: (Jointly Administered) Debtors. : x

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1 TOGUT, SEGAL & SEGAL LLP Attorneys for the Debtors and Debtors-in-Possession One Penn Plaza - Suite 3335 New York, New York (212) Albert Togut (AT-9759) Frank A. Oswald (FAO-1223) Howard P. Magaliff (HPM-2189) UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x : In re: : Chapter 11 : Case No (BRL) GUILFORD MILLS, INC., et al., : : : (Jointly Administered) Debtors. : x APPLICATION FOR ORDER PURSUANT TO 331 AND 105(a) OF THE BANKRUPTCY CODE ESTABLISHING PROCEDURES FOR MONTHLY COMPENSATION AND REIMBURSEMENT OF EXPENSES OF PROFESSIONALS TO THE HON. BURTON R. LIFLAND, UNITED STATES BANKRUPTCY JUDGE: Guilford Mills, Inc. ( Guilford ) and certain of its subsidiaries, as debtors and debtors in possession (collectively, the Debtors ), respectfully submit this application (the Application ) for an order, pursuant to 331 and 105(a) of title 11 of the United States Code (the Bankruptcy Code ), authorizing the Debtors to establish procedures for monthly compensation and reimbursements of expenses of professionals retained or to be retained in these cases. In support of this request the Debtors state: INTRODUCTION 1. On March 13, 2002 (the Filing Date ), each of the Debtors filed with this Court a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. The

2 Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to 1107(a) and 1108 of the Bankruptcy Code. Concurrently herewith, the Debtors have filed an application seeking joint administration and consolidation of their cases for procedural purposes pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure. 2. This Court has jurisdiction over this Application pursuant to 28 U.S.C and the Standing Order of Referral of Cases to Bankruptcy Judges for the Southern District of New York, dated July 10, 1984 (Ward, Acting C.J.). This is a core proceeding pursuant to 28 U.S.C. 157(b). Venue of these proceedings and this Application is proper in this district pursuant to 28 U.S.C and The statutory predicates for the relief sought herein are 331 and 105(a) of the Bankruptcy Code. BACKGROUND 3. Guilford, a publicly held company, is a leading worldwide producer and seller of warp knit, circular knit, flat-woven and woven velour fabrics. Through its domestic and foreign subsidiaries, Guilford operates manufacturing, processing, finishing and retail facilities in nine states, Mexico, Brazil, Portugal and the United Kingdom. 4. Guilford historically operated in four segments Automotive (primarily fabrics consisting of headliners and bodycloth), Apparel (primarily fabrics for intimate apparel and lingerie, swimwear, linings, career apparel and ready-to-wear women s clothing), Home Fashions (primarily commercial and upholstery, and retail bed and bath linens), and Other/Specialty (primarily industrial fabrics and specialty fibers). Guilford sells its finished fabrics to a broad range of apparel, automotive, home 2

3 fashion and specialty product manufacturers. Guilford cuts and sews laces and fabrics into finished home fashion products. Additionally, Guilford manufactures specialty yarns for both internal uses and sale to customers. 5. The Debtors businesses have under gone significant changes over the last decade. Historically, the Debtors primarily produced fabrics for apparel applications, but have shifted their focus and now concentrate on automotive fabrics. Producing automotive fabrics is more profitable for the Debtors than domestically producing apparel fabrics, a fact exacerbated by the fallout from the Asian financial crisis that began in 1997, which resulted in a glut of cheaply priced Asian fabric imports. To compensate for the Asian imports and to maximize revenues, the Debtors instituted a strategic plan to close underused facilities and consolidate operations in smaller, more focused facilities. This has resulted in cost savings and a decrease in the number of domestic employees. 6. The Debtors currently employ approximately 3,000 people in their corporate offices and other facilities in the United States. With the exception of approximately 180 employees at the Gold Mills, Inc. facility in Pine Grove, Pennsylvania, none of the Debtors employees are covered by collective bargaining agreements. 7. In addition to trade debt incurred in the ordinary course of their business operations, the Debtors consolidated capital structure principally consists of: (i) a revolving credit facility financed by a $130 million credit agreement by and among Guilford Mills, Inc., as borrower, and Wachovia Bank, NA, as Administrative Agent, along with other bank parties ( Wachovia and together with the other party banks the Banks ), (ii) a series of senior notes in the amount of $145 million held by five noteholders (the Noteholders and, together with the Banks, the Secured Prepetition 3

4 Lenders ), and (iii) a single class of common stock. The Debtors have pledged substantially all of their assets as security to the Banks and Noteholders. 8. For the fiscal year ending September 30, 2001, the Debtors had net sales of approximately $644 million. As of the Filing Date, the Debtors books and records reflected assets totaling approximately $551 million and liabilities totaling approximately $409 million. 9. The Debtors have commenced these Chapter 11 cases to, among other things, efficiently and expeditiously complete their corporate restructuring efforts based upon a proposed restructuring plan as discussed in the Local Rule Affidavit that accompanies the petitions. RELIEF REQUESTED 10. The Debtors request the entry of an order pursuant to 331 and 105(a) of the Bankruptcy Code establishing an orderly, regular process for allowance and payment of compensation and reimbursement for attorneys and other professionals (excluding counsel for the Secured Prepetition Lenders and any postpetition lenders) whose retentions are approved by this Court pursuant to 327, 328 or 1103 of the Bankruptcy Code and who will be required to file applications for allowance of compensation and reimbursement of expenses pursuant to 330 and 331 of the Bankruptcy Code. In addition, the Debtors request the entry of an order establishing a procedure for the reimbursement of reasonable out-of-pocket expenses incurred by members of any statutory committee appointed in these cases. RETENTION OF PROFESSIONALS 11. The Debtors are simultaneously or will shortly be seeking approval to employ (i) Togut, Segal & Segal LLP as their general bankruptcy counsel, (ii) Weil, 4

5 Gotshal & Manges LLP as their special co-counsel, (iii) Arthur Andersen, LLP as their accountants, (iv) Nightingale & Associates LLC as their financial advisors, and (v) Rothschild Inc. as their investment bankers and restructuring advisors. In addition, the Debtors anticipate that they may need to retain other professionals in connection with these chapter 11 cases. The United States Trustee may appoint a statutory creditors committee in these cases, which will likely retain its own counsel and other professionals to represent it. 12. Concurrently herewith, the Debtors have filed an application for authority pursuant to 105(a), 327, 328 and 330 of the Bankruptcy Code to retain and compensate professionals utilized in the ordinary course of business (the Ordinary Course Motion ). The Ordinary Course Motion seeks authority for the Debtors to continue to retain and/or employ professionals in the ordinary course of business on terms substantially similar to those in effect prior to the Filing Date, without the need to file individual retention applications for each of these professionals. In addition, the Ordinary Course Motion seeks authority to pay ordinary course professionals in full, without interim or final fee applications, in accordance with their prepetition arrangements, but subject to monthly caps as provided therein. Any ordinary course professional seeking payment of fees and disbursements exceeding the monthly or annual cap will be required to file an appropriate application. 13. Thus, there are two categories of professionals who will be required to submit interim and final applications: (a) separately retained chapter 11 professionals; and (b) those ordinary course professionals whose fees and expenses exceed the limitations set forth in the Ordinary Course Motion (each a Professional and, collectively, the Professionals ). 5

6 PROPOSED PROCEDURES 14. Pursuant to 331 of the Bankruptcy Code, all Professionals are entitled to submit applications for interim compensation and reimbursement of expenses every 120 days, or more often if the Court permits. In addition, 105(a) of the Bankruptcy Code authorizes the Court to issue any order necessary or appropriate to carry out the provisions of [the Bankruptcy Code], thereby codifying the bankruptcy court s inherent equitable powers. 15. The Debtors request the entry of an order in accordance with the standing General Order of the Bankruptcy Court for the Southern District of New York, signed on January 24, 2000 by then Chief Judge Tina L. Brozman (the Standing Order ), establishing procedures for monthly compensation and reimbursement of expenses of Professionals, and pursuant to 105(a) and 331 of the Bankruptcy Code and Rule 2014 of the Federal Rules of Bankruptcy Procedure. 16. Specifically, the Debtors propose that the payment of compensation and reimbursement of expenses of Professionals be structured as follows: (a) On or before the twentieth (20 th ) day of each month following the month for which fees are sought, each Professional seeking fees will serve a monthly statement, by hand or overnight delivery, on (i) Guilford Mills, Inc., 4925 West Market Street, Greensboro, North Carolina (Attn: Robert Emken, Esq.); (ii) Togut, Segal & Segal LLP, One Penn Plaza- Suite 3335, New York, New York (Attn: Frank A. Oswald, Esq.) and Weil, Gotshal & Manges, LLP, 767 Fifth Avenue, New York, New York (Attn: Richard Krasnow, Esq.); (iii) attorneys for any statutory committee; (iv) attorneys for the Office of the United States Trustee, 33 Whitehall Street, 21 st 6

7 Floor, New York, New York 10004; (v) attorneys for the Secured Prepetition Lenders; and (vi) attorneys for the postpetition secured lenders. (b) The monthly statement need not be filed with the Court and a courtesy copy need not be delivered to Chambers since an order granting this Application is not intended to alter the fee application requirements outlined in 330 and 331 of the Bankruptcy Code and since Professionals are still required to serve and file interim and final applications for approval of fees and expenses in accordance with the relevant provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), and the Local Rules for the United States Bankruptcy Court, Southern District of New York. (c) Each monthly fee statement must contain a list of the individuals and their respective titles (e.g., attorney, accountant or paralegal) who provided services during the statement period, their respective billing rates, the aggregate hours spent by each individual, a reasonably detailed breakdown of the disbursements incurred (no Professional should seek reimbursement of an expense not allowed pursuant to the Court s Administrative Orders dated June 24, 1991 and April 21, 1995 or the United States Trustee Guidelines for Reviewing Applications for Compensation and Reimbursement of Expenses Filed under 11 U.S.C. 330 dated January 30, 1996), and contemporaneously maintained time entries for each individual in increments of tenths (1/10) of an hour. 7

8 (d) Each person receiving a statement will have at least fifteen (15) days after its receipt to review it and, in the event that he or she has an objection to the compensation or reimbursement sought in a particular statement, he or she shall, by no later than the thirty-fifth (35 th ) day following the month for which compensation is sought, serve upon the Professional whose statement is objected to, and the other persons designated to receive statements in paragraph (a), a written Notice of Objection to Fee Statement, setting forth the nature of the objection and the amount of fees or expenses at issue. (e) At the expiration of the thirty-five (35) day period, the Debtors shall promptly pay eighty percent (80%) of the fees and one hundred percent (100%) of the expenses identified in each monthly statement to which no objection has been served in accordance with paragraph (d). (f) If the Debtors make or receive an objection to a particular fee statement, they shall withhold payment of that portion of the fee statement to which the objection is directed and promptly pay the remainder of the fees and disbursements in the percentages set forth in paragraph (e). (g) Similarly, if the parties to an objection are able to resolve their dispute following the service of a Notice of Objection to Fee Statement and if the party whose statement was objected to serves on all of the parties listed in paragraph (a) a statement indicating that the objection is withdrawn and describing in detail the terms of the resolution, then the Debtors shall promptly pay, in accordance 8

9 with paragraph (e), that portion of the fee statement which is no longer subject to an objection. (h) All objections not resolved by the parties shall be preserved and presented to the Court at the next interim or final fee application hearing to be heard by the Court. See paragraph (j) below. (i) The service of an objection in accordance with paragraph (d) shall not prejudice the objecting party s right to object to any fee application made to the Court in accordance with the Bankruptcy Code on any ground whether raised in the objection or not. Furthermore, the decision by any party not to object to a fee statement shall not be a waiver of any kind or prejudice that party s right to object to any fee application subsequently made to the Court in accordance with the Bankruptcy Code. (j) Once every 150 days, each of the Professionals shall serve and file with the Court, in accordance with General Order M-182 (which can be found at an application for interim or final Court approval and allowance, pursuant to 330 and 331 of the Bankruptcy Code (as the case may be), of the compensation and reimbursement of expenses requested. (k) Any Professional who fails to file an application seeking approval of compensation and expenses previously paid under an order approving this Application when due shall (1) be ineligible to receive further monthly payments of fees or expenses as provided herein until further order of the Court and (2) may be required to 9

10 disgorge any fees paid since retention or the last fee application, whichever is later. (l) The pendency of an application or a Court order that payment of compensation or reimbursement of expenses was improper as to a particular statement shall not disqualify a Professional from the future payment of compensation or reimbursement of expenses as set forth above, unless otherwise ordered by the Court. (m) Neither the payment of, nor the failure to pay, in whole or in part, monthly compensation and reimbursement as provided herein shall have any effect on this Court s interim or final allowance of compensation and reimbursement of expenses of any Professionals. (n) Attorneys for a statutory committee may, in accordance with the foregoing procedure for monthly compensation and reimbursement of Professionals, collect and submit statements of expenses, with supporting vouchers, from members of the committee; provided, however, that such committee attorneys ensure that these reimbursement requests comply with the Court s Administrative Orders dated June 24, 1991 and April 21, The proposed procedures will enable the Debtors to closely monitor the costs of administration, maintain level cash flow and implement efficient cash management procedures. Moreover, these procedures will allow the Court and the key parties in interest to insure the reasonableness and necessity of the compensation and reimbursement sought pursuant to such procedures. 10

11 NOTICE 18. No examiner, trustee or official creditors committee has been appointed in these chapter 11 cases. Notice of this Application has been given to the Debtors Secured Prepetition Lenders and postpetition lenders, the Debtors 20 largest unsecured creditors, and the United States Trustee. The Debtors respectfully submit that no further or other notice need be provided. WAIVER OF MEMORANDUM OF LAW 19. The Debtors request that the Court dispense with the requirement of Local Bankruptcy Rule (b) for a memorandum of law. This Application does not present a novel issue of law that would require consideration of any authorities other than those set forth herein. 20. No previous application for the relief sought herein has been made to this or any other court. [Concluded on following page] 11

12 WHEREFORE, the Debtors respectfully request the entry of the pre-fixed order establishing procedures for the monthly payment of fees and reimbursement of expenses for Professionals, together with such other and further relief as may be just and proper. DATED: New York, New York March 13, 2002 GUILFORD MILLS, INC. (for itself and on behalf of its Debtor affiliates) By: _/s/david Taylor Name: DAVID TAYLOR Title Chief Financial Officer TOGUT, SEGAL & SEGAL LLP, Attorneys for the Debtors By: /s/albert Togut ALBERT TOGUT (AT-9759) FRANK A. OSWALD (FAO-1223) Members of the Firm One Penn Plaza, Suite 3335 New York, New York (212)