-----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, Awaw+mdiUEmkguRnspFfBFBkcKEPpdWpau1IRwsf4mSAn+v4NXb2Z6P2Ev0P2N7A oYY15KrUAApfmHN2DAgQWA== 0000029332-97-000002.txt : 19970328 0000029332-97-000002.hdr.sgml : 19970328 ACCESSION NUMBER: 0000029332-97-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIXIE YARNS INC CENTRAL INDEX KEY: 0000029332 STANDARD INDUSTRIAL CLASSIFICATION: CARPETS AND RUGS [2273] IRS NUMBER: 620183370 STATE OF INCORPORATION: TN FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-02585 FILM NUMBER: 97565473 BUSINESS ADDRESS: STREET 1: 1100 S WATKINS ST CITY: CHATTANOOGA STATE: TN ZIP: 37404 BUSINESS PHONE: 6156982501 MAIL ADDRESS: STREET 1: P O BOX 751 CITY: CHATTANOOGA STATE: TN ZIP: 37401 FORMER COMPANY: FORMER CONFORMED NAME: DIXIE MERCERIZING CO DATE OF NAME CHANGE: 19670524 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 28, 1996. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______ to _______. Commission File Number: 0-2585 Dixie Yarns, Inc. (Exact name of registrant as specified in its charter) Tennessee 62-0183370 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1100 South Watkins Street Chattanooga, Tennessee 37404 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (423) 698-2501 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered None None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $3.00 Par Value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] -Continued- SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Continued) State the aggregate market value of the voting stock held by non-affiliates of the registrant as of March 7, 1997: Common Stock - $69,474,609; Class B Common Stock - No market exists for the shares of Class B Common Stock, which is neither registered under Section 12 of the Act nor subject to section 15(d) of the Act. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. Class Outstanding as of March 7, 1997 Common Stock, $3.00 Par Value 10,466,894 shares Class B Common Stock, $3.00 Par Value 735,228 shares Class C Common Stock, $3.00 Par Value 0 shares Documents Incorporated By Reference Specified portions of the following document are incorporated by reference: Proxy Statement of the registrant for annual meeting of shareholders to be held May 1, 1997 (Part III). PART I ITEM 1. BUSINESS GENERAL In 1992, the Company had $470 million in sales consisting of yarns, thread, and fabrics, sold to industrial manufacturers, all of which required further processing by the Company's customers prior to reaching the consumer. The Company has grown into a group of businesses with aggregate sales in excess of $600 million, approximately two-thirds of which are sold into selected floorcovering markets and the remainder into certain textile and apparel markets. Over fifty percent of the Company's products are supplied to its customers in the final form used by the ultimate consumer. The Company expanded into the floorcovering business through the acquisitions of Carriage Industries, Inc., and Masland Carpets, Inc. in 1993 and Patrick Carpets Mills, Inc. in 1994. In early fiscal 1997, the Company acquired the assets and business of Danube Carpets Mills, Inc. Since the later part of 1992, the Company has sold or closed a substantial number of textile facilities, including the sale of the Company's thread business. In late 1996, the Company announced its intent to sell its Tarboro, North Carolina textile spinning facility. In each case, the Company has either exited specific markets or product lines in an effort to focus on higher-margin products. Where applicable, equipment and operations have been consolidated into existing facilities in order to continue the production and sale of products that fit the Company's strategy. The Company intends to pursue growth in selected finished apparel markets in order to take advantage of its vertical manufacturing capabilities. The Company believes that vertical expansion into selected finished apparel markets will provide value to its customers through a quality controlled, quick response production and distribution process. FLOORCOVERING THE CARPET INDUSTRY - Based on information compiled by the national trade association representing carpet and rug manufacturers, the domestic carpet and rug industry is composed of over 100 manufacturers of which the top 10 account for 75% of the industry's production. The industry has two primary markets, residential and commercial, with the residential market making up the largest portion of the industry's sales. A substantial portion of industry shipments is made in response to replacement demand. The residential market consists of broadloom carpets, rugs, and bathmats in a broad range of styles, colors, and textures. The commercial market consists primarily of broadloom carpets for a variety of institutional applications. The carpet industry also manufactures carpet for the automotive, recreational vehicle, and small boat industries. There is a high degree of competition within the domestic carpet industry, which also faces competition from the hard surface floorcovering industry. The principal methods of competition within the carpet industry are quality, style, price, and service. THE COMPANY'S FLOORCOVERING BUSINESS - The Company's floorcovering business consists of four distinct specialty businesses including proprietary yarn for the tufting industry and products for a variety of floorcovering applications. Each business is described below. Candlewick Yarns produces yarn for the tufting industry. Candlewick's yarn systems are sold for applications in residential and commercial carpet, bath and decorative accent rugs, and automotive floorcovering. Candlewick competes in markets that emphasize product quality, innovation, and customer service. Candlewick's relationships with fiber suppliers and its product development center allow customers a means to evaluate yarn and fiber variations to achieve product enhancement and product differentiation. Approximately 35% of Candlewick's yarn production is used internally by the Company's other floorcovering businesses. Products to outside customers are marketed through Candlewick's own salaried sales force. Carriage Industries is a vertically integrated carpet manufacturer supplying tufted broadloom carpet for customers of the manufactured/modular housing, recreational vehicle, van conversion, and exposition trade show industries. Carriage creates specialty products geared to specifications that maximize efficiency and minimize waste for their customers with a just-in-time delivery approach through its own trucking fleet. The recent acquisition of Danube Carpet Mills will increase Carriage's sales in the manufactured housing and recreation vehicle industries and provide the opportunity to be more competitive by expanding its core business. Carriage's product lines are marketed by a staff of salaried sales personnel. Bretlin is a manufacturer of indoor/outdoor needlebond carpet and runners, floormats, decorative accent rugs, commercial/industrial polypropylene needlebond carpet, and synthetic fiber cushion. Its products are marketed to home centers, mass merchants, floorcovering groups or co-ops, distributors, and independent floorcovering retailers. High service standards in terms of speed and accuracy in filling orders for its customers are key competitive factors for Bretlin. Products of Bretlin are marketed primarily through its own sales force, and to a lesser extent, commission sales representatives. Masland Carpets is a manufacturer of specialty carpets and rugs for the high-end residential and commercial marketplaces. Masland's products are marketed to the architectural and interior design community and specialty floorcovering showrooms. Masland competes in each of these markets through quality, service, and innovation in styling and product design. Masland's Patrick Carpet line is designed to cater to the value oriented commercial customers where style, design, and quality are required. Masland's product lines are marketed by its own sales force. The Company's sales order backlog position in its floorcovering businesses, excluding Carriage, was approximately $28,000,000 at December 28, 1996 and December 30, 1995. Approximately 90% of orders received by Carriage are shipped within the same week. All of the order backlog can reasonably be expected to be filled within the 1997 fiscal year. The Company's floorcovering businesses own a variety of trademarks under which their products are marketed. While such trademarks are important to the Company's businesses, there is no one trademark, other than the name Masland itself, which is of material importance to the floorcovering business. TEXTILES/APPAREL TEXTILE INDUSTRY - The domestic textile industry encompasses yarn preparation, fabric formation, and product distribution. The industry is structured with various degrees of vertical integration depending on the products involved. Textile products are manufactured for a variety of end uses including home furnishings, industrial products, transportation applications, and apparel. The textile industry is made up of a great number of companies, none of which are believed to have sales that comprise as much as 10% of the total market. The domestic apparel market, which includes a substantial portion of the customers for the Company's textile products, is continually faced with competition from imports. Additionally, the Company believes that consumer buying patterns will continue to be influenced by mass merchandisers and retailers emphasizing price competition. The domestic textile industry also services the home furnishing and other industries in a number of applications which are impacted by housing sales as well as domestic automotive production levels. Information published by the U. S. Department of Commerce indicates an increase in the supply of apparel into domestic markets from Mexico and the Caribbean Basin compared with Asian suppliers. The Company believes a substantial portion of the increase has resulted from enacted trade legislation and has increased the demand for domestic textile products as a source of fabric for the manufacture of finished apparel. The Company also believes that merchandisers in the domestic apparel industry prefer a supply of complete finished apparel products. Sales data presented at the annual meeting of the trade association representing American textile manufacturers indicate anticipated sales growth at department stores and specialty outlets. These factors are expected to benefit the high-end value added products of the Company's textile business and support the Company's strategy to grow its package finished apparel business by utilizing the Company's vertical yarn and fabric capabilities and sewing resources in Central America or Mexico. THE COMPANY'S TEXTILE/APPAREL BUSINESS - The Company's textile/apparel group is comprised of three separate businesses that compete to varying degrees in several textile markets. Products include high quality yarns, knit fabric, and upper-end knit sport finished apparel. The Company intends to utilize its vertical capacity capabilities to further expand its finished knit apparel products. Each business is discussed below. The Company's yarn business spins, dyes, and processes value-added cotton and high performance specialty synthetic yarns to select manufacturers of high-end upholstery, home furnishings, premium sportswear, hosiery, sweaters, underwear, and automotive body cloth. Products manufactured by the Yarn Group are primarily made from cotton fiber but also include products made from branded specialty synthetic fibers which impart strength, heat resistance, stretch and/or characteristics relating to comfort and insulation properties. A portion of the yarn produced is further processed by the Company's mercerizing and package dye facility. Natural, dyed, and synthetic yarns are marketed through a combination of salaried sales force and, to a lesser extent, commissioned sales agents. Caro Knit produces 100% cotton knit fabrics. Markets served by Caro Knit's customers include manufacturers of apparel for sportswear, golf shirts, activewear/athletic, and impressions (print-ons). The higher-end products made from Caro Knit fabric compete on the basis of design, fabric consistency, and color. The Company has invested in state-of-the-art dyeing and finishing facilities to achieve optimum color consistency. Caro Knit supplies 100% of the fabric to the Company's recently established finished apparel business. Caro Knit products are sold primarily by the group's salaried sales force. C-Knit Apparel produces and markets finished knit apparel products catering to sports apparel, branded lines, golf related manufacturers, and advertising specialty and screen printers. C-Knit utilizes the vertical yarn and fabric manufacturing capabilities of the Company along with cutting and contract sewing in order to control the quality and delivery process. C-Knit products are marketed through its own salaried sales force. The Company's sales order backlog position in its textile/apparel businesses was approximately $56,500,000 on December 28, 1996 compared to $44,000,000 on December 30, 1995. All of these orders can reasonably be expected to be filled within the 1997 fiscal year. The Company owns a number of patents used in its textile business, and patent protection is sought as a matter of course when machinery or process improvements are made that are considered patentable. However, in the opinion of the Company, its textile operations are not materially dependent upon patents and patent applications. CUSTOMER AND PRODUCT CONCENTRATION There was no single class of products exceeding 10 percent of the Company's consolidated sales volume for 1996, 1995, or 1994 and no single customer's sales volume exceeded 10 percent of the Company's consolidated sales volume for 1996. SEASONALITY Within the varied markets serviced by the Company, there are a number of seasonal production cycles, but the Company's business as a whole is not considered to be significantly affected by seasonal factors. Consequently, there are no material impacts on working capital relating to seasonality. ENVIRONMENTAL While compliance with current federal, state and local provisions regulating the discharge of material into the environment may require additional expenditures by the Company, these expenditures are not expected to have a material effect on capital expenditures, earnings or the competitive position of the Company. RAW MATERIALS The Company obtains natural and synthetic raw materials from a number of domestic suppliers. Cotton fiber is purchased at market rates from numerous cotton merchants and directly from cotton growing cooperatives under short-term supply contracts at costs which are significant factors in the Company's pricing of its products. Man-made fibers are purchased from major chemical suppliers. Although the Company's procurement of raw materials is subject to variations in price and availability due to agricultural and other market conditions and in the price of petroleum used to produce man-made fibers, the Company believes that its sources of raw materials are adequate and that it is not materially dependent on any single supplier. UTILITIES The Company uses electricity as its principal energy source, with oil or natural gas used in some facilities for finishing operations as well as heating. During the past five years the Company has not experienced any material problems in obtaining electricity, natural gas or oil at anticipated prices. Nevertheless, energy shortages of extended duration could have an adverse effect on the Company's operations. EMPLOYMENT LEVEL The Company had approximately 4,600 associates as of the end of fiscal 1996. ITEM 2. PROPERTIES The following table lists the Company's facilities according to location, type of operation and approximate total floor space as of March 7, 1997. Approximate Location Type of Operation Square Feet FLOORCOVERING Administrative: Dalton, GA Administrative 13,000 Calhoun, GA Administrative 60,000 Mobile, AL Administrative 20,000 Total Administrative 93,000 Warehousing: Ringgold, GA Warehousing 119,000 Manufacturing: Lemoore, CA Tufted Yarn Spinning 322,000 Ringgold, GA Tufted Yarn Spinning 290,000 (1) Roanoke, AL Tufted Yarn Spinning 190,000 Calhoun, GA Carpet Manufacturing, Distribution 1,439,000 Atmore, AL Carpet Manufacturing, Distribution 342,000 Mobile, AL Rug Manufacturing, Distribution 400,000 LaFayette, GA Filament Processing 73,000 Total Manufacturing 3,056,000 TEXTILE/APPAREL Manufacturing: Chattanooga, TN Yarn Spinning 440,000 Mebane, NC Yarn Spinning 99,000 Ranlo, NC Yarn Spinning 319,000 (2) Tarboro, NC Yarn Spinning 340,000 Chattanooga, TN Package Yarn Dyeing, Bleaching and Mercerizing 276,000 Jefferson, SC Knitting, and Fabric Dyeing and Finishing 274,000 Total Manufacturing 1,748,000 CORPORATE Administrative: Chattanooga, TN Administrative 41,000 Total 5,057,000 ITEM 2. PROPERTIES - CONTINUED (1) This property is currently leased. Under the provisions of the Roanoke, AL lease, the Company is acquiring title to the property over the term of the lease, which is expected to terminate in 2004. (2) Currently operating; "held for sale". In addition to the facilities listed above, the Company owns or leases various administrative, storage, warehouse and office spaces. In the opinion of the Company, its manufacturing facilities are well maintained and the machinery is efficient and competitive. Operations at each plant generally vary between 120 hours and 168 hours per week. There are no material encumbrances on any of the Company's operations. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company or its subsidiaries are a party or of which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted during the fourth quarter of 1996 to a vote of the shareholders. Pursuant to instruction G of Form 10-K the following is included as an unnumbered item to Part I. EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages, positions and offices held by the executive officers of the registrant as of March 7, 1997, are listed below along with their business experience during the past five years. Name, Age Business Experience During and Position Past Five Years Daniel K. Frierson, 55 Director since 1973, Chairman of Chairman of the Board, President the Board since 1987 and Chief and Chief Executive Officer, Executive Officer since 1980. Director, Member of Executive Director of SunTrust Bank, Committee Chattanooga, N.A. Brother of Paul K. Frierson. Glenn A. Berry, 49 Executive Vice President and Chief Executive Vice President and Financial Officer since January, Chief Financial Officer 1997. Vice President, Lighting Products Group, MagneTek, Inc., March, 1995 to December, 1996. Vice President, Allied Signal Laminate Systems 1986 to 1994. William N. Fry, IV, 38 Executive Vice President and Chief Executive Vice President and Chief Operating Officer, Floorcovering Operating Officer, Floorcovering Group since January, 1997. Group Executive Vice President and Chief Operating Officer, Candlewick, Carriage and Bretlin since January, 1996. President, Bretlin from January, 1995 to January, 1996. Executive Vice President, Bretlin from November, 1993 to January, 1995. Business Analyst, Carriage from July, 1993 to November, 1993. General Manager, Dyed Yarns from May, 1992 to July, 1993. Assistant Plant Manager, Chattanooga Finishing from July, 1991 to May, 1992. EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED Name, Age Business Experience During and Position Past Five Years George B. Smith, 56 Executive Vice President and Executive Vice President Chief Operating Officer, Textile/ and Chief Operating Officer, Apparel Group since September, 1996. Textile/Apparel Group Executive Vice President and President, Natural/Dyed Yarns and Knits since March, 1994. President, Natural and Dyed Yarn Group from August, 1993 to March, 1994. President Natural Yarn Group from October, 1992 to August, 1993. Self-employed (Consulting and Commission Sales) June, 1990 to November, 1992. Philip H. Barlow, 47 Vice President and President of Vice President and President, Carriage Industries, Inc. since Carriage Industries, Inc. 1993. Vice President of Sales and Marketing, Carriage, 1988 to 1993. Director of Sales and Marketing, Carriage, 1986 to 1988. Kenneth L. Dempsey, 38 Vice President and President, Vice President and President, Masland Carpets, Inc. since Masland Carpets, Inc. January, 1997. Vice President of Marketing, Masland, 1991 to 1996. Director of Marketing, The Harbinger Company, Inc., subsidiary of Horizon Industries, Inc., 1982 to 1991. Paul K. Frierson, 59 Director since 1988. Vice President Vice President and President, and President, Candlewick Yarns Candlewick Yarns, Director since 1989. Director of NationsBank/Chattanooga. Brother of Daniel K. Frierson. W. Derek Davis, 46 Vice President of Human Resources Vice President, Human since January, 1991. Corporate Resources Employee Relations Director, 1990 to 1991. EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED Name, Age Business Experience During and Position Past Five Years Gary A. Harmon, 51 Treasurer since 1993. Treasurer Director of Tax and Financial Planning, 1985 to 1993. D. Eugene Lasater, 46 Controller since 1988. Controller Starr T. Klein, 54 Secretary since November, 1992. Secretary Assistant Secretary, 1987 to 1992. The executive officers of the registrant are elected annually by the Board of Directors at its first meeting held after each annual meeting of the Company's shareholders. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The Company's Common Stock trades on the over-the-counter National Market System with the NASDAQ symbol DXYN. No market exists for the Company's Class B Common Stock. As of March 7, 1997, the total number of record holders of the Company's Common Stock was approximately 4,500 and the total number of holders of the Company's Class B Common Stock was 16. Management of the Company estimates that there are approximately 3,600 shareholders who hold the Company's Common Stock in nominee names. Dividends and Price Range of Common Stock for the four quarterly periods in the years ended December 28, 1996 and December 30, 1995 are as follows: DIXIE YARNS, INC. QUARTERLY FINANCIAL DATA, DIVIDENDS AND PRICE RANGE OF COMMON STOCK (Unaudited) (dollars in thousands, except per share data)
1996 Quarter 1st 2nd 3rd 4th Net sales $161,520 $167,962 $145,400 $140,199 Gross profit 24,260 30,429 24,958 20,229 Net income (loss) (991) 1,320 2,030 (13,572) Earnings (loss) per common and common equivalent share (.09) .12 .18 (1.21) Dividends: Common Stock --- --- --- --- Class B Common Stock --- --- --- --- Common Stock prices: High $ 5.13 $ 5.38 $ 5.13 $ 8.13 Low 3.81 4.25 3.88 4.38 1995 Quarter 1st 2nd 3rd 4th Net sales $181,646 $177,809 $161,289 $150,099 Gross profit 28,552 26,172 23,395 19,962 Net income (loss) 883 431 (6,030) (47,463) Earnings (loss) per common and common equivalent share .06 .03 (.53) (4.24) Dividends: Common Stock --- --- --- --- Class B Common Stock --- --- --- --- Common Stock prices: High $ 7.13 $ 7.19 $ 7.13 $ 6.00 Low 4.88 5.50 5.63 3.75 The total of quarterly earnings per share does not equal the annual earnings per share due primarily to Common Stock purchased and issued during the respective periods. During the fourth quarter of 1996, the Company recognized asset valuation losses of $18,995 ($13,074, or $1.17 per share after taxes). During the fourth quarter of 1995, the Company recognized asset valuation losses of $53,751 ($44,674, or $3.99 per share after taxes). The discussion of restrictions on payment of dividends is included in Note E to the Consolidated Financial Statements included herein. ITEM 6. SELECTED FINANCIAL DATA (dollars in thousands, except per share data) The following selected financial data should be read in conjunction with the related consolidated financial statements and notes thereto included under Items 8, 14(a) (1) and (2) and 14 (d) of the report on Form 10-K. Year Ended December 28, December 30, December 31, December 25, December 26, 1996 1995 1994 1993(1) 1992 Net sales $615,081 $670,842 $682,859 $591,408 $469,832 Income (loss) from continuing operations(2) (11,213) (52,179) (3,227) 4,684 5,467 Total assets 328,135 396,997 488,320 496,579 397,080 Long-term debt: Senior indebtedness 34,036 97,383 87,025 87,650 70,023 Subordinated notes 50,000 50,000 50,000 50,000 50,000 Convertible subordinated debentures 44,782 44,782 44,782 44,782 44,782 Common Stock, subject to put option --- --- 18,178 18,178 --- Per Share: Income (loss) from continuing operations: (2) Primary (1.00) (4.44) (.24) .41 .62 Fully diluted (1.00) (4.44) (.24) .40 .62 Cash dividends declared: Common Stock --- --- .20 .20 .20 Class B Common Stock --- --- .20 .20 .20 (1) Includes the results of operations of Carriage Industries, Inc. and Masland Carpets, Inc. subsequent to their acquisitions on March 12, 1993 and July 9, 1993, respectively. (2) Income (loss) from continuing operations includes asset valuation losses of $13,074, or $1.17 per share, for the year ended December 28, 1996, asset valuation losses of $51,058, or $4.35 per share, and casualty insurance gains of $3,298, or $.28 per share, for the year ended December 30, 1995, asset valuation losses of $6,446, or $.49 per share, and a nontaxable life insurance gain of $12,835, or $.97 per share, for the year ended December 31, 1994. See Note B, Note K, Note L, Note M, and Note N to the Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS An integral part of the Company's strategy has involved expansion of its floorcovering business and to focus its textile/apparel business on higher margin markets as well as vertical growth through finished apparel. Another part of the Company's strategy, which is shared by both business groups, is to be consumer driven and to increase its production and sales of products that are sold in the form used by the ultimate consumer. The Company expanded its floorcovering business early in fiscal 1997 when the assets and business of Danube Carpet Mills, Inc. were acquired for $18.2 million cash. Danube, which had 1996 sales of approximately $75.0 million, manufactures carpet for the manufactured housing, recreational vehicle, and van conversion industries. The carpet manufacturing and distribution operations of Danube have been consolidated into existing facilities and its carpet yarn plant is operating as a part of the Company's carpet yarn operation. This acquisition complements the Company's floorcovering business and is expected to significantly enhance operating results through an increase in production volume and a favorable product mix. Implementation of these strategies resulted in unusual charges to operations in 1996, 1995, and 1994. The results for 1996 included charges of $20.6 million ($14.3 million after-tax, or $1.27 per share), primarily relating to the write-down of the Company's Tarboro textile spinning facility, which is being held for sale, costs associated with the sale of the Company's thread business, as well as costs to consolidate operations and exit certain lower-margin product lines. In 1995, net charges of $58.4 million ($47.9 million after-tax, or $4.07 per share), were recorded principally related to the disposal of the Company's thread business, asset impairment losses, a plant sale, and facility consolidations. The Company's 1994 results included a $12.8 million nontaxable life insurance gain and $19.6 million of net charges to write-down idled facilities and for losses related to discontinued product lines. The aggregate effect of these items in 1994 was a pre-tax charge of $6.8 million ($.6 million after-tax gain, or $.05 per share). Including the unusual items described above, the Company reported a net loss of $11.2 million, or $1.00 per share, in 1996, $52.2 million, or $4.44 per share, in 1995, and $3.2 million, or $.24 per share, in 1994. Excluding the unusual items, net income was $3.1 million, or $.27 per share, in 1996, compared with a net loss of $4.3 million, or $.37 per share, in 1995, and a net loss of $3.8 million, or $.29 per share, in 1994. The following table reflects selected operating data related to the two business segments of the Company: Floorcovering and Textile/apparel (see additional information in Note P to the consolidated financial statements). The effects of the unusual items have been reported separately in order to more clearly understand the operations of each segment. (dollars in millions) 1996 1995 1994 Sales Floorcovering $366.4 $361.5 $354.0 Textile/apparel 252.0 313.7 332.5 Intersegment elimination (3.3) (4.4) (3.6) Total sales $615.1 $670.8 $682.9 Operating profit (loss) Floorcovering Excluding unusual items $ 25.4 $ 20.1 $ 25.4 Unusual items (1.9) 0.1 2.7 Floorcovering operating profit 23.5 20.2 28.1 Textile/apparel Excluding unusual items (1.3) (5.4) (10.9) Unusual items (18.7) (58.5) (22.1) Textile/apparel operating loss (20.0) (63.9) (33.0) Combined Excluding unusual items 24.1 14.7 14.5 Unusual items (20.6) (58.4) (19.4) Company operating profit (loss) $ 3.5 $(43.7) $ (4.9) 1996 Compared to 1995 (excluding unusual items) - Operating profits in the Company's floorcovering business increased by $5.3 million or 26% in 1996, compared with 1995. During this period sales increased by 1%. The improvement in operating profit was attributable to a shift in sales mix to higher-margin products, and a $2.8 million gain from liquidation of LIFO inventories. Operating losses for the Company's textile/apparel business declined $4.1 million in 1996 compared with 1995 despite a 20% decline in net sales. The improved results in 1996 were attributable to the exit of lower-margin product lines and businesses and reduced manufacturing, selling and administrative expenses. The decline in sales is principally attributable to the sale of the Company's thread business on June 3, 1996. Interest expense declined in 1996 compared with 1995 by $2.6 million due to a $62.9 million reduction in debt, which was funded by the proceeds from the sale of the Company's thread business and operating cash flows. 1995 Compared to 1994 (excluding unusual items) - Although sales in the Company's floorcovering business increased 2% in 1995 compared with 1994, operating profits declined by $5.3 million in 1995 compared with the 1994 results. Excess capacity and a slowdown in demand in the carpet industry resulted in pressure on selling prices during a period when material costs increased. During 1995, disruption costs were incurred as a result of capacity expansions at Carriage and Masland. These expansions positioned the floorcovering segment to take advantage of anticipated growth. Selling expense increased in 1995 compared with 1994 to accommodate new product introductions and to increase staff for anticipated sales growth. Sales in the Company's textile/apparel business declined 6% in 1995 compared with 1994. The decline in sales occurred in the last half of 1995, particularly in the fourth quarter, as the Company's customers, primarily apparel and upholstery fabric manufacturers, were severely affected by a general slowdown in retail sales of their products. Additionally, sales volume was negatively impacted as a result of plant consolidations and a plant sale in the second and third quarters of 1995, respectively. Operating losses in the textile/apparel business declined by $5.5 million in 1995 compared with 1994. The 1995 improvement resulted from significant cost reductions due to manufacturing efficiencies and lower selling and administrative costs which more than offset higher cotton and other raw material costs. Interest expense increased by $1.8 million in 1995 compared with 1994 due to the general increase in interest rates. During 1996, 1995, and 1994, the Company's effective income tax rate differs from statutory income tax rates primarily due to nondeductible amortization and write-offs of intangible assets and the nontaxable life insurance gain in 1994. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". The Statement has a required adoption date of 1997 and provides new accounting and financial reporting rules for sales, securitizations, and servicing of receivables and other financial assets, for secured borrowing and collateral transactions, and for extinguishments of liabilities. The required changes from the adoption of this new standard are not expected to have a material effect on the Company's financial statements. LIQUIDITY AND CAPITAL RESOURCES During the three-year period ended December 28, 1996, cash flows generated from operating activities totaled $103.9 million and were supplemented by $34.3 million from asset sales and $16.8 million of life insurance proceeds. These funds were used to finance the Company's operations and capital expenditures, to reduce debt, and to repurchase stock upon exercise of the put option issued in connection with the acquisition of Masland Carpets, Inc. Capital expenditures (including expenditures of $3.1 million in 1994 related to casualty losses) were $83.7 million during the three-year period ended December 28, 1996 and were directed toward upgrading equipment to improve quality and manufacturing efficiency, as well as expanding manufacturing capacity and service capability in the Company's floorcovering business. During this period, charges for depreciation and amortization totaled $99.4 million. During 1996, the Company's debt was reduced by $62.9 million, primarily from proceeds related to the sale of the Company's thread business. The Company's operating activities generated $55.0 million in cash flows (including $31.8 million in working capital reductions related to the sale of the thread business) and $24.1 million of funds were generated from asset sales (including $21.9 million for the sale of the thread business). These funds substantially financed the Company's operations, fixed asset purchases of $17.6 million and the debt reduction. In 1993, approximately 1.0 million shares of the Company's Common Stock were issued under a put option arrangement relating to the acquisition of Masland Carpets, Inc. The holders exercised their right on July 10, 1995 to put the shares to the Company at a price of approximately $18.00 per share. In October 1993, the Company entered into a seven-year agreement and sold a $45.0 million undivided interest in a revolving pool of its trade accounts receivable. The sale is reflected as a reduction of accounts receivable in the Company's balance sheets. No further interest has been sold under this agreement subsequent to the original sale. The cost of this program was fixed at 6.08% per annum of the undivided interest sold plus administrative fees typical in such transactions. In addition, the Company is generally at risk for credit losses associated with sold receivables and provides for such in the Company's financial statements. At December 28, 1996, the Company's debt structure consisted of $44.8 million of convertible subordinated debentures, $50.0 million of subordinated notes and $34.0 million of senior indebtedness, principally under the Company's revolving credit and term loan agreement. The convertible subordinated debentures require annual mandatory sinking fund payments of $2.5 million, beginning in 1998. Principal payments are not required under the Company's subordinated notes until the year 2000. The revolving credit and term loan agreement was renewed for five years in March, 1995. The amended agreement provides for revolving credit of up to $125.0 million through the five-year commitment period and a $10.0 million term loan. Principal payments on the term loan are due in quarterly installments of $625,000 which began in March, 1996. Under the terms of the revolving credit agreement, borrowing capacity is permanently reduced by 50% of the net cash proceeds from certain significant asset sales. Accordingly, the borrowing line has been reduced by $24.6 million as a result of the sales of the Company's Newton plant in September, 1995 and thread business in June, 1996. Interest rates available under the facility are selected by the Company from a number of options which effectively allow for borrowings at rates equal to or lower than the greater of the lender's prime rate or the federal funds rate plus .5%. At year end, the available unused borrowing capacity under revolving credit facilities was $77.1 million. Early in fiscal 1997, $18.2 million of the availability was used to finance the acquisition of Danube Carpet Mills, Inc. Under restrictions set forth in the Company's subordinated note agreement, and absent a waiver from the lender or an amendment, future dividends may be paid only to the extent of 75% of the excess of cumulative income, excluding extraordinary items, for periods subsequent to December 28, 1996 above $68.6 million. During the fourth quarter of 1996, the subordinated note lender granted the Company a waiver to permanently exclude the write- down and subsequent sale of the carrying amounts of the property, machinery, and related assets of the Company's Tarboro spinning facility from a net worth covenant contained within the agreement. Availability under the Company's debt arrangements and expected operating cash flows are deemed adequate to finance the Company's future liquidity requirements, which are anticipated to consist primarily of capital expenditures and seasonal working capital needs. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The supplementary financial information as required by Item 302 of Regulation S-K is included in PART II, ITEM 5 of this report and the remaining response is included in a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The section entitled "Information about Nominees for Directors" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 1, 1997 is incorporated herein by reference. Information regarding the executive officers of the registrant is presented in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation Information" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 1, 1997 is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Principal Shareholders", as well as the beneficial ownership table (and accompanying notes) from the section entitled "Information About Nominees for Directors" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 1, 1997 is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Certain Transactions Between the Company and Directors and Officers" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 1, 1997 is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2)-- The response to this portion of Item 14 is submitted as a separate section of this report. (3) Listing of Exhibits: (i) Exhibits Incorporated by Reference: (3a) Restated Charter of Dixie Yarns, Inc. (3b) Amended and Restated By-Laws of Dixie Yarns, Inc. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - CONTINUED (4a) Second Amended and Restated Revolving Credit and Term Loan Agreement dated January 31, 1992 by and among Dixie Yarns, Inc., and Trust Company Bank, NationsBank of North Carolina, N.A. and Chemical Bank. (4b) Loan Agreement dated February 6, 1990, between Dixie Yarn, Inc. and New York Life Insurance Company and New York Life Insurance and Annuity Corporation. (4c) Form of Indenture, Dated May 15, 1987 between Dixie Yarns, Inc. and Morgan Guaranty Trust Company of New York as trustee. (4d) Revolving Credit Loan Agreement dated as of September 16, 1991 by and among Ti-Caro, Inc. and Trust Company Bank, individually and as Agent, NCNB National Bank and Chemical Bank. (4e) First Amendment to Revolving Credit Loan Agreement dated as of August 19, 1992 by and among Ti-Caro, Inc., T-C Threads, Inc. and Trust Company Bank, individually and as agent, NCNB National Bank, and Chemical Bank. (4f) First Amendment, dated August 25, 1993 to Second Amended and Restated Revolving Credit and Term Loan Agreement dated January 31, 1992, by and among Dixie Yarns, Inc. and Trust Company Bank, NationsBank of North Carolina, N.A. and Chemical Bank. (4g) Third Amended and Restated Credit Agreement dated March 31, 1995. (4h) Waiver and First Amendment to Credit Agreement dated February 27, 1996. (10c) Dixie Yarns, Inc. Nonqualified Defined Contribution Plan. (10d) Dixie Yarns, Inc. Nonqualified Employee Savings Plan. (10e) Dixie Yarns, Inc. Incentive Compensation Plan. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - CONTINUED (10f) Asset Transfer and Restructuring Agreement dated July 19, 1993, by and among Dixie Yarns, Inc., Masland Carpets, Inc., individual management investors of Masland Carpets, Inc., The Prudential Insurance Company of America and Pruco Life Insurance Company. (10g) Assignment and Bill of Sale dated July 9, 1993, by and between Dixie Yarns, Inc. and Masland Carpets, Inc. (10h) Assignment and Assumption Agreement dated July 9, 1993, by and between Dixie Yarns, Inc. and Masland Carpets, Inc. (10i) Stock Rights and Restrictions Agreement dated July 9, 1993, by and among Dixie Yarns, Inc., Masland Carpets, Inc., The Prudential Insurance Company of America and Pruco Life Insurance Company of America. (10j) Pooling and Servicing Agreement dated as of October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee). (10k) Annex X - Definitions, to Pooling and Servicing Agreement dated as of October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee). (10l) Series 1993-1 Supplement, dated as of October 15, 1993, to Pooling and Servicing Agreement dated as of October 15, 1993, among Dixie Yarns, Inc., Dixie Funding Inc. and NationsBank of Virginia, N.A. (as Trustee). (10m) Certificate Purchase Agreement dated October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and New York Life Insurance and Annuity Corporation. (10n) Certificate Purchase Agreement dated October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and John Alden Life Insurance Company. (10o) Certificate Purchase Agreement dated October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and John Alden Life Insurance Company of New York. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - CONTINUED (10p) Certificate Purchase Agreement dated October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and Keyport Life Insurance Company. (10q) Form of Nonqualified Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan. (10r) Form of Amendment to Nonqualified Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan. (10s) Asset Purchase Agreement dated May 23, 1996, by and among T-C Threads, Inc. d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10t) Amendment, dated May 31, 1996, to Asset Purchase Agreement dated May 23, 1996, by and among T-C Threads, Inc. d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10u) Second Amendment, dated June 3, 1996, to Asset Purchase Agreement dated May 23, 1996, by and among T-C Threads, Inc., d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10v) Yarn and Finished Goods Agreement dated as of June 3, 1996, by and among T-C Threads, Inc. d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10w) Accounts Receivable Agreement dated as of June 3, 1996, by and among T-C Threads, Inc. d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10x) Noncompetition Agreement dated as of June 3, 1996, by and among T-C Threads, Inc. d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (ii) Exhibits filed with this report: (4i) Waiver and Modification Agreement dated November 1, 1996. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - CONTINUED (4j) Waiver Letter dated December 13, 1996. (10a) Dixie Yarns, Inc. Incentive Stock Plan as amended. (10b) Form of Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan as amended. (10y) Dixie Yarns, Inc. Stock Ownership Plan as amended. (11) Statement Re: Computation of Earnings Per Share. (21) Subsidiaries of the Registrant. (23) Consent of Ernst & Young LLP. (b) Reports on Form 8-K--No reports on Form 8-K have been filed by the registrant during the last quarter of the period covered by this report. (c) Exhibits--The response to this portion of Item 14 is submitted as a separate section of this report. See Item 14 (a) (3) (ii) above. (d) Financial Statement Schedules--The response to this portion of Item 14 is submitted as a separate section of this report. 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. DIXIE YARNS, INC. March 26, 1997 BY: /s/DANIEL K. FRIERSON Daniel K. Frierson, Chairman of the Board, President and Chief Executive Officer 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. Chairman of the Board, President, Director and /s/DANIEL K. FRIERSON Chief Executive Officer March 26, 1997 Daniel K. Frierson Vice President, President of Candlewick /s/PAUL K. FRIERSON Yarns and Director March 26, 1997 Paul K. Frierson Executive Vice President and /s/GLENN A. BERRY Chief Financial Officer March 26, 1997 Glenn A. Berry /s/D. EUGENE LASATER Controller March 26, 1997 D. Eugene Lasater /s/PAUL K. BROCK Director March 26, 1997 Paul K. Brock SIGNATURES -- CONTINUED /s/LOVIC A. BROOKS, JR. Director March 26, 1997 Lovic A. Brooks, Jr. /s/J. FRANK HARRISON, JR. Director March 26, 1997 J. Frank Harrison, Jr. /s/JAMES H. MARTIN, JR. Director March 26, 1997 James H. Martin, Jr. /s/JOHN W. MURREY, III Director March 26, 1997 John W. Murrey, III /s/PETER L. SMITH Director March 26, 1997 Peter L. Smith /s/ROBERT J. SUDDERTH, JR. Director March 26, 1997 Robert J. Sudderth, Jr. ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14 (a)(1) AND (2) AND ITEM 14(d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 28, 1996 DIXIE YARNS, INC. CHATTANOOGA, TENNESSEE FORM 10-K--ITEM 14(a)(1) and (2) DIXIE YARNS, INC. AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of Dixie Yarns, Inc. and subsidiaries are included in Item 8: Report of Independent Auditors Consolidated balance sheets--December 28, 1996 and December 30, 1995 Consolidated statements of operations--Years ended December 28, 1996, December 30, 1995, and December 31, 1994 Consolidated statements of cash flows--Years ended December 28, 1996, December 30, 1995, and December 31, 1994 Consolidated statements of stockholders' equity--Years ended December 28, 1996, December 30, 1995, December 31, 1994 The following consolidated financial statement schedule of Dixie Yarns, Inc. and subsidiaries is included in Item 14(d): Schedule II--Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, or are inapplicable, or the information is otherwise shown in the financial statements or notes thereto, and therefore have been omitted. Report of Independent Auditors Board of Directors Dixie Yarns, Inc. We have audited the accompanying consolidated balance sheets of Dixie Yarns, Inc. and subsidiaries as of December 28, 1996 and December 30, 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 28, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dixie Yarns, Inc. and subsidiaries at December 28, 1996 and December 30, 1995, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 28, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note A to the consolidated financial statements, in 1995 the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." ERNST & YOUNG LLP Chattanooga, Tennessee February 20, 1997 DIXIE YARNS, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data)
December 28, December 30, 1996 1995 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,988 $ 3,413 Accounts receivable (less allowance for doubtful accounts of $3,614 in 1996 and $3,156 in 1995) 14,628 17,369 Inventories 93,226 103,253 Assets held for sale 10,350 22,090 Other 10,520 10,518 TOTAL CURRENT ASSETS 130,712 156,643 PROPERTY, PLANT AND EQUIPMENT Land and improvements 8,673 9,128 Buildings and improvements 65,960 72,544 Machinery and equipment 263,940 302,069 338,573 383,741 Less accumulated amortization and depreciation 182,797 190,238 NET PROPERTY, PLANT AND EQUIPMENT 155,776 193,503 INTANGIBLE ASSETS (less accumulated amortization of $6,928 in 1996 and $5,973 in 1995) 31,611 35,775 OTHER ASSETS 10,036 11,076 TOTAL ASSETS $328,135 $396,997 See notes to consolidated financial statements. December 28, December 30, 1996 1995 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 31,473 $ 20,394 Accrued expenses 24,338 23,294 Current portion of long-term debt 2,641 2,171 TOTAL CURRENT LIABILITIES 58,452 45,859 LONG-TERM DEBT Senior indebtedness 34,036 97,383 Subordinated notes 50,000 50,000 Convertible subordinated debentures 44,782 44,782 TOTAL LONG-TERM DEBT 128,818 192,165 OTHER LIABILITIES 9,555 11,486 DEFERRED INCOME TAXES 22,760 29,197 STOCKHOLDERS' EQUITY Common Stock ($3 par value per share): Authorized 80,000,000 shares, issued - 13,876,826 shares in 1996 and 13,862,799 shares in 1995 41,630 41,588 Class B Common Stock ($3 par value per share): Authorized 16,000,000 shares, issued - 735,228 shares in 1996 and 1995 2,206 2,206 Common Stock subscribed - 449,300 shares in 1996 1,348 --- Additional paid-in capital 132,475 131,618 Stock subscriptions receivable (2,190) --- Retained earnings (deficit) (8,766) 2,447 Minimum pension liability adjustment (2,668) (4,116) 164,035 173,743 Less Common Stock in treasury at cost - 3,409,872 shares in 1996 and 3,404,123 shares in 1995 55,485 55,453 TOTAL STOCKHOLDERS' EQUITY 108,550 118,290 Commitments - Note O TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $328,135 $396,997 See notes to consolidated financial statements. DIXIE YARNS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) Year Ended December 28, December 30, December 31, 1996 1995 1994 Net sales $615,081 $670,842 $682,859 Cost of sales 515,205 572,762 595,732 GROSS PROFIT 99,876 98,080 87,127 Selling and administrative expenses 74,061 82,624 82,293 Asset valuation losses 18,995 63,425 10,397 Life insurance gain --- --- (12,835) Other expense - net 9,363 1,112 5,469 INCOME (LOSS) BEFORE INTEREST AND TAXES (2,543) (49,081) 1,803 Interest expense 13,000 15,591 13,748 LOSS BEFORE INCOME TAXES (15,543) (64,672) (11,945) Income tax benefit (4,330) (12,493) (8,718) NET LOSS $(11,213) $(52,179) $ (3,227) Net loss per common and common equivalent share $ (1.00) $ (4.44) $ (.24) See notes to consolidated financial statements. DIXIE YARNS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Year Ended December 28, December 30, December 31, 1996 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(11,213) $(52,179) $ (3,227) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 28,195 35,980 35,199 Benefit for deferred income taxes (5,395) (11,416) (7,410) Loss on property, plant and equipment disposals and asset valuation adjustments 18,706 65,037 10,936 Life insurance gain --- --- (12,835) Changes in operating assets and liabilities, net of effects of business combinations: Accounts receivable 2,740 11,549 (3,532) Inventories 10,028 3,517 (2,788) Other current assets (721) (585) 1,170 Other assets (3) (552) (547) Accounts payable and accrued expenses 12,222 (21,143) 1,698 Other liabilities 443 279 (278) NET CASH PROVIDED BY OPERATING ACTIVITIES 55,002 30,487 18,386 CASH FLOWS FROM INVESTING ACTIVITIES Life insurance proceeds --- --- 16,761 Net proceeds from sales and insurance recovery of property, plant and equipment 24,057 7,773 2,445 Purchase of property, plant and equipment (includes $3,118 in 1994 for casualty damages) (17,634) (30,266) (35,792) Cash payments in connection with business combinations, net of cash acquired --- --- (230) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 6,423 (22,493) (16,816) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in credit line borrowings (60,080) 2,529 (635) Borrowings (payments) under term loan facility (2,500) 10,000 --- Common stock acquired (32) (18,457) (191) Dividends paid --- --- (2,450) Other (238) (557) (437) NET CASH USED IN FINANCING ACTIVITIES (62,850) (6,485) (3,713) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,425) 1,509 (2,143) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,413 1,904 4,047 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,988 $ 3,413 $ 1,904 See notes to consolidated financial statements. DIXIE YARNS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars in thousands, except per share data) Class B Common Additional Stock Retained Pension Common Common Common Stock Paid-In Subscriptions Earnings Liability Stock In Stock Stock Subscribed Capital Receivable (Deficit) Adjustment Treasury BALANCE AT DECEMBER 25, 1993 $41,557 $2,206 $131,684 $ 60,303 $(4,982) $(55,086) Common Stock acquired for treasury- 19,344 shares (191) Common Stock sold under stock option and Employees' Stock Purchase Plan - 5,409 shares 16 26 Net loss for the year (3,227) Minimum pension liability adjustment 652 Dividends - Common Stock and Class B Common Stock $.20 per share (2,450) BALANCE AT DECEMBER 31, 1994 41,573 2,206 131,710 54,626 (4,330) (55,277) Common Stock acquired for treasury- 28,133 shares (176) Common Stock sold under stock option and Employees' Stock Purchase Plan - 5,157 shares 15 11 Net loss for the year (52,179) Minimum pension liability adjustment 214 Adjustment for purchase of shares subject to put option (103) BALANCE AT DECEMBER 30, 1995 41,588 2,206 131,618 2,447 (4,116) (55,453) Common Stock acquired for treasury- 5,749 shares (32) Common Stock sold under stock option and Employees' Stock Purchase Plan - 14,027 shares 42 15 Common Stock subscribed - 449,300 shares $1,348 842 $(2,190) Net loss for the year (11,213) Minimum pension liability adjustment 1,448 BALANCE AT DECEMBER 28, 1996 $41,630 $2,206 $1,348 $132,475 $(2,190) $ (8,766) $(2,668) $(55,485) See notes to consolidated financial statements.
DIXIE YARNS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Dixie Yarns, Inc. and its wholly-owned subsidiaries (the "Company"). Significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Equivalents: Highly liquid investments with original maturities of three months or less when purchased are reported as cash equivalents. Credit and Market Risk: The Company sells floorcovering and textile/apparel products to a wide variety of manufacturers and retailers located primarily throughout the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. An allowance for doubtful accounts is maintained at a level which management believes is sufficient to cover potential credit losses including potential losses on receivables sold (see Note C). The Company invests its excess cash in short-term investments and has not experienced any losses on those investments. Inventories: Substantially all inventories are stated at cost determined by the last-in, first-out (LIFO) method, which is less than market. The reduction of certain inventory quantities resulted in liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years. The effect of these reductions was to decrease the net losses for 1996, 1995, and 1994 by approximately $4,909 ($.44 per share), $750 ($.06 per share), and $670 ($.05 per share), respectively. The 1996 effect includes $3,195 ($.29 per share) relating to inventory reductions resulting from the sale of the Company's thread business. Inventories are summarized as follows: 1996 1995 At current cost: Raw materials $ 20,276 $ 21,012 Work-in-process 26,294 24,441 Finished goods 54,109 73,314 Supplies, repair parts and other 4,000 6,772 104,679 125,539 Excess of current cost over LIFO value (11,453) (22,286) Total inventories $ 93,226 $103,253 Property, Plant and Equipment: Property, plant and equipment is stated at the lower of cost or impaired value. Provision for depreciation and amortization of property, plant and equipment has been computed for financial reporting purposes using the straight-line method over the estimated useful lives of the related assets, ranging from 10 to 40 years for buildings and improvements, and 3 to 10 years for machinery and equipment. Applicable statutory recovery methods are used for tax purposes. Depreciation and amortization of property, plant and equipment for financial reporting purposes totaled $26,893 in 1996, $33,545 in 1995, and $32,679 in 1994. Intangible Assets: The excess of the purchase price over the fair market value of identifiable net assets acquired in business combinations is recorded as goodwill and is amortized using the straight-line method over 40 years. Impairment of Assets: In 1995, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The Statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets. There was no material effect on the financial statements from the adoption because the Company's prior impairment recognition practice was consistent with the major provisions of the Statement. Under provisions of the Statement, impairment losses are recognized when expected future cash flows are less than the assets' carrying value. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of property, plant, and equipment and intangibles in relation to the operating performance and estimated future undiscounted cash flows of the underlying business. The Company adjusts the net book value of the underlying assets if the sum of expected future cash flows is less than book value. Stock Based Compensation: During 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". The Company grants stock options for a fixed number of shares to employees with an exercise price equal to or greater than the fair value of the shares at the date of grant. As permitted under Statement No. 123, the Company continues to account for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and accordingly, recognizes no compensation expense for the stock option grants. Earnings per Share: Primary earnings per common and common equivalent share is computed using the weighted average number of shares of Common Stock outstanding and includes the effects of the assumed conversion of Class B Common Stock and the potentially dilutive effects of the exercise of stock options. Fully-diluted earnings per share reflect the maximum potential dilution of per share earnings which would have occurred assuming, if dilutive, the exercise of stock options and the conversion of the subordinated debentures. Such effects were anti-dilutive for 1996, 1995 and 1994 and, accordingly, were excluded from per share computations. Revenue Recognition: The Company recognizes revenue for goods sold at the time title passes to the customer. Reclassifications: Certain amounts for 1995 and 1994 have been reclassified to conform with the 1996 presentation. NOTE B - SALE OF THE COMPANY'S THREAD BUSINESS On June 3, 1996, the Company sold substantially all of the property, plant and equipment, raw material and in-process inventories, and certain other assets related to its thread business to American & Efird, Inc. for $27,157 cash (including $1,500 held in escrow). Under the terms of the asset purchase agreement: (i) greige and finished thread inventories were retained by the Company and held for purchase by American & Efird to service the acquired business; (ii) the Company's branded thread product lines were to be continued until the earlier of six months or all such inventories were purchased from the Company; and (iii) the Company is prohibited from competing in the thread business for a period of five years. Accounts receivable associated with the Company's thread business were retained. From June 3, 1996, through the end of the fiscal year, net proceeds related to the disposition of the Company's thread business were approximately $53,694, including the collection of substantially all of the accounts receivable and the sale of approximately seventy percent of the unit volumes of inventories retained by the Company. During 1996, operations of the thread business generated sales of $53,034, including $12,483 subsequent to June 3, 1996 related to inventories retained by the Company. The Company's results included operating losses of the thread business of $369 during 1996. The Company recorded $5,154 of costs to exit the thread business. Included in the exit costs were $3,867 relating to 63 selling and administrative associates receiving termination benefits and approximately 700 wage associates receiving excess benefits under a pre-existing pension plan. At December 28, 1996, $328 remains accrued. Also included were other exit costs of $1,287 consisting primarily of contractual support expenses under the sales agreement and non-fixed asset valuation losses. At December 28, 1996, $148 remains accrued. These costs were classified in "Other expense-net" in the Company's consolidated statements of operations. NOTE C--SALE OF ACCOUNTS RECEIVABLE On October 15, 1993, the Company entered into a seven-year agreement and sold a $45,000 undivided interest in a revolving pool of its trade accounts receivable. No further interest has been sold under this agreement subsequent to the original sale. At December 28, 1996 and December 30, 1995, the $45,000 interest sold is reflected as a reduction of accounts receivable in the Company's consolidated balance sheets. Costs of this program were fixed at 6.08% per annum on the amount of the interest sold plus administrative fees typical in such transactions. These costs, which were approximately $2,948 for 1996, $2,998 for 1995 and $2,983 for 1994 are included in other expense - net. In addition, the Company is generally at risk for credit losses associated with sold receivables and provides for such in the Company's financial statements. NOTE D--ACCRUED EXPENSES Accrued expenses include the following: 1996 1995 Compensation and benefits $ 10,263 $ 10,148 Interest expense 2,708 3,364 NOTE E--LONG-TERM DEBT AND CREDIT ARRANGEMENTS Long-term debt consists of the following: 1996 1995 Senior indebtedness: Credit line borrowings $ 28,314 $ 88,394 Term loan 7,500 10,000 Other 863 1,160 Total senior indebtedness 36,677 99,554 Less current portion (2,641) (2,171) Total long-term senior indebtedness 34,036 97,383 Subordinated notes 50,000 50,000 Convertible subordinated debentures 44,782 44,782 Total long-term debt $128,818 $192,165 The Company's unsecured revolving credit and term loan agreement provides revolving credit of up to $125,000 (reduced for certain significant asset sales) through March of 2000 and a $10,000 term loan payable in quarterly installments of $625 which began in March, 1996. The terms of the agreement provide for a reduction in the revolving credit availability by 50% of the net cash proceeds from certain significant asset sales, but the credit availability cannot be reduced below $90,000. The total reduction of the facility for asset sales through December 28, 1996 was $24,605. Interest rates available under the facility may be selected by the Company from a number of options which effectively allow for borrowing at rates equal to or lower than the greater of the lender's prime rate or the federal funds rate plus .5%. The effective annual interest rate on the revolving credit and term loan agreement was 6.85%, 7.21%, and 4.88% for 1996, 1995, and 1994, respectively. The interest rate on debt outstanding under this agreement was 6.81% at December 28, 1996. Commitment fees, ranging from .25% to .375% per annum on the revolving credit line are payable on the average daily unused balance of the revolving credit facility. At December 28, 1996, unused borrowing capacity under the Company's credit agreements (including amounts available under a $5,000 short-term credit line) was approximately $77,081. The Company's subordinated notes are unsecured, bear interest at 9.96% payable semiannually, and are due in semiannual installments of $2,381 beginning February 1, 2000. The Company's convertible subordinated debentures bear interest at 7% payable semiannually, are due in 2012, and are convertible by the holder into shares of Common Stock of the Company at an effective conversion price of $32.20 per share, subject to adjustment under certain circumstances. The debentures are redeemable at the Company's option through May 15, 1997, in whole or in part, at prices ranging from 102.8% to 100.7% of their principal amount. Mandatory sinking fund payments commencing May 15, 1998 will retire $2,500 principal amount of the debentures annually and approximately 70% of the debentures prior to maturity. The convertible debentures are subordinated in right of payment to all other indebtedness of the Company. The Company's long-term debt and credit arrangements contain financial covenants relating to minimum net worth, the ratio of debt to capitalization, payment of dividends and certain other financial ratios. Under restrictions set forth in the Company's subordinated note agreement, and absent a waiver from the lender or an amendment, future dividends may be paid only to the extent of 75% of the excess of cumulative income, excluding extraordinary items, for periods subsequent to December 28, 1996 above $68,580. Approximate maturities of long-term debt for each of the five years succeeding December 28, 1996 are $2,641 in 1997, $5,143 in 1998, $5,113 in 1999, $35,597 in 2000, and $7,285 in 2001. Interest payments in 1996, 1995, and 1994 were $13,550, $14,852, and $13,408, respectively. NOTE F--FAIR VALUE OF FINANCIAL INSTRUMENTS All of the Company's financial instruments are held or issued for purposes other than trading. The carrying amounts and estimated fair values of the Company's financial instruments are summarized as follows: 1996 1995 Carrying Fair Carrying Fair Amount Value Amount Value Financial assets Cash and cash equivalents $ 1,988 $ 1,988 $ 3,413 $ 3,413 Notes receivable (including current portion) 2,158 2,158 1,059 1,059 Other 1,751 1,751 251 251 Financial liabilities Long-term debt (including current portion) $131,460 $123,295 $194,336 $183,559 The carrying amounts of cash and cash equivalents approximate fair values due to the short-term maturity of these instruments. The carrying amounts of notes receivable approximate fair values due to the short-term maturity and adjustable interest rate provision of these instruments. Other current assets include amounts held in escrow from asset sales, and the carrying values of such amounts approximate fair values due to the estimated short- term maturity of these contracts. The fair values of the Company's long- term debt were estimated using discounted cash flow analyses based on incremental borrowing rates for similar types of borrowing arrangements and quoted market rates for the Company's convertible debentures. NOTE G--PENSION PLANS The Company has defined benefit and defined contribution pension plans which cover essentially all associates. Benefits for associates participating in the defined benefit plans are based on years of service and compensation during the period of participation. Plan assets consist primarily of cash equivalents and publicly traded stocks and bonds. All accrued benefits under the Company's largest defined benefit plan became fully vested and were frozen at December 24, 1993, and participants became eligible to participate in a 401(k) defined contribution plan. A portion of these accrued benefits have been settled through lump sum payments. Losses from settlements (excluding losses related to the sale of the Company's thread business, see Note B) were $772, $1,209, and $1,575 during 1996, 1995, and 1994, respectively. The Company's practice is to fund its defined benefit plans in accordance with minimum contribution requirements of the Employee Retirement Income Security Act of 1974. Costs of the defined contribution plans are based on several factors including each participant's compensation, the operating performance of the Company and matching Company contributions. The net periodic pension cost of all plans included the following components: 1996 1995 1994 Defined benefit plans: Service cost $ 42 $ 30 $ 31 Interest cost 1,464 1,434 1,694 Actual return on plan assets (1,788) (3,305) 204 Other components 1,748 3,382 116 1,466 1,541 2,045 Defined contribution plans 2,009 1,715 1,764 Net periodic pension cost $ 3,475 $ 3,256 $3,809 The following table sets forth the funded status of the Company's defined benefit retirement plans and related amounts included in the Company's consolidated balance sheets: 1996 1995 Actuarial present value of benefit obligations: Vested benefits $ 14,727 $ 21,003 Nonvested benefits 27 6 Accumulated benefit obligations $ 14,754 $ 21,009 Plan assets at fair value $ 10,941 $ 14,932 Projected benefit obligation (14,754) (21,009) Projected benefit obligation in excess of plan assets (3,813) (6,077) Unrecognized net loss 4,373 6,747 Adjustment to recognize minimum liability (4,373) (6,747) Pension related liability included in the consolidated balance sheets $ (3,813) $ (6,077) In accordance with the provisions of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," the Company has recorded an additional minimum liability representing the excess of the accumulated benefit obligation over the fair value of plan assets and accrued pension liability. This additional liability, net of the related income tax benefit, reduced stockholders' equity by $2,668 at December 28, 1996 and $4,116 at December 30, 1995. The weighted average discount rate used in determining the projected benefit obligation was 7.0% for 1996 and 1995, and 8.0% for 1994. There has been no increase in future compensation levels assumed due to the freezing of benefits in 1993. The assumed long-term rate of return on plan assets was 8.5% for each year presented. NOTE H--INCOME TAXES The provision (benefit) for income tax on income (loss) from continuing operations consists of the following: 1996 1995 1994 Current Deferred Current Deferred Current Deferred Federal $ (158) $(3,603) $(1,825) $ (9,586) $(2,590) $(6,476) State 1,223 (1,792) 748 (1,830) 1,282 (934) Total $1,065 $(5,395) $(1,077) $(11,416) $(1,308) $(7,410) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases of those assets and liabilities. Significant components of the Company's deferred tax liabilities and assets are as follows: Deferred Tax Liabilities: 1996 1995 Property, plant and equipment $28,042 $37,300 Inventories 3,404 4,107 Intangible assets 972 1,425 Other 3,016 3,718 Total deferred tax liabilities 35,434 46,550 Deferred Tax Assets: Post-retirement benefits 3,150 3,460 Other employee benefits 2,276 2,814 Alternative minimum tax 5,739 4,305 Allowances for bad debts, claims and discounts 2,749 2,472 Net operating loss carryforward --- 4,183 Other 1,366 2,179 Valuation reserve --- --- Total deferred tax assets 15,280 19,413 Net deferred tax liabilities $20,154 $27,137 Differences between the benefit for income taxes and the amount computed by applying the statutory Federal income tax rate to loss from continuing operations are reconciled as follows: 1996 1995 1994 Statutory rate applied to loss from continuing operations $(5,285) $(21,988) $(4,181) Plus state income taxes net of Federal tax provision (benefit) (375) (714) 226 Total statutory benefit (5,660) (22,702) (3,955) Increase(decrease) attributable to: Nondeductible amortization and impairment of intangible assets 1,020 9,816 634 Nondeductible portion of travel and entertainment 193 267 268 Nontaxable life insurance gain --- --- (4,492) Capital loss carryback benefit --- --- (1,200) Other items 117 126 27 Total tax benefit $(4,330) $(12,493) $(8,718) Income tax payments, net of income tax refunds received, were $1,677 and $2,645 in 1996 and 1994, respectively. Income tax refunds received, net of income tax payments, were $1,072 in 1995. NOTE I--COMMON STOCK Holders of Class B Common Stock have the right to twenty votes per share on matters that are submitted to Shareholders for approval and to dividends in an amount not greater than dividends declared and paid on Common Stock. Class B Common Stock is restricted as to transferability and may be converted into Common Stock on a one share for one share basis. The Company's Charter authorizes 200,000,000 shares of Class C Common Stock, $3 par value per share, and 16,000,000 shares of Preferred Stock. No shares of Class C Common Stock or Preferred Stock have been issued. In August 1996, the Company's Board of Directors adopted a stock ownership plan applicable to the senior management of the Company for the purpose of encouraging each participant to make a significant investment in the Company's Common Stock. Pursuant to the plan, in September 1996, the Company entered into stock subscription agreements with seven of the Company's senior executive officers for the purchase of an aggregate of 449,300 shares at a price of $4.875 per share. NOTE J--STOCK PLANS The Company's 1990 Incentive Stock Plan reserves 1,770,000 shares of Common Stock (including 1,000,000 shares approved by the Board of Directors and recommended to the shareholders for approval at the annual meeting) for sale or award to key associates under stock options, stock appreciation rights, restricted stock performance grants, or other awards. The Board of Directors has also approved and recommended to the shareholders for approval certain amendments to the Plan which would allow for the granting of stock options or other awards to the outside directors of the Company. Outstanding options are exercisable at a cumulative rate of 25% per year after the second year from the date the options are granted. Options outstanding were granted at prices at or above market price on the date of grant and include grants under the 1983 Incentive Stock Plan, under which no further options may be granted. At December 28, 1996 no options remain outstanding under the 1983 plan. On May 4,1995, the Board of Directors acted, effective as of such date, to reprice outstanding options granted prior to 1995 under the Company's 1990 Incentive Stock Plan. Options to purchase 516,000 shares of the Company's Common Stock, originally granted at prices ranging from $10.25 to $15.25 per share, were amended to provide for a revised exercise price of $8.00 per share, which was above the market price of $6.25 per share on the effective date of the amendment. The expiration date of the repriced options was also amended to provide for a new ten-year term commencing on May 4, 1995, under which the options become exercisable at a cumulative rate of 25% per year beginning on May 4, 1997. In 1993, the Company issued options for the purchase of 83,044 shares of Common Stock, which were immediately exercisable at prices ranging from $3.19 - $5.27 per share, in connection with the acquisition of Carriage Industries, Inc. A summary of the option activity for 1995 and 1994 is as follows: Number of Option Price Shares Per Share Outstanding at December 25, 1993 700,257 $ 3.19 - $30.75 Granted 10,000 10.25 Exercised (1,529) 4.29 - 5.03 Cancelled (90,412) 10.75 - 30.75 Outstanding at December 31, 1994 618,316 3.19 - 19.50 Granted 716,000 6.50 - 8.00 Exercised (3,057) 3.43 - 5.03 Cancelled (561,500) 8.00 - 17.00 Outstanding at December 30, 1995 769,759 $ 3.19 - $19.50 A summary of the 1996 option activity is as follows: Weighted- Weighted- Average Number Average Fair Value of of Exercise Options Granted Shares Price During the Year Outstanding at December 30, 1995 769,759 $ 7.74 Granted at market price 532,500 5.49 $2.61 Granted above market price 85,000 6.33 2.57 Exercised (12,227) 3.96 Forfeited (111,190) 7.55 Expired (4,000) 19.50 Outstanding at December 28, 1996 1,259,842 $ 6.71 Options exercisable at December 28, 1996 45,342 $ 4.85 The following table summarizes information about stock options outstanding at December 28, 1996: Options Weighted-Average Range of Outstanding at Remaining Weighted-Average Exercise Prices December 28, 1996 Contractual Life Exercise Price $3.43 - $4.29 28,755 6.3 years $4.03 4.88 - 5.75 549,087 9.6 5.51 6.33 - 8.00 682,000 8.5 7.79 Options Range of Exercisable at Weighted-Average Exercise Prices December 28, 1996 Exercise Price $3.43 - $4.29 13,755 $4.07 4.88 - 5.75 31,587 5.19 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1996 Grants Expected life 5 years Expected volatility 44.3% Risk-free interest rate 6.38% Dividend yield 0% Pro forma information reflecting the effect of applying the fair value method to the Company's accounting for stock option grants has not been presented because such effect is not materially different from amounts reported. The Company also has a stock purchase plan which authorizes 108,000 shares of Common Stock for purchase by supervisory associates at the market price prevailing at the time of purchase. At December 28, 1996, 64,280 shares remained available for issue. Shares sold under this plan are held in escrow until paid for and are subject to repurchase agreements which give the Company the right of first refusal at the prevailing market price. Numbers of shares sold under the plan were 1,800 in 1996, 2,100 in 1995, and 3,880 in 1994. NOTE K--ASSET VALUATION LOSSES Asset valuation losses of $18,995 ($13,074, after taxes), $63,425 ($51,058, after taxes), and $10,397 ($6,446, after taxes) were recorded in 1996, 1995, and 1994, respectively. The losses recorded in 1996 consisted of $14,297 related to a write-down of the Company's Tarboro textile spinning operation to its estimated net recoverable value following the Company's decision to exit this business and hold the facility for sale. Losses relating to Tarboro operations of $4,304, excluding the write-down described above, were included in the Company's textile segment results for 1996. Additional losses of $4,698 consisted primarily of write-downs of fixed assets and related intangibles where expected future cash flows are less than the assets' carrying value. Included in the 1996 asset valuation losses are $3,395 related to intangibles. Asset valuation losses recorded in 1995 included a $41,480 loss to adjust the assets of the Company's thread business to their estimated fair market value following an agreement in principle to sell the assets. Additional 1995 asset valuation losses of $17,988 in the Company's textile business related to a plant sold in 1995, equipment write-downs and the consolidation of certain facilities. The floorcovering segment included losses of $3,957 primarily related to the write-down of equipment utilized for a product line to be discontinued. The asset valuation losses in 1994 of $10,397 related to idle facilities and machinery and equipment permanently taken out of service during the year. NOTE L--RESTRUCTURING AND EXIT COSTS At December 28, 1996, the financial statements included $1,311 of accrued costs associated with the exit of two product lines in the Company's floorcovering business and consolidations of facilities in both the floorcovering and textile/apparel businesses. Included in the accrual were $600 associated with involuntary termination benefits related to 40 production associates and 29 sales, administrative or distribution associates. These costs were classified in "Selling and administrative expenses" in the Company's financial statements. Additional costs that were incremental and directly attributable to the exit and consolidations totaling $711 were recorded in 1996. These costs primarily relate to inventory devaluations and impairment of current assets associated with discontinued product lines and clean up costs related to a facility idled in a consolidation. Of these costs, $326 were classified in "Cost of sales" and $385 were classified in "Other expense - net" in the Company's financial statements. NOTE M--LIFE INSURANCE GAIN The Company recorded a nontaxable gain of $12,835 in the fourth quarter of 1994 from the receipt of insurance proceeds on the life of the former Chairman of Carriage Industries, Inc. NOTE N--CASUALTY DAMAGE During 1994 and 1993, certain of the Company's manufacturing facilities were damaged or destroyed by weather-related casualties and a fire. By the end of 1994, all of the damaged facilities were either replaced, repaired or their production capacities consolidated into other manufacturing facilities, and all costs associated with the casualties had been recorded. Each damaged facility was covered by insurance. Insurance benefits recognized by the Company amounted to $5,148 in 1995 and $10,068 in 1994. The 1995 amount is included in other income in the financial statements. Casualty insurance benefits exceeded the carrying amounts of the destroyed assets and cost to repair damaged assets by $8,210 in 1994, and is reflected in the financial statements as a reduction to cost of sales of $7,941 and as other income of $269. NOTE O--COMMITMENTS The Company had outstanding commitments for purchases of machinery and equipment and for building construction of approximately $4,827 at December 28, 1996. NOTE P--INDUSTRY SEGMENT INFORMATION The Company operates in two industry segments: floorcovering and textile/apparel. Floorcovering includes carpet for manufactured housing, recreational vehicles, high-end residential and commercial markets, rugs and yarns. Textile/apparel includes yarns, knit fabrics and apparel. Net Sales Operating Profit(Loss)(1) 1996 1995 1994 1996 1995 1994 Business Segments: Floorcovering $366,431 $361,520 $353,960 $ 23,584 $ 20,213 $ 28,117 Textile/apparel 251,968 313,697 332,482 (20,166) (63,958) (33,039) Intersegment elimination (3,318) (4,375) (3,583) 18 (3) --- Total Segment $615,081 $670,842 $682,859 3,436 (43,748) (4,922) Interest expense 13,000 15,591 13,748 Corporate expenses 6,156 5,444 5,915 Life insurance gain --- --- (12,835) Other (income) expense - net (177) (111) 195 Consolidated loss before income taxes $(15,543) $(64,672) $(11,945) Identifiable Capital Assets at Year End Expenditures 1996 1995 1994 1996 1995 1994 Business Segments: Floorcovering $185,071 $189,208 $205,444 $11,016 $19,591 $21,912 Textile/apparel 129,692 192,134 265,932 5,539 10,222 9,673 Corporate 13,372 15,655 16,944 1,079 453 1,089 Total $328,135 $396,997 $488,320 $17,634 $30,266 $32,674 Depreciation and Amortization 1996 1995 1994 Business Segments: Floorcovering $13,847 $13,988 $12,193 Textile/apparel 13,802 21,444 22,460 Corporate 546 548 546 Total $28,195 $35,980 $35,199 (1) Operating profit (loss) on a segment basis includes (income) expense related to casualty insurance (gains) losses and asset valuation losses which were recognized as follows: 1996 1995 1994 Floorcovering $ 1,136 $ (91) $(4,015) Textile/apparel 17,609 58,468 14,143 NOTE Q--SUBSEQUENT EVENT In early 1997, the Company acquired the assets and business of Danube Carpet Mills, Inc., a manufacturer of carpet for the manufactured housing, recreational vehicle and van conversion industries for $18,154 cash. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS DIXIE YARNS, INC. AND SUBSIDIARIES (dollars in thousands)
COL. A COL. B COL. C COL. D COL. E ADDITIONS (1) (2) DESCRIPTION Balance at Charged to Charged to Deductions- Balance at Beginning of Costs and Other Accounts Describe End of Period Period Expenses -Describe Year ended December 28, 1996: Reserves deducted from asset accounts: Allowance for doubtful accounts $ 3,156 $ 1,538 $-0- $ 1,080 (2) $ 3,614 Provision to reduce inventories to net realizable value 9,668 -0- -0- 2,322 (3) 7,346 Provision to reduce assets held for sale to estimated fair market value 23,005 13,425 -0- 17,866 (4) 18,564 Year ended December 30, 1995: Reserves deducted from asset accounts: Allowance for doubtful accounts $ 3,617 $ 1,259 $-0- $ 1,720 (2) $ 3,156 Provision to reduce inventories to net realizable value 10,052 -0- -0- 384 (3) 9,668 Provision to reduce assets held for sale to estimated fair market value 1,999 21,006 -0- -0- 23,005
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS DIXIE YARNS, INC. AND SUBSIDIARIES (dollars in thousands)
COL. A COL. B COL. C COL. D COL. E ADDITIONS (1) (2) DESCRIPTION Balance at Charged to Charged to Deductions- Balance at Beginning of Costs and Other Accounts Describe End of Period Period Expenses -Describe Year ended December 31, 1994: Reserves deducted from asset accounts: Allowance for doubtful accounts $ 3,900 $ 829 $605 (1) $ 1,717 (2) $ 3,617 Provision to reduce inventories to net realizable value 7,337 1,802 (3) 913 (1) -0- 10,052 Provision to reduce assets held for sale to estimated fair market value -0- 1,999 -0- -0- 1,999 (1) Increase in reserves in connection with business combinations. (2) Uncollectible accounts written off, net of recoveries. (3) Provision for current items net of reductions for previous items. (4) Reserve reductions for assets sold.
ANNUAL REPORT ON FORM 10-K ITEM 14 (c) EXHIBITS YEAR ENDED DECEMBER 28, 1996 DIXIE YARNS, INC. CHATTANOOGA, TENNESSEE Exhibit Index EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (3a) Restated Charter of Dixie Incorporated by reference to Yarns, Inc. Exhibit (3a) to Dixie's Annual Report on Form 10-K for the year ended December 30, 1989.* (3b) Amended and Restated By- Incorporated by reference to Laws of Dixie Yarns, Inc. Exhibits (3b) and (3c) to Dixie's Annual Report on Form 10-K for the year ended December 29, 1990.* (4a) Second Amended and Restated Incorporated by reference to Revolving Credit and Term Exhibit (4a) to Dixie's Annual Loan Agreement, dated Report on Form 10-K for the January 31, 1992, by and year ended December 28, 1991.* among Dixie Yarns, Inc. and Trust Company Bank, NationsBank of North Carolina, N.A. and Chemical Bank. (4b) Loan Agreement, dated Incorporated by reference to February 6, 1990 between Exhibit (4d) to Dixie's Annual Dixie Yarns, Inc. and New Report on Form 10-K for the York Life Insurance Company year ended December 30, 1989.* and New York Life Annuity Corporation. (4c) Form of Indenture, dated Incorporated by reference to May 15, 1987 between Dixie Exhibit 4.2 to Amendment No. 1 Yarns, Inc. and Morgan of Dixie's Registration Guaranty Trust Company of Statement No. 33-140 78 on Form New York as Trustee. S-3, dated May 19, 1987. * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (4d) Revolving Credit Loan Incorporated by reference to Agreement dated as of Exhibit (4d) to Dixie's Annual September 16, 1991 by Report on Form 10-K for the and among Ti-Caro, Inc. and year ended December 28, 1991.* Trust Company Bank, individually and as agent, NCNB National Bank, and Chemical Bank. (4e) First Amendment to Revolving Incorporated by reference to Credit Loan Agreement dated Exhibit (4e) to Dixie's Annual as of August 19, 1992 by and Report on form 10-K for the among Ti-Caro, Inc., T-C year ended December 26, 1992.* Threads, Inc. and Trust Company Bank, individually and as agent, NCNB National Bank, and Chemical Bank. (4f) First Amendment, dated Incorporated by reference to August 25, 1993 to Second Exhibit (4f) to Dixie's Annual Amended and Restated Report on form 10-K for the year Revolving Credit and Term ended December 25, 1993.* Loan Agreement dated January 31, 1992, by and among Dixie Yarns, Inc. and Trust Company Bank, NationsBank of North Carolina, N.A. and Chemical Bank. (4g) Third Amended and Restated Incorporated by reference to Credit Agreement dated Exhibit (4) to Dixie's Quarterly March 31, 1995. Report on Form 10-Q for the quarter ended April 1, 1995.* (4h) Waiver and First Amendment Incorporated by reference to to Credit Agreement dated Exhibit (4h) to Dixie's Annual February 27, 1996. Report on Form 10-K for the year ended December 30, 1995.* (4i) Waiver and Modification Filed herewith. Agreement dated November 1, 1996. (4j) Waiver Letter dated Filed herewith. December 13, 1996. (10a) Dixie Yarns, Inc. Incentive Filed herewith. Stock Plan as amended. * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (10b) Form of Stock Option Filed herewith. Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan as amended. (10c) Dixie Yarns, Inc. Nonquali- Incorporated by reference to fied Defined Contribution Exhibit (10c) to Dixie's Annual Plan. Report on form 10-K for the year ended December 26, 1992.* (10d) Dixie Yarns, Inc. Nonquali- Incorporated by reference to fied Employee Savings Plan. Exhibit (10d) to Dixie's Annual Report on form 10-K for the year ended December 26, 1992.* (10e) Dixie Yarns, Inc. Incentive Incorporated by reference to Compensation Plan. Exhibit (10e) to Dixie's Annual Report on form 10-K for the year ended December 26, 1992.* (10f) Asset Transfer and Restruc- Incorporated by reference to turing Agreement dated Exhibit (2a) to Dixie's Current July 9, 1993, by and among Report on Form 8-K dated Dixie Yarns, Inc., Masland July 9, 1993.* Carpets, Inc., individual management investors of Masland Carpets, Inc., The Prudential Insurance Company of America and Pruco Life Insurance Company. (10g) Assignment and Bill of Sale Incorporated by reference to dated July 9, 1993, by and Exhibit (2b) to Dixie's Current between Dixie Yarns, Inc. Report on Form 8-K dated July 9, and Masland Carpets, Inc. 1993.* (10h) Assignment and Assumption Incorporated by reference to Agreement dated July 9, 1993, Exhibit (2c) to Dixie's Current by and between Dixie Yarns, Report on Form 8-K dated July 9, Inc. and Masland Carpets, 1993.* Inc. (10i) Stock Rights and Restrictions Incorporated by reference to Agreement dated July 9, 1993, Exhibit (2d) to Dixie's Current by and among Dixie Yarns, Report on Form 8-K dated July 9, Inc., Masland Carpets, Inc., 1993.* The Prudential Insurance Company of America and Pruco Life Insurance Company. * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (10j) Pooling and Servicing Incorporated by reference to Agreement dated as of Exhibit (2a) to Dixie's October 15, 1993, among Current Report on Form 8-K Dixie Yarns, Inc., Dixie dated October 15, 1993.* Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee). (10k) Annex X - Definitions, to Incorporated by reference to Pooling and Servicing Exhibit (2b) to Dixie's Agreement dated as of Current Report on Form 8-K October 15, 1993, among dated October 15, 1993.* Dixie Yarns, Inc., Dixie Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee). (10l) Series 1993-1 Supplement, Incorporated by reference to dated as of October 15, Exhibit (2c) to Dixie's 1993, to Pooling and Current Report on Form 8-K Servicing Agreement dated as dated October 15, 1993.* of October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee). (10m) Certificate Purchase Incorporated by reference to Agreement dated October 15, Exhibit (2d) to Dixie's 1993, among Dixie Yarns, Current Report on Form 8-K Inc., Dixie Funding, Inc. dated October 15, 1993.* and New York Life Insurance and Annuity Corporation. (10n) Certificate Purchase Incorporated by reference to Agreement dated October 15, Exhibit (2e) to Dixie's 1993, among Dixie Yarns, Current Report on Form 8-K Inc., Dixie Funding, Inc. dated October 15, 1993.* and John Alden Life Insurance Company. (10o) Certificate Purchase Incorporated by reference to Agreement dated October 15, Exhibit (2f) to Dixie's 1993, among Dixie Yarns, Current Report on Form 8-K Inc., Dixie Funding, Inc. dated October 15, 1993.* and John Alden Life Insurance Company of New York. * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (10p) Certificate Purchase Incorporated by reference to Agreement dated October 15, Exhibit (2g) to Dixie's 1993, among Dixie Yarns, Current Report on Form 8-K Inc., Dixie Funding, Inc. dated October 15, 1993.* and Keyport Life Insurance Company. (10q) Form of Nonqualified Stock Incorporated by reference to Option Agreement Under the Exhibit (10a) to Dixie's Quarterly Dixie Yarns, Inc. Incentive Report on Form 10-Q for the Stock Plan. quarter ended July 1, 1995.* (10r) Form of Amendment to Incorporated by reference to Nonqualified Stock Option Exhibit (10b) to Dixie's Quarterly Agreement Under the Dixie Report on Form 10-Q for the Yarns, Inc. Incentive Stock quarter ended July 1, 1995.* Plan. (10s) Asset Purchase Agreement Incorporated by reference to dated May 23, 1996, by and Exhibit (2a) to Dixie's Current among T-C Threads, Inc. Report on Form 8-K dated d/b/a Threads USA, Threads June 3, 1996.* of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10t) Amendment, dated May 31, Incorporated by reference to 1996, to Asset Purchase Exhibit (2b) to Dixie's Current Agreement dated May 23, Report on Form 8-K dated 1996, by and among T-C June 3, 1996.* Threads, Inc. d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (10u) Second Amendment, dated Incorporated by reference to June 3, 1996, to Asset Exhibit (2c) to Dixie's Current Purchase Agreement dated Report on Form 8-K dated May 23, 1996, by and among June 3, 1996.* T-C Threads, Inc., d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10v) Yarn and Finished Goods Incorporated by reference to Agreement dated as of Exhibit (2d) to Dixie's Current June 3, 1996, by and among Report on Form 8-K dated T-C Threads, Inc. d/b/a June 3, 1996.* Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10w) Accounts Receivable Incorporated by reference to Agreement dated as of Exhibit (2e) to Dixie's Current June 3, 1996, by and among Report on Form 8-K dated T-C Threads, Inc. d/b/a June 3, 1996.* Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10x) Noncompetition Agreement Incorporated by reference to dated as of June 3, 1996, by Exhibit (2f) to Dixie's Current and among T-C Threads, Inc. Report on Form 8-K dated d/b/a Threads USA, Threads June 3, 1996.* of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (10y) Dixie Yarns, Inc. Stock Filed herewith. Ownership Plan as amended. (11) Statement re: Computation Filed herewith. of Earnings Per Share. (21) Subsidiaries of the Filed herewith. Registrant. (23) Consent of Ernst & Young LLP. Filed herewith. *Commission File No. 0-2585 EX-4.I 2 EXHIBIT (4i) WAIVER AND MODIFICATION AGREEMENT DATED NOVEMBER 1, 1996 To SunTrust Bank, Atlanta, as Agent and each of the Lenders party to the Credit Agreement described below Re: Credit Facility from SunTrust Bank, Atlanta, individually and as Agent, NationsBank, N.A., individually and a Lead Manager and Chemical Bank to Dixie Yarns, Inc. Ladies and Gentlemen: Reference is hereby made to that certain Third Amended and Restated Credit Agreement, dated as of March 31, 1995, by and among SunTrust Bank, Atlanta, individually and as Agent (in such capacity, the "Agent"), and each of the other financial institutions listed above (collectively referred to herein as the "Lenders") and Dixie Yarns, Inc., a Tennessee corporation (the "Borrower") (as heretofore amended or modified, the "Credit Agreement"). All terms used herein without definition shall have the meanings ascribed to such terms in the Credit Agreement. Pursuant to Section 9.03(b) of the Credit Agreement, the Borrower is prohibited from making certain Investments in its Subsidiaries which Investments exceed $10,000,000 at any one time outstanding after the Closing Date. The Borrower has requested that the Lenders waive the restrictions of Section 9.03(b) in order to allow the Borrower to contribute certain assets and liabilities with such assets having a book value not exceeding $30,000,000 to one or more wholly-owned Subsidiaries of the Borrower described on the attachment hereto, with such Subsidiary or Subsidiaries to assume expressly such accompanying liabilities (the "Transaction"). Each of the Lenders, by its signature below, hereby consents to the Transaction upon the express understanding that (i) no Default or Event of Default will exist under the Credit Agreement either before or after giving effect thereto, (ii) this letter agreement shall not be deemed to constitute a consent to any further transfer of such assets, (iii) each Subsidiary is in compliance with Section 9.02 of the Credit Agreement and any Intercompany notes or Subsidiary Note Assignments required to be executed by such Subsidiary pursuant to the Credit Agreement are promptly executed and delivered to the Agent. In addition, the Lenders, the Agent and the Borrower hereby agree that Schedule 9.03(b) to the Credit Agreement is modified to add the information set forth on Schedule 1 attached hereto thereto simultaneously with any such transfer, with the result that the Investment described above shall not be included for purposes of calculating compliance with the $10,000,000 limit set forth in Section 9.03(b). This letter agreement constitutes the entire understanding of the parties with respect to the subject matter hereof, and any other prior or contemporaneous agreements, whether written or oral, with respect thereto are expressly superseded hereby. This letter agreement is governed by the laws of the State of Georgia and shall inure to the benefit of, and be binding upon, the successors and assigns of the Agent, the Lenders and the Borrower. This letter agreement shall be deemed to be effective when an executed counterpart is received by the Agent from the Borrower and the Required Lenders. Very truly yours, DIXIE YARNS, INC. By: Gary A. Harmon Title: Treasurer ACCEPTED AND AGREED AS OF THE DATE FIRST ABOVE WRITTEN: SUNTRUST BANK, ATLANTA, individually and as Agent By: C. Wes Burton, Jr. Title: Vice President By: Thomas R. Banks Title: Banking Officer NATIONSBANK, N.A. By: E. Phifer Helms Title: Senior Vice President CHEMICAL BANK By: Peter C. Eckstein Title: Vice President SCHEDULE 1 Additional Permitted Investments in Subsidiaries Name of Subsidiary Amount of Investment Caro Knit Incorporated: Investment - October 1, 1996 $ 7,597,195 Investment - November 6, 1996 6,856,555 Total Caro Knit Incorporated $14,453,750 C-Knit Apparel, Inc. - October 1, 1996 $ 2,363,909* JXM, Inc. (Tarboro Plant) $12,000,000** Total Additional Permitted Investments in Subsidiaries: $28,817,659 *Estimated, will be revised when actual investment is available. **Estimated. Investment is contingent upon possible sale of the Tarboro Plant to a third party. If sale is not made, assets will be contributed. EX-11 3 EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE DIXIE YARNS, INC. AND SUBSIDIARIES (amounts in thousands, except per share data)
Year End December 28, December 30, December 31, 1996 1995 1994 PRIMARY: Net loss $(11,213) $(52,179) $(3,227) SHARES: Weighted average number of common shares outstanding assuming conversion of Class B Common Stock 11,200 11,744 12,249 Net effect of dilutive stock options based on the treasury stock method using average market price --- --- 34 Net effect of put option based on the reverse treasury stock method using average market price --- --- 988 TOTAL SHARES 11,200 11,744 13,271 PER SHARE AMOUNT $ (1.00) $ (4.44) $ (.24) FULLY-DILUTED: Net loss $(11,213) $(52,179) $(3,227) After-tax interest requirement of convertible subordinated debentures (A) --- --- --- ADJUSTED NET LOSS $(11,213) $(52,179) $(3,227) SHARES: Weighted average number of common shares outstanding assuming conversion of Class B Common Stock 11,200 11,744 12,249 Net effect of dilutive stock options based on the treasury stock method using year-end market price if higher than the average market price --- --- 34 Net effect of put option based on the reverse treasury stock method using year-end market price if lower than the average market price --- --- 1,568 Effect of assumed conversion of convertible subordinated debentures(A) --- --- --- TOTAL SHARES 11,200 11,744 13,851 PER SHARE AMOUNT (B) $ (1.00) $ (4.44) $ (.23) A) The assumed conversion of convertible subordinated debentures into 1,391 shares with an after-tax interest requirement of $1,895 for the years ended December 28, 1996, December 30, 1995 and December 31, 1994, has been excluded from the computation since the effect was anti-dilutive. B) Fully diluted earnings per share for 1994 reported as $(.24) due to calculated earnings per share reflecting anti-dilution.
EX-23 4 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-30473) pertaining to the Employee Stock Purchase Plan of Dixie Yarns, Inc., the Registration Statement (Form S-8 No. 33-59564) pertaining to options to acquire Common Stock of Dixie Yarns, Inc. issued in connection with the acquisition of Carriage Industries, Inc., the Registration Statement (Form S-8 No. 33-42615) pertaining to the Incentive Stock Option Plan of Dixie Yarns, Inc., and Post-Effective Amendment Number 2 to the Registration Statements (Form S-8 No. 2-20604 and No. 2-56744) pertaining to the Employee Stock Purchase Plan and Employee Stock Option Plan of Dixie Yarns, Inc. of our report dated February 20, 1997, with respect to the consolidated financial statements and schedule of Dixie Yarns, Inc. included in the Annual Report (Form 10-K) for the year ended December 28, 1996. ERNST & YOUNG LLP Chattanooga, Tennessee March 26, 1997 EX-27 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF DIXIE YARNS, INC. AT AND FOR THE TWELVE MONTHS ENDED DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-28-1996 DEC-28-1996 1,988 0 18,242 3,614 93,226 130,712 338,573 182,797 328,135 58,452 128,818 43,836 0 0 64,714 328,135 615,081 615,081 515,205 515,205 18,995 0 13,000 (15,543) (4,330) (11,213) 0 0 0 (11,213) (1.00) (1.00)
EX-4.J 6 EXHIBIT (4j) WAIVER LETTER DATED DECEMBER 13, 1996 Mr. Gary A. Harmon Treasurer Dixie Yarns, Inc. P O Box 751 Chattanooga, TN 37401 Re: Dixie Yarns, Inc. ("Dixie") 9.96% Senior Subordinated Notes Due February 1, 2010 ("Notes") Dear Mr. Harmon: The Notes, pursuant to the terms of Section 9(G), provide that Dixie shall not permit its consolidated Net Worth to be at any time less than $115,000,000. You have informed all holders of the Notes ("Noteholders") that Dixie proposes to write-down the book value of the property, machinery and related assets of its Tarboro manufacturing facility located in Tarboro, North Carolina ("Tarboro Assets") prior to or simultaneously with the sale of the Tarboro Assets. Due to the terms of such section and the expected effect of the write-down of the Tarboro Assets on the determination of the consolidated Net Worth, it is anticipated that no write-down of the book value of the Tarboro Assets may occur without a waiver by Noteholders of Dixie's compliance with its obligations as set forth in such section. Dixie has requested such a waiver. Pursuant to Dixie's request, New York Life Insurance and Annuity Corporation hereby waives Dixie's compliance with the terms of Section 9(G) of the Notes only to the extent that when computing Net Worth Dixie is not required to take into account the write-down of the book value of the Tarboro Assets; provided further, however, that in the event of a subsequent write-up of the Tarboro Assets as a result of their sale or otherwise, such write-up shall also not be taken into account in the computation of Net Worth. This waiver is not intended to be a waiver of Dixie's compliance with any other terms of the Notes or the Loan Agreement ("Agreement") dated February 6, 1990, executed by Dixie and the Noteholders that are parties thereto in connection with the issuance of the Notes and shall not be construed as a waiver or amendment of any other provisions or sections of the Notes or the Agreement. In all other respects the Notes and the Agreement shall continue in full force and effect. Sincerely, NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION By: Steven M. Benevento Its: Assistant Vice President EX-10.A 7 EXHIBIT (10a) DIXIE YARNS, INC. INCENTIVE STOCK PLAN 1. PURPOSE. The purpose of the Dixie Yarns, Inc. Incentive Stock Plan (the "Plan") is to advance the interests of Dixie Yarns, Inc. and its shareholders by providing incentives to directors of the Company and to certain selected key employees performing services for the Company and its Affiliates (as hereinafter defined) who contribute significantly to the strategic and long-term performance objectives and growth of the Company and its Affiliates (collectively, "Participants"). 2. ADMINISTRATION. The Plan shall be administered solely by the Compensation Committee (the "Committee") of the Board of Directors (the "Board") of the Company as such Committee is from time to time constituted, or by any successor committee that the Board may designate to administer the Plan; provided that if at any time Rule 16b-3 or any successor rule ("Rule 16b-3") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), so permits without adversely affecting the ability of the Plan to comply with the conditions for exemption from Section 16 of the Exchange Act (including for purposes of the Plan any successor provision to such Section) provided by Rule 16b-3, the Committee may delegate the administration of the Plan in whole or in part, on such terms and conditions, and to such person or persons as it may determine in its discretion. Whenever the context in the Plan so permits, any reference to the "Committee" shall include, if applicable, any successor or delegate of the Committee as permitted herein. The membership of the Committee shall be constituted so as to comply at all times with the applicable requirements of Rule 16b-3. In particular, no member of the Committee shall have any present or prior relationship with the Company or any of its Affiliates that would prevent such member from qualifying as a "non-employee director" under Rule 16b-3; provided that, if at any time Rule 16b-3 so permits without adversely affecting the ability of the Plan to comply with its conditions for exemption from Section 16 of the Exchange Act, one or more members of the Committee may cease to be "non-employee directors." Unless the Board should determine for any period that it is not important to the Company for stock options granted under the Plan to be excludable from the $1,000,000 deduction limit of Internal Revenue Code Section 162(m) as "performance-based compensation," the membership of the Committee shall at all times be constituted so that each member of the Committee also qualifies as an "outside director" for purposes of Section 162(m). The Committee has all the powers vested in it by the terms of the Plan set forth herein, such powers to include exclusive authority to select the Participants to be granted awards under the Plan ("Awards"), to determine the type, size and terms of the Award to be made to each individual selected, to modify the terms of any Award that has been granted, to determine the time when Awards will be granted, to establish performance objectives, to make any adjustments necessary or desirable as a result of the granting of Awards to eligible individuals and to prescribe the form of the instruments embodying Awards made under the Plan. The Committee is authorized to interpret the terms of the Plan and the Awards granted under the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations which it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent the Committee deems necessary or desirable to carry it into effect. The Committee may act only by a majority of its members in office, except that the members thereof may authorize any one or more of their members or any officer of the Company to execute and deliver documents or to take any other ministerial action on behalf of the Committee with respect to Awards made or to be made to Plan Participants. No member of the Board or of the Committee, and no officer of the Company, shall be liable for anything done or omitted to be done by him, by any other member of the Board or the Committee, or by any officer of the Company in connection with the performance of duties under the Plan, except for his own willful misconduct or as expressly provided by statute. 3. PARTICIPATION. (a) NON-DIRECTOR PARTICIPANTS. Consistent with the purposes of the Plan, the Committee shall have exclusive power to select the key employees of the Company who may be granted Awards as Participants under the Plan. Eligible individuals shall be selected individually or by groups or categories as determined by the Committee. (b) DIRECTOR PARTICIPANTS. Consistent with the purposes of the Plan, all non-employee directors of the Company shall be eligible to receive Awards in accordance with PARAGRAPH 5(A). Directors who are not employees of the Company shall not be eligible for Awards under the Plan except as provided in PARAGRAPH 5(A). (c) AFFILIATES. The term "Affiliate" means any entity in which the Company has a substantial direct or indirect equity interest, as determined by the Committee. If an Affiliate of the Company wishes to participate in the Plan and its participation shall have been approved by the Board upon the recommendation of the Committee, the board of directors or other governing body of the Affiliate shall adopt a resolution in form and substance satisfactory to the Committee authorizing participation by the Affiliate in the Plan with respect to its key employees (except that, where the Company owns, directly or indirectly, 100% of the equity of any such Affiliate, approval of the Affiliate's participation by the Company's Board shall be sufficient, and no separate approval by the Affiliate's Board of Directors shall be required). An Affiliate participating in the Plan may cease to be a participating company at any time by action of the Board or by action of the board of directors or other governing body of such Affiliate, which latter action shall be effective not earlier than the date of delivery to the Secretary of the Company of a certified copy of a resolution of the Affiliate's board of directors or other governing body taking such action. If the participation in the Plan by an Affiliate shall terminate, such termination shall not relieve it of any obligations theretofore incurred by it under the Plan, except as may be approved by the Committee. 4. AWARDS UNDER THE PLAN. (a) TYPES OF AWARDS. Awards under the Plan may include one or more of the following types, either alone or in any combination thereof: (i) "Stock Options," (ii) "Stock Appreciation Rights," (iii) "Restricted Stock," (iv) "Performance Grants" and (v) any other type of Award deemed by the Committee to be consistent with the purposes of the Plan. Stock Options, which include "Nonqualified Stock Options" and "Incentive Stock Options" or combinations thereof, are rights to purchase Common Stock and stock of any other class into which such shares may thereafter be changed (the "Common Shares"). Nonqualified Stock Options and Incentive Stock Options are subject to the terms, conditions and restrictions specified in PARAGRAPH 5. Stock Appreciation Rights are rights to receive (without payment to the Company) cash, Common Shares, other Company securities (which may include, but need not be limited to, debentures, preferred stock, warrants, securities convertible into Common Shares or other property, and other types of securities including, but not limited to, those of the Company or an Affiliate, or any combination thereof ("Other Company Securities")) or property, or other forms of payment, or any combination thereof, as determined by the Committee, based on the increase in the value of the number of Common Shares specified in the Stock Appreciation Right. Stock Appreciation Rights are subject to the terms, conditions and restrictions specified in PARAGRAPH 6. Shares of Restricted Stock are Common Shares which are issued subject to certain restrictions pursuant to PARAGRAPH 7. Performance Grants are contingent awards subject to the terms, conditions and restrictions described in PARAGRAPH 8, pursuant to which Participants may become entitled to receive cash, Common Shares, Other Company Securities or property, or other forms of payment, or any combination thereof, as determined by the Committee. (b) MAXIMUM NUMBER OF SHARES THAT MAY BE ISSUED. There may be issued under the Plan (as Restricted Stock, in payment of Performance Grants, pursuant to the exercise of Stock Options or Stock Appreciation Rights, or in payment of or pursuant to the exercise of such other Awards as the Committee may determine) an aggregate of not more than 1,770,000 Common Shares, subject to adjustment as provided in PARAGRAPH 15. Common Shares issued pursuant to the Plan may be either authorized but unissued shares, treasury shares, reacquired shares, or any combination thereof. If any Common Shares issued as Restricted Stock or otherwise subject to repurchase or forfeiture rights are reacquired by the Company pursuant to such rights, or if any Award is canceled, terminates or expires unexercised, any Common Shares that would otherwise have been issuable pursuant thereto will be available for issuance under new Awards. (c) ANNUAL LIMITATION ON AWARDS. The Committee shall not grant Awards covering more than a maximum of 100,000 shares in the aggregate (subject to adjustment as provided in PARAGRAPH 15) to any single Participant during any one calendar-year period. (d) RIGHTS WITH RESPECT TO COMMON SHARES AND OTHERS SECURITIES. (i) Unless otherwise determined by the Committee, a Participant to whom an Award of Restricted Stock has been made (or his successor) shall have, after issuance of a certificate for the number of Common Shares awarded and prior to the expiration of the Restricted Period or the earlier repurchase of such Common Shares as herein provided, ownership of such Common Shares, including the right to vote the same and to receive dividends or other distributions made or paid with respect to such Common Shares (provided that such Common Shares, and any new, additional or different shares, or Other Company Securities or property, or other forms of consideration which the Participant may be entitled to receive with respect to such Common Shares as a result of a stock split, stock dividend or any other change in the corporation or capital structure of the Company, shall be subject to the restrictions hereinafter described as determined by the Committee), subject, however, to the options, restrictions and limitations imposed thereon pursuant to the Plan. Notwithstanding the foregoing, a Participant with whom an Award agreement is made to issue Common Shares in the future, shall have no rights as a shareholder with respect to Common Shares related to such agreement until issuance of a certificate to him. (ii) Unless otherwise determined by the Committee, a Participant to whom a grant of Stock Options, Stock Appreciation Rights, Performance Grants or any other Award is made (or his successor) shall have no rights as a shareholder with respect to any Common Shares or as a holder with respect to any other securities, if any, issuable pursuant to any such Award until the date of the issuance to him of a stock certificate or other instrument of ownership representing such Common Shares. Except as provided in PARAGRAPH 15, no adjustment shall be made for dividends, distributions or other rights (whether ordinary or extraordinary, and whether in cash, Securities, other property or other forms of consideration, or any combination thereof) for which the record date is prior to the date such stock certificate or other instrument of ownership is issued. 5. STOCK OPTIONS. The Committee may grant Stock Options either alone, or in conjunction with Stock Appreciation Rights, Performance Grants or other Awards, either at the time of grant or by amendment thereafter; provided that an Incentive Stock Option may be granted only to an eligible employee of the Company or its subsidiary corporation. Each Stock Option (referred to herein as an "Option") granted under the Plan shall be evidenced by an instrument in such form as the Committee shall prescribe from time to time in accordance with the Plan and shall comply with the following terms and conditions, and with such other terms and conditions, including, but not limited to, restrictions upon the Option or the Common Shares issuable upon exercise thereof, as the Committee shall establish: (a) OPTION GRANTS TO OUTSIDE DIRECTORS. Each member of the Board of Directors on November 14, 1996 who is not an employee of the Company, and each person who becomes a non-employee director of the Company following such date, shall be eligible, subject to approval by the full Board of Directors, to be granted Nonqualified Stock Options to purchase a number of Common Shares to be determined by the Board of Directors at the time of such grant, with an exercise price per share equal to the fair market value (as defined in PARAGRAPH 17) of such shares on the date of grant and with such other terms, consistent with this Plan, as may be established by the Board of Directors at the time of grant. (b) OPTION PRICE. In the case of Options granted to employees selected by the Committee, the option price may be less than, equal to, or greater than, the fair market value (as defined in PARAGRAPH 17) of the Common Shares subject to such Option at the time the Option is granted, as determined by the Committee. The option price may either be fixed when the option is granted or may be determined in accordance with a formula prescribed by the Committee for such purpose, PROVIDED, HOWEVER, that in no event will the option price be less than (i) in the case of an Incentive Stock Option, 100% of the fair market value of the Common Shares subject to such Option at the time such Option is granted, or (ii) in the case of a Nonqualified Stock Option, 85% of the fair market value of the Common Shares subject to such Option at the time such Option is granted. Additionally, in the case of an Incentive Stock Option granted to an employee Participant who owns, directly or indirectly (as determined by reference to Section 424(d) of the Code), stock representing more than ten percent of the voting power of all classes of stock of the Company or of its parent or subsidiary (a "Ten Percent Employee"), such option price shall in no event be less than 110% of such fair market value at the time the Option is granted. In no event will the option price for any Option be less than the par value of the Common Shares subject to such Option. (c) NUMBER OF SHARES SUBJECT TO OPTION. The Committee shall determine the number of Common Shares to be subject to each Option. The number of Common Shares subject to an outstanding Option may be reduced on a share-for-share or other appropriate basis, as determined by the Committee, to the extent that Common Shares under such Option are used to calculate the cash, Common Shares, Other Company Securities or property, or other forms of payment, or any combination thereof, received pursuant to exercise of a Stock Appreciation Right attached to such Option, or to the extent that any other Award granted in conjunction with such Option is paid. (d) TIMING OF EXERCISE. Unless the Committee determines otherwise, the Options shall not be exercisable for at least six months after the date of grant, unless the grantee ceases employment or performance of services before the expiration of such six-month period by reason of his disability (as defined in PARAGRAPH 12) or his death. Subject to the restrictions of the preceding sentence (and, in the case of Incentive Stock Options, subject to PARAGRAPH 5(F)), such Options may become exercisable in accordance with any vesting schedule prescribed by the Committee. (e) CONDITIONS TO EXERCISE. The Option shall not be exercisable: (i) in the case of any Incentive Stock Option granted to a Ten Percent Employee, after the expiration of five years from the date it is granted, and, in the case of any other Option, after the expiration of ten years from the date it is granted; (ii) unless payment in full is made for the shares being acquired thereunder (as well as for any amounts required to be withheld in accordance with PARAGRAPH 17(F)) at the time of exercise. Such payment shall be made in such form (including, but not limited to, cash, Common Shares, or the surrender of another outstanding Award under the Plan, or any combination thereof) as the Committee may determine in its discretion; (iii) in the case of Options granted to Participants who are employees selected by the Committee, unless the Participant exercising the Option has been, at all times during the period beginning with the date of the grant of the Option and ending on a date not more than ninety (90) days prior to such exercise, employed by or otherwise performing services for the Company (or a parent or subsidiary corporation of the Company), or a corporation, or subsidiary of a corporation, issuing or assuming the Option in a transaction to which Section 424(a) of the Internal Revenue Code of 1986, as amended (the "Code"), is applicable, subject to the following exceptions: (A) in the case of any Nonqualified Stock Option (or any Incentive Stock Option that is converted into a Nonqualified Stock Option by reason of its extension pursuant to this subparagraph), if such Participant shall cease to be employed by or otherwise performing services for the Company solely by reason of a period of Related Employment as defined in PARAGRAPH 14, he may, during such period of Related Employment, exercise the Nonqualified Stock Option as if he continued such employment or performance of service; or (B) if such Participant shall cease such employment or performance of services by reason of his disability as defined in PARAGRAPH 12 or early, normal or late retirement under an approved retirement program of the Company (or such other plan or arrangement as may be approved by the Committee for this purpose) while holding an Option which has not expired and has not been fully exercised, such Participant, at any time within one (1) year (or such other period determined by the Committee) after the date he ceased such employment or performance of services (but in no event after the Option has expired), may exercise the Option with respect to any shares as to which he could have exercised the Option on the date he ceased such employment or performance of services, or with respect to such greater number of shares as determined by the Committee up to the total number of shares subject to the Option; provided, however, that any such extension of the period within which an Incentive Stock Option may be exercised beyond three months following cessation of employment (twelve months in the case of Participant's permanent disability) will result in the Option ceasing to qualify as an Incentive Stock Option; or (C) if any person to whom an Option has been granted dies holding an Option which has not expired and has not been fully exercised, his successor may, at any time within one (1) year (or such other period determined by the Committee) after the date of death (but in no event after the Option has expired), exercise the Option with respect to any shares as to which the decedent could have exercised the Option at the time of his death, or with respect to such greater number of shares as determined by the Committee up to the total number of shares subject to the Option. (iv) in the case of Options granted to Participants who are non-employee directors of the Company, unless such Participant either: (A) is actively serving as a member of the Board of Directors of the Company or (B) ceased to serve as a member of the Board of Directors on a date not more than one (1) year prior to such exercise, in which case such Participant (or his successor, in the event of the Participant's death or legal incapacity) may exercise the Option during such period (or such other period determined by the Committee, but in no event after the Option has expired) with respect to any shares as to which the Participant could have exercised the Option on the date when he ceased to serve as a Director of the Company, or with respect to such greater number of shares as determined by the Committee up to the total number of shares subject to the Option. (f) INCENTIVE STOCK OPTION LIMITS. In the case of an Incentive Stock Option, the aggregate fair market value (as defined in PARAGRAPH 17) of Common Shares, determined at the time of grant of the Option, with respect to which Incentive Stock Options are exercisable for the first time by an employee during any calendar year (under all such plans of the Company and any parent or subsidiary corporation of the Company) shall not exceed $100,000. (g) INTENT. It is the intent of the Company that Nonqualified Stock Options granted under the Plan not be classified as Incentive Stock Options, that the Incentive Stock Options granted under the Plan be consistent with and contain or be deemed to contain all provisions required under Section 422 and the other appropriate provisions of the Code and any implementing regulations (including any successor provisions thereto), and that any ambiguities in construction shall be interpreted in order to effectuate such intent. 6. APPRECIATION RIGHTS. The Committee may grant Stock Appreciation Rights either alone, or in conjunction with Stock Options, Performance Grants or other Awards, either at the time of grant or by amendment thereafter. Each Award of Stock Appreciation Rights granted under the Plan shall be evidenced by an instrument in such form as the Committee shall prescribe from time to time in accordance with the Plan and shall comply with the following terms and conditions, and with such other terms and conditions, including, but not limited to, restrictions upon the Award of Stock Appreciation Rights or the cash, Common Shares or Other Company Securities issuable upon exercise thereof, as the Committee shall establish: (a) COMMITTEE DISCRETION. The Committee shall determine the number of Common Shares to be subject to each Award of Stock Appreciation Rights. The number of Common Shares subject to an outstanding Award of Stock Appreciation Rights may be reduced on a share-for-share or other appropriate basis, as determined by the Committee, to the extent that any other Award granted in conjunction with such Award of Stock Appreciation Rights is paid. (b) TIMING OF EXERCISE. Unless the Committee determines otherwise, the Award of Stock Appreciation Rights shall not be exercisable for at least six months after the date of grant, unless the grantee ceases employment or performance of services before the expiration of such six- month period by reason of his disability as defined in PARAGRAPH 12 or his death. Subject to the restrictions of the preceding sentence (and, in the case of Stock Appreciation Rights granted in conjunction with Incentive Stock Options, subject to PARAGRAPH 5(F) hereof), such Stock Appreciation Rights may become exercisable in accordance with any vesting schedule prescribed by the Committee. (c) CONDITIONS TO EXERCISE. The Award of Stock Appreciation Rights shall not be exercisable: (i) in the case of any Award of Stock Appreciation Rights that are attached to an Incentive Stock Option granted to a Ten Percent Employee, after the expiration of five years from the date it is granted, and, in the case of any other Award of Stock Appreciation Rights, after the expiration of ten years from the date it is granted. Any Award of Stock Appreciation Rights may be exercised during such period only at such time or times and in such installments as the Committee may establish; (ii) unless any Option or other Award to which the Award of Stock Appreciation Rights may be attached is at the time exercisable; and (iii) unless the Participant exercising the Award of Stock Appreciation Rights has been, at all times during the period beginning with the date of the grant of the Option and ending on a date not more than ninety (90) days prior to such exercise, employed by or otherwise performing services for the Company (or a parent or subsidiary corporation of the Company), or a corporation, or subsidiary of a corporation, issuing or assuming the Award of Stock Appreciation Rights in a transaction to which Section 424(a) of the Internal Revenue Code of 1986, as amended (the "Code"), is applicable, subject to the following exceptions: (A) in the case of any Award of Stock Appreciation Rights, if such person shall cease to be employed by or otherwise performing services for the Company solely by reason of a period of Related Employment as defined in PARAGRAPH 14, he may, during such period of Related Employment, exercise the Award of Stock Appreciation Rights as if he continued such employment or performance of services (provided, however, that if such Stock Appreciation Rights are attached to an Incentive Stock Option, application of this subparagraph will result in such Option ceasing to qualify as an Incentive Stock Option if the period of Related Employment lasts for more than ninety (90) days); or (B) if such Participant shall cease such employment or performance of services by reason of his disability as defined in PARAGRAPH 12 or early, normal or late retirement under an approved retirement program of the Company (or such other plan or arrangement as may be approved by the Committee for this purpose) while holding an Award of Stock Appreciation Rights which has not expired and has not been fully exercised, such Participant, at any time within one (1) year (or such other period determined by the Committee) after the date he ceased such employment or performance of services (but in no event after the Award of Stock Appreciation Rights has expired), may exercise the Award of Stock Appreciation Rights with respect to any shares as to which he could have exercised the Award of Stock Appreciation Rights on the date he ceased such employment or performance of services, or with respect to such greater number of shares as determined by the Committee up to the total number of shares subject to the Award; provided, however, that, in the case of any Award of Stock Appreciation Rights attached to an Incentive Stock Option, any such extension of the period within which the Award may be exercised beyond ninety (90) days following cessation of employment (twelve months in the case of Participant's permanent disability) will result in the attached Option ceasing to qualify as an Incentive Stock Option; or (C) if any person to whom an Award of Stock Appreciation Rights has been granted dies holding an Award of Stock Appreciation Rights which has not expired and has not been fully exercised, his successor may, at any time within one (1) year (or such other period determined by the Committee) after the date of death (but in no event after the Award of Stock Appreciation Rights has expired), exercise the Award with respect to any shares as to which the decedent could have exercised the Award at the time of his death, or with respect to such greater number of shares as determined by the Committee up to the total number of shares subject to the Award. (d) PAYMENT OF THE AWARD. An Award of Stock Appreciation Rights shall entitle the Participant (or his successor) to exercise such Award or, if applicable, to surrender to the Company unexercised the Option (or other Award) to which the Stock Appreciation Right is attached (or any portion of such Option or other Award), and to receive from the Company in exchange therefor, without payment to the Company, that number of Common Shares having an aggregate value equal to (or, in the discretion of the Committee, less than) the excess of the fair market value of one share, at the time of such exercise, over the exercise price (or Option Price, as the case may be) per share, times the number of shares subject to the Award of the Option (or other Award), or portion thereof. which is so exercised or surrendered, as the case may be. The Committee may elect to settle the obligation arising out of the exercise of a Stock Appreciation Right by the payment of cash or Other Company Securities or property, or other forms of payment, or any combination thereof, as determined by the Committee, equal to the aggregate value of the Common Shares it would otherwise be obligated to deliver. Any such election by the Committee shall be made as soon as practicable after the receipt by the Committee of written notice of the exercise of the Stock Appreciation Right. The value of a Common Share, Other Company Securities or property, or other forms of payment determined by the Committee for this purpose shall be the fair market value thereof on the last business day next preceding the date of the election to exercise the Stock Appreciation Right, unless the Committee determines otherwise. (e) DEEMED EXERCISE. A Stock Appreciation Right may provide that it shall be deemed to have been exercised at the close of business on the business day preceding the expiration date of the Stock Appreciation Right or of the related Option (or other Award), or such other date as specified by the Committee, if at such time such Stock Appreciation Right has a positive value. Such deemed exercise shall be settled or paid in the same manner as a regular exercise thereof as provided in PARAGRAPH 6(D) hereof. (f) NO FRACTIONAL SHARES. No fractional shares may be delivered under this PARAGRAPH 6, but in lieu thereof a cash or other adjustment shall be made as determined by the Committee. 7. RESTRICTED STOCK. Each Award of Restricted Stock under the Plan shall be evidenced by an instrument in such form as the Committee shall prescribe from time to time in accordance with the Plan and shall comply with the following terms and conditions, and with such other terms and conditions as the Committee shall establish: (a) CONSIDERATION. The Committee shall determine the number of Common Shares to be issued to a Participant pursuant to the Award, and the extent, if any, to which they shall be issued in exchange for cash, other consideration, or both. (b) RESTRICTED PERIOD AND COMPANY REPURCHASE OPTION. Common Shares issued to a Participant in accordance with the Award may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, or as otherwise determined by the Committee, for such period as the Committee shall determine, from the date on which the Award is granted (the "Restricted Period"). The Company will have the option to repurchase the shares subject to the Award at such price as the Committee shall have fixed when the Award was made or as amended thereafter, which option will be exercisable: (i) subject to PARAGRAPH 7(C), if the Participant's continuous employment or performance of services for the Company shall terminate for any reason, except solely by reason of a period of Related Employment as defined in PARAGRAPH 14, prior to the expiration of the Restricted Period, (ii) if, on or prior to the expiration of the Restricted Period or the earlier lapse of such repurchase option, the Participant has not paid to the Company an amount equal to any federal, state, local or foreign income or other taxes which the Company determines is required to be withheld in respect of such shares, or (iii) under such other circumstances as determined by the Committee and set forth in the terms of the Award. Such repurchase option shall be exercisable on such terms, in such manner and during such period as shall be determined by the Committee when the Award is made or as amended thereafter. Each certificate for Common Shares issued pursuant to a Restricted Stock Award shall bear an appropriate legend referring to the foregoing repurchase option and other restrictions (and to the fact that the shares are partly paid, if applicable), shall be deposited by the Award holders with the Company, together with a stock power endorsed in blank, or shall be evidenced in such other manner permitted by applicable law as determined by the Committee. Any attempt to dispose of any such Common Shares in contravention of the foregoing repurchase option and other restrictions shall be null and void and without effect. If Common Shares issued pursuant to a Restricted Stock Award shall be repurchased pursuant to the repurchase option described above, the Participant or his successor shall forthwith deliver to the Secretary of the Company the certificates for the Common Shares awarded to the Participant, accompanied by such instrument of transfer, if any, as may reasonably be required by the Secretary of the Company. If the repurchase option described above is not exercised by the Company during the Restricted Period, such option and the restrictions imposed pursuant to the first sentence of this PARAGRAPH 7(B) shall terminate and be of no further force and effect. (c) TERMINATION OF EMPLOYMENT. If a Participant who has been in continuous employment or performance of services for the Company or an Affiliate since the date on which a Restricted Stock Award was granted to him shall, while in such employment or performance of services, die, or terminate such employment or performance of services by reason of disability as defined in PARAGRAPH 12 or by reason of early, normal or late retirement under an approved retirement program of the Company or an Affiliate (or such other plan or arrangement as may be approved by the Committee for this purpose) and any of such events shall occur after the date on which the Award was granted to him and prior to the end of the Restricted Period for such Award, the Committee may determine to cancel the repurchase option (and any or all other restrictions) on any or all of the Common Shares subject to such Award. The repurchase option shall become immediately exercisable at such time with respect to any remaining shares for which the Committee does not determine to cancel such restrictions. 8. PERFORMANCE GRANTS. The Award of a Performance Grant ("Performance Grant") to a Participant will entitle him to receive a specified amount determined by the Committee (the "Actual Value"), if the terms and conditions specified herein and in the Award are satisfied. Each Award of a Performance Grant shall be subject to the following terms and conditions, and to such other terms and conditions, including but not limited to, restrictions upon any cash, Common Shares, Other Company Securities or property, or other forms of payment, or any combination thereof, issued in respect of the Performance Grant, as the Committee shall establish, and shall be embodied in an instrument in such form and substance as is determined by the Committee: (a) COMMITTEE DETERMINATION OF AWARD. The Committee shall determine the value or range of values of a Performance Grant to be awarded to each Participant selected for an Award and whether or not such a Performance Grant is granted in conjunction with an Award of Options, Stock Appreciation Rights, Restricted Stock or other Award, or any combination thereof, under the Plan (which may include, but need not be limited to, deferred Awards) concurrently or subsequently granted to the Participant (the "Associated Award"). As determined by the Committee, the maximum value of each Performance Grant (the "Maximum Value") shall be: (i) an amount fixed by the Committee at the time the Award is made or as amended thereafter; (ii) an amount which varies from time to time based in whole or in part on the then current value of a Common Share, Other Company Securities or property, or other securities or property, or any combination thereof; or (iii) an amount that is determinable from criteria specified by the Committee. Performance Grants may be issued in different classes or series having different names, terms and conditions. In the case of a Performance Grant awarded in conjunction with an Associated Award, the Performance Grant may be reduced on an appropriate basis to the extent that the Associated Award has been exercised, paid to or otherwise received by the Participant, as determined by the Committee. (b) AWARD PERIOD AND PERFORMANCE OBJECTIVES. The award period ("Award Period") in respect of any Performance Grant shall be a period determined by the Committee. At the time each Award is made, the Committee shall establish performance objectives to be attained within the Award Period as the means of determining the Actual Value of such a Performance Grant. The performance objectives shall be based on such measure or measures of performance (which may include, but need not be limited to, the performance of the Participant, the Company, one or more of its subsidiaries or one or more of their divisions or units, or any combination of the foregoing) as the Committee shall determine, and may be applied on an absolute basis or be relative to industry or other indices, or any combination thereof. The Actual Value of a Performance Grant shall be equal to its Maximum Value only if the performance objectives are attained in full, but the Committee shall specify the manner in which the Actual Value of Performance Grants shall be determined if the performance objectives are met in part. Such performance measures, the Actual Value or the Maximum Value, or any combination thereof, may be adjusted in any manner by the Committee at any time and from time to time during or as soon as practicable after the Award Period, if it determines that such performance measures, the Actual Value or the Maximum Value, or any combination thereof, are not appropriate under the circumstances. (c) PROVISIONAL RIGHTS. The rights of a Participant in Performance Grants awarded to him shall be provisional and may be canceled or paid in whole or in part, all as determined by the Committee, if the Participant's continuous employment or performance of services for the Company shall terminate for any reason prior to the end of the Award Period, except solely by reason of a period of Related Employment as defined in PARAGRAPH 14. (d) ACTUAL VALUE. The Committee shall determine whether the conditions of PARAGRAPHS 8(B) or PARAGRAPH 8(C) hereof have been met and, if so, shall ascertain the Actual Value of the Performance Grants. If the Performance Grants have no Actual Value, the Award and such Performance Grants shall be deemed to have been canceled and the Associated Award, if any, may be canceled or permitted to continue in effect in accordance with its terms. If the Performance Grants have any Actual Value and: (i) were not awarded in conjunction with an Associated Award, the Committee shall cause an amount equal to the Actual Value of the Performance Grants earned by the Participant to be paid to him or his successor as provided below; or (ii) were awarded in conjunction with an Associated Award, the Committee shall determine, in accordance with criteria specified by the Committee (A) to cancel the Performance Grants, in which event no amount in respect thereof shall be paid to the Participant or his successor, and the Associated Award may be permitted to continue in effect in accordance with its terms, (B) to pay the Actual Value of the Performance Grants to the Participant or his successor as provided below, in which event the Associated Award may be canceled or (C) to pay to the Participant or his successor as provided below, the Actual Value of only a portion of the Performance Grants, in which event all or a portion of the Associated Award may be permitted to continue in effect in accordance with its terms or be canceled, as determined by the Committee. Such determination by the Committee shall be made as promptly as practicable following the end of the Award Period or upon the earlier termination of employment or performance of services, or at such other time or times as the Committee shall determine, and shall be made pursuant to criteria specified by the Committee. Payment of any amount in respect of the Performance Grants which the Committee determines to pay as provided above shall be made by the Company as promptly as practicable after the end of the Award Period or at such other time or times as the Committee shall determine, and may be made in cash, Common Shares, Other Company Securities or property, or other forms of payment, or any combination thereof or in such other manner, as determined by the Committee. Notwithstanding anything in this PARAGRAPH 8 to the contrary, the Committee may determine and pay out the Actual Value of the Performance Grants at any time during the Award Period. 9. DEFERRAL OF COMPENSATION. The Committee shall determine whether an Award shall be made in conjunction with deferral of the Participant's salary, bonus or other compensation, or any combination thereof, and whether such deferred amounts may be: (i) forfeited to the Company or to other Participants, or any combination thereof, under certain circumstances (which may include, but need not be limited to, certain types of termination of employment or performance of services for the Company and its Affiliates); (ii) subject to increase or decrease in value based upon the attainment of or failure to attain, respectively, certain performance measures; and/or (iii) credited with income equivalents (which may include, but need not be limited to, interest, dividends or other rates of return) until the date or dates of payment of the Award, if any. 10. DEFERRED PAYMENT OF AWARDS. The Committee may specify that the payment of all or any portion of cash, Common Shares, Other Company Securities or property, or any other form of payment, or any combination thereof, under an Award shall be deferred until a later date. Deferrals shall be for such periods or until the occurrence of such events, and upon such terms, as the Committee shall determine. Deferred payments of Awards may be made by undertaking to make payment in the future based upon the performance of certain investment equivalents (which may include, but need not be limited to, government securities, Common Shares, other securities, property or consideration, or any Combination thereof), together with such additional amounts of income equivalents (which may be compounded and may include, but need not be limited to, interest, dividends or other rates of return, or any combination thereof) as may accrue thereon until the date or dates of payments, such investment equivalents and such additional amounts of income equivalents to be determined by the Committee. 11. AMENDMENT OR SUBSTITUTION OF AWARDS UNDER THE PLAN. The terms of any outstanding Award under the Plan may be amended from time to time by the Committee in any manner that it deems appropriate (including, but not limited to, acceleration of the date of exercise of any Award and/or payments thereunder); provided that no such amendment shall reduce the amount of any benefit which a Participant is then entitled to obtain or collect at such time, unless the Committee determines that there have occurred or are about to occur significant changes in the Participant's position, duties or responsibilities, or significant changes in economic, legislative, regulatory, tax, accounting or cost-benefit conditions which are determined by the Committee to have or to be expected to have a substantial effect on the performance of the Company, or any subsidiary, Affiliate, division or department thereof, on the Plan or on any Award under the Plan. The Committee may require or permit holders of Awards under the Plan to surrender outstanding Awards in order to exercise or realize the rights under other Awards, or in exchange for the grant of new Awards, and may require holders of Awards to surrender outstanding Awards as a condition precedent to the grant of new Awards under the Plan. 12. DISABILITY. For the purposes of this Plan, a Participant shall be deemed to have terminated his employment or performance of services for the Company by reason of disability, if the Committee shall determine that the physical or mental condition of the Participant by reason of which such employment or performance of services terminated was such at that time as would entitle him to payment of monthly disability benefits under the Company's Long Term Disability Benefit Plan, or, if the Participant is not eligible for benefits under such plan, under any similar disability plan of the Company in which he is a participant. If the Participant is not eligible for benefits under any disability plan of the Company, he shall be deemed to have terminated such employment or performance of services by reason of disability if the Committee determines that his physical or mental condition would entitle him to benefits under the Company's Long Term Disability Benefit Plan if he were eligible therefore. 13. TERMINATION OF A PARTICIPANT. For all purposes under the Plan, the Committee shall determine whether a Participant has terminated employment by or the performance of services for the Company; provided, however, that transfers between the Company and an Affiliate or between Affiliates, and approved leaves of absence may not be deemed such a termination, in the Committee's discretion. 14. RELATED EMPLOYMENT. For the purposes of this Plan, Related Employment shall mean the employment or performance of services by an individual for an employer other than the Company, provided that (i) such employment or performance of services is undertaken by the individual at the request of the Company, (ii) immediately prior to undertaking such employment or performance of services, the individual was employed by or performing services for the Company or was engaged in Related Employment as herein defined, and (iii) such employment or performance of services is in the best interests of the Company and is recognized by the Committee, in its discretion, as Related Employment for purposes of this PARAGRAPH 14. The death or disability of an individual during a period of Related Employment as herein defined shall be treated, for purposes of this Plan, as if the death or onset of disability had occurred while the individual was employed by or performing services for the Company. 15. DILUTION, CHANGE IN CONTROL AND OTHER ADJUSTMENTS. In the event of any change in the outstanding Common Shares of the Company by reason of any stock split, reverse stock split, stock dividend, split-up, split-off, spin-off, recapitalization, merger, consolidation, rights offering, reorganization, combination or exchange of shares, a sale by the Company of all or part of its assets, a change in control (as defined in PARAGRAPH 17(o)), any distribution to shareholders other than a normal cash dividend, or other extraordinary or unusual event, if the Committee shall determine that such change equitably requires an adjustment in the terms of any Award or the number of Common Shares available for Awards, such adjustment may be made by the Committee and shall be final, conclusive and binding for all purposes of the Plan. 16. DESIGNATION OF BENEFICIARY BY PARTICIPANT. A Participant may name a beneficiary to receive any payment to which he may be entitled in respect of any Award under the Plan in the event of his death, on a written form to be provided by and filed with the Committee, and in a manner determined by the Committee. The Committee reserves the right to review and approve beneficiary designations. A Participant may change his beneficiary from time to time in the same manner, unless such Participant has made an irrevocable designation. Any designation of beneficiary under the Plan accepted by the Committee shall be controlling over any other disposition, testamentary or otherwise. If no designated beneficiary is living on the date on which any amount becomes payable to such Participant's beneficiary, such payment will be made to the estate of the Participant, the legal representatives of the Participant's estate, or any heir or other person or entity legally entitled to act for or on behalf of such Participant after such Participant's death (the "Participant's successor"). Any reference in the Plan to the "successor" of a Participant shall include any one or more of the above, as appropriate. The Committee shall resolve any question as to the legal right of any person or entity to receive a distribution under the Plan as a Participant's successor, and upon payment of the amount in question to the successor determined by the Committee, the Company, the Board and the Committee, and the members thereof will have no further liability to anyone with respect to such amount. 17. MISCELLANEOUS PROVISIONS. (a) NO EMPLOYMENT RIGHTS CREATED PURSUANT TO THE PLAN. No employee or other person shall have any claim or right to be granted an Award under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any employee or other person any right to continue to be employed by or perform services for the Company, and the right to terminate the employment of or performance of services by any Participant at any time and for any reason is specifically reserved. (b) WRITTEN REQUIREMENT. No Participant or other person shall have any right with respect to the Plan, the Common Shares reserved for issuance under the Plan or in any Award, contingent or otherwise, until written evidence of the Award shall have been delivered to the recipient and all the terms, conditions and provisions of the Plan and the Award applicable to such recipient or his successor have been met. The rights of each Participant shall be limited to those that are specifically granted in the written evidence of the Award. Any right not specifically granted therein is reserved entirely to the discretion of the Board. (c) NO ALIENATION. Except as may be approved by the Committee where such approval shall not adversely affect compliance of the Plan with Rule 16b-3 under the Exchange Act, a Participant's rights and interest under the Plan may not be assigned or transferred, hypothecated or encumbered in whole or in part either directly or by operation of law and otherwise (except in the event of a Participant's death) including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner; provided, however, that any Incentive Stock Option or similar right (including any Stock Appreciation Right granted in conjunction with any such Option) offered pursuant to the Plan shall not be transferable other than by will or the laws of descent and distribution and shall be exercisable during the Participant's lifetime only by him (or by a duly appointed guardian or personal representative). Any such transferee of a Participant's rights approved by the Committee shall be treated as the "Participant" for all purposes of the Plan, unless the Committee directs otherwise. (d) LEGAL COMPLIANCE. No Common Shares, Other Company Securities or property, other securities or property, or other forms of payment shall be issued hereunder with respect to any Award unless counsel for the Company is satisfied that such issuance will be in compliance with applicable federal, state, local and foreign legal, securities exchange and other applicable laws and regulations. (e) ISO RULES AND SEC RULE 16B-3 COMPLIANCE. It is the intent of the Company that the Plan comply in all respects with Rule 16b-3 under the Exchange Act and (with respect to those Plan provisions affecting Incentive Stock Options) with Section 422 of the Code, that any ambiguities or inconsistencies in construction of the Plan be interpreted to give effect to such intention and that if any provision of the Plan is found not to be in compliance with Rule 16b-3 or with Code Section 422 (as applicable), such provision shall be deemed null and void to the extent required to permit the Plan to comply with Rule 16b-3 or with Code Section 422 (as applicable). The Board shall have the power, without further approval of the Company's shareholders, to amend the Plan in any respect necessary at any point in time to permit the Plan, and Awards granted under the Plan, to continue to comply with Rule 16b-3 and with Section 422 of the Code, as applicable. (f) WITHHOLDING. The Company and its Affiliates shall have the right to deduct from any payment made under the Plan any federal, state, local or foreign income or other taxes required by law to be withheld with respect to such payment. It shall be a condition to the obligation of the Company to issue Common Shares, Other Company Securities or property, other securities or property, or other forms of payment, or any combination thereof, upon exercise, settlement or payment of any Award under the Plan, that the Participant or his successor pay to the Company, upon its demand, such amount as may be requested by the Company for the purpose of satisfying any liability to withhold federal, state, local or foreign income or other taxes. If the amount requested is not paid, the Company may refuse to issue Common Shares, Other Company Securities or property, other securities or property, or other forms of payment, or any combination thereof. Notwithstanding anything in the Plan to the contrary, the Committee may permit an eligible Participant or his successor to elect to pay a portion or all of the amount requested by the Company for such taxes with respect to such Award, at such time and in such manner as the Committee shall determine (including, but not limited to, by authorizing the Company to withhold, or agreeing to surrender to the Company on or about the date such tax liability is determinable, Common Shares, other Company Securities or property, other securities or property, or other forms of payment, or any combination thereof, owned by such person or a portion of such forms of payment that would otherwise be distributed, or have been distributed, as the case may be, pursuant to such Award to such person, having a fair market value equal to the amount of such taxes); provided, however, that any election by a Participant to utilize any equity security of the Company to satisfy such tax liability must fully comply with all applicable requirements of Rule 16b-3 and of Code Section 422. (g) PLAN EXPENSES. The expenses of the Plan shall be borne by the Company. However, if an Award is made to an individual employed by or performing services for an Affiliate, and the Company does not own (directly or indirectly) 100% of the equity of such Affiliate: (i) if such Award results in payment of cash to the Participant, such Affiliate shall pay to the Company an amount equal to such cash payment; and (ii) if the Award results in the issuance by the Company to the Participant of Common Shares, Other Company Securities or property, other securities or property, or other forms of payment, or any combination thereof, such Affiliate shall pay to the Company an amount equal to the fair market value thereof, as determined by the Committee, on the date such Common Shares, Other Company Securities or property, other securities or property, or other forms of payment, or any combination thereof, are issued (or, in the case of the issuance of Restricted Stock or of Common Shares, Other Company Securities or property, or other securities or property, or other forms of payment subject to transfer and forfeiture conditions, equal to the fair market value thereof on the date on which they are no longer subject to applicable restrictions), minus the amount, if any, received by the Company in respect of the purchase of such Common Shares, Other Company Securities or property, other securities or property or other forms of payment, or any combination thereof. (h) UNFUNDED. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Award under the Plan, and rights to the payment of Awards shall be no greater than the rights of the Company's general creditors. (i) PARTICIPANT CONSENT. By accepting any Award or other benefit under the Plan, each Participant or his successor shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board or the Committee or its delegates. (j) FAIR MARKET VALUE. Fair market value in relation to Common Shares, Other Company Securities or property, other securities or property or other forms of payment of Awards under the Plan, or any combination thereof, as of any specific time shall mean such value as determined by the Committee in accordance with applicable law. (k) DETERMINATIONS OF COMMITTEE. Determinations made by the Committee under the Plan need not be uniform and may be made selectively among eligible individuals under the Plan, whether or not such eligible individuals are similarly situated. All determinations and decisions made by the Committee shall be final, conclusive, and binding on all parties concerned and are made in the sole and absolute discretion of the Committee unless a contrary standard for action is expressly stated in the Plan. (1) GENDER AND NUMBER. The masculine pronoun includes the feminine and the singular includes the plural wherever appropriate. (m) INFORMATION FILINGS. The appropriate officers of the Company shall cause to be filed any reports, returns or other information regarding Awards hereunder or any Common Shares issued pursuant hereto as may be required by the Code, by the Exchange Act or by any other applicable statute, rule or regulation (or any successor provisions thereto). (n) GOVERNING LAW. The validity, construction, interpretation, administration and effect of the Plan, and of its rules and regulations, and rights relating to the Plan and to Awards granted under the Plan, shall be governed by the laws of the State of Tennessee. (o) CHANGE IN CONTROL. A change in control is any event which results in a "person" (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder) acquiring directly or indirectly, whether by sale, transfer, assignment, pledge, hypothecation, gift, or other disposition, in one or more transactions, a majority controlling interest in the voting capital stock of the Company (or the entering into of any agreement with the Company to do any of the foregoing); PROVIDED, HOWEVER, that a change in control shall not include any transaction in which one or more members of the Frierson family (which shall include all current members of the family of J. Burton Frierson, including descendants and spouses, and trusts for the benefit of same, who presently own capital stock) shall have a majority controlling interest in the Company. 18. PLAN AMENDMENT OR SUSPENSION. The Plan may be amended, suspended, or terminated in whole or in part at any time and from time to time by the Board, but no amendment shall be effective unless and until the same is approved by shareholders of the Company where the failure to obtain such approval would adversely affect the compliance of the Plan with Rule 16b-3 under the Exchange Act or with any other applicable law. 19. PLAN TERMINATION. This plan shall terminate upon the earlier of the following dates or events to occur: (a) upon the adoption of a resolution of the Board terminating the Plan; or (b) ten years from the date the Plan is initially approved and adopted by the shareholders of the Company in accordance with PARAGRAPH 20 hereof; provided, however, that the Board may, prior to the expiration of such ten-year period, extend the term of the Plan for an additional period of up to five years for the grant of Awards other than Incentive Stock Options. 20. SHAREHOLDER ADOPTION. The Plan was initially approved and adopted by the shareholders of the Company at a meeting held on May 3, 1990. Subsequently, at a meeting held on November 14, 1996, the Board of Directors of the Company approved the amendment of the Plan in various respects, subject to the approval and adoption of such amendments and of the restated Plan, as amended, by the shareholders of the Company at a meeting to be held on May 1, 1997, or at any adjournment thereof. Such amendments to the Plan shall not be effective and no Award made in reliance on any of the terms of such amendments shall be permitted to become effective, unless and until such amendments (and the Plan, as amended and restated accordingly) have been so approved and adopted. The shareholders shall be deemed to have approved and adopted such amendments to the Plan only if they are approved and adopted at a meeting of the shareholders duly held by vote taken in the manner required by the laws of the State of Tennessee. EX-10.B 8 EXHIBIT (10b) DIXIE YARNS, INC. Stock Option Agreement Under 1990 Incentive Stock Plan Stock Option Agreement made this _____ day of ______________, 19___, by and between Dixie Yarns, Inc., a Tennessee corporation (hereinafter referred to as the "COMPANY"), and ______________________________, an employee or Director of the Company (hereinafter referred to as the "OPTIONEE"); W I T N E S S E T H: WHEREAS, the shareholders of the Company approved the 1990 Incentive Stock Plan effective May 3, 1990, and are scheduled to vote on the approval of certain amendments thereto at the Company's 1997 Annual Meeting of Shareholders, to be held on May 1, 1997 (the 1990 Incentive Stock Plan, as amended to date, is hereinafter referred to as the "PLAN"), for the purpose of providing long-term incentive compensation to directors and selected key management employees performing services for the Company and to develop and maintain a significant long-term ownership position in the common stock of the Company on the part of such individuals; and WHEREAS, the Company desires to grant to the Optionee the option(s) to purchase the Company's common stock described herein; and WHEREAS, the Optionee desires to accept such grant. NOW, THEREFORE, in consideration of the mutual covenants herein set forth, for other good and valuable consideration, and subject to the terms and conditions of the Plan (a copy of which is attached hereto) which are hereby incorporated by reference, the parties hereto hereby agree as follows: 1. ADMINISTRATION. The Compensation Committee (the "COMMITTEE") of the Board of Directors of the Company (the "BOARD") shall administer the Plan, grant stock options and other awards under the Plan, construe and interpret the Plan, establish rules and regulations and perform all other acts as it believes reasonable and proper. In accordance with the conditions and limitations prescribed in the Plan, the Committee may also delegate the administration of the Plan in whole or in part, on such terms and conditions, and to such person or persons as it may determine in its discretion. Whenever the context in this Agreement so permits, any reference to the "Committee" shall include any successor or delegate of the Committee, as applicable. Options granted hereunder may be canceled if an Optionee violates the terms of either this Stock Option Agreement or the Plan or acts in a manner which the Committee determines to be inimical to the best interest of the Company. Any decision made, or action taken, by the Committee shall be final, conclusive and binding on all parties to this Agreement. 2. GRANT OF INCENTIVE STOCK OPTION. Effective _____________, 19 ___, the Committee hereby grants to the Optionee, not in lieu of salary or any other compensation for services, the right and option (hereinafter referred to as the "ISO OPTION") to purchase from the Company _______________ shares of the Company's Common Stock, three dollars ($3.00) par value per share, as an incentive stock option (as defined in Section 422 of the Internal Revenue Code) (hereinafter referred to as the "ISO Optioned Stock"), subject to the terms and conditions hereinafter set forth. 3. GRANT OF NSO STOCK OPTION. Effective ________________, 19____, the Committee hereby grants to the Optionee, not in lieu of salary or any other compensation for services, the right and option (hereinafter referred to as the "NSO OPTION") to purchase from the Company _____________ shares of the Company's Common Stock, three dollars ($3.00) par value per share, as a non-statutory stock option (hereinafter referred to as the "NSO OPTIONED STOCK"), subject to the terms and conditions hereinafter set forth. 4 PURCHASE PRICE. The purchase price of the ISO Optioned Stock shall be $_____________ per share (hereinafter referred to as the "ISO OPTION PRICE"). The purchase price of the NSO Optioned Stock shall be $___________ per share (hereinafter referred to as the "NSO OPTION PRICE"). 5. TIME AND MANNER OF EXERCISE. (a) Vesting Schedule. Subject to the other provisions of this Agreement, the ISO Option and/or the NSO Option (as applicable) shall become exercisable as to the percentage of the aggregate number of shares initially covered by each such option (as adjusted in accordance with Section 8 hereof, if applicable) on and after each of the following dates: If the above schedule results in a fractional number of shares attributable to one or more installments, such fractions shall be added together or apportioned in such a manner as to add one or more additional whole shares to the first installment to become exercisable as set forth above, leaving an equal number of whole shares assigned to each of the remaining installments. To the extent not previously exercised in accordance with the terms of this Agreement, both the ISO Option and the NSO Option shall expire as of 11:59 p.m., Eastern Time, on the tenth (10th) anniversary of the date of this Agreement. (b) Minimum Exercise. A minimum of 100 shares, or such lesser number as is exercisable if fewer than 100 shares are exercisable, may be purchased by the Optionee from the Company at any one time under either the ISO Option or the NSO Option. (c) Method of Exercise and Payment. Subject to the other provisions of this Agreement, both the ISO Option and the NSO Option may be exercised, in whole or in part, by giving written notice of such exercise, in the form annexed to this Agreement, to the Secretary of the Company at the Company's corporate headquarters office, 1100 South Watkins Street, Chattanooga, Tennessee, 37404. In order to be effective, such notice must be accompanied by payment, in the form of a certified or bank cashier's check made payable to "Dixie Yarns, Inc.," of the full amount of the aggregate ISO Option Price and/or NSO Option Price for the ISO Optioned Stock and/or the NSO Optioned Stock then being purchased. Alternatively, payment of the exercise price for either such option may be made (in accordance with such procedures and limitations as the Committee may deem appropriate): (A) by means of surrender to the Company of whole shares of the Company's Common Stock owned by the Optionee having a fair market value (as defined in the Plan) on the date of exercise at least equal to the aggregate ISO Option Price or NSO Option Price of the stock then being purchased (provided, if the shares to be tendered were previously acquired upon the exercise of another ISO Option, such tendered shares must have been owned by the Optionee for at least as long as the ISO Holding Period (as defined in Section 9 hereof) applicable to such other ISO Option) or (B) by means of a combination of the surrender of such Common Stock and payment of any remaining balance of the aggregate exercise price with such a certified or bank cashier's check. (d) Certain Additional Restrictions. Except as provided in Section 7 hereof (and except for Optionees who are Directors of the Company), neither the ISO Option nor the NSO Option may be exercised unless the Optionee is an employee of the Company, as provided in Section 10 hereof, at the time of exercise. Neither the Optionee nor his heirs, legatees, distributees, or legal representatives of his estate shall have any rights of a stockholder with respect to the ISO Optioned Stock or the NSO Optioned Stock (as applicable) unless and until certificates for such shares have been issued upon the exercise of the ISO Option or the NSO Option. Unless otherwise provided herein, no adjustments shall be made for dividends or other rights for which the record date is prior to the date of exercise of the applicable option. 6. ANTI-ASSIGNMENT PROVISION. This Agreement shall be binding upon and inure to the benefit of the parties hereto, and the successors and assigns of the Company and its subsidiaries. However, except as may be approved by the Committee where such approval will not adversely affect compliance of the Plan with Rule 16b-3 under the Exchange Act, neither the ISO Option nor the NSO Option shall be transferable by the Optionee otherwise than by will or the laws of descent and distribution, and each such option shall be exercisable, during the Optionee's lifetime, only by him (or by a duly appointed guardian or personal representative). More particularly (but without limiting the generality of the foregoing), neither the ISO Option nor the NSO Option may be assigned, transferred, pledged, hypothecated or encumbered in whole or in part either directly or by operation of law or otherwise (except as otherwise permitted in this Section 6) including, but not by way of limitation, by execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner. In the event of any unapproved attempted assignment, transfer, pledge, hypothecation or other disposition of any ISO Option or NSO Option contrary to the provisions hereof, or the levy of any attachment or similar process upon such option, such option shall automatically become null and void. Any transfer of an ISO Option or NSO Option approved by the Committee shall cause the transferee to be treated as the "Optionee" for all purposes of the Plan and this Agreement unless the Committee directs otherwise. 7. TERMINATION OF EMPLOYMENT/SERVICE OR DEATH OF OPTIONEE. (a) Termination Not Involving Death/Disability/Retirement. In the event an Optionee (other than an Optionee who is a non-employee Director of the Company) shall cease to be employed by, or performing services for, the Company, in accordance with Section 10 hereof, while holding one or more stock options (including both ISO Options and NSO Options), each option held shall immediately cease to be exercisable on the date of such termination of employment; provided, however, that, in the case of a period of Related Employment pursuant to Paragraph 14 of the Plan, the Committee may permit the Optionee to continue to be able to exercise the NSO Option (as well as any ISO Option that becomes an NSO Option by virtue of its continuation during a period of Related Employment which extends for more than 90 days) in accordance with all of the other terms of such option. Additionally, the Committee shall have the discretion, in the event of termination for any reason other than the Optionee's death, disability or retirement, to permit the Optionee to exercise any option that vested prior to such termination for a period of up to 90 days following such termination. Subject to Section 14 hereof, the Committee shall also have discretion to vest some or all non-vested options, as it deems appropriate, in the event of termination for any reason other than the Optionee's death, disability or retirement (subject, however, in the case of ISO Options, to the loss of favorable ISO treatment under federal tax laws to the extent that such action causes options covering shares with a fair market value in excess of $100,000 on the date such options were granted to first become exercisable within a single calendar year. (b) Disability or Retirement of Optionee. In the event that an Optionee (other than an Optionee who is a non-employee Director of the Company) shall cease to be employed by, or performing services for, the Company, in accordance with Section 10 hereof due to the Optionee's disability or retirement (as contemplated by Paragraph 5(e)(iii)(B) of the Plan), then each option then held by the Optionee may be exercised by the Optionee (or by his successor, in the event of the Optionee's death or legal incapacity), to the extent that such option was exercisable at the time of such termination of employment (and subject to Section 7(c) and Section 14 hereof), at any time during a period of one (1) year following the date of such termination. (c) Death of Optionee. Subject to Section 14 hereof, in the event that an Optionee should die while any portion of the ISO Option and/or the NSO Option remains exercisable, such option may be exercised by the Optionee's designated beneficiary to the same extent that such option was exercisable by the Optionee immediately prior to his death (or to the extent that such option would have been exercisable in the year immediately following Optionee's death had he survived, if subsequent installments would have vested) at any time during a period of one (1) year following Optionee's death. If Optionee has not made any designation of beneficiary, then the duly appointed legal representative of Optionee's estate shall be entitled to exercise such options in accordance with this Section 7(c). (d) Non-employee Directors. In the case of an Optionee who is a non- employee Director of the Company, if such Optionee should cease (for any reason) to serve as a member of the Board of Directors while any portion of the NSO Option granted to him remains exercisable, then such Optionee (or his successor, in the event of the Optionee's death or legal incapacity) may exercise the option during a period of up to one (1) year following the cessation of his service as a Director (or such other period determined by the Committee, but in no event after the option has expired) with respect to any shares as to which the Optionee could have exercised the option on the date when he ceased to serve as a Director of the Company, or with respect to such greater number of shares as determined by the Committee up to the total number of shares subject to the option. (e) Expiration of Options. All vested (as well as any non-vested) options shall expire at (a) the expiration of such option's term or (b) such earlier date as may be fixed by the Committee pursuant hereto. None of the provisions of this Section 7 shall be construed as permitting the exercise of either an ISO Option or an NSO Option, or any part thereof, at any time after 10 years from the date of this Agreement. 8. ADJUSTMENT IN NUMBER OF SHARES OF OPTIONED STOCK AND OPTION PRICE. In the event of any change in the outstanding Common Shares of the Company by reason of any stock split, reverse stock split, stock dividend, split- up, split-off, spin-off, recapitalization, merger, consolidation, rights offering, reorganization, combination or exchange of shares, a sale by the Company of all or part of its assets, a change in control (as defined in Paragraph 17(o) of the Plan), any distribution to shareholders other than a normal cash dividend, or other extraordinary or unusual event, if the Committee shall determine that such change equitably requires an adjustment in the terms of any ISO Option or NSO Option granted pursuant to this Agreement, such adjustment may be made by the Committee. In the case of any such adjustment by the Committee regarding the shares subject to any option, the exercise price per share also shall be appropriately adjusted to reflect the adjustment in the number of shares subject to such option. No fractional share of Common Stock shall be issued upon the exercise of any ISO Option or NSO Option as a result of any such adjustment. In the discretion of the Committee, the minimum number of full shares which may be purchased upon exercise of any such option pursuant to Section 5(b) hereof also may be adjusted in connection with such event. Any such adjustments made by the Committee shall be final, conclusive and binding for all purposes of this Agreement and the Plan. 9. DISPOSAL OF ISO OPTION SHARES. Any Optionee who disposes of shares of Common Stock acquired on the exercise of an ISO Option by sale or exchange either (i) within two years after the date of the grant of the ISO Option under which the stock was acquired or (ii) within one year after the acquisition of such shares ((i) and (ii), collectively, the "ISO HOLDING PERIOD") must notify the Company of such disposition and of the amount realized upon such disposition. Optionee hereby covenants and agrees with the Company that Optionee will fully comply with the requirements of this Section 9. Any failure by Optionee to fulfill this requirement will be grounds for the Committee's exclusion of such Optionee from eligibility to receive any future Awards under the Plan. 10. EMPLOYMENT. As used herein, the term "employment" shall mean the employment by an individual performing services for the Company or any of its Affiliates (as defined in the Plan) and shall also include periods of "Related Employment" (as described in Paragraph 14 of the Plan) as designated by the Committee. Any transfer of the Optionee from employment by the Company to an Affiliate of the Company (as defined in the Plan) or from employment by an Affiliate to the Company shall not be deemed to be a termination of employment for purposes of this Agreement. 11. NO RIGHT TO CONTINUED EMPLOYMENT OR OTHER RELATIONSHIP. It is understood that this Agreement shall not be construed as an agreement or commitment by the Company or any subsidiary or Affiliate to employ the Optionee during the term of the ISO Option and/or the NSO Option or for any fixed period of time. It is further understood that this Agreement does not interfere in any way with the right of the Company or of any Affiliate of the Company to terminate the employment of the Optionee (or any other relationship with the Optionee) at any time, with or without cause. 12. WITHHOLDING. Upon the exercise of either the ISO Option or the NSO Option, the Company shall not deliver or otherwise make shares of Common Stock available to the Optionee or his beneficiary or representative until the Company has received from the applicable party, in cash or any other form acceptable to the Committee, the amount necessary to enable the Company to remit to the appropriate governmental entity, on behalf of the applicable party, any amounts required to be withheld for taxes with respect to such transaction. 13. AVAILABILITY OF SHARES; PAYMENT OF EXPENSES. The Company shall at all times during the term of the ISO Option and/or the NSO Option, reserve and keep available such number of shares of common stock as will be sufficient to satisfy the requirements of this Agreement, shall pay all fees and expenses necessarily incurred by the Company in connection with the issue of shares pursuant hereto and will use its best efforts to comply with all laws and regulations which, in the opinion of counsel for the Company, shall be applicable. 14. SEC REGISTRATION AND SHAREHOLDER APPROVAL. This Agreement has been entered into pursuant to Paragraph 5 of the Plan. Notwithstanding anything to the contrary contained in this Agreement, the ISO Option and/or the NSO Option (as applicable) granted hereby shall not be exercisable unless and until: (A) a registration statement under the Securities and Exchange Act of 1934 as amended has been filed and has become effective with respect to the shares of Common Stock covered by such option; (B) any required approval of the Company's shareholders has been obtained in accordance with the terms of the Plan; and (C) any other applicable laws, rules and regulations, and such approvals by any governmental agencies as may be required, shall have been complied with or obtained. 15. GOVERNING LAW. This Option Agreement has been entered into pursuant to and shall be governed by the laws of the State of Tennessee. 16. GENDER AND NUMBER. Any use of the masculine includes the feminine and the neuter; and any use of the singular includes the plural, whenever such meanings are appropriate. 17. HEADINGS AND DEFINITIONS. The headings appearing at the beginning of each Section in this Agreement are intended only as an index and are not to be construed to vary the meaning of the provision to which they refer. Any capitalized terms used but not defined herein shall have the meanings assigned to such terms the Plan. IN WITNESS WHEREOF, this Agreement has been duly executed by the Optionee and the Company has caused this Agreement to be duly executed by its officers thereunto duly authorized on the date and year above written. ATTEST: DIXIE YARNS, INC. __________________________ By:____________________________________ Name: Title: _______________________________________ OPTIONEE Social Security No.: __________________ EXERCISE FORM FOR STOCK OPTION AGREEMENT UNDER DIXIE YARNS, INC. INCENTIVE STOCK PLAN Date:___________________________ Dixie Yarns, Inc. 1100 South Watkins Street Chattanooga, TN 37404 Attn: Corporate Secretary Ladies and Gentlemen: Enclosed are (i) my check for $_________________ and/or (ii) my stock certificate(s) (or other evidence of ownership) representing ______________ shares of Dixie Yarns, Inc. Common Stock and duly endorsed for transfer to Dixie Yarns, Inc., which are hereby tendered in payment for the purchase of: (A) ______________ shares of Dixie Yarns, Inc. Common Stock at $ __________ per share pursuant to the exercise of ISO Options granted under the terms of my Stock Option Agreement with Dixie Yarns, Inc., dated _____________, 19 ______, and/or (B) ______________ shares of Dixie Yarns, Inc. Common Stock at $ __________ per share pursuant to the exercise of NSO Options granted under the terms of my Stock Option Agreement with Dixie Yarns, Inc., dated _______________, 19______. Please register said stock in the name(s) of _________________________ ________________________________________________________ (you can either have the stock registered in your name only or in your and your spouse's names as joint tenants with right of survivorship) and forward the stock certificates, dividends, and all other stockholder information to (give exact address) ___________________________________________________________ __________________________________________________________________________ __________________________________________________________________________. ________________________________ Signature Social Security Number: ______________________ Spouse's Social Security Number (if stock to be registered as joint tenants): ____________________________ EX-10.Y 9 EXHIBIT (10y) DIXIE YARNS, INC. STOCK OWNERSHIP PLAN PURPOSE: The Board of Directors believes that it is desirable and in the best interest of the Company to encourage ownership of Common Stock of the Company by the principal officers of the Company. It is believed that a substantial investment in the Company by such officers will encourage and enhance their incentive to manage the Company for the long term benefit of its shareholders. Accordingly, the Board of Directors adopts this Plan in order to carry out such goals. GOAL: Every participant is encouraged to own that number of shares of Common Stock of the Company that represents in fair market value two (2) times such participant's base salary commencing on the first business day three (3) years following (a) the date of adoption of this Plan, or (b) the first anniversary date of the adoption of this Plan occurring after a new participant is selected to participate in the Plan, whichever is applicable. For the purpose of such determination, fair market value shall be determined by the closing price of the Company's Common Stock as reported by NASD on the date of such determination, or if the Common Stock is not traded on such day, then the earliest day prior thereto when such stock trades (the "NASD Price".) PARTICIPANTS: This Plan shall apply to the Chief Executive Officer, President, Chief Financial Officer, and all Corporate vice-presidents, and, such other persons as may be identified periodically from time to time hereafter by the Compensation Committee. PURCHASE FROM COMPANY: In order to facilitate the acquisition of Common Stock of the Company, the Company will on the date of adoption of the Plan by the Board of Directors, or as soon thereafter as may be practical, or on the next anniversary date of the adoption of the Plan (an "Anniversary Date") that occurs following the selection of a new corporate officer eligible to participate in the Plan (or on such earlier date as the Compensation Committee may designate in the case of a new corporate officer) (such date, as applicable, the "Initial Subscription Offering Date"), allow each participant to subscribe for shares of Common Stock up to but not to exceed that number of shares having a fair market value based upon the NASD Price on the Initial Subscription Offering Date equal to two (2) times the participant's base salary. Thereafter on the two (2) successive Anniversary Dates following the Initial Subscription Offering Date, a participant shall be allowed to subscribe for the purchase of additional shares of Common Stock having a fair market value equal to two (2) times the participant's base salary on such Anniversary Date less the dollar amount of any previous subscriptions. The purchase price of such shares shall be the NASD Price of the Common Stock on the applicable Anniversary Date of the offering. Each subscription shall be automatically called for payment on the third Anniversary Date following the Initial Subscription Offering Date with respect to the participant. At that time, the participant may pay the subscription price entirely in cash or through a combination of cash and/or the surrender to the Company of either (i) shares of Common Stock already owned by the participant or (ii) a portion of the shares of Common Stock otherwise covered by the subscription. DEATH OR DISABILITY: In the event of the death of a participant or the disability of a participant such that the participant shall no longer continue to be employed by the Company, all subscriptions outstanding shall become due and payable, if not earlier pursuant to their terms, six (6) months from the date of such participant's death or disability, as applicable. TERMINATION OF EMPLOYMENT: In the event of the termination of employment of a participant for any reason other than death or disability, whether for or without cause, voluntary or involuntary, all subscriptions outstanding shall become due and payable, if not earlier pursuant to their terms, ten (10) days from the participant's termination date. ACQUISITION: In the event that the Company is acquired by another person, corporation or legal entity, whether by merger, consolidation, sale of assets, tender offer or other means, the Company shall have the right to immediately call all outstanding subscriptions for payment, at its sole option. RESTRICTED STOCK: All shares of Common Stock purchased by a participant from the Company shall be restricted stock and shall be subject to the resale restrictions imposed by all applicable federal and state securities laws. RULE 16B-3 REQUIREMENTS: The Board of Directors reserves the right to modify the Plan retroactively and/or submit the Plan to the Company's shareholders for approval should it determine that it is desirable to do so in order to meet the requirements of Rule 16b-3 of the Securities Exchange Act of 1934. AUTHORITY TO MODIFY THE PLAN: The Company reserves the right to modify or terminate the Plan at all times, provided that the Company will not change the number of shares of Common Stock or the maturity date of any subscription agreement outstanding without such participant's consent. COMPENSATION COMMITTEE AUTHORITY: The Board of Directors grants to the Compensation Committee the authority to administer the Plan and to make any changes in the Plan necessary or desirable in order to carry out the purposes of the Plan. Furthermore, the Compensation Committee shall have exclusive authority to interpret the Plan provisions and to waive or modify any requirement of the Plan or any terms of a subscription agreement issued to a participant in the Plan. EX-21 10 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT DIXIE YARNS, INC. SUBSIDIARIES STATE/COUNTRY OF SUBSIDIARY INCORPORATION Dixie Export, Inc. USVI Carriage Industries, Inc. Georgia Masland Carpets, Inc. Alabama Patrick Carpet Mills, Inc. California Candlewick - Ringgold, Inc. Tennessee Candlewick - Lemoore, Inc. Tennessee Candlewick - Roanoke/Tennessee, Inc. Tennessee Dixie Funding, Inc. Tennessee DEL, Inc. Tennessee RMK, Inc. North Carolina Caro Knit Incorporated South Carolina C-Knit Apparel, Inc. Tennessee -----END PRIVACY-ENHANCED MESSAGE-----