SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 SECURITIES EXCHANGE ACT OF 1934
X
- --------- --------
For the Fiscal Year Ended For the transition period
October 3, 1999 from __________ to ___________
Commission File No. 1-6922
GUILFORD MILLS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-1995928
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
4925 West Market Street
Greensboro, North Carolina 27407
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (336) 316-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
------------------- -----------------------------------------
Common Stock, $.02 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 twelve (12) months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
Aggregate market value of the voting stock (which consists solely of shares of
common stock) held by non-affiliates of the registrant at November 15, 1999 (a
total of 16,123,853 shares of common stock), computed by reference to the last
reported sale price ($7.875) of the Registrant's common stock on the New York
Stock Exchange on such date: $126,975,342.
Number of shares of the Registrant's common stock outstanding as of November 15,
1999: 19,194,295.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the annual report to stockholders for the fiscal year ended
October 3, 1999 are incorporated by reference into Parts I, II and IV of this
report.
Certain portions of the Registrant's definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934, which will be filed with
the Commission on or about December 22, 1999, are incorporated by reference into
Part III of this report.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Guilford Mills, Inc. was incorporated under the laws of Delaware in August 1971,
and is the successor by merger to businesses previously conducted since 1946.
Guilford Mills, Inc. and its predecessors and subsidiaries are referred to as
the "Company", unless the context indicates otherwise.
Guilford Mills, Inc. produces fabrics using a broad range of technologies for a
variety of customers and markets. It is the largest warp knitter in the world
and a leader in technological advances in textiles. The Company has identified
four segments in which it operates: Automotive, Apparel, Home Fashions and
Other.
Fabrics produced in the Automotive segment are sold to original equipment
manufacturers (OEMs) and their suppliers. These fabrics are fabricated into
seats and headliners of passenger cars, sport utility vehicles, conversion vans
and light and heavy trucks. Automotive products utilize warp knit, circular
knit, flat woven, woven velour and printing technologies.
The Apparel segment fabrics and laces are used predominately in women's
shapewear, swimwear, ready-to-wear and intimate apparel garments. Other uses
include sleepwear, team sportswear and linings. The Apparel segment utilizes
warp and circular knit technology.
The Home Fashions segment produces fabrics for residential and office furniture,
mattress ticking, and window treatment applications, including lace. The Company
also designs, produces and distributes directly to retail a broad line of
products for the home including window curtains, sheets, comforters,
pillowcases, bedskirts and shower curtains.
The remainder of Guilford's fabrics are sold for use in a broad range of
industrial/specialty products and are included in the Other segment. The
Company's polyester fibers spinning operations are also included in this
segment.
Reference is made to Note 16 of the Consolidated Financial Statements in the
Annual Report to Stockholders for the fiscal year ended October 3, 1999 (the
"Annual Report"), which note is incorporated herein by reference, for
information regarding revenue, profit and assets by segment.
PRODUCT DEVELOPMENT
Working closely with the Company's customers, the Company has research and
development departments in the U.S., U.K., and Mexico, consisting of
approximately 120 employees, that are primarily responsible for the creation of
new fabrics and styles. Sample warping and knitting machines are used to develop
new fabrics which can be placed into production after customer acceptance. Total
expenditures for research and development for fiscal years 1999, 1998 and 1997,
were approximately $17.2 million, $19.6 million, and $14.9 million,
respectively.
The Company has numerous trademarks, trade names, patents and certain licensing
agreements which it uses in connection with the advertising and promotion of its
products across segments. Management believes that the loss or expiration of
such trademarks, trade names and licensing agreements would not have a material
adverse effect on the Company's operations.
WORKING CAPITAL PRACTICES
The Company knits based on internal forecasts and generally dyes and finishes
based on customer orders and therefore, significant amounts of inventory are not
required to meet rapid delivery to the Company's customers or to assure a
continuous allotment of goods from suppliers. Customers are allowed to return
goods for valid reasons and customer accommodations are not significant. To
minimize the credit risk on such accounts and to obtain larger credit lines for
many customers, the Company maintains credit insurance covering $24.0 million of
certain outstanding accounts receivable as of October 3, 1999. In addition,
approximately 17% of accounts receivable are factored without recourse. The
Company has the ability to borrow against such receivables, although it has
traditionally not done so as the related borrowing terms are less favorable than
other available sources of financing. The Company generally takes advantage of
discounts offered by vendors.
The Company experiences seasonal fluctuations in its sales in the Apparel
segment, with the highest sales occurring in the period from April to September.
Sales in the Automotive, Home Fashions and Other segments experience
insignificant seasonal fluctuations.
The Company has a large number of customers. No customer accounted for 10% or
more of total net sales during fiscal 1999, 1998 or 1997. The Company's net
sales reflect substantial direct and indirect sales to certain large automotive
original equipment manufacturers.
The backlog of orders believed to be firm as of the end of the current and
preceding fiscal years is not deemed to be material for an understanding of the
Company's business as most orders are deliverable within a few months.
EXPORT SALES
U.S. export sales, as a percentage of total worldwide sales of the Company, were
approximately 5.4% in fiscal 1999, 5.4% in fiscal 1998 and 5.5% in fiscal 1997.
RAW MATERIALS
Fabrics in all of the Company's segments are constructed primarily of synthetic
yarns: nylon and polyester. In fiscal 1999, the Company internally produced 15%
of the polyester yarns used. The Company purchases its nylon and the remaining
polyester yarns from several domestic and foreign fiber producers. During fiscal
1999, the Company experienced periods of tightness of supply of nylon fiber,
however, nylon fiber is currently readily available. Due to the price
competition resulting from the Asian crisis, the Company purchased greater
quantities of lower-priced polyester yarn from foreign suppliers during fiscal
1999. The Company's Apparel segment also uses spandex, acetate, cotton and
rayon. A small amount of spandex is used in the Home Fashions segment. Both
spandex and acetate are purchased substantially from one domestic producer. In
fiscal 1999 all yarns, except nylon, were readily available throughout the year
and either were or could be purchased from numerous sources. Management believes
that an adequate supply of yarns is available to meet the Company's
requirements.
The chemicals and dyes used in the dyeing and finishing processes in all
segments are available in large quantities from various suppliers. The foam
backing used in the automotive fabric lamination process is purchased from two
suppliers in the United States and two suppliers in Europe. In fiscal 1999,
there was an adequate supply of foam.
ENVIRONMENTAL MATTERS
The production processes, particularly dyeing and finishing operations, involve
the use and discharge of certain chemicals and dyes into the air and sewage
disposal systems. The Company installs pollution control devices as necessary to
meet existing and anticipated national, state and local pollution control
regulations. The Company, including its foreign subsidiaries, does not
anticipate that compliance with national, state, local and other provisions
which have been enacted or adopted regulating the discharge of materials into
the environment, or otherwise relating to the protection of the environment,
will have a material adverse effect upon its capital expenditures, earnings or
competitive position.
Reference is made to Note 12 of the Consolidated Financial Statements in the
Annual Report, which note is incorporated herein by reference, for information
regarding certain other environmental matters.
COMPETITION
In all of the Company's segments, the principal methods of competition are
pricing, styling and design, customer service and quality. In retail home
fashions, distribution channels are an additional principal method of
competition. The weight of each competitive factor varies by product line. In
the past few years, the Apparel and Home Fashions segments have been impacted by
imports of garments, window curtains and sheeting.
In the United States, the Company has five major warp knit competitors and many
other smaller competitors in the Apparel and Home Fashions segments. The Company
also competes with some garment manufacturers that have warp knit equipment to
manufacture their own fabrics. Some of these companies are divisions of large,
well-capitalized companies while others are small manufacturers. There are four
major and numerous smaller circular knit competitors in the Apparel segment. In
the Automotive segment, the Company has three major domestic competitors and
several smaller competitors. Guilford's automotive subsidiary in Europe competes
with seven warp knitters in the United Kingdom and several in France. It also
competes with many producers of circular knit and flat woven fabrics. The
Company's operations in Mexico compete primarily with four warp knitters in the
Apparel segment and one warp knitter in the Automotive segment. None of the
Company's competitors are deemed to be dominant with respect to their markets.
EMPLOYEES
As of November 15, 1999, the Company employed 6,251 full-time employees
worldwide. Approximately 1,258 employees (including 428 in Europe and 460 in
Mexico) are represented by collective bargaining agreements.
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 or
incorporated by reference into this Form 10-K, 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 Securities 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 or
10. inability to achieve cost reductions through consolidation and
restructuring of acquired companies
Item 2. PROPERTIES
Set forth below is a listing of facilities owned and leased by the Company.
<TABLE>
<S> <C> <C> <C>
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Facility Location Segment(s) Leased/Owned
- --------------------------------------------------------------------------------
Sales Offices, Design Studios California (1) Apparel Leased
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Michigan (1) Automotive Leased
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New York (2) Apparel,
Home Fashions,
Other Leased
- --------------------------------------------------------------------------------
Texas (1) Home Fashions Leased
- --------------------------------------------------------------------------------
China (1) Apparel Leased
- --------------------------------------------------------------------------------
Germany (1) Automotive Leased
- --------------------------------------------------------------------------------
Spain (1) Automotive Leased
- --------------------------------------------------------------------------------
Manufacturing New York (5) Apparel,
Home Fashions Owned (4),
Leased (1)
- --------------------------------------------------------------------------------
North Carolina (8) Apparel,
Automotive,
Home Fashions, Owned (6),
Other Leased (2)
- --------------------------------------------------------------------------------
Pennsylvania (2) Apparel,
Home Fashions,
Other Owned
- --------------------------------------------------------------------------------
Brazil (1) Automotive Leased
- --------------------------------------------------------------------------------
Mexico (1) Apparel,
Automotive,
Home Fashions Owned
Other
- --------------------------------------------------------------------------------
United Kingdom (3) Automotive Owned
- --------------------------------------------------------------------------------
Outlet Stores New York (3) Home Fashions Leased
- --------------------------------------------------------------------------------
North Carolina (1) Home Fashions Leased
- --------------------------------------------------------------------------------
Warehouses New York (1) Apparel Leased
- --------------------------------------------------------------------------------
Mexico(5) Apparel,
Automotive,
Home Fashions Owned (2),
Other Leased (3)
- --------------------------------------------------------------------------------
United Kingdom (1) Automotive Leased
- --------------------------------------------------------------------------------
</TABLE>
Management believes the facilities and manufacturing equipment are in good
condition, well maintained, suitable and adequate for present production. Many
of the Company's manufacturing facilities are utilized by more than one segment.
Utilization of the facilities fluctuates from time to time due to the seasonal
nature of operations and market conditions. The Company defines full utilization
as five day, three shift production. On that basis, the manufacturing facilities
are generally utilized approximately 80%. However, during fiscal 1999,
automotive only facilities in the U.S. were operating at a full seven days to
meet demand. Cut-and-sew operations in home fashions were running five days, one
to two shifts depending on the product.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 12 of the Consolidated Financial Statements in the
Annual Report, which note is incorporated herein by reference, for information
regarding certain environmental matters.
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 (the "Consolidated
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 July 21, 1999, the Court entered an order dismissing all claims
against one of the Company's officers but denied the Company and one of its
director's motion to dismiss. Plaintiffs filed their Second Amended Complaint on
September 7, 1999, and defendants answered the Second Amended Complaint on
September 24, 1999. On November 1, 1999, plaintiffs filed a motion seeking to
certify a plaintiff class consisting of all persons or entities who purchased
the common shares of Guilford Mills, Inc. from January 20, 1998 through October
26, 1998 inclusive. Guilford has until February 11, 2000, to oppose plaintiffs'
class certification motion. The Company intends to vigorously defend the
lawsuits.
The Securities and Exchange Commission (the "Commission") has issued a formal
Order Directing Private Investigation and Designating Officers To Take Testimony
(the "Formal Order") with respect to accounting irregularities at the Hofmann
Laces unit which the Company had previously disclosed in press releases in
October and November 1998. Prior to the issuance of the Formal Order, the
Company had voluntarily provided certain information to the Commission
concerning the accounting irregularities at the Hofmann Laces unit. The Company
has delivered documents to, and intends to continue cooperating fully with, the
Commission.
The Company is also involved in various litigation, including the matters
described above, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the Company's
fourth quarter of fiscal 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Reference is made to the information set forth on page 39 in the section
entitled "Common Stock Market Prices and Dividends" in the Annual Report, filed
as Exhibit 13 to this report, which page is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
In thousands except per
share data) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Results of Operations
----------------------
Net sales $856,838 $894,534 $894,709 $830,320 $782,518
Income before extraordinary
item 10,230 33,146 43,238 33,978 33,636
Net income 10,230 30,206 43,238 33,978 33,636
Per Share Data (1)
------------------
Basic:
Income before extraordinary
item 0.47 1.32 1.92 1.59 1.60
Net income 0.47 1.20 1.92 1.59 1.60
Diluted:
Income before extraordinary
item 0.47 1.30 1.78 1.47 1.48
Net income 0.47 1.19 1.78 1.47 1.48
Cash dividends 0.44 0.44 0.42 0.40 0.40
Balance Sheet Data
------------------
Working capital 127,660 211,278 213,974 177,658 178,233
Total assets 753,431 794,500 729,796 728,830 586,371
Long-term debt 146,137 176,872 134,560 209,435 166,368
Stockholders' investment 340,945 385,177 408,896 298,059 267,549
(1) All share data has been restated to reflect the effect of a three-for-two
stock split effected in May 1997 in the form of a 50% stock dividend.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Reference is made to the information set forth on pages 13 through 21 in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Annual Report, which pages are incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the information set forth on page 20 in the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Annual Report, which page is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to information set forth on pages 22 through 39 of the Annual
Report, which pages are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information to be included under the captions "Directors and Nominees" and
"Additional Information" contained in the section entitled "ELECTION OF
DIRECTORS", and under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" all as set forth in the Company's definitive proxy statement, which
will be filed with the Commission on or about December 22, 1999 pursuant to
Regulation 14A under the Securities Exchange Act of 1934 (the "Proxy
Statement"), is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF DECEMBER 13, 1999)
Name Age Office or Business Experience
- ---- --- -----------------------------
Charles A. Hayes 64 Chairman of the Board and Chief Executive Officer
(since 1976); President and Chief Operating
Officer (from 1991 to 1995); President (from 1968
to 1976) and Executive Vice President (from
1961 to 1968).
John A. Emrich 55 Member of the Board of Directors (since 1995);
President and Chief Operating 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, Inc. (from
1990 to 1991) and holder of various executive
positions with the Company (from 1985 to 1990).
Terrence E. Geremski 52 Member of the Board of Directors (since 1993);
Executive Vice President and Chief 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 with Varity Corporation
(from 1989 to 1991); and Vice President, Chief
Financial Officer, Treasurer and holder of other
executive positions with Dayton Walther Corp.
(from 1979 to 1989).
Don A. Alexander 39 Vice President/Technology (since 1999);
Director of Research, Institute of Textile
Technology (from 1987 to 1999); formerly holder
of various technical and managerial positions
with Milliken & Company (from 1985 to 1987).
Mark E. Cook 40 Treasurer (since 1997); Director of Corporate
Finance, Worthington Industries, Inc. (from 1995
to 1997); Director of Corporate Finance, Blount
International, Inc. (from 1989 to 1995).
Nathan M. Dry 54 Vice President/Apparel/Home Fashions (since
1999); Vice President/Commercial Products (from
1998 to 1999); Vice President/Product
Development and Research (from 1996 to 1998);
President of Dyeing and Printing Lumberton, Inc.
(from 1990 to 1996).
Robert A. Emken, Jr. 36 General Counsel and Secretary (since 1999);
Associate Counsel (from 1991 to 1999); Associate,
Womble Carlyle Sandridge & Rice, PLLC (from 1988
to 1991).
Phillip D. McCartney 57 Vice President/Technical Operations (since
1989); formerly holder of various executive
positions with FAB Industries, Inc. (from 1984 to
1989).
Byron McCutchen 52 Senior Vice President and President/Fibers
(since 1995); Senior Vice President of Fibers
(from 1994 to 1995); Worldwide Business
Manager-Dacron(R) Filament-E.I. DuPont Co.
(from 1991 to 1994); and Specialty Business
Manager- Dacron(R)-E.I. DuPont Co. (from 1990 to
1991).
Richard E. Novak 56 Vice President/Human Resources (since 1996);
Principal of Nova Consulting Group (from 1994 to
1996); Senior Vice President/Human Resources of
Joseph Horne Company, Inc. (from 1987 to 1994).
Richard J. Redpath 60 Vice President/Engineering (since 1999);
Principal of The Evans Group (from 1997 to
1998); Director of Engineering, Binney & Smith
(from 1994-1997); Director of Engineering of
Worldwide Johnson & Johnson (from 1988 to 1994).
Christopher J. Richard 43 Senior Vice President (since 1999);Vice President
(from 1998-1999) and President/U.S. Automotive
(since 1997); Vice President of Sales and
Marketing, Garden State Tanning (from 1994 to
1997); holder of various executive positions with
Collins & Aikman Corporation (from 1983 to 1994).
Kim A. Thompson 41 Vice President/Corporate Controller (since
1997); Director of Financial Reporting (from
1994 to 1997); holder of various executive
positions with Collins and Aikman Corporation
(from 1980 to 1994).
No family relationships exist between any executive officers of the Company.
Item 11. EXECUTIVE COMPENSATION
The information to be included in the section "EXECUTIVE COMPENSATION" in the
Proxy Statement is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information to be included in the section "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" in the Proxy Statement is incorporated herein
by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information to be included in the section "CERTAIN TRANSACTIONS" in the
Proxy Statement is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS A PART OF THIS REPORT:
1. FINANCIAL STATEMENTS (reference is made to pages 22 through 38 of the
Annual Report, which pages are incorporated herein by reference):
Consolidated Balance Sheets as of October 3, 1999 and September 27,
1998
Consolidated Statements of Income for the Years Ended October 3, 1999,
September 27, 1998 and September 28, 1997
Consolidated Statements of Stockholders' Investment for the Years Ended
October 3, 1999, September 27, 1998 and September 28, 1997
Consolidated Statements of Cash Flows for the Years Ended October 3,
1999, September 27, 1998 and September 28, 1997
Notes to Consolidated Financial Statements
Statement of Management's Responsibility
Report of Independent Public Accountants
2. FINANCIAL STATEMENT SCHEDULE:
Schedule II - Analysis of Valuation and Qualifying Accounts for the
Years Ended October 3, 1999, September 27, 1998 and September 28,
1997
<PAGE>
3. EXHIBITS:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
(3) (a) Restated Certificate of Incorporation of the Company,
dated June 8, 1999 (incorporated by reference to Exhibit 3
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 4, 1999 (the "7/4/99 10-Q")).
(3) (b) By-Laws of the Company, as amended through November 5,
1998 (incorporated by reference to Exhibit (3)(b) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 27, 1998 (the "1998 Annual. Report")).
(4) (a) Rights Agreement dated as of August 23, 1990 between
the Company and The First National Bank of Boston, as
Rights Agent (incorporated by reference to Exhibit 1 to
the Company's Current Report on Form 8-K filed with the
SEC on September 7, 1990).
(4) (b) Appointment of Successor Rights Agent, dated April 1,
1999, between the Company and American Stock Transfer &
Trust Company (incorporated by reference to Exhibit
(4)(a) to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 4, 1999).
(4) (c) Form of Note Purchase Agreement, dated December 18, 1998,
entered into by and between Guilford Mills, Inc. and each
of the purchasers named in the purchasers' schedule
thereto.
(10) (a)* Guilford Mills, Inc. Non-Qualified Profit Sharing Plan for
Certain of its Executive Officers and Key Employees,
effective July 1, 1989 (incorporated by reference to
Exhibit (10) (a) (7) to the Company's Annual Report on
Form 10-K for the fiscal year ended July 1, 1990 (the
"1990 Annual Report")).
(10) (b)* First Amendment, dated September 1, 1993, to the
Guilford Mills, Inc. Non-Qualified Profit-Sharing Plan
(incorporated by reference to Exhibit (10)(b) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 28, 1997 (the "1997 Annual Report")).
(10) (c)* Second Amendment, dated November 1, 1996, to the
Guilford Mills, Inc. Non-Qualified Profit-Sharing Plan
(incorporated by reference to Exhibit (10)(c) to the 1997
Annual Report).
(10) (d)* Guilford Mills, Inc. 1991 Stock Option Plan (the "1991
Plan") (incorporated by reference to Exhibit 28 (a) to
the Company's Registration statement on Form S-8
(Registration No. 33-47109)filed with the SEC on April 10,
1992 (the "Form S-8")).
(10) (e)* Amendment to the 1991 Plan (incorporated by reference to
Exhibit (10) (a) to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 30, 1997 (the
"3/30/97 10-Q")).
(10) (f)* Amendment to the 1991 Plan (incorporated by reference to
Exhibit (10)(f) to the 1998 Annual Report).
(10) (g)* Amendment to the 1991 Plan (incorporated by reference to
Exhibit (10)(d) to the 7/4/99 10-Q).
(10) (h)* Form of Stock Option Contract for key employees in
the 1991 Plan (relating to incentive stock options)
(incorporated by reference to Exhibit 28 (b) to the Form
S-8).
(10) (i)* Form of Stock Option Contract for Director participants
in the 1991 Plan (incorporated by reference to Exhibit
28 (d) to the Form S-8).
(10) (j)* Form of Stock Option Contract between the Company and
certain of its officers pursuant to the 1991 Plan
(incorporated by reference to Exhibit (10) (b) to the
Quarterly Report on Form 10-Q for the fiscal quarter
ended June 29, 1997 (the "6/29/97 10-Q")).
(10) (k)* Guilford Mills, Inc. 1989 Restricted Stock Plan (the
"Restricted Plan") (incorporated by reference to Exhibit
10 (b) (2) to the 1990 Annual Report).
(10) (l)* Amendment to the Restricted Plan (incorporated by
reference to Exhibit (10)(g) to the Annual Report on Form
10-K for the fiscal year ended October 2, 1994 (the "1994
Annual Report")).
(10) (m)* Amendment to the Restricted Plan (incorporated by
reference to Exhibit (10) (b) to the 3/30/97 10-Q).
(10) (n)* Form of Restricted Stock Agreement between the Company
and certain of its officers pursuant to the Restricted
Plan (incorporated by reference to Exhibit (10) (a) to the
6/29/97 10-Q).
(10) (o)* Amended and Restated Phantom Stock Agreement between the
Company and Charles A. Hayes dated September 21, 1994
(incorporated by reference to Exhibit (10) (m) to the 1994
Annual Report).
(10) (p)* Form of Executive Retirement and Death Benefit Agreements
between the Company and certain of its executive
officers and key employees (incorporated by reference
to Exhibit (10) (d) (1) to the 1990 Annual Report).
(10) (q)* Form of Pension and Death Benefit Agreement between
the Company and certain of its executive officers and key
employees (incorporated by reference to Exhibit (10) (d)
(2) to the 1990 Annual Report).
(10) (r)* Form of Deferred Compensation Agreement between the
Company and certain of its officers and key employees
(incorporated by reference to Exhibit (10) (d) (3) to the
1990 Annual Report).
(10) (s)* Guilford Mills, Inc. Excess Benefit Plan (incorporated by
reference to Exhibit (10) (a) to the Quarterly Report
on Form 10-Q for the fiscal quarter ended December 29,
1996 ("12/29/96 10-Q")).
(10) (t)* Guilford Mills, Inc. Trust for Non-Qualified Plans
(incorporated by reference to Exhibit (10) (b) to the
12/29/96 10-Q).
(10) (u)* Guilford Mills, Inc. Senior Managers' Life Insurance Plan
and related Plan Agreement (incorporated by reference
to Exhibit (10) (r) to the Annual Report on Form 10-K for
the fiscal year ended June 28, 1992 ("1992 Annual
Report")).
(10) (v)* Guilford Mills, Inc. Senior Managers' Pre-Retirement
Life Insurance Agreement (incorporated by reference to
Exhibit (10) (s) to the 1992 Annual Report).
(10) (w)* Guilford Mills, Inc. Senior Managers' Supplemental
Retirement Plan and related Plan Agreement (incorporated
by reference to Exhibit (10) (t) to the 1992 Annual
Report).
(10) (x)* Form of Severance Agreement between the Company and
certain of its officers and employees (incorporated by
reference to Exhibit (10) (u) to the 1992 Annual Report).
(10) (y)* Form of Amendment to Severance Agreement between the
Company and certain of its officers and employees
(incorporated by reference to Exhibit (10) (v) to the 1994
Annual Report).
(10) (z)* Form of Second Amendment to Severance Agreement between
the Company and certain of its officers and employees
(incorporated by reference to Exhibit (10) (w) to the 1994
Annual Report).
(10) (a)(a)* Form of Amendment to Severance Agreement between the
Company and certain of its officers and employees.
(10) (b)(b) Stockholders' Agreement, dated as of April 30, 1991 by
and among the Company, Maurice Fishman and Charles A.
Hayes (the "1991 Stockholders' Agreement") (incorporated
by reference to Exhibit (10) (e) to the Company's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1991).
(10) (c)(c) Amendment, dated June 29, 1994, to the 1991 Stockholders'
Agreement (incorporated by reference to Exhibit (10)
(y) to the 1994 Annual Report).
(10) (d)(d) Second Amendment, dated January 1, 1995, to the 1991
Stockholders' Agreement, (incorporated by reference to
Exhibit (10)(y) to the Company's Annual Report on Form
10-K for the fiscal year ended October 1, 1995 (the
"1995 Annual Report")).
(10) (e)(e) Third Amendment, dated June 22, 1995, to the 1991
Stockholders' Agreement (incorporated by reference to
Exhibit(10)(z) to the 1995 Annual Report).
(10) (f)(f) Fourth Amendment, dated May 23, 1997, to the 1991
Stockholders' Agreement (incorporated by reference to
Exhibit (10)(e) to the 6/29/97 10-Q).
(10) (g)(g) Fifth Amendment, dated June 22, 1999, to the 1991
Stockholders' Agreement (incorporated by reference to
Exhibit (10)(b) to the 7/4/99 10-Q).
(10) (h)(h) Stockholders' Agreement, dated as of June 22, 1990, by
and among the Company, Charles A. Hayes, George
Greenberg and Maurice Fishman (the "1990 Stockholders'
Agreement") (incorporated by reference to Exhibit (10)
(f) to the 1990 Annual Report).
(10) (i)(i) Amendment, dated January 1, 1995, to the 1990
Stockholders' Agreement (incorporated by reference to
Exhibit (10) (b)(b) to the 1995 Annual Report).
(10) (j)(j) Second Amendment, dated June 22, 1995, to the 1990
Stockholders' Agreement (incorporated by reference to
Exhibit (10)(c)(c) to the 1995 Annual Report).
(10) (k)(k) Third Amendment, dated May 23, 1997, to the 1990
Stockholders' Agreement (incorporated by reference to
Exhibit (10)(d) to the 6/29/97 10-Q).
(10) (l)(l) Fourth Amendment, dated June 22, 1999, to the 1990
Stockholders' Agreement (incorporated by reference to
Exhibit (10)(c) to the 7/4/99 10-Q).
(10) (m)(m)* Summary of Short Term Incentive Plan (incorporated by
reference to Exhibit (10) (f)(f) to the 1997 Annual
Report).
(10) (n)(n)* Management Compensation Trust Agreement between the
Company and North Carolina Trust Company dated July 1,
1991 (incorporated by reference to Exhibit (10) (y) to the
1992 Annual Report).
(10)(o)(o)* Amendment to the Management Compensation Trust
Agreement between the Company and North Carolina Trust
Company dated April 1, 1992 (incorporated by reference to
Exhibit (10) (z) to the 1992 Annual Report).
(10) (p)(p)* Second Amendment to the Management Compensation Trust
Agreement between the Company and North Carolina Trust
Company dated July 1, 1992 (incorporated by reference to
Exhibit (10) (a) (a) to the 1992 Annual Report).
(10) (q)(q) Revolving Credit Agreement, dated September 26, 1995, by
and between the Company, as borrower, Gold Mills, Inc.
as Guarantor, and the banks listed therein (incorporated
by reference to Exhibit (10)(I) (i) to the 1995 Annual
Report).
(10) (r)(r) First Amendment to Revolving Credit Agreement, dated
May 5, 1999, by and between the Company, as borrower, and
Gold Mills, Inc., Raschel Fashion Interknitting, Ltd.
and Curtains and Fabrics, Inc., as guarantors, and the
banks listed therein (the "Credit Agreement")(incorporated
by reference to Exhibit (10)(a) to the 7/4/99 10-Q).
(10) (s)(s) Second Amendment, dated November 19, 1999, to the Credit
Agreement.
(10) (t)(t)* Amended and Restated Employment Agreement, dated February
25, 1998, by and among Raschel Fashion Interknitting,
Ltd., Hofmann Laces, Ltd., Curtains and Fabrics, Inc.
and Bruno Hofmann (incorporated by reference to Exhibit
(10) (a) to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 29, 1998).
(10) (u)(u) Stock Purchase Agreement, dated August 6, 1999, between
Victor Posner and Guilford Mills, Inc.
(13) Annual Report to Stockholders of the Company for the
fiscal year ended October 3, 1999 (only those portions of
such report incorporated by reference to the Annual Report
on Form 10-K are filed herewith).
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Public Accountants.
(27) Financial Data Schedule.
*Items denoted with an asterisk represent management contracts or compensatory
plans or arrangements.
(b) REPORTS ON FORM 8-K
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GUILFORD MILLS, INC.
By: /s/ Terrence E. Geremski
------------------------
Terrence E. Geremski
Executive Vice President and
Chief Financial Officer
Dated: December 22, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of the Board
of Directors and Chief
Executive Officer
(Principal Executive
/s/ Charles A. Hayes Officer) December 22, 1999
- ------------------------
Charles A. Hayes
Director; President
and Chief Operating
/s/ John A. Emrich Officer December 22, 1999
- ------------------------
John A. Emrich
Director; Executive
Vice President and
Chief Financial Officer
(Principal Financial and
/s/ Terrence E. Geremski Accounting Officer) December 22, 1999
- -------------------------
Terrence E. Geremski
Vice Chairman of the
/s/ George Greenberg Board of Directors December 22, 1999
- -------------------------
George Greenberg
/s/ Tomokazu Adachi Director December 22, 1999
- ------------------------
Tomokazu Adachi
/s/ Donald B. Dixon Director December 22, 1999
- -------------------------
Donald B. Dixon
/s/ Paul G. Gillease Director December 22, 1999
- -------------------------
Paul G. Gillease
/s/ Stephen C. Hassenfelt Director December 22, 1999
- --------------------------
Stephen C. Hassenfelt
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Bruno Hofmann Director December 22, 1999
- --------------------------
Bruno Hofmann
/s/ Sherry R. Jacobs Director December 22, 1999
- --------------------------
Sherry R. Jacobs
Director December 22, 1999
- ---------------------------
Stig A. Kry
/s/ Grant M. Wilson Director December 22, 1999
- ----------------------------
Grant M. Wilson
Director December 22, 1999
- ----------------------------
Jacobo Zaidenweber
<PAGE>
INDEX TO FORM 10-K SCHEDULE
Report of Independent Public Accountants................................... F-1
Schedule II - Analysis of Valuation and Qualifying Accounts for the Years
Ended October 3, 1999, September 27, 1998 and September 28, 1997........... F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders and Board of Directors of Guilford Mills, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in the Guilford Mills, Inc. Annual Report to
Stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated November 11, 1999. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule on page
F-2 is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
November 11, 1999.
<PAGE>
GUILFORD MILLS, INC.
SCHEDULE II
ANALYSIS OF VALUATION AND
Qualifying Accounts For the Years Ended October 3, 1999, September 27, 1998
and September 28, 1997
(In Thousands)
<TABLE>
<CAPTION>
Additions
Balance Charged to
Beginning Cost and Balance End
of Period Expenses Deductions Other of Period
------------ ---------- ---------- ----- ---------
(1) (2)
<S> <C> <C> <C> <C> <C>
For the Year Ended
September 28, 1997:
Reserve deducted from
assets to which it
applies -
Allowance for doubtful
accounts.............. $9,487 $3,262 $(3,303) $42 $9,488
====== ====== ======== ==== ======
For the Year Ended
September 27, 1998:
Reserve deducted from
assets to which it
applies -
Allowance for doubtful
accounts............... $9,488 $2,578 $(2,564) $(52) $9,450
======= ====== ======== ===== ======
Restructuring reserve... -- $2,962 $(286) -- $2,676
======= ======= ======== ===== =======
For the Year Ended
October 3, 1999:
Reserve deducted from
assets to which it
applies -
Allowance for doubtful
accounts.............. $9,450 $15,344 $(7,442) $41 $17,393
====== ======= ======== ===== =======
Restructuring reserve... $2,676 -- $(2,676) -- --
====== ======= ======== ===== =======
</TABLE>
(1) Deductions are for the purpose for which the reserve was created. Fiscal
1999 includes reversal of $470 of excess reserve into income.
(2) Other amounts represent the effect of exchange rate fluctuations and the
purchase of a business.
Exhibit 4C
GUILFORD MILLS, INC.
4925 West Market Street
Greensboro, North Carolina 27407
December 18, 1998
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
Guilford Mills, Inc., a Delaware corporation (the "COMPANY"), agrees
with you as follows:
. AUTHORIZATION OF NOTES. The Company will authorize the issue and sale of
$145,000,000 aggregate principal amount of its 7.06% Senior Notes due December
18, 2008 (the "1998 NOTES"). The terms "NOTE" and "NOTES" as used herein shall
include each 1998 Note delivered pursuant to any provision of this Agreement and
each Note delivered in substitution or exchange for any such Note pursuant to
any such provision. The form of each Note shall be in the form of Exhibit 1
hereto.
The term "1998 Note" as used herein shall include notes issued in
substitution therefor pursuant to Section 13 of this Agreement or the Other
Agreements (as hereinafter defined). Certain capitalized terms used in this
Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit"
are, unless otherwise specified, to a Schedule or an Exhibit attached to this
Agreement.
. SALE AND PURCHASE OF NOTES. Subject to the terms and conditions of this
Agreement, the Company will issue and sell to you (also sometimes referred to
herein as a "PURCHASER") and you will purchase from the Company, at the Closing
provided for in Section 3, Notes in the principal amount specified opposite your
name in Schedule A at the purchase price of 100% of the principal amount
thereof. Contemporaneously with entering into this Agreement, the Company is
entering into separate Note Purchase Agreements (the "OTHER AGREEMENTS")
identical with this Agreement with each of the other purchasers named in
Schedule A (the "OTHER PURCHASERS"), providing for the sale at such Closing to
each of the Other Purchasers of promissory notes in the principal amount
specified opposite its name in Schedule A. Your obligation hereunder and the
obligations of the Other Purchasers under the Other Agreements are several and
not joint obligations and you shall have no obligation under any Other Agreement
and no liability to any Person for the performance or non-performance by any
Other Purchaser thereunder.
. CLOSING. The sale and purchase of the Notes to be purchased by you and the
Other Purchasers shall occur at the offices of King & Spalding, 1185 Avenue of
the Americas, New York, New York 10036, at 10:00 a.m., New York City time, at a
closing (the "Closing") on December 18, 1998 or on such other Business Day
thereafter on or prior to December 31, 1998 as may be agreed upon by the Company
and you and the Other Purchasers. At the Closing, the Company will deliver to
you the Notes to be purchased by you in the form of a single Note (or such
greater number of Notes in denominations of at least $100,000 as you may
request) dated the date of the Closing and registered in your name (or in the
name of your nominee), against delivery by you to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds for the account of the Company to
account number 3750332999 at NationsBank of Texas, N.A. (ABA# 111-000-012),
reference $145,000,000 7.06% Senior Notes Dues 2008. If at the Closing the
Company shall fail to tender such Notes to you as provided above in this Section
3), or any of the conditions specified in Section 4 shall not have been
fulfilled to your satisfaction, you shall, at your election, be relieved of all
further obligations under this Agreement, without thereby waiving any rights you
may have by reason of such failure or such nonfulfillment.
. CONDITIONS TO CLOSING. Your obligation to purchase and pay for any Notes to be
sold to you at Closing is subject to the fulfillment to your satisfaction, prior
to or at the Closing, of the following conditions:
.. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company in this Agreement shall be correct when made and at the time of
the Closing.
.. PERFORMANCE; NO DEFAULT. The Company shall have performed and
complied with all agreements and conditions contained in this Agreement required
to be performed or complied with by it prior to or at the Closing and after
giving effect to the issue and sale of the Notes (and the application of the
proceeds thereof as contemplated by Schedule 5.14) no Default or Event of
Default shall have occurred and be continuing.
.. COMPLIANCE CERTIFICATES. () OFFICER'S CERTIFICATE. The Company
shall have delivered to you an Officer's Certificate, dated the date of the
Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9
have been fulfilled.
() SECRETARY'S CERTIFICATE. The Company shall have delivered to you a
certificate certifying as to the resolutions attached thereto and other
corporate proceedings relating to the authorization, execution and delivery of
the Notes, this Agreement and the Other Agreements.
.. OPINIONS OF COUNSEL. You shall have received opinions in form and
substance satisfactory to you, dated the date of the Closing () from each of
Weil, Gotshal & Manges LLP and from the General Counsel or Assistant General
Counsel of the Company, covering the matters set forth in Exhibit 4.4(a) and
covering such other matters incident to the transactions contemplated hereby as
you or your counsel may reasonably request (and the Company hereby instructs its
counsel to deliver such opinion to you) and () from King & Spalding, your
special counsel in connection with such transactions, substantially in the form
set forth in Exhibit 4.4(b) and covering such other matters incident to such
transactions as you may reasonably request.
.. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date of the
Closing your purchase of Notes shall () be permitted by the laws and regulations
of each jurisdiction to which you are subject, without recourse to provisions
(such as Section 1405(a)(8) of the New York Insurance Law) permitting limited
investments by insurance companies without restriction as to the character of
the particular investment, () not violate any applicable law or regulation
(including, without limitation, Regulation T, U or X of the Board of Governors
of the Federal Reserve System) and () not subject you to any tax, penalty or
liability under or pursuant to any applicable law or regulation, which law or
regulation was not in effect on the date hereof. If requested by you, you shall
have received an Officer's Certificate certifying as to such matters of fact as
you may reasonably specify to enable you to determine whether such purchase is
so permitted.
.. SALE OF OTHER NOTES. Contemporaneously with the Closing, the
Company shall sell to the Other Purchasers and the Other Purchasers shall
purchase the promissory notes to be purchased by them at the Closing as
specified in Schedule A (the "Other Notes").
.. PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the provisions of
Section 15.1, the Company shall have paid on or before such Closing, the
reasonable fees, charges and disbursements of your special counsel referred to
in Section 4.4 to the extent reflected in a statement of such counsel rendered
to the Company at least one Business Day prior to such Closing.
.. PRIVATE PLACEMENT NUMBER. A Private Placement number issued by
Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities
Valuation Office of the National Association of Insurance Commissioners) shall
have been obtained for the Notes to be purchased at the Closing.
.. CHANGES IN CORPORATE STRUCTURE. The Company shall not have changed
its jurisdiction of incorporation or been a party to any merger or consolidation
and shall not have succeeded to all or any substantial part of the liabilities
of any other entity, at any time following the date of the most recent financial
statements referred to in Schedule 5.5.
.. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be satisfactory to
you and your special counsel, and you and your special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as you or they may reasonably request.
. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to you that:
.. ORGANIZATION; POWER AND AUTHORITY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and is duly qualified as a foreign corporation
and is in good standing in each jurisdiction in which such qualification is
required by law, other than those jurisdictions as to which the failure to be so
qualified or in good standing would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. The Company has the
corporate power and authority to own or hold under lease the properties it
purports to own or hold under lease, to transact the business it transacts and
proposes to transact, to execute and deliver this Agreement and the Other
Agreements and the Notes and to perform the provisions hereof and thereof.
.. AUTHORIZATION, ETC. This Agreement and the Other Agreements and the
Notes have been duly authorized by all necessary corporate action on the part of
the Company, and this Agreement constitutes, and upon execution and delivery
thereof each Note will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by () applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and () general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
.. DISCLOSURE. The Company, through its agent, Wachovia Capital
Markets, Inc., has delivered to you and each Other Purchaser a copy of a Private
Placement Memorandum, dated November 1998 (the "MEMORANDUM"), relating to the
transactions contemplated hereby. This Agreement, the Memorandum and the
financial statements listed in Schedule 5.5, taken as a whole, do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Except as disclosed in the Memorandum
or as expressly described in Schedule 5.3, or in one of the documents,
certificates or other writings identified therein, or in the financial
statements listed in Schedule 5.5, since September 28, 1997, there has been no
change in the financial condition, operations, business or properties of the
Company or any of its Subsidiaries except changes that individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
There is no fact known to the Company that could reasonably be expected
to have a Material Adverse Effect that has not been set forth herein or in the
Memorandum or in the other documents, certificates and other writings delivered
to you by or on behalf of the Company specifically for use in connection with
the transactions contemplated hereby. The projections contained in the
Memorandum are based on the good faith estimates and assumptions of the
management of the Company which has no reason to believe that such projections
are not reasonable; it being recognized, however, that projections as to future
events are not to be viewed as fact and that actual results during the period or
periods covered by any such projections probably will differ from the projected
results and that the differences may be material.
.. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES. () Schedule
5.4 is (except as noted therein) a complete and correct list of the Company's
Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the
jurisdiction of its organization, and the percentage of shares of each class of
its capital stock or similar equity interests outstanding owned by the Company
and each other Subsidiary.
() All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Schedule 5.15 as being owned by the
Company and its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by the Company or another Subsidiary free and clear
of any Lien (except as otherwise disclosed in Schedule 5.4). Except as set forth
in Schedule 5.4, all of the entities set forth on Schedule 5.4 are consolidated
with the Company's financial statements in accordance with GAAP.
() Each Subsidiary identified in Schedule 5.4 is a corporation or other
legal entity duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each such Subsidiary has the corporate or other power and
authority to own or hold under lease the properties it purports to own or hold
under lease and to transact the business it transacts and proposes to transact.
() No Subsidiary is a party to, or otherwise subject to any legal
restriction or any agreement (other than this Agreement, the agreements listed
on Schedule 5.4 and customary limitations imposed by corporate law statutes)
restricting the ability of such Subsidiary to pay dividends out of profits or
make any other similar distributions of profits to the Company or any of its
Subsidiaries that owns outstanding shares of capital stock or similar equity
interests of such Subsidiary.
.. FINANCIAL STATEMENTS. The Company has delivered to each Purchaser
copies of the financial statements of the Company and its Subsidiaries listed on
Schedule 5.5. All of said financial statements (including in each case the
related schedules and notes) fairly present in all material respects the
consolidated financial position of the Company and its Subsidiaries as of the
respective dates specified in such Schedule and the consolidated results of
their operations and cash flows for the respective periods so specified and have
been prepared in accordance with GAAP consistently applied throughout the
periods involved except as set forth in the notes thereto (subject, in the case
of any interim financial statements, to normal year-end adjustments).
.. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution,
delivery and performance by the Company of this Agreement and the Notes will not
() contravene, result in any breach of, constitute a default under, or result in
the creation of any Lien in respect of any property of the Company or any
Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or
credit agreement, lease, corporate charter or by-laws, or any other agreement or
instrument to which the Company or any Subsidiary is bound or by which the
Company or any Subsidiary or any of their respective properties may be bound or
affected, () conflict with or result in a breach of any of the terms, conditions
or provisions of any order, judgment, decree, or ruling of any court, arbitrator
or Governmental Authority applicable to the Company or any Subsidiary or ()
violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to the Company or any Subsidiary.
.. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by the Company of this Agreement or the Notes.
.. LITIGATION; OBSERVANCE OF STATUTES AND ORDERS. () Except as
disclosed in Schedule 5.8, there are no actions, suits or proceedings pending
or, to the knowledge of the Company, threatened against or affecting the Company
or any Subsidiary or any property of the Company or any Subsidiary in any court
or before any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
() Neither the Company nor any Subsidiary is in default under any term
of any agreement or instrument to which it is a party or by which it is bound,
or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
.. TAXES. The Company and its Subsidiaries have filed all tax returns
that are required to have been filed in any jurisdiction, and have paid all
taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments () the amount
of which is not individually or in the aggregate Material or () the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or a Subsidiary,
as the case may be, has established adequate reserves in accordance with GAAP.
The Company knows of no basis for any other tax or assessment that could
reasonably be expected to have a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company and its Subsidiaries in respect of
Federal, state or other taxes for all fiscal periods are adequate. The Federal
income tax liabilities of the Company and its Subsidiaries have been determined
by the Internal Revenue Service and paid for all fiscal years up to and
including the fiscal year ended September 1993.
.. TITLE TO PROPERTY; LEASES. The Company and its Subsidiaries have
good and sufficient title to their respective Material properties, including all
such properties reflected in the most recent audited balance sheet referred to
in Section 5.5 or purported to have been acquired by the Company or any
Subsidiary after said date (except as sold or otherwise disposed of in the
ordinary course of business), in each case free and clear of Liens prohibited by
this Agreement, except for those defects in title and Liens that, individually
or in the aggregate, would not have a Material Adverse Effect. All Material
leases are valid and subsisting and are in full force and effect in all material
respects.
.. LICENSES, PERMITS, ETC. The Company and its Subsidiaries own or
possess all licenses, permits, franchises, authorizations, patents, copyrights,
service marks, trademarks and trade names, or rights thereto, that individually
or in the aggregate are Material, without known conflict with the rights of
others, except for those conflicts that, individually or in the aggregate, would
not have a Material Adverse Effect.
.. COMPLIANCE WITH ERISA. () The Company and each ERISA Affiliate have
operated and administered each Plan in compliance with all applicable laws
except for such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any ERISA Affiliate has incurred any liability pursuant to Title I
or IV of ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans (as defined in Section 3 of ERISA), and no event,
transaction or condition has occurred or exists that would reasonably be
expected to result in the incurrence of any such liability by the Company or any
ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions
or to Section 401(a)(29) or 412 of the Code, other than such liabilities or
Liens as would not be individually or in the aggregate Material.
() The present value of the aggregate benefit liabilities under each of
the Plans (other than Multiemployer Plans), determined as of the end of such
Plan's most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities in the case of any single Plan or in the
aggregate for all Plans by an amount not to exceed $10,000,000. The term
"benefit liabilities" has the meaning specified in Section 4001 of ERISA and the
terms "current value" and "present value" have the meaning specified in Sections
3(26) and (27), respectively, of ERISA.
() The Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
Section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
() The expected postretirement benefit obligation (determined as of the
last day of the Company's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by Section 4980B of
the Code) of the Company and its Subsidiaries is not Material.
() The execution and delivery of this Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction that is subject to
the prohibitions of Section 406 of ERISA or in connection with which a tax could
be imposed pursuant to Section 4975(c)(1)(A)-(D) of the Code. The representation
by the Company in the first sentence of this Section 5.12(e) is made in reliance
upon and subject to () the accuracy of your representation in Section 6.2 as to
the sources of the funds used to pay the purchase price of the Notes to be
purchased by you and () the assumption, made solely for the purpose of making
such representation, that Department of Labor Interpretive Bulletin 75-2 with
respect to prohibited transactions remains valid in the circumstances of the
transactions contemplated herein.
.. PRIVATE OFFERING BY THE COMPANY. Neither the Company nor anyone
acting on its behalf has offered the Notes or any similar securities for sale
to, or solicited any offer to buy any of the same from, or otherwise approached
or negotiated in respect thereof with, any person other than you, the Other
Purchasers and not more than 25 other Institutional Investors, each of which has
been offered the Notes at a private sale for investment. Neither the Company nor
anyone acting on its behalf has taken, or will take, any action that would
subject the issuance or sale of the Notes to the registration requirements of
Section 5 of the Securities Act.
.. USE OF PROCEEDS; MARGIN REGULATIONS. The Company will apply the
proceeds of the sale of the Notes as set forth in Schedule 5.14. No part of the
proceeds from the sale of the Notes hereunder will be used, directly or
indirectly, for the purpose of buying or carrying any margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
(12 CFR 207), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220). Margin stock does not
constitute more than 5% of the value of the consolidated assets of the Company
and its Subsidiaries and the Company does not have any present intention that
margin stock will constitute more than 5% of the value of such assets. As used
in this Section, the terms "margin stock" and "purpose of buying or carrying"
shall have the meanings assigned to them in said Regulation U.
.. EXISTING INDEBTEDNESS. The audited financial statements dated as of
September 28, 1997 disclose all outstanding Indebtedness of the Company and its
Subsidiaries as of such date, and except as set forth in Schedule 5.15, there
has been no Material change in the amounts, interest rates, sinking funds,
installment payments or maturities of the Indebtedness of the Company or its
Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver
of default is currently in effect, in the payment of any principal or interest
on any Indebtedness of the Company or such Subsidiary and no event or condition
exists with respect to any Indebtedness of the Company or any Subsidiary that
would permit (or that with notice or the lapse of time, or both, would permit)
one or more Persons to cause such Indebtedness to become due and payable before
its stated maturity or before its regularly scheduled dates of payment.
.. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the sale of the
Notes by the Company hereunder nor its use of the proceeds thereof will violate
the Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating
thereto.
.. ENVIRONMENTAL MATTERS. Neither the Company nor any Subsidiary has
knowledge of any claim or has received any notice of any claim, and neither the
Company nor any Subsidiary has any knowledge that any proceeding has been
instituted raising any claim against the Company or any of its Subsidiaries or
any of their respective real properties now or formerly owned, leased or
operated by any of them or other assets, alleging any damage to the environment
or violation of any Environmental Laws, except, in each case, such as could not
reasonably be expected to result in a Material Adverse Effect. Except as
otherwise disclosed to you in writing,
() neither the Company nor any Subsidiary has knowledge of any
facts which would give rise to any claim, public or private, of
violation of Environmental Laws or damage to the environment emanating
from, occurring on or in any way related to real properties now or
formerly owned, leased or operated by any of them or to other assets or
their use, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect;
() neither the Company nor any of its Subsidiaries has stored
any Hazardous Materials on real properties now or formerly owned,
leased or operated by any of them and has not disposed of any Hazardous
Materials in a manner contrary to any Environmental Laws in each case
in any manner that could reasonably be expected to result in a Material
Adverse Effect; and
() all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in compliance
with applicable Environmental Laws, except where failure to comply
could not reasonably be expected to result in a Material Adverse
Effect.
.. STATUS UNDER CERTAIN STATUTES. Neither the Company nor any
Subsidiary is subject to regulation under the Investment Company Act of 1940, as
amended, the Public Utility Holding Company Act of 1935, as amended, the
Interstate Commerce Act, as amended, or the Federal Power Act, as amended.
. REPRESENTATIONS OF THE PURCHASER.
.. PURCHASE FOR INVESTMENT. You represent that you are purchasing the
Notes for your own account or for one or more separate accounts maintained by
you or for the account of one or more pension or trust funds and not with a view
to the distribution thereof provided that the disposition of your or their
property shall at all times be within your or their control. You understand that
the Notes have not been registered under the Securities Act and may be resold
only if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Notes.
.. SOURCE OF FUNDS. You represent that at least one of the following
statements is an accurate representation as to each source of funds (a
"Source") to be used by you to pay the purchase price of the Notes to be
purchased by you hereunder:
() if you are an insurance company, the Source does not
include assets allocated to any separate account maintained by you in
which any employee benefit plan (or its related trust) has any
interest, other than a separate account that is maintained solely in
connection with your fixed contractual obligations under which the
amounts payable, or credited, to such plan and to any participant or
beneficiary of such plan (including any annuitant) are not affected in
any manner by the investment performance of the separate account; or
() the Source is either () an insurance company pooled
separate account, within the meaning of Prohibited Transaction
Exemption ("PTE") 90-1 (issued January 29, 1990), or () a bank
collective investment fund, within the meaning of the PTE 91-38)
(issued July 12, 1991) and, except as you have disclosed to the Company
in writing pursuant to this paragraph (b), no employee benefit plan or
group of plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled
separate account or collective investment fund; or
() the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of
Part V of the QPAM Exemption), no employee benefit plan's assets that
are included in such investment fund, when combined with the assets of
all other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section V(c)(1) of
the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part I(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling
or controlled by the QPAM (applying the definition of "control" in
Section V(e) of the QPAM Exemption) owns a 5% or more interest in the
Company and () the identity of such QPAM and () the names of all
employee benefit plans whose assets are included in such investment
fund have been disclosed to the Company in writing pursuant to this
paragraph (c); or
() the Source is a governmental plan; or
() the Source is one or more employee benefit
plans, or a separate account or trust fund comprised of one or more
employee benefit plans, each of which has been identified to the
Company in writing pursuant to this paragraph (e); or
() the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "employee benefit plan", "governmental
plan", "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
. INFORMATION AS TO COMPANY.
.. FINANCIAL AND BUSINESS INFORMATION. The Company shall
deliver to each holder of Notes that is an Institutional Investor:
() QUARTERLY STATEMENTS. Within 45 days (or, if an extension
for filing its Form 10-Q has been made by the Company with the
Securities and Exchange Commission, within 50 days) after the end of
each quarterly fiscal period in each fiscal year of the Company (other
than the last quarterly fiscal period of each such fiscal year),
duplicate copies of,
() a consolidated balance sheet of the Company
and its Subsidiaries as at the end of such quarter, and
() consolidated statements of income, changes
in shareholders' equity and cash flows of the Company
and its Subsidiaries, for such quarter and (in the
case of the second and third quarters) for the portion
of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified
above of copies of the Company's Quarterly Report on Form 10-Q prepared
in compliance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(a) so long as such report shall
contain the items set forth above;
() ANNUAL STATEMENTS. Within 90 days (or, if an
extension for filing its Form 10-K has been made by the Company with
the Securities and Exchange Commission within 105 days) after the end
of each fiscal year of the Company, duplicate copies of,
() a consolidated balance sheet of the Company
and its Subsidiaries, as at the end of such year, and
() consolidated statements of income, changes
in shareholders' equity and cash flows of the Company
and its Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by an opinion thereon of independent
certified public accountants of recognized national standing, which
opinion shall state that such financial statements present fairly, in
all material respects, the financial position of the companies being
reported upon and their results of operations and cash flows and have
been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made
in accordance with generally accepted auditing standards, and that such
audit provides a reasonable basis for such opinion in the
circumstances, provided that the delivery within the time period
specified above of the Company's Annual Report on Form 10-K for such
fiscal year (together with the Company's annual report to shareholders,
if any, prepared pursuant to Rule 14a-3) under the Exchange Act)
prepared in accordance with the requirements therefor and filed with
the Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(b) so long as such report shall
contain the items set forth above;
() SEC AND OTHER REPORTS. Promptly upon their becoming
available, one copy of () each financial statement, report, notice or
proxy statement sent by the Company or any Subsidiary to public
securities holders generally, and () each regular or periodic report,
each registration statement that shall have become effective (without
exhibits except as expressly requested by such holder), and each final
prospectus and all amendments thereto filed by the Company or any
Subsidiary with the Securities and Exchange Commission;
() NOTICE OF DEFAULT OR EVENT OF DEFAULT. Promptly, and in any
event within five days after a Responsible Officer becoming aware of
the existence of any Default or Event of Default, a written notice
specifying the nature and period of existence thereof and what action
the Company is taking or proposes to take with respect thereto;
() ERISA MATTERS. Promptly, and in any event within five days
after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any,
that the Company or an ERISA Affiliate proposes to take with respect
thereto:
() with respect to any Plan, any reportable event,
as defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived
pursuant to such regulations as in effect on the date hereof,
or
() the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from
a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could
reasonably result in the incurrence of any liability by the
Company or any ERISA Affiliate pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, or in the imposition of
any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate pursuant to Title I or IV of
ERISA or such penalty or excise tax provisions, if such
liability or Lien, taken together with any other such
liabilities or Liens then existing, would reasonably be
expected to have a Material Adverse Effect; and
() MANAGEMENT REPORTS. Promptly upon receipt thereof, a
copy of each other report (including, without limitation, management
letters) submitted to the Company or any Restricted Subsidiary by
independent accountants in connection with any annual audit made by
them of the books of the Company or any Restricted Subsidiary or
special audit by them of the books of the Company; and
() REQUESTED INFORMATION. With reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Notes as from time to
time may be reasonably requested by any such holder of Notes.
.. OFFICER'S/ACCOUNTANT'S CERTIFICATE.
7.2(). Each set of financial statements delivered to a holder of
Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied
by a certificate of a Senior Financial Officer setting forth:
() COVENANT COMPLIANCE. The information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Sections 10.1, 10.2(A), 10.2(B),
10.3 and 10.7 hereof during the quarterly or annual period covered by
the statements then being furnished (including with respect to each
such Section, where applicable, the calculations of the maximum or
minimum amount, ratio or percentage, as the case may be, permissible
under the terms of such Sections, and the calculation of the amount,
ratio or percentage then in existence); and
() EVENT OF DEFAULT. A statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not
have disclosed the existence during such period of any condition or
event that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without limitation,
any such event or condition resulting from the failure of the Company
or any Subsidiary to comply with any Environmental Law), specifying the
nature and period of existence thereof and what action the Company
shall have taken or proposes to take with respect thereto.
7.2(). Together with each delivery of financial statements required by
Section 7.1(b) above, the Company will deliver to each Purchaser a certificate
of the accountants preparing such statements stating that, in making the audit
necessary for their report on such financial statements, they have obtained no
knowledge of any Event of Default or Default, or, if they have obtained
knowledge of any Event of Default or Default, specifying the nature and period
of existence thereof. Such accountants, however, shall not be liable to anyone
by reason of their failure to obtain knowledge of any Event of Default or
Default which would not be disclosed in the course of an audit conducted in
accordance with generally accepted auditing standards.
.. INSPECTION. The Company shall permit the representatives of
each holder of Notes that is an Institutional Investor:
() NO DEFAULT. If no Default or Event of Default then exists,
at the expense of such holder and upon reasonable prior notice to the
Company, to visit the principal executive office of the Company, to
discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers, and, with the consent of the
Company (which consent will not be unreasonably withheld) its
independent public accountants, and (with the consent of the Company,
which consent will not be unreasonably withheld) to visit the other
offices and properties of the Company, and each Subsidiary, all at such
reasonable times and as often as may be reasonably requested in
writing; and
() DEFAULT. If a Default or Event of Default then exists, at
the expense of the Company to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their
respective books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent
public accountants (and by this provision the Company authorizes said
accountants to discuss the affairs, finances and accounts of the
Company and its Subsidiaries), all at such times and as often as may be
requested.
. PAYMENT OF THE NOTES.
.. PAYMENTS AT MATURITY. On December 18, 2008, the Company
shall pay the entire outstanding principal amount of outstanding Notes and the
Other Notes in a single installment at par and without payment of the Make-Whole
Amount or any premium.
.. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. The Company may, at its
option, upon notice as provided below, prepay on any Business Day, or from time
to time any part of, the Notes and the Other Notes, in an amount not less than
10% of the aggregate principal amount of the Notes and the Other Notes then
outstanding in the case of a partial prepayment, at 100% of the principal amount
so prepaid, plus the Make-Whole Amount determined for the prepayment date with
respect to such principal amount. The Company will give each holder of Notes and
the Other Notes written notice of each optional prepayment under this Section
8.2 not less than 15 days and not more than 60 days prior to the date fixed for
such prepayment. Each such notice shall specify such date, the aggregate
principal amount of the Notes and the Other Notes to be prepaid on such date,
the principal amount of each Note held by such holder to be prepaid (determined
in accordance with Section 8.3), and the interest to be paid on the prepayment
date with respect to such principal amount being prepaid, and shall be
accompanied by a certificate of a Senior Financial Officer as to the estimated
Make-Whole Amount due in connection with such prepayment (calculated as if the
date of such notice were the date of the prepayment), setting forth the details
of such computation. Two Business Days prior to such prepayment, the Company
shall deliver to each holder of Notes a certificate of a Senior Financial
Officer specifying the calculation of such Make-Whole Amount as of the specified
prepayment date.
.. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each partial
prepayment of the Notes, the principal amount of the Notes to be prepaid shall
be allocated among all of the Notes at the time outstanding in proportion, as
nearly as practicable, to the respective unpaid principal amounts thereof not
theretofore called for prepayment.
.. MATURITY; SURRENDER, ETC. In the case of each prepayment of Notes
pursuant to this Section 8, the principal amount of each Note to be prepaid
shall mature and become due and payable on the date fixed for such prepayment,
together with interest on such principal amount accrued to such date and the
applicable Make-Whole Amount, if any. From and after such date, unless the
Company shall fail to pay such principal amount when so due and payable,
together with the interest and Make-Whole Amount, if any, as aforesaid, interest
on such principal amount shall cease to accrue. Any Note paid or prepaid in full
shall be surrendered to the Company and canceled and shall not be reissued, and
no Note shall be issued in lieu of any prepaid principal amount of any Note.
.. PURCHASE OF NOTES. The Company will not, and will not permit any
Affiliate, to purchase, redeem, prepay or otherwise acquire, directly or
indirectly, any of the outstanding Notes except upon the payment or prepayment
of the Notes in accordance with the terms of this Agreement and the Notes. The
Company will promptly cancel all Notes acquired by it or any Affiliate pursuant
to any payment, prepayment or purchase of Notes pursuant to any provision of
this Agreement and no Notes may be issued in substitution or exchange for any
such Notes.
.. OFFER TO PREPAY NOTES IN THE EVENT OF A CHANGE IN CONTROL.
(i) NOTICE OF IMPENDING CHANGE IN CONTROL. The Company shall
give to each holder of Notes prompt written notice of any impending
Change in Control for which it has received a written offer or notice.
(ii) NOTICE OF OCCURRENCE OF CHANGE IN CONTROL. The Company
will, within five Business Days after any Responsible Officer has
knowledge of the occurrence of any Change in Control, give written
notice of such Change in Control to each holder of Notes. If a Change
in Control has occurred, such notice shall contain and constitute an
offer to prepay the Notes as described in clause (iii) of this
paragraph 8.6 and shall be accompanied by the certificate described in
clause (vi) hereof.
(iii) OFFER TO PREPAY NOTES. The offer to prepay Notes
contemplated by the foregoing clause (ii) shall be an offer to prepay,
in accordance with and subject to this paragraph 8.6, all, but not less
than all, the Notes held by each holder (in this case only, "holder" in
respect of any Note registered in the name of a nominee for a disclosed
beneficial owner shall mean such beneficial owner) on a date specified
in such offer (the "PROPOSED PREPAYMENT DATE"). Such Proposed
Prepayment Date shall be not less than 30 days and not more than 90
days after the date of such offer (if the Proposed Prepayment Date
shall not be specified in such offer, the Proposed Prepayment Date
shall be the 60th day after the date of such offer).
(iv) REJECTION, ACCEPTANCE. A holder of Notes may accept the
offer to prepay made pursuant to this paragraph 8.6 by causing a notice
of such acceptance to be delivered to the Company within 60 days after
receipt of the notice required pursuant to clause (ii) of this
paragraph 8.6. A failure by a holder of Notes to respond to an offer to
prepay made pursuant to this paragraph 8.6 within such 60-day period
shall be deemed to constitute a rejection of such offer by such holder.
(v) PREPAYMENT. Prepayment of the Notes to be prepaid pursuant
to this paragraph 8.6 shall be at 100% of the principal amount of such
Notes, plus the Make-Whole Amount, if any, determined for the date of
prepayment with respect to such principal amount, together with
interest on such Notes accrued to the date of prepayment. The
prepayment shall be made on the Proposed Prepayment Date.
(vi) OFFICER'S CERTIFICATE. Each offer to prepay the Notes
pursuant to this paragraph 8.6 shall be accompanied by a certificate,
executed by a Responsible Officer of the Company and dated the date of
such offer, specifying: () the Proposed Prepayment Date; () that such
offer is made pursuant to this paragraph 8.6; () the principal amount
of each Note offered to be prepaid; () the interest that would be due
on each Note offered to be prepaid, accrued to the Proposed Prepayment
Date; () that the conditions of this paragraph 8.6 have been fulfilled;
and () in reasonable detail, the nature and date of the Change in
Control.
.. MAKE-WHOLE AMOUNT. The term "MAKE-WHOLE AMOUNT" means, with respect
to any Note, an amount equal to the excess, if any, of the Discounted Value of
the Remaining Scheduled Payments with respect to the Called Principal of such
Note over the amount of such Called Principal, provided that the Make-Whole
Amount may in no event be less than zero. For the purposes of determining the
Make-Whole Amount, the following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to Section 8.2 or
has become or is declared to be immediately due and payable pursuant to
Section 12.1, as the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called
Principal of any Note, 0.50% over the yield to maturity implied by ()
the yields reported, as of 10:00 A.M. (New York City time) on the
second Business Day preceding the Settlement Date with respect to such
Called Principal, on page C4 of the Bloomberg Financial Markets Service
(or, if not available, any other nationally recognized trading screen
reporting on-line intra-day trading in United States government
securities) for actively traded U.S. Treasury securities having a
maturity equal to the Remaining Average Life of such Called Principal
as of such Settlement Date, or () if such yields are not reported as of
such time or the yields reported as of such time are not ascertainable,
the Treasury Constant Maturity Series Yields reported, for the latest
day for which such yields have been so reported as of the second
Business Day preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied
yield will be determined, if necessary, by () converting U.S. Treasury
bill quotations to bond equivalent yields in accordance with accepted
financial practice and () interpolating linearly between () the
actively traded U.S. Treasury security with the maturity closest to and
greater than the Remaining Average Life and () the actively traded U.S.
Treasury security with the duration closest to and less than the
Remaining Average Life.
"REMAINING AVERAGE LIFE" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing () such Called Principal into () the sum of
the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (b) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the
Called Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with
respect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date, provided that if such
Settlement Date is not a date on which interest payments are due to be
made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of
interest accrued to such Settlement Date and required to be paid on
such Settlement Date pursuant to Section 8.2 or 12.1.
"SETTLEMENT DATE" means, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.2 or has become or is declared to be immediately
due and payable pursuant to Section 12.1, as the context requires.
. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of
the Notes are outstanding:
.. COMPLIANCE WITH LAW. The Company will and will cause each of its
Subsidiaries to comply with all laws, ordinances or governmental rules or
regulations to which each of them is subject, including, without limitation,
Environmental Laws, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations would not reasonably
be expected, individually or in the aggregate, to have a materially adverse
effect on the business, operations, affairs, financial condition, properties or
assets of the Company and its Subsidiaries taken as a whole.
.. INSURANCE. The Company will and will cause each of its Restricted
Subsidiaries to maintain, with financially sound and reputable insurers,
insurance with respect to, their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a similar business
and similarly situated.
.. MAINTENANCE OF PROPERTIES. The Company will and will cause each of
its Restricted Subsidiaries to maintain and keep, or cause to be maintained and
kept, their respective properties in good repair, working order and condition
(other than ordinary wear and tear) so that the business carried on in
connection therewith may be properly conducted at all times, provided that this
Section shall not prevent the Company or any Restricted Subsidiary from
discontinuing the operation and the maintenance of any of its properties if such
discontinuance is desirable in the conduct of its business and the Company has
concluded that such discontinuance would not, individually or in the aggregate,
have a materially adverse effect on the business, operations, affairs, financial
condition, properties or assets of the Company and its Subsidiaries taken as a
whole.
.. PAYMENT OF TAXES AND CLAIMS. The Company will and will cause each of
its Subsidiaries to file all tax returns required to be filed in any
jurisdiction and to pay and discharge all taxes shown to be due and payable on
such returns and all other taxes, assessments, governmental charges, or levies
imposed on them or any of their properties, assets, income or franchises, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent and all claims for which sums have become due and payable
that have or might become a Lien on properties or assets of the Company or any
Subsidiary, provided that neither the Company nor any Subsidiary need pay any
such tax or assessment or claims if () the amount, applicability or validity
thereof is contested by the Company or such Subsidiary on a timely basis in good
faith and in appropriate proceedings, and the Company or a Subsidiary has
established adequate reserves therefor in accordance with GAAP on the books of
the Company or such Subsidiary or () the nonpayment of all such taxes and
assessments in the aggregate would not reasonably be expected to have a
materially adverse effect on the business, operations, affairs, financial
condition, properties or assets of the Company and its Subsidiaries taken as a
whole
.. CORPORATE EXISTENCE, ETC. The Company will at all times preserve and
keep in full force and effect its corporate existence. Subject to Sections 10.6
and 10.7, the Company will at all times preserve and keep in full force and
effect the corporate existence of each of its Subsidiaries (unless merged or
liquidated into the Company or a Subsidiary) and all rights and franchises of
the Company and its Subsidiaries unless, in the good faith judgment of the
Company, the termination of or failure to preserve and keep in full force and
effect such corporate existence, right or franchise would not, individually or
in the aggregate, have a materially adverse effect on the business, operations,
affairs, financial condition, properties or assets of the Company and its
Subsidiaries taken as a whole.
.. COVENANT TO SECURE NOTE EQUALLY. The Company covenants that, if it
or any Restricted Subsidiary shall create or assume any Lien upon any of its
property or assets, whether now owned or hereafter acquired, other than Liens
permitted by the provisions of Section 10.4 (unless prior written consent to the
creation or assumption thereof shall have been obtained pursuant to Section
17.1), it will make or cause to be made effective provision whereby the Notes
will be secured by such Lien equally and ratably with any and all other
Indebtedness thereby secured so long as any such other Indebtedness shall be so
secured. However, the compliance by the Company of this Section 9.6 shall not
constitute a waiver of, or cure for, any violation of Section 10.4 hereof.
. NEGATIVE COVENANTS. The Company covenants that so long as any of the
Notes are outstanding:
.. EBITDAR TO FIXED CHARGE COVERAGE RATIO. The Company shall
not permit at any time the ratio of EBITDAR to Fixed Charges to be less than 3.0
to 1.0.
.. DEBT TO CAP/PRIORITY DEBT.
10.2(A). DEBT TO CAP. The Company shall not permit at any time Total
Debt to exceed the percentage of Consolidated Total Capitalization set forth
below opposite the applicable percentage of Consolidated Total Assets sold as
part of the securitization program described in Section 10.7(b):
<TABLE>
<CAPTION>
Percentage of Percentage
Consolidated Total Assets
<S> <C>
less than 10% 60%
AE10% 55%
</TABLE>
10.2(B). PRIORITY DEBT. The Company shall not, as of the end of each
fiscal quarter during which any Notes are outstanding, permit the aggregate
outstanding amount of Priority Debt to exceed 25% of Consolidated Net Worth at
such time.
.. RESTRICTED PAYMENTS. The Company shall not, and shall not permit any
Restricted Subsidiary, to declare, make, pay or become obligated to make or pay,
any Restricted Payment (other than any Restricted Payment to the Company or a
Wholly-Owned Restricted Subsidiary) or any Restricted Investment unless, at the
time and immediately after giving effect to such Restricted Payment or
Restricted Investment, no Default or Event of Default would exist or be
continuing.
.. LIENS. The Company shall not, and shall not permit any
Restricted Subsidiary to, create, assume or suffer to exist any Lien upon any of
its respective property or assets, whether now owned or hereafter acquired,
except:
() Liens existing on the Closing and specified on
Schedule 10.4;
() Liens () for taxes (including ad valorem and
property taxes) and assessments or governmental charges or levies not
yet due or () for taxes due or () resulting from any judgment or award,
and in the case of clause (B) and (C), are being actively contested
in good faith by appropriate proceedings and with respect to which
adequate reserves under GAAP are being maintained;
() landlord liens and statutory liens of carriers,
warehousemen, mechanics, material men and other liens imposed by law,
created in the ordinary course of business for amounts not yet due or
which are being contested in good faith by appropriate proceedings or
with respect to which adequate reserves under GAAP are being
maintained, and which were not incurred in connection with the
borrowing of money;
() Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return of money
bonds and similar obligations;
() easements, rights-of-way, zoning and similar
restrictions and other similar charges or encumbrances not materially
interfering with the ordinary conduct of the business of the Company or
any of its Restricted Subsidiaries;
() other Liens incidental to the conduct of its business or
the ownership of its property and assets which were not incurred in
connection with the borrowing of money, and which do not in the
aggregate materially detract from the value of property or assets of
the Company and its Restricted Subsidiaries taken as a whole or
materially impair the use of such property or assets in the operation
of the business of the Company or any of its Restricted Subsidiaries;
() leases, subleases, licenses and sublicenses
granted to third parties not interfering in any material respect with
the business of the Company or any of its Restricted Subsidiaries;
() Liens on property or assets of a Restricted Subsidiary
of the Company to secure obligations of such Subsidiary to the
Company or another Wholly-Owned Restricted Subsidiary;
() any right of set off or banker's lien (whether by common
law, statute, contract or otherwise) in favor of any bank (other than
Liens securing Debt);
() Liens on receivables (and intangibles related thereto)
of the Company and its Restricted Subsidiaries granted pursuant to
Maturity Factoring Arrangements; and
() other Liens in addition to those described in subparagraphs
(i) through (ix) above and securing Indebtedness of the Company and any
Restricted Security; provided, however, that after giving effect to the
Indebtedness secured by such Liens, the Company shall be in compliance
with Section 10.2(B) hereof.
.. TRANSACTIONS WITH AFFILIATES. The Company will not and will not
permit any Restricted Subsidiary to enter into directly or indirectly any
Material transaction or Material group of related transactions (including
without limitation the purchase, lease, sale or exchange of properties of any
kind or the rendering of any service) with any Affiliate (other than the Company
or another Subsidiary), except: () pursuant to the reasonable requirements of
the Company's or such Subsidiary's business and upon fair and reasonable terms
no less favorable to the Company or such Subsidiary than would be obtainable in
a comparable arm's-length transaction with a Person not an Affiliate and () any
stock issuances that may occur under the Rights Agreement dated as of August 23,
1990, as amended prior to the Closing, between the Company and Wachovia Bank of
North Carolina, N.A., as Rights Agent or stock redemptions that may occur under
the Stockholders' Agreement dated as of June 22, 1990, as amended prior to the
Closing, among the Company, Maurice Fishman, George Greenberg and Charles Hayes
or the Stockholders Agreement dated as of April 30, 1991, as amended prior to
the Closing, among the Company, Maurice Fishman and Charles Hayes (without
giving effect to any amendment, supplement or modification which would
materially change the terms and provisions of any of the foregoing to which the
Required Holders have not consented).
.. MERGER, CONSOLIDATION, SALES OF SUBSTANTIALLY ALL ASSETS. The
Company shall not, and shall not permit any Restricted Subsidiary to, merge,
consolidate or exchange shares with any other Person or sell, assign, convey,
transfer or lease substantially all of its assets in a single transaction or
series of transactions to any Person, except that:
() any Restricted Subsidiary may merge or consolidate with and
into the Company or with a Wholly-Owned Restricted Subsidiary or, if
not a Wholly-Owned Subsidiary, a Restricted Subsidiary in which the
ownership interest of the Company is not reduced or diluted in
connection with or as a result of such merger or consolidation;
() a Restricted Subsidiary may sell or transfer substantially
all of its assets to the Company or to a Wholly-Owned Restricted
Subsidiary or, if not a Wholly-Owned Restricted Subsidiary, a
Restricted Subsidiary where the direct or indirect ownership interest
of the Company in such sold or transferred assets is not reduced or
diluted;
() a Restricted Subsidiary may sell or transfer substantially
all of its assets to a Person other than the Company or a Restricted
Subsidiary so long as: (x) if such sale or transfer constitutes an
Asset Sale, the Restricted Subsidiary complies with Section 10.7 hereof
with respect to such Asset Sale and (y) such sale or transfer does not
constitute a sale or transfer of substantially all of the assets of the
Company; and
() the Company may merge or consolidate with any other
corporation, or sell, assign, convey, transfer or lease all or
substantially all of the assets of the Company, so long as:
() the surviving corporation (or the corporation to
which such sale, assignment, transfer, conveyance or lease is
made (the "transferee")) shall be the Company or another
corporation organized under the laws of the United States or a
State thereof or the District of Columbia;
() the surviving (or transferee) corporation
(if not the Company) shall assume the obligations of the
Company hereunder pursuant to an agreement reasonably
acceptable to the Required Holders; and
() immediately after giving effect to such
merger, consolidation or sale or transfer of assets, no
Default or Event of Default shall have occurred or exist.
.. SALES OF ASSETS.
() The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in Asset Sales during any fiscal year of the Company
unless the assets to be sold in such Asset Sale, together with all other assets
of the Company and its Restricted Subsidiaries sold, leased, transferred or
otherwise disposed of in all other Asset Sales during such fiscal year,
constitute less than 10% of the Consolidated Total Assets measured as of the end
of the immediately preceding Fiscal Year or contributed less than 10% of
Consolidated Operating Income during the immediately preceding fiscal year
(disregarding any fiscal quarter in which there was an operating loss, on a
consolidated basis).
() The foregoing limitation shall not prohibit the Company from selling
accounts receivable in an aggregate face amount if, when combined with the face
amount of all other receivables then outstanding under any securitization
program, such amount would not exceed the percentage of Consolidated Total
Assets set forth below opposite the applicable ratio:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Ratio of Total Debt to Percentage
Consolidated Total Capitalization
(as of the Date of Determination)
-----------------------------------------------------------------------
<S> <C>
ae .55 to 1.0 20%
-----------------------------------------------------------------------
>.55 to 1.0 10%
-----------------------------------------------------------------------
</TABLE>
.. NATURE OF BUSINESS. Neither the Company nor any Restricted
Subsidiary shall engage in any business, if as a result, when taken as a whole,
the general nature of the business then engaged in by the Company and its
Restricted Subsidiaries would be substantially changed from the nature of the
business of the Company and its Subsidiaries on the date hereof and described in
the Memorandum.
.. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The
Company shall not permit any of its Restricted Subsidiaries to create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to ()() pay dividends or
make any other distributions to the Company or any of its Restricted
Subsidiaries with respect to, or on account of, its Equity Interests or () pay
any Indebtedness owed to the Company or any of its Restricted Subsidiaries, ()
make loans or advances to the Company or any of its Restricted Subsidiaries or
() transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of () agreements evidencing Indebtedness as in effect on the
Closing and described on Schedule 5.15 hereof and any agreement which evidences
any renewal, extension, substitution or refinancing of such Indebtedness so long
as the provisions relating to such encumbrance or restriction contained in any
such agreement are no more restrictive or onerous to the Company or such
Subsidiary, () agreements evidencing Priority Debt of Subsidiaries permitted to
be incurred under this Agreement, () applicable law, () by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, () purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iii) above on the property so acquired, and ()
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Equity Interests or property or assets of a Restricted
Subsidiary.
. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist if any of the
following conditions or events shall occur and be continuing:
() the Company defaults in the payment of any principal
or Make-Whole Amount, if any, on any Note when the same becomes due
and payable, whether at maturity or at a date fixed for prepayment or
by declaration or otherwise; or
() the Company defaults in the payment of any interest on
any Note for more than five Business Days after the same becomes due
and payable; or
() the Company defaults in the performance of or compliance
with any term contained in Section 10 hereof; or
() the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in
paragraphs (a), (b) and (c) of this Section 11) and such default is not
remedied within 30 days after the earlier of () a Responsible Officer
obtaining actual knowledge of such default and () the Company receiving
written notice of such default from any holder of a Note (any such
written notice to be identified as a "notice of default" and to refer
specifically to this paragraph (d) of Section 11); or
() any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this
Agreement or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or incorrect
in any material respect on the date as of which made; or
() () the Company or any Restricted Subsidiary is in default
(as principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole amount or interest on any
Indebtedness that is outstanding in an aggregate principal amount of at
least $10,000,000 beyond any period of grace provided with respect
thereto, or () the Company or any Restricted Subsidiary is in default
in the performance of or compliance with any term of any evidence of
any Indebtedness in an aggregate outstanding principal amount of at
least $10,000,000 or of any mortgage, indenture or other agreement
relating thereto or any other condition exists, and as a consequence of
such default or condition such Indebtedness has become, or has been
declared (or one or more Persons are entitled to declare such
Indebtedness to be), due and payable before its stated maturity or
before its regularly scheduled dates of payment or () as a consequence
of the occurrence or continuation of any event or condition (other than
the passage of time or the right of the holder of Indebtedness to
convert such Indebtedness into equity interests), (x) the Company or
any Restricted Subsidiary has become obligated to purchase or repay
Indebtedness before its regular maturity or before its regularly
scheduled dates of payment in an aggregate outstanding principal amount
of at least $10,000,000, or (y) one or more Persons have the right to
require the Company or any Restricted Subsidiary so to purchase or
repay such Indebtedness; or
() the Company or any Restricted Subsidiary () is
generally not paying, or admits in writing its inability to pay, its
debts as they become due, () files, or consents by answer or otherwise
to the filing against it of, a petition for relief or reorganization
or arrangement or any other petition in bankruptcy, for liquidation or
to take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, () makes an
assignment for the benefit of its creditors, () consents to the
appointment of a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, () is adjudicated as insolvent or to be
liquidated, or () takes corporate action for the purpose of any of the
foregoing; or
() a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any of
its Restricted Subsidiaries, a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief
or approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of the Company or any of its
Restricted Subsidiaries, or any such petition shall be filed against
the Company or any of its Restricted Subsidiaries and such petition
shall not be dismissed within 60 days; or
() a final judgment or judgments for the payment of money
aggregating in excess of $10,000,000 are rendered against one or more
of the Company and its Restricted Subsidiaries and which judgments are
not, within 60 days after entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within 60 days after the
expiration of such stay; or
() if () any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, () a notice of intent
to terminate any Plan shall have been or is reasonably expected to be
filed with the PBGC or the PBGC shall have instituted proceedings under
ERISA section 4042 to terminate or appoint a trustee to administer any
Plan or the PBGC shall have notified the Company or any ERISA Affiliate
that a Plan may become a subject of any such proceedings and, in the
case of (i) or (ii), the aggregate "amount of unfunded benefit
liabilities" (within the meaning of section 4001(a)(18) of ERISA) of
the applicable Plan or Plans, determined in accordance with Title IV of
ERISA, shall exceed $10,000,000, () the Company or any ERISA Affiliate
shall have incurred or is reasonably expected to incur any liability
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans in excess of
$10,000,000, () the Company or any ERISA Affiliate withdraws from any
Multiemployer Plan with a resulting withdrawal liability in excess of
$10,000,000, or () the Company or any Subsidiary establishes or amends
any employee welfare benefit plan that provides post-employment welfare
benefits in a manner that would increase the unfunded liability of the
Company or any Subsidiary thereunder by in excess of $10,000,000; or
any such event or events described in clauses (i) through (v) above,
either individually or together with any other such event or events,
would reasonably be expected to have a Material Adverse Effect. As used
in Section 11(j) the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to
such terms in Section 3 of ERISA; or
() The Company shall fail to provide legal opinions, in form
and substance satisfactory to you, with respect to the Restricted
Subsidiaries specified on Schedule 11(k) on or prior to January 15,
1999.
. REMEDIES ON DEFAULT, ETC.
.. ACCELERATION. () If an Event of Default with respect to the
Company described in paragraph (g) or (h) of Section 11 (other than an Event of
Default described in clause (i) of paragraph (g) or described in clause (vi) of
paragraph (g) by virtue of the fact that such clause encompasses clause (i) of
paragraph (g)) has occurred, all the Notes then outstanding shall automatically
become immediately due and payable.
() If any other Event of Default has occurred and is continuing, any
holder or holders of more than 51% in principal amount of the Notes at the time
outstanding may at any time at its or their option, by notice or notices to the
Company, declare all the Notes then outstanding to be immediately due and
payable.
() If any Event of Default described in paragraph (a) or (b) of Section
11 has occurred and is continuing, any holder or holders of Notes at the time
outstanding affected by such Event of Default may at any time, at its or their
option, by notice or notices to the Company, declare all the Notes held by it or
them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
.. OTHER REMEDIES. If any Default or Event of Default has occurred and
is continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.
.. RESCISSION. At any time after any Notes have been declared due and
payable pursuant to clause (b) or (c) of Section 12.1, the holders of not less
than 51% in principal amount of the Notes then outstanding, by written notice to
the Company, may rescind and annul any such declaration and its consequences if
() the Company has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes, at the Default
Rate, () all Events of Default and Defaults, other than nonpayment of amounts
that have become due solely by reason of such declaration, have been cured or
have been waived pursuant to Section 17, and () no judgment or decree has been
entered for the payment of any monies due pursuant hereto or to the Notes. No
rescission and annulment under this Section 12.3 will extend to or affect any
subsequent Event of Default or Default or impair any right consequent thereon.
.. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course of
dealing and no delay on the part of any holder of any Note in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
such holder's rights, powers or remedies. No right, power or remedy conferred by
this Agreement or by any Note upon any holder thereof shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting the
obligations of the Company under Section 15, the Company will pay to the holder
of each Note on demand such further amount as shall be sufficient to cover all
costs and expenses of such holder incurred in any enforcement or collection
under this Section 12, including, without limitation, reasonable attorneys'
fees, expenses and disbursements.
. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
.. REGISTRATION OF NOTES. The Company shall keep at its principal
executive office a register for the registration and registration of transfers
of Notes. The name and address of each holder of one or more Notes, each
transfer thereof and the name and address of each transferee of one or more
Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note that is an
Institutional Investor promptly upon request therefor, a complete and correct
copy of the names and addresses of all registered holders of Notes.
.. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note at the
principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or his attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Note or part
thereof), the Company shall execute and deliver, at the Company's expense
(except as provided below), one or more new Notes (as requested by the holder
thereof) in exchange therefor, in an aggregate principal amount equal to the
unpaid principal amount of the surrendered Note. Each such new Note shall be
payable to such Person as such holder may request and shall be substantially in
the form of Exhibit 1. Each such new Note shall be dated and bear interest from
the date to which interest shall have been paid on the surrendered Note or dated
the date of the surrendered Note if no interest shall have been paid thereon.
The Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $500,000, provided that
if necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than $500,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representation set forth in
Section 6.2.
.. REPLACEMENT OF NOTES. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note (which evidence shall be, in the case of
an Institutional Investor, notice from such Institutional Investor of such
ownership and such loss, theft, destruction or mutilation), and
() in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note
is, or is a nominee for, an original Purchaser or another holder of a
Note with a minimum net worth of at least $100,000,000, such Person's
own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
() in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu
thereof a new Note, dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or
mutilated Note or dated the date of such lost, stolen, destroyed or
mutilated Note if no interest shall have been paid thereon.
. PAYMENTS ON NOTES.
.. PLACE OF PAYMENT. Subject to Section 14.2, payments of principal,
Make-Whole Amount, if any, and interest becoming due and payable on the Notes
shall be made in New York, New York at the principal office of Morgan Guaranty
Trust Company of New York in such jurisdiction. The Company may at any time, by
notice to each holder of a Note, change the place of payment of the Notes so
long as such place of payment shall be either the principal office of the
Company in such jurisdiction or the principal office of a bank or trust company
in such jurisdiction.
.. HOME OFFICE PAYMENT. So long as you or your nominee shall be the
holder of any Note, and notwithstanding anything contained in Section 14.1 or in
such Note to the contrary, the Company will pay all sums becoming due on such
Note for principal, Make-Whole Amount, if any, and interest by the method and at
the address specified for such purpose below your name in Schedule A, or by such
other method or at such other address as you shall have from time to time
specified to the Company in writing for such purpose, without the presentation
or surrender of such Note or the making of any notation thereon, except that
upon written request of the Company made concurrently with or reasonably
promptly after payment or prepayment in full of any Note, you shall surrender
such Note for cancellation, reasonably promptly after any such request, to the
Company at its principal executive office or at the place of payment most
recently designated by the Company pursuant to Section 14.1. Prior to any sale
or other disposition of any Note held by you or your nominee you will, at your
election, either endorse thereon the amount of principal paid thereon and the
last date to which interest has been paid thereon or surrender such Note to the
Company in exchange for a new Note or Notes pursuant to Section 13.2. The
Company will afford the benefits of this Section 14.2 to any Institutional
Investor that is the direct or indirect transferee of any Note purchased by you
under this Agreement and that has made the same agreement relating to such Note
as you have made in this Section 14.2.
. EXPENSES, ETC.
.. TRANSACTION EXPENSES. Whether or not the transactions contemplated
hereby are consummated, the Company will pay all costs and expenses (including
reasonable attorneys' fees of a special counsel and, if reasonably required,
local or other counsel) incurred by you and each Other Purchaser or holder of a
Note in connection with such transactions and in connection with any amendments,
waivers or consents under or in respect of this Agreement or the Notes (whether
or not such amendment, waiver or consent becomes effective), including, without
limitation: () the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend) any rights under this Agreement
or the Notes or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the Notes, or
by reason of being a holder of any Note, and () the costs and expenses,
including financial advisors' fees, incurred in connection with the insolvency
or bankruptcy of the Company or any Subsidiary or in connection with any
work-out or restructuring of the transactions contemplated hereby and by the
Notes. The Company will pay, and will save you and each other holder of a Note
harmless from, all claims in respect of any fees, costs or expenses if any, of
brokers and finders (other than those retained by you).
.. SURVIVAL. The obligations of the Company under this Section
15 will survive the payment or transfer of any Note, the enforcement, amendment
or waiver of any provision of this Agreement or the Notes, and the termination
of this Agreement.
. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the Notes, the purchase or transfer by you of any
Note or portion thereof or interest therein and the payment of any Note, and may
be relied upon by any subsequent holder of a Note, regardless of any
investigation made at any time by or on behalf of you or any other holder of a
Note. All statements contained in any certificate or other instrument delivered
by or on behalf of the Company pursuant to this Agreement shall be deemed
representations and warranties of the Company under this Agreement. Subject to
the preceding sentence, this Agreement and the Notes embody the entire agreement
and understanding between you and the Company and supersede all prior agreements
and understandings relating to the subject matter hereof.
. AMENDMENT AND WAIVER.
.. REQUIREMENTS. This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Company and the Required Holders, except that () no amendment or waiver of any
of the provisions of Section 1, 2, 3, 4, 6 or 21 hereof, or any defined term (as
it is used therein), will be effective as to you unless consented to by you in
writing, and () no such amendment or waiver may, without the written consent of
the holder of each Note at the time outstanding affected thereby, () subject to
the provisions of Section 12 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or change the rate
or the time of payment or method of computation of interest or of the Make-Whole
Amount on, the Notes, () change the percentage of the principal amount of the
Notes the holders of which are required to consent to any such amendment or
waiver, or ()
amend any of Sections 8, 11(a), 11(b), 12, 17 or 20.
.. SOLICITATION OF HOLDERS OF NOTES. () SOLICITATION. The Company will
provide each holder of the Notes (irrespective of the amount of Notes then owned
by it) with sufficient information, sufficiently far in advance of the date a
decision is required, to enable such holder to make an informed and considered
decision with respect to any proposed amendment, waiver or consent in respect of
any of the provisions hereof or of the Notes. The Company will deliver executed
or true and correct copies of each amendment, waiver or consent effected
pursuant to the provisions of this Section 17 to each holder of outstanding
Notes promptly following the date on which it is executed and delivered by, or
receives the consent or approval of, the requisite holders of Notes.
() PAYMENT. The Company will not directly or indirectly pay or cause to
be paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise, or grant any security, to any holder of Notes as consideration
for or as an inducement to the entering into by any holder of Notes or any
waiver or amendment of any of the terms and provisions hereof unless such
remuneration is concurrently paid, or security is concurrently granted, on the
same terms, ratably to each holder of Notes then outstanding even if such holder
did not consent to such waiver or amendment.
.. BINDING EFFECT, ETC. Any amendment or waiver consented to as
provided in this Section 17 applies equally to all holders of Notes and is
binding upon them and upon each future holder of any Note and upon the Company
without regard to whether such Note has been marked to indicate such amendment
or waiver. No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right consequent thereon. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. As used herein, the term "this Agreement" and references thereto shall
mean this Agreement as it may from time to time be amended or supplemented.
.. NOTES HELD BY COMPANY, ETC. Solely for the purpose of determining
whether the holders of the requisite percentage of the aggregate principal
amount of Notes then outstanding approved or consented to any amendment, waiver
or consent to be given under this Agreement or the Notes, or have directed the
taking of any action provided herein or in the Notes to be taken upon the
direction of the holders of a specified percentage of the aggregate principal
amount of Notes then outstanding, Notes directly or indirectly owned by the
Company or any of its Affiliates shall be deemed not to be outstanding.
. NOTICES. All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
() if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such other
address as you or it shall have specified to the Company in writing,
() if to any other holder of any Note, to such holder
at such address as such other holder shall have specified to the
Company in writing, or
() if to the Company, to the Company at its address set forth
at the beginning hereof to the attention of the Treasurer, with a copy
thereof to the Company at the same address to the attention of the
Legal Department, or at such other address as the Company shall have
specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto,
including, without limitation, () consents, waivers and modifications that may
hereafter be executed, () documents received by you at the Closing (except the
Notes themselves), and () financial statements, certificates and other
information previously or hereafter furnished to you, may be reproduced by you
by any photographic, photostatic, microfilm, microcard, miniature photographic
or other similar process and you may destroy any original document so
reproduced. The Company agrees and stipulates that, to the extent permitted by
applicable law, any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you in
the regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
Section 19 shall not prohibit the Company or any other holder of Notes from
contesting any such reproduction to the same extent that it could contest the
original, or from introducing evidence to demonstrate the inaccuracy of any such
reproduction.
. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "CONFIDENTIAL
INFORMATION" means information delivered to you by or on behalf of the Company
or any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by
you as being confidential information of the Company or such Subsidiary,
provided that such term does not include information that () was publicly known
or otherwise known to you prior to the time of such disclosure, () subsequently
becomes publicly known through no act or omission by you or any person acting on
your behalf, () otherwise becomes known to you other than through disclosure by
the Company or any Subsidiary or () constitutes financial statements delivered
to you under Section 7.1 that are otherwise publicly available. You will
maintain the confidentiality of such Confidential Information in accordance with
procedures adopted by you in good faith to protect confidential information of
third parties delivered to you, provided that you may deliver or disclose
Confidential Information to () your directors, officers, employees, agents,
attorneys and affiliates, (to the extent such disclosure reasonably relates to
the administration of the investment represented by your Notes), () your
financial advisors and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with the
terms of this Section 20, () any other holder of any Note, () any Institutional
Investor to which you sell or offer to sell such Note or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt
of such Confidential Information to be bound by the provisions of this Section
20), () any Person from which you offer to purchase any security of the Company
(if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), () any federal or
state regulatory authority having jurisdiction over you, () the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
your investment portfolio, or () any other Person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to you, (x) in response to any
subpoena or other legal process, (y) in connection with any litigation to which
you are a party or (z) if an Event of Default has occurred and is continuing, to
the extent you may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the rights
and remedies under your Notes and this Agreement. Each holder of a Note, by its
acceptance of a Note, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this Section 20 as though it were a party to this
Agreement. On reasonable request by the Company in connection with the delivery
to any holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee), such holder will enter into an
agreement with the Company embodying the provisions of this Section 20.
. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of
your Affiliates as the purchaser of the Notes that you have agreed to purchase
hereunder by written notice to the Company, which notice shall be signed by both
you and such Affiliate, shall contain such Affiliate's agreement to be bound by
this Agreement and shall contain a confirmation by such Affiliate of the
accuracy with respect to it of the representations set forth in Section 6. Upon
receipt of such notice, wherever the word "you" is used in this Agreement (other
than in this Section 21), such word shall be deemed to refer to such Affiliate
in lieu of you. In the event that such Affiliate is so substituted as a
purchaser hereunder and such Affiliate thereafter transfers to you all of the
Notes then held by such Affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "you" is used in this Agreement (other than in this
Section 21), such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you, and you shall have all the rights of an original holder of
the Notes under this Agreement.
. MISCELLANEOUS.
.. SUCCESSORS AND ASSIGNS. All covenants and other agreements contained
in this Agreement by or on behalf of any of the parties hereto bind and inure to
the benefit of their respective successors and assigns (including, without
limitation, any subsequent holder of a Note) whether so expressed or not.
.. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the
Notes to the contrary notwithstanding, any payment of principal of or Make-Whole
Amount or interest on any Note that is due on a date other than a Business Day
shall be made on the next succeeding Business Day without including the
additional days elapsed in the computation of the interest payable on such next
succeeding Business Day.
.. SEVERABILITY. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
.. CONSTRUCTION. Each covenant contained herein shall be construed
(absent express provision to the contrary) as being independent of each other
covenant contained herein, so that compliance with any one covenant shall not
(absent such an express contrary provision) be deemed to excuse compliance with
any other covenant. Where any provision herein refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
Person.
.. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all, of the parties
hereto.
.. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the law of
the State of New York excluding choice-of-law principles of the law of such
State that would require the application of the laws of a jurisdiction other
than such State.
* * * * *
[Signatures on following page]
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
GUILFORD MILLS, INC.
By: ______________________________
Name:
Title:
The foregoing is hereby
agreed to as of the
date thereof:
[INSERT APPROPRIATE PURCHASER
SIGNATURE BLOCK]
<PAGE>
SCHEDULE A TO NOTE PURCHASE AGREEMENT
INFORMATION RELATING TO PURCHASERS
Name and Address of Purchaser Principal Amount of
Notes to be Purchased
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA $ 97,000,000
(1) All payments by wire transfer of immediately available funds for credit to:
Account No. 890-0304-391, Prudential Managed Account
Bank of New York
New York, New York
(ABA No.: 021-000-018)
Each such wire transfer shall set forth the name of the Company, a reference to
"7.06% Senior Notes due December __, 2008, PPN No. 401794@\A, INV6266", and the
due date and application (as among principal, interest and Make-Whole Amount) of
the payment being made.
(2) All notices of payments and written confirmation of such wire transfers:
The Prudential Insurance Company of America
Three Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4077
Attention: Manager, Billings and Collections
Telephone: 973.802.5260
Telecopier: 973.802.8055
(3) All other communications:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Two Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
Attention: Senior Vice President
Telephone: 770.395.8424
Telecopier: 770.395.8478
(4) Recipient of telephonic prepayment notices:
Manager, Trade Management
Telephone: 973.802.7398
Telecopier: 973.802.9425
(5) Tax Identification No.: 22-1211670
<PAGE>
Name and Address of Purchaser Principal Amount of
Notes to be Purchased
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA $ 3,000,000
(1) All payments by wire transfer of immediately available funds for credit to:
Account No. 890-0304-944, PRIVEST Portfolio Account
Bank of New York
New York, New York
(ABA No.: 021-000-018)
Each such wire transfer shall set forth the name of the Company, a reference to
"7.06% Senior Notes due December __, 2008, PPN No. 401794@\A, INV6267", and the
due date and application (as among principal, interest and Make-Whole Amount) of
the payment being made.
(2) All notices of payments and written confirmation of such wire transfers:
The Prudential Insurance Company of America
Three Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4077
Attention: Manager, Billings and Collections
Telephone: 973.802.5260
Telecopier: 973.802.8055
(3) All other communications:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Two Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
Attention: Senior Vice President
Telephone: 770.395.8424
Telecopier: 770.395.8478
(4) Recipient of telephonic prepayment notices:
Manager, Trade Management
Telephone: 973.802.7398
Telecopier: 973.802.9425
(5) Tax Identification No.: 22-1211670
<PAGE>
Name and Address of Other Purchasers Principal Amount of
Notes to be Purchased
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY $ 10,000,000
(1) All payments by wire transfer of immediately available funds to:
ABA No. 011000028
State Street Bank and Trust Company
Boston, Massachusetts 02101
Re: The Variable Annuity Life Insurance Company
AC-0125-821-9
[OBI=PPN # and description of payment]
Fund Number PA 54
with sufficient information to identify the source and application of such funds
(including PPN#, interest rate, maturity date, interest amount, principal amount
and premium amount, if applicable)
(2) All notices of payments and written confirmation of such wire transfers:
The Variable Annuity Life Insurance Company and PA 54
c/o State Street Bank and Trust Company
Insurance Services WES2S
105 Rosemont Road
Westwood, Massachusetts 02090
Facsimile Number: 781.302.8005
(3) Duplicate payment notices and all other communications:
The Variable Annuity Life Insurance Company
c/o American General Corporation
Attn: Investment Research Department, A37-01
P.O. Box 3247
Houston, Texas 77253-3247
Overnight Mail Address: 2929 Allen Parkway, A37-01
Houston, Texas 77019-2155
Facsimile Number: 713.831.1366
Tax I.D. Number: 74-1625348
<PAGE>
Name and Address of Other Purchasers Principal Amount of
Notes to be Purchased
AMERICAN GENERAL ANNUITY INSURANCE COMPANY $ 15,000,000
(1) All payments by wire transfer of immediately available funds to:
ABA No. 011000028
State Street Bank and Trust Company
Boston, Massachusetts 02101
Re: American General Annuity Insurance Company
AC-7215-132-7
[OBI=PPN # and description of payment]
Fund Number WE1B
with sufficient information to identify the source and application of such funds
(including PPN#, interest rate, maturity date, interest amount, principal amount
and premium amount, if applicable)
(2) All notices of payments and written confirmation of such wire transfers:
American General Annuity Insurance Company and WE1B
c/o State Street Bank and Trust Company
Insurance Services WES2S
105 Rosemont Road
Westwood, Massachusetts 02090
Facsimile Number: 781.302.8005
(3) Duplicate payment notices and all other communications:
American General Annuity Insurance Company
c/o American General Corporation
Attn: Investment Research Department, A37-01
P.O. Box 3247
Houston, Texas 77253-3247
Overnight Mail Address: 2929 Allen Parkway, A37-01
Houston, Texas 77019-2155
Facsimile Number: 713.831.1366
Tax I.D. Number: 75-0770838
<PAGE>
Name and Address of Other Purchasers Principal Amount of
Notes to be Purchased
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY $ 8,500,000
(1) All payments by wire transfer of immediately available funds to:
Citibank, N.A.
111 Wall Street
New York, New York 10043
ABA No. 021000089
For MassMutual Long-Term Pool
Account No. 4067-3488
Re: Description of security, principal and interest split
With telephone advise of payment to the Securities Custody and Collection
Department of Massachusetts Mutual Life Insurance Company at 413.744.3561
with sufficient information to identify the source and
application of such funds
(2) All notices of payments and written confirmation of such wire transfers:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Custody and Collection Department
F381
(3) All other communications:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Investment Division
Tax Identification No. 04-1590850
<PAGE>
Name and Address of Other Purchasers Principal Amount of
Notes to be Purchased
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY $ 5,600,000
(1) All payments by wire transfer of immediately available funds to:
Chase Manhattan Bank, N.A.
4 Chase Metro Tech Center
New York, New York 10081
ABA No. 021000021
For MassMutual Pension Management
Account No. 910-2594018
Re: Description of security, principal and interest split
With telephone advise of payment to the Securities Custody and Collection
Department of Massachusetts Mutual Life Insurance Company at 413.744.3561
with sufficient information to identify the source and
application of such funds
(2) All notices of payments and written confirmation of such wire transfers:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Custody and Collection Department
F381
(3) All other communications:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Investment Division
Tax Identification No. 04-1590850
<PAGE>
Name and Address of Other Purchasers Principal Amount of
Notes to be Purchased
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY $ 4,900,000
(1) All payments by wire transfer of immediately available funds to:
Chase Manhattan Bank, N.A.
4 Chase Metro Tech Center
New York, New York 10081
ABA No. 021000021
For MassMutual IFM Non-Traditional
Account No. 910-2509073
Re: Description of security, principal and interest split
With telephone advise of payment to the Securities Custody and Collection
Department of Massachusetts Mutual Life Insurance Company at 413.744.3561
with sufficient information to identify the source and
application of such funds
(2) All notices of payments and written confirmation of such wire transfers:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Custody and Collection Department
F381
(3) All other communications:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Investment Division
Tax Identification No. 04-1590850
<PAGE>
Name and Address of Other Purchasers Principal Amount of
Notes to be Purchased
CM LIFE INSURANCE COMPANY $ 1,000,000
(1) All payments by wire transfer of immediately available funds to:
Citibank, N.A.
111 Wall Street
New York, New York 10043
ABA No. 021000089
For Segment 43 - Universal Life
Account No. 4068-6561
Re: Description of security, principal and interest split
With telephone advise of payment to the Securities Custody and Collection
Department of Massachusetts Mutual Life Insurance Company at 413.744.3561
with sufficient information to identify the source and
application of such funds
(2) All notices of payments and written confirmation of such wire transfers:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Custody and Collection Department
F381
(3) All other communications:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Investment Division
Tax Identification No. 06-1041383
<PAGE>
SCHEDULE B TO NOTE PURCHASE AGREEMENT
DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"AFFILIATE" shall mean, with respect to any entity, any other
entity () directly or indirectly controlling or controlled by or under
direct or common control with such entity or () directly or indirectly
owning or holding five percent (5%) or more of the equity interest in
such entity. For purposes of this definition, "control" when used with
respect to any entity means the power to direct the management and
policies of such entity, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the
foregoing.
"ASSET SALE" means the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a
sale and leaseback) other than sales of inventory, assignment of
receivables pursuant to any Maturity Factoring Arrangement or sales of
obsolete or excess equipment or equipment that is no longer usable, in
each case, in the ordinary course of business consistent with past
practices. Notwithstanding the foregoing, () a transfer of assets by
the Company to a Wholly-Owned Restricted Subsidiary or by a Restricted
Subsidiary to the Company or a Wholly-Owned Restricted Subsidiary, ()
an issuance or sale of Equity Interests by a Restricted Subsidiary to
the Company or a Wholly-Owned Restricted Subsidiary, () a disposition
of the types of investments described in subparagraphs (i), (ii) and
(iii) of the definition of "Restricted Investments" in the ordinary
course of business, () the issuance of Equity Interests of a Restricted
Subsidiary to an individual for the sole purpose of qualifying such
individual as a director of such Restricted Subsidiary and () the
issuance of Equity Interests of Restricted Subsidiaries to minority
shareholders of Restricted Subsidiaries to satisfy the rights of such
shareholders to receive issuances of stock which, in each case, do not
dilute the ownership interest of the Company (or Restricted Subsidiary)
in such Restricted Subsidiary, will not be deemed to be an Asset Sale.
The designation of a Subsidiary as an Unrestricted Subsidiary shall be
deemed to be an Asset Sale by the Company in an amount equal to the
book value of the assets of such Subsidiary in the fiscal year in which
such designation occurs.
"BUSINESS DAY" means () for the purposes of Section 8.7 only
any day other than a Saturday, a Sunday or a day on which commercial
banks in New York City are required or authorized to be closed, and ()
for the purposes of any other provision of this Agreement, any day
other than a Saturday, a Sunday or a day on which commercial banks in
New York, New York or Charlotte, North Carolina are required or
authorized to be closed.
"CAPITAL STOCK" means () in the case of a corporation,
corporate stock, () in the case of an association or business entity,
any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, () in the case of
a partnership, partnership interests (whether general or limited) and
() any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"CAPITAL LEASE" shall mean the amount at which the aggregate
payments due and to become due under all leases under which such
person, as lessee, would be required to be capitalized in accordance
with GAAP and would be reflected as a liability on a consolidated
balance sheet.
"CHANGE IN CONTROL" shall mean the beneficial ownership or
acquisition in any transaction or series of related transactions of 50%
or more of the combined voting power of all then issued and outstanding
Voting Stock of the Company by any Person (together with any of its
Affiliates) holding 10% or more the combined voting power of the issued
and outstanding Voting Stock of the Company as of September 27, 1998,
acting alone or in concert with one or more Persons.
"CLOSING" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations promulgated thereunder
from time to time.
"COMPANY" means Guilford Mills, Inc., a Delaware corporation.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"CONSOLIDATED INTEREST EXPENSE" shall mean, with respect to
any period, the sum (without duplication) of the following (in each
case, eliminating all offsetting debits and credits between the Company
and its Restricted Subsidiaries and all other items required to be
eliminated in the course of the preparation of consolidated financial
statements of the Company and its Restricted Subsidiaries in accordance
with GAAP): () all interest and prepayment charges in respect of
Indebtedness of the Company and its Restricted Subsidiaries (including
imputed interest in respect of Capital Lease and net costs of Swaps)
deducted in determining consolidated net income for such period,
together with all interest capitalized or deferred during such period
and not deducted in determining consolidated net income for such
period, and () all debt discount and expense amortized or required to
be amortized in the determination of consolidated net income for such
period.
"CONSOLIDATED NET ASSETS" shall mean, on a consolidated basis
for the Company and its Restricted Subsidiaries, total assets less all
Restricted Investments less current liabilities.
"CONSOLIDATED NET INCOME" or "CONSOLIDATED NET LOSS" shall
mean, for any period, the after tax net income or loss, as the case may
be, determined on a consolidated basis for the Company and its
Restricted Subsidiaries in accordance with GAAP excluding the effect of
() extraordinary items (as determined in accordance with GAAP) and ()
unremitted net income and net losses of any business entity (other than
a Restricted Subsidiary) in which the Company or any Restricted
Subsidiary has an ownership interest.
"CONSOLIDATED NET WORTH" means, as of any date,
() Consolidated Total Assets, minus
() the total liabilities of the Company and its Restricted
Subsidiaries which would be shown as liabilities on a consolidated
balance sheet of the Company and its Restricted Subsidiaries as of such
time prepared in accordance with GAAP.
"CONSOLIDATED OPERATING INCOME" means, for any period, the
Operating Income of the Company and its Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED TOTAL ASSETS" means, as of any date, the total
assets of the Company and its Restricted Subsidiaries which would be
shown as assets on a consolidated balance sheet of the Company and its
Restricted Subsidiaries as of such time prepared in accordance with
GAAP.
"CONSOLIDATED TOTAL CAPITALIZATION" shall mean as of the date
of determination, the aggregate of Total Debt and Consolidated Net
Worth.
"DEFAULT" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of
notice or both, become an Event of Default.
"DEFAULT RATE" means that rate of interest that is the greater
of () 2% per annum above the rate of interest stated in clause (a) of
the first paragraph of the Notes or () 2% over the rate of interest
publicly announced by Morgan Guaranty Trust Company of New York, New
York, New York as its "base" or "prime" rate.
"EBITDAR" shall mean for the Company and its Restricted
Subsidiaries, for any period, the sum of () Consolidated Net Income,
plus () to the extent deducted in the determination of Consolidated
Net Income, () all provisions for federal, state and other income tax,
() Consolidated Interest Expense, () provisions for depreciation and
amortization, () provisions for rentals on Operating Leases, ()
extraordinary items (as defined in accordance with GAAP) and () losses
on sales of assets, less () extraordinary items (as defined in
accordance with GAAP) and gains on sales of assets.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, concessions, grants, franchises, licenses,
agreements or governmental restrictions relating to pollution and the
protection of the environment or the release of any Hazardous Materials
into the environment.
"EQUITY INTERESTS" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any
debt security that is convertible into, or exchangeable for, Capital
Stock).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations
promulgated thereunder from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the
Company under section 414 of the Code.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FAIR MARKET VALUE" shall mean, at any time, the sale value of
property that would be realized in an arm's length sale at such time
between an informed and willing buyer and an informed and willing
seller, under no compulsion to buy or sell, respectively.
"FIXED CHARGES" shall mean for the Company and its Restricted
Subsidiaries, with respect to any period, the sum of Consolidated
Interest Expense for such period plus rentals on Operating Leases.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
() the government of
() the United States of America or any
State or other political subdivision thereof, or
() any jurisdiction in which the
Company or any Subsidiary conducts all or any
part of its business, or which asserts
jurisdiction over any properties of the Company
or any Subsidiary, or
() any entity exercising executive, legislative,
judicial, regulatory or administrative functions of, or
pertaining to, any such government.
"GUARANTY" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person
guaranteeing or in effect guaranteeing any indebtedness, dividend or
other obligation of any other Person in any manner, whether directly or
indirectly, including (without limitation) obligations incurred through
an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or
any property constituting security therefor;
(b) to advance or supply funds (i) for the purchase
or payment of such indebtedness or obligation, or (ii) to
maintain any working capital or other balance sheet condition
or any income statement condition of any other Person or
otherwise to advance or make available funds for the purchase
or payment of such indebtedness or obligation;
() to lease properties or to purchase properties
or services primarily for the purpose of assuring the owner
of such indebtedness or obligation of the ability of any other
Person to make payment of the indebtedness or obligation; or
() otherwise to assure the owner of such
indebtedness or obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the
obligor under any Guaranty, the indebtedness or other obligations that
are the subject of such Guaranty shall be assumed to be direct
obligations of such obligor.
"HAZARDOUS MATERIAL" means any and all materials regulated as
hazardous, toxic or extremely hazardous under Environmental Laws.
"HOLDER" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the Company
pursuant to Section 13.1.
"INDEBTEDNESS" with respect to any Person means, at any time,
without duplication,
() its liabilities for borrowed money and
its redemption obligations in respect of mandatorily
redeemable Preferred Stock;
() its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable
arising in the ordinary course of business but including all
liabilities created or arising under any conditional sale or
other title retention agreement with respect to any such
property);
() all liabilities appearing on its balance
sheet in accordance with GAAP in respect of Capital Leases:
() all liabilities for borrowed money secured
by any Lien with respect to any property owned by such Person
(whether or not it has assumed or otherwise become liable for
such liabilities);
() all its liabilities in respect of letters of
credit or instruments serving a similar function issued or
accepted for its account by banks and other financial
institutions (whether or not representing obligations for
borrowed money);
() Swaps of such Person; and
() any Guaranty of such Person with respect to
liabilities of a type described in any of clauses (a) through
(f) hereof.
"INSTITUTIONAL INVESTOR" means () any original purchaser of a
Note, () any holder of a Note holding more than 5% of the aggregate
principal amount of the Notes then outstanding, and () any bank, trust
company, savings and loan association or other financial institution,
any pension plan, any investment company, any insurance company, any
broker or dealer, or any other similar financial institution or entity,
regardless of legal form.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest
or title of any vendor, lessor, lender or other secured party to or of
such Person under any conditional sale or other title retention
agreement or Capital Lease, upon or with respect to any property or
asset of such Person (including in the case of stock, stockholder
agreements, voting trust agreements and all similar arrangements).
"MAKE-WHOLE AMOUNT" is defined in Section 8.7.
"MATERIAL" means material in relation to the business,
operations, affairs, financial condition, assets or properties of the
Company and its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect
on () the business, operations, affairs, financial condition, assets
or properties of the Company and its Subsidiaries taken as a whole, or
() the ability of the Company to perform its obligations under this
Agreement and the Notes, or () the validity or enforceability of this
Agreement or the Notes.
"MATURITY FACTORING ARRANGEMENT" shall mean any arrangement
entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business consistent with the Company's practices
as of the Closing relating to the accounts receivable of the Company
and/or its Restricted Subsidiaries whereby (i) the Company and/or such
Restricted Subsidiaries (a) transfer to a factor the credit functions
and all associated credit risk with respect to certain accounts
receivable and (b) do not retain any liability with respect to the
collectibility of such accounts receivable or any obligation whatsoever
with respect thereto except for the settlement of any bona fide dispute
and (ii) the factor agrees to pay the Company and/or such Restricted
Subsidiaries the face amount of each such account receivable pursuant
to its original terms of payment.
"MEMORANDUM" is defined in Section 5.3.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"1998 NOTE" is defined in Section 1.
"NOTE" AND "NOTES" are defined in Section 1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior
Financial Officer or of any other officer of the Company whose
responsibilities extend to the subject matter of such certificate.
"OPERATING INCOME" means, as applied to any Person for any
period, the operating income of such Person for such period, as
determined in accordance with GAAP.
"OPERATING LEASES" shall mean any lease of real or personal
property, plant, equipment or buildings for a term (including any
renewals or extension permitted) greater than one year, which is not a
Capital Lease.
"OTHER AGREEMENTS" is defined in Section 2.
"OTHER NOTES" is defined in Section 4.6.
"OTHER PURCHASERS" is defined in Section 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation,
limited liability company, association, trust, unincorporated
organization, or a government or agency or political subdivision
thereof.
"PLAN" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been
established or maintained, or to which contributions are or, within the
preceding five years, have been made or required to be made, by the
Company or any ERISA Affiliate or with respect to which the Company or
any ERISA Affiliate may have any liability.
"PREFERRED STOCK" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of
such corporation as to the payment of dividends or the payment of any
amount upon liquidation or dissolution of such corporation.
"PRIORITY DEBT" shall mean, with respect to the Company, at
any time, without duplication, the sum of:
() unsecured Indebtedness of each Restricted
Subsidiary (other than such Indebtedness held by the
Company or a Wholly-Owned Subsidiary thereof);
() Indebtedness of the Company and any
Restricted Subsidiary secured by any Lien (other than such
Indebtedness held by the Company or a Wholly-Owned Subsidiary
thereof); and
() all Preferred Stock of Restricted
Subsidiaries owned by a Person other than the Company or a
Wholly-Owned Subsidiary thereof.
"PROPERTY" or "PROPERTIES" means, unless otherwise
specifically limited, real or personal property of any kind, tangible
or intangible, choate or inchoate.
"PURCHASER" is defined in Section 2.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption
84-14 issued by the United States Department of Labor.
"REQUIRED HOLDERS" means, at any time, the holders of at least
51% in principal amount of the Notes and the Other Notes at the time
outstanding (exclusive of Notes and the Other Notes then owned by the
Company or any of its Affiliates).
"RESPONSIBLE OFFICER" means any Senior Financial Officer and
any other officer of the Company with responsibility for the
administration of the relevant portion of this agreement.
"RESTRICTED INVESTMENTS" shall mean any investments in
securities or extensions of credit by the Company and Restricted
Subsidiaries other than:
() direct obligations of the U.S. Government
or its agencies or obligations guaranteed by the U.S.
Government maturing no later than one year from the date of
acquisition:
() Eurodollar deposits with or negotiable
certificates of deposit, time deposits or bankers acceptances
issued by banks with long-term debt or deposit ratings of at
least A- by S&P or A3 by Moody's having a combined capital and
surplus of over $250,000,000 and maturing no later than one
year from the date of acquisition;
() investments in commercial paper maturing
270 days or less and rated at least A-1 by Standard & Poors'
Corporation or P-1 by Moody's Investors Services, Inc.;
() investments in or loans to Restricted
Subsidiaries;
() investments in accounts or notes receivable
acquired in the ordinary course of business;
() any securities received in connection with
an Asset Sale that complies with Section 10.7; and
() notes from employees issued to the Company
representing payment of the exercise price of options to
purchase capital stock of the Company.
"RESTRICTED PAYMENTS" shall mean the payment of cash dividends
and the purchase of Capital Stock, warrants, rights or options to
acquire shares of Capital Stock or any other distributions with respect
to Capital Stock other than distributions of any Equity Interests.
"RESTRICTED SUBSIDIARY" shall mean any Subsidiary which is not
an Unrestricted Subsidiary.
"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.
"SUBSIDIARY" means, as to any Person, any corporation,
association or other business entity in which such Person or one or
more of its Subsidiaries or such Person and one or more of its
Subsidiaries owns sufficient equity or voting interests to enable it or
them (as a group) ordinarily, in the absence of contingencies, to elect
a majority of the directors (or Persons performing similar functions)
of such entity, and any partnership or joint venture if more than a 50%
interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take
major business actions without the prior approval of such Person or one
or more of its Subsidiaries). Unless the context otherwise clearly
requires, any reference to a "Subsidiary" is a reference to a
Subsidiary of the Company.
"SWAPS" means, with respect to any Person, payment obligations
with respect to interest rate swaps, currency swaps and similar
obligations obligating such Person to make payments, whether
periodically or upon the happening of a contingency. For the purposes
of this Agreement, the amount of the obligation under any Swap shall be
the amount determined in respect thereof as of the end of the then most
recently ended fiscal quarter of such Person, based on the assumption
that such Swap had terminated at the end of such fiscal quarter, and in
making such determination, if any agreement relating to such Swap
provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous
payment of amounts by and to such Person, then in each such case, the
amount of such obligation shall be the net amount so determined.
"TOTAL DEBT" shall mean, at the time of determination, the
then outstanding aggregate principal amount of all Indebtedness of the
Company and its Restricted Subsidiaries on a consolidated basis.
"UNRESTRICTED SUBSIDIARY" shall mean any Subsidiary that has
been designated by the Company's Board of Directors as an Unrestricted
Subsidiary (a "Designation"), provided that:
() at the time of such Designation, the
Subsidiary so designated neither holds nor owns, directly or
indirectly, any Indebtedness or capital stock of any
Restricted Subsidiary,
() at the time of such Designation, no
Indebtedness of such Subsidiary is Guaranteed by or secured by
a Lien upon the assets of the Company or a Restricted
Subsidiary; and
() at the time of such designation or
redesignation, as the case may be, no Default or Event of
Default exists or would exist after giving effect to the
designation.
The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "REVOCATION") only if:
() no Default or Event of Default exists or would
exist after giving effect to the Revocation; and
() all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such Revocation
would, if incurred at the time of such Revocation, have been
permitted to be incurred under this Agreement.
All Designations and Revocations shall be evidenced by a resolution of
the Board of Directors of the Company and, if requested by a Purchaser,
the Company shall send a copy of such resolution, together with an
Officer's Certificate certifying compliance with the foregoing.
"VOTING STOCK" shall mean, securities or other equity interest
of any class or classes, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election or removal
of corporate directors or persons (such as general partners or
managers) performing similar functions in the case of business entities
other than corporations.
"WHOLLY-OWNED SUBSIDIARY" or "WHOLLY-OWNED RESTRICTED
SUBSIDIARY" means, at any time, any Subsidiary one hundred percent
(100%) of all of the Equity Interests (except directors' qualifying
shares) and voting interests of which are owned by any one or more of
the Company and the Company's other Wholly-Owned Subsidiaries at such
time.
<PAGE>
EXHIBIT 1 TO NOTE PURCHASE AGREEMENT
[FORM OF NOTE]
THIS NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED PURSUANT TO ANY
APPLICABLE STATE SECURITIES LAW.
GUILFORD MILLS, INC.
7.06% SENIOR NOTE DUE DECEMBER 18, 2008
No. [R-_____] December 18, 1998
$[_______] PPN[_________]
FOR VALUE RECEIVED, the undersigned, GUILFORD MILLS, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to [_______________], or
registered assigns, the principal sum of [________________________] DOLLARS on
[_____________, ____], with interest (computed on the basis of a 360-day year of
twelve 30-day months) () on the unpaid balance thereof at the rate of 7.06% per
annum from the date hereof, payable semiannually, on the 18th day of June and
December in each year, commencing with the June or December next succeeding the
date hereof, until the principal hereof shall have become due and payable, and
() to the extent permitted by law on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Make-Whole Amount (as defined in the Note Purchase Agreements
referred to below), payable semiannually as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time
equal to the greater of () 9.06% or () 2% over the rate of interest publicly
announced by Morgan Guaranty Trust Company of New York from time to time in New
York, New York as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at Morgan Guaranty Trust Company of New York or at such other place as
the Company shall have designated by written notice to the holder of this Note
as provided in the Note Purchase Agreements referred to below.
This Note is one of the Senior Notes (herein called the "Notes") issued
pursuant to separate Note Purchase Agreements, dated as of December 18, 1998 (as
from time to time amended, the "Note Purchase Agreements"), between the Company
and the respective Purchasers named therein and is entitled to the benefits
thereof. Each holder of this Note will be deemed, by its acceptance hereof, ()
to have agreed to the confidentiality provisions set forth in Section 20 of the
Note Purchase Agreements and () to have made the representation set forth in
Section 6.2 of the Note Purchase Agreements.
This Note is a registered Note and, as provided in the Note Purchase
Agreements, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
This Note is also subject to optional prepayment, in whole or from time
to time in part, at the times and on the terms specified in the Note Purchase
Agreements, but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreements,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreements.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of New York
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
GUILFORD MILLS, INC.
By: _____________________________
Title:
<PAGE>
EXHIBIT 4.4(a) TO NOTE PURCHASE AGREEMENT
Matters To Be Covered In
Opinion of Special Counsel To the Company
. Each of the Company and its Restricted Subsidiaries being duly
incorporated, validly existing and in good standing and having requisite
corporate power and authority to issue and sell the Notes and to execute
and deliver the documents.
. Each of the Company and its Restricted Subsidiaries
being duly qualified and in good standing as a foreign corporation in
appropriate jurisdictions.
. Due authorization and execution of the documents and such
documents being legal, valid, binding and enforceable.
. No conflicts with charter documents, laws or other
agreements.
. All consents required to issue and sell the Notes and to
execute and deliver the documents having been obtained.
. No litigation questioning validity of documents.
. The Notes not requiring registration under the Securities Act
of 1933, as amended; no need to qualify an indenture under the
Trust Indenture Act of 1939, as amended.
. No violation of Regulations T, U or X of the Federal
Reserve Board.
. Company not an "investment company", or a company
controlled by an"investment company", under the Investment
Company Act of 1940, as amended.
.A North Carolina state court, or a federal court sitting in North
Carolina, would, under North Carolina conflicts of laws
principles, recognize the choice of New York law to govern the
Note Purchase Agreements and the Notes.
<PAGE>
EXHIBIT 4.4(b) TO NOTE PURCHASE AGREEMENT
MATTERS TO BE COVERED BY OPINION OF
SPECIAL COUNSEL TO THE PURCHASERS
. The Note Purchase Agreement and the Notes would be legal,
valid and binding obligations, enforceable against the
Company in accordance with their respective terms.
. The Notes not requiring registration under the Securities
Act of 1933, as amended, no need to qualify an indenture
under the Trust Indenture Act of 1939, as amended.
Opinions subject to standard and customary qualifications and exceptions.
<PAGE>
Page
Page
Page
TABLE OF CONTENTS
Page
1. AUTHORIZATION OF NOTES 1
2. SALE AND PURCHASE OF NOTES 1
3. CLOSING 1
4. CONDITIONS TO CLOSING 2
4.1. Representations and Warranties 2
4.2. Performance; No Default 2
4.3. Compliance Certificates 2
4.4. Opinions of Counsel 2
4.5. Purchase Permitted By Applicable Law, Etc. 3
4.6. Sale of Other Notes 3
4.7. Payment of Special Counsel Fees 3
4.8. Private Placement Number 3
4.9. Changes in Corporate Structure 3
4.10. Proceedings and Documents 3
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 4
5.1. Organization; Power and Authority 4
5.2. Authorization, Etc. 4
5.3. Disclosure 4
5.4. Organization and Ownership of Shares of Subsidiaries 5
5.5. Financial Statements 5
5.6. Compliance with Laws, Other Instruments, Etc. 5
5.7. Governmental Authorizations, Etc. 6
5.8. Litigation; Observance of Statutes and Orders 6
5.9. Taxes 6
5.10. Title to Property; Leases 7
5.11. Licenses, Permits, Etc. 7
5.12. Compliance with ERISA 7
5.13. Private Offering by the Company 8
5.14. Use of Proceeds; Margin Regulations8
5.15. Existing Indebtedness 8
5.16. Foreign Assets Control Regulations, Etc. 9
5.17. Environmental Matters 9
5.18. Status under Certain Statutes 9
6. REPRESENTATIONS OF THE PURCHASER 10
6.1. Purchase for Investment 10
6.2. Source of Funds 10
7. INFORMATION AS TO COMPANY 11
7.1. Financial and Business Information 11
7.2. Officer's/Accountant's Certificate 13
7.3. Inspection 14
8. PAYMENT OF THE NOTES 15
8.1. Payments at Maturity 15
8.2. Optional Prepayments with Make-Whole Amount 15
8.3. Allocation of Partial Prepayments 15
8.4. Maturity; Surrender, Etc. 15
8.5. Purchase of Notes 16
8.6. Offer to Prepay Notes in the Event of a Change in Control 16
8.7. Make-Whole Amount 17
9. AFFIRMATIVE COVENANTS 18
9.1. Compliance with Law 18
9.2. Insurance 19
9.3. Maintenance of Properties 19
9.4. Payment of Taxes and Claims 19
9.5. Corporate Existence, Etc. 19
9.6. Covenant to Secure Note Equally 20
10. NEGATIVE COVENANTS 20
10.1. EBITDAR to Fixed Charge Coverage Ratio 20
10.2. Debt to Cap/Priority Debt 20
10.3. Restricted Payments 20
10.4. Liens 21
10.5. Transactions with Affiliates 22
10.6. Merger, Consolidation, Sales of Substantially All Assets 22
10.7. Sales of Assets 23
10.8. Nature of Business 24
10.9. Dividend and Other Payment Restrictions Affecting Subsidiaries 24
11. EVENTS OF DEFAULT 24
12. REMEDIES ON DEFAULT, ETC. 27
12.1. Acceleration 27
12.2. Other Remedies 27
12.3. Rescission 27
12.4. No Waivers or Election of Remedies, Expenses, Etc. 28
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES 28
13.1. Registration of Notes 28
13.2. Transfer and Exchange of Notes 28
13.3. Replacement of Notes 29
14. PAYMENTS ON NOTES 29
14.1. Place of Payment 29
14.2. Home Office Payment 29
15. EXPENSES, ETC. 30
15.1. Transaction Expenses 30
15.2. Survival 30
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT 30
17. AMENDMENT AND WAIVER 31
17.1. Requirements 31
17.2. Solicitation of Holders of Notes 31
17.3. Binding Effect, Etc. 31
17.4. Notes held by Company, Etc. 32
18. NOTICES 32
19. REPRODUCTION OF DOCUMENTS 32
20. CONFIDENTIAL INFORMATION 33
21. SUBSTITUTION OF PURCHASER 34
22. MISCELLANEOUS 34
22.1. Successors and Assigns 34
22.2. Payments Due on Non-Business Days 34
22.3. Severability 34
22.4. Construction 34
22.5. Counterparts 35
22.6. Governing Law 35
Exhibits
Exhibit 1 Form of Senior Note
Exhibit 4.4(a) Matters to be Covered by Special
Counsel for the Company Exhibit 4.4(b) Matters to
be Covered by Special Counsel for the Purchasers
Schedules
Schedule A Information Relating to Purchasers
Schedule B Defined Terms
Schedule 5.4 Subsidiaries of the Company and Ownership of Subsidiary Stock
Schedule 5.5 Financial Statements
Schedule 5.8 Certain Litigation
Schedule 5.14 Use of Proceeds
Schedule 5.15 Existing Indebtedness
Schedule 10.4 Existing Liens
Schedule 11(k) Restricted Subsidiary Opinions
<PAGE>
EXECUTION COUNTERPART
GUILFORD MILLS, INC.
$145,000,000 7.06% Senior Notes due December 18, 2008
NOTE PURCHASE AGREEMENT
Dated December 18, 1998
The Prudential Life Insurance Company of America
Exhibit 10AA
AMENDMENT TO AGREEMENT
THIS AMENDMENT TO AGREEMENT is entered into this ___day of _______
____, by and between Guilford Mills, Inc., a Delaware corporation ("Guilford" or
the "Company"), and _________________ (the "Associate").
W I T N E S S E T H:
-------------------
WHEREAS, the Associate and the Company entered into an agreement, dated
_____________ , as the same may have been amended, pursuant to which the Company
has agreed to pay the Associate termination compensation in the event the
Associate should leave the employ of the Company under the circumstances
described in, and otherwise subject to the terms and conditions of, such
agreement (the "Agreement"); and
WHEREAS, the Associate and the Company have agreed to amend the
Agreement on the terms set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Section 1(c) of the Agreement is hereby deleted in its entirety and
the following provision is substituted in its place:
The Company shall be obligated to provide the
payments and benefits referred to in Sections 3 and 4
hereof following, and the provisions of Section 2
hereof shall apply to, a Change in Control of the
Company only if such Change in Control shall have
occurred within, or as a result of efforts for such
purposes known to the parties hereto to have
commenced prior to, February 29, 2000 (or such later
date as the Board shall determine).
2. Except as otherwise set forth above, the Agreement remains
unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
GUILFORD MILLS, INC.
By: _________________________
Its:_________________________
____________________________
[Name of Associate]
Exhibit 10SS
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment") is
dated as November 19, 1999 among GUILFORD MILLS, INC. (the "Borrower"), WACHOVIA
BANK, N.A. (successor by merger to Wachovia Bank of Georgia, N.A.), as Agent
(the "Agent"), and WACHOVIA BANK, N.A. (successor by merger to Wachovia Bank of
North Carolina, N.A.), BANK OF TOKYO-MITSUBISHI, LTD. (successor by merger to
Bank of Tokyo, Ltd.), FIRST UNION NATIONAL BANK (successor by merger to First
Union National Bank of North Carolina), SUNTRUST BANK, ATLANTA, BANK OF AMERICA,
N.A. (formerly NationsBank, N.A., successor by merger to NationsBank, N.A.
(Carolinas)), BANK ONE, NA (formerly the First National Bank of Chicago
(assignee of NBD BANK) and ABN AMRO BANK, N.V. (collectively, the "Banks");
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Banks executed and delivered
that certain Credit Agreement, dated as of September 26, 1995, as amended by
First Amendment to Credit Agreement dated as of May 5, 1999 (the "Credit
Agreement");
WHEREAS, the Borrower has requested and the Agent and the Banks have
agreed to certain amendments to the Credit Agreement, subject to the terms and
conditions hereof;
NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which
hereby is acknowledged by the parties hereto, the Borrower, the Agent and the
Banks hereby covenant and agree as follows:
1. Definitions. Unless otherwise specifically defined herein, each term
used herein which is defined in the Credit Agreement shall have the meaning
assigned to such term in the Credit Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference contained in the
Credit Agreement shall from and after the date hereof refer to the Credit
Agreement as amended hereby.
2. Amendment to Section 5.15. Section 5.15 of the Credit Agreement
hereby is deleted and the following is substituted therefor:
SECTION 5.15. Loans or Advances. Neither the Borrower
nor any of its Subsidiaries shall make loans or advances to any Person
except as permitted by Section 5.16 and except: (i) loans or advances
to employees not exceeding $1,000,000 in the aggregate principal amount
outstanding at any time, in each case made in the ordinary course of
business and consistent with practices existing on July 2, 1995; (ii)
deposits required by landlords, government agencies or public
utilities; (iii) loans or advances to the Borrower or any Guarantor or
permitted pursuant to the Consent and Waiver dated as of March 31, 1999
among the Borrower, the Agent and the Banks pertaining to "UK
Intercompany Loans" (as defined therein); and (iv) other loans or
advances in an aggregate outstanding amount which, together with
Investments permitted by clause (viii) of Section 5.16, do not exceed
(x) for the period from the First Amendment Date through and including
March 31, 2000, 20% of Consolidated Tangible Net Worth, and (y) at all
other times, 10% of Consolidated Tangible Net Worth; provided that
after giving effect to the making of any loans or advances permitted by
clause (iv) of this Section, if there are any Loans outstanding at that
time, no Default shall be in existence or be created thereby.
3. Amendment to Section 5.16. Section 5.16 of the Credit Agreement
hereby is deleted and the following is substituted therefor:
SECTION 5.16. Investments. Neither the Borrower nor
any of its Subsidiaries shall make Investments in any Person except as
permitted by Section 5.15 and except (i) Investments in direct
obligations of the United States Government maturing within one year,
(ii) Investments in certificates of deposit issued by a commercial bank
whose credit is satisfactory to the Agent, (iii) Investments in
commercial paper rated A1 or the equivalent thereof by Standard &
Poor's Rating Group, a division of McGraw-Hill, Inc. or P1 or the
equivalent thereof by Moody's Investors Service, Inc. and in either
case maturing within 6 months after the date of acquisition, (iv)
Investments in tender bonds the payment of the principal of and
interest on which is fully supported by a letter of credit issued by a
United States bank whose long-term certificates of deposit are rated at
least AA or the equivalent thereof by Standard & Poor's Corporation and
Aa or the equivalent thereof by Moody's Investors Service, Inc., (v)
Investments in the Borrower or any Guarantor, (vi) Investments
consisting of acquisitions of stock or assets of any Person which is in
the same or a similar line of business to that of the Borrower
(including, without limitation, manufacturing, sales, marketing,
distribution or other activities relating to components or end-products
used or produced in the textile, fabric, garment or apparel industries)
and which, as a result of such acquisition, becomes a Subsidiary, (vii)
Investments in Persons which are not Subsidiaries of the Borrower and
which are in the same or a similar line of business to that of the
Borrower (including those lines of business described in clause (vi)
above) in an aggregate amount not to exceed 10% of Consolidated Total
Assets and (viii) other Investments in an aggregate which, together
with loans and advances permitted by clause (iv) of Section 5.15, do
not exceed (x) for the period from the First Amendment Date through and
including March 31, 2000, 20% of Consolidated Tangible Net Worth, and
(y) at all other times, 10% of Consolidated Tangible Net Worth;
provided that after giving effect to the making of any Investments
permitted by clauses (vi) or (vii) of this Section, if there are any
Loans outstanding at that time, no Default shall be in existence or be
created thereby.
4. Amendment to Exhibit F (Compliance Certificate). Exhibit F hereby
is amended by deleting paragraphs 1 and 2 thereof and substituting the
following therefor:
1. Loans and Advances (Section 5.15)
Neither the Borrower nor any of its Subsidiaries shall make
loans or advances to any Person except as permitted by Section
5.16 and except: (i) loans or advances to employees not
exceeding $1,000,000 in the aggregate principal amount
outstanding at any time, in each case made in the ordinary
course of business and consistent with practices existing on
July 2, 1995; (ii) deposits required by landlords, government
agencies or public utilities; (iii) loans or advances to the
Borrower or any Guarantor or permitted pursuant to the Consent
and Waiver dated as of March 31, 1999 among the Borrower, the
Agent and the Banks pertaining to "UK Intercompany Loans" (as
defined therein); and (iv) other loans or advances in an
aggregate outstanding amount which, together with Investments
permitted by clause (viii) of Section 5.16, do not exceed (x)
for the period from the First Amendment Date through and
including March 31, 2000, 20% of Consolidated Tangible Net
Worth, and (y) at all other times, 10% of Consolidated
Tangible Net Worth; provided that after giving effect to the
making of any loans or advances permitted by clause (iv) of
this Section, if there are any Loans outstanding at that time,
no Default shall be in existence or be created thereby.
(a) To Employees $__________
Limitation $1,000,000
(b) other loans and advances
pursuant to clause (iv) $__________
(c) sum of (b) and amount in line (c)
of paragraph 2 below $__________
(d) [10%] [20%] of Consolidated Tangible
Net Worth $__________
Limitation (c) may not exceed (d)
2. Investments (Section 5.16)
Neither the Borrower nor any of its Subsidiaries shall make
Investments in any Person except as permitted by Section 5.15
and except (i) Investments in direct obligations of the United
States Government maturing within one year, (ii) Investments
in certificates of deposit issued by a commercial bank whose
credit is satisfactory to the Agent, (iii) Investments in
commercial paper rated A1 or the equivalent thereof by
Standard & Poor's Rating Group, a division of McGraw- Hill,
Inc. or P1 or the equivalent thereof by Moody's Investors
Service, Inc. and in either case maturing within 6 months
after the date of acquisition, (iv) Investments in tender
bonds the payment of the principal of and interest on which is
fully supported by a letter of credit issued by a United
States bank whose long-term certificates of deposit are rated
at least AA or the equivalent thereof by Standard & Poor's
Corporation and Aa or the equivalent thereof by Moody's
Investors Service, Inc., (v) Investments in the Borrower or
any Guarantor, (vi) Investments consisting of acquisitions of
stock or assets of any Person which is in the same or a
similar line of business to that of the Borrower (including,
without limitation, manufacturing, sales, marketing,
distribution or other activities relating to components or
end-products used or produced in the textile, fabric, garment
or apparel industries) and which, as a result of such
acquisition, becomes a Subsidiary, (vii) Investments in
Persons which are not Subsidiaries of the Borrower and which
are in the same or a similar line of business to that of the
Borrower (including those lines of business described in
clause (vi) above) in an aggregate amount not to exceed 10% of
Consolidated Total Assets and (viii) other Investments in an
aggregate which, together with loans and advances permitted by
clause (iv) of Section 5.15, do not exceed (x) for the period
from the First Amendment Date through and including March 31,
2000, 20% of Consolidated Tangible Net Worth, and (y) at all
other times, 10% of Consolidated Tangible Net Worth; provided
that after giving effect to the making of any Investments
permitted by clauses (vi) or (vii) of this Section, if there
are any Loans outstanding at that time, no Default shall be in
existence or be created thereby.
(a) Investments in persons who are not
yet Subsidiaries pursuant to
clause (vii) $__________
(b) 10% of Consolidated Total Assets $__________
Limitation (a) may not exceed (b)
(c) other Investments
pursuant to clause (viii) $__________
(d) sum of (c) and amount in line (b)
of paragraph 1 above $__________
(e) [10%] [20%] of Consolidated Tangible
Net Worth $__________
Limitation (d) may not exceed (e)
5. Restatement of Representations and Warranties. The Borrower hereby
restates and renews each and every representation and warranty heretofore made
by it in the Credit Agreement and the other Loan Documents as fully as if made
on the date hereof and with specific reference to this Second Amendment and all
other loan documents executed and/or delivered in connection herewith.
6. Effect of Amendment. Except as set forth expressly hereinabove, all
terms of the Credit Agreement and the other Loan Documents shall be and remain
in full force and effect, and shall constitute the legal, valid, binding and
enforceable obligations of the Borrower. The amendments contained herein shall
be deemed to have prospective application only, unless otherwise specifically
stated herein.
7. Ratification. The Borrower hereby restates, ratifies and reaffirms each
and every term, covenant and condition set forth in the Credit Agreement and the
other Loan Documents effective as of the date hereof, except that in about May,
1999, Altimira Centro de la Confeccion, S.A. de C.V. became a joint venture 50%
owned by the Borrower, rather than a Subsidiary.
8. Counterparts. This Second Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which counterparts, taken together, shall constitute but one and the same
instrument.
9. Section References. Section titles and references used in this
Second Amendment shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreements among the parties hereto
evidenced hereby.
10. No Default. To induce the Agent and the Banks to enter into this
Second Amendment and to continue to make advances pursuant to the Credit
Agreement, the Borrower hereby acknowledges and agrees that, as of the date
hereof, and after giving effect to the terms hereof, there exists (i) no Default
or Event of Default and (ii) no right of offset, defense, counterclaim, claim or
objection in favor of the Borrower arising out of or with respect to any of the
Loans or other obligations of the Borrower owed to the Banks under the Credit
Agreement.
11. Further Assurances. The Borrower agrees to take such further actions
as the Agent shall reasonably request in connection herewith to evidence the
amendments herein contained to the Borrower.
12. Governing Law. This Second Amendment shall be governed by and
construed and interpreted in accordance with, the laws of the State of North
Carolina.
13. Conditions Precedent. This Second Amendment shall become effective only
upon (i) execution and delivery of this Second Amendment by the Borrower, the
Agent and the Required Banks, (ii) execution and delivery of the Consent and
Reaffirmation of Guarantors at the end hereof by each of the Guarantors, and
(iii) payment to the Agent, for the account of each Bank which executes this
Second Amendment, of an amendment fee in the amount of $5,000 for each such
Bank, and (iv) payment to the Agent, for its own account, of the fees payable
pursuant to the letter agreement between the Agent and the Borrower dated
November 3, 1999.
[SIGNATURES CONTAINED ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Agent and each of the Banks has
caused this Second Amendment to be duly executed, under seal, by its duly
authorized officer as of the day and year first above written.
GUILFORD MILLS, INC., (SEAL) WACHOVIA BANK, N.A., (SEAL)
as Borrower as Agent and as a Bank
By: /s/ Terrence E. Geremski By: /s/ Haywood Edmundson, V
------------------------- ------------------------
Title: Executive Vice President Title: Senior Vice President
and Chief Financial Officer
BANK OF TOKYO-MITSUBISHI, (SEAL) FIRST UNION NATIONAL BANK, (SEAL)
LTD., as a Bank as a Bank
By: /s/ Randy Glass By: /s/ Richard Rizzo, Jr.
-------------------------- ----------------------
Title: Vice President Title: Senior Vice President
SUNTRUST BANK, ATLANTA, (SEAL) BANK OF AMERICA, N.A. (formerly as
as a Bank Nationsbank, N.A.), (SEAL)
as a Bank
By: /s/ Bradley J. Staples By: /s/ Leesa C. Sluder
---------------------- -------------------------
Title: Director Title: Managing Director
By:
-----------------------
Title
BANK ONE, NA (formerly The First ABN AMRO BANK, N.V.,
National Bank of Chicago), as a Bank (SEAL)
as a Bank (SEAL)
By: /s/ James F. Gable By:/s/ Mark Clegg, Jr.
------------------- --------------------
Title: Assistant Vice President Title: Vice President
By: By:/s/Robert A. Budnek
-------------------- --------------------
Title: Title: Vice President
<PAGE>
CONSENT AND REAFFIRMATION OF GUARANTORS
Each of the undersigned (i) acknowledges receipt of the foregoing
Second Amendment to Credit Agreement (the "Second Amendment"), (ii) consents to
the execution and delivery of the Second Amendment by the parties thereto and
(iii) reaffirms all of its obligations and covenants under the Guaranty
Agreement dated as of September 26, 1995 executed by Gold Mills, Inc., as
supplemented by Second Supplement to Guaranty entered into by Raschel Fashion
Interknitting, Ltd. and Curtains and Fabrics, Inc., as additional Guarantors,
and agrees that none of such obligations and covenants shall be affected by the
execution and delivery of the Second Amendment. This Consent and Reaffirmation
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same instrument.
GOLD MILLS, INC. (SEAL)
By:/s/ Terrence E. Geremski
------------------------
Title: Executive Vice President and
Chief Financial Officer
RASCHEL FASHION INTERKNITTING, LTD. (SEAL)
By:/s/ Terrence E. Geremski
------------------------
Title: Executive Vice President and
Chief Financial Officer
CURTAINS AND FABRICS, INC. (SEAL)
By:/s/ Terrence E. Geremski
------------------------
Title: Executive Vice President and
Chief Financial Officer
Exhibit 10uu
August 6, 1999
Mr. Victor Posner
6917 Collins Avenue
Miami Beach, FL 33141
Dear Mr. Posner:
This letter confirms the following:
1. Subject to the terms and provisions contained herein, on the Closing
Date (as hereinafter defined), you agree to sell, and Guilford Mills, Inc. (the
"Company") agrees to purchase 3,071,712 shares (the "Shares") of the Company's
common stock, par value $.02 per share. The purchase price for the Shares shall
be $9.50 per share.
2. The closing of the transactions contemplated hereby (the "Closing")
shall take place at 2:00 p.m. (New York City time) on Tuesday, August 10, 1999.
At the Closing, the following shall occur simultaneously: (a) you shall deliver
to the Company one or more certificates representing the Shares duly endorsed in
blank or accompanied by stock powers executed in blank (or, at the Company's
request, you shall arrange for the transfer of the Shares to a brokerage account
designated by the Company); and (b) the Company shall pay to you the amount of
$29,181,264.00. Payment of the amount referred to in the foregoing clause (b)
shall be made by wire transfer of immediately available funds to one or more of
your accounts at a bank or banks specified by you.
3. You represent and warrant to the Company that:
(a) You have the full legal right, power, authority and
capacity to execute, deliver and perform this letter
agreement and to sell, assign, transfer and deliver
the Shares as provided in this letter agreement, and
your delivery of the Shares to the Company hereunder
will convey to the Company good and marketable title
to the Shares, free and clear of any and all liens,
pledges, encumbrances, charges, agreements or claims
of any kind whatsoever;
(b) You have duly executed and delivered this letter
agreement and this letter agreement constitutes your
legal, valid and binding obligation, enforceable
against you in accordance with its terms;
(c) You are the sole beneficial owner of the Shares, free
and clear of any and all covenants, conditions,
restrictions, voting trust agreements, liens,
pledges, encumbrances, charges, security interests,
options, agreements or claims of any kind whatsoever
(the foregoing collectively hereinafter referred to
as the "Charges"); upon payment for the Shares as
contemplated hereby, the Company will acquire good
and marketable title to the Shares free of any
Charges; and the Shares represent all of the shares
of common stock of the Company which you beneficially
own, as hereinafter defined;
(d) Your execution, delivery and performance of this
letter agreement will not (i) result in a default or
breach of any agreement, contract or any other
instrument or obligation to which you or a party or
subject or (ii) violate any law, order, writ,
injunction, decree, statute, rule or regulation
applicable to you. No consent, approval,
authorization or filing with any persons or entities
on your part is required in connection with the
execution or delivery of this letter agreement or the
consummation of the transactions contemplated hereby;
(e) You are not a party to, subject to or bound by, any
agreement, judgement, order, writ, injunction or
decree of any court or governmental body or agency
which could prevent the performance of this letter
agreement; and
(f) No person or entity is entitled to any brokerage
commission or similar payment from you in connection
with the transactions contemplated hereby.
4. The Company represents and warrants to you that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Delaware;
(b) The Company has all requisite corporate power and
authority to execute, deliver and perform its
obligations under this letter agreement;
(c) The execution, delivery and performance of this
letter agreement by the Company and the consummation
of the transactions contemplated hereby have been
duly and validly authorized by all requisite
corporate action on the part of the Company;
(d) This letter agreement has been duly executed and
delivered by the Company and, when duly executed by
you, will constitute the legal, valid and binding
obligation of the Company, enforceable against the
Company in accordance with its terms;
(e) The execution, delivery and performance of this
letter agreement by the Company will not (i) violate,
conflict with or constitute a default under any term
or provisions of the certificate of incorporation or
bylaws of the Company, (ii) result in a default or
breach of any agreement, contract or any other
instrument or obligation to which the Company is a
party or subject, or (iii) violate any law, order,
writ, injunction, decree, statute, rule or regulation
applicable to the Company. No consent, approval,
authorization or filing with any persons or
entities on the part of the Company is required in
connection with the execution or delivery of this
letter agreement or the consummation of the
transactions contemplated hereby, except for consents
which have already been obtained; and
(f) The Company is not a party to, subject to or bound
by, any agreement, judgment, order, writ, injunction
or decree of any court or governmental body or agency
which could prevent the performance of this letter
agreement.
5. The obligation of the Company to consummate the purchase of the
Shares on the Closing Date is, at the option of the Company, subject to the
satisfaction of the following conditions:
(a) Each of your representations and warranties contained
in Section 3 hereof shall be true and correct as of
the Closing Date with the same force and effect as
though the same had been made on and as of the
Closing Date; and
(b) No action or proceeding shall have been instituted or
threatened or claim or demand made against you or the
Company before any court or other governmental body,
seeking to restrain or prohibit or to obtain
substantial damages with respect to the consummation
of the transactions contemplated hereby, which in the
reasonable opinion of the Company makes it
inadvisable to consummate such transactions.
6. Your obligation to consummate the sale, transfer and assignment to
the Company of the Shares on the Closing Date is, at your option, subject to the
satisfaction of the following conditions:
(a) Each of the representations and warranties of the
Company contained in Section 4 hereof shall be true
and correct as of the Closing Date with the same
force and effect as though the same had been made on
and as of the Closing Date; and
(b) No action or proceeding shall have been instituted or
threatened or claim or demand made against you or the
Company before any court or other governmental body,
seeking to restrain or prohibit or to obtain
substantial damages with respect to the consummation
of the transactions contemplated hereby, which in
your reasonable opinion makes it inadvisable to
consummate such transactions.
7. You shall be responsible for the payment of any brokerage commission
or similar payment which may be due any broker(s) representing you in connection
with the transactions contemplated by this letter agreement and you shall
indemnify and hold the Company harmless from and against any and all liability
for any such commissions or payments.
8. You covenant that for a period of ten years from and after the date
hereof, neither you, any of your affiliates (as defined herein), nor any group
(as defined herein) of which you or any of your affiliates becomes a member,
shall (a) individually or collectively acquire, or offer, propose or agree to
acquire beneficial ownership of any shares of the Company's common stock or (b)
propose or publicly announce or otherwise disclose an intent to propose, or
enter into or agree to enter into, singly or with any other person or directly
or indirectly, (i) any form of business combination, acquisition, or other
transaction relating to the Company or any affiliate thereof, or (ii) any form
of restructuring, recapitalization or similar transaction with respect to the
Company or any such affiliate, (c) make, or in any way participate in, any
solicitation of proxies with respect to any shares of the Company's common stock
(including by the execution of action by written consent), become a participant
in any election contest with respect to the Company, seek to influence any
person with respect to any shares of the Company's common stock or demand a copy
of the Company's list of its stockholders or other books and records, or (d)
participate in or encourage the formation of any partnership, syndicate, or
other group which seeks to effect control of the Company or to circumvent any
provision of this Section 8. The term "affiliate" as used in this Section 8 and
in Section 9 shall have the meaning ascribed to it in Rule 405 under the
Securities Act of 1933, as amended. The term "group" as used in this Section 8
shall have the meaning ascribed to it in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The terms "beneficial
ownership" or "beneficially own" as used in this Section 8 and in Section 3
shall have the meaning ascribed to such terms in Rule 13d-3 under the 1934 Act.
9. In consideration of the payment to be made by the Company pursuant
to Section 2 hereof and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, you, for yourself and your
heirs, executors, successors, assigns and legal representatives (collectively,
the "Releasing Parties"), covenant not to sue and release, remise and forever
discharge the Company, its subsidiaries, divisions and affiliates, and their
respective officers, directors, employees, agents and representatives
(collectively, the "Released Parties"), of and from all claims, demands, suits,
actions, causes of action, losses, damages, expenses or liabilities of any kind
and nature whatsoever, known and unknown, both in law and in equity
(collectively, the "Claims"), which the Releasing Parties ever had, now have or
can, shall or may here against the Released Parties for, upon or by reason of
any matter, cause or thing from the beginning of the world to and through the
Closing Date including, without limitation, Claims relating in any way to your
ownership of the Shares, your status as a shareholder of or investor in the
Company, the operation and conduct of the Company's business and affairs and the
Company's financial performance. Notwithstanding anything in the foregoing to
the contrary, the foregoing release shall not apply to the executory provisions
of this letter agreement.
10.
(a) You agree to indemnify and hold the Company harmless
from and against any and all losses, claims,
liabilities, obligations, damages, assessments,
judgments, costs, deficiencies and expenses,
including, without limitation, any reasonable legal
or other expenses for investigating, preparing or
defending any action, suit, or proceeding or any
threatened action, suit or proceeding (collectively,
the "Losses"), arising from, relating to or in
connection with any breach of a representation and
warranty or non-fulfillment of any agreement or
covenant on your part under the terms of this letter
agreement.
(b) The Company agrees to indemnify and hold you harmless
from and against any all Losses arising from,
relating to or in connection with any breach of a
representation and warranty or non-fulfillment of any
agreement or covenant on the part of the Company
under the terms of this letter agreement.
(c) If any legal proceedings shall be instituted or
any claim or demand shall be asserted by any person
in respect of which payment may be sought by one
party hereto from another party under the provisions
of this Section 10, the party seeking indemnification
shall promptly cause written notice of the assertion
of any claim of which it has knowledge which is
covered by this indemnity to be forwarded to the
other party. Such other party shall have the right,
at its option and at its own expense (i) to be
represented by counsel of its choice who must be
reasonably satisfactory to the party seeking
indemnification and (ii) to defend against,
negotiate, settle or otherwise deal with any
proceeding, claim or demand which relates to any Loss
indemnified against hereunder; provided, however,
that no settlement shall be made without the prior
written consent of the party seeking indemnification,
which consent shall not be unreasonably withheld.
Notwithstanding the preceding sentence, the party
seeking indemnification may participate in any such
proceeding with counsel of its choice and at its
expense; provided, however, that if defendants in any
such action include both the party seeking
indemnification and the indemnifying party, and the
party seeking indemnification shall have been advised
by its counsel that there may be bona fide legal
defenses available to the party seeking
indemnification which are different from or in
addition to those available to the indemnifying
party, the party seeking indemnification shall have
the right to employ its own counsel in such action,
and in such event, the reasonable fees and expenses
of such counsel shall be borne by the indemnifying
party. To the extent the indemnifying party elects
not to defend such proceeding, claim, or demand and
the party seeking indemnification defends against,
settles or otherwise deals with any such proceeding,
claim or demand, which settlement may be made without
the consent of the indemnifying party, the party
seeking indemnification will act reasonably in
accordance with its good faith business judgment. The
parties hereto agree to cooperate fully with each
other in connection with the defense, negotiation or
settlement of any such legal proceeding, claim or
demand. After any final judgment or award shall have
been rendered by a court, arbitration board or
administrative agency of competent jurisdiction and
the expiration of the time in which to appeal
therefrom, or a settlement shall have been
consummated, or the party seeking indemnification
and the indemnifying party shall have arrived at a
mutually binding agreement with respect to each
separate matter indemnified by the indemnifying
party hereunder, the party seeking indemnification
shall forward to the indemnifying party notice of
any sums due and owing by it or him, as the case may
be, with respect to such matter and such indemnifying
party shall be obligated for all of the sums so owing
to the other party within ten days after the date of
such notice.
(d) The representations, warranties, covenants and
agreements of the parties contained in this letter
agreement shall survive the execution and delivery of
this letter agreement, notwithstanding any
investigation made by or on behalf of the parties
hereto.
11. This letter agreement (a) embodies the entire agreement and
understanding of the parties hereto and supersedes any prior agreement or
understanding between the parties; (b) shall be governed by the laws of the
State of New York without reference to principles of conflicts of law; (c) shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that this letter and all
rights and obligations hereunder may not be assigned or transferred, without the
prior written consent of the other party hereto; (d) may be amended, modified or
supplemented only by written agreement of the parties hereto; and (e) may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
Kindly confirm that the foregoing represents our mutual agreement by
signing, dating and returning to the undersigned the enclosed copy of this
letter.
Very truly yours,
GUILFORD MILLS, INC.
By:/s/ Terrence E. Geremski
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Name:Terrence E. Geremski
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Title:Executive Vice President
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& Chief Financial Officer
ACCEPTED AND AGREED TO:
/s/ Victor Posner
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Victor Posner
August 6th 1999
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Guilford Mills, Inc. produces fabrics using a broad range of technologies for a
variety of customers and markets. It is the largest warp knitter in the world
and a leader in technological advances in textiles. The Company has identified
four segments in which it operates: Automotive, Apparel, Home Fashions and
Other.
The Apparel segment fabrics are used predominantly in women's shapewear,
swimwear, ready-to-wear and intimate apparel garments. Other uses include
sleepwear, team sportswear and linings.
Fabrics produced in the Automotive segment are sold to original equipment
manufacturers (OEMs) and their suppliers. These fabrics are fabricated into the
seats and headliners of passenger cars, sports utility vehicles, conversion vans
and light and heavy trucks.
The Home Fashions segment produces upholstery fabrics for office and residential
furniture, mattress ticking and for window treatment applications. This segment
also includes sales to retailers of knit and/or lace comforters, window
curtains, sheets, shower curtains, pillowcases and bedskirts.
The remainder of Guilford's fabrics are sold for use in a broad range of
industrial/specialty products and are included in the Other segment. The
Company's fibers operations are also included in this segment.
Goods are manufactured principally in the United States, the United Kingdom,
Mexico and Brazil. Approximately 80% of the Company's net sales originate from
the United States. Guilford's foreign operations are subject to fluctuations in
foreign exchange rates that affect the Company's operating results and financial
position due to translation gains and losses recognized in converting such
activity to local currency and to U.S. dollars. During fiscal 1999, the British
pound strengthened against the Euro and resulted in a 10% reduction in the
U.K.'s foreign currency denominated sales. Effective January 1, 1999, the
Mexican 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, under Statement
of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation",
the functional currency for translating the balance sheet and the results of
operations of the Company's Mexican operation, Grupo Ambar S.A. de C.V. ("Grupo
Ambar"), returned to the Mexican peso from the U.S. dollar. Translation
adjustments appear as part of accumulated other comprehensive loss in the
stockholders' investment section on the balance sheets and are not in the
results of operations. For the period from January 1997 to January 1999, while
Mexico was considered highly inflationary, the U.S. dollar was used as the
functional currency for translating the balance sheet and results of operations.
Under this method of accounting, foreign currency translation gains and losses
were recognized in the results of operations.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998 - Consolidated sales for fiscal 1999 were $856.8 million,
a decrease of 4.2% from fiscal 1998's $894.5 million. Increased sales in the
Automotive segment were more than offset by sales declines in all the other
segments, particularly in the Home Fashions segment.
The Automotive segment accounted for 42.2% of consolidated net sales in fiscal
1999, up from 37.8% in fiscal 1998. Sales in this segment were $361.3 million
and increased 6.8% over fiscal 1998. This primarily resulted from the increase
in the U.S. car build in fiscal 1999 to 16.9 million units compared to car build
in fiscal 1998 of 15.4 million units. While Guilford maintained its U.S. market
share of the headliner business, the higher car build and the Company's growth
in value-added, cut-to-size parts resulted in increased sales over the prior
year. Additionally, penetration into the New Domestics OEMs allowed Guilford to
gain bodycloth market share in the overall U.S. vehicle market. Although
domestic operations were strong in fiscal 1999, sales in the U.K. and Mexico
decreased from prior year. Sales by the U.K. operations fell 14.1% due to the
loss of market share of one of the Company's major customers and lower build
levels of another major customer. Automotive fabric sales in Mexico fell by more
than 50% due to the loss of a major customer program that was returned to
Guilford late in the fourth quarter of fiscal 1999. Sales in Brazil were slow to
start due to the economic environment and therefore, contributed minimally in
fiscal 1999.
Apparel segment sales decreased 1.1% to $336.5 million in fiscal 1999 from
$340.2 million in fiscal 1998 and accounted for 39.3% of consolidated net sales.
Increased sales in intimate apparel, swimwear and ready-to-wear were more than
offset by decreased sales of commodity fabrics. Intimate apparel fabric sales
continued to grow in fiscal 1999 due to the Company's strong position with the
major branded retailers and their success at the retail level. Swimwear fabric
sales increased as a result of increased retail sales due to the warmer weather
and the recent insolvency and change in ownership of a competitor. While
ready-to-wear fabric sales increased modestly during fiscal 1999, this sector
has been impacted by warp knit garment imports from Asia. Sales declines in the
Company's commodity fabrics were also substantially due to Asian imports.
However, the recent Chapter 11 filing of a major lining customer as well as
changing consumer lifestyles also contributed to the decline in commodity fabric
sales.
The Home Fashions segment accounted for 13.0% of consolidated net sales in
fiscal 1999 and sales decreased 26.6% from fiscal 1998. Sales for fiscal 1999
were $111.5 million versus $151.9 million in fiscal 1998. This segment was
particularly impacted by foreign imports, which caused the Company to exit the
circular knit sheeting business in fiscal 1999. These imports also had an
adverse affect on sales of lace window curtains. Upholstery fabric and mattress
ticking fabric sales declined in fiscal 1999 and were only partially offset by
an increase in domestics fabric sales.
Sales in the segment identified as Other fell 26.0% to $47.5 million from $64.2
million in fiscal 1998. The Other segment represented 5.5% of consolidated net
sales in fiscal 1999. The Company's decision to exit the nylon fiber business at
the end of fiscal 1998 and the decline in sales of hook and loop closure systems
contributed to the sales decline. The Company's sales of hook and loop closure
systems were impacted by a customer's decision to replace Guilford's fabric with
fabric from a regional European supplier.
Gross margin decreased to $135.9 million or 15.9% of net sales from last year's
$169.4 million or 18.9% of net sales. The single most significant impact to
margin was the volume decline in the Home Fashions segment. The sheeting and
window curtains volume decreases dramatically affected three of Guilford's
operations as both products were internally knit, finished, cut and sewn in
Guilford facilities. This vertical integration in the Home Fashions segment,
which contributed so dramatically to performance in fiscal 1998, eroded fiscal
1999 results by $19.9 million. Additionally, profit was impacted by volume
declines in commodity apparel, industrial products and the U.K. and Mexican
automotive businesses. The Company has reduced fixed costs in several of its
facilities to partially offset the impact of volume declines. Apparel segment
volume declines were also somewhat offset by a favorable sale price and product
mix combination as the Company continued to shift toward more value-added
intimate apparel, team sports and swimwear and away from commodity sleepwear,
robewear and velvets. Domestic automotive sales prices declined by nearly $1.5
million overall due to continued OEM pricing pressures. This was more than
offset by increases in sales prices for value-added, cut-to-size headliner
parts. Sales prices for domestic industrial fabrics and polyester fibers also
declined in fiscal 1999. Gross profit was also impacted by the Company's actions
to curtail production and dispose of certain aged inventory in order to lower
inventory levels company-wide. Guilford disposed of approximately $20 million of
aged inventory and incurred an approximate loss of $5.0 million. Hurricane Floyd
affected five locations and resulted in several days of business disruption and
facility shutdowns caused by loss of power and associate safety considerations.
While the Company acted promptly to resume operations and despite minimal
physical property damage, the most significant impact related to shipments to
automotive customers which were delayed beyond the fiscal year. As a result,
gross profit was negatively impacted by $2.0 million. Additionally in fiscal
1999, the gross margin in the Automotive segment was negatively impacted by the
inefficiencies of domestic automotive operations due to the unexpectedly high
car-build which caused seven day operations, the Company's relocation and
consolidation of two woven operations which resulted in a non-recurring expense
of $1.8 million and the slower than expected automotive growth in Brazil which
resulted in a gross margin loss of $1.6 million.
Selling and administrative expenses increased 4.7% to $106.5 million or 12.4% of
sales in fiscal 1999 from the prior year's $101.7 million or 11.4% of sales. The
increase over prior year was due to an additional bad debt provision of $3.0
million associated with the financial difficulties of an Apparel segment
customer, increased professional fees of $1.0 million associated with the
investigation of accounting irregularities at Hofmann Laces and increased
consulting fees of $1.1 million in the Home Fashions segment. In the Automotive
segment, payroll and fringe benefits increased $1.7 million in the U.S. as
unexpected record car builds resulted in continuous seven day operations.
Offsetting these increases were cost reductions in the Company's U.K. and
Mexican operations totaling $1.9 million.
During fiscal 1998 a plant restructuring charge of $6.5 million was recorded for
the termination and exit cost for two of the Company's facilities. During fiscal
1999, the Company reversed $0.5 million of the original charge into income due
to the actual amount of severance falling below management's original estimate.
Operating income in fiscal 1999 decreased to $29.9 million from $61.2 million.
Operating income decreased in each segment from fiscal 1998. The Home Fashions
segment experienced the largest decline in operating income of $18.7 million
which generated an operating loss of $6.4 million. This decline was due to the
lower volume as a result of the Company's decision to exit jersey knit sheeting,
inventory reductions and increased selling and administrative expenses. The
Apparel and Other segments' operating income fell $4.3 million and $5.8 million,
respectively, to $3.5 million and $2.8 million, respectively, in fiscal 1999
from fiscal 1998. These decreases were also due to lower volumes, which resulted
from the foreign competition. Operating income for the Automotive segment fell
$2.5 million to $30.0 million in fiscal 1999. This decline was due to the volume
declines in the foreign operations, Hurricane Floyd and increased payroll and
fringe benefits in domestic operations.
Interest expense increased $4.2 million to $16.6 million from $12.4 million in
the prior year as short-term borrowings increased $51.8 million, primarily as a
result of the repurchase of shares of the Company's common stock. The average
short-term interest rate was 6% in both fiscal 1999 and fiscal 1998.
Other expense was $1.2 million in fiscal 1999 compared to other income of $0.3
million in fiscal 1998. Fiscal 1999 included losses of $1.6 million from an
equity investee, investment write-offs of $0.7 million, and $0.9 million of
various other expenses that more than offset the $2.1 million gain on the sale
of fixed assets. Fiscal 1998 included non-recurring investment gains of $1.0
million and a fire insurance recovery of $0.7 million.
The effective income tax rate for fiscal 1999 was 15.8% versus 32.5% for the
prior year. This reduction reflected a one-time net benefit of $3.7 million
derived from a dividend paid by Guilford U.K. subsidiaries to the parent under
the Advance Corporation Tax (ACT) rules and the U.S.-U.K. Income Tax Treaty. The
effective income tax rate decrease was also due to lower pre-tax book income, an
effective tax rate reduction in the U.K. and a charitable contribution of a
building. The reduction of certain credits and a reduction in the foreign sales
commission due to reduced margins on export sales partially offset the decline.
An extraordinary charge, net of tax, of $2.9 million for the prepayment of debt
was recorded in fiscal 1998.
Net income in fiscal 1999 was $10.2 million or 1.2% of net sales and decreased
66.1% from the prior year's net income of $30.2 million or 3.4% of sales. Basic
and diluted earnings per share were $0.47 in fiscal 1999 compared to basic
earnings per share of $1.20 and diluted earnings per share of $1.19 in fiscal
1998. Average shares outstanding decreased substantially during fiscal 1999 as
the Company repurchased nearly 1.0 million shares of the Company's common stock
in the open market and nearly 3.1 million shares from a beneficial owner in a
private transaction.
1998 COMPARED TO 1997 - Consolidated sales for fiscal 1998 were $894.5 million,
down slightly from fiscal 1997's record high of $894.7 million. Increased sales
in the Automotive and Home Fashions segments were offset by decreased sales in
the Apparel and Other segments. Sales were negatively impacted by the Asian
economic crisis, adverse conditions in the U.K. as a result of the strengthening
of the British pound and the devaluation of the Mexican peso.
Sales in the Automotive segment increased 2.7% to $338.2 million in fiscal 1998
from $329.5 million in fiscal 1997. Significant growth in the U.S. and Mexican
markets was tempered by the economics in the U.K. Automotive segment sales
represented 37.8% of consolidated net sales. North American car build in fiscal
1998 increased 1.3% to 15.4 million units. Domestic fabric sales increased by
10.8%. The Company's increased penetration resulted from the continued
popularity of certain Ford models, growth with the New Domestic manufacturers,
and dominance of the warp knit fabric market. Additionally, the Company sourced
the largest woven velour program in North America. Fabric content per vehicle
increased due to the demand for larger sport utility vehicles and light trucks,
but severe pricing pressure and more efficient utilization by the fabricators
offset the increase. In Europe, while the calendar year car build was 14.4
million units, increases were enjoyed by OEMs which dominated certain markets,
such as luxury vehicles and France. Guilford's key customers experienced reduced
market share. Additionally, the British pound's strength against other European
currencies disadvantaged U.K. manufacturers, which resulted in reduced sales
prices to prevent resourcing to other parts of Europe. Consequently, sales of
the Company's U.K.-based manufacturing facilities fell 8.1% in fiscal 1998. The
Mexican automotive market was relatively flat with local demand spurred by OEM
incentives. The Company's Mexican sales increased 7.3% due to the popularity of
its major customer's vehicles.
Apparel segment sales for fiscal 1998 were $340.2 million and decreased 3.5%
from fiscal 1997 sales of $352.5 million. Sales in the Apparel segment were
38.0% of consolidated sales. Intimate apparel and shapewear compression fabrics,
which contain spandex, grew at double-digit rates due substantially to strong
relationships with key retail customers and the penetration of major branded
manufacturers. Swimwear fabric sales were down slightly in fiscal 1998 due to
the extremely poor weather patterns in California and Florida attributed to El
Nino. Ready-to-wear sales decreased significantly overall. The domestic demand
for higher quality fashionable fabrics declined in favor of garments imported
from Asia. As a result of the financial crisis there, yarns, fabrics and
finished garments from foreign competitors were sold at prices below domestic
cost. The impact of the Asian crisis was evident in the Company's linings
business as well. Team sports sales increased, as these high-performance
ready-to-wear fabrics were not readily produced at low price points. Other
apparel fabric sales, such as sleepwear and robewear, declined slightly from
fiscal 1997 levels.
Home Fashions' sales increased 19.0% in fiscal 1998 and were $151.9 million
versus $127.7 million in fiscal year 1997. This segment accounted for 17.0% of
consolidated sales and was the largest growth segment. Direct to retail sales
increased by 38.6% with strong sales of Guilford's jersey knit cotton sheeting
and the introduction of top-of-bed products. Moderate sales increases in window
curtains and fabrics were slightly offset by sales declines in shower curtains,
mattress ticking and furniture fabrics.
Sales in the Other segment declined by 24.6% to $64.2 million in fiscal year
1998 from $85.1 million in fiscal year 1997. Sales in the Other segment were
7.2% of consolidated net sales in fiscal 1998. Hook and loop closure system
fabric sales decreased by nearly 45% due to the lower demand for premium diapers
containing this fastening system. The European business for these products was
replaced by a local supplier. Additionally, fiber sales were down substantially
as a result of Asian yarn competitive pricing on polyester.
The gross profit margin for fiscal 1998 was $169.4 million or 18.9% of sales
compared to $183.0 million or 20.4% of sales in fiscal 1997. Volume increases,
especially in the Home Fashions and Automotive segments, were more than offset
by significant sales price pressure. Automotive OEM sales price reductions
domestically and in the U.K., where the strength of the British pound caused a
competitive disadvantage in Europe, totaled nearly $9.0 million. In the Home
Fashions segment, the Company's cotton sheeting sales were up nearly 200%
without corresponding profitability due to operating inefficiencies and
competitive pricing pressure with extremely low-cost imports. The Company was
able to maintain overall margins on apparel products, despite a decline of $6.0
million in sales prices and lower volumes caused primarily by the Asian
financial crisis. Reductions were offset by increased volume on higher-margin
intimate apparel and shapewear business and lower polyester yarn purchase
prices. Volume and pricing declines on the hook and loop specialty fabric
impacted margins by more than $5.0 million. Also, the continued devaluation of
the Mexican peso and the impact of remeasurement under SFAS No. 52 impacted
gross margins by more than $1.0 million in fiscal year 1998.
Selling and administrative expenses increased to $101.7 million or 11.4% of
sales from fiscal 1997's $97.6 million or 10.9% of sales. Continued design,
marketing and research and development efforts, along with expenses related to
the direct retail business, caused the increase. Research and development
expenditures were $19.6 million in fiscal 1998, an increase of $4.7 million over
fiscal 1997. Direct to retail selling expenses were up $3.7 million primarily
due to volume increases, promotional expenses and shelf space allowances.
Salaries and fringes, which were up as the result of normal wage progression and
commissions, declined substantially as incentive compensation expense was down
$9.1 million.
A plant restructuring charge of $6.5 million was recorded for termination and
exit costs for two of the Company's facilities. The charge included $2.9 million
of severance pay, $3.5 million of equipment write-downs and $0.1 million of
other exit costs. Guilford exited the nylon fiber business and closed a fiber
plant to more effectively utilize capacity. In addition, the Company will no
longer dedicate resources to certain high-end ready-to-wear products. (Refer to
Note 3 of the Consolidated Financial Statements for further discussion).
Operating income in fiscal 1998 decreased $24.2 million to $61.2 million from
$85.4 million in fiscal 1997. Operating income fell in all segments from fiscal
1997. The Apparel and Other segments' operating income fell $8.9 million and
$8.7 million, respectively, to $7.8 million and $8.6 million, respectively, in
fiscal 1998 from fiscal 1997. The decline in Apparel was the result of lower
selling prices and volumes caused by the Asian financial crisis as well as from
the restructuring charge. Volume and pricing declines on the hook and loop
specialty fabric and the restructuring charge generated the decline in the Other
segment. Operating income for the Home Fashions segment fell $5.4 million to
$12.4 million in fiscal 1998 due to pricing pressures and increased retail
selling expenses. The Automotive segment's operating income was $32.5 million in
fiscal 1998 compared to $33.7 million in fiscal 1997. Pricing pressures and the
strength of the British pound led to the decline.
Interest expense decreased to $12.4 million from fiscal 1997's $16.2 million.
The reduction in long-term debt for much of the year, due substantially to the
repayments and conversion of the 6% Subordinated Convertible Debentures late in
fiscal year 1997, resulted in a $4.2 million decline in interest expense.
Average short-term borrowings increased, but the interest rate was flat
resulting in additional interest expense of $0.2 million. Interest expense for
fiscal 1998 was not impacted by the refinancing of long-term debt, which
occurred on September 25, 1998.
Other income was $0.3 million in fiscal 1998 as compared to fiscal 1997's
expense of $3.4 million. Increased gains on the sale of fixed assets of $1.1
million, a fire insurance recovery of $0.7 million, and a reduction in the
low-income housing investment of $0.4 million generated the improvement.
The effective income tax rate for fiscal 1998 was 32.5% versus 34.3% in fiscal
1997. The decrease resulted from lower pre-tax book income, a U.K. statutory
rate reduction of 200 basis points, additional R&D tax credits and higher
Foreign Sales Corporation benefit. The reduction of certain credits partially
offset the decline.
An extraordinary charge, net of tax, of $2.9 million for the prepayment of the
senior, unsecured notes outstanding was recorded in fiscal 1998. In conjunction
with the prepayment of the debt, the Company recorded a prepayment penalty of
$3.9 million and related amortization of loan costs of $0.4 million. The related
income tax benefit was $1.4 million.
Net income before the extraordinary charge in fiscal year 1998 was $33.1 million
or 3.7% of sales. Earnings per share before extraordinary item was $1.32 per
basic share and $1.30 per diluted share. Net income after the extraordinary
charge was $30.2 million or 3.4% of sales compared to $43.2 million or 4.8% of
sales in the prior year. Earnings per share was $1.20 per basic share and $1.19
per diluted share in fiscal 1998 compared to $1.92 per basic share and $1.78 per
diluted share in fiscal 1997. Average basic shares outstanding increased 11.9%
due primarily to the July, 1997 conversion of debentures to equity.
LIQUIDITY AND CAPITAL REQUIREMENTS
Cash provided by operations increased to $92.9 million in fiscal 1999 compared
to $76.4 million in fiscal 1998. Although net income was down $20.0 million from
the prior year, substantial reductions in working capital in fiscal 1999 versus
increases in fiscal 1998, more than offset the profitability decline.
At the end of fiscal 1999, cash and cash equivalents of $22.6 million were
available for future capital and other operational and business needs.
Working capital was $127.7 million in fiscal 1999 compared to $211.3 million in
the prior year. A decrease in inventory of $16.2 million and accounts receivable
of $9.5 million and an increase of $51.8 million in short-term debt caused the
decline. The maturing of the Company's revolving credit facility in fiscal 2000
caused the increase in short-term debt.
As part of the original 1996 purchase agreement between Guilford Mills and
Hofmann Laces, the Company agreed to pay additional consideration in fiscal year
2001 in accordance with a formula based upon the Company's price-earnings'
multiple and Hofmann Laces' performance through the end of calendar year 2000.
The purchase agreement was amended in fiscal year 1998 to fix the amount of the
additional payment. A $17.0 million payment of the acquisition price was made
during fiscal 1998 with the final cash payment of $17.3 million being made
during fiscal 1999.
Long-term debt decreased $31.0 million and short-term debt increased $51.8
million in fiscal 1999 from the prior year. During fiscal 1999, the Company
issued $145.0 million of unsecured, ten-year notes. The net proceeds were used
to repay a portion of the Company's outstanding borrowings on its uncommitted
lines of credit and revolving credit facility. The net increase in debt was due
primarily to the share repurchases of $42.0 million.
In fiscal 1998, long-term debt increased $30.6 million and short-term debt
increased $53.5 million from fiscal 1997. The Company prepaid $73.6 million of
senior, unsecured notes issued to certain institutional investors which matured
through 2003. The Company temporarily funded the Hofmann Lace payment described
above, stock repurchases, capital expenditures in excess of depreciation expense
and increases in working capital through its revolving credit facility and bank
lines of credit. A portion of these borrowings were classified as long-term as
they were replaced with the $145.0 million of unsecured, ten-year notes in
fiscal 1999.
Capital expenditures were $48.6 million in fiscal 1999 compared to $84.0 million
in fiscal 1998. Since capital expenditures were unusually high in fiscal 1998,
the Company limited capital expenditures in fiscal 1999. The Company generally
maintains the average capital expenditures near the average depreciation
expense. However, due primarily to the Company's expansion into Mexico, capital
expenditure levels for the next two fiscal years are expected to be slightly
above depreciation expense.
Raw material costs declined significantly in fiscal 1998. Record declines in
polyester yarn prices were caused by the Asian financial crisis and continued
worldwide excess capacity. These decreases were passed through to customers as
the retail marketplace demanded lower-priced garments competitive with foreign
sources. Raw material pricing stabilized in fiscal 1999 and had an insignificant
impact on Guilford's liquidity. At the end of fiscal 1999, yarn suppliers began
to announce price increases. Thus far, these have been denied as Guilford's
customers have refused to allow corresponding selling price increases.
The Company maintains flexibility with respect to its seasonal working capital
needs as well as for future acquisitions through a revolving credit facility of
$150.0 million. This credit facility matures on September 26, 2000. The Company
anticipates replacing or renewing this facility during fiscal 2000. It also has
continued access to other traditional sources of funds, including uncommitted
bank lines of credit aggregating $270.0 million and the ability to borrow
against factored accounts receivables. At October 3, 1999, $100.0 million was
available under the revolving credit facility and availability under Guilford's
uncommitted short-term bank lines of credit was $61.6 million.
Management believes that its cash requirements for operations, capital
expenditures, dividends, interest, debt repayments, and other financial needs
will continue to be met through internally generated sources and utilization of
external borrowings.
The Company's strong balance sheet, with debt to total capital of 43.1%, affords
it many options. Management intends to continue to examine both short-term and
long-term opportunities to continuously improve its financial position and add
shareholder value. These opportunities may require debt or equity financing.
INFLATION
The Company believes that the relatively moderate inflation rate of the 1990s
has not significantly impacted its operations.
CONTINGENCIES
The Company is involved in various litigation and environmental matters arising
in the ordinary course of business. Additionally, several class action lawsuits,
which were subsequently consolidated by order of the Court, were filed against
the Company alleging violations of the Federal securities laws arising out of
the previously reported accounting irregularities at Hofmann Laces. These are
discussed in Note 12 to the consolidated statements which are included herein.
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.
OUTLOOK
In 1998, it was thought by most textile industry advisors that the Asian
financial crisis and the influx of low-priced apparel goods into the U.S. from
the Far East, was cyclical and would be short-lived. Since then, however, the
textile industry has continued to be challenged. Some analysts and economists
now suggest this influx to be a longer-term adjustment as stable inflation and
low-priced imports from the currency-devalued countries of the Far East are
expected to keep commodity product prices and volume low. Successful textile
companies will be those with innovative and diverse products, strong customer
relationships and a sound balance sheet.
The textile industry has experienced tightening in lending and the credit
markets over the course of the last 12 months. This has been principally due to
lower reported earnings in the industry as a whole. Due to the strength of the
Company's overall financial position, the tighter credit market is not expected
to materially limit the Company's ability to replace existing credit or obtain
new credit in order to maintain financial flexibility.
Management is optimistic for Guilford's future as it moves into the next
millennium. Management believes that the industry-forecasted continued strength
of the U.S. automotive car build and Guilford's market penetration in the U.K.
and Brazil will enable the Company's Automotive segment to continue to perform
well.
The Apparel segment is expected to maintain sales of value-added product lines
as a result of the Company's established relationships with major customers and
the development of new innovative lace and fabric products. Additionally, as a
result of the foreign competition, the Company has dedicated human and
production resources to focus on sales of circular knit fabrics. The Home
Fashions segment is expected to benefit by sales of new product offerings and
expanded marketing efforts.
Through diversity, innovation and technology, the Company will continue to focus
its efforts on providing high quality, innovative products, with excellent
customer service at a low cost and expects to maintain its competitive position
in its markets. Growth is expected to come gradually from internal product
transition efforts. Guilford is also expected to benefit by the state-of-the-art
dyeing and finishing facility currently under construction in Tamaulipas,
Mexico. Production in this facility is scheduled to start in fiscal 2001 and
will allow the Company to take advantage of the benefits of NAFTA to remain an
effective competitor and be closer to Guilford's cut-and-sew customers.
During the first quarter of fiscal 1999, the city of Greensboro, North Carolina
experienced a serious water shortage due to lack of rain. However, the water
shortage situation improved throughout fiscal 1999 and did not impact the
Company's operations. There are currently no voluntary or mandated water
restrictions in Greensboro. During fiscal 1999, the Company took steps to
improve water efficiency in the operations should another water shortage arise.
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 Year 2000 compliance assessments of both internal information technology
and embedded systems for the Company's facilities, equipment and infrastructure,
the Company has implemented necessary systems and programming changes in its
domestic and international operations. The planning, inventory, impact analysis
and remediation/testing phases have been completed. An overall contingency plan
and individual contingency plans have been developed for execution throughout
the remainder of 1999. Suppliers and customers with whom the Company has
material relationships have been contacted to determine their Year 2000
readiness. Contingency plans have been developed where satisfactory answers have
not been received. The Company does not anticipate any material business
interruptions.
The Company has spent $1.35 million to date for Year 2000 readiness.
Management's current estimate for the total cost of Year 2000 compliance tasks
is $1.40 million and includes costs to cover the execution of contingency plans
prior to December 31, 1999. 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.
The Company has developed contingency plans for the Company as a whole and for
individual locations in order to minimize any potential Year 2000 problems,
including 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. Some contingency plans have been
developed for execution throughout the remainder of 1999, including determining
appropriate levels of safety stock, contacting customers to coordinate orders,
and printing hard copies of reports that otherwise would be available only on
computer. Other contingency plans have been developed for execution as necessary
if Year 2000 problems are incurred, including the use of manual intervention and
alternate power sources to minimize disruptions in the operating and financial
systems should there be an interruption in utility services and the availability
of personnel in the event of a quality issue related to a Year 2000 malfunction.
The Company has developed Contingency Assurance Plans and Contingency Assurance
Teams that will respond and address unforeseen Year 2000 issues 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 service 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 few days before and after a new year. Accordingly, if a
Year 2000 problem such as 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 Year 2000 problems
prevent manufacturing for several days, a loss of revenue might result. The
amount of lost revenue would depend on the duration of the problem and 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.
MARKET RISK
The Company is exposed to market risk for changes in interest rates and foreign
currency exchange rates. Guilford has limited exposure to commodity price risk.
The Company does not hold or issue any financial instruments for trading or
other speculative purposes.
Interest Rate Risk: The Company's obligations under the bank credit agreement
and uncommitted lines of credit bear interest at floating rates and therefore,
the Company is sensitive to changes in prevailing interest rates. However, the
long-term debt is predominately fixed and not subject to prevailing interest
rates. A 10% change in market interest rates that affect the Company's financial
instruments would impact earnings during the fiscal 2000 by approximately $0.7
million and would change the fair value of the Company's financial instruments
by approximately $7.8 million.
Foreign Currency Risk: The Company is subject to foreign currency risk primarily
related to sales and expenditures and other transactions denominated in foreign
currencies and investments in foreign subsidiaries. The Company manages the
exposure related to capital expenditures and other firm commitments denominated
in foreign currencies primarily through forward exchange contracts with
durations of generally less than 12 months. The changes in the market value of
such contracts have a high correlation to the price changes in the currency of
the related hedged transactions. The Company enters into forward currency
exchange contracts in the normal course of business to manage exposure against
fluctuations in the purchase price of capital equipment and other transactions
having firm commitments. The changes in market value of such contracts have a
high correlation to the price changes in the currency of the related hedged
transactions. On October 3, 1999, the Company had the following outstanding
foreign currency forward contracts:
<TABLE>
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Forward
Currency Nominal Average Fair
Contracts Amount Rate Value Loss
(Hedge of Firm Commitments) (In thousands)
- --------------------------------------------------------------------------------
Receive U.S. Dollar/Pay British Pound
$14,803 1.6222 $15,049 $246
- --------------------------------------------------------------------------------
Receive German Deutsche Marks/Pay U.S. Dollar
$890 1.6645 $800 $90
<FN>
(1) All contracts mature in the first quarter of fiscal 2000
(2) Nominal contract amount as reflected in the underlying contract
(3) Weighted average contract rates represent the rates of exchange, stated
in the currency sold, as reflected in the underlying contract
(4) Fair value equals the contract amount presented in U.S. dollar
equivalents based upon the year-end exchange rates obtained from
brokers or referenced from publicly available market information
(5) Loss represents the net unrecognized loss based upon the year-end
exchange rate
</FN>
</TABLE>
Effective in fiscal 2000, the Company adopted a policy to manage the exposure
related to sales denominated in foreign currencies through the use of forward
exchange contracts. These forward exchange contracts cover approximately 75% of
the Company's anticipated sales in the Euro, which represents the majority of
the Company's foreign currency sales. The duration of these contracts is less
than 12 months and attempt to match the anticipated receivable collections.
Commodity Price Risk: The Company is a purchaser of cotton and generally buys
cotton based upon market prices that are established with the vendor as part of
the purchase process. Guilford does not use commodity financial instruments to
hedge cotton prices due to the high correlation between the cost of cotton and
the ultimate selling price of the Company's product.
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 Annual
Report, 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 Securities 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 or
10. inability to achieve cost reductions through consolidations and
restructuring of acquired companies
<PAGE>
<TABLE>
<CAPTION>
Guilford Mills, Inc.
CONSOLIDATED BALANCE SHEETS
October 3, 1999 and September 27, 1998
(In thousands except share data)
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 22,554 $ 30,447
Accounts receivable, net 160,071 169,598
Inventories 136,772 153,006
Prepaid income taxes 7,032 6,258
Other current assets 12,312 7,643
- --------------------------------------------------------------------------------
Total current assets 338,741 366,952
- --------------------------------------------------------------------------------
Property, net 312,415 326,941
Other assets 102,275 100,607
- --------------------------------------------------------------------------------
Total assets $ 753,431 $ 794,500
================================================================================
LIABILITIES
Short-term borrowings $ 112,009 $ 60,171
Current maturities of
long-term debt 532 811
Accounts payable 58,355 57,453
Other current liabilities 40,185 37,239
- --------------------------------------------------------------------------------
Total current liabilities 211,081 155,674
- --------------------------------------------------------------------------------
Long-term debt 146,137 176,872
Deferred income taxes 26,776 31,075
Other liabilities 28,492 45,702
- --------------------------------------------------------------------------------
Total long-term liabilities 201,405 253,649
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 12 & 13)
STOCKHOLDERS' INVESTMENT
Preferred stock, $1 par; 1,000,000 shares
authorized, none issued -- --
Common stock, $.02 par; 65,000,000 shares
authorized, 32,750,222 shares issued,
19,199,770 shares outstanding at
October 3, 1999 and 23,226,322 shares
outstanding at September 27, 1998 655 655
Capital in excess of par 120,532 119,648
Retained earnings 363,812 363,606
Accumulated other comprehensive loss (12,279) (7,577)
Unamortized stock compensation (3,310) (4,759)
Treasury stock, at cost (13,550,452
shares at October 3, 1999 and
9,523,900 shares at September 27,
1998) (128,465) (86,396)
- --------------------------------------------------------------------------------
Total stockholders' investment 340,945 385,177
- --------------------------------------------------------------------------------
Total liabilities and stockholders'
investment $ 753,431 $ 794,500
================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended October 3, 1999, September 27, 1998 and September 28, 1997
(In thousands except per share data)
- --------------------------------------------------------------------------------
1999 1998 1997
(53 Weeks) (52 Weeks) (52 Weeks)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
NET SALES $ 856,838 $ 894,534 $ 894,709
- --------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods sold 720,913 725,104 711,745
Selling and administrative 106,487 101,724 97,597
Plant restructuring costs (470) 6,470 -
- --------------------------------------------------------------------------------
826,930 833,298 809,342
- --------------------------------------------------------------------------------
OPERATING INCOME 29,908 61,236 85,367
- --------------------------------------------------------------------------------
OTHER EXPENSE
Interest expense 16,598 12,414 16,190
Other expense/(income), net 1,155 (284) 3,367
- --------------------------------------------------------------------------------
17,753 12,130 19,557
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX PROVISION
AND EXTRAORDINARY ITEM 12,155 49,106 65,810
INCOME TAX PROVISION 1,925 15,960 22,572
- --------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 10,230 33,146 43,238
EXTRAORDINARY ITEM, NET OF INCOME
TAX (NOTE 8) - (2,940) -
- --------------------------------------------------------------------------------
NET INCOME $ 10,230 $ 30,206 $ 43,238
================================================================================
INCOME PER SHARE BEFORE EXTRAORDINARY ITEM:
Basic $ 0.47 $ 1.32 $ 1.92
Diluted 0.47 1.30 1.78
================================================================================
NET INCOME PER SHARE:
Basic $ 0.47 $ 1.20 $ 1.92
Diluted 0.47 1.19 1.78
================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
For the Years Ended October 3, 1999, September 27, 1998 and September 28, 1997
(In thousands except share data)
- --------------------------------------------------------------------------------
Current Year Capital in
Comprehensive Common Excess of Retained
Income Stock Par Earnings
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 29, 1996 $ 393 $ 41,089 $311,217
Comprehensive income:
Net income $ 43,238 -- -- 43,238
Other comprehensive
income, net of tax:
Foreign currency
translation gain 2,384 -- -- --
----------
Total comprehensive
income $ 45,622
----------
Three-for-two stock split
effected as a stock dividend 196 -- (196)
Conversion of 3,306,423 shares
of common stock for subordinated
convertible debentures 66 66,431 --
Grant of 322,750 shares under
the restricted stock plan -- 4,816 --
Return of 38,270 shares to treasury
stock to satisfy recipients'
individual tax obligations
under the restricted stock plan -- -- --
Compensation under restricted stock plan -- -- --
Issuance of 129,761 shares of treasury
stock under the employee stock
ownership plan -- (710) --
Shares to be issued in fiscal 1998
under the employee stock ownership plan -- 2,032 --
Issuance of 367,577 shares of treasury
stock for options exercised for cash -- 3,292 --
Other transactions of 14,903 shares
less return of 11,723 shares
to treasury stock received as payment
for options exercised -- 160 --
Cash dividends ($.42 per share) -- -- (9,603)
- --------------------------------------------------------------------------------
BALANCE, SEPTEMBER 28, 1997 655 117,110 344,656
Comprehensive income:
Net income $ 30,206 -- -- 30,206
Other comprehensive
income, net of tax:
Foreign currency
translation gain 2,027 -- -- --
---------
Total comprehensive
income $ 32,233
----------
Grant of 58,000 shares under the
restricted stock plan -- 765 --
Vesting of 29,000 shares under the
restricted stock plan, less return
of 11,253 shares to treasury stock
to satisfy recipients' individual
tax obligations -- -- --
Compensation under restricted stock plan -- -- --
Issuance of 105,422 shares of treasury
stock under the employee stock ownership
plan -- 64 --
Issuance of 113,257 shares of treasury
stock for options exercised for cash -- 947 --
Other transactions of 5,625 shares
less return of 4,809 shares to
treasury stock received as payment for
options exercised -- (238) --
Purchases of 2,796,825 shares of treasury stock -- -- --
U.S. tax benefit from stock options and
restricted stock -- 1,000 --
Cash dividends ($.44 per share) -- -- (11,256)
- --------------------------------------------------------------------------------
BALANCE, SEPTEMBER 27, 1998 655 119,648 363,606
Comprehensive income:
Net income $ 10,230 -- -- 10,230
Other comprehensive
income, net of tax:
Foreign currency
translation loss (4,036) -- -- --
Pension equity adjustment (666) -- -- --
----------
Total comprehensive
income $ 5,528
-----------
Vesting of 19,333 shares under the
restricted stock plan, less return
of 6,333 shares to treasury stock
to satisfy recipient's individual
tax obligations -- -- --
Compensation under restricted stock plan -- -- --
Issuance of 12,750 shares of treasury
stock for options exercised for cash -- 53 --
Other transactions of 11,250 shares
less return of 10,914 shares to
treasury stock received as payment
for options exercised -- 61 --
Purchases of 4,033,305 shares of
treasury stock -- -- --
U.S. tax benefit from stock options and
restricted stock -- 770 --
Cash dividends ($.44 per share) -- -- (10,024)
- --------------------------------------------------------------------------------
BALANCE, OCTOBER 3, 1999 $ 655 $120,532 $363,812
================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
For the Years Ended October 3, 1999, September 27, 1998 and September 28, 1997
(In thousands except share data)
- --------------------------------------------------------------------------------
Accumulated
Other Unamortized
Comprehensive Stock Treasury
Loss Compensation Stock
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, SEPTEMBER 29, 1996 $ (11,988) $ (287) $ (42,365)
Comprehensive income:
Net income -- -- --
Other comprehensive
income, net of tax:
Foreign currency
translation gain 2,384 -- --
Total comprehensive
income
Three-for-two stock split
effected as a stock dividend -- -- --
Conversion of 3,306,423 shares
of common stock for subordinated
convertible debentures -- -- --
Grant of 322,750 shares under
the restricted stock plan -- (6,587) 1,771
Return of 38,270 shares to treasury
stock to satisfy recipients'
individual tax obligations
under the restricted stock plan -- -- (707)
Compensation under restricted stock plan -- 1,783 --
Issuance of 129,761 shares of treasury
stock under the employee stock
ownership plan -- -- 710
Shares to be issued in fiscal 1998
under the employee stock ownership plan -- -- --
Issuance of 367,577 shares of treasury
stock for options exercised for cash -- -- 2,028
Other transactions of 14,903 shares
less return of 11,723 shares
to treasury stock received as payment
for options exercised -- -- (267)
Cash dividends ($.42 per share) -- -- --
- --------------------------------------------------------------------------------
BALANCE, SEPTEMBER 28, 1997 (9,604) (5,091) (38,830)
Comprehensive income:
Net income -- -- --
Other comprehensive
income, net of tax:
Foreign currency
translation gain 2,027 -- --
Total comprehensive
income
Grant of 58,000 shares under the
restricted stock plan -- (1,136) 371
Vesting of 29,000 shares under the
restricted stock plan, less return
of 11,253 shares to treasury stock
to satisfy recipients' individual
tax obligations -- -- (256)
Compensation under restricted stock plan -- 1,468 --
Issuance of 105,422 shares of treasury
stock under the employee stock ownership
plan -- -- 619
Issuance of 113,257 shares of treasury
stock for options exercised for cash -- -- 684
Other transactions of 5,625 shares
less return of 4,809 shares to
treasury stock received as payment for
options exercised -- -- 206
Purchases of 2,796,825 shares of treasury
stock -- -- (49,190)
U.S. tax benefit from stock options and
restricted stock -- -- --
Cash dividends ($.44 per share) -- -- --
- --------------------------------------------------------------------------------
BALANCE, SEPTEMBER 27, 1998 (7,577) (4,759) (86,396)
Comprehensive income:
Net income -- -- --
Other comprehensive
income, net of tax:
Foreign currency
translation loss (4,036) -- --
Pension equity adjustment (666) -- --
Total comprehensive
income
Vesting of 19,333 shares under the
restricted stock plan, less return
of 6,333 shares to treasury stock
to satisfy recipient's individual
tax obligations -- -- (94)
Compensation under restricted stock plan -- 1,449 --
Issuance of 12,750 shares of treasury
stock for options exercised for cash -- -- 121
Other transactions of 11,250 shares
less return of 10,914 shares to
treasury stock received as payment
for options exercised -- -- (52)
Purchases of 4,033,305 shares of
treasury stock -- -- (42,044)
U.S. tax benefit from stock options and
restricted stock -- -- --
Cash dividends ($.44 per share) -- -- --
- --------------------------------------------------------------------------------
BALANCE, OCTOBER 3, 1999 $ (12,279) $(3,310) $(128,465)
================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended October 3, 1999, September 27, 1998 and September 28, 1997
(In thousands)
- --------------------------------------------------------------------------------
1999 1998 1997
(53 Weeks) (52 Weeks) (52 Weeks)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,230 $ 30,206 $ 43,238
Non-cash items included in net income:
Depreciation and amortization 64,633 63,951 59,561
Unexpended restructuring costs (470) 6,184 -
Extraordinary loss on debt
extinguishment - 4,356 -
Gain on disposition of property (2,239) (2,382) (1,079)
Loss on equity method investment 1,835 371 -
Provision for bad debts 4,748 834 333
Minority interest in net income 92 97 467
Deferred income taxes (20) 9,032 (1,728)
Increase in cash surrender value
of life ins., net of policy loans (3,186) (2,630) (1,718)
Compensation earned under restricted
stock plan 1,449 1,468 1,783
Shares to be issued under employee
stock ownership plan - - 2,032
Changes in assets and liabilities:
Receivables 4,817 (2,462) 5,215
Inventories 16,302 (10,708) (3,444)
Other current assets (5,468) 278 211
Accounts payable 902 (1,345) (5,283)
Accrued liabilities 2,675 (21,744) 12,138
Other (3,441) 898 2,244
- --------------------------------------------------------------------------------
Net cash provided by operating
activities 92,859 76,404 113,970
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property (48,609) (84,015) (57,629)
Proceeds from dispositions of property 2,260 4,331 2,603
Proceeds from sale of other assets 1,491 12,763 2,060
(Increase) decrease in other assets (1,207) (4,009) 5
Purchase of business, net of cash
acquired - (34,778) (6,991)
Investment in equity investee (995) (3,500) -
- --------------------------------------------------------------------------------
Net cash used in investing activities (47,060) (109,208) (59,952)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (repayments), net 51,802 53,847 (41,244)
Payments of long-term debt (176,353) (88,010) (16,108)
Proceeds from issuance of long-term
debt, net of deferred financing
costs paid 140,233 135,235 -
Payments arising from early
extinguishment of debt - (3,896) -
Payment of purchase agreement (17,000) - -
Cash dividends (10,024) (11,256) (9,603)
Proceeds from exercise of common
stock options 174 1,631 5,320
Purchase of treasury stock (42,044) (49,190) -
- --------------------------------------------------------------------------------
Net cash (used in) provided by financing
activities (53,212) 38,361 (61,635)
- --------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (480) 541 518
- --------------------------------------------------------------------------------
Net (Decrease) Increase In Cash and
Cash Equivalents (7,893) 6,098 (7,099)
- --------------------------------------------------------------------------------
Beginning Cash and Cash Equivalents 30,447 24,349 31,448
Ending Cash and Cash Equivalents $ 22,554 $ 30,447 $ 24,349
- --------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 12,971 $ 13,862 $ 14,945
Cash paid for income taxes 13,851 16,406 13,112
Noncash investing and financing activities:
Conversion of 6% Subordinated Convertible
Debentures to equity (including
accrued interest) $ - $ - $ 66,497
Issuance of common stock under restricted
stock plan $ - $ 1,136 $ 6,587
================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(In thousands except share data)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS - Guilford Mills, Inc. (the "Company") is a fabric
producer, which processes and sells warp knit, circular knit and woven velour
fabric as well as lace. The Company sells its finished fabrics to customers who
manufacture a broad range of apparel, automotive, home fashions and specialty
products. The Company also cuts and sews lace fabrics into finished home
fashions products which are sold directly to retailers.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Guilford Mills, Inc. and its majority-owned and controlled
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company's investments in non-controlled
entities are accounted for using the equity method and as such are reported in
other assets in the accompanying consolidated balance sheets.
FISCAL YEAR END - The Company's fiscal year ends on the Sunday nearest to
September 30. Fiscal year 1999 ended October 3, 1999, fiscal year 1998 ended
September 27, 1998 and fiscal year 1997 ended September 28, 1997. Such years
include the results of operations for 53, 52 and 52 weeks, respectively.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses. Actual results may differ from
those estimates.
RECLASSIFICATIONS - For comparative purposes, certain amounts in the 1998 and
1997 financial statements have been reclassified to conform with the 1999
presentation.
CASH EQUIVALENTS - All highly liquid investments with an original maturity of
three months or less are considered to be cash equivalents.
ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK - The Company maintains
credit insurance and uses factors as a means to reduce credit risk. Credit
insurance is maintained covering $24,000 of certain outstanding accounts
receivable. The Company factors a portion of its trade accounts receivable to
several different factors, who provide credit approval on a non-recourse basis.
As of October 3, 1999 and September 27, 1998, approximately 17% and 11%,
respectively, of the Company's trade accounts receivable were factored. The
factoring agreements allow the Company to formally borrow against the factored
receivables using negotiated interest rates prior to the maturity dates. The
Company has not borrowed against the factored receivables in the last three
fiscal years. The Company performs on-going credit evaluations of its
non-factored customers' financial condition and generally does not require
collateral from those customers. The Company's fabrics are used primarily in the
apparel, automotive, and home fashions markets with a multitude of customers in
numerous geographical locations throughout the world. There is no
disproportionate concentration of credit risk.
Allowances for doubtful accounts were $17,393 and $9,450 at October 3, 1999 and
September 27, 1998, respectively. The Company maintains fully reserved
receivables for accounts which are either in bankruptcy or have been turned over
to a collection agency and also reserves for sales returns and allowances and
customer chargebacks.
MINORITY INTEREST - Minority interest represents the minority stockholders'
proportionate share of the equity of Grupo Ambar, S.A. de C.V. At October 3,
1999, the Company owned 95% of the capital stock of Grupo Ambar, S.A. de C.V.
Minority interest is included in other long-term liabilities in the accompanying
consolidated balance sheets.
INVENTORIES - Inventories are carried at the lower of cost or market. Cost is
determined using the link chain dollar value last-in, first-out (LIFO) method
for approximately 54% and 53% of inventories in fiscal 1999 and 1998,
respectively. Cost for all other inventories has been determined principally by
the first-in, first-out (FIFO) method.
PROPERTY - Property is carried at cost, and depreciation is provided for
financial reporting primarily on the straight-line method. Accelerated methods
are used for income tax reporting purposes. Depreciation rates are reviewed
annually and revised, if necessary, to reflect estimated remaining useful lives
which range from three to thirty-five years. Labor and interest costs for the
purchase and construction of qualifying fixed assets, are capitalized and are
amortized over the related assets' estimated useful lives.
GOODWILL AND INTANGIBLE ASSETS - Goodwill is amortized using the straight-line
method over periods ranging from twenty to forty years. Goodwill amortization
was $2,115, $1,876 and $1,242 in fiscal 1999, 1998 and 1997, respectively.
Accumulated amortization at October 3, 1999 and September 27, 1998 was $12,477
and $10,362, respectively.
LONG-TERM ASSETS - The Company reviews the carrying value of long-term assets
for impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Measurement of any impairment would
include a comparison of estimated future operating cash flows anticipated to be
generated during the remaining life to the net carrying value of the asset.
INCOME TAXES - Deferred or prepaid income taxes are provided for differences in
timing of expense and income recognition between income tax and financial
reporting in accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes". United States income taxes are not
provided on the earnings of foreign operations as those are intended to be
permanently reinvested. In the event earnings are repatriated, credits received
in the United States for foreign income taxes previously paid will be available
to substantially reduce the United States tax liability. In fiscal years 1999
and 1997, the Company repatriated $20,000 and $19,000, respectively, to take
advantage of the expiring Advanced Corporation Tax rules and the U.S.-U.K.
Income Tax Treaty. These one-time dividends resulted in a current income tax
benefit. Undistributed earnings of foreign operations were $8,673 at October 3,
1999 and $30,574 at September 27, 1998.
FOREIGN CURRENCY TRANSLATION/REMEASUREMENT - The financial statements of certain
majority-owned foreign subsidiaries are translated into dollars at the year-end
rate of exchange for asset and liability accounts and the average rate of
exchange for income statement accounts. Resulting translation gains or losses
are reflected in accumulated other comprehensive loss in the stockholders'
investment section of the accompanying balance sheets and do not affect the
results of operations. Financial results of certain majority-owned foreign
subsidiaries in highly inflationary economies are remeasured using a combination
of current and historical exchange rates. Remeasurement adjustments are included
in the results of operations along with transaction gains and losses for the
period.
The Company has a majority-owned foreign subsidiary that operates in Mexico.
Mexico became highly inflationary January 1, 1997 and subsequent financial
results for the Company's Mexican subsidiary were remeasured. 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, subsequent
to January 1, 1999, the financial results for the Mexican subsidiary have been
translated using year-end and average exchange rates as described above.
REVENUE RECOGNITION - The Company recognizes a sale when goods are shipped or
when ownership is assumed by the customer. At the request of some customers, the
Company invoices goods on a bill and hold basis when the title and risk of
ownership pass to the customer. At October 3, 1999 and September 27, 1998, bill
and hold receivables were $3,113 and $4,796, respectively. The Company estimates
and records provisions for sales returns and allowances in the period the sale
is reported based on its historical experience or contractual agreements.
RESEARCH AND DEVELOPMENT - The Company expenses research and development costs
as incurred. Such costs were $17,181, $19,588 and $14,940 in fiscal 1999, 1998
and 1997, respectively.
PER SHARE INFORMATION - The Company adopted SFAS No. 128, "Earnings Per Share",
in fiscal 1998 and has restated prior earnings per share data to conform to this
Statement. Basic income per share information has been determined by dividing
the respective net income amounts by the weighted average number of shares of
common stock outstanding during the periods. Diluted income per share
information also considers as applicable (i) the dilutive effect assuming that
the Company's convertible debentures were converted at the beginning of fiscal
1997, with earnings being increased by the interest expense, net of taxes, that
would not have been incurred had conversion taken place at that time and (ii) an
additional dilutive effect for stock options and shares issued under the
restricted stock plan.
FINANCIAL INSTRUMENTS AND DERIVATIVES - The Company periodically uses derivative
financial instruments for purposes other than trading and does so to reduce its
exposure to fluctuations in interest rates and foreign currency exchange rates.
Gains and losses on hedges of existing assets and liabilities are included in
the carrying amounts of those assets or liabilities and are ultimately
recognized in income. Gains and losses related to qualifying hedges of firm
commitments or anticipated transactions are deferred and are recognized in
income or as adjustments to carrying amounts when the hedged transaction occurs.
The Company does not currently hold or issue any financial instruments for
trading or other speculative purposes. Effective in fiscal 2000, the Company
adopted a policy to manage the exposure related to anticipated sales denominated
in foreign currencies through the use of forward exchange contracts.
STOCK-BASED COMPENSATION - In accordance with SFAS No. 123, "Stock-Based
Compensation," the Company has continued to measure compensation expense for its
stock-based employee compensation plans using the intrinsic value method
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees". Pro forma disclosures of net income and earnings
per share are presented as if the fair value-based method prescribed by SFAS No.
123 had been applied in measuring compensation expense for the periods required
by the Statement.
RECENT ACCOUNTING PRONOUNCEMENTS - In June 1999, the Financial Accounting
Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133 - an
Amendment of FASB Statement No. 133". This Statement delays the effective date
of SFAS No. 133 one year from June 15, 1999 to June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company plans to adopt the provisions of this Statement in
the fourth quarter of fiscal 2000. Management is currently analyzing the impact
of adopting SFAS No. 133.
2. ACQUISITIONS:
GRUPO AMBAR - Effective June 27, 1997, the Company acquired an additional 20%
ownership interest in Grupo Ambar, S.A. de C.V. ("Grupo Ambar") for
approximately $7,100. The acquisition increased the Company's ownership interest
in Grupo Ambar from 75% to 95%. The purchase price was allocated to the fair
market value of assets and liabilities acquired and excess purchase price over
fair market value of underlying assets was allocated to goodwill. Grupo Ambar is
a leading manufacturer of knit textile fabrics in Mexico.
HOFMANN LACES, LTD. - In fiscal 1998, the Company entered into an amendment to
the stock purchase agreement related to the acquisition of Hofmann Laces, Ltd.
This amendment provided for the Company to pay a fixed amount in lieu of a
formula-based amount given the Company's price-earnings' multiple and Hofmann
Laces' performance through the end of calendar year 2000. As a result, the
Company paid $17,000 in February 1998 and $17,283 in October 1998. The $17,283
was included in long-term liabilities in the accompanying consolidated balance
sheets at the end of fiscal 1998 as it was subsequently funded through long-term
debt.
3. RESTRUCTURING CHARGES:
During fiscal 1998, the Company commenced restructuring of two of its operations
and recorded restructuring and impaired asset charges of $6,470. The
restructuring plan provided for the closing of a yarn manufacturing facility,
the downsizing of a product line-focused operation within the apparel market
sector and the severance of approximately 300 associates. A reserve for
severance costs of $2,849 and lease exit costs and other obligations of $113 was
recorded as an accrued liability in fiscal 1998. Additionally, a charge of
$3,508 was taken to reduce property to net realizable value at September 27,
1998. The impaired assets consisted primarily of a building and fiber spinning,
warping, dyeing and finishing equipment. The equipment and fiber building were
written down to the lower of carrying value or fair market value. Determination
of fair market value was based upon: (1) in-house engineering appraisals
utilizing prices for currently available new and used equipment, (2) real
property tax values and (3) zero where intent was to scrap. Equipment was either
idled or disposed through external sales to third parties.
The following summarizes the restructuring charge:
<TABLE>
- ---------------------------------------------------
Severance and Other
- ---------------------------------------------------
<S> <C>
Fiscal 1998 restructuring charge $2,962
Fiscal 1998 costs against the reserve (286)
Balance at September 27, 1998 2,676
- ---------------------------------------------------
Fiscal 1999 costs against the reserve (2,206)
Fiscal 1999 reversal of excess (470)
Balance at October 3, 1999 $ --
===================================================
</TABLE>
In September 1999, the Company sold the fiber facility and completed all
restructuring activities by fiscal year end. In fiscal 1999, $470 of the
original charge was reversed into income due to the actual amount of severance
falling below the original estimate.
4. INVENTORIES:
Inventories at October 3, 1999 and September 27, 1998 consisted of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 45,143 $ 48,776
Raw materials and work in process 96,527 112,275
Manufacturing supplies 8,056 8,811
- --------------------------------------------------------------------
Total inventories valued at the lower
of FIFO cost or market value 149,726 169,862
Adjustments to reduce FIFO cost
to LIFO cost, net 12,954 16,856
- --------------------------------------------------------------------
Total inventories $ 136,772 $ 153,006
====================================================================
</TABLE>
5. PROPERTY:
Property at October 3, 1999 and September 27, 1998 consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------
1999 1998
- --------------------------------------------------------
<S> <C> <C>
Land $ 13,294 $ 12,804
Buildings 120,137 115,144
Machinery and equipment 654,472 625,493
Construction in progress 22,383 19,112
- --------------------------------------------------------
810,286 772,553
Less - Accumulated
depreciation 497,871 445,612
- --------------------------------------------------------
Property, net $ 312,415 $ 326,941
========================================================
</TABLE>
Depreciation expense recorded during fiscal 1999, 1998 and 1997 was $61,869,
$59,627 and $57,424, respectively.
6. OTHER ASSETS:
Other assets at October 3, 1999 and September 27, 1998 consisted of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------
1999 1998
- --------------------------------------------------------
<S> <C> <C>
Goodwill $ 50,333 $ 52,448
Cash surrender value of
life insurance 36,479 34,549
Other 15,463 13,610
- --------------------------------------------------------
Total other assets $102,275 $100,607
========================================================
</TABLE>
7. ACCRUED LIABILITIES:
Accrued liabilities at October 3, 1999 and September 27, 1998 consisted of the
following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1999 1998
- ------------------------------------------------------------
<S> <C> <C>
Payroll and related benefits $18,046 $18,404
Accrued interest 3,128 --
Property taxes 3,162 2,985
Plant restructuring -- 2,676
Other 15,849 13,174
- -------------------------------------------------------------
Total accrued liabilities $40,185 $37,239
=============================================================
</TABLE>
8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT:
The Company uses short-term bank borrowings with terms of six months or less to
meet seasonal working capital needs. The maximum short-term borrowings during
fiscal 1999, 1998 and 1997 were $112,009, $82,918 and $49,904, respectively; the
average borrowings were $68,246, $30,230 and $37,363, respectively; and the
weighted average interest rates were 6%, 7% and 7% (6%, 6% and 6% for U.S.
borrowings), respectively. Interest cost was $17,798, $13,814 and $17,430, for
fiscal years 1999, 1998 and 1997, respectively. Interest costs of $1,200, $1,400
and $1,240, for fiscal 1999, 1998 and 1997, respectively, were capitalized to
property, plant and equipment.
As of October 3, 1999, the Company had availability under uncommitted bank lines
of credit of $61,616 and had additional availability under its revolving line of
credit of $100,000.
The total borrowings on the uncommitted lines of credit outstanding as of
September 27, 1998 of $125,000 was classified as long-term debt in the
accompanying consolidated balance sheet as management had the intent and ability
to refinance the borrowings through available long-term debt sources.
Long-term debt at October 3, 1999 and September 27, 1998 consisted of the
following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Senior, unsecured notes, due in 2008,
interest at 7.06% $145,000 --
Uncommitted lines of credit, various
maturities and interest rates -- $125,000
Revolving line of credit, due in 2000,
interest at 5.83% -- 50,000
Term loan with a Mexican bank at various
due dates and a variable interest rate
(25.0% at October 3, 1999) 1,340 1,482
Other 329 1,201
- ---------------------------------------------------------------------
146,669 177,683
Less - Current maturities 532 811
- ---------------------------------------------------------------------
Total long-term debt $146,137 $176,872
=====================================================================
</TABLE>
In the first quarter of fiscal 1999, 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 revolving credit facility. During the fourth quarter of fiscal
1998, the Company entered into two treasury lock agreements with two financial
institutions to provide interest rate protection related to these notes. These
treasury lock agreements effectively fixed the U.S. Treasury portion of the
interest rate at 5.437% on a notional amount of $57,500 and at 5.435% on a
notional amount of $30,000. During the first quarter of fiscal 1999, the
treasury lock agreements were terminated and a payment of $4,366 was made and is
being amortized as additional interest expense over the period of the related
debt.
During fiscal 1998, the Company repaid all of the senior unsecured notes
outstanding due through 2003 with $50,000 of borrowings under its $150,000
revolving line of credit facility and additional borrowings under uncommitted
lines of credit. In connection with the repayment, the Company recorded $3,994
of pretax prepayment penalties and $362 of pretax accelerated amortization of
loan costs as an extraordinary item. The income tax effect related to those
charges was $1,416.
Annual maturities of long-term debt for the next five years are, $532 in 2000,
$532 in 2001, $276 in 2002, $0 in 2003 and $0 in 2004.
Under the terms of the Company's debt agreements, certain requirements and
restrictions apply to future indebtedness, stockholders' investment, and
tangible net worth. The Company is in compliance with all covenants under its
debt agreements.
9. FINANCIAL INSTRUMENTS:
The Company's financial instruments include cash, accounts receivable, accounts
payable, short-term borrowings, long-term debt and foreign currency exchange
contracts. Because of their short maturity, the carrying amount of cash,
accounts receivable and accounts payable approximates fair value. Fair value of
short-term borrowings and long-term debt is estimated based on current rates
offered for similar debt. At October 3, 1999, the carrying amount of short-term
borrowings and long-term debt, including the current portion, approximates fair
value. The fair value of foreign currency forward agreements is based on quoted
market prices as if the agreements were entered into on the measurement date. At
October 3, 1999, the fair value of the foreign currency exchange contracts was
$(336).
10. INCOME TAXES:
The net deferred income tax liability at October 3, 1999 and September 27, 1998
was comprised of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------
1999 1998
- ----------------------------------------------
<S> <C> <C>
Assets $ 33,576 $ 25,286
Liabilities (53,320) (50,103)
- ----------------------------------------------
Total $(19,744) $(24,817)
==============================================
</TABLE>
Temporary differences and carryforwards which gave rise to significant deferred
income tax assets (liabilities) as of October 3, 1999 and September 27, 1998
were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
1999 1998
- ---------------------------------------------------------
<S> <C> <C>
Current prepaid (deferred)
income taxes:
Income tax credit carryforwards
(expire 2004) $ 245 $ 3,222
Inventory valuation differences (4,061) (3,302)
Allowances for doubtful accounts 5,184 2,056
Accrued expenses and reserves not
currently deductible for tax 4,114 2,795
Restructuring accruals -- 1,058
Accrued environmental expenses 392 396
Other, net 1,158 33
- ---------------------------------------------------------
Total current prepaid
income taxes $ 7,032 $ 6,258
=========================================================
Long-term prepaid (deferred)
income taxes:
Property $(41,507) $(39,175)
Income tax credit carryforwards
(expire 2004-2012) 11,372 --
Accrued pension and other
employee benefits 8,089 7,619
Alternative minimum and other
tax credit carryforwards
(no expiration) 3,124 3,843
Accrued environmental expenses 788 1,460
Investments in limited partnerships (2,827) (2,644)
Goodwill amortization (3,076) (2,284)
Financing costs (1,554) --
Other, net -- 106
- ---------------------------------------------------------
Total long-term deferred
income taxes $(25,591) $(31,075)
Valuation allowance (1,185) --
- ---------------------------------------------------------
Total long-term deferred
income taxes $(26,776) $(31,075)
==========================================================
</TABLE>
The domestic and foreign components of income before income taxes were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------
<S> <C> <C> <C>
Domestic $11,377 $34,562 $49,138
Foreign 778 14,544 16,672
- ------------------------------------------------------------
Total $12,155 $49,106 $65,810
============================================================
</TABLE>
The income tax provision consisted of the following elements:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
U.S. Federal $2,238 $4,499 $15,803
State 320 823 2,338
Foreign (613) 1,606 6,159
Deferred payable (benefit):
U.S. Federal (1,575) 6,115 (1,826)
State (175) 795 434
Foreign 1,730 2,122 (336)
- ------------------------------------------------------------
Total $1,925 $15,960 $22,572
============================================================
</TABLE>
The income tax provision as a percentage of pre-tax income differs from the
statutory U.S. Federal rate for the following reasons:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. Federal Income
tax rate 35.0% 35.0% 35.0%
State income taxes, net of
Federal Income tax reduction 4.8 2.1 2.9
Foreign taxes 9.9 (1.6) (0.2)
Tax credits (33.3) (3.0) (2.9)
Nondeductible goodwill 2.7 0.8 --
Charitable contribution (1.9) -- --
Other (1.4) (0.8) (0.5)
- ------------------------------------------------------------------------
Effective income tax rate 15.8% 32.5% 34.3%
========================================================================
</TABLE>
During fiscal 1999 and 1997, the Company generated a one-time net tax benefit
from a dividend from the Company's United Kingdom subsidiary under the Advanced
Corporation Tax rules and the U.S.-U.K. Income Tax Treaty. As a result, the
Company generated $4,836 of foreign tax credits which are available for U.S.
federal income tax purposes. Due to the uncertainty of realization of a portion
of these credits because of the annual limitations and the expiration period,
the Company established a related valuation allowance of $1,185 during fiscal
1999.
11. BENEFIT PLANS:
During fiscal 1999, the Company adopted SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits". SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits.
Guilford Mills, Inc. has a non-contributory defined benefit plan for the
majority of its hourly employees (the Guilford Plan). Gold Mills, Inc., a
wholly-owned subsidiary, also has a non-contributory defined benefit plan and a
multi-employer pension plan covering the majority of its employees. Guilford
Europe Limited, a wholly-owned subsidiary, has a defined benefit pension plan
covering the majority of its employees. The funded status of defined benefit
plans at the measurement dates of September 30, 1999 and September 30, 1998,
respectively, were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation:
Beginning of year $47,287 $44,941
Service cost 2,080 2,080
Interest cost 3,109 3,339
Plan participants contributions 248 238
Actuarial loss/(gain) 948 (2,158)
Benefit payments (2,878) (2,087)
Foreign currency adjustment (441) 934
- -----------------------------------------------------------------------
End of year $50,353 $47,287
- -----------------------------------------------------------------------
Fair value of plan assets:
Beginning of year $45,450 $41,876
Actual return on plan assets 4,667 1,335
Employer contributions 1,999 3,136
Plan participant contributions 248 238
Benefit payments (2,878) (2,087)
Foreign currency adjustment (453) 952
- -----------------------------------------------------------------------
End of year $49,033 $45,450
- -----------------------------------------------------------------------
Reconciliation of funded status to net
amount recognized:
Funded status $(1,320) $(1,837)
Unrecognized transition asset $(1,810) $(1,997)
Unrecognized prior service cost (56) (62)
Unrecognized loss 3,624 3,733
- ------------------------------------------------------------------------
Net amount recognized $ 438 $ (163)
- ------------------------------------------------------------------------
Amounts recognized in the Consolidated
Balance Sheets:
Other current assets $ 909 $ 700
Other current liabilities (1,589) (1,003)
Other assets 452 140
Accumulated other comprehensive
income 666 --
- ------------------------------------------------------------------------
Net amount recognized $ 438 $ (163)
========================================================================
</TABLE>
Funded status is determined using assumptions as of the end of each year. The
Guilford Plan was under funded as of September 30, 1999 and September 30, 1998.
The projected benefit obligation, accumulated benefit obligation and fair value
of net assets of the Guilford Plan were $25,910, $25,215 and $23,627,
respectively, as of September 30, 1999. The projected benefit obligation,
accumulated benefit obligation and fair value of net assets of the Guilford Plan
were $23,922, $23,040, and $22,038, respectively, as of September 30, 1998. Net
pension expense is determined using assumptions as of the beginning of each
year. The weighted average assumptions at the respective measurement dates were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Discount rate 6.58% 6.80%
Long-term rate of return on plan assets 8.39% 8.80%
Long-term rate of salary progression 3.18% 3.59%
==================================================================
</TABLE>
The components of the defined benefit plan expenses were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Defined benefit plans:
Service cost $2,080 $2,080 $1,766
Interest cost 3,109 3,339 3,068
Expected return on
plan assets (3,731) (3,726) (3,235)
Amortization of:
Transition asset (187) (187) (187)
Prior service cost (5) (5) (5)
Loss 132 89 248
- ----------------------------------------------------------------------
Net periodic pension cost 1,398 1,590 1,655
Domestic multi-
employer plan 265 270 264
- ----------------------------------------------------------------------
Total $1,663 $1,860 $1,919
======================================================================
</TABLE>
The Company maintains defined contribution plans for certain officers and
salaried employees. Contributions under these plans are determined by the Board
of Directors. During fiscal 1999, 1998 and 1997, the provisions under the
defined contribution plans were $3,323, $3,444, and $2,905, respectively.
The Company also maintains deferred compensation plans for certain officers and
salaried employees which provide post-retirement cash payments for various
specified periods and amounts. These plans are being provided for currently.
During fiscal 1999, 1998 and 1997, the provisions under these plans were $2,173,
$2,310, and $2,167, respectively. The liability for deferred compensation was
$18,252 at October 3, 1999 and $17,899 at September 27, 1998 and was included in
other long-term liabilities in the accompanying balance sheets.
Life insurance policies are maintained to fund the deferred compensation plans
and other benefits to senior management such as life insurance and defined
benefit plans, and for keyman coverage. These insurance policies are payable to
the Company and use of the proceeds are restricted to the extent of trust
requirements. There are no loans outstanding against these policies.
12. COMMITMENTS AND CONTINGENCIES:
The Company leases certain of its manufacturing and office facilities and
equipment under non-cancelable operating leases with remaining terms of up to 26
years. Rent expense under these leases was $6,673 in 1999, $6,337 in 1998, and
$5,055 in 1997. At October 3, 1999, future minimum rental payments applicable to
these leases are $5,140 in 2000, $4,078 in 2001, $3,093 in 2002, $1,690 in 2003,
$1,540 in 2004, and $18,523 thereafter.
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 (the "Consolidated
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 July 21, 1999, the Court entered an order dismissing all claims
against one of the Company's officers but denied the Company and one of its
director's motion to dismiss.
Plaintiffs filed their Second Amended Complaint on September 7, 1999 and
defendants answered the Second Amended Complaint on September 24, 1999.
On November 1, 1999, plaintiffs filed a motion seeking to certify a plaintiff
class consisting of all persons or entities who purchased the common shares of
Guilford Mills, Inc. from January 20, 1998 through October 26, 1998 inclusive.
Guilford has until December 15, 1999, to oppose plaintiffs' class certification
motion. The Company intends to vigorously defend the lawsuits.
The Securities and Exchange Commission (the "Commission") has issued a formal
Order Directing Private Investigation and Designating Officers To Take Testimony
(the "Formal Order") with respect to accounting irregularities at the Hofmann
Laces Unit which the Company had previously disclosed in press releases in
October and November 1998. Prior to the issuance of the Formal Order, the
Company had voluntarily provided certain information to the Commission
concerning the accounting irregularities at the Hofmann Laces Unit. The Company
has delivered documents to, and intends to continue cooperating fully with, the
Commission.
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
$3,500 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. In addition, 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
fiscal 1992, a pre-tax charge of $8,000 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 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 $1,250 was
provided in the fourth quarter of fiscal 1992 to reflect the estimated future
costs of this monitoring and other environmental matters including the removal
of underground storage tanks at the Company's facilities. The Company has
removed all underground storage tanks at its facilities. At October 3, 1999,
environmental accruals amounted to $4,247 of which $3,247 is non-current and was
included in other deferred liabilities in the accompanying balance sheet.
The Company is also involved in various litigation, including the matters
described above, arising out of 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.
13. CAPITAL STOCK AND STOCK COMPENSATION:
On February 4, 1999, the stockholders of the Company approved an amendment to
the Company's Certificate of Incorporation increasing the number of authorized
shares of Common Stock from 40,000,000 to 65,000,000.
On April 21, 1997, the Company's Board of Directors approved a
three-for-two-stock split of the Company's common stock. The split was effected
in the form of a stock dividend paid on May 6, 1997 to stockholders of record on
May 1, 1997. The stock dividend increased the Company's issued common stock by
approximately 9.8 million shares. All share and per share data have been
restated for all periods presented to reflect the stock split effected as a
stock dividend.
The Company has a stock option plan for key employees and directors. On June 23,
1999, the Compensation Committee of the Company's Board of Directors increased
the number of shares authorized under the stock option plan from 2,500,000 to
2,750,000. Options granted may be either incentive stock options or
non-qualified options with only non-qualified options granted to the directors.
Under the terms of the plan, the purchase price of shares subject to each
incentive option granted will not be less than the fair market value at the date
of grant. The purchase price of shares subject to each non-qualified option is
determined by the Company's Board of Directors, the Executive Committee or the
Option Committee. Options granted to directors vest one-third on the date of
grant and one-third each year for the next two years. Options granted to
employees (pursuant to an agreement with each employee) vest one-third two years
from the date of grant and one-third each year for the next two years. The
options have a life of either five or ten years from the grant date. As of
October 3, 1999 and September 27, 1998, 287,428 and 393,807 shares,
respectively, were available for grant.
Option activity under the plan was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Weighted Average
Shares Exercise Price Exercise Price
Under Option Per Share Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, September 29, 1996 872,376 $12.44 to $16.33 $14.76
Granted 909,350 17.21 to 23.70 20.22
Exercised (367,577) 12.44 to 16.33 14.74
Forfeited (39,246) 13.87 to 15.50 14.55
- --------------------------------------------------------------------------------
Balance, September 28, 1997 1,374,903 12.44 to 23.70 18.11
Granted 372,625 19.53 to 27.59 20.84
Exercised (118,882) 13.46 to 18.37 14.24
Forfeited (62,155) 13.87 to 19.75 16.88
- --------------------------------------------------------------------------------
Balance, September 27, 1998 1,566,491 13.46 to 27.59 19.00
Granted 434,000 8.63 to 14.72 10.00
Exercised (24,000) 13.46 to 13.87 13.49
Forfeited (77,622) 9.22 to 19.75 16.94
- --------------------------------------------------------------------------------
Balance, October 3, 1999 1,898,869 $ 8.63 to $27.59 $17.15
================================================================================
</TABLE>
These options expire at various dates through fiscal 2009. The weighted average
remaining contractual life of the options outstanding at October 3, 1999 was 7
years. Options exercisable at October 3, 1999, September 27, 1998 and September
28, 1997 were 656,159, 291,795 and 239,927, respectively. The weighted average
exercise price on the options exercisable was $17.60, $15.41, and $14.48 on
October 3, 1999, September 27, 1998 and September 28, 1997, respectively. The
weighted average fair market value of the Company's common stock at the date of
grant was $10.00, $20.84 and $20.22 for grants made in fiscal 1999, 1998 and
1997, respectively.
The Company has elected to continue to account for stock option grants under APB
Opinion No. 25 and is required to provide pro forma disclosures of what net
income and earnings per share ("EPS") would have been had the Company adopted
the fair value method for recognition purposes under SFAS No. 123. The following
information is presented as if the Company had adopted SFAS No. 123 and restated
its results:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Extraordinary Item:
As reported $10,230 $33,146 $43,238
Pro forma $ 9,182 $32,272 $42,902
- ----------------------------------------------------------------------
Net Income:
As reported $10,230 $30,206 $43,238
Pro forma $ 9,182 $29,332 $42,902
- ----------------------------------------------------------------------
Basic EPS Before Extraordinary Item:
As reported $ 0.47 $ 1.32 $ 1.92
Pro forma $ 0.42 $ 1.28 $ 1.91
- -----------------------------------------------------------------------
Diluted EPS Before Extraordinary Item:
As reported $ 0.47 $ 1.30 $ 1.78
Pro forma $ 0.42 $ 1.27 $ 1.77
- -----------------------------------------------------------------------
Basic EPS:
As reported $ 0.47 $ 1.20 $ 1.92
Pro forma $ 0.42 $ 1.17 $ 1.91
- -----------------------------------------------------------------------
Diluted EPS:
As reported $ 0.47 $ 1.19 $ 1.78
Pro forma $ 0.42 $ 1.15 $ 1.77
=======================================================================
</TABLE>
For the above information, the fair value of each option grant was estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions used for grants in fiscal 1999, 1998 and 1997: (i)
expected volatility ranging from 20% to 29%, (ii) expected lives ranging from 4
to 7 years, (iii) risk free interest rates ranging from 4.3% to 6.7% and (iv) an
expected dividend yield of 1.8% to 3.7%. The weighted average calculated value
in excess of the grant value of an option granted during fiscal 1999, 1998, and
1997 under the Black-Scholes model was $2.44, $6.36, and $5.00, respectively.
Because SFAS No. 123 method of accounting has not been applied to options
granted prior to October 2, 1995, the above pro forma amounts may not be
representative of the estimated compensation costs to be expected in future
years.
The Company authorized 2,250,000 shares of common stock for the 1989 Restricted
Stock Plan, which covered certain key salaried employees. This plan expired in
June 1999, but allows the vesting of the 295,533 shares that were outstanding
(held in trust) under the plan at October 3, 1999. These shares carry voting and
dividend rights; however, sale of the shares is restricted prior to vesting. Of
the 58,000 shares granted in fiscal year 1998, 40,000 vest evenly over a
three-year period commencing September 30, 1998 and 18,000 vest evenly over a
four-year period commencing May 27, 2001, subject generally to continued
employment. Of the 322,750 shares granted in fiscal year 1997, 20% vested on the
date of grant, May 27, 1997. The remaining 80% of the grant vests over a
four-year period (20% annually) commencing on the fourth anniversary of the
grant date, subject to continued employment. Shares granted prior to fiscal 1997
vest evenly over three years, subject to continued employment. Dividend payments
are made to an escrow account. The accrual for shares issued under the plan is
recorded at fair market value on the date of grant with a corresponding charge
to stockholders' investment representing the unearned portion of the award. The
unearned portion is being amortized as compensation expense on a straight-line
basis over the related vesting period. Compensation expense in fiscal 1999, 1998
and 1997 was $1,449, $1,468 and $1,783, respectively.
The Company has an employee stock ownership plan which covers the majority of
U.S. full-time employees who have completed one year of service. Annual awards
are based upon the approval of the Board of Directors and are tied to targeted
earnings levels achieved during the year. Employees immediately vest in 50% of
the annual award and can elect to receive the 50% vested portion in cash or as a
common stock contribution to the plan. The remaining 50% of the award is made to
the plan in the form of the Company's common stock or in cash which is used to
purchase the Company's common stock. Employee rights to this portion of the
award vest over a seven-year period. Vested shares are payable at retirement,
death or disability, or termination of employment. Shares of common stock in the
plan carry normal voting and dividend rights. Compensation expense for the plan
for fiscal 1999, 1998 and 1997 was $0, $0, and $4,063, respectively, based on
the Company's attainment of certain performance targets. As of October 3, 1999,
the plan held 901,039 shares of the Company's common stock. These shares are
considered outstanding and included in the basic and diluted earnings per share
calculations.
In June and September 1998, the Company's Board of Directors authorized the
repurchase of up to an aggregate of 3,500,000 shares of the Company's common
stock. As of October 3, 1999, the Company repurchased 3,496,793 shares on the
open market at an average price of $15.57. In August 1999, the Company's Board
of Directors authorized the repurchase of 3,071,712 shares of the Company's
stock from a beneficial owner at $9.50 per share, the fair market value at the
date of the transaction. The Company's repurchases of shares were recorded as
treasury stock and resulted in a reduction of stockholders' equity. The Company
had an agreement with three of its directors whereby the Company may exercise a
first right of refusal on the disposition of shares. Pursuant to these
agreements, the Company repurchased an additional 261,625 shares in fiscal 1998
at an average price of $29.06, the fair market value at the date of the
transactions. The Company maintains this agreement with two of its directors.
On June 25, 1997, the Company issued a call for the redemption of the Company's
outstanding 6.0% Convertible Subordinated Debentures. Holders had the right to
convert debentures into shares of common stock through July 29, 1997 at $19.67
per share. Of the $66,180 debentures outstanding, $65,039 or 98.3% were
converted to common stock. This conversion resulted in the issuance of 3,306,423
shares of common stock that had been previously reserved for such issuance.
The Company has an agreement with one of its directors whereby the Company will,
in the event of his death prior to June 22, 2001, purchase common stock of the
Company owned by the director in the amount of $5,000. The number of shares
purchased will be based on the average market value of the stock for a 20-day
period preceding the date of death.
In 1990, the Board of Directors declared a dividend of one preferred stock
purchase right on each outstanding share of the Company's common stock. If the
rights become exercisable, separate certificates evidencing the rights will be
distributed and each right will entitle the holder to purchase from the Company
a new series of preferred stock at a pre-defined price. The rights also contain
an option to purchase shares in a change of control situation. The preferred
stock, in addition to a preferred dividend and liquidation right, will entitle
the holder to vote on a pro rata basis with the Company's common stock. The
rights are not exercisable until either certain changes in ownership of the
Company occur or an announcement of a tender offer for at least 30% of the
Company's common stock is made. The rights are redeemable by the Company at a
fixed price until 10 days, or longer as determined by the Board, after the
occurrence of certain defined events or at any time prior to the expiration of
the rights on August 23, 2000 if such events do not occur. As of October 3,
1999, the Company had reserved 300,000 preferred shares as issuable pursuant to
these rights. At the present time, the rights have no dilutive effect on the
earnings per share calculation.
14. COMPREHENSIVE INCOME:
The Company adopted SFAS No. 130, "Comprehensive Income", during fiscal 1999.
Provisions of SFAS No. 130 require companies to display with prominence
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is the total of net income and all
other non-owner changes in equity. The accumulated balances and activity for
each component of Accumulated Other Comprehensive Loss are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Foreign Accumulated
Currency Pension Other
Translation Equity Comprehensive
Adjustment Adjustment Loss
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at September 29, 1996 $(11,988) -- $(11,988)
Change in balance 2,384 -- 2,384
- --------------------------------------------------------------------------------
Balance at September 28, 1997 (9,604) -- (9,604)
Change in balance 2,027 -- 2,027
- --------------------------------------------------------------------------------
Balance at September 27, 1998 (7,577) -- (7,577)
Change in balance (4,036) (666) (4,702)
- --------------------------------------------------------------------------------
Balance at October 3, 1999 $(11,613) $(666) $(12,279)
================================================================================
The income tax benefit for the pension equity adjustment in fiscal 1999 was
$436. No income taxes have been provided for the foreign currency translation
adjustments.
</TABLE>
15. EARNINGS PER SHARE:
The following table reconciles basic and diluted earnings per share:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Income Before EPS Before
Extraordinary Extraordinary Net Earnings
Shares Item Item Income Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999:
Basic EPS 21,952,000 $10,230 $0.47 $10,230 $0.47
------ ------
Add effect of
dilutive securities:
Options and
restricted stock 10,000 -- --
----------------------- --------
Diluted EPS 21,962,000 $10,230 $0.47 $10,230 $0.47
================================================================================
1998:
Basic EPS 25,134,000 $33,146 $1.32 $30,206 $1.20
----- -----
Add effect of
dilutive securities:
Options and
restricted stock 343,000 -- --
------------------------ --------
Diluted EPS 25,477,000 $33,146 $1.30 $30,206 $1.19
================================================================================
1997:
Basic EPS 22,470,000 $43,238 $1.92 $43,238 $1.92
----- -----
Add effect of
dilutive securities:
Options and
restricted stock 176,000 -- --
6% Convertible
debt 2,801,000 2,170 2,170
------------------------- -------
Diluted EPS 25,447,000 $45,408 $1.78 $45,408 $1.78
================================================================================
</TABLE>
The number of outstanding stock options and shares of restricted stock
considered antidilutive for either part or all of the fiscal year and not
included in the calculation of diluted net income per share for the fiscal years
ended 1999, 1998, and 1997 were 1,898,869, 1,534,650, and 990,300, respectively.
These antidilutive stock options and restricted stock were outstanding at the
end of each fiscal year.
16. SEGMENT INFORMATION:
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" in fiscal 1999. SFAS No. 131 requires companies to
report information on segments using the management approach. The Company
operates as a matrix-form organization comprised of business units and market
sectors. Based on SFAS No. 131, the operating segments would be based upon
markets and the Company has identified four reportable segments based on these
markets: Apparel, Automotive, Home Fashions and Other.
Apparel: The Company manufactures fabrics in the U.S. and Mexico for a variety
of apparel applications. Guilford Mills, Inc. is one of the major producers of
synthetic fabrics. Fabric uses range from basic intimate apparel to high fashion
swimwear, shapewear and ready-to-wear predominately used in women's garments.
Automotive: The Company supplies a broad range of fabrics to automotive original
equipment manufacturers, "Tier 1", "Tier 2", and "Tier 3" suppliers worldwide.
These fabrics are further fabricated into the seats and headliners of passenger
cars, sport utility vehicles, conversion vans and light trucks. The Company
manufactures automotive fabric in the U.S., United Kingdom, Mexico and Brazil.
Home Fashions: The Company produces and distributes directly to retail a broad
line of products for the home including window curtains, sheets, comforters,
pillowcases, bedskirts and shower curtains. The Company also produces fabrics
used in mattress ticking, residential and office furniture and for window
treatment applications.
Other : The Company also produces specialty fabrics that are used in diverse
consumer and industrial applications. Many of these fabrics are proprietary or
patented. These specialty fabrics as well as the Company's fibers operation are
combined into this segment.
The accounting policies of the reportable segments are the same as those
described in Note 1 of Notes to Consolidated Financial Statements. The Company
neither allocates to the segments nor bases segment decisions on the following:
--Interest revenue
--Interest expense
--Unusual items
--Investment income
--Income tax expense or benefit
--Extraordinary items
--Noncash items other than depreciation or
amortization expense
Many of the Company's assets are used by multiple segments. While certain assets
are identifiable by segment, an allocation of the substantial remaining assets
is not meaningful.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Home
Apparel Automotive Fashions Other Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
External sales $336,511 $361,269 $111,530 $ 47,528 $856,838
Intersegment sales 127,873 127,873
Operating profit 3,534 29,982 (6,361) 2,753 29,908
Interest expense 16,598
Other expense, net 1,155
Income before income taxes 12,155
Depreciation expense $ 19,855 $ 18,591 $ 10,641 $ 12,782 $ 61,869
- ---------------------------------------------------------------------------
1998
External sales $340,224 $338,221 $151,889 $ 64,200 $894,534
Intersegment sales 141,905 141,905
Operating profit 7,811 32,484 12,378 8,563 61,236
Interest expense 12,414
Other expense, net (284)
Income before income taxes
and extraordinary item 49,106
Extraordinary item (2,940)
Depreciation expense $ 17,567 $ 19,062 $ 9,516 $ 13,482 $ 59,627
- ----------------------------------------------------------------------------
1997
External sales $352,475 $329,472 $127,659 $ 85,103 $894,709
Intersegment sales 69,634 69,634
Operating profit 16,677 33,664 17,799 17,227 85,367
Interest expense 16,190
Other expense, net 3,367
Income before income taxes 65,810
Depreciation expense $ 16,066 $ 18,091 $ 8,003 $ 15,264 $ 57,424
============================================================================
</TABLE>
17. GEOGRAPHIC INFORMATION:
The accompanying financial statements include the following amounts related to
the operations of the Company's subsidiaries in the United Kingdom, Mexico and
Brazil:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------
<S> <C> <C> <C>
Net sales to unaffiliated
customers:
United States $705,628 $716,687 $707,991
United Kingdom 108,394 126,067 136,962
Mexico 40,637 51,780 49,756
Brazil 2,179 -- --
- -------------------------------------------------------------------
Total net sales $856,838 $894,534 $894,709
===================================================================
Long-lived assets:
United States $272,209 $283,912
United Kingdom 30,195 34,769
Mexico 21,629 16,360
Brazil 3,845 5,510
- --------------------------------------------------------
Total long-lived assets $327,878 $340,551
========================================================
</TABLE>
During fiscal 1999, 1998 and 1997, no single customer accounted for 10% or more
of net sales. The Company's net sales reflected substantial direct and indirect
sales to certain large automotive original equipment manufacturers.
18. SUMMARY OF QUARTERLY EARNINGS (UNAUDITED):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1999 Quarter: First Second Third Fourth
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $214,913 $218,270 $217,923 $205,732
Gross profit 36,153 38,006 31,659 30,107
Net income 2,363 4,755 931 2,181
- ----------------------------------------------------------------------
Net income per share:
Basic .10 .21 .04 .11
Diluted .10 .21 .04 .11
======================================================================
</TABLE>
<TABLE>
- ----------------------------------------------------------------------
1998 Quarter:
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $213,377 $228,448 $232,768 $219,941
Gross profit 38,533 42,189 46,978 41,730
Income before
extraordinary item 6,491 9,253 12,846 4,556
Net income 6,491 9,253 12,846 1,616
- ----------------------------------------------------------------------
Income per share
before extraordinary
item:
Basic .26 .36 .50 .19
Diluted .25 .36 .49 .19
- ----------------------------------------------------------------------
Net income per share:
Basic .26 .36 .50 .07
Diluted .25 .36 .49 .07
=======================================================================
</TABLE>
<PAGE>
Report of Independent Public Accountants
To the Stockholders and Board of Directors of Guilford Mills, Inc.:
We have audited the accompanying consolidated balance sheets of Guilford Mills,
Inc. (a Delaware corporation) and subsidiaries as of October 3, 1999 and
September 27, 1998, and the related consolidated statements of income,
stockholders' investment and cash flows for each of the three years in the
period ended October 3, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Guilford Mills, Inc. and
subsidiaries as of October 3, 1999 and September 27, 1998 and the results of
their operations and their cash flows for each of the three years in the period
ended October 3, 1999, in conformity with generally accepted accounting
principles.
/s/Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Greensboro, North Carolina,
November 11, 1999.
<PAGE>
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
The management of Guilford Mills, Inc. has the responsibility for the
preparation and integrity of all information contained in the Annual Report. The
financial statements, including footnotes, have been prepared in accordance with
generally accepted accounting principles and include amounts that are based on
management's best estimates and judgments.
The Company maintains an internal accounting control system designed to provide
reasonable assurance of the safeguarding and accountability of Company assets,
and to ensure that its financial records provide a reliable basis for the
preparation of financial statements and other data. The system includes an
appropriate division of responsibility and is documented by written policies and
procedures that are communicated to employees with significant roles in the
financial reporting process and updated as necessary. In addition, the
achievement of effective operations is promoted by this system. There are limits
inherent in all systems of internal control based on the recognition that the
cost of such systems should not exceed the benefits derived and the likelihood
of achievement of objectives can be affected by human judgment, failure or
circumvention. Management believes the Company's system of internal controls
provides an appropriate balance.
The control environment is complemented by an internal auditing program,
comprised of internal and external business advisors who independently assess
the effectiveness of the internal controls and report findings to management
throughout the year. The group delivers increased value by aligning with the
business objectives to reduce risk and create cost efficiencies. The Company's
financial statements have been audited by independent public accountants who
have expressed their opinion with respect to the fairness of the presentation of
these statements in conformity with generally accepted accounting principles.
They objectively and independently review the performance of management in
carrying out its responsibility for reporting operating results and financial
condition. Their opinion is based on procedures which they believe to be
sufficient to provide reasonable assurances that the financial statement contain
no material errors. Management has made available to the independent public
accountants all of the Company's financial records and related data, as well as
the minutes of stockholders' and directors' meetings. Recommendations by both
internal and external auditors concerning internal control deficiencies are
considered and are implemented with an appropriate urgency by management.
The Audit Committee of the Board of Directors, which is formally chartered, is
comprised solely of non-employee directors who meet periodically with the
independent auditors, management and the Company's internal auditors to review
the work of each and to evaluate the accounting, auditing, internal controls and
financial reporting matters. The independent auditors and the Company's internal
auditors have free access to the Audit Committee, without the presence of
management.
/s/ Terrence E. Geremski
- ------------------------
Terrence E. Geremski
Executive Vice President/Chief Financial Officer
<PAGE>
COMMON STOCK MARKET PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
Fiscal 1999
------------------------------------------------------------------------
Quarter High Low Dividends
------------------------------------------------------------------------
<S> <C> <C> <C>
First $17 $11 1/2 $.11
Second 18 8 3/4 .11
Third 11 8 1/8 .11
Fourth 10 5/8 8 1/2 .11
Year $18 $ 8 1/8 $.44
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1998
--------------------------------------------------------------------------
Quarter High Low Dividends
--------------------------------------------------------------------------
<S> <C> <C> <C>
First $28 1/4 $23 1/8 $.11
Second 29 1/8 25 .11
Third 29 5/8 18 1/2 .11
Fourth 21 1/16 13 3/4 .11
Year $29 5/8 $13 3/4 $.44
</TABLE>
The high and low stock market prices
are as reported under the ticker
symbol "GFD" on the New York Stock
Exchange which is the principal
market for the Company's common
stock. On November 15, 1999 there
were 448 stockholders of record.
Based on continued favorable future
operations and the present level of
available retained earnings,
management anticipates continuing
its current dividend policies.
Exhibit 21
Subsidiaries of Guilford Mills, Inc.
------------------------------------
STATE OR OTHER
JURISDICTION OF
INCORPORATION
OR %
NAME OF COMPANY ORGANIZATION OWNERSHIP
- --------------- --------------- ---------
<TABLE>
<S> <C> <C>
GFD Services, Inc. Delaware 100%
GFD Fabrics, Inc. (1) North Carolina 100%
Advisory Research Services, Inc. North Carolina 100%
Twin Rivers Textile Printing & Finishing (2) North Carolina 100%
(general partnership)
Guilford Mills (Michigan), Inc. Michigan 100%
Guilford Airmont, Inc. North Carolina 100%
GMI Computer Sales, Inc. North Carolina 100%
Guilford International, Inc. United States Virgin 100%
Islands
Hofmann Laces, Ltd. New York 100%
Raschel Fashion Interknitting, Ltd. New York 100%
Curtains and Fabrics, Inc. New York 100%
Mexican Industries of North Carolina, Inc. North Carolina 100%
Gold Mills, Inc. Delaware 100%
Gold Mills Farms, Inc. (3) New York 100%
Guilford Mills Limited United Kingdom 100%
Guilford Mills Europe Limited (4) United Kingdom 100%
Guilford Europe Limited (5) United Kingdom 100%
Rouquinet Deroy Limited (6) United Kingdom 100%
Guilford Deutschland GmbH (7) Germany 100%
Guilford Europe Pension Trustees Limited (8) United Kingdom 100%
Guilford Wovens Limited (7) United Kingdom 100%
Guilford Automocion Iberica S.L. (7) Spain 100%
Guilford Mills Texteis Iberica Limitada (9) Portugal 100%
Guilford Mills Automotive (Portugal)
Limited (10) United Kingdom 100%
Guilford Mills Automotive (Czech Republic)
Limited (10) United Kingdom 100%
Guilford Mills do Brasil Ltda. (11) Brazil 100%
Industrias Globales de Mexico, S.A.
de C.V. (12) Mexico 100%
Industrias Mexicanas de Morelos, S.A.
de C.V (13) Mexico 100%
Grupo Ambar, S.A. de C.V. Mexico 95%
American Textil, S.A. de C.V. (14) Mexico 100%
Servicios Corporativos Ambar, S.A.
de C.V. (15) Mexico 100%
Guilford de Tamaulipas, S.A. de C.V. (16) Mexico 100%
Guilford de Altamira, S.A. de C.V. (16) Mexico 100%
Nustart, S.A. de C.V. (17) Mexico 100%
- ---------------------
<FN>
(1) This company is a wholly owned subsidiary of GFD Services, Inc.
(2) Each of Guilford Mills, Inc. and Advisory Research Services, Inc. holds
a 50% partnership interest in this general partnership.
(3) Owned by Gold Mills, Inc.
(4) Owned by Guilford Mills Limited.
(5) 2,000,000 shares owned by Guilford Mills Europe Limited and 1 share
owned by Guilford Mills, Inc.
(6) 1,999,999 shares owned by Guilford Mills Europe Limited and 1 share
owned by Guilford Europe Limited.
(7) Owned by Guilford Europe Limited.
(8) 1 share owned by Guilford Europe Limited and 1 share owned by Guilford
Mills Europe Limited.
(9) 2% of the capital stock of this company is owned by Guilford Mills
Europe Limited and 98% of the capital stock is owned by Guilford Mills
Automotive (Portugal) Limited.
(10) Owned by Guilford Mills Europe Limited.
(11) 990 shares owned by Guilford Mills, Inc. and 10 shares owned by
Guilford Airmont, Inc.
(12) 49,999 shares owned by Guilford Mills, Inc. and 1 share owned by Grupo
Ambar, S.A. de C.V. ("Grupo Ambar").
(13) 49,500 shares owned by Guilford Mills, Inc. and 500 shares owned by
Mexican Industries of North Carolina, Inc.
(14) 10,457,517 shares owned by Grupo Ambar and 1 share owned by Servicios
Corporativos Ambar, S.A. de C.V.
(15) 321,751 shares owned by Grupo Ambar and 1 share owned by American
Textil, S.A. de C.V.
(16) 49,999 shares owned by Guilford Mills, Inc. and 1 share owned by
Guilford Airmont, Inc.
(17) 28,360 shares owned by Guilford Mills, Inc. and 200 shares owned by
Guilford Airmont, Inc.
</FN>
</TABLE>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports dated November 11, 1999 included in and incorporated by reference in
this Form 10-K, into the Company's previously filed Registration Statement File
No. 2-75943, Registration Statement File No. 33-46465, Registration Statement
File No. 33-47109, Registration Statement File No. 33-79515 and Registration
Statement File No. 33-87877.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Greensboro, North Carolina,
December 22, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> OCT-3-1999
<PERIOD-END> OCT-3-1999
<EXCHANGE-RATE> 1.00
<CASH> 22,554
<SECURITIES> 0
<RECEIVABLES> 160,071
<ALLOWANCES> 0
<INVENTORY> 136,772
<CURRENT-ASSETS> 338,741
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 753,431
<CURRENT-LIABILITIES> 211,081
<BONDS> 0
0
0
<COMMON> 655
<OTHER-SE> 340,290
<TOTAL-LIABILITY-AND-EQUITY> 753,431
<SALES> 856,838
<TOTAL-REVENUES> 856,838
<CGS> 720,913
<TOTAL-COSTS> 720,913
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,598
<INCOME-PRETAX> 12,155
<INCOME-TAX> 1,925
<INCOME-CONTINUING> 10,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,230
<EPS-BASIC> 0.47
<EPS-DILUTED> 0.47
</TABLE>
