GUILFORD MILLS, INC.

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 28, 2003

For the transition period from __________ to __________

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GOkUQjHXkS6CBdzNtmyRQrzNL+Su2LMRMMQ1nu0inxNsAkHCwP0No5TGrz/3c7Vp r9NIVRxkADSCWRrMHF62gw== 0000950144-03-014003.txt : 20031229 0000950144-03-014003.hdr.sgml : 20031225 20031229142939 ACCESSION NUMBER: 0000950144-03-014003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20030928 FILED AS OF DATE: 20031229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GUILFORD MILLS INC CENTRAL INDEX KEY: 0000044471 STANDARD INDUSTRIAL CLASSIFICATION: KNITTING MILLS [2250] IRS NUMBER: 131995928 STATE OF INCORPORATION: DE FISCAL YEAR END: 1030 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06922 FILM NUMBER: 031075166 BUSINESS ADDRESS: STREET 1: 4925 WEST MARKET STREET CITY: GREENSBORO STATE: NC ZIP: 27407 BUSINESS PHONE: 3363164688 MAIL ADDRESS: STREET 1: 5201 WEST MARKET STREET CITY: GREENSBORO STATE: NC ZIP: 27409 10-K 1 g86418e10vk.htm GUILFORD MILLS, INC. GUILFORD MILLS, INC.

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Commission File No. 000-50025

GUILFORD MILLS, INC.

(Exact name of Registrant as specified in its charter)


Delaware		13-1995928
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6001 West Market Street Greensboro, North Carolina		27409 (Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (336) 316-4000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value

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 þ No o

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. þ

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes o No þ

Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant at March 29, 2003, computed by the last reported trading price on the Over-the-Counter Bulletin Board ($4.00) of the Registrant’s Common Stock on such date: $14,059,200. (Solely for the purposes of the foregoing calculation, affiliates are considered to be Directors, Officers and greater than 10% beneficial owners of the Registrant’s common equity.)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes þ No o

Number of shares of the Registrant’s New Common Stock, par value $.01 per share, outstanding as of December 22, 2003: 5,501,053.

TABLE OF CONTENTS


IMPORTANT INFORMATION REGARDING THIS FORM 10-K
PART I
PART II
STATEMENT OF MANAGEMENT’S RESPONSIBILITY
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
SCHEDULE II
PART III
PART IV
EXHIBIT INDEX
SIGNATURES
EX-4.(B) AMENDMENT NO. 1 TO NOTE AGREEMENT
EX-10.(M) SALARY CONTINUATION AGREEMENT
EX-10.(N) SALARY CONTINUATION AGREEMENT
EX-10.(T) 2003 STOCK OPTION PLAN
EX-10.(U) FORM OF STOCK OPTION AGREEMENT
EX-10.(V) SHORT TERM INCENTIVE PLAN
EX-10.(X) EXCLUSIVE SUPPLY AGREEMENT
EX-10.(C)(C) AMENDMENT NO. 1 TO CREDIT AGMT
EX-21 SUBSIDIARIES OF REGISTRANT
EX-23.(A) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
EX-23.(B) NOTICE REGARDING CONSENT
EX-31.(A) SECTION 302 CERTIFICATION OF CEO
EX-31.(B) SECTION 302 CERTIFICATION OF CFO
EX-32.(A) SECTION 906 CERTIFICATION OF CEO
EX-32.(B) SECTION 906 CERTIFICATION OF CFO

IMPORTANT INFORMATION REGARDING THIS FORM 10-K

Readers should consider the following information as they review this Form 10-K:

Fresh Start Accounting

In connection with the Company’s bankruptcy reorganization in 2002, the Company has applied Fresh Start Reporting (as defined herein) to its consolidated balance sheet as of September 29, 2002 in accordance with Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” as promulgated by the AICPA. (Reference Item 1 in the Business section for information regarding the Company’s bankruptcy reorganization). Under Fresh Start Reporting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date Fresh Start Reporting is applied. On October 4, 2002, the Debtors (as defined herein) emerged from bankruptcy. For financial reporting purposes, September 29, 2002 was considered the emergence date and the effects of the reorganization have been reflected in the accompanying financial statements as if the emergence occurred on that date. As a result of the application of Fresh Start Reporting, the financial statements of the Successor Company (as defined herein) are not comparable to the Predecessor Company’s (as defined herein) financial statements.

Safe Harbor-Forward-Looking Statements

From time to time, the Company may publish forward-looking statements relative to such matters, including, without limitation, 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. Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “plan,” “forecast,” “budget,” “goal” or other words that convey the uncertainty of future events or outcomes.

Various statements contained in this report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, 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. These forward-looking statements speak only as of the date of this report; the Company disclaims any obligation to update these statements and cautions against any undue reliance on them. These forward-looking statements are based on current expectations and assumptions about future events. While management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control.

Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include:

• general economic factors including, but not limited to, changes in interest rates, foreign currency translation rates, consumer confidence, trends in disposable income, changes in consumer demand for goods produced, and cyclical or other downturns

• the overall level of automotive production and the production of specific car models

• information and technological advances

• cost and availability of raw materials, labor and natural and other resources

• domestic and foreign competition

• changes in purchasing practices of automotive customers, including price pressures and sourcing of products in Asia

• domestic and foreign governmental regulations and trade policies

• reliance on major customers and suppliers

• inability to successfully effect any necessary restructuring while preserving customer relationships

• inability to maintain sufficient liquidity to finance the Company’s operations

Fiscal Year End

The Company’s fiscal year ends on the Sunday nearest to September 30. Fiscal year 2003 ended September 28, 2003, fiscal year 2002 ended September 29, 2002 and fiscal year 2001 ended September 30, 2001. Each year includes the results of operations for 52 weeks.

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 subsidiaries are referred to as the “Company” or “Guilford”, unless the context indicates otherwise.

Historically, Guilford operated as a diversified textile manufacturer and participated in a broad range of markets and segments. During 2001 and 2002, the Company restructured and reorganized its operations, exiting many markets and concentrating its resources and energies in areas which it believes are stable and provide opportunities for profitable growth. As a result, Guilford is now primarily a supplier of automotive textile products. The Company currently participates in the following segments: Automotive, Industrial and Apparel.

Fabrics produced in the Automotive segment are sold to suppliers of original equipment manufacturers (“OEMs”). These fabrics are then used in the production of seats and headliners and other interior components of passenger cars, sports utility vehicles, conversion vans and light and heavy trucks. Guilford is a major producer and supplier of bodycloth and headliner fabric in the United States and Europe and continues to be the leading headliner fabric manufacturer in both markets.

Fabrics produced in the Industrial segment are sold for use in window fashions and in a broad range of specialty applications, including geotextiles, medical and water filtration systems. The Company’s fiber operation, which manufactures and supplies fibers internally and to other external textile manufacturers, is included in this segment.

The Apparel segment fabrics have historically been used predominantly in women’s intimate apparel, ready-to-wear, swimwear garments, team sportswear and linings. Since the fourth quarter of fiscal 2000, the Company has effected the strategic realignment of its apparel operations resulting in the closing of facilities and a substantial decrease in manufacturing capacity. The current focus of this segment is on team sportswear, cap and gown and performance activewear.

The Company previously participated in the Direct-to-Retail Home Fashions market and produced window curtains, knit and/or lace comforters, sheets, shower curtains, pillowcases and bedskirts sold directly to department stores, discount retailers and catalog houses. The Company also produced upholstery fabrics for use in office and residential furniture. The Company no longer manufactures or distributes products in this line of business.

Until the first quarter of the 2004 fiscal year, the Company maintained Automotive and Apparel segment operations in Mexico City, Mexico through certain majority owned Mexican subsidiaries (such companies collectively, the “American Textil Group”). In December 2003, the Company sold all of its capital stock in the American Textil Group to a company (“AT Acquisition”) controlled by the general manager of the American Textil Group (the “General Manager”) and by a person who had been a minority stockholder of a certain American Textil Group company (the “Minority Stockholder”) (the General Manager and the Minority Stockholder collectively referred to as the “Principals”). The terms of such transaction were determined through extensive arm’s length negotiations among the parties. The consideration for the sale of the American Textil Group capital stock consisted of the execution and delivery of certain agreements among the parties, including supply and non-competition agreements as described below, and the release by the Principals of certain claims each had against the Company, including a release (i) by the Minority Stockholder of a claim against the Company arising from his fiscal 2003 exercise of a put right relating to his previously held minority interest in a predecessor to one of the American Textil Group companies and (ii) by the General Manager of claims to certain benefits under Company sponsored employee benefit plans. As part of the American Textil Group sale, the Company purchased from an American Textil Group company certain Automotive segment accounts receivable, with full recourse against the American Textil Group, and certain Automotive segment inventory. Simultaneously with the closing of the sale of the American Textil Group, the Company entered into a supply agreement with the American Textil Group, pursuant to which (i) the Company or one of its subsidiaries will become the vendor of record for virtually all Mexican Automotive segment programs which the American Textil Group had supplied prior to the sale of the American Textil Group and (ii) an American Textil Group company will supply the Company or one of its subsidiaries with certain fabrics to service such programs. Also in connection with the closing of the sale of the American Textil Group, the parties entered into a non-competition agreement pursuant to which the American Textil Group, AT Acquisition and the Principals, on the one hand, and the Company, on the other hand, agreed to refrain from competing with one another in certain Apparel markets for a period of up to two years; the non-competition agreement also prohibits the American Textil Group, AT Acquisition and the Principals from competing with the Company in the Automotive segment anywhere in the world for at least a one year period.

In October 2003, the Company announced that it retained Goldman, Sachs & Co. as its financial advisor to assist with the exploration of, among other things, a possible sale of Guilford. As of December 22, 2003, the Company has received preliminary indications of interest from several third parties who are currently conducting due diligence reviews of the Company. There is no assurance as to whether this process will result in a sale of the Company or as to the timing of any sale.

Reference is made to Notes 22 and 23 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this Report, for certain financial information regarding the Company’s segments and the geographic areas in which the Company conducts business.

Bankruptcy Reorganization

On March 5, 2002, the Company reached an agreement in principle with its senior lenders on a restructuring of the Company’s approximately $274 million senior indebtedness. To conclude the restructuring as quickly as possible, the Company and its domestic subsidiaries (collectively, the “Debtors”) filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) on March 13, 2002 (the “Filing Date”). The Chapter 11 cases were jointly administered under case no. 02-40667 (BRL) and, pursuant to the Bankruptcy Court’s approval of the Plan as defined below, were substantively consolidated for the purpose of consummating the Plan. During the period from the Filing Date until October 4, 2002 (the “Effective Date”), the Debtors operated their business as debtors-in-possession under Chapter 11 of the Bankruptcy Code. The Company’s non-U.S. subsidiaries did not file voluntary petitions and were, therefore, not Debtors.

As a result of these Chapter 11 filings, actions to collect pre-petition indebtedness were stayed. In addition, under the Bankruptcy Code, the Debtors had the right to assume or reject executory contracts, including real estate leases, employment contracts, personal property leases, service contracts and other unexpired, executory pre-petition contracts, subject to Bankruptcy Court approval. Parties affected by these rejections were permitted to file claims with the Bankruptcy Court in accordance with the Bankruptcy Code. The Company estimated the aggregate amount of the liability that may result from the filing of claims for certain contracts that were rejected and reflected such amount in its fiscal 2002 financial statements.

The Company’s amended joint plan of reorganization dated August 15, 2002, (the “Plan”), was confirmed by the Bankruptcy Court on September 20, 2002, and on October 4, 2002, the Debtors emerged from their bankruptcy proceedings.

On or about the Effective Date, the following transactions or events occurred:

1. The Company’s senior secured debt of approximately $274 million was discharged, and was replaced with new senior secured notes, due October 4, 2005, totaling $135 million.

2. All of the Company’s old common stock was cancelled and replaced with 5,501,053 shares of new common stock. Of these new shares, approximately 90% (4,950,000 shares) were issued to the Company’s senior lenders as partial consideration for the debt reduction described above. The remaining shares were issued to the holders of the Company’s old common stock in a ratio of one new share for every 34.776338 old shares, subject to rounding.

3. The Company transferred approximately $70 million in cash and property to trusts and its senior lenders, as partial consideration for the debt reduction described above.

4. The Company’s $30 million Debtor-In-Possession Credit Agreement, dated as of March 13, 2002, with Wachovia Bank was cancelled and the Company entered into a $25 million revolving credit facility.

5. The Company began paying in cash approximately $15.6 million in pre-petition liabilities to its vendors, payment of which had been stayed during the bankruptcy proceedings.

6. The new members of the board of directors began serving as directors.

Fresh Start Reporting

The Company has applied Fresh Start Reporting to its consolidated balance sheet as of September 29, 2002 in accordance with Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“Fresh Start Reporting” or “SOP 90-7”) as promulgated by the AICPA. Under Fresh Start Reporting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date Fresh Start Reporting is applied. On October 4, 2002, the Debtors emerged from bankruptcy. For financial reporting purposes, September 29, 2002 was considered the emergence date and the effects of the reorganization have been reflected in the accompanying financial statements as if the emergence occurred on that date.

Product Development

Working closely with its customers, the Company conducts research and development in the U.S. and U.K. Such activities involve approximately 75 associates who are primarily responsible for the creation of new fabrics and styles. Sample machinery and equipment are used to develop new fabrics which can be placed into production after customer acceptance. Total expenditures for research and development for fiscal years 2003, 2002 and 2001 were approximately $11.7 million, $9.9 million and $11.5 million, or 2.6%, 1.9% and 1.8% of sales, respectively.

The Company has numerous trademarks, trade names and patents that it uses in connection with the advertising and promotion of its products across segments. Management believes that the loss or expiration of such patents, trademarks and trade names would not have a material adverse effect on the Company’s operations.

Working Capital Practices

The Company generally knits, dyes and finishes fabric based on customer orders and, therefore, significant amounts of finished goods inventory are not needed to meet rapid delivery to the Company’s customers or to assure a continuous allotment of goods from suppliers. Customers are permitted to return or request allowances for goods that are off-quality. To minimize the credit risk on such accounts and to obtain larger credit lines for many customers, the Company maintains credit insurance covering $35.6 million of certain outstanding accounts receivable as of September 28, 2003. In addition, as of that date, approximately 6% of accounts receivable were factored without recourse. The Company has the ability to borrow against such factored receivables (subject to certain limitations), and did not borrow against them during fiscal 2003 but did borrow against them during fiscal 2002. The Company generally takes advantage of discounts offered by vendors.

The Company has a large number of customers. During fiscal 2003, two of the Company’s automotive customers, Johnson Controls, Inc. and Lear Corporation, each of which are suppliers to OEMs, accounted for 20.0% and 10.8% of the Company’s sales, respectively. During fiscal 2002, Johnson Controls, Inc. and Lear Corporation accounted for 14.1% and 10.3% of the Company’s sales, respectively. No customer accounted for 10% or more of total net sales during fiscal 2001. The Company’s net sales reflect substantial indirect sales to certain OEMs. In the Automotive segment, the Company’s direct and indirect customers generally provide regular release information which the Company uses to purchase raw materials and plan its manufacturing process.

The following data summarizes the Company’s fiscal 2002 and 2003 net direct and indirect sales to OEMs (amounts in thousands of dollars):


Manufacturer	2002 Sales		2003 Sales

Ford	$	108,797	$	90,628
General Motors		65,724		66,940
Honda		32,207		56,219
Toyota		29,980		27,153
Nissan		26,760		25,586
Daimler Chrysler		14,065		21,631
All Other		60,552		63,759

Total	$	338,085	$	351,916

The backlog of orders believed to be firm as of the end of the current and preceding fiscal years is not considered by management to be material for an understanding of the Company’s business as most orders are deliverable within a few weeks.

Export Sales

U.S. export sales, as a percentage of total worldwide sales of the Company, were approximately 4.7% in fiscal 2003, 1.9% in fiscal 2002 and 4.4% in fiscal 2001.

Raw Materials

Fabrics in all of the Company’s segments are constructed primarily of synthetic yarns: nylon and polyester, the prices of which are generally sensitive to changes in petroleum prices. In fiscal 2003, the Company internally produced approximately 15% to 20% of all yarns used. The Company purchases its remaining yarns from several fiber producers. In fiscal 2003 all yarns 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 three suppliers in the United States and three suppliers in Europe. During fiscal 2003, there was an adequate supply of foam. Management believes that an adequate supply of chemicals and dyes and foam are available to meet the Company’s requirements.

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 non-U.S. 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 future results of operations and financial position.

Reference is made to Note 16 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this document, 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 the Automotive segment, the Company has four major competitors in the North American market and certain other smaller competitors. Guilford’s automotive subsidiary in Europe competes with seven warp knitters in Europe. It also competes with many producers of circular knit and flat woven fabrics. The Industrial fabrics market is highly fragmented, with many textile manufacturers selling products to meet individual customer specifications. None of the Company’s competitors is deemed to be dominant with respect to its markets. In the past few years, the Apparel segment has been significantly impacted by imports of garments.

Employees

As of December 19, 2003, the Company employed approximately 2,600 full-time employees worldwide. Approximately 545 employees (including 203 in the U.S. and 342 in Europe) are represented by collective bargaining agreements.


Item 2.		Properties

Set forth below is a listing of facilities owned and leased by the Company as of December 15, 2003:


Facility	Location	Segment(s)	Leased/Owned (A)

Sales and Administrative Offices	Michigan (1)	Automotive	Leased
	North Carolina (2)	Apparel, Automotive, Industrial	Owned (1), Leased (1)
	Germany (1)	Automotive	Leased
	France (1)	Automotive	Leased
	Spain (1)	Automotive	Leased
	Mexico (1)	Automotive	Leased
Manufacturing	North Carolina (5)	Automotive, Industrial	Owned (3), Leased (2)
	Pennsylvania (2)	Apparel, Automotive, Industrial	Owned
	United Kingdom (3)	Automotive	Owned

(A) Substantially all of the above owned domestic properties have been mortgaged to secure the Company’s obligations under its loan agreements. See Note 12 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this document. Properties listed do not include assets in the Altamira Trust. Reference is made to Note 1 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this Report, for certain information regarding the Altamira Trust.

Management believes the facilities and manufacturing equipment are in generally good condition, well maintained, suitable and adequate for present production, based on the Company’s previously announced restructuring actions. Reference is made to Note 5 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this document for information regarding the restructuring actions. Some 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 primarily as seven-day, three-shift production. On that basis, the manufacturing facilities are generally utilized approximately 80%.


Item 3.		Legal Proceedings

From time to time and currently, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. The Company maintains insurance coverage against certain potential third-party claims in amounts that the Company believes to be adequate. As a result of the bankruptcy proceedings described above, holders of claims that were asserted or could be asserted in any action commenced prior to March 13, 2002 retain all rights to proceed against the Company, but only to the extent and limit of applicable insurance coverage. Such claim holders have no direct claim against the Company post-confirmation of bankruptcy including any deductible under an insurance policy or any excess over the policy coverage limits. Although the final outcome of these legal and environmental matters cannot be determined, and therefore no assurances can be given, 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. Reference is made to Note 16 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this document for information regarding contingencies including environmental matters.


Item 4.		Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter for the fiscal year ended September 28, 2003.

PART II


Item 5.		Market for the Registrant’s Common Equity and Related Stockholder Matters

On December 21, 2001, the Company announced that the New York Stock Exchange (the “NYSE”), which was the principal market for the Company’s old common stock, par value $.02 per share (the “Old Common Stock”), which was cancelled upon the Effective Date, had informed the Company that the Company was not in compliance with certain NYSE continued listing standards. Specifically, the average closing price of the Company’s Old Common Stock, which was traded under the ticker symbol “GFD”, had fallen below $1.00 per share, and the Company’s market capitalization had fallen below $15 million, over a consecutive 30-trading day period.

On February 11, 2002, as a result of the continuation of such non-compliance, the NYSE suspended trading of the Company’s Old Common Stock. Prices for the Company’s Old Common Stock commenced quotation on February 14, 2002 on the Over-the-Counter Bulletin Board (“OTCBB”), under the ticker symbol “GFDM”. Such over the counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.

On September 20, 2002, the Bankruptcy Court confirmed the Plan. On September 24, 2002 the Company’s ticker symbol was temporarily changed to “GFDMQ”. On October 4, 2002, the Company emerged from bankruptcy and issued new common stock, par value $.01 per share (the “New Common Stock”). The ticker symbol for the New Common Stock, the prices for which are quoted on the OCTBB, is “GMIL”.

The following table contains information about the (i) high and low per share bid price of the New Common Stock which was issued on October 4, 2002 and (ii) high and low per share sales price of the Old Common Stock (during the period that the stock was listed on the NYSE) or per share bid price (during the time the Old Common Stock was listed on the OTCBB) before the Old Common Stock was cancelled effective October 4, 2002. On September 28, 2003 there were 549 record holders of New Common Stock.


New Common Stock	Fiscal 2003

Quarter	High		Low

First	$	8.00	$	2.50
Second		4.60		3.50
Third		10.00		2.25
Fourth		12.00		6.95
Year	$	12.00	$	2.25


Old Common Stock	Fiscal 2002

Quarter	High		Low

First	$	0.80	$	0.32
Second		0.68		0.10
Third		0.28		0.16
Fourth		0.35		0.14
Year	$	0.80	$	0.10

Dividend Policy

The Company currently does not anticipate paying dividends on its New Common Stock. The covenants in its senior debt agreements prohibit, without the consent of the lenders, the payment of dividends on the Company’s New Common Stock. Unless the Company prepays borrowings under its senior debt, it will have borrowings outstanding under such debt instruments until October 4, 2005. Any determination to declare or pay dividends out of funds legally available for that purpose after termination, expiration or modification of the senior secured debt will be at the discretion of the board of directors and will depend on future earnings, results of operations, financial condition, capital requirements, future contractual restrictions and other factors the board of directors deems relevant. No cash dividends have been declared or paid during the three most recent fiscal years.


Item 6.		Selected Financial Data

The following selected consolidated financial information is derived from the Company’s Consolidated Financial Statements for periods both before and after emerging from bankruptcy protection on October 4, 2002. For accounting purposes, the financial statements reflect the reorganization as if it was consummated on September 29, 2002. Therefore, the consolidated balance sheet data and related information at September 28, 2003 and September 29, 2002 and results of operations for the fiscal year ended September 28, 2003 are referred to as “Successor Company” and reflect the effects of the reorganization and the principles of Fresh Start Reporting. Periods presented prior to September 29, 2002 have been designated “Predecessor Company.” Note 3 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this document, provides a reconciliation of the Predecessor Company’s consolidated balance sheet as of September 29, 2002 to that of the Successor Company which presents the adjustments that give effect to the reorganization and Fresh Start Reporting. The data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Company’s Consolidated Financial Statements and Notes thereto. Certain amounts have been reclassified in prior years to conform to the current year presentation.

The consolidated balance sheet information at September 29, 2002 reflects the financial position after the effect of the Plan and the application of the principles of Fresh Start Reporting in accordance with the provisions of SOP 90-7. Accordingly, such financial information at September 29, 2002 and subsequent fiscal year is not comparable to the historical financial information before September 29, 2002.


		Successor
		Company			Predecessor Company

		Fiscal			Fiscal			Fiscal			Fiscal			Fiscal
(In thousands except per share data)		2003			2002			2001			2000			1999

Results of Operations
Net sales		$	445,971		$	513,173		$	643,519		$	814,226		$	856,838
Net (loss) income			(8,606	)		(123,313	)		(160,757	)		(20,974	)		10,230
Per Share Data
Net (loss) income
	Basic		(1.56	)		(6.66	)		(8.48	)		(1.11	)		0.47
	Diluted		(1.56	)		(6.66	)		(8.48	)		(1.11	)		0.47
Cash dividends			0.00			0.00			0.00			0.33			0.44


	Successor Company				Predecessor Company

	Fiscal		Fiscal		Fiscal			Fiscal		Fiscal
	2003		2002		2001			2000		1999

Balance Sheet Data
Working capital		114,983	$	112,805	$	(150,451	)⁽¹⁾	$	213,110	$	127,660
Total assets		303,688		339,497		541,849			724,212		753,431
Long-term debt		135,000		136,939		1,542	⁽¹⁾		262,845		146,137
Stockholders’ investment		49,615		55,000		141,509			309,772		340,945

(1)

Long-term debt of $239,842 was classified as current liabilities in fiscal 2001.


Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements of the Company for the years ended September 28, 2003, September 29, 2002 and September 30, 2001 and the related Notes to Consolidated Financial Statements herein.

Bankruptcy Reorganization

On March 5, 2002, the Company reached an agreement in principle with its senior lenders on a restructuring of the Company’s approximately $274 million senior indebtedness. To conclude the restructuring as quickly as possible, the Debtors filed voluntary petitions under the Bankruptcy Code with the Bankruptcy Court on the Filing Date. The Chapter 11 cases were jointly administered under case no. 02-40667 (BRL) and, pursuant to the Bankruptcy Court’s approval of the Plan, were substantively consolidated for the purpose of consummating the Plan. During the period from the Filing Date until the Effective Date, the Debtors operated their business as debtors-in-possession under Chapter 11 of the Bankruptcy Code. The Company’s non-U.S. subsidiaries did not file voluntary petitions and were, therefore, not Debtors.

The Plan was confirmed by the Bankruptcy Court on September 20, 2002, and on October 4, 2002, the Debtors emerged from their bankruptcy proceedings.

On or about the Effective Date, the following transactions or events occurred:

1. The Company’s senior secured debt of approximately $274 million was discharged, and was replaced with new senior secured notes, due October 4, 2005, totaling $135 million.

3. The Company transferred approximately $70 million in cash and property to trusts and its senior lenders, as partial consideration for the debt reduction described above.

5. The Company began paying in cash approximately $15.6 million in pre-petition liabilities to its vendors, payment of which had been stayed during the bankruptcy proceedings.

6. The new members of the board of directors began serving as directors.

Fresh Start Reporting

The Company has applied Fresh Start Reporting to its consolidated balance sheet as of September 29, 2002 in accordance with SOP 90-7. Under Fresh Start Reporting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date Fresh Start Reporting is applied. On October 4, 2002, the Debtors emerged from bankruptcy. For financial reporting purposes, September 29, 2002 was considered the emergence date and the effects of the reorganization have been reflected in the accompanying financial statements as if it occurred on that date.

The effect of the reorganization and the implementation of Fresh Start Reporting on the Company’s consolidated balance sheet as of September 29, 2002 are discussed in detail in “Item 8 — Financial Statements and Supplementary Data”. As a result of the implementation of Fresh Start Reporting, the financial statements of the Successor Company are not comparable to the Predecessor Company financial statements.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require the Company to make estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from the estimates. Such differences could be material to the financial statements. A critical accounting policy is one which is both important to the portrayal of the Company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company believes that the following accounting policies fit this definition:

Fresh Start Reporting - Upon emerging from Chapter 11 proceedings, the Company adopted Fresh Start Reporting in accordance with SOP 90-7. In adopting the requirements of Fresh Start Reporting as of September 29, 2002, the Company was required to value its assets and liabilities at fair value as of September 29, 2002. The reorganization value of the Company’s new common equity of approximately $55 million was determined based on an independent valuation by financial specialists after consideration of several factors and by using various valuation methods including appraisals, cash flow multiples, price/earnings ratios and other relevant industry information. The reorganization value of the Company has been allocated to various asset categories pursuant to Fresh Start Reporting principles.

The Company’s reorganization value of its new equity of $55 million was approximately $16 million less than the fair value of the net assets. In accordance with the purchase method of accounting, the excess of the revalued net assets over the reorganization value was allocated to reduce proportionately the value assigned to applicable noncurrent assets. The calculated reorganization value of the Company was based on a variety of estimates and assumptions about future circumstances and events. Such estimates and assumptions are inherently subject to significant economic and competitive uncertainties beyond the Company’s control.

The determination of fair value of assets and liabilities required significant estimates and judgments made by management, particularly as it related to the fair market value of inventory and property. The fair value of inventory was estimated based on selling price less costs to complete, cost of disposal and a reasonable profit margin. The fair value of property was determined based on current market rates and building values with the assistance of outside valuation experts. Results may differ under different assumptions or conditions.

Revenue Recognition - Revenue is recognized at the time goods are shipped in accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” Sales returns and allowances, a component of net sales, are recorded in the period in which the related sales are recorded. A reserve of $1.8 million has been recorded as of September 28, 2003 for such returns and allowances.

Benefit Plans - The Company has pension costs and obligations which are dependent on assumptions used by actuaries in calculating such amounts. These assumptions include discount rates, inflation, salary growth, long-term return on plan assets, retirement rates, mortality rates and other factors. While the Company believes that the assumptions used are appropriate, significant differences in actual experience or significant changes in assumptions would affect its pension costs and obligations.

Income Taxes - The Company is subject to the tax laws of many jurisdictions. The Company is subject to tax audits in each of these jurisdictions, which could result in changes in income taxes. For financial statement purposes, the income tax benefit of net operating loss and credit carryforwards is recognized as a deferred tax asset, subject to appropriate valuation allowances when it is determined that recovery of the deferred tax asset does not meet a “more likely than not” criteria. The Company evaluates the tax benefits of net operating loss and credit carryforwards on an ongoing basis. These assumptions could be affected by changes in future taxable income and its sources and changes in U.S. and non-U.S. tax laws and rates. The effective tax rate of the Company could be impacted by changes in these assumptions.

Inventory Reserves - The Company maintains reserves for inventories valued using the first in, first out (FIFO) method. Such reserves for inventories can be specific to certain inventory or general based on judgements about the overall condition of the inventory. General reserves are established based on percentage markdowns applied to inventories aged for certain time periods. Specific reserves are established based on a determination of the obsolescence of the inventory and whether the inventory value exceeds amounts to be recovered through expected sales prices, less selling costs. Estimating sales prices, establishing markdown percentages and evaluating the condition of the inventories require judgements and estimates, which may impact the ending inventory valuation and gross margins.

The above listing is not intended to be a comprehensive list of all of the Company’s accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. Reference is made to Item 8 “Financial Statements and Supplementary Data” of this Report which contain accounting policies and other disclosures required by generally accepted accounting principles.

GENERAL

Historically, Guilford operated as a diversified textile manufacturer and participated in a broad range of markets and segments. Commencing in July 2000 the Company restructured and reorganized its operations, exiting many markets and concentrating its resources and energies in areas which it believes are stable and provide opportunities for profitable growth. As a result, Guilford is now primarily a supplier of automotive textile products. The Company currently participates in the following segments: Automotive, Industrial and Apparel.

Guilford’s business has undergone significant changes over the last decade and, in particular, over the last five years. Guilford had for many years been known primarily as a producer of fabrics for apparel applications. While Guilford had diversified into automotive fabrics in the 1970s, sales of apparel fabrics remained dominant through most of the 1990s. Guilford, along with substantially all other domestic textile manufacturers, was dramatically impacted by staggering increases in imported apparel fabrics and garments during the late 1990s.

In July 2000, the Company announced a strategic realignment of its apparel operations designed to improve the Company’s cost structure and increase profitability. As conditions worsened, the Company expanded and accelerated its apparel realignment plan in fiscal 2001. By the end of fiscal 2001, the Company had closed or committed to close all but one of its domestic apparel dyeing and finishing facilities. The Company further de-emphasized its apparel business in 2002, closing its Altamira manufacturing facility in Mexico and another in the U.S. The Company has continued to participate in the apparel segment, but on a much smaller scale.

Early in 2002, it became necessary for the Company to exit the Direct-to-Retail Home Fashions business as a result of continued weakness in sales and declining margins and the Company announced its intent to sell certain of its assets and its business. As the impact of all these factors accumulated, it became clear that the Company needed to undergo a significant financial restructuring, and on March 13, 2002, the Company and its domestic subsidiaries filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code and emerged therefrom on October 4, 2002. The bankruptcy proceedings are discussed in greater detail elsewhere herein.

For fiscal 2003, approximately 68%, 23% and 9% of the Company’s net sales originated from the United States, Europe and Mexico, respectively. Guilford’s non-U.S. 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.

The Successor Company expects to continue to allocate its resources primarily to its Automotive business. This business, because of its highly technical specifications, research and development requirements and critical logistics, is believed by management to be less susceptible to competition from foreign imports than apparel and home fashions fabrics, although there can be no assurance that such business segment will not be negatively impacted from such imports in the future.

RESULTS OF OPERATIONS

2003 Compared to 2002

As a result of the application of Fresh Start Reporting, the financial statements of the Successor Company are not comparable to the financial statements of the Predecessor Company.

The following table sets forth the results of operations for the fiscal year ended September 29, 2002 compared to September 28, 2003 (dollars in thousands):


		Predecessor			Successor						Percentage
		Company			Company			Increase				Increase
		2002			2003			(Decrease)				(Decrease)

Net Sales		$	513,173		$	445,971		$	(67,202	)			(13.1	)%
Cost of goods sold			487,114			378,665			(108,449	)			(22.3	)

	Gross profit		26,059			67,306			41,247				158.3
Selling and administrative expenses			65,380			43,665			(21,715	)			(33.2	)
Restructuring charges			71,050			16,599			(54,451	)			(76.6	)
Reorganization costs			14,350			1,326			(13,024	)			(90.8	)

Operating income (loss)			(124,721	)		5,716			130,437				104.6
Interest expense			14,080			15,612			1,532				10.9
Fresh start adjustments			16,393			—			(16,393	)			N/A
Gain on debt restructuring			(20,588	)		—			20,588				N/A
Impaired investments			8,063			—			(8,063	)			N/A
Other expense (income), net			(2,963	)		(120	)		2,843				96.0

Loss before income taxes			(139,706	)		(9,776	)		129,930				93.0
Income taxes			(16,393	)		(1,170	)		15,223				92.9

Net loss		$	(123,313	)	$	(8,606	)		114,707				93.0

Net sales for fiscal 2003 were $446.0 million, a decrease of $67.2 million, or 13.1% from net sales of $513.2 million for fiscal 2002. Sales decline in the apparel and direct-to-retail home fashion segments accounted for the majority of this decline as the Company chose to exit a significant portion of these businesses during fiscal 2002. Sales from exited businesses represented $72.9 million of the $513.2 million in sales for fiscal 2002.

Automotive segment sales, which comprised 81.8% of consolidated sales, increased 2.9% in fiscal 2003 to $364.8 million as compared to $354.7 million in fiscal 2002. The increase was primarily related to increased headliner market share in Europe associated with new business awards from BMW, Volkswagen and NissanRenault. Sales of headliner fabric in the U.S. declined due mostly to a 2.9% reduction in the North American car build rates while sales of bodycloth fabric increased as a result of new business awards from Honda. North American car build decreased approximately 2.5% during fiscal 2003 to approximately 15.9 million units compared to the car build during fiscal 2002 of approximately 16.3 million units. Automotive fabric sales in Mexico City operations declined due to program losses and an overall reduction in Mexican car build rates.

Fiscal 2003 sales in the Industrial segment, which comprised 11.9% of consolidated sales, increased 1.2% to $53.0 million as compared to $52.4 million in fiscal 2002. Sales of industrial fabric products declined 5.3% from the prior fiscal year due to the adverse effects of the general economy on the particular markets, primarily window fashions. External fiber sales and commission processing increased approximately 24% due to focused marketing efforts aimed at utilizing available capacity.

Sales in the Apparel segment for fiscal 2003 which comprised 6.3% of consolidated sales, declined 61.3% to $28.2 million from $72.8 million in fiscal 2002. The decrease is attributed to the Company’s reduced participation in this segment in connection with its apparel restructuring plan and lower sales volumes in the Mexico City operations.

During fiscal 2002, the Company recorded $33.3 million of sales in its Direct-to-Retail Home Fashions segment. As described elsewhere herein, the Company exited this business during fiscal 2002, and the Company had no sales in this business during fiscal 2003.

Gross profit for fiscal 2003 increased to $67.3 million or 15.1% of net sales, from $26.1 million or 5.1% of net sales for fiscal 2002. The impact of higher sales revenue in Europe and operating improvements in the U.S. operations favorably impacted results. The Company’s Mexico City operations performed poorly throughout the year in all areas and offset some of the improvements achieved elsewhere in the Company. In fiscal 2003, gross profit increased from fiscal 2002 as a result of a reduction in depreciation expense of approximately $18.6 million as a result of Fresh Start Reporting. In addition, fiscal 2002 results were affected by $21.2 million in inventory impairment charges and other costs related to plant closings.

For fiscal 2003, selling and administrative expenses were $43.7 million or 9.8% of net sales, compared to $65.4 million or 12.7% of net sales, for fiscal 2002. The decrease from the prior year was due primarily to reduced selling and administrative staffing levels, as a result of the Company’s exit from the Direct-to-Retail Home Fashions business and its significant decrease in participation in the Apparel segment. In addition, the Company also reduced its professional fee expenses, as the fiscal 2002 amount included fees for financial advisors and other professionals retained to assist the Company in restructuring its debt. In fiscal 2003, the Company benefited from lower bad debt expense as a result of improved collection experience as compared to the prior year that included $5.0 million of bad debt expense mostly related to the planned shutdown of the Company’s plant in Altamira, Mexico.

Restructuring and impaired asset charges for fiscal 2003 were approximately $16.6 million compared to $71.0 million for fiscal 2002. The fiscal 2003 charges consisted primarily of fixed asset impairments and other costs related to the planned sale of the Mexico City operations in early fiscal 2004. The fiscal 2002 charges consisted primarily of fixed asset impairments and severance costs related to the shutdown of the apparel plant in Altamira, Mexico and its associated knitting plant in Lumberton, North Carolina, and the exit of the Direct-to-Retail Home Fashions business in Herkimer, New York.

During fiscal 2003, the Company incurred reorganization costs of $1.3 million, consisting primarily of professional fees related to the Company’s emergence from bankruptcy. During fiscal 2002, the Company recognized reorganization costs of $14.4 million.

Operating income in fiscal 2003 improved $130.4 million to $5.7 million compared to an operating loss of $124.7 million in fiscal 2002. Fiscal 2003 depreciation expense declined $20.8 million from fiscal 2002 as a result of Fresh Start Reporting. In the Automotive segment, fiscal 2003 operating income improved $16.3 million to $22.4 million compared to $6.1 million in fiscal 2002. In fiscal 2003, the Company’s U.S. automotive operations improved manufacturing and operating efficiencies, whereas in Europe, higher sales volume contributed to the improvement. The Mexico City automotive business results, which included lost programs and reserves for inventory impairments, offset some of this improvement. Fiscal 2002 also included the losses reported in Brazil because of the plant shutdown. Operating income in the Industrial segment increased $3.3 million to $1.3 million in fiscal 2003 compared to a $2.0 million loss in fiscal 2002. The Industrial segment benefited from lower depreciation expense in fiscal 2003 of $5.5 million and improved capacity utilization at its fiber operations that was partially offset by lower fabric sales in window fashions. Operating income in the Apparel segment improved $49.7 million to a loss of $16.6 million in fiscal 2003 from a loss of $66.3 million in fiscal 2002. Fiscal 2002 included restructuring charges of $44.2 million compared to $9.7 million in fiscal 2003. In addition, fiscal 2002 included significant shutdown costs related to the closure of the Altamira, Mexico plant and other apparel businesses. The Mexico City operations also negatively impacted fiscal 2003 results. The Direct-to-Retail Home Fashions operating loss was $48.2 million in fiscal 2002. The Company did not participate in this segment in fiscal 2003. See Note 22 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this document for a reconciliation of segment measures to consolidated amounts.

Interest expense in fiscal 2003 was $15.6 million compared to $14.1 million for fiscal 2002. The change in interest expense in fiscal 2003 compared with fiscal 2002 is attributable to significantly decreased debt levels, as the Predecessor Company’s senior secured debt of approximately $274 million was replaced with $135 million of new debt upon the Company’s emergence from bankruptcy, offset by the Predecessor Company not incurring interest expense during fiscal 2002 on the senior secured debt after its March 2002 bankruptcy filing.

Other income in fiscal 2003 was $0.1 million compared to $3.0 million in fiscal 2002. Other income in fiscal 2002 included $3.8 million of income related to death benefits from life insurance polices that the Company received covering certain key associates who died during the year, partially offset by other losses of $0.8 million.

The effective tax rate for fiscal 2003 was 12.0% or a $1.2 million benefit compared to 11.7% or a $16.4 million benefit for fiscal 2002. The low effective rates are the result of recording valuation allowances that were necessary because the Company has net operating loss and tax credit carryforwards that, due to restructuring actions and other factors, could expire unused. For fiscal 2003, the Company recorded a $2.4 million income tax benefit to reverse deferred tax liabilities as a result of restructuring Mexico City operations. In fiscal 2002, as a result of a change in the U.S. tax laws, the Company carried back net operating losses to prior years, generating refunds of approximately $15.8 million.

For fiscal 2003, net loss was $8.6 million, or $1.56 per diluted share, compared to a net loss of $123.3 million, or $6.66 per diluted share, for fiscal 2002.

2002 Compared to 2001

The following table sets forth the results of operations for the fiscal year ended September 30, 2001 compared to September 29, 2002 (dollars in thousands):


		Predecessor			Predecessor						Percentage
		Company			Company			Increase			Increase
		2001			2002			(Decrease)			(Decrease)

Net Sales		$	643,519		$	513,173		$	(130,346	)		(20.3	)%
Cost of goods sold			612,707			487,114			(125,593	)		(20.5	)

	Gross profit		30,812			26,059			(4,753	)		(15.4	)
Selling and administrative expenses			82,274			65,380			(16,894	)		(20.5	)
Restructuring charges			71,375			71,050			(325	)		(0.5	)
Reorganization costs			—			14,350			14,350			N/A

Operating loss			(122,837	)		(124,721	)		(1,884	)		(1.5	)
Interest expense			25,292			14,080			(11,212	)		(44.3	)
Fresh start adjustments			—			16,393			16,393			N/A
Gain on debt restructuring			4,725			(20,588	)		(25,313	)		(535.7	)
Impaired investments			11,451			8,063			(3,388	)		(29.6	)
Other expense (income), net			911			(2,963	)		(3,874	)		(425.3	)

Loss before income taxes			(165,216	)		(139,706	)		25,510			15.4
Income taxes			(4,459	)		(16,393	)		(11,934	)		(267.6	)

Net loss		$	(160,757	)	$	(123,313	)		37,444			23.3

Consolidated net sales for fiscal 2002 were $513.2 million, a decrease of 20.2% from net sales in fiscal 2001 of $643.5 million. Sales declines in the Apparel and Direct-to-Retail Home Fashions segments accounted for the largest amount of the decrease.

The Automotive segment represented 69.1% of consolidated net sales in fiscal 2002, an increase from 51.8% in fiscal 2001. Automotive segment sales were $354.7 million in fiscal 2002 and increased 6.4% from $333.5 million in fiscal 2001. This primarily resulted from a 10.0% increase in sales by the Company’s U.S. automotive operation. North American car build increased approximately 3.8% during fiscal 2002 to approximately 16.3 million units compared to car build during fiscal 2001 of approximately 15.7 million units. The Company also improved its market share of both headliner and bodycloth fabric. Sales volume in Europe grew 7.0% in fiscal 2002 compared to fiscal 2001 due to new program rollouts at two major auto manufacturers. Automotive fabric sales in Mexico decreased by approximately $3.6 million primarily due to the loss of certain programs during fiscal 2002. Sales in Brazil comprised only 1.3% of Guilford’s Automotive segment sales in fiscal 2002 and declined over 40% compared to 2001, as a result of the Company’s decision to cease production in Brazil.

Sales in the Apparel segment decreased 61.8% to $72.8 million in fiscal 2002 from $190.6 million in fiscal 2001 and accounted for 14.2% of consolidated net sales in fiscal 2002. As a result of the continued declines in this segment and the Predecessor Company’s financial difficulties, the Company has substantially exited the production of apparel fabrics in the United States. The Company has closed all but one of its apparel facilities in the U.S., and has also closed its dyeing and finishing plant in Altamira, Mexico.

Sales in the Industrial segment fell 13.1% to $52.4 million in fiscal 2002 from $60.3 million in fiscal 2001. The Industrial segment represented 10.2% of consolidated net sales in fiscal 2002. Higher sales of the Company’s industrial fabrics used in air and water filtration processes were more than offset by declines in other industrial products sales, which were negatively impacted by the slowing economy.

The Direct-to-Retail Home Fashions segment accounted for 6.5% of consolidated net sales in fiscal 2002 and sales decreased 43.7% from fiscal 2001. Sales for fiscal 2002 were $33.3 million versus $59.1 million in fiscal 2001. During fiscal 2002, the Company decided to exit this business and sold all of its direct-to-retail operations.

Gross profit decreased by $4.7 million to $26.1 million or 5.1% of net sales in fiscal 2002, from $30.8 million, or 4.8% of net sales in fiscal 2001. The Company has exited the Direct-to-Retail Home Fashions segment and significantly decreased its participation in the Apparel segment, incurring approximately $21.2 million for inventory impairment and other charges related to plant closings. These declines were partially offset by improved margins in both the U.S. and European automotive businesses, primarily as a result of increased sales. The industrial fabrics business also improved its margin in fiscal 2002 with increased capacity utilization.

Selling and administrative expenses decreased 20.5% to $65.4 million, or 12.7% of sales, in fiscal 2002 from $82.3 million, or 12.8% of sales, in fiscal 2001. The decrease from fiscal 2001 was due primarily to headcount reductions in apparel and at corporate. The Company further reduced the number of selling and administrative employees by more than 70 during fiscal 2002.

As described in greater detail in Note 5 to the Consolidated Financial Statements, the Company closed its manufacturing facilities in Altamira, Mexico and in Brazil, and sold its operations in Herkimer, New York and Portugal. The Company recorded $71.0 million in restructuring costs, consisting primarily of asset impairments. In addition, the Company recorded $15.5 million of inventory impairments related to these actions in fiscal 2002. The Company filed for and subsequently emerged from Chapter 11 bankruptcy protection during fiscal 2002, as described in greater detail elsewhere herein. The Company retained the services of attorneys, financial advisers and other professionals to assist with the bankruptcy process. The Company incurred $14.4 million, primarily related to fees for those professionals, as reorganization costs during fiscal 2002.

The Company’s operating loss was $124.7 million in fiscal 2002 compared to $122.8 million in fiscal 2001. The change of $1.9 million consisted of selling and administrative expense decreases of $16.9 million, partially offset by lower gross margin of $4.7 million in fiscal 2002 and the inclusion in fiscal 2002 of $14.4 million of reorganization costs. Operating income in the Automotive segment declined to $6.1 million in fiscal 2002 from $13.2 million in fiscal 2001 as a result of a $4.8 million increase in restructuring expenses in fiscal 2002. Included in such restructuring expenses in fiscal 2002 were losses and asset impairments associated with the closure and sale of the Company’s automotive operations in Brazil and Portugal, respectively. Operating profit declined as a result of price reductions granted to automotive customers and excess freight costs, offset by margin on the increased level of sales. The Apparel segment experienced an operating loss of $66.3 million in fiscal 2002 compared to a loss of $119.6 million in fiscal 2001. The majority of fiscal 2002 loss was the result of the Company’s restructuring actions, as well as decreased sales and soft pricing. Operating loss in the Direct-to-Retail Home Fashions segment rose to a loss of $48.2 million in fiscal 2002, compared with a fiscal 2001 loss of $7.9 million due primarily to $18.8 million of restructuring charges in fiscal 2002. This decline was due to the lower fabric sales volume, weak pricing, and the effect of the decision to exit this business. The Industrial segment’s operating loss was $2.0 million in fiscal 2002, compared to the $8.5 million loss in the previous year. This improvement is the result of the reorganization and downsizing of the Pine Grove facility, and improved efficiencies in the Company’s fiber operations. See Note 22 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this document for a reconciliation of segment measures to consolidated amounts.

Interest expense decreased $11.2 million to $14.1 million in fiscal 2002 from $25.3 million in fiscal 2001. In connection with the Company’s bankruptcy reorganization, the Company was not required to pay the interest on the senior debt during the period that the Company was under Chapter 11 protection. The average per annum short-term interest rate was approximately 8% in fiscal 2002 and 9% in fiscal 2001. In addition, the average debt outstanding decreased to $281.3 million in fiscal 2002 from $283.3 million in fiscal 2001.

Other income was $3.0 million in fiscal 2002 compared to $0.9 million of expense in fiscal 2001. Fiscal 2002 included $3.8 million of income related to death benefits from life insurance policies that the Company received covering associates who died during the year, partially offset by other losses of $0.8 million. Fiscal 2001 included $2.8 million in equity investee losses, partially offset by a $1.2 million gain from shares returned to the Company related to a 1996 acquisition of a business and $0.7 million of casualty insurance proceeds.

The effective income tax rate for fiscal 2002 was 11.7% compared to 2.7% for fiscal 2001. These low effective rates are the result of valuation allowances recorded in fiscal 2001 and fiscal 2002. These valuation allowances were necessary because the Company has net operating loss and tax credit carryforwards that, due to restructuring actions and other factors, could expire unused. Management’s assessment is that the character and nature of future taxable income may not allow the Company to realize certain tax benefits of net operating losses and tax credits within the prescribed carryforward period. In addition, as a result of a change in the tax laws during 2002, the Company carried back net operating losses to prior years, generating refunds of approximately $15.8 million in fiscal 2002.

Net loss in fiscal 2002 was $123.3 million or 24.0% of sales, compared to fiscal 2001’s net loss of $160.8 million or 25.0% of sales. Loss per share was $6.66 and $8.48 per basic and diluted share for fiscal years 2002 and 2001, respectively. Average shares outstanding remained essentially unchanged from fiscal 2001 to fiscal 2002.

Liquidity and Capital Resources

The Company’s principal sources of liquidity for operations and expansion are funds generated internally and borrowings under its Revolving Credit Facility, as defined herein. In connection with the reorganization, on October 4, 2002, the Company entered into a new Credit, Security, Guaranty and Pledge Agreement, which expires October 4, 2005, with a group of lenders. The new facility provides for a revolving credit loan facility and letters of credit (the “Revolving Credit Facility”) in a maximum principal amount equal to the lesser of (a) $25 million or (b) a specified borrowing base, which is based upon eligible receivables and eligible inventory. The Revolving Credit Facility restricts investments (including investments in non-U.S. subsidiaries), capital expenditures, acquisitions, dividends and the incurrence of additional debt. The Revolving Credit Facility contains customary financial covenants relating to minimum levels of EBITDA, minimum net worth, minimum fixed charge coverage ratios and a maximum leverage ratio, all as defined therein. The Revolving Credit Facility is secured by a first lien on substantially all of the assets of the Company and its domestic subsidiaries, as well as on the stock of all of the Company’s subsidiaries (with the latter, in the case of the Company’s non-U.S. subsidiaries, being limited to 65% of the capital stock) (collectively, the “Collateral”). Upon the Company’s receipt of proceeds from certain transactions, such as certain asset sales (including net cash proceeds arising from the Company’s beneficial interest in the Altamira Trust), the Company is required to prepay with such proceeds any loans then outstanding under the Revolving Credit Facility. The Company is currently in compliance with all of the restrictions and covenants of its new Revolving Credit Facility, as amended. All loans outstanding under the Revolving Credit Facility bear interest at the Base Rate plus applicable interest margin or the LIBOR rate plus an applicable interest margin based upon the Company’s debt to EBITDA ratio. As of September 28, 2003, the Company had no outstanding borrowings and had approximately $18.8 million available for borrowing under the Revolving Credit Facility.

The Company’s U.K. operation has a separate secured bank and credit arrangement which is available to finance operations at that location. This agreement, which expires on December 31, 2004, generally provides for the borrowing of up to approximately $5.1 million in local currencies at variable interest rates that, for fiscal 2003, averaged 7.75%. As of September 28, 2003, the Company had no outstanding borrowings under that facility. The credit facility is considered by management to be adequate.

Cash provided by operations totaled $11.3 million in fiscal 2003, compared to $41.7 million in fiscal 2002. Fiscal 2003 was negatively affected by the payments of pre-petition liabilities pursuant to the Plan. In fiscal 2002, cash was generated through reductions of receivables and inventory, although the Company sustained significant losses.

Working capital was $115.0 million at September 28, 2003 compared to working capital of $112.8 million at September 29, 2002. The increase in working capital in fiscal 2003 was the result of an overall reduction in accounts payable offset by the writedown of the Mexico City net assets. In addition, the Company increased cash and cash equivalents by $14.1 million during fiscal 2003.

Cash provided by investing activities totaled $6.1 million in fiscal 2003, compared to cash provided by investing activities of $36.0 million in fiscal 2002. Capital expenditures increased to $10.8 million in fiscal 2003 from $7.3 million in fiscal 2002. Proceeds from dispositions of assets totaled $0.6 million during fiscal 2003, compared to $29.0 million in fiscal 2002. Fiscal 2002 included dispositions primarily from the sale of idle plant and machinery from closed facilities. Fiscal 2003 also included proceeds from the surrender of life insurance policies of $18.1 million compared to $12.0 million in fiscal 2002.

Cash used in financing activities totaled $3.4 million in fiscal 2003, compared to cash used in financing activities of $58.1 million in fiscal 2002. During fiscal 2003, the Company paid $2.5 million on long term debt. In fiscal 2003, the Mexico City operations converted approximately $6.2 million of its short-term debt to long term. The Company repaid short-term borrowings of $27.3 million during fiscal 2002 and, in connection with the bankruptcy reorganization, paid $32.3 million in cash to the Company’s senior lenders.

Based upon the ability to generate working capital through its operations, cash on hand and its Revolving Credit Facility, the Company believes that it has the financial resources necessary to implement its business plan, make all necessary contributions to its defined benefit retirement plans, which contributions are expected to be approximately $4.2 million in fiscal 2004, and fund its capital expenditures, which are primarily for process improvement, cost reduction and maintenance and are expected to be approximately $12.0 million in fiscal 2004.

Inflation

The Company believes that the relatively moderate inflation rate of the past decade has not significantly impacted its operations. Monetary assets (such as cash and cash equivalents) lose purchasing power as a result of inflation, while monetary liabilities (such as accounts payable and indebtedness) can be settled with dollars of diminished purchasing power. The Company’s monetary liabilities exceed its monetary assets, which provides a hedge against the effects of future inflation. While the Company is exposed to future inflation, the degree of impact, if any, cannot be predicted.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”, which was effective for business combinations initiated after June 30, 2001. The Company did not acquire any entity subsequent to June 2001, however, the principles of SFAS No. 141 were applied in accordance with Fresh Start Reporting.

In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 provides for cessation of amortization of goodwill and other intangibles considered to have indefinite lives and includes requirements for periodic tests of goodwill and indefinitely lived intangible assets for impairment. The Company adopted SFAS 142 as part of its Fresh Start Reporting. The impact of adopting this pronouncement was not material to the Company’s financial statements.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 requires that one accounting model be used for impairments of long-lived assets which are to be either used in a business or disposed of by sale, and broadens the presentation of discontinued operations to encompass more discrete components of a business enterprise than were included under previous standards. The Company adopted SFAS No.144 as part of its Fresh Start Reporting. The impact of adopting this pronouncement was not material to the Company’s financial statements.

In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements 4, 44 and 64, Amendment to FASB Statement 13, and Technical Corrections. One of the major changes of this statement is to change the accounting for the classification of gains and losses from the extinguishment of debt. Accordingly, the Company will follow APB 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” in determining whether such extinguishment of debt may be classified as extraordinary. The Company adopted SFAS No. 145 as part of its Fresh Start Reporting. As a result, the Company has classified gains and losses from debt restructuring as a component of other expense. Reference is made to Item 8 - Financial Statements and Supplementary Data — Consolidated Statements of Operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that were previously accounted for pursuant to the guidance that the Emerging Issues Task Force (“EITF”) has set forth in EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs incurred in a Restructuring). A fundamental conclusion reached by the Board in this Statement is that an entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Therefore, this SFAS eliminates the definition and requirements for recognition of exit costs in EITF Issue No. 94-3. This statement also establishes that fair value is the objective for initial measurement of the liability. The scope of SFAS No. 146 also includes (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement or an individual deferred-compensation contract. The Company implemented the provisions of this accounting pronouncement connected with the restructuring of its operations in fiscal 2003, as described in Note 5 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this document.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. This Statement, which is effective for fiscal years ending after December 15, 2002, amends SFAS No. 123, Accounting for Stock-Based Compensation, and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 regardless of the accounting method used to account for stock-based compensation. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company implemented the enhanced disclosure provisions as defined by Statement No. 148 during the second quarter of fiscal 2003.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities. The Statement is primarily effective for transactions occurring after June 30, 2003. The Company adopted this Statement in the fourth quarter of fiscal 2003, and such adoption did not have a material effect on the Company’s results of operations and financial position.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted this Statement in its fourth quarter of fiscal 2003, and such adoption did not have an effect on the Company’s financial position or results of operations.

In November 2002, the FASB’s EITF reached consensus on EITF No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. EITF No. 00-21 addresses the accounting treatment for arrangements that provide the delivery or performance of multiple products or services where the delivery of a product, system or performance of services may occur at different points in time or over different periods of time. EITF No. 00-21 is applicable to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company adopted this Statement in its fourth quarter of fiscal 2003, and such adoption did not have an effect on the Company’s financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34. FIN No. 45 clarifies the requirements of FASB Statement No. 5, Accounting for Contingencies relating to the guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. For guarantees that fall within the scope of FIN No. 45, the Interpretation requires that guarantors recognize a liability equal to the fair value of the guarantee upon its issuance. The disclosure provisions of the Interpretation are effective for financial statements of interim or annual periods that end after December 15, 2002. However, the provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor’s year-end. The Company is not a party to any guarantees that fall within the scope of FIN No. 45.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities, to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. Until now, one company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN No. 46 changes that by requiring a variable interest entity, as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. In October 2003, the FASB issued Proposed Interpretation of FIN No. 46, which would require consolidation of variable interest entities created before February 1, 2003 for financial statements issued for the first reporting period ending after December 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not currently believe that the implementation of FIN No. 46 will have a material effect on its future results of operations or its financial position.

Contingencies

The Company is involved in various litigation and environmental matters arising in the ordinary course of business. These are discussed in Note 16 to the Consolidated Financial Statements which are included herein under Item 8 “Financial Statements and Supplementary Data” of this document. The Company maintains insurance coverage against certain potential claims in amounts that the Company believes to be adequate. As a result of the bankruptcy proceedings described above, holders of claims that were asserted or could be asserted in any action commenced prior to March 13, 2002 retain all rights to proceed against the Company, but only to the extent and limit of applicable insurance coverage. Such claim holders have no direct claim against the Company post-confirmation of bankruptcy including any deductible under an insurance policy or any excess over the policy coverage limits. 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

Readers should review the “Important Information Regarding this Form 10-K - Safe Harbor-Forward Looking Statements” at the beginning of this document.

The Company has undergone substantial changes over the last two years, exiting or downsizing its unprofitable lines of business, including Direct-to-Retail Home Fashions and Apparel, culminating in the financial reorganization in bankruptcy which resulted in a more viable capital structure.

Guilford is, and plans to continue to be, a company focused on serving its primary customer base, the automotive industry. While participation in the industrial and apparel markets is important to balance manufacturing capacity and to generate positive earnings, the Company plans to dedicate substantially all of its efforts and resources towards its Automotive segment.

A key component in the continued profitability of the Automotive segment will be the number of vehicles built by auto manufacturers in Guilford’s markets (North America and Europe). Many analysts project North American and Western Europe car build rates to increase slightly in 2004 and 2005 compared with 2003. The Company expects continued sales growth in headliner fabric in Europe based upon booked business with BMW and Volkswagen while sales of headliner fabric in North America are expected to increase based on higher value added products and slight increases in build rates. The Company expects that it will continue to experience pressure from its customers for reductions in selling prices. The Company has generally been successful in protecting its margins through cost reduction efforts and anticipates it will be able to do so in the foreseeable future.

The Company’s Automotive segment has historically not seen significant competitive threats from foreign textile manufacturers. Auto manufacturers and their suppliers have typically desired that their sources of supply be locally situated in order to have greater confidence in the supply chain and to avoid the complexities and issues associated with importing fabrics or components from foreign countries. However, during 2003, one major auto manufacturer chose to import fabric from Asia for one of its programs previously supplied by Guilford. There is indication that this manufacturer and others are evaluating Asian sourcing in an effort to reduce costs. The Company has maintained and protected its position on other fabric programs with these auto manufacturers, although at lower initial margins, and has not lost additional programs to Asian suppliers. The impact of the actions to date is not expected to have a material impact on the financial position or future results of operations. It is currently unclear whether the significant logistical problems associated with sourcing fabric in Asia can be economically resolved by the auto manufacturers. If, however, importation of fabric or components were to become a trend among auto manufacturers, such a trend could materially adversely impact the Company’s business, and the Company would need to determine how to respond to this new competitive threat.

Because the Company’s reorganization in bankruptcy was completed relatively quickly, Guilford believes it was generally able to preserve its strong customer and supplier relationships. Guilford is a well-established, key supplier to the automotive industry with substantial market share, and expects to continue to grow and improve its profitability in the future.


Item 7A.		Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk for changes in interest rates and foreign currency exchange rates and has exposure to commodity price risk, including prices of primary raw materials, fiber and foam. 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 Revolving Credit Facility bear interest at floating rates and therefore, the Company is impacted by changes in prevailing interest rates. However, the senior notes bear fixed interest coupons and therefore are not subject to the risk of interest rate fluctuations. A 10% change in market interest rates that affect the Company’s financial instruments would impact earnings during fiscal 2004 by less than $0.1 million before taxes.

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 non-U.S. subsidiaries. The Company manages the exposure related to certain of these risks through forward foreign exchange contracts with durations 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 foreign currency exchange contracts in the normal course of business to manage exposure related to anticipated sales denominated in foreign currencies and against fluctuations in the purchase price of capital equipment and other transactions having firm commitments. On September 28, 2003, the Company held foreign currency forward contracts with a fair value of $45.9 million and a notional value of $45.4 million that expire in less than one year. The Company did not enter into any forward exchange contracts in fiscal 2001 and 2002.


Item 8.		Financial Statements and Supplementary Data

GUILFORD MILLS, INC.
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
As of September 28, 2003 and September 29, 2002 and for the fiscal years ended
September 28, 2003, September 29, 2002 and September 30, 2001.


	Page

Statement of Management’s Responsibility		24
Reports of Independent Public Accountants		25
Consolidated Balance Sheets		28
Consolidated Statements of Operations		29
Consolidated Statements of Stockholders’ Investment		30
Consolidated Statements of Cash Flows		31
Notes to the Consolidated Financial Statements		32
Quarterly Information (Unaudited)		60
Schedule II — Analysis of Valuation and Qualifying Accounts		61

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 accompanying financial statements, including footnotes, have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accompanying 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 accounting principles generally accepted in the United States of America. 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 statements 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 the 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/ David H. Taylor

David H. Taylor
Chief Financial Officer

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Stockholders and Board of Directors
Guilford Mills, Inc.:

We have audited the accompanying consolidated balance sheets of Guilford Mills, Inc. (a Delaware corporation) and subsidiaries as of September 28, 2003 (Successor Company) and September 29, 2002 (Successor Company) and the related consolidated statements of operations, stockholders’ investment and cash flows for the years ended September 28, 2003 (Successor Company) and September 29, 2002 (Predecessor Company). These financial statements and the schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. The consolidated financial statements of Guilford Mills, Inc. and subsidiaries for the year ended September 30, 2001 (Predecessor Company) were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those Predecessor Company financial statements in their report dated January 14, 2002. Their report also included an explanatory paragraph that the Predecessor Company’s substantial losses from operations in fiscal 2001 and debt covenant violations raised substantial doubt about the Predecessor Company’s ability to continue as a going concern.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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.

As discussed in Notes 1 and 3 to the Consolidated Financial Statements, on March 13, 2002, Guilford Mills, Inc. and its domestic subsidiaries filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in New York. On September 20, 2002, the Bankruptcy Court entered an order confirming the plan of reorganization, which became effective on October 4, 2002. The plan was deemed to be effective as of September 29, 2002 for financial reporting purposes. Accordingly, the Company changed its basis of financial statement presentation to reflect the adoption of fresh start reporting in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting for Entities in Reorganization Under the Bankruptcy Code”. As a result, the consolidated financial statements for periods subsequent to the reorganization (Successor Company financial statements) are not comparable to the consolidated financial statements for the prior periods (Predecessor Company financial statements).

In our opinion, the consolidated balance sheets present fairly, in all material respects, the financial position of Guilford Mills, Inc. and subsidiaries as of September 28, 2003 (Successor Company) and September 29, 2002 (Successor Company) in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the consolidated financial statements for the years ended September 28, 2003 (Successor Company) and September 29, 2002 (Predecessor Company) present fairly, in all material respects, the results of the Successor Company’s operations and its cash flows for the year ended September 29, 2003 and Predecessor Company’s operations and its cash flows for the year ended September 29, 2002, in conformity with accounting principles generally accepted in the United States of America.

As discussed above, the consolidated financial statements of Guilford Mills, Inc. and subsidiaries for the year ended September 30, 2001 were audited by other auditors who have ceased operations. As described in Note 2, the loss from debt restructuring originally presented as an Extraordinary Item has been presented as a component of Other Expense in the fiscal 2001 Predecessor Company consolidated financial statements in connection with the Company’s adoption of Statement of Financial Accounting Standards (“SFAS”) No. 145, “Rescission of FASB Statements 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. Also, as described in Note 2, the Company changed the composition of its reportable segments in fiscal 2002, and the amounts in the fiscal 2001 (Predecessor Company) consolidated financial statements relating to reportable segments have been restated to conform to the fiscal 2003 and 2002 composition of reportable segments. We audited the adjustments described in Note 2 that were applied to reclassify the loss from debt restructuring in the fiscal 2001 Predecessor Company consolidated financial statements, and we audited the adjustments described in Note 2 that were applied to restate the disclosures for reportable segments reflected in the fiscal 2001 Predecessor Company consolidated financial statements. In our opinion, such adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the fiscal 2001 Predecessor Company consolidated financial statements of the Company other than with respect to such adjustments and, accordingly, we do not express an opinion or any other form of assurance on the fiscal 2001 Predecessor Company consolidated financial statements taken as a whole.

Our audit was made for the purpose of forming an opinion on the fiscal 2003 and fiscal 2002 consolidated financial statements taken as a whole. The schedule listed in Item 15(a)(2) of this form 10-K is the responsibility of the Company’s management and is presented for the purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. The information included in this schedule for the years ended September 28, 2003 and September 29, 2002 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. The financial statement schedule for the year ended September 30, 2001 was audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on the financial statement schedule in their report dated January 14, 2002.

/s/ GRANT THORNTON LLP

Greensboro, North Carolina
December 5, 2003

THE FOLLOWING IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. See Exhibit 23(b) for further discussion.

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 September 30, 2001 and October 1, 2000, and the related consolidated statements of operations, stockholders’ investment and cash flows for each of the three years in the period ended September 30, 2001. These financial statements and the schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 September 30, 2001 and October 1, 2000 and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered substantial losses from operations, its lenders have waived covenant violations only through January 18, 2002 and it is uncertain if they will continue to waive their right to accelerate the due date of the debt or enter into a new long-term debt agreement. These facts raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule titled “Schedule II - Analysis of Valuation and Qualifying Accounts” in Item 8 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 audits 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
January 14, 2002

GUILFORD MILLS, INC.
CONSOLIDATED BALANCE SHEETS
September 29, 2002 and September 28, 2003
(In thousands)


		Successor		Successor
		Company		Company

		2002		2003

Assets
Cash and cash equivalents		$	25,074	$	39,151
Receivables, net			91,614		59,083
Inventories			62,341		51,353
Assets held for sale			—		18,620
Other current assets			13,169		5,473

	Total current assets		192,198		173,680
Property, net			114,981		98,203
Altamira trust assets			22,000		20,800
Other assets			10,318		11,005

	Total assets	$	339,497	$	303,688

Liabilities
Short-term borrowings		$	6,199	$	—
Current maturities of long-term debt			417		319
Accounts payable			41,952		21,190
Accrued payroll and related benefits			14,701		11,471
Deferred income taxes			1,210		139
Liabilities held for sale			—		18,620
Other current liabilities			14,914		6,958

	Total current liabilities		79,393		58,697

Long-term debt to related parties			135,000		135,000
Other long-term debt			1,939		—
Altamira trust notes			22,000		20,800
Deferred income taxes			1,247		33
Other liabilities			44,918		39,543

	Total long-term liabilities		205,104		195,376

Commitments and Contingencies (Notes 16 & 18)
Stockholders’ Investment
Common stock, including capital in excess of par (5,501,053 shares issued and outstanding at September 29, 2002 and September 28, 2003)			55,000		56,381
Accumulated deficit			—		(8,606	)
Unamortized stock compensation			—		(430	)
Accumulated other comprehensive income			—		2,270

	Total stockholders’ investment		55,000		49,615

	Total liabilities and stockholders’ investment	$	339,497	$	303,688

The accompanying notes to consolidated financial statements are an integral part of these balance sheets.

GUILFORD MILLS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

For the Fiscal Years ended September 30, 2001, September 29, 2002 and September 28, 2003
(In thousands except per share data)


									Successor
			Predecessor Company						Company

			2001			2002			2003

Net Sales			$	643,519		$	513,173		$	445,971
Cost of goods sold				612,707			487,114			378,665

	Gross Profit			30,812			26,059			67,306
Selling and administrative				82,274			65,380			43,665
Reorganization costs				—			14,350			1,326
Restructuring and impaired asset charges				71,375			71,050			16,599

Operating income (loss)				(122,837	)		(124,721	)		5,716
Interest expense				25,292			14,080			15,612
Fresh start adjustments				—			16,393			—
(Gain) loss on debt restructuring				4,725			(20,588	)		—
Impaired investments				11,451			8,063			—
Other expense (income), net				911			(2,963	)		(120	)

Loss Before Income Tax Benefit				(165,216	)		(139,706	)		(9,776	)
Income Tax Benefit				(4,459	)		(16,393	)		(1,170	)

Net Loss			$	(160,757	)	$	(123,313	)	$	(8,606	)

Net Loss Per Share:
		Basic	$	(8.48	)	$	(6.66	)	$	(1.56	)
		Diluted		(8.48	)		(6.66	)		(1.56	)

The accompanying notes to consolidated financial statements are an integral part of these statements

GUILFORD MILLS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ INVESTMENT

For the Fiscal Years ended September 30, 2001, September 29, 2002 and September 28, 2003
(in thousands)


																	Retained			Accumulated
					Current Year			Common Stock						Capital in			Earnings			Other			Unamortized			Treasury Stock						Total
					Comprehensive									Excess of			(Accumulated			Comprehensive			Stock									Stockholders'
					Income (Loss)			Shares			$ Amount			Par			Deficit)			Income (Loss)			Compensation			Shares			$ Amount			Investment

Predecessor Company Balance, October 1, 2000									32,750		$	655		$	120,371		$	336,505		$	(17,164	)	$	(2,084	)		13,556		$	(128,511	)	$	309,772
	Comprehensive income:
			Net Loss		$	(160,757	)											(160,757	)														(160,757	)
			Other comprehensive loss, net of tax:
			Foreign currency translation loss			(2,251	)														(2,251	)											(2,251	)
			Pension equity adjustment			(5,133	)														(5,133	)											(5,133	)

				Total comprehensive loss	$	(168,141	)

	Vesting of shares under the restricted stock plan, less return of shares to treasury stock to satisfy recipients’ individual tax obligations																										11			(25	)		(25	)
	Compensation under restricted stock plan																							1,136									1,136
	Cancellation of grants of shares under the Restricted stock plan														(35	)								143			20			(108	)		—
	U.S. income tax expense from restricted stock														(123	)																	(123	)
	Return of shares by former owner of Hofmann Laces																										573			(1,232	)		(1,232	)
	Issuance of treasury stock to retiring members of the Board of Directors under phantom stock plan														(229	)											(37	)		351			122

Predecessor Company Balance, September 30, 2001									32,750			655			119,984			175,748			(24,548	)		(805	)		14,123			(129,525	)		141,509
	Comprehensive income:
			Net Loss		$	(123,313	)											(123,313	)														(123,313	)
			Other comprehensive loss, net of tax:
			Foreign currency translation gain			3,451															3,451												3,451
			Pension equity adjustment			(16,657	)														(16,657	)											(16,657	)

				Total comprehensive loss	$	(136,519	)

	Cancellation of grants of shares under the Restricted stock plan																							33			6			(125	)		(92	)
	Compensation under restricted stock plan																							604									604
	Effect of Reorganization:
		Cancellation of old common stock							(32,750	)		(655	)														(14,129	)		129,650			128,995
		Fresh start adjustments													(119,984	)		(52,435	)		37,754			168									(134,497	)
		New common stock issued in reorganization							5,501			55			54,945																		55,000

Successor Company Balance, September 29, 2002									5,501			55			54,945			—			—			—			—			—			55,000
	Comprehensive income:
			Net Loss		$	(8,606	)											(8,606	)														(8,606	)
			Other comprehensive loss, net of tax:
			Foreign currency translation gain			2,066															2,066												2,066
			Pension equity adjustment			(120	)														(120	)											(120	)
			Forward foreign currency exchange contracts			324															324												324

				Total comprehensive loss	$	(6,336	)

	Issuance of employee stock options														510									(510	)								—
	Compensation under stock option plan																							80									80
	Reversal of tax valuation allowances														871																		871

Successor Company Balance, September 28, 2003									5,501		$	55		$	56,326		$	(8,606	)	$	2,270		$	(430	)		—		$	—		$	49,615

The accompanying notes to consolidated financial statements are an integral part of these statements.

GUILFORD MILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Fiscal Years ended September 30, 2001, September 29, 2002, and September 28, 2003
(in thousands)


								Predecessor				Successor
					Company							Company

					2001				2002			2003

OPERATING ACTIVITIES
	Net loss				$	(160,757	)		$	(123,313	)	$	(8,606	)
	Adjustments required to reconcile net loss to net cash provided by operating activities:
			Depreciation and amortization			56,636				38,129			15,452
			Unexpended restructuring costs			57,947				65,725			15,883
			Fresh start adjustments			—				16,393			—
			Non-cash reorganization items			—				3,351			—
			Gain on sale of investments			—				(776	)		—
			Loss on equity method investments			14,286				9,595			73
			Gain on return of shares			(1,232	)			—			—
			Gain (loss) on debt extinguishments			4,725				(20,588	)		—
			Gain (loss) on disposition of property			(2,144	)			(9,027	)		56
			Provision for bad debts			1,299				5,848			(1,378	)
			Minority interest in net loss			(172	)			96			(143	)
			Deferred income taxes			(1,149	)			(1,209	)		(1,580	)
			Increase in cash surrender value of life insurance			(2,810	)			(1,602	)		(294	)
			Compensation earned under equity stock plan			1,279				637			80
			Changes in assets and liabilities:
				Receivables		38,246				17,028			6,389
				Inventories		35,645				42,260			2,570
				Other current assets		193				431			8,252
				Accounts payable		(12,670	)			(345	)		(12,792	)
				Accrued liabilities		(17,072	)			9,052			(10,014	)
				Other assets and liabilities		(5,010	)			(10,026	)		(2,635	)

	Net cash provided by operating activities					7,240				41,659			11,313

INVESTING ACTIVITIES
	Additions to property					(53,163	)			(7,271	)		(10,760	)
	Proceeds from dispositions of property and other assets					2,666				29,046			600
	Proceeds from life insurance policies					11,652				11,957			18,136
	Proceeds from sale of investments					—				2,680			—
	Investment in equity investee					(4,874	)			(397	)		(1,855	)

	Net cash (used in) provided by investing activities					(43,719	)			36,015			6,121

FINANCING ACTIVITIES
	Short-term borrowings (repayments), net					22,134				(27,297	)		(7,869	)
	Payments of long-term debt					(113,751	)			(36,576	)		(2,543	)
	Proceeds from issuance of long-term debt, net of deferred financing costs paid					110,029				38,000			7,024
	Payment to senior secured lenders in reorganization					—				(32,273	)		—

	Net cash provided by (used in) financing activities					18,412				(58,146	)		(3,388	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents						(162	)			(99	)		31

Net (Decrease) Increase in Cash and Cash Equivalents						(18,229	)			19,429			14,077
Beginning Cash and Cash Equivalents						23,874				5,645			25,074

Ending Cash and Cash Equivalents					$	5,645			$	25,074		$	39,151

Supplemental disclosure of cash flow information:
		Cash paid for interest			$	26,550			$	4,100		$	10,888
		Cash received for income taxes, net				(3,209	)			(14,799	)		(3,682	)

The accompanying notes to consolidated financial statements are an integral part of these statements.

Notes to Consolidated Financial Statements
(In thousands except share and per share data)

1. Description of Business and Basis of Presentation:

Description of Business - Historically, Guilford Mills, Inc. (“Guilford” or “the Company”) operated as a diversified textile manufacturer and participated in a broad range of markets and segments. During 2001 and 2002, the Company restructured and reorganized its operations, exiting many markets and concentrating its resources and energies in areas which it believes are stable and provide opportunities for profitable growth. As a result, Guilford is now primarily a supplier of automotive textile products. The Company currently participates in the following segments: Automotive, Industrial and Apparel.

Basis of Presentation - On March 5, 2002, the Company reached an agreement in principle with its senior lenders on a restructuring of the Company’s approximately $274,000 senior indebtedness. To conclude the restructuring as quickly as possible, the Company and its domestic subsidiaries (collectively, the “Debtors”) filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) on March 13, 2002 (the “Filing Date”). The Chapter 11 cases were jointly administered under case no. 02-40667 (BRL) and, pursuant to the Bankruptcy Court’s approval of the Plan as defined below, were substantively consolidated for the purpose of consummating the Plan. During the period from the Filing Date until October 4, 2002 (the “Effective Date”), the Debtors operated their business as debtors-in-possession under Chapter 11 of the Bankruptcy Code. The Company’s non-U.S. subsidiaries did not file voluntary petitions and were, therefore, not Debtors.

The Company’s amended joint plan of reorganization dated August 15, 2002 (the “Plan”), was confirmed by the Bankruptcy Court on September 20, 2002, and on October 4, 2002, the Debtors emerged from their bankruptcy proceedings.

On or about the Effective Date, the following transactions or events occurred:

1. The Company’s senior secured debt of approximately $274,000 was discharged, and was replaced with new senior secured notes, due October 4, 2005, totaling $135,000.

3. The Company transferred approximately $70,000 in cash and property to trusts and its senior lenders, as partial consideration for the debt reduction described above.

4. The Company’s $30,000 Debtor-In-Possession Credit Agreement, dated as of March 13, 2002, with Wachovia Bank was cancelled and the Company entered into a $25,000 revolving credit facility.

5. The Company began paying in cash approximately $15,600 in pre-petition liabilities to its vendors, payment of which had been stayed during the bankruptcy proceedings.

6. The new members of the board of directors began serving as directors.

Upon emergence from Chapter 11, the Company adopted the provisions of Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“Fresh Start Reporting” or “SOP 90-7”) as promulgated by the AICPA. Accordingly, all assets and liabilities have been restated to reflect their reorganization value, which approximates their fair value at the Effective Date. The Company recorded the effects of the Plan and Fresh Start Reporting as of September 29, 2002. The consolidated balance sheet and related information at September 29, 2002 and financial statements as of September 28, 2003 and for the fiscal year then ended are referred to as Successor Company, and reflect the effects of the reorganization and the principles of Fresh Start Reporting. Financial statement amounts prior to September 29, 2002, including the results of operations and cash flows for the year ended September 29, 2002, reflect operations prior to the Company’s emergence from Chapter 11 proceedings, and are referred to as Predecessor

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

Company. As a result of the application of Fresh Start Reporting, the financial statements of the Successor Company (as defined herein) are not comparable to the Predecessor Company’s (as defined herein) financial statements.

The reorganization value of the Company’s new common equity of $55,000 was determined based on an independent valuation by financial specialists after consideration of several factors and by using various valuation methods including appraisals, cash flow multiples, price/earnings ratios and other relevant industry information. The reorganization value of the Company has been allocated to various asset categories pursuant to Fresh Start Reporting principles.

The fiscal 2002 and 2003 consolidated statements of operations reflect certain restructuring fees and expenses including professional fees and expenses directly related to the reorganization. Interest expense in fiscal 2002 on the Company’s senior secured debt has been reported to the Filing Date. Such interest expense was not reported subsequent to the Filing Date through the Effective Date because it was not required to be paid. The difference between reported interest expense and stated contractual interest expense of the Predecessor Company was approximately $12,600 during the period March 13, 2002 to September 29, 2002.

In fiscal 2002, as a result of the consummation of the Plan, the Company recognized a gain on reorganization of $20,588. This gain reflects the forgiveness of debt and interest of $273,870, in consideration of new senior secured notes of $135,000, new common stock valued at $49,500, cash of $32,273 and other assets of $36,509 conveyed into two trusts as described below.

Pursuant to the Plan, on the Effective Date, the Company transferred to a newly created trust certain assets relating to the Company’s discontinued operations located in Altamira, Mexico (the “Altamira Trust”). Such assets, which had an estimated fair market value of $22,000 at the time the Altamira Trust was established, include (among other items) the Company’s 50% equity interest in a joint venture which owns certain infrastructure assets in an Altamira industrial park as well as stock of the Company’s wholly-owned Mexican subsidiaries which (until the fourth quarter of the Company’s 2002 fiscal year) had operated in such park. The Altamira Trust issued notes to the secured lenders in the aggregate principal amount of $22,000 (the “Altamira Trust Notes”) in connection with the implementation of the Plan and in partial satisfaction of such lenders’ pre-petition claim against the Company. The Altamira Trust Notes are secured by liens on all of the Altamira Trust assets, bear interest at the annual rate of 10%, are payable on October 4, 2005, and are payable only from the Altamira Trust assets. The trustee of the Altamira Trust is required to pay all liabilities and obligations of the Altamira Trust from the Altamira Trust assets. The Company is not a guarantor of, nor otherwise responsible for, the payment of the Altamira Trust Notes or other liabilities of the Altamira Trust. The Company is, however, the sole beneficiary of the Altamira Trust and, therefore, is entitled to receive the Altamira Trust assets remaining, if any, after the payment in full of the Altamira Trust Notes and of all other liabilities and obligations of the Altamira Trust. Under the provisions of SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — A Restatement of FASB Statement No. 125” (SFAS No. 140), the Company has recognized the assets and liabilities of the Altamira Trust in its consolidated financial statements.

During fiscal 2003, the Altamira Trust paid $1,200 in partial satisfaction of the Altamira Trust Notes. The trustee of the Altamira Trust continues to liquidate assets to satisfy the Altamira Trust Notes and other liabilities and obligations of the Altamira Trust. While the Company is sole beneficiary of the Altamira Trust, all Altamira Trust Notes and other liabilities and obligations of the Altamira Trust must be paid in full before the Company can receive any benefit. The Company has recorded no benefit as of September 28, 2003 related to the Altamira Trust as none is currently anticipated. The Company’s receipt of any net cash proceeds relating to the Company’s beneficial interest in the Altamira Trust will trigger prepayment obligations under the Company’s senior loan agreements.

On the Effective Date, the Company also transferred pursuant to the Plan certain assets relating to certain domestic operations to a separate, newly created trust, the sole beneficiaries of which are the secured lenders (the “Discontinued Operations Trust”). Such assets include real and personal property which had an estimated fair value of $16,300 at that time. The Discontinued Operations Trust issued notes to the secured lenders in the aggregate principal amount of approximately $16,300 (the “Discontinued Operations Trust Notes”) in connection with the implementation of the Plan and in partial satisfaction of such lenders’ pre-petition claim against the Company. (The Company also distributed to the secured lenders on the Effective Date cash in the aggregate amount of $32,207, an amount representing proceeds from the sale of certain other discontinued assets consummated prior to the Effective Date.) The Discontinued Operations Trust Notes are secured by liens on all of the Discontinued Operations Trust assets, bear interest at the annual rate of 10%, are payable on October 4, 2005, and are payable only from the Discontinued Operations Trust assets. The trustee

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

of the Discontinued Operations Trust is required to pay all liabilities and obligations of the Discontinued Operations Trust from Discontinued Operations Trust assets. The Company is not a guarantor of, nor otherwise responsible for, the payment of the Discontinued Operations Trust Notes or other liabilities of the Discontinued Operations Trust. The Company retains no beneficial interest in the Discontinued Operations Trust or in any assets held by the Discontinued Operations Trust.

2. Summary of Significant Accounting Policies

Principles of Consolidation - The Consolidated Financial Statements include the accounts of Guilford Mills, Inc. and its majority-owned and controlled subsidiaries and, as described in Note 1, the assets and liabilities of the Altamira Trust. All significant intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Year End - The Company’s fiscal year ends on the Sunday nearest to September 30. Fiscal year 2003 ended September 28, 2003, fiscal year 2002 ended September 29, 2002 and fiscal year 2001 ended September 30, 2001. Each year includes the results of operations for 52 weeks.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 2002 and 2001 financial statements have been reclassified to conform to the 2003 presentation. Certain amounts were reclassified in fiscal 2002 relating to the loss from debt restructuring in fiscal 2001 and certain segment reporting information due to changes in the composition of reportable segments.

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 performs ongoing credit evaluations of the financial condition of all its customers that are provided credit on open account. Allowances for doubtful accounts are provided based on historical experience and past due amounts as well as overall economic conditions. The Company evaluates delinquency of accounts on a specific review basis and charges off trade receivables when deemed uncollectible. The Company maintains credit insurance and uses factors as a means to reduce credit risk. As of September 28, 2003, credit insurance covering $35,600 of certain outstanding accounts receivable was maintained. The Company factors a portion of its trade accounts receivable to a factor, which provides credit approval on a non-recourse basis. As of September 28, 2003 and September 29, 2002, approximately 6% and 20%, respectively, of the Company’s trade accounts receivable were factored. The factoring agreement allows the Company to borrow against the factored receivables using negotiated interest rates. The Successor Company had borrowing availability of $2,995 as of September 28, 2003, but had no borrowings outstanding as of that date. The Successor Company’s new credit agreement restricts levels of factored receivables to $10,000 at all times after the Effective Date.

The Company has a large number of customers. During fiscal 2003, two of the Company’s automotive customers, Johnson Controls, Inc. and Lear Corporation, each of which are suppliers to original equipment manufacturers (“OEMs”), accounted for 20.0% and 10.8% of the Company’s sales, respectively. During fiscal 2002, Johnson Controls, Inc. and Lear Corporation, accounted for 14.1% and 10.3% of the Company’s sales, respectively. No customer accounted for 10% or more of total net sales during fiscal 2001. The Company’s net sales reflect substantial indirect sales to certain OEMs.

Receivables allowances were $2,993 and $7,842 at September 28, 2003 and September 29, 2002, 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. Net receivables at September 29, 2002 approximated fair value for purposes of Fresh Start Reporting (See Note 3).

Minority Interest - Minority interest represents the minority stockholders’ proportionate share of the equity of a certain American Textil Group company (as defined in Note 5) based in Mexico City. In fiscal 2002, this amount was included in other long-term liabilities in the accompanying consolidated balance sheets. In fiscal 2003, minority interest is included in liabilities held for sale in the accompanying consolidated balance sheets (see Note 5).

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

Inventories - Inventories of the Company are carried at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method for all inventories in fiscal 2003. Inventory at September 29, 2002 was revalued pursuant to Fresh Start Reporting (See Note 3). The Predecessor Company valued its inventories utilizing the last in, first out (LIFO) method for certain inventories in fiscal 2002 and 2001.

Property, Plant and Equipment - Property is carried at cost, and depreciation is provided for financial reporting purposes 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. Certain property whose value has been determined to be impaired has been written down to fair market value (See Note 5). Property, plant and equipment at September 29, 2002 was revalued pursuant to Fresh Start Reporting (See Note 3).

Investment in Affiliated Companies - The equity method of accounting is used for investments in which the Company has significant influence. Generally this represents common stock ownership or partnership equity of at least 20% and not more than 50%. For equity method investments that have been reduced to $0 through equity method losses, additional equity losses incurred have been used to reduce loans to and investment in other securities or assets of the investees. The cost method of accounting is used for investments in which the Company does not have significant influence. Generally this represents common stock ownership or partnership equity of less than 20%. These investments were revalued at September 29, 2002 pursuant to Fresh Start Reporting (See Note 3).

Goodwill and Intangible Assets - Prior to the Company’s emergence from bankruptcy and application of Fresh Start Reporting, goodwill had been amortized using the straight-line method over periods ranging from twenty to forty years. Goodwill amortization was $0, $584 and $1,916 in fiscal 2003, 2002 and 2001, respectively. Under the terms of Statement of Financial Accounting Standards (“SFAS”) No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”, the Company recognized goodwill impairments totaling $9,012 in fiscal 2002, as a result of closures or exits from certain of the Company’s acquired businesses. Upon emergence from bankruptcy, the Company wrote off all remaining goodwill pursuant to Fresh Start Reporting (See Note 3).

Restricted Cash - As a part of the Plan, the Company established a segregated account with $3,022 in cash to be utilized only to make payments to certain participants in certain non-qualified benefit plans. Restricted cash is included in Other Assets.

Long-lived Assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset or its disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use are based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or net realizable value. See Note 5 for discussion of asset impairment charges recorded in fiscal 2003, fiscal 2002 and fiscal 2001.

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 SFAS No. 109, “Accounting for Income Taxes”. United States income taxes are not provided on the earnings of non-U.S. operations as those are intended to be permanently reinvested. In the event earnings are repatriated, credits received in the United States for non-U.S. income taxes previously paid will be available to substantially reduce the United States tax liability. Undistributed earnings of non-U.S. operations were $1,980 at September 28, 2003 and $0 at September 29, 2002.

Foreign Currency Translation - The financial statements of certain majority-owned non-U.S. subsidiaries are translated into U.S. dollars at the year-end rate of exchange for asset and liability accounts and the average rate of exchange for income statement accounts. The effects of translating the Company’s non-U.S. subsidiaries’ financial statements are recorded as a component of other accumulated comprehensive income (loss) in stockholders’ investment.

Revenue Recognition - The Company recognizes a sale when goods are shipped in accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” The

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

Company estimates and records provisions for sales returns and allowances in the period that the sale is reported based on its historical experience or contractual agreements.

Shipping and Handling Costs - The Company includes a majority of its costs associated with shipping and handling products within selling, general and administrative. Such costs were $2,877, $4,009 and $1,904 in fiscal 2003, 2002 and 2001, respectively.

Research and Development - The Company expenses research and development costs as incurred. Such costs were $11,746, $9,931 and $11,499 in fiscal 2003, 2002 and 2001, respectively.

Per Share Information - Basic loss per share information has been determined by dividing the respective net loss amounts by the weighted average number of shares of common stock outstanding during the periods. Diluted loss per share information also considers an additional dilutive effect of stock options and shares issued under the restricted stock plan, when applicable. All of the common stock of the Predecessor Company was cancelled upon emergence from bankruptcy.

Financial Instruments and Derivatives - The Company periodically uses derivative financial instruments for the purposes of reducing 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. The Company enters into forward foreign currency exchange contracts in the normal course of business to manage exposure related to anticipated sales denominated in foreign currencies and against fluctuations in the purchase price of capital equipment and other transactions having firm commitments. On September 28, 2003, the Company held foreign currency forward contracts with a fair value of $45,900 and a notional value of $45,400 that expire in less than one year. For fiscal 2002 and fiscal 2001, the Company determined that its anticipated sales in the Euro were naturally hedged by anticipated Euro payables and therefore, no forward foreign currency exchange contracts were purchased.

Stock-Based Compensation - The Company measured compensation expense for its stock-based employee compensation plans in accordance with SFAS No. 123, “Stock-Based Compensation,” using the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25 “Accounting for Stock Issued to Employees”.

The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based compensation expense (dollars in thousands except per share data):


		Predecessor			Predecessor			Successor
		Company			Company			Company
		2001			2002			2003

Net loss, as reported		$	(160,757	)	$	(123,313	)	$	(8,606	)
Deduct: Total stock-based compensation expense determined under fair value based method, net of tax effects			534			—			13

Pro forma net loss		$	(161,291	)	$	(123,313	)	$	(8,619	)

Net loss per share:
	Basic and Diluted — as reported	$	(8.48	)	$	(6.66	)	$	(1.56	)
	Basic and Diluted — pro forma	$	(8.51	)	$	(6.66	)	$	(1.57	)

For the above information, the fair value of each option grant for the Predecessor Company was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in fiscal 2001: (i) expected volatility ranging from 20% to 48%, (ii) expected lives ranging from 4 to 7 years, (iii) risk free interest rates ranging from 4.3% to 6.6% and (iv) an expected dividend yield of 0.0% to 5.0%. The weighted average calculated value in excess of the grant value of an option granted during fiscal 2001 under the Black-Scholes model was $0.72. There were no options granted during fiscal 2002. For the above information, the fair value of each option grant for the Successor Company in fiscal 2003 was estimated on the date of grant also using the Black-Scholes option pricing model

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

with the following assumptions: (i) expected volatility ranging from 30% to 40%, (ii) expected lives ranging from 1 to 5 years, (iii) risk free interest rate of 3.0% and (iv) an expected dividend yield of 0.0%. The weighted average grant date fair value of options granted in fiscal 2003 based upon the Black-Scholes model was $4.04.

Recent Accounting Pronouncements - In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”, which was effective for business combinations initiated after June 30, 2001. The Company did not acquire any entity subsequent to June 2001, however, the principles of SFAS No. 141 were applied in accordance with Fresh Start Reporting (See Note 3).

In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 provides for cessation of amortization of goodwill and other intangibles considered to have indefinite lives and includes requirements for periodic tests of goodwill and indefinitely lived intangible assets for impairment. The Company adopted SFAS 142 as part of its Fresh Start Reporting (See Note 3). The impact of adopting this pronouncement was not material to the Company’s financial statements.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 requires that one accounting model be used for impairments of long-lived assets which are to be either used in a business or disposed of by sale, and broadens the presentation of discontinued operations to encompass more discrete components of a business enterprise than were included under previous standards. The Company adopted SFAS No.144 as part of its Fresh Start Reporting (See Note 3). The impact of adopting this pronouncement was not material to the Company’s financial statements.

In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements 4, 44 and 64, Amendment to FASB Statement 13, and Technical Corrections. One of the major changes of this statement is to change the accounting for the classification of gains and losses from the extinguishment of debt. Accordingly, the Company will follow APB 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” in determining whether such extinguishment of debt may be classified as extraordinary. The provisions of this statement related to the rescission of FASB Statement 4 shall be applied in fiscal years beginning after May 15, 2002 with early application encouraged. The Company adopted SFAS No. 145 as part of its Fresh Start Reporting (See Note 3). As a result, the Company has classified gains and losses from debt restructuring as a component of other expense in the accompanying consolidated statements of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that were previously accounted for pursuant to the guidance that the Emerging Issues Task Force (“EITF”) has set forth in EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs incurred in a Restructuring). A fundamental conclusion reached by the Board in this Statement is that an entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Therefore, this SFAS eliminates the definition and requirements for recognition of exit costs in EITF Issue No. 94-3. This statement also establishes that fair value is the objective for initial measurement of the liability. The scope of SFAS No. 146 also includes (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement or an individual deferred-compensation contract. The Company implemented the provisions of this accounting pronouncement connected with the restructuring of its operations in fiscal 2003, as described in Note 5.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

3. Bankruptcy Reorganization and Fresh Start Reporting:

As discussed above, the Company’s Plan was confirmed on September 20, 2002 and the Company emerged from Chapter 11 on October 4, 2002. Pursuant to SOP 90-7, the Company adopted Fresh Start Reporting in the accompanying consolidated balance sheet as of September 29, 2002 to give effect to the reorganization as of such date. Under Fresh Start Reporting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date Fresh Start Reporting is applied similar to the procedures specified in accordance with SFAS No. 141. Each liability existing on the emergence date, other than deferred taxes, is stated at the present value of the amounts to be paid. The Company’s reorganization value of its new equity of $55,000 was less than the fair value of net assets. In accordance with the terms of SOP 90-7, the excess of the revalued net assets over the reorganization value of $16,461 was allocated to reduce proportionately the value assigned to applicable noncurrent assets.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

The calculated reorganization value was based on a variety of estimates and assumptions about future circumstances and events. Such estimates and assumptions are inherently subject to significant economic and competitive uncertainties beyond the control of management. Net deferred tax assets were not recorded in the accompanying financial statements due to the uncertainty regarding future operating results. Finally, all accounting principle changes required to be adopted in the financial statements within the twelve months following the adoption of Fresh Start Reporting were adopted at the time Fresh Start Reporting was adopted. Adjustments to the Predecessor Company’s consolidated balance sheet as of September 29, 2002 to reflect the forgiveness of debt, change in equity structure and Fresh Start Reporting adjustments are presented in the following table (dollars in thousands):


		Predecessor			Reorganization					Fresh Start				Successor
		Company			Adjustments			A		Adjustments				Company

Assets
Cash and cash equivalents		$	11,826		$	—				$	13,248		F	$	25,074
Restricted cash			48,821			(35,573	)	viii			(13,248	)	F		—
Accounts receivable, net			94,180			(2,816	)	iv			250		C		91,614
Inventories			48,156			—					14,185		E		62,341
Assets held for sale			33,693			(33,693	)		v		—				—
Other current assets			13,169			—					—				13,169

	Total current assets		249,845			(72,082	)				14,435				192,198
Property, net			133,351			—					(18,370	)	B		114,981
Goodwill			7,943			—					(7,943	)	C		—
Altamira trust assets			—			22,000		ix			—				22,000
Other assets			7,290			3,300		vii			(272	)	C		10,318

Total assets		$	398,429		$	(46,782	)			$	(12,150	)		$	339,497

Liabilities
Short-term borrowings		$	246,041		$	(239,842	)			$	—			$	6,199
Current maturities of long-term debt			23,579			(23,162	)				—				417
Accounts payable			41,952			—					—				41,952
Other current liabilities			41,441			(10,866	)				250		C		30,825

	Total current liabilities		353,013			(273,870	)		i		250				79,393

Long-term debt			1,939			135,000		ii			—				136,939
Altamira trust notes			—			22,000		ix			—				22,000
Deferred income taxes			1,247			—					—				1,247
Other liabilities			40,925			—					3,993		C		44,918

	Total long-term liabilities		44,111			157,000					3,993				205,104

Stockholders’ Investment
Common stock, old			655			—					(655	)	D		—
Common stock, new			—			55		iii			—				55
Capital in excess of par			119,984			49,445		iii			(114,484	)	D		54,945
Retained earnings			48,238			20,588		vi			(68,826	)	D		—
Accumulated other comprehensive loss			(37,754	)		—					37,754		D		—
Unamortized stock compensation			(168	)		—					168		D		—
Treasury stock, at cost			(129,650	)		—					129,650		D		—

	Total stockholders’ investment		1,305			70,088					(16,393	)			55,000

Total liabilities and stockholders’ investment		$	398,429		$	(46,782	)			$	(12,150	)		$	339,497

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

A. As a result of the consummation of the Plan, the Company recognized a gain on the reorganization as follows (dollars in thousands):


		Amount

Senior lenders’ debt discharged in bankruptcy:
	Senior secured notes	$	144,842
	Revolving line of credit		118,162
	Accrued interest		10,866

Total			273,870		i
Less distributions to senior lenders:
	New senior secured notes		135,000	ii
	Successor company common stock		49,500	iii
	Cash		32,273
	Accounts receivable		2,816	iv
	Assets held for sale		33,693		v

Gain on debt restructuring		$	20,588	vi

Cash associated with the reorganization is as follows:
	Cash distributed to senior lenders	$	32,273
	Debt fees		300	vii
	Restricted cash in segregated account		3,000	vii

		$	35,573	viii

Assets transferred to Altamira Trust and Altamira Trust Notes		$	22,000	ix

B. Reflects the revaluation of property to estimated fair value as of September 29, 2002

C. Reflects fair value adjustment as of September 29, 2002 in accordance with Fresh Start Reporting

D. Reflects the cancellation of the Old Common Stock and the elimination of retained earnings

E. Finished goods and work in process inventories have been valued based on their estimated net selling price less cost to complete, costs of disposal and reasonable profit margin

F. Reclass restricted cash to cash

Reorganization Items – The Company incurred the following items directly associated with the Chapter 11 reorganization proceedings (dollars in thousands):


	2002		2003

Professional Fees	$	9,542	$	1,209
Unamortized deferred loan costs expensed		2,417		—
Bonuses for retention of key employees		1,415		—
Lease termination costs		934		—
Other		42		117

Total	$	14,350	$	1,326

4. Acquisitions:

In 1996, the Company acquired Hofmann Laces, Ltd. and affiliates (collectively, “Hofmann”). As part of the original 1996 purchase agreement between the Company and the former owner of Hofmann, the Company agreed to pay additional consideration based upon the Company’s price-earnings’ multiple and Hofmann’s 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 $17,000 payment of the acquisition price was made during fiscal 1998 and a final cash payment of $17,283 was made during fiscal 1999 in lieu of the originally agreed upon contingent payment formula. During fiscal 2001, the former owner of Hofmann transferred 573,150 shares of Old Common Stock, valued at $1,232, to the Company. Of the 573,150 shares of the Old Common Stock that were transferred, 300,000 were originally acquired as part of the 1996 purchase agreement, while the remaining 273,150 had been acquired in open market transactions. The return of shares was recorded as other income in the accompanying fiscal 2001 consolidated statement of operations.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

5. Restructuring and Impaired Asset Charges:

The Company announced several restructuring actions during fiscal 2001, 2002 and 2003.

Fiscal 2001

Throughout fiscal 2001, the Company recorded additional restructuring charges related to the fiscal 2000-announced closings of two apparel facilities in North Carolina. These charges consisted primarily of equipment relocation charges, severance costs, and additional impairment of fixed assets, as business conditions further impacted the realizable value of certain assets. The Company recorded total restructuring charges of $19,768 during fiscal 2001 relating to the fiscal 2000 realignment activities.

On August 15, 2001, the Company announced that it would cease production of apparel and home fashions fabrics in its Pine Grove, Pennsylvania operation. The facility was downsized and was retained as an industrial fabrics operation. These actions resulted in a headcount reduction of approximately 275 associates from both manufacturing and selling and administrative areas. Restructuring costs of $927, which relate to the write-down of knitting equipment to the lower of carrying value or fair value, were recorded in the fourth quarter of fiscal 2001. The Company currently uses excess capacity in the Pine Grove plant for automotive and apparel production.

On September 10, 2001, the Company announced its intention to exit the production of stretch knit intimate apparel and swimwear fabrics and lace as well as home fashions lace in the Cobleskill, New York operation. The Company operated the facility through December 21, 2001 to service remaining orders and assist in transitioning its customers to new suppliers. The Cobleskill facility employed approximately 500 associates. The Company recorded a fiscal 2001 fourth quarter pretax restructuring charge of $50,680 associated with the action, which primarily relates to fixed asset and goodwill impairment charges.

During the fourth quarter of fiscal 2001, the Company determined that its investment in certain equity method investees was impaired, as deteriorating business conditions impacted these investees’ operations and the overall sustainability of these parties was uncertain. One of these businesses was based in the U.S. (which investment was sold in fiscal 2002) and one was based in Europe. As a result, the Company recorded related investment and receivable impairment charges of $11,451 during the fourth quarter as other expense in the accompanying consolidated statement of operations for fiscal 2001.

The following summarizes the fiscal 2001 restructuring and asset and investment impairment actions (dollars in thousands):


	Predecessor Company

	October 1,				Write-down of				September
	2000		Fiscal		assets to net				30, 2001
	reserve		2001		realizable		Reserves		reserve
	balance		charges		value		utilized		balance

Non-cash write-downs of property and equipment to net realizable value	$	—	$	27,883	$	27,883	$	—	$	—
Severance and related employee benefit costs		8,670		3,391		—		10,353		1,708
Goodwill impairment		—		28,989		28,989		—		—
Equipment relocation and other costs		598		11,112		—		11,464		246

Total restructuring and asset impairment		9,268		71,375		56,872		21,817		1,954
Impaired investments		—		11,451		—		11,451		—

Total	$	9,268	$	82,826	$	56,872	$	33,268	$	1,954

As a result of the fiscal 2001 restructuring actions, the Company also incurred run-out inefficiencies of $3,391 and impairments of obsolete inventory of $8,960. These amounts are included in cost of goods sold.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

Fiscal 2002

During fiscal 2002, the Company undertook additional restructuring actions and substantially completed its previous restructuring actions. The Company recorded additional restructuring charges and impaired asset charges of $71,050 and impaired investment charges of $8,063 during fiscal 2002.

On February 18, 2002, the Company announced an agreement in principle to sell certain assets of its Direct-to-Retail Home Fashions segment to a third party. As a result of the sale, the Company recorded goodwill and fixed asset impairments and severance costs totaling $18,748. Fixed assets, consisting primarily of buildings and machinery and equipment used to cut and sew fabric, were written down to the lower of carrying value or fair market value, as determined by outside appraisers.

During the second quarter of fiscal 2002, the Company decided to exit the production of Automotive fabrics in its plant in Pouso Alegre, Brazil. As a result of this action the Company recorded fixed asset impairments, severance costs, currency translation losses and other expenses totaling $3,900.

On April 22, 2002, the Company announced that it would close its apparel plant in Altamira, Mexico, and its associated knitting plant in Lumberton, North Carolina. The Company operated the facilities until the fourth fiscal quarter of 2002, and worked with its customers to identify alternative supply sources. Approximately 180 associates in Mexico and 100 in North Carolina were affected by the plant closures. As a result of these closures, the Company recorded fixed asset impairments and other expense of $35,549 and investment impairments of $9,327. Fixed assets, consisting primarily of buildings and machinery and equipment used in knitting, dyeing and finishing, were valued at the lower of carrying value or fair market value, as determined by outside appraisers.

On May 10, 2002, the Company sold the business and certain assets of Twin Rivers Textile Printing and Finishing (located in Schenectady, New York) to a third party which assumed operations at that printing facility. As a result of the sale, the Company recorded fixed asset and goodwill impairments of $3,732.

During the third quarter of fiscal 2002, the Company determined that further impairment to the value of its closed facility in Cobleskill, New York had occurred. As a result, the Company recorded a restructuring charge of $2,106 for fixed asset impairments at this facility.

During the fourth quarter of fiscal 2002, the Company sold its operations and its facility located in Portugal. Fixed asset impairments and other expenses totaling $3,596 were recorded as a result of this action. In addition, the Company incurred additional impaired investment charges of $314 related to an investment carried at cost and also recognized income of $1,578 on the sale of an investment that was previously impaired in a prior year.

The Company recorded further fixed asset impairment severance charges and other restructuring costs for plants which had been closed in prior quarters, totaling $3,419.

In all of the impaired fixed asset charges discussed above, determination of fair market value was based upon: (1) external appraisals, (2) in-house engineering estimates utilizing prices for currently available new and used equipment, (3) real property tax values, (4) contract selling price, and/or (5) zero where intent was to scrap.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

The following summarizes the fiscal 2002 restructuring and asset and investment impairment actions (dollars in thousands):


									Successor
	Predecessor Company								Company

	September				Write-down of				September
	30, 2001		Fiscal		assets to net				29, 2002
	Reserve		2002		realizable		Reserves		reserve
	balance		charges		value		utilized		balance

Non-cash write-downs of property and equipment to net realizable value	$	—	$	53,906	$	53,906	$	—	$	—
Severance and related employee benefit costs		1,708		4,123		—		4,488		1,343
Goodwill impairment		—		9,012		9,012		—		—
Equipment relocation and other costs		246		4,009		—		4,255		—

Total restructuring and asset impairment		1,954		71,050		62,918		8,743		1,343
Impaired investments		—		8,063		—		8,063		—

Total	$	1,954	$	79,113	$	62,918	$	16,806	$	1,343

Fiscal 2003

In fiscal 2003, the Company implemented a plan to realign its domestic automotive and Mexican operations. As a result, the Company recorded severance and related employee benefit costs of $662.

In accordance with the provisions of SFAS No. 144, the Company evaluated the net realizable value of its long-term assets to be disposed of by sale. The Company has determined the fair value of the American Textil Group based upon the terms of the sale and accordingly has recorded an impairment charge of $15,937, inclusive of the foreign currency translation loss amount of approximately $1,800. Because the Company anticipates having continued significant involvement with customers historically served by the American Textil Group, the Company determined that discontinued operations treatment would not be appropriate under SFAS No. 144.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

The table below summarizes the restructuring accrual as of September 28, 2003 (dollars in thousands):


	Successor Company

	September				Write-down of				September
	29, 2002		Fiscal		assets to net				28, 2003
	reserve		2003		realizable		Reserves		reserve
	balance		charges		value		utilized		balance

Non-cash write-downs of net assets	$	—	$	15,937	$	15,937	$	—	$	—
Severance and related employee benefit costs		1,343		662		—		1,648		357

Total	$	1,343	$	16,599	$	15,937	$	1,648	$	357

6. Receivables:

Receivables at September 29, 2002 and September 28, 2003 consisted of the following (dollars in thousands):


		Successor		Successor
		Company			Company

		2002			2003

Trade accounts receivable		$	80,744		$	61,859
Insurance receivables			17,887			167
Other			825			50

			99,456			62,076
Less – Allowances			7,842			2,993

	Receivables, net	$	91,614		$	59,083

Insurance receivables at September 28, 2003 consisted of cash surrender value proceeds. At September 29, 2002 insurance receivables also included death benefits from life insurance policies in addition to cash surrender value proceeds receivable. Receivables, net at September 29, 2002 approximated fair value for purposes of Fresh Start Reporting.

7. Inventories:

Inventories at September 29, 2002 and September 28, 2003 consisted of the following (dollars in thousands) :


		Successor		Successor
		Company		Company

		2002		2003

Finished goods		$	24,080	$	19,795
Raw materials and work in process			32,933		26,505
Manufacturing supplies			5,328		5,053

	Total inventories	$	62,341	$	51,353

During fiscal 2002, the Predecessor Company liquidated certain LIFO inventories that were carried at costs lower than the applicable then current costs. The effect of these inventory decreases was to lower cost of goods sold from current costs by approximately $1,526 in fiscal 2002.

In connection with the application of Fresh Start Reporting, the Company revalued its inventories as of September 29, 2002 to their fair values (estimated selling prices less costs to complete, cost of disposal and a reasonable profit margin), resulting in an increase in carrying value of $14,185.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

8. Property:

As of September 29, 2002 and September 28, 2003, property and equipment consisted of the following (dollars in thousands):


		Successor		Successor
		Company		Company

		2002		2003

Land		$	12,655	$	9,754
Buildings			34,531		30,836
Machinery and equipment			63,961		63,889
Construction in progress			3,834		7,250

			114,981		111,729
Less – Accumulated depreciation			—		13,526

	Property, net	$	114,981	$	98,203

As of the Effective Date, the Successor Company adjusted its property, plant and equipment to estimated fair value in conjunction with the implementation of Fresh Start Reporting. Depreciation expense was $52,620, $35,732 and $14,899 in fiscal 2001, 2002 and 2003, respectively. The Company has entered into commitments with third party vendors to purchase approximately $2,900 in machinery and equipment.

9. Other Assets:

Other assets at September 29, 2002 and September 28, 2003 consisted of the following (dollars in thousands)


		Successor		Successor
		Company		Company

		2002		2003

Cash surrender value of life insurance		$	3,400	$	3,357
Restricted cash			3,000		3,022
Investments			1,111		2,475
Other			2,807		2,151

	Total other assets	$	10,318	$	11,005

During fiscal 2002 and 2003, the Company surrendered certain life insurance policies. Proceeds from the policies surrendered totaled $11,652, $29,844 and $249 during fiscal 2001, 2002 and 2003, respectively.

10. Other Current Liabilities:

Other current liabilities at September 29, 2002 and September 28, 2003 consisted of the following (dollars in thousands):


		Successor		Successor
		Company		Company

		2002		2003

Accrued restructuring costs		$	1,343	$	357
Accrued reorganization costs			3,782		—
Accrued interest			—		3,443
Accrued property taxes			1,288		805
Accrued legal and professional fees			2,286		337
Other			6,215		2,016

	Total other current liabilities	$	14,914	$	6,958

11. Short-Term Borrowings:

The Company has used short-term bank borrowings with terms of six months or less to meet seasonal working capital needs. The maximum short-term borrowings during fiscal 2001, 2002 and 2003 were $163,285, $153,649 and $7,837 respectively; the average borrowings were $138,476, $136,444 and $3,344 respectively; and the weighted average interest rates were 9%, 8% and 9% (9%, 8% and 7% for U.S. borrowings), respectively.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

12. Long-Term Debt:

Long-term debt at September 29, 2002 and September 28, 2003 consisted of the following (dollars in thousands):


		Successor		Successor
		Company		Company

		2002		2003

Senior, secured notes with related parties, due in October 2005, interest at 9.89%		$	135,000	$	135,000
Revolving line of credit, due in October 2005			—		—
Foreign subsidiary term loan with a Portuguese bank With various due dates and a variable interest rate (Repaid October 2002)			2,084		—
Other			272		319

	Total		137,356		135,319
Less – Current maturities			417		319

	Total long-term debt	$	136,939	$	135,000

Successor Company

In connection with the bankruptcy reorganization, on October 4, 2002, the Company entered into a new Credit, Security, Guaranty and Pledge Agreement, which expires October 4, 2005, with a group of lenders. The new facility provides for a revolving credit loan facility and letters of credit (as amended, the “Revolving Credit Facility”) in a maximum principal amount equal to the lesser of (a) $25,000 or (b) a specified borrowing base, which is based upon eligible receivables and eligible inventory. The Revolving Credit Facility restricts investments (including investments in non-U.S. subsidiaries), capital expenditures, acquisitions, dividends and the incurrence of additional debt. The Revolving Credit Facility contains customary financial covenants relating to minimum levels of EBITDA, minimum net worth, minimum fixed charge coverage ratios and a maximum leverage ratio, all as defined therein. The Revolving Credit Facility is secured by a first lien on substantially all of the assets of the Company and its domestic subsidiaries, as well as on the stock of all of the Company’s subsidiaries (with the latter, in the case of the Company’s non-U.S. subsidiaries, being limited to 65% of the capital stock) (collectively, the “Collateral”). Upon the Company’s receipt of proceeds from certain transactions, such as certain asset sales (including net cash proceeds, if any, arising from the Company’s beneficial interest in the Altamira Trust), the Company is required to prepay with such proceeds any loans then outstanding under the Revolving Credit Facility. The Company is currently in compliance with all of the financial restrictions and financial covenants of its new Revolving Credit Facility. All loans outstanding under the Revolving Credit Facility bear interest at the Base Rate plus an applicable interest margin or the LIBOR rate plus an applicable interest margin based upon the Company’s debt to EBITDA ratio, and the Company pays a commitment fee of 0.50% on unused amounts thereunder. As of September 28, 2003, the Company had no outstanding loans, outstanding letters of credit of $6,202 and had approximately $18,800 available for borrowing under the Revolving Credit Facility.

Pursuant to the Plan, the Company issued to the secured lenders on the Effective Date term notes in the aggregate principal amount of $135,000 (the “Notes”) in partial satisfaction of the lenders’ pre-petition claim against the Company. The Notes bear interest at the annual rate of 9.89% and mature on October 4, 2005. The Notes are secured by a second lien on the Collateral. The Company has the option of prepaying the Notes in whole or in part prior to their maturity date, subject to the additional payment to the Note holders of a yield-maintenance amount and subject otherwise to the terms and provisions of the Note agreement. Upon the Company’s receipt of proceeds from certain transactions, such as certain asset sales (including net cash proceeds, if any, arising from the Company’s beneficial interest in the Altamira Trust), the Company is required to prepay the Notes with such proceeds (to the extent not used to make prepayments under the Revolving Credit Facility) and to make a yield-maintenance payment to the Note holders. Upon the occurrence of a change in control and certain other conditions, all as defined in the Note agreement, the Company is required to make an offer to the Note holders to prepay the Notes, with any such prepayment to include payment of a yield-maintenance amount. Like the Revolving Credit Facility, the Note agreement contains customary financial covenants relating to minimum EBITDA, minimum net worth, minimum fixed charge coverage ratios and maximum leverage ratios. The Note agreement also restricts investments, capital expenditures, acquisitions, dividends and the incurrence of additional debt. The Company is currently in compliance with all of the financial covenants set forth in the Note agreement, as amended.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

Annual scheduled maturities of long-term debt for the next five fiscal years are as follows (dollars in thousands):


Fiscal year	Amount

2004	$	319
2005		—
2006		135,000
2007		—
2008		—

Total	$	135,319

Predecessor Company

On May 26, 2000, the Company entered into a new $130,000 revolving credit facility, replacing a $150,000 revolving credit facility. The new revolving credit facility was secured by substantially all of the Company’s assets and was scheduled to mature on May 26, 2003. The interest rate on the revolving credit facility was variable, based on prime plus 1.25%, or based on LIBOR plus 1.25% to 4.25%, depending on the Company’s leverage ratio, plus as of May 16, 2001, an additional 1.75% payment in kind if the Company failed to meet certain financial ratios. At the same time the Company entered into the new revolving credit facility, its Senior Notes due 2008 became ratably secured with the bank facility. Proceeds from this revolving credit facility were used to repay borrowings on uncommitted lines of credit and the previous credit facility.

The revolving credit facility and the notes were amended several times beginning in November 2000 due to covenant non-compliance. The amendments, among other things, increased the interest rates on the notes to 11.0%, added the 1.75% payment in kind provision to the revolving credit facility as noted above, established mandatory reductions to the amounts available under the revolving credit facility and revised restrictive covenants. The May 16, 2001 amendment represented a “significant modification” as defined in Emerging Issues Task Force Issue No. 96-19, and as a result, the modification was treated as an extinguishment of the existing notes and issuance of new notes for financial reporting purposes. This extinguishment resulted in no change to the outstanding principal amount of the notes, but required the write-off of previously unamortized deferred loan costs. Accordingly, a loss from the debt restructuring of $4,725 has been recorded in the accompanying 2001 consolidated statement of operations. In previously filed reports, this loss from debt restructuring was classified as an Extraordinary Item in accordance with FASB Statement 4. As part of Fresh Start Reporting, the Company adopted SFAS No. 145 and in connection therewith has reclassified this loss from debt restructuring to Other Expense in the fiscal 2001 financial statement presented herein.

From the second quarter of fiscal 2001 through the Company’s bankruptcy filing on March 13, 2002, the Company was not in compliance with certain terms of its senior debt agreements on several occasions. In each instance, the Company’s senior lenders issued waivers for such non-compliance.

Interest costs of $2,773, $697 and $0 for fiscal 2001, 2002 and 2003, respectively, were capitalized to property, plant and equipment.

13. Financial Instruments:

The Company’s financial instruments include cash, accounts receivable, accounts payable, short-term borrowings, 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 is estimated based on current rates offered for similar debt. At September 28, 2003, the carrying amount of short-term borrowings approximates fair value. On September 28, 2003, the Company held foreign currency forward contracts with a fair value of $45,900 and a notional value of $45,400 that expire in less than one year. The Company had no foreign currency forward agreements at September 29, 2002.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

14. Income Taxes:

The net deferred income tax liability at September 29, 2002 and September 28, 2003 was comprised of the following (dollars in thousands):


		Successor			Successor
		Company			Company

		2002			2003

Assets		$	89,100		$	98,085
Liabilities			(91,557	)		(98,257	)

	Total	$	(2,457	)	$	(172	)

Temporary differences and carryforwards which gave rise to significant deferred income tax assets (liabilities) as of September 29, 2002 and September 28, 2003 were as follows (dollars in thousands):


			Successor			Successor
			Company			Company

			2002			2003

Current deferred income taxes:
	Inventory valuation differences		$	(3,835	)	$	4,408
	Allowances for doubtful accounts			1,661			209
	Accrued expenses and reserves not currently deductible for tax			6,991			3,959
	Restructuring reserves			170			61
	Other, net			277			(166	)

		Subtotal		5,264			8,471
Valuation allowance				(6,474	)		(8,610	)

Total current deferred income taxes			$	(1,210	)	$	(139	)

Long-term deferred income taxes:
Property			$	(13,121	)	$	(10,333	)
Income tax credit carryforwards (expire 2004-2021)				22,628			19,431
Federal net operating loss carryforward (expires 2022)				3,261			16,318
Accrued pension and other employee benefits				7,353			11,895
Alternative minimum and other tax credit carryforwards (no expiration)				11,783			15,477
State and non-U.S. net operating loss carryforwards (expire 2005-2018)				28,016			26,327
Investments in limited partnerships				(4,580	)		(4,831	)
Goodwill amortization				6,271			—
Other, net				(1,064	)		—

Subtotal				60,547			74,284
Valuation allowance				(61,794	)		(74,317	)

Total long-term deferred income taxes			$	(1,247	)	$	(33	)

The domestic and non-U.S. components of loss before income taxes were as follows (dollars in thousands):


	Predecessor Company						Successor
							Company

	2001			2002			2003

Domestic	$	(122,746	)	$	(75,560	)	$	13,280
Non-U.S		(42,470	)		(64,146	)		(23,056	)

Total	$	(165,216	)	$	(139,706	)	$	(9,776	)

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

The income tax (benefit) provision consisted of the following elements (dollars in thousands):


		Predecessor Company						Successor
								Company

		2001			2002			2003

Current (benefit) provision:
	U.S. Federal	$	(5,163	)	$	(15,295	)	$	(13	)
	State		(16	)		111			391
	Non-U.S		—			—			32
Deferred (benefit) provision:
	U.S. Federal		(240	)		(577	)		—
	State		(30	)		(75	)		—
	Non-U.S		990			(557	)		(1,580	)

Total		$	(4,459	)	$	(16,393	)	$	(1,170	)

The income tax benefit as a percentage of pre-tax income differs from the statutory U.S. Federal rate for the following reasons:


	Predecessor Company						Successor
							Company

	2001			2002			2003

Statutory U.S. federal income tax rate		(35.0	)%		(35.0	)%		(35.0	)%
State income taxes, net of federal income tax reduction		(2.2	)		0.1			2.6
Non-U.S. taxes		0.5			(1.1	)		66.7
Tax credits		(0.3	)		—			—
Non-deductible goodwill		(0.1	)		0.3			—
Changes in valuation allowance and deferred taxes		35.2			23.8			(47.1	)
Other		(0.8	)		0.2			0.8

Effective income tax rate		(2.7	)%		(11.7	)%		(12.0	)%

Realization of the tax loss and credit carryforwards is contingent on future taxable earnings in the appropriate jurisdictions. Valuation allowances have been recorded for items which may not be realized. Each carryforward item is reviewed for expected utilization, using a “more likely than not” approach, based on the character of the carryforward item (credit, loss, etc.), the associated taxing jurisdiction (U.S., state and local, non-U.S.), the relevant history for the particular item, the applicable expiration dates, operating projects that would impact utilization, and identified actions under the control of the Company in realizing the associated carryforward benefits. Additionally, the Company’s utilization of U.S. and non-U.S. tax credit and state investment credit carryforwards is critically dependent on related statutory limitations that involve numerous factors beyond overall positive earnings, all of which must be taken into account by the Company in its evaluation. The Company assesses the available positive and negative evidence surrounding the recoverability of the deferred tax assets and applies its judgement in estimating the amount of valuation allowance necessary under the circumstances. The Company continues to assess and evaluate strategies that may enable the carryforwards, or portions thereof, to be utilized, and will reduce the valuation allowance appropriately for each item at such time when it is determined the “more likely than not” approach is satisfied.

The change in valuation allowance in 2003 primarily relates to net operating loss and tax credit carryforwards that, due to restructuring actions taken during the current and prior years, and other factors, could expire unused. Management’s assessment is that the character and nature of future taxable income as well as potential limitations on their use due to the change in ownership that occurred in connection with the bankruptcy reorganization, may not allow the Company to realize certain tax benefits of net operating losses and tax credits within the prescribed carryforward period. Accordingly, an appropriate valuation allowance has been made.

In fiscal 2003, an income tax benefit of $871 was realized with respect to certain non-U.S. net operating loss carryforwards that existed as of the Effective Date. Pursuant to SOP 90-7, this benefit was reported as a direct addition to capital in excess of par, as will the income tax benefit, if any, of future realization of remaining net operating loss carryforwards, tax credit carryforwards and other deductible temporary differences that existed as of the Effective Date.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

15. Benefit Plans:

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 (the “Gold Plan”) and a multi-employer pension plan, which plans together cover the majority of its employees. Guilford Europe Limited, a wholly-owned subsidiary, has a defined benefit pension plan covering the majority of its salaried employees (the “Guilford Europe Plan”). The funded status of defined benefit plans at the measurement dates for fiscal 2002 and fiscal 2003 were (dollars in thousands):


		2002			2003

Projected benefit obligation:
Beginning of year		$	53,424		$	63,807
	Service cost		1,770			1,931
	Interest cost		3,574			3,814
	Plan participants contributions		227			234
	Assumption changes		4,421			1,538
	Plan amendments		172			—
	Actuarial loss		2,360			544
	Benefit payments		(3,769	)		(3,058	)
	Foreign currency adjustment		1,628			1,658

End of year		$	63,807		$	70,468

Fair value of plan assets:
Beginning of year		$	43,342		$	41,725
	Actual return on plan assets		(2,625	)		5,325
	Employer contributions		3,076			3,051
	Plan participant contributions		227			234
	Benefit payments		(3,769	)		(3,058	)
	Foreign currency adjustment		1,474			1,267

End of year		$	41,725		$	48,544

Reconciliation of funded status to net amount recognized:
Funded status		$	(22,082	)		(21,924	)
Unrecognized (gain) loss			—			(110	)

Net amount recognized		$	(22,082	)	$	(22,034	)


		Successor			Successor
		Company			Company
			2002			2003

Amounts recognized in the Consolidated Balance Sheets:
	Accrued payroll and related benefits	$	(2,703	)	$	(4,168	)
	Other non-current liabilities		(19,379	)		(17,986	)
	Accumulated other comprehensive income		—			120

Net amount recognized		$	(22,082	)	$	(22,034	)

The effect of assumption changes is primarily comprised of changes in the discount rate used to calculate the projected benefit obligation.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

The Guilford Mills, Inc. Plan, the Gold Mills Plan and the Guilford Europe Plan were under-funded as of September 29, 2002 and September 28, 2003. The following relates to those plans as of September 29, 2002 and September 28, 2003 (dollars in thousands):


		2002		2003

Guilford plan
	Projected benefit obligation	$	36,587	$	40,279
	Accumulated benefit obligation		36,051		39,708
	Fair value of net assets		22,427		26,260

Gold plan
	Projected benefit obligation		3,209		3,501
	Accumulated benefit obligation		2,274		2,624
	Fair value of net assets		1,567		1,350

Guilford Europe plan
	Projected benefit obligation		24,011		26,688
	Accumulated benefit obligation		22,616		25,257
	Fair value of net assets		17,731		20,934

Funded status is determined using assumptions as of the end of each year. Net pension expense is determined using assumptions as of the beginning of each year. The weighted average assumptions at the respective measurement dates were:


	2002			2003

Discount rate		6.03	%		5.97	%
Long-term rate of return on plan assets		8.06	%		7.74	%
Long-term rate of salary progression		3.72	%		3.79	%

The components of the defined benefit plan expenses were (dollars in thousands):


			Predecessor			Predecessor			Successor
			Company			Company			Company

			2001			2002			2003

Defined benefit plans:
	Service cost		$	1,973		$	1,770		$	1,931
	Interest cost			3,415			3,574			3,814
	Expected return on plan assets			(4,181	)		(3,660	)		(3,235	)
	Amortization of:
		Transition asset		(187	)		(187	)		—
		Prior service cost		(5	)		(6	)		—
		Loss		42			663			—

Net periodic pension cost				1,057			2,154			2,510
Settlement Loss				—			—			60
Domestic multi-Employer plan				285			139			202

		Total	$	1,342		$	2,293		$	2,772

The Company maintains defined contribution plans for certain officers and salaried employees. The Board of Directors determines contributions under these plans. The Company also maintains a 401(k) plan for its domestic associates. For fiscal 2001, 2002 and 2003, the provisions under these plans were $2,356, $(48) and $1,784 respectively. Fiscal 2002 expense was reduced by changes in estimated contributions from the prior fiscal year.

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. During fiscal 2001, 2002 and 2003, the provisions under these plans were $1,773, $1,083 and $1,327, respectively. The liability for deferred compensation was $16,500 at September 29, 2002 and $15,857 at September 28, 2003 and is included in other long-term liabilities in the accompanying consolidated balance sheets. The Company adjusted its liability as of September 29, 2002 to estimated fair value in conjunction with the implementation of Fresh Start Reporting.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

16. 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 16 years. Rent expense under these leases was $5,358 in 2001, $5,027 in 2002 and, $3,973 in 2003. At September 28, 2003, future minimum rental payments applicable to these leases are $2,388 in 2004, $2,361 in 2005, $2,300 in 2006, $1,978 in 2007, $1,227 in 2008, and $9,956 thereafter.

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 Resource. 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, (ii) an investigation to fully determine the nature of any release of hazardous substances at the facility and (iii) a study to determine the appropriate corrective measures to be taken to address the existing contamination (the “Corrective Measures Study Report”). On August 21, 2003, the EPA approved Gold’s Corrective Measures Study Report. Gold is currently in the process of implementing the corrective action measures set forth in such report. This work will effectively satisfy the requirements of the consent order. The failure of Gold to comply with the terms of the consent order may result in the imposition of monetary penalties against the Company.

In September 2001 the North Carolina Department of Environmental and Natural Resources (“DENR”) notified the Company that its facility in Fuquay-Varina, North Carolina had been placed on the state list of Inactive Hazardous Waste Sites. That State notice raised concerns about past waste handling practices at the facility. In response to the listing, the Company conducted certain investigations and assessments, the results of which revealed groundwater contamination on and off the Fuquay-Varina facility site (such areas of contamination, collectively the “Site”). The Company submitted the report of its investigations and assessments to the DENR in November 2003. DENR has neither issued to the Company a Notice of Violation nor threatened any enforcement action against the Company with respect to the contamination at the Site. Future costs associated with Site contamination cannot be determined with any certainty until DENR reviews the findings and determines what, if any, further investigation or remediation it will require. For planning purposes, the Company obtained an estimate of the potential costs from an independent environmental consultant. The consultant’s report identified a range of possible investigation and remediation scenarios, with costs ranging from $170 to $1,425, which could be incurred, depending on the remediation plan, over a period of several years. Future costs may be higher or lower than the estimated range because investigation and remediation actions ultimately required by DENR may not be represented in the scenarios or cost estimates in the consultant’s report. The Company also is not able to estimate at this time whether any potential future costs would be recoverable from insurance or from the prior owners of the facility, which the Company acquired in 1986. The results of the preliminary investigation suggest that the contamination arose from operations predating the Company’s operations at the facility.

The Company is implementing operational and capital improvements to the wastewater treatment plant at its facility in Kenansville, North Carolina, begun under a Special Order by Consent (“SOC”) with the North Carolina Division of Water Quality (“DWQ”), that expired on June 1, 2003. Prior to such date, the Company applied to the DWQ for an extension of the SOC. The Company expects such request to be approved by DWQ. The failure of the Company to achieve compliance with National Pollution Discharge Elimination System permit effluent limitations as specified in any extension of the SOC or, if the SOC extension is not obtained, the limitations as specified in the applicable North Carolina law, may result in the imposition of monetary penalties against the Company.

At September 28, 2003, environmental accruals were $1,612 of which $1,168 is non-current. At September 29, 2002, environmental accruals were $1,800 of which $1,470 is non-current. The non-current environmental accrual amounts were included in other long-term liabilities in the accompanying balance sheet.

In the ordinary course of its business, the Company imports into the United States a variety of products in connection with its manufacturing operations. During fiscal 2002, primarily in order to supplement its domestic production of two automotive fabric styles, the Company imported into the United States from its wholly-owned subsidiary in the United Kingdom, a limited amount of fabrics which are identical to styles that are produced in the Company’s U.S. facilities. Upon importation of this merchandise, the Company paid all applicable customs duties, taxes, and fees. After the end of the 2002 fiscal year, however, Company management became aware that these U.K. imports had not been properly marked and certified as to country of origin, as required by U.S. customs laws. The Company has disclosed this matter to the U.S. Customs Service, in accordance with applicable procedures, and paid approximately $150 in additional marking duties in

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

March 2003. This amount was reflected in the consolidated statement of operations for the fourth quarter of fiscal 2002. U.S. Customs could also seek penalties from the Company as a result of the improper markings and certifications; however, the Company believes that even if such penalties were imposed, they would not have a material impact on the Company’s financial position or future results of operations. The Company may be required to reimburse certain of its customers for the amount of customs duties that may be assessed by non-U.S. customs authorities on the merchandise. An estimated amount of reimbursements was reflected in the consolidated statement of operations for the fourth quarter of fiscal 2002, and such amount was adjusted in fiscal 2003. The Company does not believe that any such reimbursements will have a material impact on the Company’s financial position or future results of operations.

The Company is also involved in various litigation, including the matters described above, arising out of the ordinary course of business. As a result of the bankruptcy proceedings described above, holders of claims that were asserted or could be asserted in any action commenced prior to March 13, 2002 retain all rights to proceed against the Company, but only to the extent and limit of applicable insurance coverage. Such claim holders have no direct claim against the Company post-confirmation of bankruptcy including any deductible under an insurance policy or any excess over the policy coverage limits. 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.

17. Capital Stock:

The Predecessor Company’s authorized capital stock at September 30, 2001 consisted of 1,000,000 shares of preferred stock, par value $1 per share, and 65,000,000 shares of common stock, par value $.02 per share (“Old Common Stock”). No preferred stock was issued or outstanding, while 32,750,094 shares of Old Common Stock were issued and 18,627,076 shares were outstanding. The Company held 14,123,018 shares of treasury stock at September 30, 2001. The Old Common Stock was cancelled as part of the Plan and replaced with common stock, par value $.01 (“New Common Stock”). After the Plan, the Successor Company’s authorized New Common Stock is 11,000,000 shares, all with equal voting rights. 5,501,053 shares of New Common Stock were issued and outstanding at September 29, 2002 and September 28, 2003. The Successor Company has no authorized preferred stock.

18. Stock Compensation:

The Predecessor Company had a stock option plan for key employees and directors. Options granted were either incentive stock options or non-qualified options. The Compensation Committee of the Predecessor Company’s Board of Directors determined the purchase price of shares subject to each non-qualified option. Options granted to directors under the formula provision of the plan vested or became exercisable in equal annual one-third increments commencing on the grant date. Options granted to employee participants (pursuant to individual agreements) vested according to various schedules. The options had a life of either five or ten years from the grant date. The plan and all outstanding options were cancelled on the Effective Date, in conjunction with the Company’s emergence from bankruptcy and cancellation of all previously outstanding Old Common Stock. The Successor Company had no outstanding options at September 29, 2002.

The Successor Company has a stock option plan for non-employee directors, pursuant to which 60,000 shares of New Common Stock have been authorized, and a stock option plan for certain employees, pursuant to which 550,000 shares of New Common Stock have been authorized. In December 2002, the Successor Company issued stock options covering 36,000 shares to non-employee directors of the Company. Under the terms of the plan, the purchase price of shares subject to the option granted was the fair market value at the date of grant. Options granted to directors under the formula provision of the plan vest or become exercisable in equal annual one-third increments commencing on the first anniversary of the grant date and such options have a 10 year term.

Also, in June 2003, the Successor Company issued stock options covering 111,000 shares to certain employees of the Company. The purchase price of shares subject to the employee options granted was $4.00, while the fair market value of the stock at the date of grant was $8.60. Options granted to employees under the plan vest or become exercisable in equal annual one-third increments commencing on the first anniversary of the grant date and such options have a 10 year term. The Company is accordingly recognizing compensation expense over the vesting period of the grant for the difference in the exercise price and fair market price of the stock at the date of grant. Compensation expense associated with stock based benefit plans in fiscal 2003 was approximately $80.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

Option activity under the plans was as follows:


	Number of								Weighted Average
	Shares			Exercise Price					Exercise Price
	Under Option			Per Share					Per Share

Balance, October 1, 2000 (Predecessor Company)		1,676,308		$	2.03	to	$	27.59	$	17.19
Granted		681,000			1.72	to		1.80		1.73
Exercised		—			—	to		—		—
Forfeited		(693,166	)		1.72	to		23.70		14.40

Balance, September 30, 2001 (Predecessor Company)		1,664,142			1.72	to		27.59		11.90
Granted		—			—	to		—		—
Exercised		—			—	to		—		—
Forfeited		(351,279	)		1.72	to		27.59		7.40
Cancelled pursuant to Plan of Reorganization		(1,312,863	)		1.72	to		27.59		13.10

Balance, September 29, 2002 (Successor Company)		—			—	to		—		—
Granted		147,000			4.00	to		4.00		4.00
Exercised		—			—	to		—		—
Forfeited		—			—	to		—		—

Balance, September 28, 2003 (Successor Company)		147,000			4.00	to		4.00		4.00

Options exercisable were 933,237 at September 30, 2001 and 0 at September 29, 2002 and September 28, 2003. The weighted average exercise price of the options exercisable was $17.67 on September 30, 2001. The weighted average fair market value of the Company’s common stock at the date of grant was $1.73 for grants made in fiscal 2001 and $7.47 for grants made in fiscal 2003. The weighted average remaining contractual life of the options outstanding at the end of fiscal 2003 was approximately 9.6 years.

The Predecessor Company authorized 2,250,000 shares of Old Common Stock for the 1989 Restricted Stock Plan, which covered certain key salaried associates. This plan expired in June 1999, but allowed the vesting of shares that were outstanding (held in trust) under the plan at the time the plan expired by its terms. As of September 30, 2001, there were 142,800 shares outstanding. These shares carried voting and dividend rights; however, sale of the shares was restricted prior to vesting. Of these shares, 6,300 were forfeited during fiscal 2002, and the remainder vested either during fiscal 2002 or were accelerated to vest on or about October 4, 2002, in connection with the Company’s emergence from bankruptcy. The accrual for shares issued under the plan was 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 was amortized as compensation expense on a straight-line basis over the related vesting period. Compensation expense associated with stock based benefit plans in fiscal 2001 and 2002 was $1,279 and $637, respectively.

The Predecessor Company had an employee stock ownership plan, which covered the majority of U.S. full-time associates who had completed one year of service. There was no compensation expense for the plan for fiscal 2001, 2002 and 2003. The Company merged this plan with and into a 401(k) defined contribution plan in fiscal 2001. As of September 29, 2002, the 401(k) plan held 597,674 shares of Old Common Stock. Following the reorganization, the plan held 17,186 shares of New Common Stock. These shares are considered outstanding and are included in the basic and diluted earnings per share calculations. The 401(k) plan does not allow new contributions to be invested in Company stock.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

19. Other Expense (Income), Net:

Other expense (income), net, for each of the fiscal years indicated was comprised of the following (dollars in thousands):


							Successor
	Predecessor Company						Company

	2001			2002			2003

Minority interest	$	(172	)	$	96		$	(143	)
Foreign currency transaction losses		573			826			111
Life insurance death benefits		—			(3,755	)		(72	)
Loss on equity method investments		2,835			268			73
Insurance demutualization		—			(776	)		—
Insurance claim received		(700	)		—			—
Return of shares from Hofmann acquisition		(1,232	)		—			—
Other		(393	)		378			(89	)

Total other expense (income), net	$	911		$	(2,963	)	$	(120	)

20. Accumulated Other Comprehensive Loss:

The accumulated balances and activity for each component of Accumulated Other Comprehensive Income (Loss) are as follows (dollars in thousands):


									Forward Foreign		Accumulated
			Foreign Currency						Currency		Other
			Translation			Pension Equity			Exchange		Comprehensive
			Adjustment			Adjustment			Contracts		Loss

Balance at October 2, 2000 (Predecessor)			$	(16,887	)	$	(277	)	$	—	$	(17,164	)
	Change in balance			(2,251	)		(5,133	)		—		(7,384	)

Balance at September 30, 2001 (Predecessor)				(19,138	)		(5,410	)		—		(24,548	)
		Change in balance		3,451			(16,657	)		—		(13,206	)
		Fresh start adjustments		15,687			22,067					37,754

Balance at September 29, 2002 (Successor)				—			—			—		—
		Change in balance		2,066			(120	)		324		2,270

Balance at September 28, 2003 (Successor)			$	2,066		$	(120	)	$	324	$	2,270

The income tax provision for the currency hedging agreements in fiscal 2003 was $139. The income tax benefit for the pension equity adjustments in fiscal 2001 was $3,066. No income taxes have been provided for the foreign currency translation adjustments.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

21. Earnings Per Share:

The following table reconciles basic and diluted earnings per share (dollars in thousands):


						Net Loss
	Shares		Net Loss			per share

2001: Predecessor Company
Basic EPS		18,961,000	$	(160,757	)	$	(8.48	)
Dilutive Securities:
Options and Restricted Stock		—		—

Diluted EPS		18,961,000	$	(160,757	)	$	(8.48	)

2002: Predecessor Company
Basic EPS		18,512,000	$	(123,313	)	$	(6.66	)
Dilutive Securities:
Options and Restricted Stock		—		—

Diluted EPS		18,512,000	$	(123,313	)	$	(6.66	)

2003: Successor Company
Basic EPS		5,501,000	$	(8,606	)	$	(1.56	)
Dilutive Securities:
Options		—		—			—

Diluted EPS		5,501,000	$	(8,606	)	$	(1.56	)

The number of outstanding stock options 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 2001, 2002 and 2003 were 1,664,142, 1,327,613, and 147,000 respectively. The stock options outstanding at the end of fiscal year 2002 were cancelled as part of the Company’s emergence from bankruptcy on the Effective Date.

22. Segment Information:

For Fiscal 2003, the Company has identified three reportable segments based on market sectors: Automotive, Industrial and Apparel. During fiscal 2002 and 2001, the Company also participated in the Direct-to-Retail Home Fashions segment.

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

The accounting policies of the reportable segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements. The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties at current market prices. For comparative purposes, certain amounts have been reclassified to conform with fiscal 2003 presentation. The Company neither allocates to the segments nor bases segment decisions on the following:

• Interest expense

• Other income and expense

• Income tax expense or benefit

• Reorganization costs

• Fresh start adjustments

Some 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.


							Direct-to-Retail						Unallocated
(dollars in thousands)	Automotive			Apparel			Home Fashions			Industrial			Items			Total

2001: Predecessor Company
External sales	$	333,481		$	190,636		$	59,071		$	60,331		$	—		$	643,519
Intersegment sales		—			—			—			—			69,196			69,196
Restructuring expense		(2,946	)		(68,286	)		—			(143	)		—			(71,375	)
Operating (Loss) Profit (including restructuring)		13,158			(119,639	)		(7,863	)		(8,493	)		—			(122,837	)
Interest expense		—			—			—			—			25,292			25,292
Other expense, net		—			—			—			—			911			911
Loss before income taxes		—			—			—			—			—			(165,216	)
Depreciation expense		16,056			18,954			3,882			13,728			—			52,620

2002: Predecessor Company
External sales	$	354,701		$	72,827		$	33,272		$	52,373		$	—		$	513,173
Intersegment sales		—			—			—			—			60,357			60,357
Restructuring expense		(7,698	)		(44,207	)		(18,747	)		(398	)		—			(71,050	)
Reorganization costs		—			—			—			—			(14,350	)		(14,350	)
Operating (Loss) Profit (including restructuring)		6,108			(66,268	)		(48,245	)		(1,966	)		(14,350	)		(124,721	)
Interest expense		—			—			—			—			14,080			14,080
Other income, net		—			—			—			—			(2,963	)		(2,963	)
Loss before income taxes		—			—			—			—			—			(139,706	)
Depreciation expense		15,080			6,568			2,257			11,827			—			35,732

2003: Successor Company
External sales	$	364,815		$	28,178		$	—		$	52,978		$	—		$	445,971
Intersegment sales		—			—			—			—			52,597			52,597
Restructuring expense		(6,902	)		(9,691	)		—			(6	)		—			(16,599	)
Reorganization costs		—			—			—			—			(1,326	)		(1,326	)
Operating (Loss) Profit (including restructuring)		22,356			(16,596	)		—			1,282			(1,326	)		5,716
Interest expense		—			—			—			—			15,612			15,612
Other income, net		—			—			—			—			(120	)		(120	)
Loss before income taxes		—			—			—			—			—			(9,776	)
Depreciation expense		7,780			829			—			6,290			—			14,899

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

23. Geographic Information:

The accompanying financial statements include the following amounts related to the operations of the Company’s subsidiaries in United Kingdom, Brazil and Mexico (dollars in thousands):


							Successor
			Predecessor Company				Company

			2001		2002		2003

Net sales to unaffiliated customers by the Company’s operations in:
	United Kingdom		$	74,729	$	78,214	$	102,010
	Mexico			60,303		70,430		39,615
	Brazil			8,085		4,603		—

Total sales of non-U.S. operations				143,117		153,247		141,625
	United States			500,402		359,926		304,346

		Total net sales	$	643,519	$	513,173	$	445,971


			Successor Company

			2002		2003

Long-lived assets:
	United Kingdom		$	19,690	$	22,901
	Mexico			14,415		—
	Brazil			—		—

Total long-lived assets of non-U.S. operations				34,105		22,901
	United States			84,794		79,928

		Total long-lived assets	$	118,899	$	102,829

24. Condensed Combined Financial Statements of Entities in Bankruptcy

The following condensed combined financial statements of the Predecessor Company are presented in accordance with SOP 90-7:

Condensed Combined Consolidating Statement of Operations
Fiscal Year Ended September 29, 2002 (dollars in thousands)


	Entities in			Entities not in
	Reorganization			Reorganization						Consolidated
	Proceedings			Proceedings			Eliminations			Total

Net Sales	$	359,929		$	155,621		$	(2,377	)	$	513,173
Costs and Expenses		430,541			209,559			(2,206	)		637,894

Operating Loss		(70,612	)		(53,938	)		(171	)		(124,721	)
Other expenses		4,777			10,208			—			14,985

Loss before income tax		(75,389	)		(64,146	)		(171	)		(139,706	)
Income tax benefit		(15,838	)		(555	)		—			(16,393	)

Net Loss	$	(59,551	)	$	(63,591	)	$	(171	)	$	(123,313	)

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

Condensed Combined Consolidating Statement of Cash Flows
Fiscal Year Ended September 29, 2002
(dollars in thousands)


		Entities in			Entities not in
		Reorganization			Reorganization			Consolidated
		proceedings			Proceedings			Total

Net cash provided by operations		$	40,059		$	1,600		$	41,659

Cash flows from investing activities:
	Additions to property		(4,689	)		(2,582	)		(7,271	)
	Proceeds from dispositions of property		27,544			1,502			29,046
	Liquidation of life insurance policies		11,957			—			11,957
	Other		2,680			(397	)		2,283

Net cash provided by (used in) investing activities			37,492			(1,477	)		36,015

Cash flows from financing activities:
	Short-term borrowings (repayments), net		(28,851	)		1,554			(27,297	)
	Payments of long-term debt		(36,576	)		—			(36,576	)
	Proceeds from issuance of long-term debt		37,331			669			38,000
	Payments to senior secured lenders in Reorganization		(32,273	)		—			(32,273	)

Net cash provided by (used in) financing activities			(60,369	)		2,223			(58,146	)

Effect of exchange rate changes on cash and cash Equivalents			—			(99	)		(99	)
Net increase in cash and cash equivalents			17,182			2,247			19,429
Beginning cash and cash equivalents			3,821			1,824			5,645

Ending cash and cash equivalents		$	21,003		$	4,071		$	25,074

QUARTERLY INFORMATION (UNAUDITED)
(in thousands except share and per share data)

The following summarizes the unaudited quarterly results of operations for the fiscal years ended September 29, 2002 and September 28, 2003 (dollars in thousands):


Predecessor Company:
Fiscal 2002 Quarter:		First			Second			Third			Fourth

Net sales		$	137,568		$	129,674		$	133,555		$	112,376
Gross profit (loss)			10,838			(14,544	)		13,887			15,878
Net (loss) income			(15,081	)		(99,344	)		(15,361	)		6,473

Net (loss) income per share:
	Basic		(.82	)		(5.37	)		(.83	)		.35
	Diluted		(.82	)		(5.37	)		(.83	)		.35

Successor Company:

Fiscal 2003 Quarter:

First

Second

Third

Fourth

Net sales

111,241

114,671

113,494

106,565

Gross profit

17,233

15,559

16,923

17,591

Net income (loss)

101

784

1,467

(10,958

)

Net income (loss) per share:

Basic

.02

.14

.27

(1.99

)

Diluted

.02

.14

.27

(1.99

)

Guilford Mills, Inc.

SCHEDULE II
Analysis of Valuation and Qualifying Accounts

For the Years Ended September 30, 2001, September 29, 2002 and September 28, 2003
(dollars in thousands)


				Additions
		Balance		Charged to								Balance
		Beginning		Cost and								End
		of Period		Expenses		Deductions			Other			of Period

						(1)			(2)
For the Year Ended September 30, 2001:
	Reserve deducted from assets to which it applies - Receivables allowances	$	11,080	$	18,261	$	(18,336	)	$	(38	)	$	10,967

	Restructuring reserve	$	9,268	$	14,503	$	(21,817	)	$	—		$	1,954

For the Year Ended September 29, 2002:
	Reserve deducted from assets to which it applies - Receivables allowances	$	10,967	$	23,998	$	(27,106	)	$	(17	)	$	7,842

	Restructuring reserve	$	1,954	$	8,132	$	(8,743	)	$	—		$	1,343

For the Year Ended September 28, 2003:
	Reserve deducted from assets to which it applies - Receivables allowances	$	7,842	$	11,188	$	(16,027	)	$	(10	)	$	2,993

	Restructuring reserve	$	1,343	$	662	$	(1,648	)	$	—		$	357

(1)		Deductions are for the purpose for which the reserve was created.

(2)		Other amounts represent the effect of exchange rate fluctuations.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

On August 5, 2002, the Company terminated the engagement of its independent certified public accountants, Arthur Andersen LLP (“Andersen”), and engaged the services of Grant Thornton LLP (“Grant Thornton”) as its new independent auditors for 2002, effective immediately. The decision to terminate Andersen and retain Grant Thornton was approved by the Company’s Board of Directors upon the recommendation of its Audit Committee.

Item 9A. Controls and Procedures

The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officers (the “Evaluation”), the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 28, 2003.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that the disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with its policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Based on their Evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures were effective as of September 28, 2003 to provide reasonable assurance that material information relating to the Company and the Company’s consolidated subsidiaries would be made known to them by others within those entities to allow timely decisions regarding required disclosures.

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended September 28, 2003, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART III

Item 10. Directors and Executive Officers of the Registrant

Directors of the Registrant (as of December 14, 2003)

The Company’s Board of Directors (the “Board”) is currently comprised of seven persons. The Company’s By-Laws provide that the directors are elected at the annual meeting of stockholders and hold office until their respective successors are elected and qualified or until their earlier resignation or removal. The By-Laws also generally provide that any vacancy on the Board may be filled by the affirmative vote of a majority of the directors then in office. Under the Plan, the initial Board after the Effective Date consists of seven persons — John A. Emrich, the Company’s President and Chief Executive Officer and a director prior to the Effective Date, and six persons designated by the Company’s senior secured lenders. The following table sets forth certain information with respect to each director. Except as otherwise indicated, each such person has held his present principal occupation for the past five years and references to executive offices held are with the Company:


Name	Age (1)		Principal Occupation and Business Experience	Director Since

David G. Elkins (2)		61	Director of The Houston Exploration Company, a natural gas E&P company (since 1999); Director, President and Co-Chief Executive Officer of Sterling Chemicals, Inc., a manufacturer of petrochemicals (from 2001 to 2003), and as its Executive Vice President and General Counsel (from 1998 to 2001); senior partner at Andrews & Kurth L.L.P., a law firm (from 1974 until 1998)		2002

John A. Emrich		59	President and Chief Executive Officer (since 2000); President and Chief Operating Officer (from 1995 to 1999); 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)		1995

Kevin M. McShea		49	Director of Magnatrax, Inc., a manufacturer of prefabricated steel buildings (since 2003); Director of All Star Gas, Inc., a distributor of propane gas (since 2003); Director of IMS, Inc., a metal fabrication and machinery company (since 2000); President and Chief Executive Officer of Xpectra, Inc., a plastic injection molding manufacturer (from 2000 to 2003); President and Chief Executive Officer of E-M Solutions, Inc., a contract manufacturer (from 1996 to 1999); Chief Financial Officer of Budget Rent a Car, Inc., a travel and transportation company (1990-1995)		2002

Michael T. Monahan		64	President of Monahan Enterprises, LLC, a consulting firm (since 1999); Chairman of Munder Capital Management, an investment Management firm (from 1999 to 2001), and as its Chief Executive Officer (from 1999 to 2000); President of Comerica Bank, a commercial banking firm (from 1992 to 1999), and Comerica Incorporated, a financial services holding firm (from 1993 to 1999); Director of Munder Funds, Inc. a mutual fund firm (since 1999), Director of CMS Energy, Inc., an integrated energy company (since 2002)		2002


Name	Age (1)		Principal Occupation and Business Experience	Director Since

Charles M. Price		58	President and Chief Executive Officer of Horizon Management, Inc., an interim management turnaround firm (since May 2002); Chief Executive Officer of Johnson Rubber Company (since 2003); President and Chief Executive Officer of ELM Packaging LLP (from 2001 to 2002); President and Chief Executive Officer of Southland Technologies, Inc., an OEM automotive parts supplier (from 1999 to 2000); President of Brazos Sportswear (from 1998 to 1999); President and Chief Executive Officer of Wembley Neckwear (from 1997 to 1998); Director of Breed Technologies and Unique Fabricating, both automotive parts suppliers (from 2001 to 2003)		2002

Todd A. Robinson		56	President and Chief Executive Officer of Southwood Group, LLC, a manufacturer of commercial construction products (since 1984); Director of McKenzie Forest Products LLC (since 1998), Steelox Building Systems, LLC (since 2002) and Wilkinson Hi-Rise, LLC (from 2002 to 2003), all manufacturers of construction products; Director of All Star Gas, Inc., a distributor of propane gas (since 2003)		2002

Ronald M. Ruzic		64	Director of AG Kühnle, Kopp & Kausch, a manufacturer of compressors, turbines and fans (since 1997); Director of Magmeti Marelli, a subsidiary of Fiat SpA. (since 2003); Executive Vice President of Borg-Warner Corporation and Group President of Morse Tec and Turbosystems, an OEM automotive supplier of engine and transmission components and systems (from 1991 to 2003); for more than five years prior thereto, the holder of various domestic and international management positions with Borg Warner Corporation		2002

(1)		Age as of December 14, 2003

(2)		Sterling Chemicals, Inc. filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code on July 16, 2001 and emerged from bankruptcy proceedings on December 19, 2002.

The Board has determined that Kevin M. McShea, the Chairman of the Board’s Audit Committee, is an audit committee financial expert, as such term is defined pursuant to SEC rules. The Board has also determined that Mr. McShea is independent of the Company, within the meaning of applicable SEC rules.

Executive Officers of the Registrant (as of December 14, 2003)

The following table sets forth certain information with regard to the executive officers of the Company (other than John A. Emrich, who also serves as a director of the Company and whose information is set forth above).


Name	Age (1)		Office or Business Experience

Robert A. Emken, Jr.		40	General Counsel and Secretary (since 1999); Associate Counsel (from 1991 to 1999); Associate, Womble Carlyle Sandridge & Rice, PLLC (from 1988 to 1991)

Alan R. Mackinnon		62	Vice President, Sales/Automotive (since 2002); Automotive Business Unit Vice President of European Sales and Marketing (from 2001 to 2002); Automotive Business Unit Vice President of Global Sales to Ford (from 1999 to 2001); Automotive Business Unit Vice President of European Sales and Marketing (from 1994 to 1999)

Robert W. Nolan		65	Executive Vice President/Operations (since 2002); Automotive Business Unit Executive Vice President (from 1996 to 2002); Automotive Business Unit Vice President of Worldwide Marketing (from 1993 to 1996)

Richard E. Novak		60	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)

David B. Schweibold (2)		53	Vice President/Information Systems (since 2000); Vice President and Chief Information Officer, Celotex Corp. (from 1997 to 2000); Director of Information Systems, Raytheon Corp. (from 1995 to 1997)

David H. Taylor		48	Chief Financial Officer (since 2002); Senior Vice President-Finance, Heafner Tire Group (now known as American Tire Distributors) (from 1999 to 2001); Chief Operating Officer, C’Board USA (from 1998 to 1999); Executive Vice President-Finance, Secretary and Director, JPS Textile Group, Inc. (now known as JPS Industries) (from 1988 to 1998)

(1)		Age as of December 14, 2003

(2)		Mr. Schweibold has resigned from the Company, such resignation to become effective in January 2004.

No family relationships exist between any executive officers of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers, and any persons holding more than 10% of the Company’s equity securities, to file with the Securities and Exchange Commission (the “SEC”) reports disclosing their initial ownership of the Company’s equity securities, as well as subsequent reports disclosing changes in such ownership. To the Company’s knowledge, based solely on a review of such reports furnished to it and written representations by certain reporting persons that no other reports were required, during the 2003 fiscal year, the Company’s directors, executive officers and greater than 10% beneficial owners complied with all Section 16(a) filing requirements.

Finance Code of Ethics

The Board has approved the adoption of a code of ethics (the “Code of Ethics”), within the meaning of 17 CFR § 229.406, that applies to the Company’s Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Controller and Director of Internal Audit. Any person who desires a copy of the Code of Ethics may obtain a copy without charge by addressing a request to the Company’s Secretary, Guilford Mills, Inc., P.O. Box 26969, Greensboro, NC 27419-6969. If the Company makes an amendment to the Code of Ethics, or grants a waiver from a provision of the Code of Ethics to the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Controller or Director of Internal Audit, then the Company will make any required disclosure of such amendment or waiver on the Company’s website (www.guilfordmills.com) or in a current report on Form 8-K filed with the SEC.

Item 11. Executive Compensation

Summary of Cash and Certain Other Compensation

The following table shows for the fiscal years ended September 28, 2003, September 29, 2002 and September 30, 2001 the cash compensation paid by the Company (and its subsidiaries), as well as certain other compensation paid or accrued for those periods, to the Company’s Chief Executive Officer, and to the Company’s four most highly compensated executive officers (other than the Chief Executive Officer) (collectively, the “Named Executive Officers”).

SUMMARY COMPENSATION TABLE


										Long-Term
										Compensation
			Annual Compensation							Awards

										Securities
										Underlying		All Other
	Fiscal						Other Annual			Options		Compensation
Name and Principal Position	Year		Salary ($)		Bonus ($)		Compensation ($)			(#)(1)		($)(2)

John A. Emrich, President and		2003		675,000		150,000		—			25,000		58,805
Chief Executive Officer		2002		675,000		604,693		—			0		41,367
		2001		675,000		0		—			0		17,688
David H. Taylor, Chief Financial		2003		340,000		93,323		—			15,000		7,500
Officer (3)		2002		262,500		205,000		—			0		0
Robert W. Nolan, Executive		2003		241,250		60,038		—			15,000		23,602
Vice President/Operations		2002		235,001		141,074		—			0		21,182
		2001		217,750		0		—			0		11,429
Alan R. Mackinnon, Vice		2003		218,633		36,997		75,960	(5)		15,000		7,325
President, Sales/Automotive (4)		2002		193,987		106,364		—			0		14,678
		2001		160,387		0		17,700	(5)		0		0
Richard E. Novak, Vice		2003		195,000		31,649		—			4,000		23,665
President/Human Resources		2002		195,000		99,983		—			0		21,492
		2001		185,250		0		—			30,000		13,536

(1) Pursuant to the Plan, all options outstanding on the Effective Date to acquire shares of Old Common Stock (including the options granted to Mr. Novak during fiscal 2001) were cancelled. The options granted to the Named Executive Officers during the 2003 fiscal year represent options, granted under the Company’s 2003 Stock Option Plan (the “Employee Plan”), to acquire shares of New Common Stock.

(2) The components of the amounts shown in this column for the 2003 fiscal year consist of the following:

(i) Contributions of $10,000, $7,500, $10,000 and $10,000 to the accounts of Messrs. Emrich, Taylor, Nolan and Novak, respectively, pursuant to the Company’s qualified profit-sharing plan.

(ii) Contributions of $2,314 and $2,706 to the accounts of Messrs. Nolan and Novak, respectively, pursuant to the Company’s 401(k) plan.

(iii) Contributions of $47,734, $7,647 and $3,530 to the accounts of Messrs. Emrich, Nolan and Novak, respectively, pursuant to the Company’s excess benefit plan which is designed to supplement the Company’s qualified profit-sharing plan.

(iv) With respect to Messrs. Emrich, Nolan and Novak, the value of benefits under the Company’s Senior Managers’ Life Insurance Plan, a split dollar plan (the “Insurance Plan”). During the 2003 fiscal year, each of Messrs. Emrich, Nolan and Novak paid the amount of the premium associated with the term life component of his split dollar life insurance coverage. The Company expects to recover the premiums it pays pursuant to the Insurance Plan. The following amounts reflect the benefits related to the non-term portion of the premiums to be paid by the Company under the insurance policies purchased on the lives of the Named Executive Officers who participate in the Insurance Plan, in each case with the non-term portion of the premium being treated as the present value of an interest-free loan to age 65 in the case of Messrs. Emrich and Novak, and to age 67 in the case of Mr. Nolan: Mr. Emrich – $1,071; Mr. Nolan - $3,641; and Mr. Novak – $7,429.

(v) With respect to Mr. Mackinnon (who does not participate in any of the benefit plans identified in clauses (i)-(iv) above), the amount of contributions paid, to Mr. Mackinnon’s participant directed investment account, on certain compensation which is not subject to the Guilford Europe Pension Scheme. See “Other Benefit Plans and Agreements – Pension Plan” below.

(3) Mr. Taylor, who joined the Company in February, 2002 as interim Chief Financial Officer, began serving the Company as an independent contractor, receiving a monthly fee of $35,000, but not participating in the Company’s employee benefit plans other than in certain cash bonus plans. Commencing February, 2003, Mr. Taylor shifted from an independent contractor to an employee of the Company and, therefore, became eligible to participate in certain other Company employee benefit plans.

(4) The dollar amounts reflected in the above table for Mr. Mackinnon (other than the amounts shown in the Other Annual Compensation column, which amounts were paid in U.S. Dollars) represent the value of Mr. Mackinnon’s compensation converted from British Pounds Sterling into U.S. Dollars.

(5) Represents certain tax reimbursements made to Mr. Mackinnon.

Stock Option Grants

The table below provides information regarding stock options granted to the Named Executive Officers during the Company’s 2003 fiscal year.

OPTION GRANTS IN LAST FISCAL YEAR


	Number of		Percent of
	Securities		Total Options
	Underlying		Granted to		Exercise				Grant Date
	Options		Employees in		or Base		Expiration		Present Value
Name	Granted (#)		Fiscal Year		Price ($)		Date (1)		($)(2)

John A. Emrich		25,000		22.5		4.00		6/24/13		123,500
David H. Taylor		15,000		13.5		4.00		6/24/13		74,100
Robert W. Nolan		15,000		13.5		4.00		6/24/13		74,100
Alan R. Mackinnon		15,000		13.5		4.00		6/24/13		74,100
Richard E. Novak		4,000		3.6		4.00		6/24/13		19,760

(1) The options vest, or become exercisable, in equal, annual one-third increments commencing on the first anniversary of the grant date. Any exercisable portion of an option that is not exercised will be carried forward through the ten year term of the grant. Notwithstanding the foregoing, upon certain types of termination of employment occurring within 13 months after a “change in control” of the Company, as such term is defined in the option plan, all then outstanding options will immediately become exercisable. Pursuant to the terms of the option plan, the Compensation Committee may, in its discretion, elect to cancel any options outstanding upon a change in control and pay each option holder a cash amount equal to the excess of the fair market value of the underlying New Common Stock immediately prior to the change in control over the exercise price of the option.

(2) The values in this column represent the grant date present value of the options based upon application of the Black-Scholes option pricing model. The material assumptions and adjustments used in estimating the present value pursuant to such model are: (i) a volatility factor of 40%; (ii) a dividend yield of 0%; (iii) a risk-free rate of return of 3%; and (iv) an expected option life of 1 to 3 years. The actual value an executive officer receives from a stock option is dependent on future market conditions, and there can be no assurance that the value ultimately realized by the executive will not be more or less than the amount reflected in the “Grant Date Present Value” column.

Stock Option Exercises and Fiscal Year-End Option Values

The table below shows the value of the options held by the Named Executive Officers at the end of the 2003 fiscal year. None of such persons exercised any stock options during the 2003 fiscal year.

AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES


	Number of Securities Underlying Unexercised		Value of Unexercised In-the-Money
Name	Options at Fiscal Year-End (#)		Options at Fiscal Year-End ($)(1)

	Exercisable/Unexercisable		Exercisable/Unexercisable
John A. Emrich		0/25,000		0/156,250
David H. Taylor		0/15,000		0/93,750
Robert W. Nolan		0/15,000		0/93,750
Alan R. Mackinnon		0/15,000		0/93,750
Richard E. Novak		0/4,000		0/25,000

(1) The values in this column represent the product of the number of options and the excess of $10.25, the per share closing price of the underlying New Common Stock on September 26, 2003 (the last business day of the 2003 fiscal year), over the option exercise price.

Other Benefit Plans and Agreements

Pension Plan. Mr. Mackinnon, who does not participate in any of the Company’s benefit plans for U.S. based employees (other than in the annual cash bonus plan), is the only Named Executive Officer who is a participant in the Guilford Europe Pension Scheme, a pension plan offered to employees, such as Mr. Mackinnon, of Guilford Europe Limited, the Company’s wholly owned United Kingdom subsidiary (the “Pension Plan”). Pursuant to the Pension Plan, a participant is entitled to receive upon normal retirement age (age 65) an annual pension benefit, payable in monthly installments, in an amount determined in accordance with the following formula: 1/60 multiplied by Final Pensionable Salary (as defined herein) multiplied by years of service. The term “Final Pensionable Salary” means the average of the highest three consecutive annual base salaries (after deducting the amount payable to a participant pursuant to a government sponsored pension program) in the ten years immediately before retirement. Each year, a participant contributes to the Pension Plan an amount equal to 5.5% of his annual base salary (less the amount payable to the participant pursuant to the government sponsored pension program). The following table shows the annual retirement benefits that would be payable, upon normal retirement age, for various rates of Final Pensionable Salary (the benefits in the table below include the amounts attributable to participant contributions):


		Years of Service

Remuneration		10		15		20		25		30

$	125,000	$	20,833	$	31,250	$	41,667	$	52,083	$	62,500
	150,000		25,000		37,500		50,000		62,500		75,000
	175,000		29,167		43,750		58,333		72,917		87,500
	200,000		33,333		50,000		66,667		83,333		100,000
	225,000		37,500		56,250		75,000		93,750		112,500
	250,000		41,667		62,500		83,333		104,167		125,000
	300,000		50,000		75,000		100,000		125,000		150,000

As of December 15, 2003, Mr. Mackinnon has 9 years of credited services for purposes of the Pension Plan.

Supplemental Retirement Plan. In 1992, the Company adopted the Senior Managers’ Supplemental Retirement Plan (the “Existing SERP”) which provides for retirement and death benefits to a select group of senior managers. The Existing SERP provides that upon retirement from the Company after attaining age 65, and after at least 60 months of service with the Company, participants will be entitled to receive a specified dollar amount for a period of ten years following retirement (“Ten Year Payments”). If the participant dies prior to the termination of his or her employment or during the period while the Ten Year Payments are being made, the full amount of the Ten Year Payments or the unpaid portion thereof, as the case may be, will be paid according to the installment schedule to the participant’s designated beneficiary.

The Existing SERP also provides that if the participant’s employment with the Company is terminated for any reason other than his or her death or disability (prior to the participant attaining age 65) and the participant has been employed by the Company for at least 60 months, the participant will be entitled to a reduced retirement benefit commencing at age 65. Such reduced benefit will be based upon the participant’s total months of employment with the Company as compared with the total months of employment the participant would have had with the Company if he or she had remained in the employ of the Company until age 65. If, at the time of his or her termination of employment with the Company for any reason other than death or disability, the participant has been employed by the Company for less than 60 months and if the Company has not terminated the plan, he or she will not be entitled to any retirement benefits and his or her beneficiaries will not be entitled to any death benefits. If a participant becomes disabled prior to attaining age 65 and such disability continues until age 65, the participant will be entitled to receive the full amount of the Ten Year Payments commencing at age 65, regardless of whether he or she has completed 60 months of service with the Company.

The following table sets forth the Ten Year Payments for each of the Named Executive Officers who participate in the Existing SERP.


	Ten Year Payments
Name of Individual	(Per Annum) (1)

John A. Emrich	$	300,000
David H. Taylor		100,000
Robert W. Nolan		125,000
Richard E. Novak		100,000

(1)

The amounts in this column represent the full annual amount of a participant’s Ten Year Payments if he becomes fully vested in his Existing SERP benefits.

During the first quarter of the 2004 fiscal year, the Board approved certain amendments to the Existing SERP (the Existing SERP as so amended, the “New SERP”). Each participant will have the option of remaining as a participant in the Existing SERP or becoming a participant in the New SERP. Pursuant to the New SERP, the terms of which have not yet been formally documented, a participant’s Ten Year Payments will be equal to 60% of the product of (i) the quotient (which will not be greater than one) arrived at by dividing (A) the sum of a participant’s age and the greater of five and one plus the participant’s years of service with the Company and its subsidiaries by (B) 75 and (ii) the participant’s current maximum Ten Year Payments under the Existing SERP (the resulting amount, the “New SERP Benefit”). Depending upon the individual, the New SERP Benefit will be either greater than or equal to the current vested amount of a participant’s Ten Year Payments under the Existing SERP. Unlike the Existing SERP benefit, the amount of the New SERP Benefit will remain fixed and will not increase with a participant’s continued service with the Company. The New SERP Benefit will be subject to forfeiture if a participant violates the terms of a covenant prohibiting certain competitive activity against the Company. The New SERP Benefits will be paid from a welfare benefits trust to be established by the Company (the “Benefits Trust”). After obtaining certain necessary third party consents, the Company intends to initially fund the Benefits Trust primarily with certain life insurance policies on the lives of participants. The Benefits Trust will also provide Existing SERP participants with life insurance benefits in lieu of split-dollar life insurance benefits the Company currently provides to such persons (such split-dollar life insurance program described in greater detail in footnote 2 to the “Summary Compensation Table” above). After the initial funding of the Benefits Trust, the Company will have no further obligation to fund or otherwise make payments with respect to the New SERP or such life insurance program.

Salary Continuation Agreements. The Company has entered into salary continuation agreements with certain key managers, including the Named Executive Officers. Each salary continuation agreement provides that after certain terminations of a participant’s employment, the Company will pay, among other benefits, a participant’s base salary (“Base Salary Payments”) for a period of either one year or two years (depending upon the participant and, with respect to certain participants, when the termination of employment occurs). Any Base Salary Payments for Messrs. Emrich, Taylor

and Novak are payable for two years after an eligible termination of employment and any Base Salary Payments for Messrs. Nolan and Mackinnon are payable for one year after an eligible termination of employment. The Base Salary Payments are payable in monthly installments and, after the payment of the first half of such amounts, are subject to reduction to the extent the employee finds new employment elsewhere. The term of each salary continuation agreement continues until the Company provides at least six months’ notice of termination, which notice cannot be furnished prior to November 12, 2004.

Director Compensation

A non-employee director serving as Chairman of the Board receives an annual retainer of $45,000, and other non-employee directors receive an annual retainer of $25,000. A non-employee director serving as Chairman of a standing Board committee receives a supplemental annual retainer as follows: $10,000 for service as Audit Committee Chairman, $7,500 for service as Compensation Committee Chairman and $5,000 for service as Nominating and Corporate Governance Committee Chairman. All annual retainers are payable in equal, quarterly installments. Members of the Company’s ad hoc Special Committee, established during the 2003 fiscal year for purposes of assisting in the evaluation of the Company’s strategic alternatives, are entitled to receive a one time payment of $25,000, in the case of the Committee Chairman, and $15,000, in the case of the other members of the Committee. Only non-employee directors serve on Board committees. Each non-employee director receives $1,500 for each in-person Board meeting attended and $750 for each telephonic Board meeting attended. Each non-employee director receives $1,000 for each in-person Board committee meeting attended and $500 for each telephonic Board committee meeting attended.

During the 2003 fiscal year, the Company paid consulting fees to a company with which Charles M. Price, a director, is affiliated (see Item 13 “Certain Relationships and Related Transactions” below).

The Board has adopted a stock option plan for non-employee directors (the “Director Plan”). Pursuant to the Director Plan, each non-employee director was granted during the 2003 fiscal year an option, having a ten year term, to acquire 6,000 shares of New Common Stock. In addition, on October 4, 2003, each non-employee director was granted a ten year option to acquire 4,000 shares of New Common Stock, with a non-employee director’s receipt of such grant having been contingent on his attending at least 75% of the meetings of the Board and of the Board committees on which he serves. The purchase price of the shares of New Common Stock covered by the options granted under the Director Plan is the fair market value of the shares as of the date of grant. The options vest, or become exercisable, in equal, annual one-third increments commencing on the first anniversary of the grant date. Any exercisable portion of an option that is not exercised will be carried forward through the term of the grant. Notwithstanding the foregoing, in the event of a “change in control” of the Company, as such term is defined in the Director Plan, all then outstanding options will immediately become exercisable.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Under rules issued by the SEC, a beneficial owner of a security includes any person who directly or indirectly has or shares voting power and/or investment power with respect to such security or has the right to obtain such voting power and/or investment power within 60 days. Except as otherwise noted, each beneficial owner identified in the tables below has sole voting power and investment power with respect to the shares beneficially owned by such person.

Security Ownership of Certain Beneficial Owners

The following table sets forth information with respect to each person who is known by the management of the Company to be the beneficial owner of more than 5% of the New Common Stock:


	Amount and Nature of
Name and Address of Beneficial Owner	Beneficial Ownership			Percent of Class

Prudential Financial, Inc.		2,066,002	⁽¹⁾		37.5
751 Broad Street Newark, New Jersey 07102-3777
Wachovia Bank, National Association		868,466	⁽²⁾		15.8
301 S. College Street Charlotte, NC 28288
Carl Marks Management Company, L.P.		575,613	⁽³⁾		10.4
135 East 57th Street New York, NY 10022
Bank One, NA		516,682	⁽⁴⁾		9.4
1717 Main Street, 4th Floor Dallas, TX 75201
PW Willow Fund LLC		416,501	⁽⁵⁾		7.5
c/o Bond Street Capital 700 Palisade Avenue Englewood Cliffs, New Jersey 07632
GE Capital CFE, Inc.		406,736	⁽⁶⁾		7.4
201 High Ridge Road Stamford, CT 06927

⁽¹⁾ Based upon information, as of December 4, 2003, furnished to the Company by the beneficial owner.

⁽²⁾ Based upon information as of December 5, 2003, furnished to the Company by the beneficial owner.

⁽³⁾ Based upon a Schedule 13G jointly filed in December, 2002 by Carl Marks Strategic Investments, L.P. (“CMSI”), Carl Marks Management Company, L.P. , the sole general partner of CMSI (“CMMC”), and the three individual general partners of CMMC- Andrew M. Boas, Robert C. Ruocco and James F. Wilson (and information furnished to the Company on behalf of CMMC on November 24, 2003), and reflecting share ownership of the same shares of New Common Stock. CMMC has sole voting and investment power over all of the shares shown above, CMSI has sole voting and investment power over 518,052 shares shown above, and each of the three individual general partners of CMMC has shared voting and investment power over all of the shares shown above.

⁽⁴⁾ Based upon information furnished to the Company by the beneficial owner on November 14, 2003.

⁽⁵⁾ Based upon information, as of September 28, 2003, furnished to the Company by the beneficial owner.

⁽⁶⁾ Based upon information, as of December 4, 2003, furnished to the Company by the beneficial owner.

Security Ownership of Management

The following table sets forth certain information, as of December 14, 2003, with respect to New Common Stock beneficially owned by each director of the Company, each of the Named Executive Officers and all directors and executive officers as a group:


	Amount and Nature of
Name of Beneficial Owner	Beneficial Ownership		Percent of Class

Directors (1)
David G. Elkins		2,000		*
John A. Emrich		4,277		*
Kevin M. McShea		2,000		*
Michael T. Monahan		2,000		*
Charles M. Price		2,000		*
Todd A. Robinson		2,000		*
Ronald M. Ruzic		2,000		*

Non-Director Executive Officers
David H. Taylor		0		*
Robert W. Nolan		357		*
Alan R. Mackinnon		14		*
Richard E. Novak		2		*
All directors and executive officers as a group (consisting of 13 persons)		16,719		*

* Less than one percent

(1) The shares beneficially owned by all directors, other than Mr. Emrich, represent shares of New Common Stock subject to options granted under the Director Plan.

Equity Compensation Plan Information

The following table sets forth certain information, as of September 28, 2003 (the last day of the Company’s 2003 fiscal year), regarding the Employee Plan and Director Plan, the Company’s two compensation plans under which the New Common Stock are authorized for issuance (1).

Plan category

Number of

Weighted-

Number of securities

securities to be

average

remaining available for

issued upon

exercise

future issuance under

exercise of

price of

equity compensation

outstanding

plans (excluding

options,

securities reflected in

warrants

warrants and

column (a))

and rights

rights

(a)

(b)

(c)

Equity compensation plans approved by security holders

—

Equity compensation plans not approved by security holders

147,000

4.00

463,000

Total

147,000

—

463,000

(1) The principal terms of each of the Employee Plan and Director Plan are described in Note 18 to the Consolidated Financial Statements.

Item 13. Certain Relationships and Related Transactions

During the 2003 fiscal year, the Company paid $231,356 in consulting fees to Horizon Management, Inc., of which Charles M. Price, a director of the Company, is the President, Chief Executive Officer and controlling stockholder.

In connection with the implementation of the Plan, the Company entered into several transactions with the institutions which are listed in the table in “Security Ownership of Certain Beneficial Owners” above. Pursuant to the Plan, each such institution or its affiliate acquired shares of New Common Stock, Notes (as described in note 12 to the Consolidated Financial Statements included elsewhere in this Report), Altamira Trust Notes and Discontinued Operations Trust Notes (as described in note 1 to the Consolidated Financial Statements), and distributions of cash (as described in note 3 to the Consolidated Financial Statements). In addition, Guilford’s Revolving Credit Facility (described in note 12 to the Consolidated Financial Statements) is provided by certain of the institutions listed in “Security Ownership of Certain Beneficial Owners” (or affiliates of such institutions) as follows: Wachovia Bank, National Association; Bank One, NA; General Electric Capital Corporation (an affiliate of GE Capital CFE, Inc.); and The Prudential Insurance Company of America (an affiliate of Prudential Financial, Inc.).

Item 14. Principal Accounting Fees and Services

Not applicable to the report.

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Documents filed as a part of this report:

1. Financial Statements

See Item 8 of Part II

2. Financial Statement Schedules

See Item 8 of Part II

3. Exhibits

EXHIBIT INDEX


Exhibit No.		Description of Exhibit

(2) (a)		Amended Joint Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code, dated August 15, 2002, as filed with the U.S. Bankruptcy Court for the Southern District of New York (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 4, 2002 (the “10/4/02 8-K”)).

(2) (b)		Amended Disclosure Statement to Amended Joint Plan of Reorganization dated August 15, 2002 (incorporated by reference to Exhibit 2.2 to the 10/4/02 8-K).

(2) (c)		Bankruptcy Court Order, dated September 20, 2002, confirming the Amended Joint Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code (incorporated by reference to Exhibit 2.3 to the 10/4/02 8-K).

(3) (a)		Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s 10/4/02 8-K).

(3) (b)		Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s 10/4//02 8-K).

(4) (a)		Note Agreement, dated October 1, 2002, entered into by and between the Company and each of the purchasers named in the purchasers’ schedule thereto (the “Note Agreement”) (incorporated by reference to Exhibit (4)(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2002 (the “2002 Annual Report”)).

(4) (b)		Amendment No. 1 to Note Agreement, dated December 17, 2003.

(4) (c)		Registration Rights Agreement, dated October 1, 2002, by and among the Company and the Investors named therein (incorporated by reference to Exhibit (4)(b) to the 2002 Annual Report).

(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. Excess Benefit Plan (incorporated by reference to Exhibit (10) (a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 1996).

(10) (e)*		First Amendment to the Guilford Mills, Inc. Excess Benefit Plan (incorporated by reference to Exhibit (10) (w) to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2001 (the “2001 Annual Report”)).

(10) (f)*		Guilford Mills, Inc. Amended and Restated Trust for Non-Qualified Plans, dated as of February 16, 2001 (incorporated by reference to Exhibit (10) (x) to the 2001 Annual Report).

(10) (g)*		Guilford Mills, Inc. Executive Deferred Compensation Plan, dated as of February 12, 2001 (incorporated by reference to Exhibit (10) (y) to the 2001 Annual Report).

(10) (h)*		Guilford Mills, Inc. Senior Managers’ Life Insurance Plan and related Plan Agreement (incorporated by reference to Exhibit (10) (r) to the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 1992 (“1992 Annual Report”)).

(10) (i)*		Guilford Mills, Inc. Senior Managers’ Pre-Retirement Life Insurance Agreement (incorporated by reference to Exhibit (10) (s) to the 1992 Annual Report).

(10) (j)*		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) (k)*		Salary Continuation Agreement, dated November 12, 2002, by and between the Company and John A. Emrich (incorporated by reference to Exhibit (10)(l) of the 2002 Annual Report).

(10) (l)*		Salary Continuation Agreement, dated November 12, 2002, by and between the Company and Richard E. Novak (incorporated by reference to Exhibit (10) (m) of the 2002 Annual Report).

(10) (m)*		Salary Continuation Agreement, dated November 12, 2002, by and between the Company and Robert W. Nolan.

(10) (n)*		Salary Continuation Agreement, dated November 12, 2002, by and between the Company and Alan R. Mackinnon.

(10) (o)*		Salary Continuation Agreement, dated January 31, 2003, between the Company and David H. Taylor (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2002 (the “12/29/02 10-Q”)).

(10) (p)*		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)(q)*		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) (r)*		Guilford Mills, Inc. Stock Option Plan for Nonemployee Directors (incorporated by reference to Exhibit (10)(b) to the 12/29/02 10-Q).

(10) (s)*		Form of Stock Option Contract pursuant to the Guilford Mills, Inc. Stock Option Plan for Nonemployee Directors (incorporated by reference to Exhibit (10) (a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2003).

(10) (t)*		Guilford Mills, Inc. 2003 Stock Option Plan.

(10) (u)*		Form of Stock Option Contract pursuant to the Guilford Mills, Inc. 2003 Stock Option Plan.

(10) (v)*		Summary of Key Manager Short-Term Incentive Plan.


(10)(w)*		Form of Indemnification Agreement for Directors and Certain Employees (incorporated by reference to Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2003).

(10) (x)		Exclusive Supply Agreement, dated December 17, 2003, by and among the Company, Guilford Mexico, S.A. de C.V., Textiles Zana, S.A. de C.V., American Textil Acquisition, LLC and American Textil, S.A. de C.V.

(10) (y)		Steam Purchase Contract, dated November 30, 1984, by and between the Company and Cogentrix Eastern Carolina, LLC. (successor to Cogentrix Leasing Corporation) (incorporated by reference to Exhibit (10)(v) to the 2002 Annual Report).

(10) (z)		First Amendment to Steam Purchase Agreement, dated August 1, 1991, by and between the Company and Cogentrix Eastern Carolina, LLC (incorporated by reference to Exhibit (10)(w) to the 2002 Annual Report).

(10)(a)(a)		Altamira Trust Agreement and Declaration of Trust, dated October 1, 2002, by and between the Company and Wilmington Trust Company (incorporated by reference to Exhibit (10)(x) to the 2002 Annual Report).

(10) (b)(b)		Credit, Security, Guaranty and Pledge Agreement, dated October 1, 2002, among the Company, the Guarantors and Lenders referred to therein, and Wachovia Bank, National Association, as Administrative Agent, Collateral Agent and Issuing Bank (the “Credit Agreement”) (incorporated by reference to Exhibit (10)(y) to the 2002 Annual Report).

(10) (c)(c)		Amendment No. 1 to Credit Agreement, dated December 17, 2003.

(10) (d)(d)		Amended and Restated Factoring Agreement, dated October 1, 2002, by and between the Company and The CIT Group/Commercial Services, Inc. (incorporated by reference to Exhibit (10)(z) to the 2002 Annual Report).

(21)		Subsidiaries of the Registrant.

(23) (a)		Consent of Independent Public Accountants.

(23) (b)		Notice regarding consent of Arthur Andersen LLP.

(31) (a)		Certification of Chief Executive Officer required by Rule 13a-14(a).

(31) (b)		Certification of Chief Financial Officer required by Rule 13a-14(a).

(32) (a)		Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350 (furnished herewith).

(32) (b)		Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350 (furnished herewith).

* Items denoted with an asterisk represent management contracts or compensatory plans or arrangements.

(b) Reports on Form 8-K

None

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/ David H. Taylor

		David H. Taylor
		Chief Financial Officer

Dated: December 22, 2003

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


/s/ Michael T. Monahan Michael T. Monahan	Chairman of the Board of Directors	December 22, 2003

/s/ John A. Emrich John A. Emrich	Director; President and Chief Executive Officer (Principal Executive Officer)	December 22, 2003

/s/ David H. Taylor David H. Taylor	Chief Financial Officer (Principal Financial and Accounting Officer)	December 22, 2003

/s/ David G. Elkins David G. Elkins	Director	December 22, 2003

/s/ Kevin M. McShea Kevin M. McShea	Director	December 22, 2003

/s/ Charles M. Price Charles M. Price	Director	December 22, 2003

/s/ Todd A. Robinson Todd A. Robinson	Director	December 22, 2003

/s/ Ronald M. Ruzic Ronald M. Ruzic	Director	December 22, 2003

EXHIBIT INDEX


Exhibit No.		Description of Exhibit

(2) (a)		Amended Joint Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code, dated August 15, 2002, as filed with the U.S. Bankruptcy Court for the Southern District of New York (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 4, 2002 (the “10/4/02 8-K”)).

(2) (b)		Amended Disclosure Statement to Amended Joint Plan of Reorganization dated August 15, 2002 (incorporated by reference to Exhibit 2.2 to the 10/4/02 8-K).

(2) (c)		Bankruptcy Court Order, dated September 20, 2002, confirming the Amended Joint Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code (incorporated by reference to Exhibit 2.3 to the 10/4/02 8-K).

(3) (a)		Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s 10/4/02 8-K).

(3) (b)		Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s 10/4//02 8-K).

(4) (a)		Note Agreement, dated October 1, 2002, entered into by and between the Company and each of the purchasers named in the purchasers’ schedule thereto (the “Note Agreement”) (incorporated by reference to Exhibit (4)(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2002 (the “2002 Annual Report”)).

(4) (b)		Amendment No. 1 to Note Agreement, dated December 17, 2003.

(4) (c)		Registration Rights Agreement, dated October 1, 2002, by and among the Company and the Investors named therein (incorporated by reference to Exhibit (4)(b) to the 2002 Annual Report).

(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. Excess Benefit Plan (incorporated by reference to Exhibit (10) (a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 1996).

(10) (e)*		First Amendment to the Guilford Mills, Inc. Excess Benefit Plan (incorporated by reference to Exhibit (10) (w) to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2001 (the “2001 Annual Report”)).

(10) (f)*		Guilford Mills, Inc. Amended and Restated Trust for Non-Qualified Plans, dated as of February 16, 2001 (incorporated by reference to Exhibit (10) (x) to the 2001 Annual Report).

(10) (g)*		Guilford Mills, Inc. Executive Deferred Compensation Plan, dated as of February 12, 2001 (incorporated by reference to Exhibit (10) (y) to the 2001 Annual Report).

(10) (h)*		Guilford Mills, Inc. Senior Managers’ Life Insurance Plan and related Plan Agreement (incorporated by reference to Exhibit (10) (r) to the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 1992 (“1992 Annual Report”)).


(10) (i)*		Guilford Mills, Inc. Senior Managers’ Pre-Retirement Life Insurance Agreement (incorporated by reference to Exhibit (10) (s) to the 1992 Annual Report).

(10) (j)*		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) (k)*		Salary Continuation Agreement, dated November 12, 2002, by and between the Company and John A. Emrich (incorporated by reference to Exhibit (10)(l) of the 2002 Annual Report).

(10) (l)*		Salary Continuation Agreement, dated November 12, 2002, by and between the Company and Richard E. Novak (incorporated by reference to Exhibit (10) (m) of the 2002 Annual Report).

(10) (m)*		Salary Continuation Agreement, dated November 12, 2002, by and between the Company and Robert W. Nolan.

(10) (n)*		Salary Continuation Agreement, dated November 12, 2002, by and between the Company and Alan R. Mackinnon.

(10) (o)*		Salary Continuation Agreement, dated January 31, 2003, between the Company and David H. Taylor (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2002 (the “12/29/02 10-Q”)).

(10) (p)*		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)(q)*		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) (r)*		Guilford Mills, Inc. Stock Option Plan for Nonemployee Directors (incorporated by reference to Exhibit (10)(b) to the 12/29/02 10-Q).

(10) (s)*		Form of Stock Option Contract pursuant to the Guilford Mills, Inc. Stock Option Plan for Nonemployee Directors (incorporated by reference to Exhibit (10) (a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2003).

(10) (t)*		Guilford Mills, Inc. 2003 Stock Option Plan.

(10) (u)*		Form of Stock Option Contract pursuant to the Guilford Mills, Inc. 2003 Stock Option Plan.

(10) (v)*		Summary of Key Manager Short-Term Incentive Plan.

(10)(w)*		Form of Indemnification Agreement for Directors and Certain Employees (incorporated by reference to Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2003).

(10) (x)		Exclusive Supply Agreement, dated December 17, 2003, by and among the Company, Guilford Mexico, S.A. de C.V., Textiles Zana, S.A. de C.V., American Textil Acquisition, LLC and American Textil, S.A. de C.V.

(10) (y)		Steam Purchase Contract, dated November 30, 1984, by and between the Company and Cogentrix Eastern Carolina, LLC. (successor to Cogentrix Leasing Corporation) (incorporated by reference to Exhibit (10)(v) to the 2002 Annual Report).

(10) (z)		First Amendment to Steam Purchase Agreement, dated August 1, 1991, by and between the Company and Cogentrix Eastern Carolina, LLC (incorporated by reference to Exhibit (10)(w) to the 2002 Annual Report).


(10)(a)(a)		Altamira Trust Agreement and Declaration of Trust, dated October 1, 2002, by and between the Company and Wilmington Trust Company (incorporated by reference to Exhibit (10)(x) to the 2002 Annual Report).

(10) (b)(b)		Credit, Security, Guaranty and Pledge Agreement, dated October 1, 2002, among the Company, the Guarantors and Lenders referred to therein, and Wachovia Bank, National Association, as Administrative Agent, Collateral Agent and Issuing Bank (the “Credit Agreement”) (incorporated by reference to Exhibit (10)(y) to the 2002 Annual Report).

(10) (c)(c)		Amendment No. 1 to Credit Agreement, dated December 17, 2003.

(10) (d)(d)		Amended and Restated Factoring Agreement, dated October 1, 2002, by and between the Company and The CIT Group/Commercial Services, Inc. (incorporated by reference to Exhibit (10)(z) to the 2002 Annual Report).

(21)		Subsidiaries of the Registrant.

(23) (a)		Consent of Independent Public Accountants.

(23) (b)		Notice regarding consent of Arthur Andersen LLP.

(31) (a)		Certification of Chief Executive Officer required by Rule 13a-14(a).

(31) (b)		Certification of Chief Financial Officer required by Rule 13a-14(a).

(32) (a)		Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350 (furnished herewith).

(32) (b)		Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350 (furnished herewith).

*Items denoted with an asterisk represent management contracts or compensatory plans or arrangements.

80 EX-4.(B) 3 g86418exv4wxby.txt EX-4.(B) AMENDMENT NO. 1 TO NOTE AGREEMENT EXHIBIT 4(b) AMENDMENT NO. 1 TO NOTE AGREEMENT Dated as of December 17, 2003 This AMENDMENT NO. 1 (the "Amendment") is entered into by and among Guilford Mills, Inc. (the "Company") as Borrower, the Guarantors referred to in the Note Agreement (as defined below), and the Noteholders referred to in the Note Agreement. PRELIMINARY STATEMENT A. The Company, the Guarantors, and the Noteholders have entered into that certain Note Agreement dated as of October 1, 2002 (as amended, restated, modified and waived from time to time, the "Note Agreement"; the terms defined therein being used herein as therein defined unless otherwise defined herein). B. The Company has informed the Noteholders of its intention to sell the capital stock of one or more of the following wholly owned subsidiaries: (i) Grupo Ambar, S.A. de C.V., (ii) American Textil, S.A. de C.V., and (iii) Servicios Corporativos Ambar, S.A. de C.V (such transaction, the "Sale"). C. The Company and the Guarantors have requested, and the Noteholders have agreed, to amend the Note Agreement as hereinafter set forth to allow, among other things, for consummation of the Sale. SECTION 1. Amendments to Note Agreement. Upon the occurrence of the First Amendment Effective Date (as defined herein), the Note Agreement is hereby amended as follows: (a) Section 7.4(b) of the Note Agreement is hereby amended by inserting the following clause (w) immediately preceding clause (x) therein: "(w) result from the disposition of life insurance policies of former employees as a result of the surrender of such policies on or before October 31, 2003 in an amount not to exceed $167,043.63," (b) Section 9.2(a) of the Note Agreement is hereby amended by (i) deleting the word "and" at the end of clause (g) thereof, (ii) deleting the "." at the end of clause (h) thereof and inserting in lieu thereof "; and" and (iii) adding the following new clause (i): (i) the sale or other disposition of all the capital stock of one or more of the following Subsidiaries: (x) Grupo Ambar, S.A. de C.V., (y) American Textil, S.A. de C.V., or (z) Servicios Corporativos Ambar, S.A. de C.V., pursuant to the terms substantially similar to those set forth in that certain term sheet dated October 2, 2003 (the "Term Sheet") delivered to the Noteholders shall be authorized. (c) The definition of "Minimum Consolidated Tangible Net Worth" set forth in Section 9.11 of the Note Agreement is hereby amended by inserting the following at the end thereof: "provided that, any reduction in Minimum Consolidated Tangible Net Worth of up to $16,000,000 resulting solely from the disposition of (i) Grupo Ambar, S.A. de C.V., (ii) American Textil, S.A. de C.V., or (iii) Servicios Corporativos Ambar, S.A. de C.V. shall not be taken into account when calculating compliance with Section 9.11. SECTION 2. Release of Pledged Collateral. In accordance with Section 3.10 of the Guaranty, Security and Pledge Agreement dated October 1, 2002 (the "Security Agreement"), and Section 8.8(b) of the Note Agreement, each Noteholder agrees that upon consummation of the Sale, its lien on the capital stock of any of Grupo Ambar, S.A., de C.V., American Textil, S.A. de C.V. or Servicios Corporativos Ambar, S.A. de C.V., shall terminate and Wachovia Bank, National Association, as Collateral Agent (the "Collateral Agent"), shall be authorized to release the security interest thereon. SECTION 3. Certifications of Company Under Note Agreement: In accordance with Section 8.8(b) of the Note Agreement, the Company hereby certifies that (a) the provisions of Section 9.2 of the Note Agreement (as amended hereby) will not be breached by the Sale; (b) except as otherwise contemplated by the terms of the Sale as set forth in the Term Sheet, all loans to Grupo Ambar, S.A., de C.V., American Textil, S.A. de C.V. or Servicios Corporativos Ambar, S.A. de C.V. from the Company or any other Guarantor have been satisfied in full; (c) the net purchase price (recognizing that the purchase price consists of non-cash consideration) to be realized by the Company from the sale of any of Grupo Ambar, S.A., de C.V., American Textil, S.A. de C.V. or Servicios Corporativos Ambar, S.A. de C.V., will not be less than 100% of the Fair Market Value of each such subsidiary actually sold in the Sale, as determined in good faith by the Company's board of directors; and (d) no Event of Default is in existence or will be caused as a result of the Sale. SECTION 4. Exclusion of TaxLLC from Pledged Collateral. It is hereby acknowledged and agreed by the parties hereto that TaxLLC (as defined in the Term Sheet) is being created solely for the purpose of effectuating the Sale and, accordingly, TaxLLC shall not be deemed Pledged Collateral (as defined in the Security Agreement) and shall not be deemed a Guarantor pursuant to Section 8.7 of the Note Agreement; provided that the Sale shall occur substantially simultaneously with (i) the transfer of the capital stock of any of Grupo Ambar, S.A., de C.V., American Textil, S.A. de C.V. or Servicios Corporativos Ambar, S.A. de C.V. into TaxLLC, as more fully described in the Term Sheet and (ii) the release of the stock as described in Section 2 above. SECTION 5. Conditions of Effectiveness. This Amendment shall become effective on the date (such date, the "First Amendment Effective Date") upon which (i) the Collateral Agent shall have received counterparts of this Amendment executed by the Company, the Guarantors and the Required Holders, (ii) receipt by King & Spalding LLP, as counsel to the Noteholders, of a copy of a similar amendment executed and delivered by the Company and the Required Lenders under the Credit, Security, Guaranty and Pledge Agreement, dated as of October 1, 2002 2 (the "Credit Agreement"), and (iii) the Company shall have paid to King & Spalding LLP, as counsel to the Noteholders, all costs and expenses (including legal fees) for services rendered to the Noteholders through the date of this Amendment. SECTION 6. Restatement of Representations and Warranties. The Company hereby restates and renews each and every representation and warranty heretofore made by it in the Note Agreement and the other Related Documents as fully as if made on the date hereof (but after giving effect to the amendments contained herein) and with specific reference to this Amendment. SECTION 7. Reference to and Effect on the Related Documents. (a) Upon the occurrence of the First Amendment Effective Date, each reference in the Note Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in any Related Documents, shall mean and be a reference to the Note Agreement or such other Related Document as amended hereby. (b) Except as specifically amended above, the Note Agreement and the other Related Documents shall remain in full force and effect and are hereby ratified and confirmed. Without limiting the generality of the foregoing, and except as expressly provided for in Section 2 of this Amendment, all of the "Collateral" described therein does and shall continue to secure the payment of all Secured Obligations. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Noteholder under any of the Related Documents, nor constitute a waiver of any provision of any of the Related Documents. (d) The Required Holders are under no obligation to enter into this Amendment. The Required Holders entering into this Amendment shall not be deemed to create or infer a course of dealing between any Noteholder, the Company or any of the Guarantors with regard to any provision of the Note Agreement. SECTION 8. Costs, Expenses and Taxes. The Company and Guarantors jointly and severally agree to pay on demand all costs and expenses of the Noteholders in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Noteholders with respect thereto and with respect to advising the Noteholders as to their rights and responsibilities hereunder and thereunder. The Company and Guarantors further jointly and severally agree to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 8. In addition, the Company and Guarantors shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Amendment and the other instruments and documents to be 3 delivered hereunder, and agree to save the Noteholders harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. SECTION 9. Execution in Counterparts. This 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 taken together shall constitute but one and the same instrument. SECTION 10. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. 4 8 IN WITNESS WHEREOF, the Company, the Guarantors, and the Required Holders have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. ISSUER: GUILFORD MILLS, INC. By: /s/ Robert A. Emken, Jr. ------------------------------------ Name: Robert A. Emken, Jr. Title: General Counsel GUARANTORS: CURTAINS AND FABRICS, INC. GOLD MILLS, INC. RASCHEL FASHION INTERKNITTING, LTD. GFD FABRICS, INC. GFD SERVICES, INC. HOFMANN LACES, LTD. ADVISORY RESEARCH SERVICES, INC. GUILFORD MILLS (MICHIGAN), INC. GUILFORD AIRMONT, INC. GOLDMILLS FARMS, INC. GMI COMPUTER SALES, INC. By: /s/ Robert A. Emken, Jr. ------------------------------------ Name: Robert A. Emken, Jr. Title: General Counsel -and- TWIN RIVERS TEXTILE PRINTING & FINISHING By: Guilford Mills, Inc., as general partner By: /s/ Robert A. Emken, Jr. ------------------------------------ Name: Robert A. Emken, Jr. Title: General Counsel 5 NOTEHOLDERS: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ Paul G. Price ---------------------------------------- Name: Paul G. Price Title: Vice President MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: /s/ Steven J. Katz ---------------------------------------- Name: Steven J. Katz Title: Second Vice President & Associate General Counsel C.M. LIFE INSURANCE COMPANY By: /s/ Richard C. Morrison ---------------------------------------- Name: Richard C. Morrison Title: Managing Director WACHOVIA BANK, NATIONAL ASSOCIATION, By: /s/ Colleen McCullum ---------------------------------------- Name: Colleen McCullum Title: Managing Director BANK ONE, NA By: /s/ C. Dianne Wooley ---------------------------------------- Name: C. Dianne Wooley Title: First Vice President 6 GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Patrick E. Flynn ---------------------------------------- Name: Patrick E. Flynn Title: Risk Manager CARL MARKS STRATEGIC INVESTMENTS, L.P. By: /s/ James F. Wilson ---------------------------------------- Name: James F. Wilson Title: General Partner CARL MARKS STRATEGIC INVESTMENTS III, L.P. By: /s/ James F. Wilson ---------------------------------------- Name: James F. Wilson Title: General Partner 7 EX-10.(M) 4 g86418exv10wxmy.txt EX-10.(M) SALARY CONTINUATION AGREEMENT EXHIBIT (10)(m) SALARY CONTINUATION AGREEMENT This AGREEMENT is entered into this 12 day of November, 2002 by and between GUILFORD MILLS, Inc. a Delaware corporation (the "Company") and Robert W. Nolan (the "Associate"). STATEMENT OF PURPOSE. The purpose of this Salary Continuation Agreement (the "Agreement") is to assist a key employee in the event of such employee's involuntary termination in the transition to finding other employment and also to retain such employee and to motivate such employee to enhance the value of the Company. 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings set forth below: "Base Salary" shall mean the annual base salary paid to the Associate by the Company and any Subsidiary immediately prior to his or her termination of employment or, in the event of a termination for Good Reason within the meaning of clause (b) of the definition of Good Reason, the annual base salary paid to the Associate immediately prior to the existence of Good Reason. "Base Salary Continuation Amount" shall mean the amount described in Section 2 hereof. "Board" shall mean the Board of Directors of the Company. "Cause" shall mean: (a) The willful and continued failure by the Associate to perform substantially his or her duties with the Company (other than any such failure resulting from the Associate's incapacity due to physical or mental illness or any such failure resulting from termination by the Associate for Good Reason) after a written demand for substantial performance is delivered to the Associate by the Company's chief executive officer, which demand specifically identifies the manner in which the chief executive officer of the Company believes that the Associate has not substantially performed his or her duties; or (b) The willful engagement in conduct by the Associate which is demonstrably and materially injurious to the Company, monetarily or otherwise; or (c) Conviction for a felony or other crime punishable by imprisonment, or the entering of a plea of nolo contendere thereto. For purposes of this definition, no act, or failure to act, on the Associate's part shall be considered "willful" unless done, or omitted to be done, by him or her knowing and with the intent that such action or inaction would not be in the best interests of the Company or otherwise was done or omitted to be done in bad faith. Notwithstanding any of the foregoing, the Associate shall not be deemed to have been terminated for Cause pursuant to clause (a) and (b) above unless and until there shall have been delivered to the Associate a resolution duly adopted by the Board at a meeting called and held for such purpose (after reasonable notice to the Associate and an opportunity for the Associate, together with his or her counsel, to be heard before the Board), finding that the Associate has engaged in (or failed to engage in, as the case may be) the conduct set forth above and specifying the particulars thereof in detail. "Change in Control" shall be deemed to have occurred upon any of the following events: (a) Any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") but excluding any employee benefit plan of the Company) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's outstanding securities then entitled ordinarily to vote for the election of directors; or (b) During any period of two (2) consecutive years commencing on or after the Emergence Date, the individuals who at the beginning of such period constitute the Board or any individuals who would be Continuing Directors cease for any reason to constitute at least a majority thereof; or (c) The Board shall approve a sale of all or substantially all of the assets of the Company; or (d) The Board shall approve any merger, consolidation, or like business combination or reorganization of the Company, the consummation of which would result in the occurrence of any event described in clause (a) or (b), above. "Continuing Directors" shall mean the directors of the Company in office on the Emergence Date and any successor to any such director and any additional director who after the Emergence Date (i) was nominated or selected by a majority of the Continuing Directors in office at the time of his or her nomination or selection and (ii) who is not an "affiliate" or "associate" (as defined in Regulation 12B under the Exchange Act) of any person who is the beneficial owner, directly or indirectly, of securities representing ten percent (10%) or more of the combined voting power of the Company's outstanding securities then entitled ordinarily to vote for the election of directors. 2 "Disability" with respect to an Associate shall exist if such Associate is eligible to receive benefits under the applicable Group Long Term Disability Income Plan for Executives or any successor plan thereto; provided, however, that in the event that no such plan is in effect as of the applicable date, "Disability" shall have the meaning ascribed to such term in any long term disability benefit plan of the Company in effect as of the Emergence Date. "Eligible Termination" shall mean the termination of an Associate's employment with the Company or a Subsidiary, other than on account of death, Disability or Retirement, (i) by him or her for Good Reason or (ii) by the Company or a Subsidiary other than for Cause (or other than at a time when Cause existed). "Emergence Date" shall mean October 4, 2002. "Good Reason" shall mean: (a) The assignment by the Company or a Subsidiary to the Associate of duties which result, without the Associate's express written consent, in a significant reduction in the Associate's authority and responsibility when compared to the level of authority and responsibility assigned to the Associate as of the date of execution of this Agreement; or (b) A reduction by the Company or a Subsidiary of the Associate's Base Salary as the same may be increased from time to time hereinafter; or (c) A change of the Associate's assigned site location as of the Emergence Date ("Original Site") to another site location which is at least 50 miles from the Original Site without the Associate's consent, or in the event of any such relocation of the Associate with his or her consent, the failure by the Company to pay (or reimburse) the Associate for all reasonable moving expenses incurred by the Associate and relating to a change of his or her principal residence, and to indemnify the Associate against any loss realized by the Associate and/or the Associate's spouse in the sale of the Associate's principal residence (with any such loss measured as the difference between the amount realized on the sale and the original cost of the home plus any improvements thereto) in connection with any such change of residence, all to the effect that the Associate shall incur no loss on any after-tax basis; or (d) The failure by the Company to continue to provide the Associate with substantially the same level of employee benefits under all employee benefit plans, including, without limitation, (i) all pension plans, as such term is defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), including the Profit-Sharing Plan, the Company's 401(k) Plan and the Company's Excess Benefits Plan, (ii) all other retirement plans, whether or not tax-qualified, (iii) all incentive and cash bonus plans, (iv) all welfare plans, as such term is defined in section 3(1) of ERISA, including, group life insurance plans, medical, dental, accident, disability and other insurance plans, and (v) all perquisites, in each case, as were provided to the 3 Associate immediately prior to the Emergence Date, or with a package of employee benefits that, though one or more such benefits may vary from those provided before the Emergence Date, is substantially comparable in all material respects when taken as a whole to such employee benefits provided prior the Emergence Date; or (e) The failure by the Company to provide continued participation in an annual cash bonus plan pursuant to which, if applicable Company and/or individual performance criteria are satisfied, the Associate would receive an annual bonus in an amount equal to the product of (x) his or her annual base salary and (y) a bonus percentage, provided, however, that such performance criteria used in calculating the amount of an annual bonus shall be selected and determined in a manner substantially consistent with the method of establishing such targets immediately prior to the Emergence Date and the bonus percentage shall be no less than that percentage used in determining the amount of the Associate's targeted bonus immediately prior to the Emergence Date; provided, however, that Good Reason shall not exist in the event the Company changes the criteria for receiving such amounts for valid business purposes not related to the Associate; or (f) The failure by the Company to perform its obligations under any Company employee benefit plans and agreements entered into between the Company and the Associate; or (g) The failure by the Company to obtain the express written assumption of and agreement to perform this Agreement by any Successor; or (h) Any purported termination of the Associate's employment by the Company which is not effected pursuant to a Notice of Termination. "Notice of Termination" shall mean a notice given by the Associate or by the Company or a Subsidiary, as the case may be, which shall indicate the specific basis for termination and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement; provided, however, that an Associate shall not be entitled to give a Notice of Termination that he or she is terminating his or her employment with the Company or a Subsidiary for Good Reason after the expiration of six (6) months following the last to occur of the events alleged by him or her to constitute Good Reason. "Profit Sharing Plan" shall mean the Company's Salaried Associate Retirement Profit Sharing Plan or any successor plan thereto "Retirement" shall mean that the Associate shall have retired after reaching the normal retirement date provided in the Profit Sharing Plan as in effect on the Emergence Date. "Subsidiary" shall mean a subsidiary of the Company. 4 "Successor" shall mean any person, firm, corporation or other business entity that, at any time, whether by merger, acquisition or otherwise, acquires all or substantially all of the stock, assets or business of the Company or a Subsidiary, as the case may be. 2. SALARY CONTINUATION AND OTHER POST-TERMINATION BENEFITS. The Associate shall only be entitled to the Base Salary Continuation Amount and the other payments and benefits described in this Section 2 in the event of an Eligible Termination. Any purported termination by the Company or a Subsidiary by reason of Disability or for Cause, or by the Associate for Good Reason, shall be communicated by written Notice of Termination to the other party hereto. The Base Salary Continuation Amount payable to the Associate under this Agreement shall be equal to two (2) years of Base Salary; provided, however, that if the date of the Associate's termination of employment occurs after the first anniversary of the Emergence Date, the Base Salary Continuation Amount payable to the Associate shall be equal to one (1) year of Base Salary. All Base Salary Continuation Amounts shall be payable by the Company in substantially equal monthly installments commencing with the first day of the month following the month in which the Eligible Termination occurs. In the event of an Eligible Termination, the Associate shall be entitled to (i) continue to participate in all of the welfare plans, including medical, dental and disability plans, maintained by the Company or its Subsidiaries in which he or she participated immediately prior to his or her termination of employment (or, in the event of a termination for Good Reason within the meaning of clause (d) of the definition of Good Reason, the welfare plans in which he or she participated immediately prior to the existence of Good Reason), on the same terms as he or she participated immediately prior to his or her termination of employment (or the existence of Good Reason, as the case may be), from the date of such Eligible Termination to the expiration of a period of time equal to the period of time used to compute his or her Base Salary Continuation Amount herein and (ii) reimbursement from the Company for the cost of outplacement services not in excess of $15,000. In the event of an Eligible Termination within one year after the Emergence Date following a Change in Control, the Associate shall also be entitled to receive a bonus equal to 40 percent (40%) of his or her Base Salary, and such bonus shall be paid out in a single sum together with the first installment of the Base Salary Continuation Amount payments. Payments and benefits under this Agreement shall not be reduced or offset by any payments made to the Associate under any other plan, program, agreement or arrangement of the Company or its Subsidiaries. Notwithstanding the foregoing, however, payments under this Agreement are subject to and conditioned upon the cancellation of any agreements or arrangements existing on the Emergence Date with the Company or a Subsidiary providing for payments to the Associate in the event of a "change of control", whether or not such change in control is the same as defined herein. Benefits under the Agreement payable to the Associate shall be reduced by all applicable federal, state and local withholding. 5 3. RELEASE. The Associate's agreement hereto shall constitute full settlement and release of any claim or cause of action, of whatever nature, which the Associate might otherwise assert or claim against the Company or any of its directors, stockholders, officers or associates on account of such termination; provided, however, this Agreement is in addition to and not in lieu of any other plan or arrangement providing for payments to or benefits for the Associate or any agreement now existing or which hereafter may be entered into between the Company and the Associate other than any such agreement or arrangement existing on the Emergence Date providing benefits in the event of a "change in control" described in Section 2 hereof. 4. FINANCING. All amounts due and benefits provided under the Agreement shall constitute general obligations of the Company in accordance with the terms of the Agreement. The Associate shall have only an unsecured right to payment thereof out of the general assets of the Company 5. GENERAL. (a) The Associate shall retain in confidence any proprietary or other confidential information known to him concerning the Company and its business (including any Subsidiary and its business) so long as such information is not publicly disclosed and disclosure is not required by an order of any governmental body or court. If requested, the Associate shall return to the Company any memoranda, documents or other materials proprietary to the Company or any Subsidiary. (b) The Company shall use its best efforts to resolve disputes under this Agreement expeditiously and without undue litigation expenses. If litigation shall be brought to enforce or interpret any provision contained herein, the Company shall indemnify the Associate for his attorneys' fees and disbursements incurred in such litigation and pay prejudgment interest on any money judgment obtained by the Associate calculated at the prime rate of interest in effect from time to time at Wachovia Bank, National Association, from the date that payment should have been made under this Agreement; provided, however, that the Associate shall not have been found by the court to have had no cause in bringing the action, or to have acted in bad faith, which finding must be final with the time to appeal therefrom having expired and no appeal having been taken. (c) Subject to the terms hereof, the Company's obligation to pay the Associate the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, any set off, counterclaim, recoupment, defense or other right which the Company may have against the Associate or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment 6 made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from the Associate or any person entitled thereto. (d) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by written agreement to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, the term "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement required by this Section 5(d), or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (e) This Agreement shall inure to the benefit of and be enforceable by the Associate's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Associate should die while any amounts would still be payable to the Associate hereunder if he had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to the Associate's devisee, legatee or other designor or, if there be no such designee, to the Associate's estate. (f) For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered by (i) United States registered mail, return receipt requested, postage prepaid, (ii) overnight courier service or (iii) facsimile, addressed as follows: If to the Associate, to the address stated in the Company's records for such Associate. If to the Company: Guilford Mills, Inc. 6001 West Market Street Greensboro, NC 27409 Attn: Law Department Fax: (336) 316-4057 or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 7 6. TERMINATION AND AMENDMENT OF THE AGREEMENT This Agreement shall continue to be in effect unless and until the Company terminates it by providing written notice to the Associate at least six months prior to the date of termination, with such notice specifying the termination date; provided, however, that the Company may not terminate this Agreement and may not give such a notice of termination prior to the second anniversary of this Agreement. Notwithstanding the foregoing, the Company shall have no right to amend, modify or terminate this Agreement after the Associate becomes entitled to any payments or benefits hereunder. The Company may amend or modify this Agreement solely with the written consent of the Associate. 7. NON-ASSIGNABILITY The Associate's rights under this Agreement shall be non-transferable except as applicable law may otherwise require. Subject to the foregoing, no right, benefit or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall, to the full extent permitted by law, be null, void and of no effect. 8. EFFECT OF OTHER PROGRAMS; DUTY TO MITIGATE Except as otherwise expressly provided herein, (a) nothing in the Agreement shall affect the level of benefits provided to or received by the Associate (or the Associate's estate or beneficiaries) as part of any employee benefit plan or program of the Company, its parent or any affiliate and (b) the Agreement shall not be construed to affect in any way the Associate's rights and obligations under any other plan or program maintained by the Company, its parent or any affiliate on behalf of employees or any other contract between the Company or a subsidiary and the Associate. With respect to the first half of Base Salary Continuation Amount payments described in Section 2 hereof, the Associate shall not be required to mitigate the amount of any such payment under the Agreement by seeking employment or otherwise, and there shall be no right of setoff or counterclaim, in respect of any claim, debt or obligation, against any payments to the Associate, the Associate's dependents, beneficiaries or estate provided for in the Agreement. With respect to the second half of such Base Salary Continuation Amount payments, such payments shall be reduced, but not below zero, by any amounts paid or payable by a successor employer and, with respect to such payments, the Associate shall use reasonable efforts to seek comparable employment to mitigate the amounts of such payments. 8 9. TERMINATION OF EMPLOYMENT Nothing in the Agreement shall be deemed to entitle the Associate to continued employment with the Company or a Subsidiary, and the rights of the Company or a Subsidiary to terminate the employment of the Associate in any lawful manner shall continue as fully as though this Agreement were not in effect. 10. SEVERABILITY In the event that any provision or portion of the Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions and portions of the Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 11. GOVERNING LAW; ARBITRATION All questions pertaining to the construction, regulation, validity and effect of the provisions of the Agreement shall be determined in accordance with the laws of the State of Delaware. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Unless otherwise agreed to by the Company, any such arbitration shall take place in Guilford county, North Carolina. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Associate shall be entitled to seek specific performance of his or her right to be paid as provided in this Agreement in the event of any dispute. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. GUILFORD MILLS, INC. ASSOCIATE By: /s/John A. Emrich /s/Robert W. Nolan ---------------------------------------- ------------------ Name: John A. Emrich Robert W. Nolan Title: President and Chief Executive Officer 9 EX-10.(N) 5 g86418exv10wxny.txt EX-10.(N) SALARY CONTINUATION AGREEMENT EXHIBIT (10)(n) SALARY CONTINUATION AGREEMENT This AGREEMENT is entered into this 12 day of November, 2002 by and between GUILFORD MILLS, Inc. a Delaware corporation (the "Company") and Alan R. MacKinnon (the "Associate"). STATEMENT OF PURPOSE. The purpose of this Salary Continuation Agreement (the "Agreement") is to assist a key employee in the event of such employee's involuntary termination in the transition to finding other employment and also to retain such employee and to motivate such employee to enhance the value of the Company. 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings set forth below: "Base Salary" shall mean the annual base salary paid to the Associate by the Company and any Subsidiary immediately prior to his or her termination of employment or, in the event of a termination for Good Reason within the meaning of clause (b) of the definition of Good Reason, the annual base salary paid to the Associate immediately prior to the existence of Good Reason. "Base Salary Continuation Amount" shall mean the amount described in Section 2 hereof. "Board" shall mean the Board of Directors of the Company. "Cause" shall mean: (a) The willful and continued failure by the Associate to perform substantially his or her duties with the Company (other than any such failure resulting from the Associate's incapacity due to physical or mental illness or any such failure resulting from termination by the Associate for Good Reason) after a written demand for substantial performance is delivered to the Associate by the Company's chief executive officer, which demand specifically identifies the manner in which the chief executive officer of the Company believes that the Associate has not substantially performed his or her duties; or (b) The willful engagement in conduct by the Associate which is demonstrably and materially injurious to the Company, monetarily or otherwise; or (c) Conviction for a felony or other crime punishable by imprisonment, or the entering of a plea of nolo contendere thereto. For purposes of this definition, no act, or failure to act, on the Associate's part shall be considered "willful" unless done, or omitted to be done, by him or her knowing and with the intent that such action or inaction would not be in the best interests of the Company or otherwise was done or omitted to be done in bad faith. Notwithstanding any of the foregoing, the Associate shall not be deemed to have been terminated for Cause pursuant to clause (a) and (b) above unless and until there shall have been delivered to the Associate a resolution duly adopted by the Board at a meeting called and held for such purpose (after reasonable notice to the Associate and an opportunity for the Associate, together with his or her counsel, to be heard before the Board), finding that the Associate has engaged in (or failed to engage in, as the case may be) the conduct set forth above and specifying the particulars thereof in detail. "Change in Control" shall be deemed to have occurred upon any of the following events: (a) Any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") but excluding any employee benefit plan of the Company) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's outstanding securities then entitled ordinarily to vote for the election of directors; or (b) During any period of two (2) consecutive years commencing on or after the Emergence Date, the individuals who at the beginning of such period constitute the Board or any individuals who would be Continuing Directors cease for any reason to constitute at least a majority thereof; or (c) The Board shall approve a sale of all or substantially all of the assets of the Company; or (d) The Board shall approve any merger, consolidation, or like business combination or reorganization of the Company, the consummation of which would result in the occurrence of any event described in clause (a) or (b), above. "Continuing Directors" shall mean the directors of the Company in office on the Emergence Date and any successor to any such director and any additional director who after the Emergence Date (i) was nominated or selected by a majority of the Continuing Directors in office at the time of his or her nomination or selection and (ii) who is not an "affiliate" or "associate" (as defined in Regulation 12B under the Exchange Act) of any person who is the beneficial owner, directly or indirectly, of securities representing ten percent (10%) or more of the combined voting power of the Company's outstanding securities then entitled ordinarily to vote for the election of directors. 2 "Disability" with respect to an Associate shall exist if such Associate is eligible to receive benefits under the applicable Group Long Term Disability Income Plan for Executives or any successor plan thereto; provided, however, that in the event that no such plan is in effect as of the applicable date, "Disability" shall have the meaning ascribed to such term in any long term disability benefit plan of the Company in effect as of the Emergence Date. "Eligible Termination" shall mean the termination of an Associate's employment with the Company or a Subsidiary, other than on account of death, Disability or Retirement, (i) by him or her for Good Reason or (ii) by the Company or a Subsidiary other than for Cause (or other than at a time when Cause existed). "Emergence Date" shall mean October 4, 2002. "Good Reason" shall mean: (a) The assignment by the Company or a Subsidiary to the Associate of duties which result, without the Associate's express written consent, in a significant reduction in the Associate's authority and responsibility when compared to the level of authority and responsibility assigned to the Associate as of the date of execution of this Agreement; or (b) A reduction by the Company or a Subsidiary of the Associate's Base Salary as the same may be increased from time to time hereinafter; or (c) A change of the Associate's assigned site location as of the Emergence Date ("Original Site") to another site location which is at least 50 miles from the Original Site without the Associate's consent, or in the event of any such relocation of the Associate with his or her consent, the failure by the Company to pay (or reimburse) the Associate for all reasonable moving expenses incurred by the Associate and relating to a change of his or her principal residence, and to indemnify the Associate against any loss realized by the Associate and/or the Associate's spouse in the sale of the Associate's principal residence (with any such loss measured as the difference between the amount realized on the sale and the original cost of the home plus any improvements thereto) in connection with any such change of residence, all to the effect that the Associate shall incur no loss on any after-tax basis; or (d) The failure by the Company to continue to provide the Associate with substantially the same level of employee benefits under all employee benefit plans, including, without limitation, (i) all pension plans, as such term is defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), including the Profit-Sharing Plan, the Company's 401(k) Plan and the Company's Excess Benefits Plan, (ii) all other retirement plans, whether or not tax-qualified, (iii) all incentive and cash bonus plans, (iv) all welfare plans, as such term is defined in section 3(1) of ERISA, including, group life insurance plans, medical, dental, accident, disability and other insurance plans, and (v) all perquisites, in each case, as were provided to the 3 Associate immediately prior to the Emergence Date, or with a package of employee benefits that, though one or more such benefits may vary from those provided before the Emergence Date, is substantially comparable in all material respects when taken as a whole to such employee benefits provided prior the Emergence Date; or (e) The failure by the Company to provide continued participation in an annual cash bonus plan pursuant to which, if applicable Company and/or individual performance criteria are satisfied, the Associate would receive an annual bonus in an amount equal to the product of (x) his or her annual base salary and (y) a bonus percentage, provided, however, that such performance criteria used in calculating the amount of an annual bonus shall be selected and determined in a manner substantially consistent with the method of establishing such targets immediately prior to the Emergence Date and the bonus percentage shall be no less than that percentage used in determining the amount of the Associate's targeted bonus immediately prior to the Emergence Date; provided, however, that Good Reason shall not exist in the event the Company changes the criteria for receiving such amounts for valid business purposes not related to the Associate; or (f) The failure by the Company to perform its obligations under any Company employee benefit plans and agreements entered into between the Company and the Associate; or (g) The failure by the Company to obtain the express written assumption of and agreement to perform this Agreement by any Successor; or (h) Any purported termination of the Associate's employment by the Company which is not effected pursuant to a Notice of Termination. "Notice of Termination" shall mean a notice given by the Associate or by the Company or a Subsidiary, as the case may be, which shall indicate the specific basis for termination and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement; provided, however, that an Associate shall not be entitled to give a Notice of Termination that he or she is terminating his or her employment with the Company or a Subsidiary for Good Reason after the expiration of six (6) months following the last to occur of the events alleged by him or her to constitute Good Reason. "Profit Sharing Plan" shall mean the Company's Salaried Associate Retirement Profit Sharing Plan or any successor plan thereto "Retirement" shall mean that the Associate shall have retired after reaching the normal retirement date provided in the Profit Sharing Plan as in effect on the Emergence Date. "Subsidiary" shall mean a subsidiary of the Company. 4 "Successor" shall mean any person, firm, corporation or other business entity that, at any time, whether by merger, acquisition or otherwise, acquires all or substantially all of the stock, assets or business of the Company or a Subsidiary, as the case may be. 2. SALARY CONTINUATION AND OTHER POST-TERMINATION BENEFITS. The Associate shall only be entitled to the Base Salary Continuation Amount and the other payments and benefits described in this Section 2 in the event of an Eligible Termination. Any purported termination by the Company or a Subsidiary by reason of Disability or for Cause, or by the Associate for Good Reason, shall be communicated by written Notice of Termination to the other party hereto. The Base Salary Continuation Amount payable to the Associate under this Agreement shall be equal to one (1) year of Base Salary. All Base Salary Continuation Amounts shall be payable by the Company in substantially equal monthly installments commencing with the first day of the month following the month in which the Eligible Termination occurs. In the event of an Eligible Termination, the Associate shall be entitled to (i) continue to participate in all of the welfare plans, including medical, dental and disability plans, maintained by the Company or its Subsidiaries in which he or she participated immediately prior to his or her termination of employment (or, in the event of a termination for Good Reason within the meaning of clause (d) of the definition of Good Reason, the welfare plans in which he or she participated immediately prior to the existence of Good Reason), on the same terms as he or she participated immediately prior to his or her termination of employment (or the existence of Good Reason, as the case may be), from the date of such Eligible Termination to the expiration of a period of time equal to the period of time used to compute his or her Base Salary Continuation Amount herein and (ii) reimbursement from the Company for the cost of outplacement services not in excess of $10,000. In the event of an Eligible Termination within one year after the Emergence Date following a Change in Control, the Associate shall also be entitled to receive a bonus equal to 30 percent (30%) of his or her Base Salary, and such bonus shall be paid out in a single sum together with the first installment of the Base Salary Continuation Amount payments. Payments and benefits under this Agreement shall not be reduced or offset by any payments made to the Associate under any other plan, program, agreement or arrangement of the Company or its Subsidiaries. Notwithstanding the foregoing, however, payments under this Agreement are subject to and conditioned upon the cancellation of any agreements or arrangements existing on the Emergence Date with the Company or a Subsidiary providing for payments to the Associate in the event of a "change of control", whether or not such change in control is the same as defined herein. Benefits under the Agreement payable to the Associate shall be reduced by all applicable federal, state and local withholding. 5 3. RELEASE. The Associate's agreement hereto shall constitute full settlement and release of any claim or cause of action, of whatever nature, which the Associate might otherwise assert or claim against the Company or any of its directors, stockholders, officers or associates on account of such termination; provided, however, this Agreement is in addition to and not in lieu of any other plan or arrangement providing for payments to or benefits for the Associate or any agreement now existing or which hereafter may be entered into between the Company and the Associate other than any such agreement or arrangement existing on the Emergence Date providing benefits in the event of a "change in control" described in Section 2 hereof. 4. FINANCING. All amounts due and benefits provided under the Agreement shall constitute general obligations of the Company in accordance with the terms of the Agreement. The Associate shall have only an unsecured right to payment thereof out of the general assets of the Company 5. GENERAL. (a) The Associate shall retain in confidence any proprietary or other confidential information known to him concerning the Company and its business (including any Subsidiary and its business) so long as such information is not publicly disclosed and disclosure is not required by an order of any governmental body or court. If requested, the Associate shall return to the Company any memoranda, documents or other materials proprietary to the Company or any Subsidiary. (b) The Company shall use its best efforts to resolve disputes under this Agreement expeditiously and without undue litigation expenses. If litigation shall be brought to enforce or interpret any provision contained herein, the Company shall indemnify the Associate for his attorneys' fees and disbursements incurred in such litigation and pay prejudgment interest on any money judgment obtained by the Associate calculated at the prime rate of interest in effect from time to time at Wachovia Bank, National Association, from the date that payment should have been made under this Agreement; provided, however, that the Associate shall not have been found by the court to have had no cause in bringing the action, or to have acted in bad faith, which finding must be final with the time to appeal therefrom having expired and no appeal having been taken. (c) Subject to the terms hereof, the Company's obligation to pay the Associate the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, any set off, counterclaim, recoupment, defense or other right which the Company may have against the Associate or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment 6 made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from the Associate or any person entitled thereto. (d) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by written agreement to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, the term "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement required by this Section 5(d), or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (e) This Agreement shall inure to the benefit of and be enforceable by the Associate's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Associate should die while any amounts would still be payable to the Associate hereunder if he had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to the Associate's devisee, legatee or other designor or, if there be no such designee, to the Associate's estate. (f) For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered by (i) United States registered mail, return receipt requested, postage prepaid, (ii) overnight courier service or (iii) facsimile, addressed as follows: If to the Associate, to the address stated in the Company's records for such Associate. If to the Company: Guilford Mills, Inc. 6001 West Market Street Greensboro, NC 27409 Attn: Law Department Fax: (336) 316-4057 or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 7 6. TERMINATION AND AMENDMENT OF THE AGREEMENT This Agreement shall continue to be in effect unless and until the Company terminates it by providing written notice to the Associate at least six months prior to the date of termination, with such notice specifying the termination date; provided, however, that the Company may not terminate this Agreement and may not give such a notice of termination prior to the second anniversary of this Agreement. Notwithstanding the foregoing, the Company shall have no right to amend, modify or terminate this Agreement after the Associate becomes entitled to any payments or benefits hereunder. The Company may amend or modify this Agreement solely with the written consent of the Associate. 7. NON-ASSIGNABILITY The Associate's rights under this Agreement shall be non-transferable except as applicable law may otherwise require. Subject to the foregoing, no right, benefit or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall, to the full extent permitted by law, be null, void and of no effect. 8. EFFECT OF OTHER PROGRAMS; DUTY TO MITIGATE Except as otherwise expressly provided herein, (a) nothing in the Agreement shall affect the level of benefits provided to or received by the Associate (or the Associate's estate or beneficiaries) as part of any employee benefit plan or program of the Company, its parent or any affiliate and (b) the Agreement shall not be construed to affect in any way the Associate's rights and obligations under any other plan or program maintained by the Company, its parent or any affiliate on behalf of employees or any other contract between the Company or a subsidiary and the Associate. With respect to the first half of Base Salary Continuation Amount payments described in Section 2 hereof, the Associate shall not be required to mitigate the amount of any such payment under the Agreement by seeking employment or otherwise, and there shall be no right of setoff or counterclaim, in respect of any claim, debt or obligation, against any payments to the Associate, the Associate's dependents, beneficiaries or estate provided for in the Agreement. With respect to the second half of such Base Salary Continuation Amount payments, such payments shall be reduced, but not below zero, by any amounts paid or payable by a successor employer and, with respect to such payments, the Associate shall use reasonable efforts to seek comparable employment to mitigate the amounts of such payments. 8 9. TERMINATION OF EMPLOYMENT Nothing in the Agreement shall be deemed to entitle the Associate to continued employment with the Company or a Subsidiary, and the rights of the Company or a Subsidiary to terminate the employment of the Associate in any lawful manner shall continue as fully as though this Agreement were not in effect. 10. SEVERABILITY In the event that any provision or portion of the Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions and portions of the Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 11. GOVERNING LAW; ARBITRATION All questions pertaining to the construction, regulation, validity and effect of the provisions of the Agreement shall be determined in accordance with the laws of the State of Delaware. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Unless otherwise agreed to by the Company, any such arbitration shall take place in Guilford county, North Carolina. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Associate shall be entitled to seek specific performance of his or her right to be paid as provided in this Agreement in the event of any dispute. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. GUILFORD MILLS, INC. ASSOCIATE By: /s/John A. Emrich /s/Alan R. Mackinnon ---------------------------------------- -------------------- Name: John A. Emrich Alan R. MacKinnon Title: President and Chief Executive Officer 9 EX-10.(T) 6 g86418exv10wxty.txt EX-10.(T) 2003 STOCK OPTION PLAN EXHIBIT (10)(t) GUILFORD MILLS, INC. 2003 STOCK OPTION PLAN 1. PURPOSES Guilford Mills, Inc. (the "Company") desires to attract, retain and motivate highly competent persons as key employees of the Company and its Subsidiaries (as defined herein) by affording them an opportunity to acquire a proprietary interest in the Company through awards of options ("Options") exercisable to purchase shares of Common Stock (as defined herein), and thus to align further the interests of the Company's key employees with those of the Company's stockholders. The Options offered pursuant to this Guilford Mills, Inc. 2003 Stock Option Plan (the "Plan") are a matter of separate inducement and are not in lieu of any other compensation for the services of any employee . The Options granted under the Plan are intended to be options that do not meet the requirements for incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). As used in the Plan, the term "parent corporation" and "Subsidiary" shall mean a corporation coming within the definition of "parent corporation" and "subsidiary corporation" contained in Sections 424(e) and 424(f) of the Code, respectively. 2. AMOUNT OF STOCK SUBJECT TO THE PLAN Options granted under the Plan shall be exercisable for shares of the Company's common stock, par value $.01 per share ("Common Stock"). The maximum number of shares of Common Stock authorized for issuance under the Plan upon the exercise of Options (the "Shares") shall not exceed, in the aggregate, 550,000 of the currently authorized shares of Common Stock of the Company, such number to be subject to adjustment in accordance with Section 11 of the Plan. Shares which may be acquired under the Plan may be either authorized but unissued Shares, Shares of issued stock held in the Company's treasury, or both. If and to the extent that Options granted under the Plan expire or terminate without having been exercised, the Shares covered by such expired or terminated Options may again be subject to a later-granted Option under the Plan. 3. EFFECTIVE DATE AND TERM OF THE PLAN The Plan shall become effective at 5:00 p.m., New York City time, on June 24, 2003 (the "Effective Date"), subject to the approval of the Plan by the Company's senior lenders pursuant to the terms of the Company's senior loan agreements. Except as otherwise provided herein, the Plan shall terminate at the close of business on June 24, 2013. 4. ADMINISTRATION The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company (the "Board") or, if the Board has not so appointed the Committee, by the entire Board (the Committee or the Board, as the case may be, sometimes hereinafter referred to as the "Administrator"). If the Committee is appointed as the Administrator, the Committee shall be comprised of not less than two members and each member of the Committee shall at all times be a "Non-Employee Director" within the meaning of Rule 16b-3 (or any successor rule) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), except that a person who is not such a "Non-Employee Director" may serve as a member of the Committee provided that he recuses himself from any vote on a grant of Options to an Associate (as defined herein) who is subject to the reporting requirements of Section 16(a) of the Exchange Act. Subject to the express provisions of the Plan, the Administrator shall have authority to make Option grants hereunder, determine the terms applicable to Options (which terms need not be identical for all participants or all Options), construe the Plan and the Options granted hereunder, to prescribe, amend and rescind rules and regulations relating to the Plan and to make all other determinations necessary or advisable for administering the Plan. Notwithstanding anything to the contrary contained herein, the Administrator shall be permitted in its discretion, subject to and in accordance with the provisions of the Plan and applicable law (including, without limitation, the provisions of Section 157 of the General Corporation Law of the State of Delaware, as amended), to authorize one or more officers of the Company to (i) designate Associates, as defined herein, who are not subject to the reporting requirements of Section 16(a) of the Exchange Act to receive Options and (ii) determine the number of Options such Associates may receive; provided, however, that any such authorization shall specify the total number of options such officer or officers may so award to Associates and no such authorization may permit an officer to designate himself or herself a recipient of such options. . The determination of the Administrator on matters referred to in this Section 4 shall be conclusive. 5. OPTION GRANTS (a) Persons eligible to receive Options shall consist of such key employees of the Company and its Subsidiaries as the Administrator, in its sole discretion, may designate from time to time to receive Options (an "Associate"). The Administrator shall have the sole discretion to determine the number of Shares underlying Options granted under the Plan. Designation of an Associate to receive an Option on a given date shall not entitle such Associate to receive an Option on any other date. The terms applicable to an Option granted to an Associate on one date need not be identical to the terms applicable to any Option granted to such Associate on another date. 2 The Plan does not create a right in any employee of the Company or any Subsidiary to have any Options granted to him. (b) Each Option granted pursuant to the Plan shall be evidenced by a written agreement in a form and having such terms, provisions, conditions and limitations (including, without limitation, a requirement that as a condition to the receipt of an Option, the Associate refrain from engaging in certain competitive activity with the Company or any Subsidiary) as the Administrator may from time to time approve. In the event of any conflict between the provisions of the Plan and such agreements, the provisions of the Plan shall prevail. Any Associate selected to receive an Option grant pursuant to the Plan may elect to decline the Option. 6. OPTION PRICE AND PAYMENT (a) The price for each Share purchasable upon exercise of any Option granted hereunder shall be such amount as the Administrator may determine at the date of grant (which amount may be equal to, higher than or lower than the fair market value per Share on the date of grant). (b) Upon the exercise of an Option granted hereunder, the Company shall cause the purchased Shares to be issued when it shall have received the full purchase price for the Shares in cash or, in the discretion of the Administrator, by the delivery of shares of Common Stock (in proper form for transfer and accompanied by all requisite stock transfer tax stamps or cash in lieu thereof) then owned by the holder of the Option having a fair market value equal to the cash exercise price applicable to that portion of the Option being exercised by the delivery of such shares, by the withholding of Shares for which the Option is exercisable having a fair market value equal to the cash exercise price applicable to that portion of the Option being exercised, or by a combination of these methods. The fair market value per Share of Common Stock so delivered or withheld in payment of the purchase price shall be determined as of the date immediately preceding the date on which the Option is exercised in accordance with this Section 6, or as may be required in order to comply with or to conform to the requirements of any applicable laws or regulations. (c) For purposes of the Plan, fair market value per Share shall be the closing price for a share of Common Stock on the date of determination if the Common Stock is readily tradeable on a national securities exchange or other market system; provided, however, if the Common Stock is not traded on such date, the fair market value per Share shall be deemed to be the highest bid quotation for such shares as quoted on such exchange or system on such date; provided, further, however, if such exchange or system is not open for business on such date or the Common Stock was not traded on such date and no bid quotations were recorded, the fair market value per Share shall be determined as of the closest preceding date on which such exchange or system shall have been open for business and the Common Stock was traded. If the Common Stock is not readily tradeable on a national securities exchange or other market system, fair market value per Share shall be determined in good faith by the Administrator. 3 7. LIMITATIONS ON THE RIGHT OF EXERCISE (a) In no event shall an Option granted hereunder be exercised for a fraction of a Share. (b) A person entitled to receive Shares upon the exercise of an Option shall not have the rights of a stockholder with respect to such Shares until the date of issuance of a stock certificate to him or her for such Shares; provided, however, that until such stock certificate is issued, any holder of an Option using previously acquired shares of Common Stock in payment of an option exercise price shall continue to have the rights of a stockholder with respect to such previously acquired shares of Common Stock. 8. OPTION PERIOD AND EXERCISE OF OPTIONS (a) Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator; provided, however, that no Option shall be exercisable later than ten years after the date it is granted. All Options shall terminate at such earlier times and upon such conditions or circumstances as the Administrator shall in its discretion set forth in the agreement evidencing the Option. (b) Subject to the express provisions of the Plan, Options granted under the Plan shall be exercised by the optionee as to all or part of the Shares covered thereby by the giving of written notice of the exercise thereof to the Corporate Secretary of the Company at the principal business office of the Company, specifying the number of Shares to be purchased, the proposed form of payment and specifying a business day not more than ten (10) days from the date such notice is given for the payment of the purchase price against delivery of the Shares being purchased. Subject to the terms of Sections 13, 14 and 15 hereof, the Company shall cause certificates for the Shares so purchased to be delivered at the principal business office of the Company, against payment of the full purchase price, on the date specified in the notice of exercise. (c) If an Option granted hereunder shall be exercised by the legal representative of a deceased Associate, or by a person who acquired an Option granted hereunder by bequest or inheritance or by reason of the death of any Associate, written notice of such exercise shall be accompanied by a certified copy of letters testamentary or equivalent proof of the right of such legal representative or other person to exercise such Option. 9. USE OF PROCEEDS The cash proceeds from the sale of Shares subject to the Options granted hereunder are to be added to the general funds of the Company and used for its general corporate purposes as the Board shall determine. 4 10. NON-TRANSFERABILITY OF OPTIONS An Option granted hereunder shall not be transferable, whether by operation of law or otherwise, other than by will or the laws of descent and distribution. In the event of the death of an Associate, each Option theretofore granted to him or her shall be exercisable during such period after his or her death as the Administrator shall in its discretion set forth in such Option agreement and then only by the executor or administrator of the estate of the deceased Associate or the person or persons to whom the deceased Associate's rights under the Option shall pass by will or the laws of descent and distribution. Except to the extent provided above, in this Section 10, Options also may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. 11. ADJUSTMENT OF SHARES; CHANGE IN CONTROL (a) Notwithstanding any other provision contained herein, in the event of any change in the Shares subject to the Plan or to any Option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or other like change in the capital structure of the Company), an adjustment shall be made to each outstanding Option such that each such Option shall thereafter be exercisable for such securities, cash and/or other property as would have been received in respect of the Shares subject to such Option had such Option been exercised in full immediately prior to such change, and such an adjustment shall be made successively each time any such change shall occur. The term "Shares" after any such change shall refer to the securities, cash and/or property then receivable upon exercise of an Option. In addition, in the event of any such change, the Administrator shall make any further adjustment to the maximum number of Shares which may be acquired under the Plan pursuant to the exercise of Options, and the number of Shares and price per Share subject to outstanding Options as shall be equitable to prevent dilution or enlargement of rights under such Options, and the determination of the Administrator as to these matters shall be conclusive and binding on the optionee. (b) Notwithstanding any other provision of this Plan, if (A) the employment of an Associate shall terminate by reason of (i) the Associate's dismissal by the Company or Subsidiary, as the case may be, other than for Cause (as defined herein) or (ii) the Associate's termination of employment with the Company or Subsidiary, as the case may be, for Good Reason (as defined herein) after having delivered to the Company a written Notice of Termination (as defined herein) (a termination of employment as set forth in either clause (i) or (ii), an "Eligible Termination") and (B) the Eligible Termination occurs within 13 months (the "Post Change in Control Period") after the occurrence of a Change in Control (as defined herein) of the Company, then all outstanding Options of such Associate shall immediately vest and become exercisable in full and shall remain exercisable at any time up to and including the earlier of three years after the date of the Eligible Termination and the tenth anniversary of the date of grant. Notwithstanding any other provision of this Plan, the Administrator may, in its sole 5 discretion, determine that upon a Change in Control of the Company, each Option outstanding hereunder shall terminate within a specified number of days after notice to the holder of the Option, and such holder shall receive, with respect to each Share subject to such Option, cash in an amount equal to the excess of the fair market value of such Share immediately prior to the occurrence of the Change in Control over the exercise price per Share of the Option. (c) A "Change in Control" of the Company shall be deemed to have occurred upon any of the following events: (i) Any "person" or "group"(as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act but excluding any employee benefit plan of the Company) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's outstanding securities then entitled ordinarily to vote for the election of directors; or (ii) During any period of two (2) consecutive years commencing on or after the Effective Date, the individuals who at the beginning of such period constitute the Board or any individuals who would be Continuing Directors cease for any reason to constitute at least a majority thereof; or (iii) The Board shall approve a sale of all or substantially all of the assets of the Company; or (iv) The Board shall approve any merger, consolidation, or like business combination or reorganization of the Company, the consummation of which would result in the occurrence of any event described in clause (i) or (ii), above. (d) The term "Continuing Directors" shall mean the directors of the Company in office on the Effective Date and any successor to any such director and any additional director who after the Effective Date (i) was nominated or selected by a majority of the Continuing Directors in office at the time of his or her nomination or selection and (ii) who is not an "affiliate" or "associate" (as defined in Regulation 12B under the Exchange Act) of any person who is the beneficial owner, directly or indirectly, of securities representing ten percent (10%) or more of the combined voting power of the Company's outstanding securities then entitled ordinarily to vote for the election of directors. (e) The term "Cause" shall mean: (i) The willful and continued failure by the Associate to perform substantially his or her duties with the Company or any Subsidiary (other than any such failure resulting from the Associate's incapacity due to physical or mental illness or any such failure resulting from termination by the Associate for Good Reason) after a written demand for substantial performance is delivered to the Associate by the Company's chief executive officer or, if the Associate in question is the chief executive officer, by the 6 Board, which demand specifically identifies the manner in which the chief executive officer of the Company or the Board, as the case may be, believes that the Associate has not substantially performed his or her duties; or (ii) The willful engagement in conduct by the Associate which is demonstrably and materially injurious to the Company or any Subsidiary, monetarily or otherwise (including, without limitation, conduct which is violative of a written Company policy); or (iii) Conviction for a felony or other crime punishable by imprisonment, or the entering of a plea of nolo contendere thereto. For purposes of this definition, no act, or failure to act, on the Associate's part shall be considered "willful" unless done, or omitted to be done, by him or her knowing and with the intent that such action or inaction would not be in the best interests of the Company and its Subsidiaries or otherwise was done or omitted to be done in bad faith. (f) The term "Good Reason" shall mean: (i) The assignment by the Company or a Subsidiary to the Associate of duties which result, without the Associate's express written consent, in a significant reduction in the Associate's authority and responsibility when compared to the level of authority and responsibility assigned to the Associate as of the date of the most recent Option grant to the Associate; or (ii) A reduction by the Company or a Subsidiary of the Associate's annual base salary; or (iii) The failure by the Company to continue to provide the Associate with substantially the same level of employee benefits under all employee benefit plans, including, without limitation, (aa) all pension plans, as such term is defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), including the Salaried Associate Retirement Profit-Sharing Plan, the Company's 401(k) Plan and the Company's Excess Benefits Plan, (bb) all other retirement plans, whether or not tax-qualified, (cc) all incentive and cash bonus plans, (dd) all welfare plans, as such term is defined in section 3(1) of ERISA, including, group life insurance plans, medical, dental, accident, disability and other insurance plans, and (ee) all perquisites, in each case, as are provided to the Associate on the date of the most recent Option grant to the Associate, or with a package of employee benefits that, though one or more such benefits may vary from those provided as of such date, is substantially comparable in all material respects when taken as a whole to such employee benefits provided as of such date; or (iv) The failure by the Company to provide continued participation in an annual cash bonus plan pursuant to which, if applicable Company and/or individual performance criteria are satisfied, the Associate would receive an annual bonus in an amount equal to the product of (aa) his or her annual base salary and (bb) a bonus percentage, provided, however, that such performance criteria used in calculating the 7 amount of an annual bonus shall be selected and determined in a manner substantially consistent with the method of establishing such targets immediately prior to the date of the most recent Option grant to the Associate and the bonus percentage shall be no less than that percentage used in determining the amount of the Associate's targeted bonus immediately prior to such date; provided, however, that Good Reason shall not exist in the event the Company changes the criteria for receiving such amounts for valid business purposes not related to the Associate; or (v) The failure by the Company to perform its obligations under any Company employee benefit plans and agreements entered into between the Company and the Associate. (g) The term "Notice of Termination" shall mean a notice given by the Associate, which shall indicate the specific basis for termination; provided, however, that an Associate shall not be entitled to give a Notice of Termination that he or she is terminating his or her employment with the Company or a Subsidiary for Good Reason (i) after the expiration of six months following the last to occur of the events alleged by him or her to constitute Good Reason or (ii) if the Associate provided written consent to the event alleged by him or her to constitute Good Reason prior to the occurrence of such event. 12. TENURE An Associate's right, if any, to continue to serve the Company as a director, officer, employee or otherwise shall not be enlarged or otherwise affected by his or her designation as a participant under the Plan. 13. PURCHASE FOR INVESTMENT Except as hereinafter provided, the Administrator may require the holder of an Option granted hereunder, as a condition to exercise of such Option in the event the Shares subject to such Option are not registered pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, to execute and deliver to the Company a written statement, in form satisfactory to the Administrator, in which such holder (a) represents and warrants that such holder is purchasing or acquiring the Shares acquired thereunder for such holder's own account for investment only and not with a view to the resale or distribution thereof in violation of any federal or state securities laws and (b) agrees that any subsequent resale or distribution of any of such Shares shall be made only pursuant to either (i) an effective registration statement covering such Shares under the Securities Act and applicable state securities laws or (ii) specific exemptions from the registration requirements of the Securities Act and any applicable state securities laws, based on a written opinion of counsel, in form and substance satisfactory to counsel for the Company, as to the application thereto of any such exemptions. Nothing herein shall be construed as requiring the Company to register Shares subject to any Option under the Securities Act or any state securities law and, to 8 the extent deemed necessary by the Company, Shares issued upon exercise of an Option may contain a legend to the effect that registration rights have not been granted with respect to such Shares. 14. ISSUANCE OF STOCK CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES; WITHHOLDING (a) The Company may endorse such legend or legends upon the certificates for Shares issued upon exercise of Options granted pursuant to the Plan and may issue such "stop transfer" instructions to its transfer agent in respect of such Shares as the Administrator, in its discretion, determines to be necessary or appropriate to (i) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act or (ii) implement the provisions of the Plan and any agreement between the Company and the optionee or grantee with respect to such Shares. (b) The Company shall pay all issue or transfer taxes with respect to the issuance or transfer of Shares, as well as all fees and expenses necessarily incurred by the Company in connection with such issuance or transfer, except fees and expenses that may be necessitated by the filing or amending of a registration statement under the Securities Act, which fees and expenses shall be borne by the recipient of the Shares unless such registration statement has been filed by the Company for its own corporate purpose (and the Company so states) in which event the recipient of the Shares shall bear only such fees and expenses as are attributable solely to the inclusion of the Shares an optionee receives in the registration statement. (c) All payments or distributions made pursuant to the Plan shall be net of any amounts required to be withheld pursuant to applicable federal, state and local tax withholding requirements. The Company may require the Option holder to remit to it or to the corporation that employs such Option holder an amount sufficient to satisfy any tax withholding requirements. In lieu thereof, the Company or the employing corporation shall have the right to withhold the amount of such taxes from any other sums due to or become due from such corporation to the Option holder as the Administrator shall prescribe. The Administrator may, in its discretion and subject to such rules as it may adopt (including any as may be required to satisfy applicable tax and/or non-tax regulatory requirements), permit a participant to pay all or a portion of the federal, state and local withholding taxes arising in connection with any Option by electing to have the Company withhold shares of Common Stock having a fair market value equal to the amount of tax to be withheld, such tax calculated at rates required by statute or regulation. (d) All Shares issued as provided herein shall be fully paid and nonassessable to the extent permitted by law. 15. LISTING OF SHARES AND RELATED MATTERS If at any time the listing, registration or qualification of the Shares subject to such Option on any securities exchange or under any applicable law, or the consent or 9 approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the granting of an Option, or the issuance of Shares thereunder, such Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained. 16. AMENDMENT OF THE PLAN The Board may, from time to time, amend the Plan; provided, however, that no action authorized by this Section 16 shall reduce the number of Shares subject to an outstanding Option or materially adversely affect the terms and conditions thereof without the consent of the Associate to whom the Option was granted. 17. TERMINATION OR SUSPENSION OF THE PLAN The Board may at any time suspend or terminate the Plan. Options may not be granted while the Plan is suspended or after it is terminated. Rights and obligations under any Option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except upon the consent of the Associate to whom the Option was granted. The power of the Administrator to construe and administer any Options under Section 4 that are granted prior to the termination or the suspension of the Plan shall continue after such termination or during such suspension. 18. GOVERNING LAW The Plan, such Options as may be granted hereunder and all related matters shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware (without regard to principles of conflicts of laws) from time to time in effect. 19. PARTIAL INVALIDITY The invalidity or illegality of any provision herein shall not be deemed to affect the validity of any other provision. 10 EX-10.(U) 7 g86418exv10wxuy.txt EX-10.(U) FORM OF STOCK OPTION AGREEMENT EXHIBIT (10)(u) STOCK OPTION CONTRACT PURSUANT TO THE GUILFORD MILLS, INC. 2003 STOCK OPTION PLAN Pursuant to the Guilford Mills, Inc. 2003 Stock Option Plan (the "Plan"), the Administrator has approved granting ___________________, who as of the date of grant is an employee (the "Associate") of Guilford Mills, Inc. (the "Company") or a Subsidiary, a non-qualified option to purchase shares of Common Stock, par value $.01 per share ("Common Stock"), of the Company on the terms and subject to the conditions set forth in the Plan and in this contract (the "Contract"). Terms not defined in this Contract shall have the meanings ascribed to them in the Plan. Therefore, the Company and Associate hereby agree as follows: 1. Grant of Option. The Administrator of the Plan, on behalf of the Company, hereby grants to Associate, as a matter of separate inducement and not in lieu of any salary or other compensation for Associate's services, the right and option to purchase (the "Option"), in the aggregate, __________ shares of Common Stock at an exercise price of ____________ ($____) (the "Exercise Price") per share. The term of the Option shall be ten years from _______ ___, ____ (the "Date of Grant"), subject to earlier termination as provided in the Plan and in this Contract. Subject to all other terms and conditions in the Plan and this Contract, the Option shall be irrevocable. The Option is not intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. 2. Exercise of Option. (a) Subject to all other terms of the Plan and this Contract, Associate may exercise the Option at the rate of thirty-three and one-third percent (33 1/3%) of the aggregate number of Shares initially subject to the Option on each of the first, second and third anniversary of the Date of Grant. The right to purchase Shares under the Option shall be cumulative, so that if the Option is not exercised to the maximum extent permissible during any exercise period, it shall be exercisable, in whole or in part, with respect to all Shares not so purchased at any time prior to the expiration or termination of the Option. Notwithstanding anything to the contrary contained herein, in no event (i) may the Option be exercised in whole or in part after _____ ___, ____, or (ii) may a fraction of a Share be purchased under the Option. (b) Notwithstanding anything to the contrary contained in this Contract, the Administrator shall have the right, in its sole discretion, to accelerate, in whole or in part, from time to time, conditionally or unconditionally, the right to exercise the Option. 3. Payment of Option Price. (a) Associate shall exercise the Option by giving written notice, in substantially the form attached hereto, to the Corporate Secretary of the Company, at the Company's principal business office, 6001 West Market Street, Greensboro, North Carolina 27409, specifying the number of whole Shares to be purchased, the proposed form of payment and a business day not more than ten days from the date such notice is given for the payment of the purchase price against delivery of the Shares being purchased. Payment of the purchase price for the Shares purchased shall be made by delivery of a cashier's or certified check payable to the order of the Company. With the prior written consent of the Administrator, payment of the purchase price for the shares purchased may be made by (i) delivery of previously acquired shares of Common Stock (in proper form for transfer and accompanied by all requisite stock transfer tax stamps or cash in lieu thereof) owned by such holder having a fair market value (determined in accordance with the Plan) equal to the exercise price applicable to that portion of the Option being exercised, (ii) the withholding of Shares for which the Option is exercisable having a fair market value (determined in accordance with the Plan) equal to the exercise price applicable to that portion of the Option being exercised or (iii) a combination of the foregoing. (b) The Option will be considered exercised on the earlier of (i) the date that the Company receives full payment of the aggregate purchase price for the Shares at the Company's principal business office, 6001 West Market Street, Greensboro, North Carolina 27409, Attn: Corporate Secretary, (ii) if the payment of the aggregate purchase price is sent to that office via independent courier service, the date the courier service shows that it received it, or (iii) if the payment of the aggregate purchase price is mailed to that office in the United States mail in an envelope on which the United States Post Office has stamped its postmark, the date of that postmark. 4. Registration and Listing of Shares. (a) Unless there is in effect at the time of exercise a Registration Statement under the Securities Act of l933, as amended (the "Securities Act") and applicable state securities laws, with respect to the Shares to be received upon the exercise of the Option, Associate shall, upon the exercise of the Option, execute and deliver to the Company a written statement, in form satisfactory to the Administrator, in which Associate (i) represents and warrants to the Company that the Shares to be issued upon the exercise of the Option are being acquired by Associate for his own account, for investment only and not with a view to the resale or distribution thereof in violation of any federal or state securities law and (ii) agrees that any subsequent resale or distribution of any of such Shares shall be made only pursuant to either (X) an effective registration statement covering such Shares under the Securities Act and applicable state securities laws or (Y) specific exemptions from the registration requirements of the Securities Act and any applicable state securities laws, based on a written opinion of counsel, in form and substance satisfactory to the Company, as to the application of any such exemptions. 2 (b) Associate acknowledges that the Company may endorse a legend upon the certificates evidencing the Shares as the Company, in its sole discretion, determines to be necessary or appropriate to implement the provisions of the Plan and this Contract. (c) Notwithstanding anything herein to the contrary, if at any time the listing, registration or qualification of the Shares subject to the Option on any securities exchange or under any applicable law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the granting of an option, or the issuing of Shares thereunder, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained. 5. Adjustment of Shares; Termination of Employment; Competitive Activity. (a) In the event of any change in the Shares subject to the Plan or to the Option (through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or other like change in the capital structure of the Company), an adjustment shall be made to the Option such that the Option shall thereafter be exercisable for such securities, cash and/or other property as would have been received in respect of the Shares subject to the Option had the Option been exercised in full immediately prior to such change, and such an adjustment shall be made successively each time any such change shall occur. The term "Shares" after any such change shall refer to the securities, cash and/or property then receivable upon exercise of an Option. In addition, in the event of any such change, the Administrator shall make any further adjustment to the number of Shares and price per Share subject to the Option as shall be equitable to prevent dilution or enlargement of rights under the Option, and the determination of the Administrator as to these matters shall be binding and conclusive on the holder of the Option. (b) Subject to the other terms of this Contract and the Plan, upon termination of employment of Associate with the Company and all Subsidiaries and parent corporations of the Company, the unexercised portion of the Option shall terminate and become null and void; provided, however, that: (i) if Associate shall die while in the employ of such corporation or during any of the post-employment Option exercisability periods specified in clauses (ii), (iii), (iv) and (v) below, the Option shall become immediately exercisable in full and the legal representative of Associate, or such person who acquired the Option as a permitted transferee of Associate hereunder may exercise such Option, to the extent not theretofore exercised, in respect of any or all of such number of Shares at any time up to and including the earlier of three years after the date of death and the tenth anniversary of the Date of Grant; 3 (ii) if the employment of Associate shall terminate by reason of Associate's retirement (at such age or upon such conditions as shall be specified by the Administrator in its sole discretion ("Retirement")), Associate shall have the right to exercise the Option, to the extent not theretofore exercised, in respect of any or all of such number of Shares (it being understood and agreed that the Option shall continue to vest at the same rate and in the same manner as such Option would have vested had no Retirement taken place), at any time up to and including the earlier of three years after the date of Retirement and the tenth anniversary of the Date of Grant (such post Retirement exercise period, the "Retirement Exercise Period"); provided, however, that notwithstanding anything to the contrary contained herein, the unexercised portion of the Option shall terminate and become null and void if the Associate engages in any Competitive Activity, as defined herein, during the Retirement Exercise Period (it being understood and agreed that if Associate desires to exercise the Option during the Retirement Exercise Period, then he shall be required to furnish the Company with a written certification, in a form acceptable to the Company, that he has not engaged in any Competitive Activity prior to the date of exercise); (iii) if the employment of Associate shall terminate by reason of the Associate's disability (as described in Section 22(e)(3) of the Code), Associate shall have the right to exercise the Option to the extent not theretofore exercised, in respect of any or all of such number of Shares (it being understood and agreed that the Option shall become immediately exercisable in full upon termination by disability), at any time up to and including the earlier of three years after the date of such termination and the tenth anniversary of the Date of Grant; (iv) if the employment of Associate shall terminate by reason of Associate's dismissal by the employer other than for Cause and such dismissal does not occur during the Post Change in Control Period, Associate shall have the right to exercise the Option, to the extent not theretofore exercised, in respect of any or all of such number of Shares which Associate would have been entitled to under the Option as of the date of termination (it being understood and agreed that upon dismissal by the employer other than for Cause outside of any Post Change in Control Period all vesting of the Option shall cease), at any time up to and including the earlier of one year after the date of such dismissal and the tenth anniversary of the Date of Grant; and 4 (v) if Associate shall voluntarily terminate his employment other than due to Retirement and other than for Good Reason during a Post Change in Control Period (a "Voluntary Termination"), Associate shall have the right to exercise the Option, to the extent not theretofore exercised, in respect of any or all of such number of Shares which Associate would have been entitled to under the Option as of the date of Voluntary Termination (it being understood and agreed that upon a Voluntary Termination all vesting of the Option shall cease), at any time up to and including the earlier of 90 days after the date of Voluntary Termination and the tenth anniversary of the Date of Grant (the "Voluntary Termination Exercise Period"); provided, however, that notwithstanding anything to the contrary contained herein, the unexercised portion of the Option shall forthwith terminate and become null and void if the Associate engages in any Competitive Activity during the Voluntary Termination Exercise Period (it being understood and agreed that if Associate desires to exercise the Option during the Voluntary Termination Exercise Period, then he shall be required to furnish the Company with a written certification, in a form acceptable to the Company, that he has not engaged in any Competitive Activity prior to the date of exercise). (c) If Associate is discharged for Cause, then the Option shall forthwith terminate with respect to any unexercised portion thereof. (d) If Associate engages in any Competitive Activity during the Restrictive Period, as defined herein, then the Associate shall pay to the Company the Option Profits, as defined herein, the Associate previously realized with respect to any and all exercises of the Option, in whole or in part, which Option exercises occurred during the period commencing one year preceding the Associate's termination of employment and the date the Associate first engaged in any Competitive Activity (it being acknowledged and agreed by the Associate that he shall notify the Company in writing immediately upon his first engaging in any Competitive Activity). The Option Profits shall be due and payable, in cash, to the Company within ten business days after the Associate first engages in any Competitive Activity. The parties acknowledge and agree that if Associate were to engage in Competitive Activity during the Restrictive Period, then the Company would suffer harm to its business and that such harm would be difficult to measure. The parties further acknowledge and agree that the Option Profits represent a reasonable estimate of the damages the Company would suffer in the event Associate engages in Competitive Activity, of the type described in clause (i) of the definition of Competitive Activity, during the Restrictive Period and that the payment of such Option Profits to the Company is not intended to be, nor shall such payment be construed as, under any circumstances a penalty; provided, however, that notwithstanding anything to the contrary contained herein, if Associate engages in Competitive Activity of the type described in clause (ii) of the definition of Competitive Activity, then the Company shall be entitled to the receipt of the Option Profits from the Associate in addition to any other rights and remedies it may have 5 including, without limitation, injunctive and/or other equitable relief restraining the Associate from engaging in Competitive Activity of the type described in clause (ii) of the definition of Competitive Activity. (e) The term "Competitive Activity" shall mean the act of the Associate (i) alone, or as a partner, member, employee or agent of any partnership, or as an officer, employee, agent, director, stockholder or investor (except as to not more than 5% of the outstanding stock of any corporation, the securities of which are traded on a securities exchange or in the over-the-counter market) of any corporation, or in any other individual or representative capacity, directly or indirectly owning, managing, operating or controlling, or participating in the ownership, management, operation or control of, or working for or providing consulting services to, or permitting the use of his name by, any business or activity in competition with Guilford's Business, as defined herein, within the Territory, as defined herein (the foregoing clause shall include, among other activities, soliciting or accepting the business of, for himself or others (other than for Guilford), any person or entity which is a customer of Guilford's Business within the Territory); or (ii) without first obtaining the written consent of Guilford, directly or indirectly soliciting, enticing, persuading, inducing or hiring any employee, consultant, agent, independent contractor or other person (other than secretarial and clerical personnel) who is employed by Guilford on the date Associate's employment with Guilford terminates or who has been employed by Guilford during the 12 month period preceding such date to become employed by any person, firm, entity or corporation or approach any such person for any of the foregoing reasons. The term "Business" shall mean (i) the business (which the Associate acknowledges Guilford is engaged in as of the date hereof) of developing, producing, manufacturing, processing, selling or marketing yarns or fabrics for automotive applications (including, without limitation, headliner, bodycloth, trunkliner, fabric for visors, pillars and package trays, and other fabric for use on or in cars, vans, sport utility vehicles, trucks and other passenger vehicles) and (ii) any other business in which Guilford becomes engaged during the Associate's employment with Guilford and for which the Associate has substantial responsibility or in which the Associate is substantially involved. The term "Territory" shall mean the United States of America, its territories and possessions, Europe, the United Kingdom, the Republic of Mexico, Japan and Canada; provided, however, that if the area described in the preceding clause shall be determined by judicial action to define too broad a territory to be enforceable, then the term "Territory" shall mean the United States of America, its territories and possessions, the Republic of Mexico and Canada; and, provided further, that if the area described in the immediately preceding clause shall be determined by judicial action to define too broad a territory to be enforceable, then the term "Territory" shall mean the United States of America, its territories and possessions; and, provided further, that if the area described in the immediately preceding clause shall be determined by judicial action to define too broad a territory, then the term "Territory" shall mean those states in the United States of America in which Guilford maintains operations in which it conducts the Business. Associate hereby acknowledges that Guilford's Business is national and international in scope and that Guilford has customers throughout the United States of 6 America, its territories and possessions, the Republic of Mexico, Canada, the United Kingdom, Europe and throughout other parts of the world. Accordingly, Associate acknowledges and agrees that the scope of the covenants in this Section are reasonable and necessary in order to protect the interests of Guilford's Business sought to be protected hereby. The term "Guilford" shall mean the Company or any of its Subsidiaries, parent corporations, affiliated companies, successors or assigns. The term "Option Profits" shall mean the product of (i) the excess of the fair market value per share of the Common Stock, as determined in accordance with the terms of the Plan, on the date of the Option exercise over the Exercise Price and (ii) the number of shares of Common Stock for which the Option was exercised. The term "Restrictive Period" shall mean a period of three years after the Associate's Voluntary Termination, Retirement or the termination of Associate's employment by Guilford for Cause. 6. Change in Control. Notwithstanding anything herein to the contrary, but subject otherwise to the terms of the Plan, if Associate's employment is terminated and such termination is an Eligible Termination which occurs during the Post Change in Control Period, then the Option shall become immediately exercisable in full and shall remain exercisable at any time up to and including the earlier of three years after the date of the Eligible Termination and the tenth anniversary of the Date of Grant. 7. Confidentiality; Developments. (a) Recognizing that the knowledge of Guilford's customers, suppliers, agents, business methods, systems, plans, policies, trade secrets, knowledge, know-how, information, materials or documents are valuable and unique assets, Associate agrees that he shall not divulge, furnish or make accessible to any person, firm, corporation or other entity (other than as is necessary and appropriate in the regular course of Guilford's Business) for any reason or purpose whatsoever, directly or indirectly, or use for the benefit of himself or others (other than for Guilford's benefit), any such knowledge or information. The provisions of this Section 7(a) shall not apply to information which is or shall become generally known to the public (except by reason of Associate's breach of his obligations hereunder) and information which Associate is required to disclose by law or by an order of a court of competent jurisdiction. If Associate is required by law or a court order to disclose such information, he shall notify Guilford of such requirement and provide Guilford an opportunity (if it so elects) to contest such law or court order. (b) Associate acknowledges that all developments, including, without limitation, inventions, patentable or otherwise, discoveries, improvements, patents, trade secrets, designs, reports, computer software, flow charts and diagrams, procedures, data, documentation, ideas and writings and applications thereof relating to Guilford's Business or planned business of Guilford that, alone or jointly with others, Associate may conceive, create, make, develop, reduce to practice or acquire during his employment 7 with Guilford (collectively, the "Developments") are works made for hire and shall remain the sole and exclusive property of Guilford and Associate hereby assigns to Guilford all of his right, title and interest in and to all such Developments. Associate agrees that he will, at any time upon request and at the expense of Guilford, promptly execute all instruments and papers and perform all acts whatsoever, which are necessary or desired by Guilford to vest and confirm in Guilford, and its successors, assigns and nominees, fully and completely, all rights created by this section and which may be necessary or desirable to enable Guilford, and its successors, assigns and nominees, to secure and enjoy the full benefits and advantages thereof. (c) In the event of any breach or threatened breach of the provisions of this Section 7 by Associate , Guilford, in addition to any other rights and remedies it may have, shall be entitled, in its discretion, to (i) an injunction (and/or other equitable relief) restraining such breach or threatened breach, it being stipulated and agreed that a breach by Associate would cause irreparable damage to Guilford and that its remedies at law would be inadequate, and/or (ii) forever terminate any rights Associate may have to exercise the Option. Guilford shall be entitled to withhold its performance under the terms of the Option in the event of any breach or threatened breach of the provisions of this Section 7 by Associate, and the withholding of such performance shall not constitute a material breach of this Contract. The existence of any claim or cause of action on the part of Associate against Guilford shall not constitute a defense to the enforcement of these provisions. Associate agrees that the terms of the covenants in Sections 6 and 7 hereof, including, without limitation, the Restrictive Period and the Territory, are reasonable in all respects and necessary for the protection of Guilford. If any court of competent jurisdiction shall finally adjudicate that any of the covenants provided for herein are too broad as to area, activity or time covered, such area, activity or time covered may be reduced to whatever extent the court deems reasonable and the covenants herein and the remedy of injunctive and/or other equitable relief may be enforced as to such reduced area, activity or time. 8. Withholding Taxes. As provided in the Plan, the Company may withhold from sums due or to become due to Associate from the Company an amount necessary to satisfy its obligation to withhold taxes incurred by reason of the grant or exercise of the Option, the disposition of the Option or the disposition of the underlying shares of Common Stock, or require Associate to reimburse the Company in such amount. The Company may hold the stock certificate to which Associate is entitled upon the exercise of the Option as security for the payment of withholding tax liability, until cash sufficient to pay such liability has been accumulated. 9. Non-transferability of Option. The Option is not transferable, whether by operation of law or otherwise, other than by will or the laws of descent and distribution. In the event of the death of Associate, the Option shall be exercisable during such period after his death as the Administrator shall in its discretion set forth herein and then only by the executor or administrator of the estate of Associate or the person or persons to whom Associate's rights under the Option shall pass by will or the laws of descent and distribution. Except to the extent provided above in this Section 9, the Option may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by 8 operation of law or otherwise) and shall not be subject to execution, attachment or similar process. 10. Notices. Any notice to be given under this Contract by Associate shall be sent by mail addressed to the Company at its principal business office, 6001 West Market Street, Greensboro, North Carolina 27409, Attn: Corporate Secretary, and any notice by the Company to Associate shall be sent by mail addressed to Associate at Associate's address as reflected in the Company's records. Either party may, by notice given to the other in accordance with the provisions of this Section, change the address to which subsequent notices shall be sent. 11. Governing Law. This Contract shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Delaware (without regard to principles of conflicts of laws) from time to time in effect. 12. Miscellaneous. (a) Nothing in the Plan or in this Contract shall enlarge or otherwise affect Associate's right, if any, to continue to serve the Company or any Subsidiary as an employee or in any other capacity. (b) The Company and Associate agree that they will both be subject to and bound by all the terms and conditions of the Plan, which is incorporated herein and made a part hereof. In the event of a conflict or inconsistency between the terms of this Contract and the terms of the Plan, the terms of the Plan shall govern. (c) Associate represents and agrees that he will comply with all applicable laws relating to the Plan and the grant and exercise of the Option and the disposition of the Shares acquired upon exercise of the Option, including without limitation, federal and state securities laws. (d) This Contract shall be binding upon and inure to the benefit of any successor or assign of the Company and to any heir, distributee, executrix, administrator or legal representative entitled by law to Associate's rights hereunder. (e) The invalidity or illegality of any provision herein shall not affect the validity of any other provision. (f) Associate agrees that the Company may amend the Plan and any options granted to Associate under the Plan, subject to the limitations contained in the Plan. Guilford Mills, Inc. has caused this Contract to be executed in its corporate name and Associate has executed the same in evidence of Associate's acceptance hereof upon the terms and conditions herein as of the Date of Grant. 9 GUILFORD MILLS, INC. By: -------------------------------- Name: Title: - ------------------------------ Signature of Associate 10 EX-10.(V) 8 g86418exv10wxvy.txt EX-10.(V) SHORT TERM INCENTIVE PLAN EXHIBIT (10)(v) GUILFORD MILLS, INC. KEY MANAGER SHORT-TERM INCENTIVE PLAN (THE "STIP") FOR THE 2004 FISCAL YEAR- SUMMARY OF PRINCIPAL TERMS The STIP is an annual cash bonus plan for designated key employees. Selection of participants in the STIP is made on an annual basis; STIP participation in one year does not guarantee STIP participation in any subsequent year. Bonus payments under the STIP are contingent upon two factors: (1) the Company's actual EBITDA results for the fiscal year relative to a targeted EBITDA, and (2) the performance of the individual STIP participant. The relative weight of each such factor varies depending upon the roles and responsibilities of a participant. If the Company's actual EBITDA varies from the targeted EBITDA, an adjustment will be made to each participant's target award (which is expressed as a percentage of a participant's base salary), except that no bonuses will be paid under the STIP if the Company's actual EBITDA is less than a certain threshold of targeted EBITDA. A person selected to participate in the STIP must be an active, full time employee of the Company at the time the Company makes payments under the STIP in order to be entitled to receive his STIP bonus. EX-10.(X) 9 g86418exv10wxxy.txt EX-10.(X) EXCLUSIVE SUPPLY AGREEMENT EXHIBIT (10)(x) EXCLUSIVE SUPPLY AGREEMENT THIS EXCLUSIVE SUPPLY AGREEMENT (this "Agreement") is made and entered into on December 17, 2003 (the "Effective Date"), by and among GUILFORD MILLS, INC., a Delaware corporation ("Guilford"), and GUILFORD DE MEXICO, S.A. DE C.V., an entity organized under the laws of Mexico ("NewGuilford", and together with Guilford, "Purchaser"), and TEXTILES ZANA, S.A. DE C.V., an entity organized under the laws of Mexico ("TZ"), AMERICAN TEXTIL ACQUISITION, LLC, a North Carolina limited liability company ("Acquisition, LLC"), SERVICIOS CORPORATIVOS AMBAR S.A. DE C.V. ("SCA") and AMERICAN TEXTIL, S.A. DE C.V., an entity organized under the laws of Mexico ("AT"). RECITALS: WHEREAS, NewGuilford is a wholly-owned subsidiary of Guilford; and WHEREAS, on the Effective Date, Guilford, TZ, Acquisition LLC, SCA and AT have entered into a Purchase and Release Agreement, pursuant to which Guilford sold to TZ all of Guilford's direct and indirect equity interests in Acquisition LLC and AT (the "Purchase Agreement"), causing Acquisition LLC, SCA and AT to become direct or indirect subsidiaries of TZ; and WHEREAS, as an inducement to Guilford to enter into the Purchase Agreement, TZ, Acquisition LLC, SCA and AT have agreed to enter into this Agreement. NOW, THEREFORE, in consideration of the mutual promises set forth herein and in the Purchase Agreement, the parties agree as follows: 1. TERM. The term of this Agreement (the "Term") shall commence on the Effective Date and shall end on the earlier of (i) ninety (90) days after either party's delivery of written notice of termination to the other, provided, however, that such written notice may not be delivered prior to September 17, 2004, or (ii) an Early Termination Event (as defined in Section 6 below) (either such date, the "Termination Date"). 2. CUSTOMERS; FABRIC. (a) On and after the Effective Date, NewGuilford shall be the vendor of record for sales of certain styles of automotive fabric manufactured or improved by AT and sold to certain customers, each as set forth on Schedule 2(a), attached hereto and incorporated herein by reference ("Fabric" and "Customers", respectively). (b) Certain Fabric shall be manufactured by AT to certain specifications (such Fabric identified on Schedule 2(a) and referred to herein as "AT-Made Fabric"), such specifications set forth on Schedule 2(b), attached hereto and incorporated herein by reference. The specifications for AT-Made Fabric may include, without limitation, requirements that AT knit, weave, dye, finish, and/or laminate AT-Made Fabric. At any time and from time to time, if Purchaser desires to amend the specifications for AT-Made Fabric, it shall do so in accordance with the Specification Amendment Procedure set forth in Section 2(d) below. (c) Certain other Fabric shall be manufactured by Purchaser or procured by Purchaser from third party suppliers and, in Purchaser's sole discretion, may be delivered to AT for lamination in accordance with certain specifications (such Fabric identified on Schedule 2(a) and referred to herein as "Laminated Fabric"), such specifications set forth on Schedule 2(b). At any time and from time to time, if Purchaser desires to amend the specifications for Laminated Fabric, it shall do so only in accordance with the Specification Amendment Procedure set forth in Section 2(d) below. (d) If Purchaser desires to amend the specifications for any Fabric, Purchaser shall deliver to AT written notice containing (i) a description of the particular Fabric style and end use relevant to the amendment, (ii) the desired amendment to the specifications, and (iii) the effective date of the amendment (the "Amendment Notice"). Within thirty (30) days after Purchaser's delivery of the Amendment Notice to AT, AT may deliver to Purchaser (i) a written rejection to the Amendment Notice, (ii) a written acceptance of the Amendment Notice or (iii) a written acceptance stating that such acceptance is subject to the Purchaser being responsible for additional costs with respect to the changes set forth in such Amendment Notice (the "Qualified Acceptance") and such additional costs shall be specifically stated in the Qualified Acceptance. Purchaser shall have ten (10) days from its receipt of a Qualified Acceptance to accept and agree to the terms set forth therein. If AT does not deliver to Purchaser a written rejection of the Amendment Notice or a Qualified Acceptance within thirty (30) days after Purchaser's delivery to AT of the Amendment Notice, or if AT delivers to Purchaser a written acceptance of the Amendment Notice, then the specifications shall be amended as set forth in the Amendment Notice, and AT shall produce such Fabric in accordance with such amended specifications. If AT delivers to Purchaser a written rejection within thirty (30) days after Purchaser's delivery to AT of the Amendment Notice, or if Purchaser rejects the Qualified Acceptance, if applicable, then Purchaser shall be entitled to obtain such Fabric (or Lamination Services, if such Fabric is Laminated Fabric) with the amended specifications from an entity other than AT. The procedure described in this Section 2(d) is the "Specification Amendment Procedure." 3. PURCHASE; PAYMENT TERMS. (a) AT-Made Fabric. (i) Subject to Section 3(d) below and except as otherwise provided in this Agreement, during the Term, Purchaser shall order from AT, and AT shall supply to Purchaser, all of Purchaser's requirements of AT-Made Fabric for sales to Customers. (ii) Subject to Section 3(g) and Section 9 below, the purchase price per meter that Purchaser shall pay to AT for AT-Made Fabric shall be ninety percent (90%) of the Net Sales Price (as defined in Section 3(a)(iii) below) in connection with the relevant AT-Made Fabric. 2 (iii) For purposes of this Agreement, "Net Sales Price", with respect to any AT-Made Fabric, means the price per meter of such AT-Made Fabric that will be charged by Purchaser to the Customer for whom such AT-Made Fabric is manufactured, exclusive of taxes and tariffs, less any royalty which is paid by AT, and reimbursed to AT by Purchaser (as more particularly set forth in Section 3(a)(iv) hereunder). All Net Sales Prices are set forth on Schedule 2(a); provided, however, that if Purchaser determines, in good faith, that it may be necessary for Purchaser to reduce any Net Sales Price for any AT-Made Fabric to any Customer in order to retain such Customer's business, then (A) if AT agrees to such reduction, Schedule 2(a) shall be amended to reflect such reduced Net Sales Price, or (B) if AT does not agree to such reduction, Purchaser shall be entitled to obtain such AT-Made Fabric from another supplier. If Purchaser elects to increase the price sold to Customers resulting in a change in the Net Sales Price for any AT-Made Fabric, then Schedule 2(a) shall be amended to reflect the new Net Sales Price. If AT's production costs increase in such a manner that it is necessary to increase the Net Sales Price for its business to be viable, AT shall notify such need to Purchaser, and Purchaser shall negotiate in good faith with the Customer to increase the prices charged such that it will be sufficient to offset AT's increased production cost; provided, however, that Purchaser makes no guarantee as to the success of such negotiations or any such price increase. (iv) When applicable, Purchaser shall reimburse AT for any royalty required to be paid and actually paid by AT with respect to the sale of AT-Made Fabric to Purchaser in accordance with the royalty arrangements in existence as of the date hereof as set forth in Schedule 3(a)(iv) of this Agreement attached hereto and incorporated herein by reference. (b) Lamination Services. (i) Subject to Section 3(d) below and except as otherwise provided in this Agreement, during the Term, Purchaser, in its sole discretion, may order from AT and, if so ordered, AT shall supply to Purchaser, lamination services for Laminated Fabric ("Lamination Services"). (ii) The price per meter that Purchaser shall pay to AT for Lamination Services shall be the "Lamination Price" set forth on Schedule 2(a); provided, however, that if Purchaser determines, in good faith, that it may be necessary for Purchaser to reduce the price set forth on Schedule 2(a) for any Lamination Service for any Customer in order to retain such Customer's business, then (A) if Purchaser and AT agree on such reduction, Schedule 2(a) shall be amended to reflect such reduction, or (B) if Purchaser and AT do not agree on such reduction, Purchaser shall be entitled to obtain such Lamination Services from another supplier. 3 (c) Weekly Demand Releases. (i) Subject to Section 3(d) below and except as otherwise provided in this Agreement, during the Term, Purchaser shall order from AT Fabric and Lamination Services by having its Automotive Business Unit Planning Manager deliver by facsimile or e-mail to AT's Operation Manager, with copy to AT's Planning Assistant, a report of Purchaser's requirements, such report being substantially in the form of Exhibit A, attached hereto and incorporated herein by reference (a "Weekly Demand Release"). Purchaser shall use its reasonable best efforts to deliver the Weekly Demand Release by 11:00 A.M. EST on Monday of each week (the "Release Date"). (ii) The Weekly Demand Release shall set forth the number of meters of each style of Fabric and the number of meters of each style of Laminated Fabric for which Lamination Services are being ordered that will be required during the ninety (90) day period following the Release Date, the applicable purchase price for such Fabric and Lamination Services and the Customers' required delivery dates. (iii) Upon receipt of each Weekly Demand Release, AT shall accept or reject the new production requirements set forth in such Weekly Demand Release that have not been previously accepted by AT (the "New Requirements") no later than seventy-two (72) hours following their receipt of the Weekly Demand Release on the Release Date excluding holidays and weekends. AT shall not be entitled to reject any production requirements previously accepted by AT. AT shall reject the New Requirements by notifying the Purchaser's Automotive Business Unit Planning Manager by facsimile or email; provided, however, that AT shall not reject any New Requirements except pursuant to Section 3(d) below. AT's failure to reject in such manner shall be deemed an acceptance. (iv) After the Release Date, with respect to a Weekly Demand Release that has been accepted by AT, Purchaser: (A) shall not modify the production requirements for the thirty (30) day period following the Release Date without AT's written consent; and (B) shall not modify the production requirements during the period beginning thirty (30) days after the Release Date and ending ninety (90) days after the Release Date by more than fifteen percent (15%) of the volume requested without AT's written consent. (v) If AT accepts a Weekly Demand Release, then Purchaser shall purchase all Fabric ordered therein, as such order may be modified in accordance with Section 3(c)(iv) above. (vi) If AT consents to a modification beyond the modifications allowed 4 pursuant to Section 3(c)(iv) above of any Weekly Demand Release, including, but not limited to, a modification of volume requirements or delivery dates, then any failure of AT to perform in accordance with such modification shall be a breach of this Agreement. (vii) If AT rejects any Weekly Demand Release, Purchaser shall be entitled to obtain from other suppliers, including Purchaser or Purchaser's affiliates, the Fabric and/or Lamination Services ordered therein. (viii) If AT fails to deliver any Fabric, including Laminated Fabric, on or before the delivery date for such Fabric as set forth in the Weekly Demand Release (as such delivery date may be modified by Purchaser in accordance with Section 3(c)(iv) above or by AT's written consent), then upon Purchaser's request, AT shall (A) ship, at AT's sole expense, such Fabric to the appropriate Customer using an expedited, premium freight service, and (B) reimburse Purchaser for any other expenses or losses that Purchaser incurs as a result of such late delivery; provided that Purchaser shall use its reasonably best efforts to obtain the best settlement possible as to any Customer claim which may result in such reimbursed losses and provide reasonable documentation as to such reimbursed losses. (d) Lack of AT Capacity. AT shall devote to the production of Fabric and the performance of Lamination Services the number of machines, personnel and other resources of AT as necessary for AT to have the same production capacity as available on the Effective Date. If, upon receipt of any Weekly Demand Release, AT determines in good faith and provides to Purchaser evidence that AT is unable to fulfill Purchaser's requirements of Fabric as set forth in such Weekly Demand Release because the number of meters of Fabric, including Laminated Fabric, required by Purchaser exceeds AT's manufacturing capacity, AT promptly shall notify Purchaser of such inability. If, within ten (10) days after AT notifies Purchaser of such inability, Purchaser and AT cannot agree upon a modification of such Weekly Demand Release that falls with in AT's manufacturing capacity, Purchaser shall be entitled to obtain the portion of Purchaser's requirements of Fabric as set forth in such Weekly Demand Release, which AT is unable to fulfill, as specifically communicated by AT to Purchaser, from another supplier. If AT does not specify the portion of the Weekly Demand Release which it is unable to fulfill with reasonable specificity, Purchaser shall be entitled to obtain all or any portion of the Purchaser's requirements of Fabric as set forth in the Weekly Demand Release, including the portion, if any, for which AT has capacity to produce, from another supplier. (e) Invoices. Upon the packing of Fabric that conforms to the specifications set forth on Schedule 2(b) applicable to such Fabric ("First Quality Fabric"), AT shall deliver to Purchaser an invoice for such First Quality Fabric, referencing the applicable Weekly Demand Release and applicable Customer and setting forth the amount owed to AT by Purchaser (each such invoice, an "Invoice"). Title to and ownership of AT-Made Fabric shall vest in Purchaser on the date of the applicable Invoice. To the extent that there are any value added or sales taxes due from AT to any national, state or local governmental authority arising from AT's sale of the Fabric or Lamination Services to Purchaser ("Taxes"), the amount of such Taxes shall be added to the 5 applicable Invoice and Purchaser shall pay to AT such Taxes in addition to the purchase price of the Fabric or Lamination Services billed on such Invoice. (f) Payment Dates. For Invoices dated prior to the sixteenth (16th) day of any calendar month, Purchaser shall pay to AT the total amount of such Invoice no later than the last day of such calendar month. For Invoices dated on or after the sixteenth (16th) day of any calendar month, Purchaser shall pay to AT the total amount of such Invoice no later than the fifteenth (15th) day of the following calendar month. Any past due amount on such Invoices shall accrue interest at a rate equal to the prime rate, as quoted by Wachovia Bank, N.A., from time to time, plus 3%. In the event any portion of the amount due as stated in an Invoice is disputed in good faith by Purchaser, and Purchaser provides reasonably sufficient evidence of such dispute, Purchaser shall pay the undisputed portion of the Invoice in accordance with its terms. Otherwise Purchaser shall pay the full amount due as stated in the relevant Invoice. The disputed portion of the relevant Invoice shall be negotiated in good faith by Purchaser and AT. Purchaser may set-off amounts due and owing on any Invoice from any amounts owed by AT to Purchaser. (g) Deposit. On the Effective Date and from time to time thereafter, Purchaser may pay to AT a deposit as set forth on Schedule 3(g), attached hereto and incorporated herein by reference, to be applied against Purchaser's purchase of Fabric and/or Lamination Services (the "Deposit"). No later than the fifteenth (15th) day of each calendar month, AT shall provide to Purchaser an accounting of the application of the Deposit during the previous calendar month and the Deposit balance as of the end of such previous calendar month. The Deposit shall be applied as follows: (i) In accordance with the schedule set forth on Schedule 3(g), AT shall apply to the amounts of certain invoices a portion of the Deposit equal to five percent (5%) of the total amount of each Invoice, thereby reducing the amount owed by Purchaser under such Invoice to ninety-five percent (95%) of the amount of such Invoice calculated pursuant to Sections 3(a)(ii) and 3(b)(ii); (ii) After delivery of each Invoice to which a portion of the Deposit is applied in accordance with Section 3(g)(i) above, the Deposit balance as shown in AT's books and records shall be reduced by such portion; (iii) At such time as the Deposit balance is less than five percent (5%) of the Invoice to which a portion of the Deposit is to be applied pursuant to Section 3(g)(i) above, the total amount of the Deposit balance shall be applied to such Invoice, and, thereafter, Purchaser shall pay the full amount of each Invoice; and (iv) If, on the Termination Date, there is a Deposit balance, then: 6 (A) such Deposit balance shall be applied to any unpaid Invoices, beginning with the oldest Invoice and continuing toward the most recent Invoice, until either all Invoices have a zero (0) balance or the Deposit balance is zero (0); and (B) any Deposit balance remaining after the process described in Section 3(g)(iv)(A) above shall be added to the outstanding principal balance of the Note (as defined in the Purchase Agreement) and repaid by AT to Guilford in accordance with the terms thereof. If mutually agreed upon, the Note may be re-issued from time to time to reflect the new principal balance, if applicable. (h) USD Standard. (i) All calculations, Invoices and payments required or permitted by this Agreement shall be in US Dollars ("USDs"); provided, however, that if any Customer requires that it be billed and permitted to pay Purchaser in Mexican Pesos ("Pesos"), then the Net Sales Prices, Invoices and payments by Purchaser to AT related to such Customer shall be calculated and paid in Pesos. (ii) For purposes of this Agreement, the initial exchange rate between the USD and the Peso expressed as a fraction is $1.00 USD/$11.2728 Peso (the "Exchange Rate"). If, during the Term, the Exchange Rate increases or decreases as published in the Diario Oficial de la Federacion of Mexico as the exchange rate for payment of obligations by more than five percent (5%), the Net Sales Prices set forth on Schedule 2(a) shall be adjusted in the same proportion as the increase/decrease in the Exchange Rate. (iii) If the Net Sales Prices are increased or decreased pursuant to this Section 3(h), then (A) Schedule 2(a) shall be amended to reflect the increased or decreased Net Sales Prices, and (B) for purposes of calculating future increases in the Exchange Rate, the Exchange Rate shall be that exchange rate between the USD and the Peso as published by Diario Oficial de la Federacion of Mexico as the exchange rate for payment of obligations on the date that the Net Sales Prices were increased or decreased pursuant to this Section 3(h). (i) In Process Fabric and Existing Fabric. Purchaser and AT acknowledge that, as of 11:59 P.M. EST on the Effective Date, certain Fabric is in process pursuant to Customer orders obtained by AT prior to the Effective Date ("In Process Fabric"), and certain Fabric has been packed and is awaiting shipment pursuant to Customer orders obtained by AT prior to the Effective Date ("Existing Fabric"). 7 (i) On the Effective Date, Purchaser shall purchase from AT, and AT shall sell to Purchaser, the Existing Fabric. On the Effective Date, AT shall execute and deliver to Purchaser a Bill of Sale for the Existing Fabric, the form of which is attached hereto as Exhibit B (the "Bill of Sale"), and thereafter, the Existing Fabric shall be included in and covered by AT's representations, warranties and covenants as if the Existing Fabric was AT-Made Fabric or Laminated Fabric, as applicable. The purchase price per meter that Purchaser shall pay to AT for the Existing Fabric shall be ninety percent (90%) of the Net Sales Price (the "Purchase Price") and shall be paid by Purchaser to AT in accordance with the following provisions of this Section 3(g) below. In addition, Purchaser shall pay any Taxes owed for the Existing Fabric. (ii) The parties shall estimate the amount of the First Quality Fabric that is packed and awaiting shipment as of the Effective Date and shall set forth the same on Schedule 3(i)(ii), attached hereto and incorporated herein by reference (the "Estimated Existing Fabric"). On the Effective Date, Purchaser shall pay to AT ninety-five percent (95%) of the Purchase Price for the Estimated Existing Fabric (the "Estimated Payment"). (iii) Within fourteen (14) days after the Effective Date, Purchaser and AT shall conduct an inventory and examine the books and records of AT to determine the type and amount of Existing Fabric and jointly prepare a written report describing the Existing Fabric (such report, the "Existing Fabric Inventory"); provided, however, that the Existing Fabric Inventory shall include only First Quality Fabric that was packed, awaiting shipment and in AT's warehouse at 11:59 P.M. EST on the Effective Date. (iv) If the Purchase Price for the Existing Fabric listed on the Existing Fabric Inventory exceeds the Estimated Payment, then Purchaser, within ten (10) days after the Existing Fabric Inventory has been prepared, shall pay to AT such excess. If the Estimated Payment exceeds the Purchase Price for the Existing Fabric listed on the Existing Fabric Inventory, then AT, within ten (10) days after the Existing Fabric Inventory has been prepared, shall pay to Purchaser such excess. Any amount due to either AT or Purchaser pursuant to this Section 3(i)(iv) may be credited or offset (in the sole discretion of the payor) against any amounts due from either Purchaser or AT, respectively, pursuant to Section 3(b)(iv) of the Purchase Agreement. (v) At 11:59 P.M. EST on the Effective Date, In Process Fabric shall become subject to this Agreement as if Purchaser had obtained the Customer order covering such In Process Fabric. Therefore, after the Effective Date, Purchaser shall direct AT with respect to scheduling the production of In Process Fabric and, upon the packing of In Process Fabric, AT shall deliver to Purchaser an Invoice covering such In Process Fabric that is First Quality Fabric in accordance with Section 3(e) above. 8 (j) Guilford Guaranty. Without limiting the foregoing, Guilford hereby guaranties the payment and collection of all amounts owed to AT by NewGuilford in accordance with this Section 3. 4. QUALITY; CUSTOMER COMPLAINTS. (a) All Fabric, including, without limitation, Existing Fabric and In Process Fabric, purchased by Purchaser from AT shall (i) be First Quality Fabric, (ii) conform to the applicable Weekly Demand Release, and (iii) be merchantable (any Fabric that fails to conform with the requirements of this Section 4(a), "Defective Fabric"). (b) Upon Purchaser's receipt of a claim from any Customer that any Fabric is Defective Fabric, Purchaser promptly shall notify AT of such claim, giving AT a description setting forth the manufacturing order number and piece number so that AT will be able to identify the Fabric. Purchaser and AT shall review such claim and confer with each other and the Customer to determine whether such Fabric is Defective Fabric. AT, with Purchaser's prior consent (such consent not to be unreasonably withheld), may contact the complaining Customer directly in order to discuss such Customer's claim. If, after Purchaser's and AT's efforts to resolve the claim, (i) Purchaser reduces the Net Sales Price in order to induce the Customer to purchase the Fabric, then Purchaser shall be entitled to a refund from AT of ninety percent (90%) of such reduction; or (ii) the Customer refuses to purchase the Fabric because it is Defective Fabric, then Purchaser shall be entitled to return to AT, at AT's sole cost, expense and risk of loss, the Defective Fabric for, at the election of Purchaser, (A) a full refund of the amounts paid by Purchaser to AT for such Defective Fabric, or (B) replacement Fabric. In Purchaser's sole discretion, any refund may be in the form of a credit against existing or future Invoices. Purchaser's rights with respect to such Defective Fabric shall be in addition to any other rights Purchaser may have hereunder or under applicable law, including, without limitation, any rights to indemnification under Section 11 below. (c) All Lamination Services performed by AT shall be performed (i) in a workman-like manner to Purchaser's specifications, (ii) shall conform to the applicable Weekly Demand Release, and (iii) shall not cause any Laminated Fabric to cease being First Quality Fabric (as defined in Section 3(e) herein) or to become Defective Fabric (as such term is defined in Section 4(a) above). (d) Upon Purchaser's receipt of a claim from any Customer that any Lamination Service performed by AT was not performed in accordance with Section 4(c) above, Purchaser promptly shall notify AT of such claim, giving AT a description sufficient for AT to identify the Laminated Fabric. Purchaser and AT shall review such claim and confer with each other and the Customer to determine whether such Laminated Fabric is Defective Fabric. AT, with Purchaser's prior consent (such consent not to be unreasonably withheld), may contact the complaining Customer directly in order to discuss such Customer's claim. If, after Purchaser's and AT's efforts to resolve the claim, (i) Purchaser reduces the selling price to the Customer of the Laminated Fabric in order to induce the Customer to purchase the Laminated Fabric, then Purchaser shall be entitled to a refund from AT of the amount of such reduction; or (ii) the Customer refuses to purchase the Laminated Fabric because it is Defective Fabric, then AT shall 9 refund to Purchaser (i) all amounts paid by Purchaser to AT with respect to such Lamination Services, and (ii) all amounts paid or owed by Purchaser for the purchase of the Laminated Fabric and all other costs or expenses incurred by Purchaser in the production or improvement of the Laminated Fabric, if any. In Purchaser's sole discretion, such refund may be in the form of a credit against existing or future Invoices. Purchaser's rights with respect to such Laminated Fabric shall be in addition to any other rights Purchaser may have hereunder or under applicable law, including, without limitation, any rights to indemnification under Section 11 below. (e) Each of AT and Purchaser shall use their commercially reasonable best efforts to cooperate with each other with respect to scheduling production of and shipping Fabric, including, without limitation, Laminated Fabric, and resolving any complaints by Customers concerning Fabric (including, without limitation, Laminated Fabric), including, without limitation, complaints involving quality, production times or service issues; provided, however, that AT shall not communicate directly with any Customer with respect to Fabric without the prior written consent of Purchaser. In the event that AT produces Fabric, including, without limitation, Laminated Fabric or Piece-Dyed Fabric, that does not conform to the specifications for that Fabric, AT may ship such Fabric to the Customer for whom it was ordered upon obtaining Approval. "Approval" means Purchaser's written instructions to ship such Fabric, such instructions given in Purchaser's sole discretion and delivered to AT after AT has delivered written notice to Purchaser that such Fabric does not conform to its specifications and describing in reasonable detail the nonconformity. Anything herein to the contrary notwithstanding, Purchaser's failure to give or delay in giving Approval shall not toll or extend the production time or delivery date. 5. INVOICED INVENTORY. For a maximum of thirty (30) days, at no additional cost to Purchaser, AT shall hold at mutually agreed upon finished product warehouses (provided that, AT shall not be bound to provide more than 600 square meters of storage space) Fabric for which it has delivered to Purchaser an Invoice until Purchaser requests that such Fabric be shipped to another location (such Fabric, "Invoiced Inventory"); provided, however, that after such thirty (30) day period, AT shall be entitled to collect from Purchaser a reasonable monthly fee, such fee being set forth on Schedule 5, attached hereto and incorporated herein by reference, for the storage of such Invoiced Inventory. Should Purchaser require more than 600 square meters of storage space for Fabric, (a) if AT has any available space it shall hold the Fabric and charge a reasonable monthly fee for the storage of Fabric beyond the 600 square meters, or (b) if AT does not have any available space, it shall notify so to Purchaser, and deposit the Fabric in the warehouse that Purchaser notifies to AT, or failing to do so in warehouse chosen by AT, at Purchaser's sole cost. AT shall: (i) take reasonable care to safeguard the Invoiced Inventory, (ii) store the Invoiced Inventory in a manner to avoid damage, destruction and theft; provided, however, that Purchaser agrees that AT's current manner of storing Invoiced Inventory is satisfactory; (iii) segregate the Invoiced Inventory from the inventory of AT and inventory of others held by AT; (iv) identify, through labeling or otherwise, the Invoiced Inventory as owned by Purchaser; (v) not permit any liens of AT's creditors to attach to the Invoiced Inventory; (vi) pack the Invoiced Inventory for shipping in accordance with Purchaser's instructions consistent with past practices; and (vii) arrange for shipping of the Invoiced Inventory in accordance with Purchaser's instructions consistent with past practices, such instructions to be provided to AT, along with all necessary shipping documents, at least forty-eight (48) hours prior to Purchaser's 10 desired shipping date. In addition, AT shall procure and provide, at AT's sole expense, and shall provide to Purchaser evidence of insurance policies covering the Invoiced Inventory against loss caused by theft, fire, flood, natural disaster and other casualty naming Purchaser as an additional insured. Such insurance shall be in such amounts and under such terms as consistent with AT's past practices and existing policies, and AT shall notify Purchaser of the amount of such insurance so that Purchaser may obtain additional insurance to insure for the balance of the full replacement value if so desired. Purchaser shall be entitled to inspect and count the Invoiced Inventory at any time during AT's normal business hours. 6. EARLY TERMINATION EVENTS. (a) Upon the occurrence of any of the following events, Purchaser may terminate this Agreement by delivering written notice of such termination to AT: (i) The amount of Purchaser's returns and allowances with respect to Fabric and Lamination Services (based on the Net Sales Prices of the Fabrics returned by Customers, the amounts paid by Purchaser to AT with respect to Laminated Fabrics returned by Customers and the amounts of any reductions in price arising from quality claims allowed to Customers) during any consecutive sixty (60) day period exceeds two and one-half percent (2.5%) of the aggregate amount of sales of Fabric to Customers during the same period (based on the Net Sales Prices); provided, however, that any Fabric, including, but not limited to Laminated Fabric, for which AT has obtained Approval that is subsequently returned by the Customer shall not be included in the calculations of returns and allowances. (ii) Delivery, during any consecutive sixty (60) day period, of more than ten percent (10%) of all shipments of Fabric, including, without limitation, Laminated Fabric, Existing Fabric and In Process Fabric, after the delivery date set forth in the applicable Weekly Demand Release (as such delivery date may be modified by Purchaser in accordance with Section 3(c)(iv) above or by AT's written consent. (iii) Three (3) notifications, pursuant to Section 3(d) above, in any sixty (60) day period by AT to Purchaser that AT is unable to fulfill Purchaser's requirements of Fabric and/or Lamination Services as set forth in the Weekly Demand Release. (iv) AT's failure to pay timely any amount owed by AT to Purchaser within ten (10) days after receipt of written notice from Purchaser of such failure; (v) AT's failure to cure any breach of this Agreement, other than the breach described in Section 6(a)(i) above, within ten (10) days after Purchaser's delivery to AT of written notice thereof; or 11 (vi) The breach of the Noncompetition Agreement, as defined in the Purchase Agreement, by any party thereto other than Purchaser; (b) Upon the occurrence of any of the following events, AT may terminate this Agreement by delivering written notice of such termination to Purchaser: (i) Purchaser's failure to pay timely any Invoice within ten (10) days after receipt of written notice from Purchaser of such failure, unless Purchaser, in good faith, disputes the amount of such Invoice or the quality of the goods covered by such Invoice and has delivered to AT written notice of such dispute; (ii) Purchaser's failure to cure any breach of this Agreement within ten (10) days after AT's delivery to Purchaser of written notice thereof; or (iii) Commencing 2004, on each December 16 occurring during the Term, if, during the previous year, Purchaser has not ordered Fabric and/or Lamination Services with an aggregate purchase price of at least Ten Million and No/100 Dollars ($10,000,000.00); provided, however, that (A) Purchaser shall not be in breach of this Agreement merely because AT becomes entitled to terminate this Agreement pursuant to this Section 6(b)(iii), (B) AT's right to terminate this Agreement pursuant to this Section 6(b)(iii) shall be the sole and exclusive consequence of Purchaser's ordering Fabric and Lamination Services in an amount less than Ten Million and No/100 Dollars ($10,000,000.00), and (C) the amounts of all orders of Purchaser that are rejected by AT shall be included in the calculation of such aggregate purchase price. Each of the events described in Sections 6(a) and 6(b) is an "Early Termination Event." (c) Anything herein to the contrary notwithstanding, termination of this Agreement for any reason shall not alter, diminish or limit (i) the then existing obligations of either party to pay to the other any amounts due hereunder, (ii) the post-termination obligations set forth in Section 7 below, or (iii) the indemnification obligations of either party set forth in Section 10 below. 7. TERMINATION OF AGREEMENT. (a) If this Agreement is terminated by any party in accordance with clause (i) of Section 1 or by AT in accordance with Section 6(b), then within thirty (30) days after the Termination Date, Purchaser shall purchase from AT, and AT shall sell to Purchaser, all inventory owned by AT, including, without limitation, all raw materials, yarn, greige goods and in-process goods, purchased or acquired at the direction or request of Purchaser and necessary for the production of the AT-Made Fabric ordered by Purchaser in Weekly Demand Releases previously accepted by AT. Without limiting the foregoing, if at the termination of this Agreement there remains any raw materials in AT's inventory, which was purchased prior to the 12 Effective Date to satisfy previously made orders for AT-Made Fabric or Lamination Services, and is not yet In Process Fabric, Purchaser shall purchase such raw materials. The purchase price for any such raw materials and other inventory in accordance with this Section 7(a) shall be AT's cost, as "cost" is defined by United States General Accepted Accounting Principles (GAAP). (b) Upon termination of this Agreement, Purchaser shall have not less than forty-five (45) days after the Termination Date to remove from AT's production facility the Invoiced Inventory and any other inventory or materials owned by Purchaser. Until such time as Purchaser has removed the Invoiced Inventory and all other inventory and materials owned by Purchaser, AT shall store and maintain the Invoiced Inventory and all other inventory and materials owned by Purchaser in accordance with Section 5 above. After the forty five (45) day-period mentioned above, AT shall be entitled to deposit at the sole cost of Purchaser the Invoiced Inventory and any other inventory or materials owned by Purchaser with a Deposit General Warehouse (Almacen General de Deposito) and appear before a judge having jurisdiction on Ecatepec de Morelos, Estado de Mexico to perform delivery by means of consignacion de pago. 8. [INTENTIONALLY OMITTED] 9. PIECE-DYED AUTOMOTIVE PRODUCTS. AT shall cooperate with Purchaser to transfer the production of the piece-dyed automotive products identified on Schedule 2(a), attached hereto and incorporated herein by reference ("Piece-Dyed Goods"), from AT's facility to another production facility. Purchaser shall use its commercially reasonable efforts to accomplish such transfer by December 31, 2003. Until such time as the production of any Piece-Dyed Good is transferred from AT's facility, such Piece-Dyed Good shall be deemed "AT-Made Fabric" for purposes of this Agreement and the production and sale of such Piece-Dyed Good shall be subject to the terms and conditions of this Agreement; provided, however, that the price for the Piece-Dyed Goods shall be the full Net Sales Price. After the transfer of the production of any Piece-Dyed Good, to the extent that AT shall provide Lamination Services for such Piece-Dyed Good, such Piece-Dyed Good shall be deemed "Laminated Fabric" for purposes of this Agreement and the Lamination Services performed by AT with respect to such Piece-Dyed Good shall be subject to the terms and conditions of this Agreement. When the production of all Piece-Dyed Goods has been transferred, AT shall sell to Purchaser and Purchaser shall purchase from AT all inventory (including, without limitation, raw materials) required for the production of the Piece-Dyed Goods ordered by Purchaser in the most recent Weekly Demand Release and purchased or acquired by AT at Purchaser's request. The purchase price for such inventory shall be AT's cost as defined by GAAP. 10. LEASE OF OFFICE SPACE. TZ, AT, SCA, or such other appropriate affiliated party of any of them (as referenced in this Section 10, the "Landlord") shall lease to Purchaser certain office space as more particularly described in Schedule 10 (the "Office Space") at a rate equal to $4,000 (U.S. Dollars) per month, or such pro rata portion thereof. All rent shall be due and payable on the 1st day of each month. The Landlord shall be responsible for paying any and all taxes incurred, insurance, maintenance and utilities (but excluding telephone services) with respect to the Office Space. Purchaser shall lease the Office Space during the Term of this Agreement; provided, however, that (i) Purchaser shall have the option to earlier terminate its lease of the 13 Office Space pursuant to this Section 10 upon delivering notice to the Landlord no less that thirty (30) calendar days prior to such termination, and (ii) in the event this Agreement is terminated by Purchaser pursuant to an Early Termination Event (as defined in Section 6 of this Agreement), Purchaser, at its option, shall be entitled to remain in the Office Space for a period not to exceed forty five (45) days following the date of such termination. 11. INDEMNIFICATION. (a) Obligation of AT, SCA, TZ and Acquisition LLC to Indemnify. AT, SCA, TZ and Acquisition LLC each agrees to indemnify, defend and hold harmless Purchaser against and with respect to any and all claims, demands, costs, expenses, obligations, liabilities, damages, recoveries and deficiencies, including, without limitation, interest, penalties and reasonable attorneys' fees ("Losses") that Purchaser shall incur or suffer in connection with the transactions contemplated by this Agreement, which directly or indirectly arise out of, result from or relate to (i) the breach by AT, SCA, TZ or Acquisition LLC of any provision of this Agreement, (ii) AT's manufacture, lamination, transport, testing, inspection, packing or other treatment of Fabric, (iii) AT's performance of the Lamination Services, or (iv) any negligent, reckless or other tortious act or failure to act by AT, TZ, SCA or Acquisition LLC. (b) Obligation of Purchaser to Indemnify. Purchaser agrees to indemnify, defend and hold harmless AT, TZ, SCA and Acquisition LLC against and in respect of any and all Losses that AT shall incur or suffer in connection with the transactions contemplated by this Agreement, which directly or indirectly arise out of, result from or relate to the breach by Purchaser, TZ or Acquisition LLC of any provision of this Agreement. (c) Claims for Indemnification. Any claim for indemnification which is based upon a final judgment, decree or award of a court of competent jurisdiction requiring the payment of money by any party to this Agreement or any of its officers, directors, shareholders or controlling persons, shall be conclusive as to the amount of such claim, provided a certified copy of such judgment, decree or award accompanies the notice relating to such claim and provided further that the party seeking indemnification (the "Indemnitee") shall have complied with the requirements of Section 11(d) below. Any claim for indemnification shall be conclusive in all respects thirty (30) days after receipt by the party from whom indemnification is sought (the "Indemnitor") of notice thereof, unless within such period the Indemnitor shall have sent to the Indemnitee, and Indemnitee shall have received, notice questioning the propriety of the claim, in which case such claim, unless settled by agreement of the parties, shall be promptly referred to arbitration as provided in Section 12 below. In the event that a party makes a claim for indemnification, and the Indemnitor contests such claim but the claim is not settled or referred to arbitration within sixty (60) days after receipt by the Indemnitor of notice of the claim from the Indemnitee, such claim shall be regarded as conclusive in all respects. (d) Third Party Claims. In the event that any legal proceeding shall be instituted, or any claim or demand shall be asserted, by any third party in respect of which indemnity may be sought by either party pursuant to the provisions of this Agreement, the Indemnitee, with reasonable promptness after obtaining knowledge of such proceeding, claim, or demand shall give written notice thereof to the Indemnitor, who shall then engage counsel of its choice in 14 connection with such matter, which counsel shall be reasonably satisfactory to the Indemnitee, and defend against, negotiate, settle or otherwise deal with any such proceeding, claim or demand; provided, however, that without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld, the Indemnitor shall not consent to the entry of any judgment in or agree to any settlement of any such matters; further provided, that the Indemnitee may retain counsel, at its own expense, to represent it and participate in connection with any such proceeding or claim or demand. Failure by the Indemnitor to commence defending any proceeding, claim or demand with respect to which indemnity is sought within thirty (30) days after notice thereof shall have been given by the Indemnitee shall be a breach of the Indemnitor's obligations hereunder. The Indemnitor shall take or cause to be taken all steps necessary in connection with such defense, and the Indemnitee shall in all events be entitled to indemnity with respect to such matter, as provided in this Agreement. In the event that the Indemnitor breaches its obligations hereunder by failing to defend any proceeding, claim or demand with respect to which indemnity is sought, the Indemnitee may defend against, settle or otherwise deal with any such proceeding, claim or demand in such matter as it may in its good faith discretion deem appropriate, and the Indemnitor shall be liable for indemnification with respect to such matter, including without limitation the reasonable costs of such defense, as provided in this Agreement. In the event of any proceeding, claim or demand by a third party with respect to which a claim for indemnification is made hereunder, the parties hereto agree that they will cooperate fully with each other in connection with the defense or settlement of such matter. 12. GOVERNING LAW; ARBITRATION; JURISDICTION AND VENUE. (a) This Agreement shall be construed, governed by and enforced in accordance with the laws of the State of Delaware, USA, excluding any choice-of-law provisions that might cause another state's or country's laws to apply. (b) Any controversy or claim arising out of or relating to this Agreement or breach hereof shall be settled exclusively by binding arbitration administered by the American Arbitration Association in accordance with its International Arbitration Rules (the "AAA Rules") as modified by Section 12(c) below; provided, however, that in the event that any party hereto named in such controversy or claim seeks injunctive relief, such party may elect to file such controversy or claim in a State or federal court located in New York City, New York, USA. (c) In the event of arbitration of a claim or controversy, there shall be three arbitrators. Guilford shall select one arbitrator, TZ shall select one arbitrator, and the two selected arbitrators will designate the third arbitrator. The place of arbitration shall be New York City, New York, USA, unless otherwise agreed by the parties to the arbitration, and the language of the arbitration shall be the English language. The parties shall share equally the cost of the arbitrator's fees and expenses and any administrative expenses as they arise. Judgment upon the award by the arbitrator may be entered in any court having jurisdiction thereof. As part of such award, the prevailing party (as determined by the arbitrator) shall be awarded the arbitrator's fees and expenses and any administrative expenses previously paid by such party. Any award shall be a conclusive determination of the matter and shall be binding upon the parties and shall not be contested by any of them. 15 (d) In the event that a party to a claim or controversy seeks injunctive relief and desires that a State or federal court hear such claim or controversy, each party hereto agrees that a State or federal court located in New York City, New York, USA shall be the exclusive forum for the filing of any lawsuit arising out of, resulting from or filed in connection with this Agreement or its interpretation, performance or breach. (e) Each party hereto hereby (i) consents to the personal jurisdiction of the state and federal courts located in New York City, New York, USA with respect to any lawsuit arising out of, resulting from or filed in connection with this Agreement or its interpretation, performance and breach, and (ii) waives any claim that any state or federal court located in New York City, New York, USA is an inappropriate or inconvenient forum; provided, however, that this sentence shall not be construed as a waiver of any party's right to demand arbitration nor shall it be used by either party as a defense to the other party's claim for arbitration. 13. ASSIGNMENT. This Agreement shall not be transferred or assigned by any party, in whole or in part, except in accordance with this Section 13. Any party not currently in default with respect to this Agreement may assign or transfer its rights hereunder to any successor or wholly-owned subsidiary; provided, however, that (i) such transfer or assignment shall not relieve such assigning party of any obligation or liability hereunder and (ii) such assignee shall execute an instrument of accession or other appropriate document or instrument to bind assignee to the terms of this Agreement. Without limiting the foregoing, this Agreement shall inure to the benefit of and be binding upon the parties and their successors and assigns. 14. WAIVER. No waiver by any party of any breach by the other party of any of the representations, warranties, covenants or other obligations of such party set forth herein shall be construed as a waiver of any succeeding breach of the same or any other representation, warranty, covenant or other obligation. No waiver shall be binding unless executed in writing by the party or parties making such waiver. 15. NOTICES. (a) Except as set forth in this Section 15, all notices or other communications required or permitted hereunder to be delivered in writing shall be effective (a) when personally delivered by courier or otherwise to the party to be given such notice or other communication, or (b) on the business day following the day such notice or other communication is sent by telex, facsimile or similar electronic device, fully prepaid, which telex, facsimile or similar electronic communication shall promptly be confirmed by telephone communication, or (c) on the fifth day following the date of deposit in the United States mail if such notice or other communication is sent by certified or registered air mail (or its equivalent) with return receipt requested and postage thereon fully prepaid. The addresses for such notices shall be as follows: 16 If to AT: American Textil, S.A. de C.V. Av. Via Morelos No. 68 Col. Rustica Xalostoc Ecatepec de Morelos, Xalostoc Edo. de Mexico C.P. 55540 Attention: Gabriel Nabielsky Facsimile: 011-5255-5699-2290 Phone: 011-5255-5699-2200 With copy to: Armando Rivera J. Franck, Galicia y Robles, S.C. Blvd. Manuel Avila Camacho 24, Piso 7 Col. Lomas de Chapultepec 11000 Mexico, D.F. Facsimile: 011 5255 5540-9202 Phone: 011-5255-5540-9228 If to Purchaser: Guilford Mills, Inc. 6001 W. Market Street Greensboro, North Carolina 27409 Attention: Chief Financial Officer and General Counsel Facsimile: (336) 316-4057 Phone: (336) 316-4417 With copy to: Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P. 230 N. Elm Street (27401) Post Office Box 26000 (27420) Greensboro, North Carolina Attention: Jim Phillips and John Cross Facsimile: (336) 378-1001 Phone: (336) 373-8850 (b) With respect to notices to and from Purchaser's Automotive Business Unit Planning Manager and AT's Operation Manager and Planning Assistant, as contemplated in Section 3(c) of this Agreement, the parties shall notify each other in writing as to the identity and mailing address and contact information for such Automotive Business Unit Planning Manager, Operation Manager and Planning Assistant, from time to time, and the parties shall provide notices in the manner set forth in Section 3(c). 17 (c) Any party hereto may, by notice to the other parties hereto, change its address for receipt of notices hereunder. 16. FORCE MAJEURE. If any party is prevented from complying, either totally or in part, with any of the terms or provisions of this Agreement by reason of fire, flood, storm, strike, lockout or other labor trouble, riot, war, rebellion, accident or other acts of God, then any other party's sole remedies with respect thereto are as follows: (i) suspending this Agreement during the period of such disability and/or (ii) terminating this Agreement in accordance with its terms. If the non-breaching party elects to suspend or continue this Agreement, the party prevented from complying shall make all reasonable efforts to remove such disability within thirty (30) days of giving such notice. 17. ENTIRE AGREEMENT. This Agreement, along with all Exhibits and Schedules attached hereto, and the Purchase Agreement, Assignment of Collection Rights, the Noncompetition Agreement, the Release Agreements, Administrative Services Agreement, the Information Technology Agreement and any other documents referred to herein or therein which form a part hereof or thereof, embody the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties, covenants or understandings, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. Except as set forth herein, no supplement, modification or amendment of this Agreement shall be binding unless executed in writing by all of the parties hereto. 18. COUNTERPARTS. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Execution of this Agreement by facsimile shall be deemed effective and signatures received by facsimile shall be effective as original signatures. 19. CONFLICT. In the event that the terms contained in any Purchase Order, Invoice or other document evidencing a bill, order, shipment or other transaction contemplated hereby conflicts with the terms of this Agreement, the terms of this Agreement shall control. 20. SEVERABILITY. If any provision contained in this Agreement shall for any reason be held invalid or unenforceable by a court of competent jurisdiction, then the party entitled to the benefit of such provision may either (i) rescind this Agreement in its entirety, or (ii) elect to have this Agreement continue in effect by either (as such party may elect) reforming (to the extent permitted by law) such provision to make it enforceable or treating the provision as deleted from this Agreement. 21. CAPITALIZED TERMS. Capitalized terms not otherwise defined herein shall have the meaning assigned in the Purchase Agreement. 22. NO CONSTRUCTION AGAINST DRAFTER. Each party has cooperated in the drafting and preparation of this Agreement. Therefore, the status of any party as drafter of any term of this Agreement shall not affect the construction or interpretation of such term of this Agreement. Each term of this Agreement is contractual and not merely a recital. 18 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives, on the day and year first above written. TEXTILES ZANA, S.A. DE C.V. By: /s/ Gabriel Nabielsky --------------------- Name: Gabriel Nabielsky --------------------- Title: Attorney-in-Fact --------------------- AMERICAN TEXTIL ACQUISITION, LLC By: /s/ Gabriel Nabielsky ------------------------------ Name: Gabriel Nabielsky on behalf of Textiles Zana, S.A. de C.V. ------------------------------ Title: Attorney-in-Fact ------------------------------ SERVICIOS CORPORATIVOS AMBAR, S.A. DE C.V. By: /s/ Gabriel Nabielsky --------------------- Name: Gabriel Nabielsky --------------------- Title: Attorney-in-Fact --------------------- AMERICAN TEXTIL, S.A. DE C.V. By: /s/ Gabriel Nabielsky --------------------- Name: Gabriel Nabielsky --------------------- Title: Attorney-in-Fact --------------------- GUILFORD DE MEXICO, S.A. DE C.V. By: /s/ Robert A. Emken, Jr. ------------------------ Name: Robert A. Emken, Jr. ------------------------ Title: Attorney-in-Fact ------------------------ 19 GUILFORD MILLS, INC. By: /s/ Robert A. Emken, Jr. ------------------------ Name: Robert A. Emken, Jr. ------------------------ Title: General Counsel ------------------------ 20 EX-10.(C)(C) 10 g86418exv10wxcyxcy.txt EX-10.(C)(C) AMENDMENT NO. 1 TO CREDIT AGMT EXHIBIT 10(c)(c) AMENDMENT NO. 1 Dated as of December 17, 2003 This AMENDMENT NO. 1 (the "Amendment") is entered into by and among Guilford Mills, Inc. (the "Company") as Borrower, the Guarantors referred to in the Credit Agreement (as defined below), the Lenders referred to in the Credit Agreement and Wachovia Bank, National Association, as Administrative Agent, Collateral Agent and the Issuing Bank (in such capacity, the "Agent"). PRELIMINARY STATEMENT A. The Company, the Guarantors, the Lenders and the Agent have entered into that certain Credit, Security, Guaranty and Pledge Agreement dated as of October 1, 2002 (as amended, restated, modified and waived from time to time, the "Credit Agreement"; the terms defined therein being used herein as therein defined unless otherwise defined herein). B. The Company has informed the Agent and the Lenders of its intention to sell the capital stock of one or more of the following wholly owned subsidiaries: (i) Grupo Ambar, S.A. de C.V., (ii) American Textil, S.A. de C.V., and (iii) Servicios Corporativos Ambar, S.A. de C.V (such transaction, the "Sale"). C. The Company and the Guarantors have requested, and the Lenders and the Agent have agreed, to amend the Credit Agreement as hereinafter set forth to allow, among other things, for the sale of such entities. SECTION 1. Amendments to Credit Agreement. Upon the occurrence of the First Amendment Effective Date (as defined herein), the Credit Agreement is hereby amended as follows: (a) The definition of "Consolidated Tangible Net Worth" set forth in Section 1 of the Credit Agreement is hereby amended by inserting the following at the end thereof: "provided that, any reduction in Consolidated Tangible Net Worth of up to $16,000,000 resulting solely from the disposition of (i) Grupo Ambar, S.A. de C.V., (ii) American Textil, S.A. de C.V., or (iii) Servicios Corporativos Ambar, S.A. de C.V. shall not be taken into account when calculating compliance with Section 6.13." (b) Section 2.9(c) of the Credit Agreement is hereby amended by inserting the following clause (w) immediately preceding clause (x) therein: "(w) result from the disposition of life insurance policies of former employees as a result of the surrender of such policies on or before October 31, 2003 in an amount not to exceed $167,043.63," (c) Section 6.7(a) of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of Clause (x) thereof, (ii) deleting the "." at the end of clause (xi) thereof and inserting in lieu thereof "; and" and (iii) adding the following new clause (xii): (xii) the sale or other disposition of all the capital stock of one or more of the following Subsidiaries: (i) Grupo Ambar, S.A. de C.V., (ii) American Textil, S.A. de C.V., or (iii) Servicios Corporativos Ambar, S.A. de C.V., substantially in accordance with the terms set forth in the term sheet dated October 2, 2003 (the "Term Sheet") delivered to the Lenders. SECTION 2. Release of Pledged Collateral. In accordance with Section 8.11 of the Credit Agreement and Section 18 of the Intercreditor Agreement, the Administrative Agent agrees that upon the sale or other disposition of all of the capital stock of any of Grupo Ambar, S.A., de C.V., American Textil, S.A. de C.V. or Servicios Corporativos Ambar, S.A. de C.V. permitted by Section 6.7(a)(xii) of the Credit Agreement, the Administrative Agent will release the stock of such entity (or entities) pledged to it pursuant to Section 10 of the Credit Agreement. SECTION 3. Certification Under Intercreditor Agreement. In accordance with Section 18 of the Intercreditor Agreement, the Borrower hereby certifies that the Sale is not prohibited by the Credit Agreement, the Note Agreement or the Noteholder and A-Advanced Lender Guaranty and Security Agreement (as defined in the Intercreditor Agreement). SECTION 4. Exclusion of TaxLLC from Pledged Collateral. It is hereby acknowledged and agreed by the parties hereto that TaxLLC (as defined in the Term Sheet) is being created solely for the purpose of effectuating the Sale and, accordingly, TaxLLC shall not be deemed Pledged Collateral and shall not be deemed a Guarantor pursuant to Section 5.12 of the Credit Agreement; provided that the Sale shall occur substantially simultaneously with (i) the transfer of the capital stock of any of Grupo Ambar, S.A., de C.V., American Textil, S.A. de C.V. or Servicios Corporativos Ambar, S.A. de C.V. into the TaxLLC, as more fully described in the Term Sheet and (ii) the release of the stock as described in Section 2 above. SECTION 5. Conditions of Effectiveness. This Amendment shall become effective on the date (such date, the "First Amendment Effective Date") upon which (i) the Agent shall have received counterparts of this Amendment executed by the Company, the Guarantors and the Required Lenders and (ii) receipt by Morgan, Lewis & Bockius LLP, as counsel to the Agent, of a copy of a similar amendment executed and delivered by the Company and the Required Holders under the Note Agreement. SECTION 6. Restatement of Representations and Warranties. The Company hereby restates and renews each and every representation and warranty heretofore made by it in the Credit Agreement and the other Fundamental Documents as fully as if made on the date hereof (but after giving effect to the consents contained herein) and with specific reference to this Consent. SECTION 7. Reference to and Effect on the Loan Documents. (a) Upon the occurrence of the First Amendment Effective Date, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in 2 any Fundamental Documents to the Credit Agreement or any other Fundamental Document, shall mean and be a reference to the Credit Agreement or such other Fundamental Document as amended hereby. (b) Except as specifically amended above, the Credit Agreement and the other Fundamental Documents shall remain in full force and effect and are hereby ratified and confirmed. Without limiting the generality of the foregoing, and except as provided by paragraph 2 of this Amendment, all of the "Collateral" described therein does and shall continue to secure the payment of all Obligations. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Agent or any Lender under any of the Fundamental Documents, nor constitute a waiver of any provision of any of the Fundamental Documents. (d) The Agent and the Required Lenders are under no obligation to enter into this Amendment. The Agent and the Required Lenders entering into this Amendment shall not be deemed to limit or hinder any rights of the Agent or any Lender under the Credit Agreement, nor shall it be deemed to create or infer a course of dealing between the Agent or any Lender, the Company or any of the Guarantors with regard to any provision of the Credit Agreement. SECTION 8. Costs, Expenses and Taxes. The Company and Guarantors jointly and severally agree to pay on demand all costs and expenses of the Agent and the Lenders in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent and the Lenders with respect thereto and with respect to advising the Agent and the Lenders as to their rights and responsibilities hereunder and thereunder. The Company and Guarantors further jointly and severally agree to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 8. In addition, the Company and Guarantors shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, and agree to save the Agent and the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. SECTION 9. Execution in Counterparts. This 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 taken together shall constitute but one and the same instrument. SECTION 10. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. 3 IN WITNESS WHEREOF, the Company, the Guarantors, the Agent and the Required Lenders have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWER: GUILFORD MILLS, INC. By: /s/Robert A. Emken, Jr. -------------------------- Name: Robert A. Emken, Jr. Title: General Counsel GUARANTORS: CURTAINS AND FABRICS, INC. GOLD MILLS, INC. RASCHEL FASHION INTERKNITTING, LTD. GFD FABRICS, INC. GFD SERVICES, INC. HOFMANN LACES, LTD. ADVISORY RESEARCH SERVICES, INC. GUILFORD MILLS (MICHIGAN), INC. GUILFORD AIRMONT, INC. GOLDMILLS FARMS, INC. GMI COMPUTER SALES, INC. By: /s/Robert A. Emken, Jr. -------------------------- Name: Robert A. Emken, Jr. Title: General Counsel TWIN RIVERS TEXTILE PRINTING & FINISHING By: Guilford Mills, Inc., as general partner By: /s/Robert A. Emken, Jr. -------------------------- Name: Robert A. Emken, Jr. Title: General Counsel 4 AGENT AND LENDERS: WACHOVIA BANK, NATIONAL ASSOCIATION, INDIVIDUALLY AND AS ADMINISTRATIVE AGENT, COLLATERAL AGENT AND ISSUING BANK By: /s/Colleen McCullum ---------------------- Name: Colleen McCullum Title: Managing Director BANK ONE, NA By: /s/C. Dianne Wooley ---------------------- Name: C. Dianne Wooley Title: First Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: ---------------------- Name: Patrick E. Flynn Title: Risk Manager THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/Paul G. Price ---------------------- Name: Paul G. Price Title: Vice President 5 EX-21 11 g86418exv21.htm EX-21 SUBSIDIARIES OF REGISTRANT exv21

EXHIBIT (21)

SUBSIDIARIES OF THE COMPANY

(As of December 19, 2003)


	STATE OR OTHER
	JURISDICTION OF
	INCORPORATION OR	%
NAME OF COMPANY	ORGANIZATION	OWNERSHIP

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	%
Hofmann Laces, Ltd.	New York		100	%
Raschel Fashion Interknitting, Ltd.	New York		100	%
Curtains and Fabrics, Inc.	New York		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 Automotive (Portugal) Limited(9)	United Kingdom		100	%
Guilford Mills Automotive (Czech Republic) Limited(9)	United Kingdom		100	%
Guilford Mills do Brasil Ltda.(10)	Brazil		100	%
Industrias Globales de Mexico, S.A. de C.V.(11)	Mexico		100	%
Nustart, S.A. de C.V.(12)	Mexico		100	%
Guilford de Mexico, S.A. de C.V.(13)	Mexico		100	%
Guilford Servicios, S.A. de C.V.(13)	Mexico		100	%
Guilford Mills Automotive (France) Limited(14)	United Kingdom		100	%
Guilford Czech Republic S.R.O.(15)	Czech Republic		100	%

The capital stock of certain of the above subsidiaries is pledged pursuant to the terms of certain loan documents with respect to the Company’s senior secured debt.

(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)		Owned by Guilford Mills Europe Limited.

(10)		990 shares owned by Guilford Mills, Inc. and 10 shares owned by Guilford Airmont, Inc.

(11)		49,999 shares owned by Guilford Mills, Inc. and 1 share owned by Guilford Airmont, Inc. owned by American Textil, S.A. de C.V.

(12)		28,360 shares owned by Guilford Mills, Inc. and 200 shares owned by Guilford Airmont, Inc.

(13) 49,999 shares owned by Guilford Mills, Inc. and 1 share owned by Guilford Airmont, Inc.

(14) 100% owned by Guilford Mills Europe Limited.

(15) Owned by Guilford Mills Automotive (Czech Republic) Limited.

EX-23.(A) 12 g86418exv23wxay.htm EX-23.(A) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT EX-23.(A) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT

EXHIBIT (23)(a)

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated December 5, 2003, accompanying the consolidated financial statements and schedule included in the Annual Report of Guilford Mills, Inc. and subsidiaries on Form 10-K for the year ended September 28, 2003. We hereby consent to the incorporation by reference of said report in the Registration Statement of Guilford Mills, Inc. on Form S-8 (File No. 33-105954, effective June 9, 2003).

/s/ Grant Thornton LLP

Greensboro, North Carolina
December 29, 2003 EX-23.(B) 13 g86418exv23wxby.htm EX-23.(B) NOTICE REGARDING CONSENT exv23wxby

EXHIBIT 23(b)

NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP

Section 11(a) of the Securities Act of 1933, as amended (the “Securities Act”), provides that if part of a registration statement at the time it becomes effective contains an untrue statement of a material fact, or omits a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may assert a claim against, among others, an accountant who has consented to be named as having certified any part of the registration statement or as having prepared any report for use in connection with the registration statement.

On August 5, 2002, Guilford Mills, Inc. (the “Company”) terminated the engagement of its independent certified public accountants, Arthur Andersen LLP (“Andersen”), and engaged the services of Grant Thornton LLP (“Grant Thornton”) as its new independent auditors.

After reasonable efforts, the Company has been unable to obtain Arthur Andersen’s written consent to the incorporation by reference into the Company’s registration statement on Form S-8 (File No. 333-105954) and the related prospectuses (the “Registration Statement”) of Arthur Andersen’s audit report dated January 14, 2002, with respect to the Company’s consolidated financial statements as of September 30, 2001 and for the two years in the period then ended.

Under these circumstances, Rule 437a under the Securities Act permits the Company to file this Annual Report on Form 10-K, which is incorporated by reference into the Registration Statement, without a written consent from Arthur Andersen. As a result, with respect to purchases of the Company’s securities pursuant to the Registration Statement that occur subsequent to the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission, Arthur Andersen will not have any liability under Section 11(a) of the Securities Act for any untrue statements of a material fact contained in the financial statements audited by Arthur Andersen or any omissions of a material fact required to be stated therein. Accordingly, you would be unable to assert a claim against Arthur Andersen under Section 11(a) of the Securities Act.

EX-31.(A) 14 g86418exv31wxay.htm EX-31.(A) SECTION 302 CERTIFICATION OF CEO exv31wxay

EXHIBIT (31)(a)

CERTIFICATIONS

I, John A. Emrich, certify that:

1. I have reviewed this annual report on Form 10-K of Guilford Mills, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: December 22, 2003

/s/ John A. Emrich

John A. Emrich
President and Chief Executive Officer

EX-31.(B) 15 g86418exv31wxby.htm EX-31.(B) SECTION 302 CERTIFICATION OF CFO exv31wxby

EXHIBIT (31)(b)

CERTIFICATIONS

I, David H. Taylor, certify that:


Date: December 22, 2003

/s/ David H. Taylor

David H. Taylor
Chief Financial Officer

EX-32.(A) 16 g86418exv32wxay.htm EX-32.(A) SECTION 906 CERTIFICATION OF CEO exv32wxay

EXHIBIT (32)(a)

Certification Required by Rule 13a-14(b) or Rule 15d-14(b) and by 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

I, John A. Emrich, as Chief Executive Officer of Guilford Mills, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:

(1) the accompanying Annual Report on Form 10-K of the Company for the fiscal year ended September 28, 2003 (the “Report”), filed with the U.S. Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: December 22, 2003

/s/ John A. Emrich

John A. Emrich
President and Chief Executive Officer

EX-32.(B) 17 g86418exv32wxby.htm EX-32.(B) SECTION 906 CERTIFICATION OF CFO exv32wxby

EXHIBIT (32)(b)

Certification Required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

I, David H. Taylor, as Chief Financial Officer of Guilford Mills, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:


Dated: December 22, 2003

/s/ David H. Taylor

David H. Taylor
Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

(13)		49,999 shares owned by Guilford Mills, Inc. and 1 share owned by Guilford Airmont, Inc.

(14)		100% owned by Guilford Mills Europe Limited.

(15)		Owned by Guilford Mills Automotive (Czech Republic) Limited.

	1.		I have reviewed this annual report on Form 10-K of Guilford Mills, Inc.;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

			(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

			(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

			(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

			(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

			(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

(1)		the accompanying Annual Report on Form 10-K of the Company for the fiscal year ended September 28, 2003 (the “Report”), filed with the U.S. Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)		the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.