301 253,649
------------------------------------------------------------------------
STOCKHOLDERS' INVESTMENT
Common stock 655 655
Capital in excess of par 119,749 119,648
Retained earnings 365,641 363,606
Other comprehensive income (9,475) (7,577)
Other stockholders' investment (99,689) (91,155)
------------------------------------------------------------------------
Total stockholders' investment 376,881 385,177
------------------------------------------------------------------------
Total liabilities and
stockholders' investment $ 773,351 $ 789,457
=========================================================================
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Guilford Mills, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Twenty-Seven Weeks Ended April 4, 1999
and the Twenty-Six Weeks Ended March 29, 1998
(In thousands)
(Unaudited)
------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 4, March 29,
1999 1998
(27 Weeks) (26 Weeks)
------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 7,118 $ 15,744
Depreciation and amortization 32,713 32,232
Other adjustments to net income, net 5,157 (2,478)
Net changes in operating assets
and liabilities (3,241) (33,132)
------------------------------------------------------------------------
Net cash provided by operating
activities 41,747 12,366
------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property (31,728) (38,373)
Additions to acquisition purchase
price -- (34,000)
Other investing activities, net 3,821 7,677
------------------------------------------------------------------------
Net cash used in investing activities (27,907) (64,696)
------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (repayments), net 6,234 46,307
Payment of long-term debt (145,308) (13,374)
Proceeds from issuance of long-term debt,
net of deferred financing cost paid 140,233 --
Other financing activities, net (31,475) 9,680
------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (30,316) 42,613
========================================================================
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (271) 363
------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (16,747) (9,354)
------------------------------------------------------------------------
BEGINNING CASH AND CASH EQUIVALENTS 30,447 24,349
ENDING CASH AND CASH EQUIVALENTS $13,700 $14,995
========================================================================
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
GUILFORD MILLS, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 4, 1999
(In thousands except share data)
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. Foreign Currency Translation -- The Company has a majority-owned foreign
subsidiary that operates in Mexico. Effective January 1, 1999, Mexico's economy
was no longer considered highly inflationary for financial reporting purposes
because the cumulative Mexican inflation rate for the immediately preceding
three years fell below 100%. As a result, the functional currency for the
subsidiary returned to the Mexican peso from the U.S. dollar during the
Company's second quarter of fiscal 1999. Translation adjustments appear as Other
Comprehensive Income in the stockholders' investment section of the balance
sheet and not in the results of operations. This change in accounting treatment
was not material to the financial position or results of operations of the
Company for the six-month period or quarter ended April 4, 1999 and is not
expected to have a material impact on the future financial position or results
of operations of the Company.
3. Per Share Information -- 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 thirteen weeks ended April 4, 1999 and March 29, 1998 were 22,478,000 and
25,444,000, respectively. The average shares used in computing basic net income
per share for the twenty-seven weeks ended April 4, 1999 and twenty-six weeks
ended March 29, 1998 were 22,654,000 and 25,448,000, respectively.
Diluted earnings per share information also considers the dilutive effect of
stock options and restricted stock grants. The average shares used in computing
diluted net income per share for the thirteen weeks ended April 4, 1999 and
March 29, 1998 were 22,491,000 and 25,889,000, respectively. The average shares
used in computing diluted net income per share for the twenty-seven weeks ended
April 4, 1999 and the twenty-six weeks ended March 29, 1998 were 22,672,000 and
25,874,000, respectively.
The difference between the number of average shares used to calculate basic and
diluted earnings per share is due entirely to the number of outstanding stock
options and restricted stock. During the second quarter and first six months of
fiscal 1999, certain stock options were antidilutive and not included in the
calculation of diluted net income per share.
The Company has authorized 1,000,000 shares of $1 par preferred stock. As of
April 4, 1999 and September 27, 1998 no such shares were issued.
4. Inventories -- Inventories are carried at the lower of cost or market. Cost
is determined 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 April 4, 1999 and September 27, 1998 consisted of the following:
<TABLE>
<CAPTION>
April 4, September 27,
1999 1998
------------- --------------
<S> <C> <C>
Finished goods $ 51,047 $ 48,776
Raw materials and work in process 103,180 112,275
Manufacturing supplies 8,355 8,811
------------- --------------
Total inventories valued at FIFO cost 162,582 169,862
Adjustments to reduce FIFO cost to
LIFO cost, net (12,070) (16,856)
------------- --------------
Total inventories $150,512 $153,006
</TABLE>
============= ===============
5. Accumulated Depreciation -- Accumulated depreciation at April 4, 1999 and
September 27, 1998 was $474,766 and $457,232, respectively.
<PAGE>
6. Restructuring Charges -- During 1998, the Company recorded $2,962 as an
accrued liability for severance costs, lease exit costs and other obligations as
a result of restructuring two of its operations. During the first half of fiscal
1999, charges against the accrual totaled $1,937.
7. Long-term Debt -- On December 18, 1998, the Company issued $145,000 of
unsecured, ten-year notes with a fixed coupon rate of 7.06%. The net proceeds
were used to repay a portion of the Company's outstanding borrowings on its
uncommitted lines of credit and its revolving credit facility. A payment of
$4,366 was made during the first fiscal quarter of 1999 for the termination of
treasury lock agreements, which were used to fix the interest rate on a portion
of the notes. Such payment is being amortized as additional interest expense
over the period of the related debt.
8. Comprehensive Income -- For the thirteen weeks ended April 4, 1999 and March
29, 1998, total comprehensive income was $3,913 and $9,381, respectively.
Included in total comprehensive income is net income of $4,755 and $9,253 and
foreign currency translation gain/(loss) of ($842) and $128. Comprehensive
income was $ 5,220 and $17,434, consisting of net income of $7,118 and $15,744
and foreign currency translation gain/(loss) of ($1,898) and $1,690 for the
six-month periods ended April 4, 1999 and March 29, 1998, respectively.
9. Income Taxes -- The income tax provision as a percentage of pre-tax income
for the six months ended April 4, 1999 was 26.6%. The estimated effective tax
rate for fiscal 1999 has been reduced due to a one-time net benefit derived from
a dividend paid by the Company's United Kingdom subsidiary to the parent under
the Advance Corporation Tax rules and the US-UK Income Tax Treaty.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
The second quarter periods of fiscal 1999 and 1998 each consisted of thirteen
weeks. The six-month period of fiscal 1999 consisted of twenty-seven weeks. The
six-month period of fiscal 1998 had twenty-six weeks.
Sales for the second quarter of fiscal 1999 were $218.3 million, a decrease of
$10.1 million, or 4.4%, compared to sales of $228.4 million for the comparable
period of the prior year. Sales for the six months ended April 4, 1999 were
$433.2 million, a decrease of $8.6 million, or 1.9%, compared to sales of $441.8
million for the six months ended March 29, 1998.
For the quarter ended April 4, 1999, sales in the apparel market sector
decreased 1.5%, to $85.0 million compared to $86.3 million in the previous year.
Mature commodity fabrics such as linings, sleepwear and robewear experienced the
most significant declines from the second quarter of fiscal 1998. An increase in
imported garments, especially from Asia, and softened consumer demand caused the
decrease in sales of these fabrics. Offsetting these decreases were improvements
in ready-to-wear and elastics/intimate apparel sales as a result of the focus on
strategic accounts and certain sales initiatives. For the six months ended April
4, 1999, sales in the apparel market increased to $166.4 million, an improvement
over sales of $161.1 million for the same period of the prior year. The year
over year increase was predominately due to increased sales of the Company's
ready-to-wear fabrics.
Sales of worldwide automotive fabrics increased 4.1% for the second quarter of
fiscal 1999 to $89.8 million as compared to $86.3 million for the same quarter
of the previous year. This increase was due to significant increases in U.S.
automotive headliner sales as the automotive market remained strong and due to
the supply of bodycloth for several popular models. While U.S. market sales
volume increased, the Company continued to experience pricing pressure. Foreign
automotive sales declined mainly due to the loss of business in Mexico and the
decline of a key customer's market share in Europe. Automotive sales for the
first half of fiscal 1999 increased 3.7% to $178.5 million from $172.1 million
due to the strength of the U.S. automotive market.
Home fashion sales for the quarter ended April 4, 1999 decreased by 10.4% to
$32.6 million from $36.4 million in the prior year. Lower demand for the
Company's cotton jersey knit sheeting, due to low-cost imports, significantly
impacted sales during fiscal 1999. Home fashion sales for the first six-months
of fiscal 1999 declined 11.6% and were $66.5 million compared to $75.2 million
in the first six-months of fiscal 1998.
Sales of Industrial/Specialty market fabrics for the second quarter of fiscal
1999 declined by 43.8% to $10.9 million as compared to $19.4 million for the
second quarter of fiscal 1998. This decline was primarily attributable to the
loss of hook and loop closure fabric sales in the European market, which were
sourced by a local supplier. During the first fiscal quarter of 1999, the
Company ceased production of nylon fiber, which also contributed to the decline
in the sales volume. For the six-month period ended April 4, 1999,
Industrial/Specialty sales declined 34.7% to $21.8 million from $33.4 million
for the comparable period of the prior year. This decline was also primarily the
result of lower hook and loop closure fabric sales and the discontinuance of
nylon fiber production.
Gross margin for the second quarter of fiscal 1999 was $38.0 million, or 17.4%
of net sales, down from $42.2 million, or 18.5% of net sales from the comparable
period in fiscal 1998. Gross margin for the quarter ended April 4, 1999 was
impacted by volume declines in certain domestic apparel and fibers facilities
and in all international facilities in the UK and Mexico. The Company
significantly reduced fixed costs in its operations and continued to obtain
price reductions from suppliers to offset the pricing pressures experienced in
several markets. Also offsetting the negative operating impacts during the
quarter was the alignment of incentive compensation accruals with current
operating expectations. Gross margin for the first six months of fiscal 1999
decreased to $74.2 million, or 17.1% of net sales, compared to $80.7 million, or
18.3% of net sales, for the first six months of fiscal 1998. In addition to the
reasons cited above, gross margins for the first six months of fiscal 1999 were
negatively impacted by the shutdown expenses of a yarn manufacturing facility
and start-up costs in Brazil.
For the quarter ended April 4, 1999, selling and administrative expenses were
$26.0 million, or 11.9% of net sales, compared to $25.0 million, or 11.0% of net
sales, for the same quarter one year ago. The increase in selling and
administrative expenses for the second quarter of fiscal 1999 was attributable
to additional bad debt provision for a potential uncollectible accounts
receivable of a substantial customer in the apparel sector and increased
professional fees to improve operational efficiencies in the Home Fashions
sector. Selling and administrative expenses increased to $53.4 million, or 12.3%
of net sales, for the six months ended April 4, 1999, compared to $50.8 million,
or 11.5% of net sales, for the same period a year ago. The fiscal 1999 increase
was caused by the aforementioned reasons.
Interest expense for the quarter ended April 4, 1999, was $4.2 million compared
to $3.0 million for the quarter ended March 29, 1998. The increase in interest
expense was primarily attributable to additional long-term debt as a result of
the Company's share buyback. Interest expense for the six months ended April 4,
1999 was $8.4 million compared to $5.6 million for the same period one year ago.
This increase was also attributable to the additional long-term debt to cover
the share buyback.
Operating losses of an equity investee caused other expense, net to increase to
$1.6 million in the quarterly period ended April 4, 1999 compared to $0.1
million for the quarter ended March 29, 1998. Other expense, net for the six
months ended April 4, 1999 was $2.7 million compared to $0.2 million for the
comparable fiscal 1998 period. Operating losses of an equity investee and
non-recurring 1998 fixed asset sales and insurance proceeds caused the change.
Income tax expense for the first six months of 1999 was $2.6 million, or 26.6%
of income before income taxes, compared to $8.3 million, or 34.5% of income
before income taxes for the same period one year ago. The reduction in the
effective tax rate was due to a one-time net benefit derived from a dividend
paid by the Company's United Kingdom subsidiary to its parent company under the
Advance Corporation Tax rules and the US-UK Income Tax Treaty.
For the quarter ended April 4, 1999, net income was $4.8 million, or $.21 per
diluted share, compared to net income of $9.3 million, or $.36 per diluted
share, for the same quarter a year ago. Net income for the six months ended
April 4, 1999 was $7.1 million, or $.31 per diluted share, compared to $15.7
million, or $.61 per diluted share, for the comparable period of the previous
year.
Restructuring charges of $6.5 million were recorded during the fourth quarter of
fiscal 1998 for the restructuring of two of the Company's operations. The
restructuring plan provided for the closing of a yarn manufacturing facility,
downsizing of a product line-focused operation, the write-down of impaired
assets and the payment of severance costs, lease exit costs and other
obligations. During fiscal 1998, charges of $3.8 million for impaired assets and
severance costs were taken against the reserve. During fiscal 1999, the company
closed the yarn manufacturing facility, substantially downsized the operation
within the apparel sector and paid the majority of severance costs. Charges
against the reserve during fiscal 1999 were $1.9 million. The remaining
severance costs will be paid out by the end of fiscal year 1999.
Liquidity and Capital Requirements
- ----------------------------------
At April 4, 1999, working capital was $186.2 million compared to $211.3 million
at September 27, 1998. The decrease in working capital was due to a decrease in
cash and an increase in short-term borrowings used for the Company's share
repurchase program and the final 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 available uncommitted lines of credit aggregating over $215 million,
and the ability to receive advances against its factored accounts receivable. At
April 4, 1999, borrowing availability against the Company's revolving credit
facility was $100 million and availability under its uncommitted bank lines of
credit was $176.3 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.
On December 18, 1998, the Company issued $145 million of unsecured, ten-year
notes with a fixed coupon rate of 7.06%. The net proceeds were used to repay a
portion of the Company's outstanding borrowings on its uncommitted lines of
credit and its revolving credit facility.
During the first six months of fiscal 1999, the Company repurchased 588,393
shares of the Company's common stock at an average price of $15.85 per share.
The Company's repurchases of shares were recorded as treasury stock and resulted
in a reduction in stockholder's equity. As of April 4, 1999, the Company had
repurchased a total of 3,123,593 shares (of the authorized 3,500,000 shares) at
an average price of $16.32 per share.
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
April 4, 1999, environmental accruals amounted to $4.4 million of which $3.4
million is non-current and is included in other deferred liabilities in the
balance sheet.
Several purported class action lawsuits have been filed on behalf of purchasers
of the Company's common stock against the Company and certain of its officers
and directors. These lawsuits were consolidated by order of the Court on January
8, 1999. A Consolidated and Amended Class Action Complaint was filed on February
8, 1999. The Consolidated Complaint purports to allege claims under Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder, in connection with the Company's public disclosure of
accounting irregularities at the Hofmann Laces unit in fiscal year 1998.
Specifically, the Consolidated Complaint alleges that, during the alleged class
period (January 20, 1998 through October 26, 1998), defendants materially
misrepresented the Company's financial condition and overstated the Company's
reported earnings. No specific amount of damages is sought in the Consolidated
Complaint. On April 9, 1999, defendants filed a motion to dismiss the
Consolidated Complaint. On May 7, 1999, plaintiffs filed their opposition to the
motion to dismiss. Defendants have until May 27, 1999 to file a reply. The
Company intends to vigorously defend the lawsuits. It is management's opinion,
based upon the facts presently known, 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.
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.
Year 2000
- ---------
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. Based
upon recently completed Year 2000 compliance assessments of both internal
information technology and embedded systems for the Company's facilities,
equipment and infrastructure, the Company expects to successfully implement any
necessary systems and programming changes prior to the turn of the century in
its domestic and international operations. The planning, inventory and impact
analysis phases have been completed. The Company is currently in the
remediation/testing phase of the project and expects to complete the final
testing phase by July 1999. A contingency plan is being drafted that will be
subject to refinements throughout the remainder of 1999. Suppliers with whom the
Company has material relationships have been contacted to determine their Year
2000 readiness.
The Company has spent $0.8 million to date for Year 2000 readiness. Management's
current estimate for the total cost of Year 2000 compliance tasks is $1.4
million. This amount has been included in the Company's operating budget and is
not from the deferral of other information technology projects. The estimated
amount for the Year 2000 compliance project is relatively low due to the
Company's commitment five years ago to reengineer the existing business
processes and information systems. As a result, some costs that otherwise would
have been associated with Year 2000 readiness issues were previously expensed
during the Company's reengineering period.
To further ensure the overall success of the Company's Year 2000 efforts, a
contingency plan is being developed to address internal and external risks such
as failures within the operational systems, financial systems, embedded or plant
floor control systems, spreadsheets, suppliers, customers, financial service
providers and other miscellaneous internal or external risks. Specific
contingency procedures will be developed and documented during the summer and
verified throughout the remaining calendar year. To the extent that suppliers
are not compliant or have not responded to the Company's compliance
questionnaires (80% positive rate achieved), alternatives are being included in
the contingency plan. The contingency plan will include use of manual
intervention and alternate power sources as necessary to minimize disruptions in
the operating and financial systems. Alternate suppliers and safety stock will
be used where appropriate to provide raw materials if current suppliers
experience business interruptions. Customer order coordination may be used to
reduce the amount of lost revenue. The contingency plan will also include the
development of Contingency Assurance Plans and Contingency Assurance Teams to
address unforeseen Year 2000 problems during the transition period between 1999
and 2000.
The reasonably likely worst case scenario that could arise as a result of
service suppliers' Year 2000 problems would be an interruption of normal
business operations. The worst case scenario would include an interruption in
utility services that would halt the manufacturing process. To the Company's
advantage, the majority of the Company's manufacturing facilities normally do
not operate during the last few days before and after a new year. Accordingly,
if a loss of utility service occurs but is resolved during the first few days of
2000, the interruption to the production process will be more limited than
otherwise would be the case. However, if lost utility services prevent
manufacturing for several days, a loss of revenue might result. The amount of
lost revenue would depend on the amount of deliverable goods in inventory. There
can be no assurance that there will not be a delay in, increased costs or a
material disruption of business activities associated with Year 2000 readiness.
Foreign Currency Translation
- ----------------------------
The Company has a majority-owned foreign subsidiary that operates in Mexico,
Grupo Ambar S.A. de C. V. Effective January 1, 1999, Mexico's economy was no
longer considered "highly inflationary" for financial reporting purposes because
the cumulative Mexican inflation rate for the immediately preceding three years
fell below 100%. As a result, the functional currency for Grupo Ambar S.A. de C.
V. returned to the Mexican peso from the U.S. dollar during the Company's second
quarter of fiscal 1999. Translation adjustments appear as Other Comprehensive
Income in the stockholders' investment section of the balance sheet and not in
the results of operations. This change in accounting treatment was not material
to the results of operations or financial position of the Company as of or for
the six-month period or quarter ended April 4, 1999 and is not expected to have
a material impact on the future results of operations or financial position of
the Company.
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 of 1933 and Section 21E of the Exchange Act of 1934.
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. information and technological advances including Year 2000 issues
5. cost and availability of raw materials, labor and natural and other
resources
6. domestic and foreign competition
7. domestic and foreign governmental regulations and trade policies
8. reliance on major customers
9. success of marketing, advertising and promotional campaigns
10. inability to achieve cost reductions through consolidation and
restructuring of acquired companies
<PAGE>
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 27, 1998, which item is incorporated herein by
reference, as modified by this report on Form 10-Q.
Items 2. - 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No.
- ----------
3(a) Restated Certificate of Incorporation of the Company dated November 18,
1983 (filed herewith)
3(b) Certificate of Amendment of Certificate of Incorporation of the Company,
dated December 28, 1986 (filed herewith)
3(c) Certificate of Amendment of Certificate of Incorporation of the Company,
dated January 4, 1988 (filed herewith)
3(d) Certificate of Amendment of Certificate of Incorporation of the Company
dated February 4, 1999 (filed herewith)
4(a) Appointment of Successor Rights Agent, April 1, 1999, between the Company
and American Stock Transfer & Trust Company (filed herewith)
(b) Reports on Form 8-K: Not applicable.
<PAGE>
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 19, 1999 By: /s/ Terrence E. Geremski
-----------------------------
Terrence E. Geremski
Executive Vice President/
Chief Financial Officer
<PAGE>
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 19, 1999 By:
----------------------
Terrence E. Geremski
Executive Vice President/
Chief Financial Officer
EXHIBIT 3(a)
RESTATED CERTIFICATE OF INCORPORATION
OF
GUILFORD MILLS, INC.
This Restated Certificate of Incorporation of Guilford Mills, Inc.
(hereafter called the "Corporation") was duly adopted in accordance with the
provisions of Section 245 of the Delaware General Corporation Law. The original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on August 4, 1971. This Restated Certificate of
Incorporation was adopted by the Board of Directors of the Corporation without a
vote of stockholders and only restates and integrates and does not further amend
the provisions of the Corporation's Certificate of Incorporation as heretofore
amended or supplemented, and there is no discrepancy between those provisions
and the provisions of this Restated Certificate of Incorporation.
FIRST: The name of the Corporation is GUILFORD MILLS, INC.
SECOND: The address, including street number, city and county of the
registered office of the Corporation in the State of Delaware is 229 South State
Street, City of Dover, County of Kent; and the name of the registered agent of
the Corporation in the State of Delaware at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The nature of the business and of the purposes to be conducted
and promoted by the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
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 twenty-one million (21,000,000); the total number of
shares of Common Stock shall be twenty million (20,000,000) and the par value of
each share of Common Stock shall be two cents ($0.02); 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).
The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby expressly vested with authority to
fix by resolution or resolutions the designations and the powers, preferences
and relative participating, optional or other rights, if any, and the
qualifications, limitations or restrictions thereof, including, without
limitation, the voting powers, if any, the dividend rate, conversion rights,
redemption price or liquidation preference, of any series of Preferred Stock,
and to fix the number of shares constituting any such series and to increase or
decrease the number of shares of any such series (but not below the number
shares thereof then outstanding).
FIFTH: The name and the mailing address of the incorporator is as
follows:
Name Mailing Address
---- ---------------
Stephen E. Jacobs c/o Weil, Gotshal & Manges
767 Fifth Avenue
New York, NY 10022
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the Corporation, including the election of the Chairman of the Board
of Directors, if any, the President, the Treasurer, the Secretary, and other
principal officers of the Corporation, shall be vested in its Board of
Directors. The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the By-Laws. The
phrase "whole Board" and the phrase "total number of directors" shall be deemed
to have the same meaning, to wit, the total number of directors which the
Corporation would have if there were no vacancies. No election of directors need
be by written ballot.
2. The Board of Directors shall be divided into three classes,
as nearly equal in number as possible, with the term of office of one class
expiring each year. At the 1983 annual meeting of stockholders, directors of the
first class shall be elected to hold office for a term expiring at the next
succeeding annual meeting, directors of the second class shall be elected to
hold office for a term expiring at the second succeeding annual meeting and
directors of the third class shall be elected to hold office for a term expiring
at the third succeeding annual meeting. At each annual meeting of stockholders
following such initial classification and election, directors elected to succeed
those directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election.
NINTH: Special Meetings of stockholders of the Corporation may
be called only by the Board of Directors pursuant to a resolution approved by a
majority of the whole Board of Directors.
TENTH: 1. (A) In addition to any affirmative vote required by
law or this Certificate of Incorporation, and except as otherwise expressly
provided in paragraph 2 of this Article Tenth:
(i) any merger or consolidation of the
Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested
Stockholder (as hereinafter defined) or (b) any other corporation (whether or
not itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of an Interested
Stockholder; or
(ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder or any Affiliate of any
Interested Stockholder of any assets of the Corporation or any Subsidiary having
an aggregate Fair Market Value (as hereinafter defined)of $2,000,000 or more; or
(iii) the issuance or transfer by the
Corporation or any Subsidiary (in one transaction or a series of transactions)
of any securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested Stockholder in exchange for cash,
securities or other property (or a combination thereof)having an aggregate Fair
Market Value of $2,000,000 or more; or
(iv) the adoption of any plan or proposal
for the liquidation or dissolution of the Corporation proposed by or on behalf
of an Interested Stockholder or any Affiliate of any Interested Stockholder; or
(v) any reclassification of
securities (including any reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding shares of
any class of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any Interested Stockholder
or any Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least eighty percent
(80%) of the then outstanding shares of capital stock entitled to vote for the
election of directors of the Corporation authorized to be issued from time to
time under Article Fourth of this Certificate of Incorporation (the "Voting
Stock"), voting together as a single class. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise. Notwithstanding any other provision of this
Certificate of Incorporation to the contrary, for purposes of this Article
Tenth, each share of the Voting Stock shall have one vote.
(B) The term "Business Combination" as used in this
Article Tenth shall mean any transaction which is referred to in any one or more
of clauses (i) through (v) of subparagraph (A) of this paragraph 1.
2. The provisions of paragraph 1 of this Article Tenth shall
not be applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote as is required by law and
any other provision of this Certificate of Incorporation, if all of the
conditions specified in either of the following subparagraphs (A) and (B) are
met:
(A) The Business Combination shall have been approved
by a majority of the Continuing Directors (as hereinafter defined); provided,
however, that such approval shall only be effective if obtained at a meeting at
which a Continuing Director Quorum (as hereinafter defined) is present.
(B) All of the following conditions shall have been
met:
(i) the aggregate amount of (x) cash
and (y) Fair Market Value as of the date of the consummation of the Business
Combination of consideration other than cash, to be received per share by
holders of Common Stock in such Business Combination shall be at least equal to
the highest amount determined under sub-clauses (a), (b)and (c) below:
(a) (if applicable) the
highest per share price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder for any share of
Common Stock acquired by it (1) within the two year period immediately prior to
the first public announcement of the proposal of the Business Combination (the
"Announcement Date") or (2) in the transaction in which it became an Interested
Stockholder, whichever is higher;
(b) the Fair Market Value per
share of Common Stock on the Announcement Date or on the date on which the
Interested Stockholder became an Interested Stockholder(such latter date is
referred to in this Article Tenth as the "Determination Date"), whichever is
higher; and
(c) (if applicable) the price
per share equal to the Fair Market Value per share of Common Stock determined
pursuant to sub-paragraph (B)(i)(b) above, multiplied by the ratio of (1) the
highest per share price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder for any shares of
Common Stock acquired by it within the two year period immediately prior to the
Announcement Date to (2) the Fair Market Value per share of Common Stock on the
first day in such two year period on which the Interested Stockholder acquired
any shares of Common Stock.
(ii) the aggregate amount of (x) cash and
(y) Fair Market Value as of the date of the consummation of the Business
Combination of consideration other than cash, to be received per share by
holders of shares of any class of outstanding Preferred Stock (as hereinafter
defined) shall be at least equal to the highest amount determined under
sub-clauses (a), (b), (c) and (d) below:
(a) (if applicable) the
highest per share price including any brokerage commissions, transfer taxes and
soliciting dealers' fees paid by the Interested Stockholder for any shares of
such class of Preferred Stock acquired by it (1) within the two year period
immediately prior to the Announcement Date or (2) in the transaction in which it
became an Interested Stockholder, whichever is higher;
(b) the highest preferential
amount per share to which the holders of shares of such class of Preferred Stock
would be entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, regardless of
whether the Business Combination to be consummated constitutes such an event;
(c) the Fair Market Value
per share of such class of Preferred Stock on the Announcement Date or on the
Determination Date, whichever is higher; and
(d) (if applicable) the price
per share equal to the Fair Market Value per share of such class of Preferred
Stock determined pursuant to subparagraph (B)(ii)(c)above, multiplied by the
ratio of (1) the highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder
for any shares of such class of Preferred Stock acquired by it within the two
year period immediately prior to the Announcement Date to (2) the Fair Market
Value per share of such class of Preferred Stock on the first day in such two
year period upon which the Interested Stockholder acquired any shares of such
class of Preferred Stock.
The provisions of this subparagraph (B)(ii) shall be required
to be met with respect to every class of outstanding Preferred Stock, whether or
not the Interested Stockholder has previously acquired any shares of a
particular class of Preferred Stock.
(iii) the consideration to be received by
holders of a particular class of outstanding Voting Stock shall be in cash or in
the same form as the Interested Stockholder has previously paid for shares of
such class of Voting Stock. If the Interested Stockholder has paid for shares of
any class of Voting Stock with varying forms of consideration, the form of
consideration for such class of Voting Stock shall be either cash or the form
used to acquire the largest number of shares of such class of Voting Stock
previously acquired by it.
(iv) after such Interested Stockholder has
become an Interested Stockholder and prior to the consummation of such Business
Combination:
(a) except as approved by a
majority of the Continuing Directors, there shall have been no failure to
declare and pay at the regular date therefor any full quarterly dividends
(whether or not cumulative) on the outstanding Preferred Stock;
(b) there shall have been (1) no
reduction in the annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except as approved by
a majority of the Continuing Directors, and (2) an increase in such annual rate
of dividends as necessary to reflect any reclassification (including any reverse
stock split), recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of the Common Stock,
unless the failure to so increase such annual rate is approved by a majority of
the Continuing Directors; and
(c) such Interested Stockholder
shall not have become the beneficial owner of any additional shares of Voting
Stock except as part of the transaction which results in such Interested
Stockholder becoming an Interested Stockholder. The approval by a majority of
the Continuing Directors of any exception to the requirements set forth in
clauses (a) and (b) above shall only be effective if obtained at a meeting at
which a Continuing Director Quorum is present.
(v) after such Interested Stockholder has
become an Interested Stockholder, such Interested Stockholder shall not have
received the benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other advantages provided by the Corporation,
whether in anticipation of or in connection with such Business Combination or
otherwise.
(vi) a proxy or information statement
describing the proposed Business Combination and
complying with the requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (or any subsequent provisions
replacing such Act, rules or regulations) shall be mailed to public stockholders
of the Corporation at least 30 days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is required to
be mailed pursuant to such Act or subsequent provisions).
3. For the purposes of this Article Tenth:
(A) The term "person" shall mean any individual,
firm, corporation or other entity.
(B) The term "Interested Stockholder" shall mean any
person (other than the Corporation or any
Subsidiary and other than any profit-sharing, employee stock ownership or other
employee benefit plan of the Corporation or any Subsidiary or any trustee of or
fiduciary with respect to any such plan when acting in such capacity) who or
which:
(i) is the beneficial owner (as
hereinafter defined) of more than ten percent (10%) of the Voting Stock; or
(ii) is an Affiliate (as hereinafter
defined) of the Corporation and at any time within the two year period
immediately prior to the date in question was the beneficial owner of ten
percent (10%) or more of the Voting Stock;
or
(iii) is an assignee of or has otherwise
succeeded to any shares of Voting Stock which were at any time within the two
year period immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have occurred in
the course of a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933, as amended.
(C) A person shall be a "beneficial owner" of any
Voting Stock:
(i) which such person or any of its
Affiliates or Associates (as hereinafter defined) beneficially owns, directly or
indirectly; or
(ii) which such person or any of its
Affiliates or Associates has, directly or indirectly, (a) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (b) the right to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which are beneficially owned, directly
or indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of Voting
Stock.
(D) For the purposes of determining whether a person
is an Interested Stockholder pursuant to subparagraph (B) of this paragraph 3,
the number of shares of Voting Stock deemed to be outstanding shall include
shares deemed owned through subparagraph (C) of this paragraph 3 but shall not
include any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
(E) The terms "Affiliate" or "Associate" shall have
the respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as in effect on
August 1, 1983.
(F) The term "Subsidiary" means any Corporation of
which a majority of any class of equity security is owned directly or
indirectly, by the Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in subparagraph (B) of this
paragraph 3, the term "Subsidiary" shall mean only a Corporation of which a
majority of each class of equity security is owned, directly or indirectly, by
the Corporation.
(G) The term "Continuing Director" means any member
of the Board of Directors of the Corporation (the "Board") who is unaffiliated
with the Interested Stockholder and who was either serving on the Board on
September 30, 1983 or who was a member of the Board prior to the time that the
Interested Stockholder became an Interested Stockholder, and any successor of a
Continuing Director who is unaffiliated with the Interested Stockholder and is
recommended or elected to succeed a Continuing Director by a majority of
Continuing Directors, provided that such recommendation or election shall only
be effective if made at a meeting at which a Continuing Director Quorum is
present.
(H) The term "Continuing Director Quorum" means
sixty-six and two-thirds percent (66 2/3%) of all Continuing Directors capable
of exercising the powers conferred upon them under the provisions of the
Certificate of Incorporation or By-Laws of the Corporation or by law.
(I) The term "Fair Market Value" means: (i) in the
case of stock, the highest closing sale price during the 30 day period
immediately preceding the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange Listed Stocks, or, if such stock is
not quoted on the Composite Tape, on the New York Stock Exchange, or, if such
stock is not listed on such Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934 on which such
stock is listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such stock during the
30 day period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in use,
or if no such quotations are available the fair market value on the date in
question of a share of such stock as determined by the Board in good faith; and
(ii) in the case of property other than cash or stock, the fair market value of
such property on the date in question as determined in good faith by a majority
of Continuing Directors, provided that such determination shall only be
effective if made at a meeting at which a Continuing Director Quorum is present.
(J) The term "Preferred Stock" shall mean any class
of preferred stock which may from time to time be authorized in or by the
Certificate of Incorporation of the Corporation and which by the terms of its
issuance is specifically designated "Preferred Stock" for purposes of this
Article Tenth.
(K) In the event of any Business Combination in which
the Corporation survives, the phrase "other consideration to be received" as
used in subparagraphs (B)(i) and (ii) of paragraph 2 of this Article Tenth shall
include the shares of Common Stock and/or the shares of any other class of
Voting Stock retained by the holders of such shares.
4. Nothing contained in this Article Tenth shall be construed
to relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
5. Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, this Certificate of
Incorporation or the By-Laws of the Corporation), the affirmative vote of the
holders of eighty percent (80%) or more of the shares of Voting Stock, voting
together as a single class, shall be required to amend or repeal, or adopt any
provisions inconsistent with, this Article Tenth.
ELEVENTH: Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation to the contrary, no action
required to be taken or which may be taken at any annual or special meeting of
stockholders of the Corporation may be taken by written consent without a
meeting, except (1) any action which may be taken solely upon the vote or
consent of holders of Preferred Stock or (2) any action taken upon the signing
of a consent in writing, setting forth the action so taken, by all the
stockholders of the Corporation entitled to vote thereon. Notwithstanding any
other provisions of this Certificate of Incorporation or the By-Laws of the
Corporation to the contrary (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
By-Laws of the Corporation), the affirmative vote of the holders of eighty
percent (80%) or more of the outstanding shares of capital stock entitled to
vote for the election of directors, voting together as a single class, shall be
required to amend or repeal, or adopt any provisions inconsistent with, this
Article Eleventh.
TWELFTH: The power to make, alter, or repeal the By-Laws, and to adopt
any new By-Law, shall be vested in the Board of Directors. Notwithstanding any
other provisions of this Certificate of Incorporation or the By-Laws of the
Corporation to the contrary, the stockholders of the Corporation may exercise
their power to alter, amend, repeal or adopt By-Laws of the Corporation only by
the affirmative vote of the holders of sixty-six and two-thirds percent (66
2/3%) or more of the outstanding shares of capital stock entitled to vote for
the election of directors, provided that notice of such proposed alteration,
amendment, repeal or adoption is included in the notice of the meeting called
for the taking of such action. Notwithstanding any other provisions of this
Certificate of Incorporation or the By-Laws of the Corporation to the contrary
(and notwithstanding the fact that a lesser percentage may be specified by law,
this Certificate of Incorporation or the By-Laws of the Corporation), the
affirmative vote of the holders of eighty percent (80%) or more of the
outstanding shares of capital stock entitled to vote for the election of
directors, voting together as a single class shall be required to amend or
repeal, or adopt any provisions inconsistent with, this Article Twelfth.
THIRTEENTH: Except as otherwise provided herein, from time to time any
of the provisions of this Certificate of Incorporation may be amended, altered
or repealed by the vote of holders of sixty-six and two-thirds percent (66 2/3%)
or more of the outstanding shares of capital stock entitled to vote for the
election of directors, provided that notice of such alteration, amendment,
repeal or adoption is included in the notice of the meeting called for the
taking of such action.
IN WITNESS WHEREOF, Guilford Mills, Inc. has caused this Certificate to
be signed by Charles A. Hayes, its Chairman, and attested by Paul R. McGarr, its
Secretary, this 18th day of November, 1983.
GUILFORD MILLS, INC.
/s/ Charles A. Hayes
--------------------
Charles A. Hayes
ATTEST:
/s/ Paul R. McGarr
- ------------------
Secretary
EXHIBIT 3(b)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GUILFORD MILLS, INC.
GUILFORD MILLS, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: That the Board of Directors of the Corporation, at a Special
Meeting, adopted the following resolution to amend the Certificate of
Incorporation of the Corporation:
RESOLVED, that it is in the best interest of the Corporation that the
Certificate of Incorporation of the Corporation be amended by adding the
following new Article FOURTEENTH:
"FOURTEENTH: A director shall not be personally liable to the
Corporation or any stockholder for monetary damages for breach
of fiduciary duty as a director, except for any matter in
respect of which such director shall be liable under Section
174 of Title 8 of the Delaware Code (relating to the Delaware
General Corporation Law) or shall be liable by reason that, in
addition to any and all other requirements for such liability,
he (i) shall have breached his duty of loyalty to the
Corporation or its stockholders, (ii) shall not have acted in
good faith or, in failing to act, shall not have acted in good
faith, (iii) shall have acted in a manner involving
intentional misconduct or a knowing violation of law or, in
failing to act, shall have acted in a manner involving
intentional misconduct or a knowing violation of law or (iv)
shall have derived an improper personal benefit. Neither the
amendment nor repeal of this Article Fourteenth, nor the
adoption of any provision of the Certificate of Incorporation
inconsistent with this Article Fourteenth, shall eliminate or
reduce the effect of this Article Fourteenth in respect of any
matter occurring, or any cause of action, suit or claim that,
but for this Article Fourteenth would accrue or arise, prior
to such amendment, repeal or adoption of an inconsistent
provision."
SECOND: That the Amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Guilford Mills, Inc. has caused this Certificate to
be signed by Charles A. Hayes, its Chairman, and attested by Paul R. McGarr, its
Secretary, this 28th day of December, 1986.
GUILFORD MILLS, INC.
By: /s/ Charles A. Hayes
---------------------
Charles A. Hayes
Chairman of the Board
ATTEST:
By: /s/ Paul R. McGarr
------------------
Secretary
EXHIBIT 3(c)
CERTIFICTE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
GUILFORD MILLS, INC.
GUILFORD MILLS, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: That the Board of Directors of the Corporation, at a Special
Meeting, adopted the following resolution to amend the Certificate of
Incorporation of the Corporation:
RESOLVED, that it is in the best interest of the Corporation that the
first sentence of Article FOURTH of the Certificate of Incorporation of the
Corporation 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 forty-one million (41,000,000);
the total number of shares of Common Stock shall be forty
million (40,000,000) 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 ($1.00).
SECOND: That the Amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Guilford Mills, Inc. has caused this Certificate to
be signed by Charles A. Hayes, its Chairman, and attested by Sherry R. Jacobs,
its Secretary, this 14th day of January, 1988.
GUILFORD MILLS, INC.
By: /s/ Charles A. Hayes
---------------------
Charles A. Hayes
Chairman of the Board
ATTEST:
By: /s/ Sherry R. Jacobs
--------------------
Sherry R. Jacobs
Secretary
EXHIBIT 3 (d)
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
GUILFORD MILLS, INC.
GUILFORD MILLS, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: That the Board of Directors of the Corporation adopted a
resolution deleting the first sentence of Article FOURTH of the Certificate of
Incorporation of the Corporation in its entirety and substituting the following
sentence in its place:
FOURTH: The corporation shall be authorized to issue two
classes of stock to be designated, respectively, "Common
Stock" and "Preferred Stock"; the total number of shares of
all classes of stock which the corporation shall have
authority to issue shall be sixty-six million (66,000,000);
the total number of shares of Common Stock shall be sixty-five
million (65,000,000) and the par value of each share of Common
Stock shall be two cents ($.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).
SECOND: That the Amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, GUILFORD MILLS, INC. has caused this
Certificate to be signed by Terrence E. Geremski, its Executive Vice President
and Chief Financial Officer, and attested by Robert A. Emken, Jr., its Assistant
Secretary, this 4th day of February, 1999.
GUILFORD MILLS, INC.
By: /s/ Terrence E. Geremski
------------------------
Terrence E. Geremski
Executive Vice President and
Chief Financial Officer
ATTEST:
By: /s/ Robert A. Emken, Jr.
------------------------
Robert A. Emken, Jr.
Assistant Secretary
EXHIBIT 4(a)
APPOINTMENT OF SUCCESSOR RIGHTS AGENT
-------------------------------------
THIS AGREEMENT is entered into this 1st day of April, 1999, by and
between GUILFORD MILLS, INC., a Delaware corporation (the "Company"), and
AMERICAN STOCK TRANSFER & TRUST COMPANY ("AST").
WITNESSETH:
-----------
WHEREAS, the Company has entered into a Rights Agreement, dated August
23, 1990, as amended by an Appointment of Successor Rights Agent Agreement,
dated January 28, 1994 (collectively, the "Rights Agreement"), pursuant to which
Wachovia Bank of North Carolina, N.A. ("Wachovia") is serving as rights agent
("the Rights Agent"); and
WHEREAS, the Company has removed, pursuant to Section 21 of the Rights
Agreement, Wachovia as Rights Agent effective as of the close of business on
March 31, 1999 and the Company desires to appoint AST as successor rights agent.
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 hereby agree as
follows:
1. As of April 1, 1999, the Company appoints AST as Rights Agent, as
such term is defined in the Rights Agreement, to succeed Wachovia as Rights
Agent and to act as Rights Agent for the Company and the holders of the Rights,
as such term is defined in the Rights Agreement, in accordance with the terms
and conditions of the Rights Agreement, and AST accepts such appointment.
2. From and after April 1, 1999, (i) the term "Rights Agent" as used in
the Rights Agreement shall mean AST and (ii) the address, set forth in Section
25 of the Rights Agreement, to which notices to the Rights Agent are to be sent
is:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Attention: Susan Silver
3. Except as indicated herein, the Rights Agreement remains unmodified
and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GUILFORD MILLS, INC.
By: /s/ Terrence E. Geremski
------------------------------
Name: Terrence E. Geremski
(Corporate Seal) Title: Executive Vice President & CFO
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: /s/ Herbert J. Lemmer
--------------------------
Name: Herbert J. Lemmer
(Corporate Seal) Title: Vice President
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