DEF 14A 1 DIXIE YARNS DEFINITIVE PROXY 1 SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant /X/ Filed by a Party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 Dixie Yarns, Inc. -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): /X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. / / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). / / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: 2 DIXIE YARNS, INC. 1100 SOUTH WATKINS STREET CHATTANOOGA, TENNESSEE 37404 (615) 698-2501 --------------------- NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To the Shareholders of Dixie Yarns, Inc.: NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Dixie Yarns, Inc., a Tennessee corporation (the "Company"), will be held at the Company's general office, 1100 South Watkins Street, Chattanooga, Tennessee 37404, on May 4, 1995, at 10:00 a.m., Eastern Daylight Time, for the purpose of considering and acting upon the following: 1. Election of nine individuals to the Board of Directors for a term of one year each; and 2. Such other business as may properly come before the Annual Meeting of Shareholders, or any adjournment or adjournments thereof. Only shareholders of record of the Common Stock and Class B Common Stock at the close of business on March 10, 1995 (the "Record Date"), are entitled to notice of, and to vote at, the Annual Meeting of Shareholders or any adjournment thereof. A list of shareholders will be available for inspection by shareholders at least ten days prior to the meeting at the general office of the Company as shown above. By Order of the Board of Directors Daniel K. Frierson Chairman of the Board Chattanooga, Tennessee Dated: March 31, 1995 PLEASE READ THE ATTACHED MATERIAL CAREFULLY AND COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY TO THE COMPANY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR SHARES OF COMMON STOCK AND CLASS B COMMON STOCK WILL BE REPRESENTED AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON, SHOULD YOU SO DESIRE. 3 DIXIE YARNS, INC. 1100 SOUTH WATKINS STREET CHATTANOOGA, TENNESSEE 37404 (615) 698-2501 --------------------- ANNUAL MEETING OF SHAREHOLDERS MAY 4, 1995 --------------------- PROXY STATEMENT --------------------- INTRODUCTION This Proxy Statement, the accompanying form of proxy (the "Proxy"), and the Notice of Annual Meeting of Shareholders (collectively the "Proxy Material") are being furnished by the Board of Directors of Dixie Yarns, Inc., a Tennessee corporation (the "Company"), in connection with the solicitation of proxies by the Company to be voted at the Annual Meeting of Shareholders to be held at the Company's general office, 1100 South Watkins Street, Chattanooga, Tennessee 37404 on May 4, 1995, at 10:00 a.m., Eastern Daylight Time, and at any adjournment or adjournments thereof (the "Annual Meeting"), for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. It is contemplated that this Proxy Material will be mailed on or about March 31, 1995, to the shareholders of record of the Company's Common Stock and Class B Common Stock as of the close of business on March 10, 1995 (the "Record Date"). At the Annual Meeting, holders of the Company's Common Stock, $3.00 par value per share ("Common Stock"), and Class B Common Stock, $3.00 par value per share ("Class B Common Stock"), will be asked to: (i) elect nine individuals to the Board of Directors for a term of one year each, and (ii) transact any other business that may properly come before the meeting. The Board of Directors recommends that the Company's shareholders vote FOR the election of the nine nominees for director. RECORD DATE, VOTE REQUIRED AND RELATED MATTERS The Board has fixed the close of business on March 10, 1995, as the Record Date for the determination of shareholders entitled to notice of, and to vote at, the Annual Meeting. Each outstanding share of Common Stock is entitled to one vote, and each outstanding share of Class B Common Stock is entitled to 20 votes, exercisable in person or by properly executed Proxy, on each matter brought before the Annual Meeting. There are no outstanding shares of the Company's Class C Common Stock. Cumulative voting is not permitted. As of March 10, 1995, 11,507,998 shares of Common Stock, representing 11,507,998 votes, were held of record by approximately 5,400 shareholders (including an estimated 4,360 shareholders whose shares are held in nominee names), and 735,228 shares of Class B Common Stock, representing 14,704,560 votes, were held by 18 individual shareholders together representing an aggregate of 26,212,558 votes. Shares represented at the Annual Meeting by properly executed Proxy will be voted in accordance with the instructions indicated therein unless such Proxy has previously been revoked. If no instructions are indicated, such shares will be voted FOR electing the Board of Directors' nine nominees for director as set forth in this Proxy Statement. 4 Any Proxy given pursuant to this solicitation may be revoked at any time by the shareholder giving it by delivering to the Secretary of the Company a written notice of revocation bearing a later date than the Proxy, by submitting a later-dated, properly executed Proxy, or by revoking the Proxy and voting in person at the Annual Meeting. Attendance at the Annual Meeting will not, in and of itself, constitute a revocation of a Proxy. Any written notice revoking a Proxy should be sent to Dixie Yarns, Inc., P. O. Box 751, Chattanooga, Tennessee 37401, Attention: Starr T. Klein, Secretary. The persons designated as proxies were selected by the Board of Directors and are: Daniel K. Frierson, James H. Martin, Jr., and Robert J. Sudderth, Jr., directors of the Company. Daniel K. Frierson is Chairman of the Board, President, and Chief Executive Officer of the Company. The cost of solicitation of Proxies will be borne by the Company. The presence, in person or by Proxy, of the holders of a majority of the aggregate outstanding vote of Common Stock and Class B Common Stock entitled to vote is necessary to constitute a quorum at the Annual Meeting for acting on the election of directors. The affirmative vote of a plurality of the total votes eligible to be cast that are represented in person or by Proxy at the Annual Meeting is required to elect the Board of Directors' nominees. The Board is not aware of any other matter to be brought before the Annual Meeting for a vote of shareholders. If, however, other matters are properly presented, Proxies representing shares of Common Stock and Class B Common Stock will be voted in accordance with the best judgment of the proxyholders on such other matters. Abstentions and broker non-votes (other than in respect of shares subject to proxies given pursuant to this solicitation) will not be included in vote totals and will have no effect on the outcome of the vote. A copy of the Company's Annual Report for the year ended December 31, 1994, is enclosed herewith. PRINCIPAL SHAREHOLDERS Shareholders of record of the Common Stock and Class B Common Stock on the Record Date will be entitled to vote at the Annual Meeting. The number of shares of Common Stock and Class B Common Stock outstanding and entitled to vote on March 10, 1995, was 11,507,998, having one vote per share (representing 11,507,998 votes) and 735,228 having twenty votes per share (representing 14,704,560 votes), respectively, for a total of 26,212,558 votes. Messrs. Daniel K. Frierson, T. Cartter Frierson, Paul K. Frierson, James W. Frierson, and J. Burton Frierson, III collectively have the power to direct 15,539,842 votes (871,042 shares of Common Stock and 733,440 shares of Class B Common Stock) representing 59.28% of the total vote. Under the rules of the Securities and Exchange Commission, and for the purposes of the disclosures being made herein, a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power," which includes the power to vote or to direct the voting of such security, or "investment power," which includes the power to dispose or to direct the disposition of such security. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities. 2 5 The following table sets forth certain information with respect to those persons known to the Company to be the beneficial owners of more than five percent (5%) of the Common Stock or Class B Common Stock as of the Record Date. As to Suntrust Banks, Inc. and David L. Babson & Co., the information is based on the respective Schedule 13G forms filed by each such beneficial owner.

NAME AND ADDRESS NUMBER OF SHARES % OF OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIALLY OWNED(1) CLASS ------------------------------------ ---------------------- --------------------- ----- Daniel K. Frierson 111 East and West Road Common Stock 435,405(2) 3.78% Lookout Mountain, TN 37350 Class B Common Stock 661,440(3) 89.96% Paul K. Frierson 606 Fleetwood Drive Common Stock 111,527(4) * Lookout Mountain, TN 37350 Class B Common Stock 251,373(5) 34.19% T. Cartter Frierson 1103 Tinker Bell Lane Common Stock 355,671(6) 3.09% Lookout Mountain, GA 30750 Class B Common Stock 100,982(7) 13.73% The Prudential Insurance Company of America 4 Gateway Plaza, 7th Floor 100 Mulberry Street Common Stock 1,029,446(8) 8.95% Newark, NJ 07102 Class B Common Stock -0- -- SunTrust Bank, Inc. 25 Park Place Common Stock 785,277(9) 6.82% Atlanta, GA 30303 Class B Common Stock -0- -- David L. Babson & Company, Inc. One Memorial Drive Common Stock 791,729(10) 6.88% Cambridge, MA 02142 Class B Common Stock -0- --

--------------- * Percentage of shares beneficially owned does not exceed 1% of the Class. (1) The Class B Common Stock is convertible on a share-for-share basis into shares of Common Stock. However, information presented in this table as to the number of shares of Common Stock beneficially owned and the percent of class does NOT give effect to the possible conversion of shares of Class B Common Stock into shares of Common Stock. (2) Includes: (i) 27,238 shares of Common Stock as to which Mr. Frierson has sole investment and sole voting power; (ii) options to acquire 84,000 shares of Common Stock which are immediately exercisable or exercisable within 60 days; (iii) 27,433 shares of Common Stock owned directly by Rowena K. Frierson but subject to a general power of attorney granted to Daniel K. Frierson and T. Cartter Frierson; (iv) 174,588 shares of Common Stock owned by the "Dixie Yarns, Inc. Defined Contribution Plan" for which Daniel K. Frierson and Robert J. Sudderth, Jr. are fiduciaries and for which American National Bank & Trust Company of Chattanooga ("ANB") serves as trustee. (See note 10 for a description of the affiliation between ANB and SunTrust Bank, Inc.); and (v) 122,146 shares of Common Stock owned the wife and children of Daniel K. Frierson and as to which he shares voting and investment power. (3) Includes: (i) 105,072 shares of Class B Common Stock owned by Mr. Frierson's wife and children as to which he shares investment and voting power and (ii) 556,368 shares of Class B Common Stock held pursuant to a shareholder agreement under which Daniel K. Frierson has been granted a proxy, which expires October 2005, to vote such shares (the "Shareholder Agreement"). The proxy is terminable under certain limited circumstances prescribed in the Shareholder Agreement. The parties to the Shareholder Agreement are the Estate of J. Burton Frierson, the wife of J. Burton Frierson (Rowena K. 3 6 Frierson) and the five sons of J. Burton and Rowena K. Frierson (Daniel K. Frierson; Paul K. Frierson; T. Cartter Frierson; James W. Frierson; and J. Burton Frierson, III). The 556,368 shares of Class B Common Stock subject to the Shareholder Agreement include: (a) 220,500 shares of Class B Common Stock owned directly by Daniel K. Frierson; (b) 94,069 shares of Class B Common Stock owned directly by Paul K. Frierson; (c) 15,678 shares of Class B Common Stock owned directly by T. Cartter Frierson; (d) 15,678 shares of Class B Common Stock owned directly by J. Burton Frierson, III; (e) 40,000 shares of Class B Common Stock held by Paul K. Frierson, T. Cartter Frierson, and Daniel K. Frierson as co-trustees of the Frierson Family Trusts; (f) 45,304 shares of Class B Common Stock held by Paul K. Frierson, T. Cartter Frierson, and Daniel K. Frierson as co-trustees of the Special Purpose Trust of J. Burton Frierson; and (g) 125,139 shares of Class B Common Stock owned directly by Rowena K. Frierson but subject to a general power of attorney granted to Daniel K. Frierson and T. Cartter Frierson. (4) Includes: (i) 17,255 shares of Common Stock as to which Mr. Frierson holds sole investment and sole voting power; (ii) options to acquire 22,000 shares of Common Stock, which are immediately exercisable or exercisable within 60 days; and (iii) 72,302 shares of Common Stock owned by his wife and children and as to which he shares investment and voting power. (5) Includes: (i) 94,069 shares of Class B Common Stock owned directly by Mr. Frierson and held subject to the Shareholder Agreement described in Note 3; (ii) 72,000 shares of Class B Common Stock owned by his children and as to which he shares investment and voting power; (iii) 40,000 shares of Class B Common Stock held by him, T. Cartter Frierson, and Daniel K. Frierson as co-trustees of the Frierson Family Trusts and held subject to the Shareholder Agreement described in note 3; and (iv) 45,304 shares of Class B Common Stock held by him, T. Cartter Frierson and Daniel K. Frierson as co-trustees of the Special Purpose Trust of J. Burton Frierson and held subject to the Shareholder Agreement described in note 3. (6) Includes: (i) 195,662 shares of Common Stock as to which Mr. Frierson holds sole investment and sole voting power; (ii) 132,576 shares of Common Stock owned by his wife and children as to which he shares investment and voting power; and (iii) 27,433 shares of Common Stock owned directly by Rowena K. Frierson but subject to a general power of attorney held by Daniel K. Frierson and him. (7) All such shares of Class B Common Stock are held subject to the Shareholder Agreement described in note 3. (8) Includes: (i) 964,797 shares of Common Stock over which The Prudential Insurance Company of America has sole voting and sole investment power and (ii) 64,649 shares of Common Stock over which it shares investment power. (9) SunTrust Bank, Inc., as parent holding company for Third National Corporation, Trust Company of Georgia, and SunBanks, Inc., has reported beneficial ownership as follows: Third National Corporation, as parent holding company of ANB, has reported (i) 682,675 shares of Common Stock over which ANB has sole voting power, (ii) 82,467 shares of Common Stock over which ANB had shared voting power, (iii) 250,406 shares of Common Stock over which ANB has sole investment power; and (iv) 324,862 shares of Common Stock over which ANB has shared investment power. SunBanks, Inc., as parent holding company of SunBank Miami, N.A., has reported 4,800 shares of Common Stock over which it has sole voting power and shares investment power. (10) David L. Babson & Co., Inc., a registered Investment Advisor, has reported beneficial ownership as follows: (i) 570,896 shares of Common Stock over which it has sole voting power, (ii) 220,833 shares of Common Stock over which it has shared voting power, and 791,729 shares of Common Stock over which it has sole investment power. 4 7 INFORMATION ABOUT NOMINEES FOR DIRECTORS Pursuant to the Company's Bylaws, all Directors are elected to serve a one year term, or until their successors are elected and qualified. The Board of Directors is permitted to appoint directors to fill the unexpired terms of directors who resign. The names of the nominees for election to the Board, their ages, their principal occupation or employment (which has continued for at least the past five years unless otherwise noted), directorships held by them in other publicly-held corporations or investment companies, the dates they first became directors of the Company, and certain other relevant information with respect to such nominees are as follows: PAUL K. BROCK, age 62, is Chairman of Brach & Brock Confections, Inc., a candy manufacturer headquartered in Chattanooga, Tennessee. Mr. Brock served as President of Brock Candy Company, Chattanooga, Tennessee, prior to its merger with E.J. Brach Corporation on November 1, 1994. He has been a director of the Company since 1983. Mr. Brock is Chairman of the Company's Compensation Committee and a member of the Company's Executive Committee. LOVIC A. BROOKS, JR., age 67, is Chief Executive Partner of Constangy, Brooks & Smith, attorneys-at-law, in Atlanta, Georgia. He has been a director of the Company since 1993. DANIEL K. FRIERSON, age 53, is Chairman of the Board of the Company, a position he has held since 1987. He also has been Chief Executive Officer of the Company since 1980 and a director of the Company since 1973. Mr. Frierson serves as a director of American National Bank & Trust Company, Chattanooga, Tennessee, and of Astec Industries, Inc., headquartered in Chattanooga, Tennessee. Mr. Frierson is Chairman of the Company's Executive Committee and a member of the Company's Retirement Plans Committee. PAUL K. FRIERSON, age 57, is Vice President of the Company and President of the Company's Candlewick Group, positions he has held since 1989. He has served as Executive Vice President of the Candlewick Group since 1984 and as a director of the Company since 1988. Mr. Frierson serves as a director of NationsBank/Chattanooga. J. FRANK HARRISON, JR., age 64, is Chairman of the Board and a director of Coca-Cola Bottling Co. Consolidated in Charlotte, North Carolina. He has been a director of the Company since 1973. Mr. Harrison is a member of the Company's Compensation Committee. JAMES H. MARTIN, JR., age 75, was Chairman and the Chief Executive Officer of Ti-Caro, Inc., prior to its acquisition by the Company in 1987. He has been a director of the Company since 1987. Mr. Martin is a member of the Company's Audit Committee. PETER L. SMITH, age 53, is a General Partner of Lazard Freres & Co., investment bankers, in New York, New York. He has been a director of the Company since 1987. Mr. Smith is a member of the Company's Audit Committee. JOSEPH T. SPENCE, JR., age 53, is Managing Director of Russell Reynolds Associates, Inc., an executive recruiting firm. He has held such position since 1988. Mr. Spence has been a director of the Company since 1993. ROBERT J. SUDDERTH, JR., age 52, is Chairman and Chief Executive Officer of American National Bank & Trust Company in Chattanooga, Tennessee. He has been a director of the Company since 1983. Mr. Sudderth is Chairman of the Company's Audit Committee, a member of the Company's Compensation Committee, and a member of the Company's Retirement Plans Committee. 5 8 Daniel K. Frierson and Paul K. Frierson are brothers, and Paul K. Brock is the first cousin of Daniel K. Frierson and Paul K. Frierson. James H. Martin, Jr. is the uncle of Daniel K. Frierson, Paul K. Frierson, and Paul K. Brock. Other than as set forth above, no director, nominee or executive officer of the Company has any family relationship, not more remote than first cousin, to any other director, nominee, or executive officer. SECURITY OWNERSHIP OF MANAGEMENT The following table presents certain information regarding the amount and nature of beneficial ownership of the Company's equity securities by its nominees for directors, by the Company's executive officers named in the Summary Compensation Table (see "Executive Compensation"), and by all directors and officers, as a group, as of March 10, 1995.

NAME OF BENEFICIAL NUMBER OF SHARES OWNERSHIP OF MANAGEMENT TITLE OF CLASS BENEFICIALLY OWNED(1) % OF CLASS ----------------------------------------- -------------------- --------------------- ---------- Philip H. Barlow Common Stock 20,354(2) * Class B Common Stock -- -- Paul K. Brock Common Stock 600 * Class B Common Stock -- -- Lovic A. Brooks, Jr. Common Stock 2,000 * Class B Common Stock -- -- C. Pat Driver Common Stock 32,306(5) * Class B Common Stock -- -- Daniel K. Frierson Common Stock 435,405(3) 3.76% Class B Common Stock 661,440(4) 89.96% Paul K. Frierson Common Stock 111,527(6) * Class B Common Stock 251,373(7) 34.19% Glenn M. Grandin(8) Common Stock 5,000 * Class B Common Stock -- -- J. Frank Harrison, Jr. Common Stock 9,324 * Class B Common Stock -- -- James H. Martin, Jr. Common Stock 6,000 * Class B Common Stock -- -- Peter L. Smith Common Stock 4,500 * Class B Common Stock -- -- Joseph T. Spence, Jr. Common Stock 500 * Class B Common Stock -- -- John O. Sturdy Common Stock 800 * Class B Common Stock -- -- Robert J. Sudderth, Jr. Common Stock 175,588(9) 1.53% Class B Common Stock -- -- All Directors and Executive Officers as a Common Stock 700,707(10) 5.99% Group (20 Persons) Class B Common Stock 733,440(4)(7) 99.76%

--------------- * Percentage of shares beneficially owned does not exceed 1% of the Class. (1) The Class B Common Stock is convertible on a share-for-share basis into shares of Common Stock; however, information presented in this table as to the number of shares of Common Stock beneficially owned and the percent of class does NOT give effect to the possible conversion of shares of Class B Common Stock into shares of Common Stock. 6 9 (2) Includes: (i) 810 shares of Common Stock owned directly by Mr. Barlow and (ii) options to acquire 19,544 shares of Common Stock, which are immediately exercisable or exercisable within 60 days. (3) Includes: (i) 27,238 shares of Common Stock as to which Mr. Frierson has sole investment and sole voting power; (ii) options to acquire 84,000 shares of Common Stock, which are immediately exercisable or exercisable within 60 days; (iii) 27,433 shares of Common Stock owned directly by Rowena K. Frierson but subject to a general power of attorney granted to Mr. Frierson and T. Cartter Frierson; (iv) 174,588 shares of Common Stock owned by the "Dixie Yarns, Inc. Defined Contribution Plan" for which Mr. Frierson and Robert J. Sudderth, Jr. are fiduciaries and for which American National Bank & Trust Company of Chattanooga ("ANB") serves as trustee; and (v) 122,146 shares of Common Stock owned by the wife and children of Daniel K. Frierson and as to which he shares voting and investment power. (4) Includes: (i) 105,072 shares of Class B Common Stock owned by Mr. Frierson's wife and children and to which he shares investment and voting power and (ii) 556,368 shares of Class B Common Stock held pursuant to a shareholder agreement under which he has been granted a proxy, which expires October 2005, to vote such shares (the "Shareholder Agreement"). The proxy is terminable under certain limited circumstances prescribed in the Shareholder Agreement. The Shareholder Agreement is between the Estate of J. Burton Frierson, the wife of J. Burton Frierson (Rowena K. Frierson), and the five sons of J. Burton and Rowena K. Frierson (Daniel K. Frierson; Paul K. Frierson; T. Cartter Frierson; James W. Frierson; and J. Burton Frierson, III). The 556,368 shares of Class B Common Stock subject to the Shareholder Agreement include: (a) 220,500 shares of Class B Common Stock owned directly by him; (b) 94,069 shares of Class B Common Stock owned directly by Paul K. Frierson; (c) 15,678 shares of Class B Common Stock owned directly by T. Cartter Frierson; (d) 15,678 shares of Class B Common Stock owned directly by J. Burton Frierson, III; (e) 40,000 shares of Class B Common Stock held by Paul K. Frierson, T. Cartter Frierson, and Daniel K. Frierson as co-trustees of the Frierson Family Trusts; (f) 45,304 shares of Class B Common Stock held by Paul K. Frierson, T. Cartter Frierson, and Daniel K. Frierson as co-trustees of the Special Purpose Trust of J. Burton Frierson; and (g) 125,139 shares of Class B Common Stock owned directly by Rowena K. Frierson but subject to a general power of attorney granted to Daniel K. Frierson and T. Cartter Frierson. (5) Includes: (i) 18,306 shares of Common Stock owned directly by Mr. Driver and (ii) options to acquire 14,000 shares of Common Stock, which are immediately exercisable. (6) Includes: (i) 17,225 shares of Common Stock as to which Mr. Frierson holds sole investment and sole voting power; (ii) options to acquire 22,000 shares of Common Stock, which are immediately exercisable or exercisable within 60 days; and (iii) 72,302 shares of Common Stock owned by his wife and children and as to which he shares investment and voting power. (7) Includes: (i) 94,069 shares of Class B Common Stock owned directly by Mr. Frierson and held subject to the Shareholder Agreement described in Note 4; (ii) 72,000 shares of Class B Common Stock owned by his wife and children and as to which he shares investment and voting power; (iii) 40,000 shares of Class B Common Stock held by him, T. Cartter Frierson, and Daniel K. Frierson as co-trustees of the Frierson Family Trusts and held subject to the Shareholder Agreement described in note 4; and (iv) 45,304 shares of Class B Common Stock held by him, T. Cartter Frierson and Daniel K. Frierson as co-trustees of the Special Purpose Trust of J. Burton Frierson and held subject to the Shareholder Agreement described in note 4. (8) Mr. Grandin joined the Company as Senior Vice-President and Chief Financial Officer on February 20, 1995. (9) Includes: (i) 1,000 shares of Common Stock owned directly by Mr. Sudderth and (ii) 174,588 shares of Common Stock owned by the "Dixie Yarns, Inc. Defined Contribution Plan" for which he and Daniel K. Frierson are fiduciaries. (10) Includes: (i) options to acquire 198,794 shares, which are immediately exercisable or exercisable within 60 days and (ii) 221,881 shares held by spouses and children of certain individuals comprising this group. 7 10 SECTION 16(a) COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, and regulations of the Securities and Exchange Commission ("SEC") thereunder, require the Company's executive officers and directors and persons who own more than 10% of the Company's Common Stock, as well as certain affiliates of such persons, to file initial reports of ownership and monthly transactions reports covering any changes in ownership with the SEC and the National Association of Securities Dealers. Executive officers, directors, and persons owning more than 10% of the Company's Common Stock are required by SEC regulations to furnish the Company with all such reports they file. Based solely on its review of the copies of such reports received by it and written representations that no other reports were required for such persons, the Company believes that, during fiscal year 1994, all filing requirements applicable to its executive officers, directors, and owners of more than 10% of the Company's Common Stock were complied with. COMMITTEES, ATTENDANCE AND DIRECTORS' FEES The Company has an Executive Committee, an Audit Committee, a Retirement Plans Committee, and a Compensation Committee, but no nominating committee. The Board of Directors has an Executive Committee whose members were Daniel K. Frierson, Paul K. Brock, and James H. Martin during 1994. Except as otherwise limited by law or by resolution of the Board of Directors, the Committee has and may exercise all of the powers and authority of the Board of Directors for the management of the business and affairs of the Company, which power the Committee exercises between the meetings of the full Board of Directors. The Executive Committee met three times in 1994. The Board of Directors has a standing Audit Committee whose members were James H. Martin, Robert J. Sudderth, Jr., and Peter L. Smith during 1994. The Audit Committee evaluates audit performance, handles relations with the Company's independent accountants, and evaluates policies and procedures relating to internal accounting functions and controls. The Committee recommends to the Board of Directors the appointment of the independent accountants for the Company. The Audit Committee met three times in 1994. The Board of Directors has a Compensation Committee whose members during 1994 were Paul K. Brock, J. Frank Harrison, Jr., and Robert J. Sudderth, Jr. The Compensation Committee administers the Company's compensation plans, reviews and may establish the compensation of the Company's officers, and makes recommendations to the Board of Directors concerning such compensation and related matters. The Compensation Committee met two times in 1994. The Board of Directors does not have a standing nominating committee or committee performing similar functions. No director attended fewer than 75% of the total of meetings of the Board of Directors and any Committee of the Board of Directors on which he served, with the exception of J. Frank Harrison, Jr. who attended three Board meetings and two Compensation Committee meetings. Directors who are not employees of the Company are paid a retainer of $10,000 per year, $500 for each Board meeting attended, and $400 for each committee meeting attended. 8 11 CERTAIN TRANSACTIONS BETWEEN THE COMPANY AND DIRECTORS AND OFFICERS Mr. Martin provides advisory services to the Company as a consultant and was paid $58,150 in Directors' fees, retainer fees, and other fees in 1994. Mr. Brooks is Chief Executive Partner of Constangy, Brooks & Smith, a law firm that performed certain legal services for the Company in 1994. Mr. Smith is a general partner of Lazard Freres & Co., an investment banking firm that performs certain investment banking functions for the Company from time to time. No fees were paid to Lazard Freres & Co. in 1994. EMPLOYMENT AGREEMENTS In 1988, Carriage Industries, Inc. ("Carriage") entered into an Executive Severance Agreement with Mr. Barlow (the "Agreement"). In 1992, the Agreement was renewed, with some changes, for a period ending on September 7, 1996. Pursuant to the terms of the Company's acquisition of Carriage in March 1993, the Company assumed the obligations of Carriage under the Agreement. The Agreement provides that if, within ninety days prior to or two years after any Change of Control (as defined in the Agreement), Mr. Barlow's employment is terminated for any reason other than for Cause (as defined in the Agreement), death, disability, retirement (as defined in the Agreement), or Voluntary Termination (as defined in the Agreement), the Company shall provide Mr. Barlow with (i) a lump sum cash amount equal to the average of his salary and any bonus paid to him for the three calendar years preceding the year in which the Change of Control (as defined in the Agreement) occurs (the "Average Compensation") plus an amount equal to 20% of the Average Compensation multiplied by the number of full calendar years he has been employed by the Company and Carriage; (ii) coverage, paid for by the Company, under the Company's Life, Disability, Medical and Dental, Health, and Accident insurance plans for a period of thirty-four months after the date of his termination; (iii) up to a $10,000 relocation allowance if he moves his residence to pursue other business opportunities within thirty-four months after the date of his termination; and (iv) the right, during the three month period following the date of his termination, to either (a) exercise all options previously granted to him under Carriage's Incentive Stock Option Plan (as defined in the Agreement) as to all or any part of the years covered thereby or (b) have the Company, upon written request, purchase all such options for cash at a price determined by multiplying the excess, if any, of the fair market value of a share of stock of the Company over the option price therefor by the number of all such option shares. 9 12 SHAREHOLDER RETURN PERFORMANCE PRESENTATION Set forth below is a line graph comparing the yearly change in the cumulative total shareholder return on the Common Stock against the total return of the S&P Composite Stock Index and Peer Group for the five year period ended December 31, 1994. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN* Dixie Yarns, Standard & Poors 500 And Value Line Textiles Index (Performance Results Through 12/31/94)

Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dixie Yarns, Inc. $100 $73.72 $ 68.20 $ 94.93 $ 77.92 $ 53.15 S & P 500(R) $100 $96.83 $126.41 $136.25 $ 150 $151.97 Textiles Index $100 $71.91 $126.88 $ 152 $164.53 $141.99

[PASTEUP GRAPH] Assumes $100 invested at the close of trading 12/89 in Dixie Yarns common stock, Standard & Poors 500, and Textiles. * Cumulative total return assumes reinvestment of dividends. 10 13 REPORT OF COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF DIXIE YARNS, INC. The Compensation Committee of the Board of Directors is composed of Messrs. J. Frank Harrison, Jr., Paul K. Brock, and Robert J. Sudderth, Jr., none of whom are employees of the Company. The Committee administers the Company's compensation plans, annually reviews and recommends compensation for all officers of the Company, and submits its recommendations to the Board. Final decisions respecting compensation of executive officers are made by the Board, with individuals abstaining from decisions concerning their own compensation. As part of its process of review, the Committee receives recommendations from the Company's senior management, reviews both public and private compensation surveys prepared by independent consultants and others, and reviews executive compensation reported in proxy information from other public textile and carpet companies. The Committee meets on an as needed basis at other times during the year. The following is a report submitted by the Compensation Committee addressing the Company's compensation policies applicable to Daniel K. Frierson, the Company's Chief Executive Officer, and its other four most highly compensated executive officers named in the accompanying summary compensation table for 1994. COMPENSATION OF EXECUTIVE OFFICERS DURING FISCAL 1994 The Company's compensation policies are intended to attract, retain, motivate, and reward qualified individuals to serve in executive positions with the Company. Incentive compensation is provided to encourage such individuals to originate and implement successful long-term business strategies that will enhance long-term shareholder value. Accordingly, compensation of the Company's executive officers, including the Chief Executive Officer, consists of a combination of base salary, annual bonuses, and stock options as well as other fringe benefits generally applicable to salaried employees. In establishing base salary, the Committee considers the qualifications and experience of the individual, the duties and responsibilities of the executive officer position, the competitive market for executive talent, and the overall financial ability of the Company to bear the expense. Bonuses are considered for award annually and, for 1994, are based upon pre-tax earnings and extraordinary individual performance. Stock options may be granted under the Company's Stock Option Plans and are typically granted at the current market price of the Company's Common Stock at the time of issue in amounts believed to be appropriate to the level of duties and responsibilities for each executive position. The Committee believes that it is important to retain flexibility in the establishment of compensation for the Company's executive officers in order to allow for the use of judgment and discretion with respect to each individual officer. Compensation, in the opinion of the Committee, should not only reflect overall Company performance but also performance in specific areas of responsibility and exceptional individual performance. The Committee believes that the overall compensation paid to the Company's executive officers, including the Company's Chief Executive Officer and the four named individuals in the accompanying table, is reasonable under the circumstances. 11 14 THE ELEMENTS OF EXECUTIVE OFFICER COMPENSATION Compensation for each of the Company's senior executive officers may consist of four elements: base salary; annual bonuses; stock options; and retirement and other fringe benefits. - BASE SALARY The base salary of Daniel K. Frierson was unchanged in 1994 and has not been increased since 1988. The base salaries of C. Pat Driver and John Sturdy were unchanged in 1994. The base salaries of Philip H. Barlow and Paul K. Frierson were increased to $145,000 and $167,500, respectively, during 1994. - BONUS A new management incentive plan was adopted in 1994 to establish criteria for the discretionary award of bonuses to the Company's executive officers and other key management personnel (the "1994 Incentive Plan"). The 1994 Incentive Plan is applicable to each operating group of the Company (with the exception of the Company's Knit Group) and provides for a bonus pool of up to 10% of pretax earnings (subject to certain offsets), with the exact amount of the bonus pool to be approved by the Company's Chairman. Discretionary bonuses were awarded under the 1994 Incentive Plan to John O. Sturdy, Vice President/President, Masland Carpets, Inc.; Phillip H. Barlow, Vice President/President, Carriage Industries, Inc.; and Paul K. Frierson, Vice President/President, Candlewick Group. - STOCK OPTIONS Each executive officer of the Company is entitled to participate in the Company's Incentive Stock Option Plan. Although the Plan has been structured to provide the Company with maximum flexibility in awarding, pricing, and vesting options granted under the Plan, the Company's practice has been to grant options under the Plan exercisable only at market prices and subject to phase-in vesting schedules. The Committee believes that the grant of stock options for shares of the Company's Common Stock exercisable at the market price on the date of grant provides grantees with an incentive to enhance long-term shareholder values. The value of these options depends directly on increases in the trading price of the Company's Common Stock. To ensure option-related compensation is dependent upon long-term increases in value of the underlying securities, the options vest over a five year period commencing on the date of grant. All options granted to the named individuals in the accompanying summary compensation table under the Plan were granted with an exercise price set at the market price on the date of grant, and with the following vesting schedules: 25% in two years from the date of grant; 50% in three years; 75% in four years; and 100% in five years. Prior to the acquisition of Carriage, various officers of Carriage, including Mr. Barlow, held options to purchase Carriage common stock. As a part of the acquisition, the Company issued options for the Company's Common Stock to all of such individuals in order to replace the Carriage options that were canceled upon the acquisition. Mr. Barlow holds options for the purchase of 15,794 shares of Common Stock of the Company received as a part of such transaction. - RETIREMENT PLANS AND OTHER BENEFITS The Company's compensation for its executive officers also includes the opportunity to participate in two non-qualified plans and certain health insurance, relocation allowances, life insurance, and other benefits. 12 15 During 1994 the Company maintained two non-qualified retirement plans in which the Company's executive officers participate: a Non-qualified Savings Plan and a Non-qualified Defined Contribution Plan, which are designed to mirror the qualified plans available to other exempt, salaried associates. No Company contributions are made to the Non-qualified Savings Plan. Participants in the Non-qualified Defined Contribution Plan may receive contributions from the Company equal to a percentage of each such participant's compensation, based on a ratio of the Company's operating profit to net worth and other discretionary factors. No Company contributions to the Non-qualified Defined Contribution Plan were made in 1994. - CEO COMPENSATION As previously indicated, compensation of the Company's executive officers is intended to attract, retain, motivate, and reward such officers where appropriate. Mr. Frierson's compensation in 1994 included his base salary and other benefits, the opportunity to participate in the 1994 Incentive Plan (with respect to which no bonus was awarded to Mr. Frierson in 1994), and participation in the Company's Incentive Stock Plan (with respect to which he was awarded no options in 1994). The Committee believes that Mr. Frierson's overall compensation, including his base salary, falls within the lower tier of executive compensation for similar positions in comparable companies. Compensation Committee: J. Frank Harrison, Jr. Paul K. Brock Robert J. Sudderth, Jr. 13 16 EXECUTIVE COMPENSATION INFORMATION The following table sets forth the annual and long-term compensation during the last three fiscal years for the Company's Chief Executive Officer and the other four most highly compensated executive officers (the "Named Executive Officers") as of December 31, 1994, as well as the annual compensation of each such individual for the Company's two previous fiscal years: SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION LONG-TERM --------------------------------------------- COMPENSATION OTHER AWARDS ANNUAL ------------ SALARY BONUS COMPENSATION OPTIONS/SARS NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(D) (#)(E) ------------------------------------------ ---- ------- ------- ------------ ------------ Daniel K. Frierson 1994 350,000 -- -- -- Chairman of the Board and 1993 350,000 100,000 5,314 -- Chief Executive Officer 1992 350,000 -- 18,581 100,000 John O. Sturdy(a) 1994 200,000 70,000 -- -- Vice President/President 1993 100,000 60,000 -- 25,000 Masland Carpets, Inc. 1992 -- -- -- -- Philip H. Barlow(b)(c) 1994 139,905 130,000 -- -- Vice President/President 1993 101,380 95,000 -- 15,000 Carriage Industries, Inc. 1992 -- -- -- -- C. Pat Driver 1994 180,000 -- -- -- Vice President/President 1993 180,000 -- 2,684 -- Rex Group 1992 170,000 -- 8,704 -- Paul K. Frierson 1994 163,333 60,000 -- -- Vice President/President 1993 155,000 -- 3,474 -- Candlewick Group 1992 155,000 -- 10,018 --

--------------- (a) Includes annual and long-term compensation subsequent to July 9, 1993, when Mr. Sturdy was employed by the Company. (b) Includes annual and long-term compensation subsequent to March 12, 1993, when Mr. Barlow was employed by the Company. (c) Excludes 15,794 options to purchase shares of the Company's Common Stock issued on March 12, 1993, in connection with the Company's acquisition of Carriage Industries, Inc. (d) Reflects the excess of actual earnings of the Company's qualified and non-qualified defined contribution and salary savings plans over 120% of the average applicable federal rates, determined in accordance with applicable regulations of the Securities and Exchange Commission. The actual rate of earnings of such plans is substantially the same as the rate of earnings on the Company's other such plans for salaried employees and is not established or guaranteed by the Company. Such rate of earnings may vary from year to year. No named officer received perquisites or other personal benefits in an amount exceeding the lesser of $50,000 or 10% of such officer's salary and bonus for the periods presented. (e) Reflects the number of shares of the Company's Common Stock subject to options granted to the Named Executive Officers for the periods presented. The Company did not grant any stock options or stock appreciation rights ("SARs") during fiscal 1994. 14 17 The following table presents summary information concerning options exercised during 1994 and estimates of the value of unexercised options held by the Named Executive Officers at fiscal year end. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES

VALUE OF UNEXERCISED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS/SARS OPTIONS/SARS SHARES AT FY-END(#) AT FY-END($) ACQUIRED ON VALUE ---------------------------- ---------------------------- NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---------------------------- ----------- ----------- ----------- ------------- ----------- ------------- Daniel K. Frierson -- -- 19,512 117,000 -0- -0- John O. Sturdy -- -- -- 25,000 -0- -0- Philip H. Barlow(a) -- -- 15,794 15,000 30,873 -0- C. Pat Driver -- -- 11,000 7,000 -0- -0-

--------------- (a) Includes options to purchase 15,794 shares of the Company's Common Stock issued on March 12, 1993, to replace options to purchase shares of Carriage's common stock, which were canceled upon the acquisition of Carriage by the Company. Such options include (i) options to purchase 3,057 shares of Common Stock at an exercise price of $4.2934 per share; (ii) options to purchase 2,547 shares of Common Stock at an exercise price of $5.0294 per share; and (iii) options to purchase 10,190 shares of Common Stock at an exercise price of $5.2748 per share. RECOMMENDATION OF THE BOARD OF DIRECTORS The Board of Directors recommends that the Company's shareholders vote FOR the election of the Board of Directors' nominees for director as set forth in this Proxy Statement. SHAREHOLDER PROPOSALS In the event any shareholder wishes to present a proposal to the shareholders at the 1996 Annual Meeting of Shareholders, such proposal must be received by the Company for inclusion in the Proxy Statement and Proxy relating to such meeting on or before January 5, 1996. INDEPENDENT AUDITORS The firm of Ernst & Young LLP has been selected as independent auditors for the Company. A representative of Ernst & Young LLP is expected to be present at the Annual Meeting and will have the opportunity to make a statement if he so desires and to respond to appropriate questions from shareholders. ADDITIONAL INFORMATION The entire cost of soliciting proxies will be borne by the Company. In addition to solicitation of proxies by mail, proxies may be solicited by the Company's directors, officers, and other employees by personal interview, telephone, and telegram. The persons making such solicitations will receive no additional compensation for such services. The Company also requests that brokerage houses and other custodians, nominees, and fiduciaries forward solicitation materials to the beneficial owners of the shares of Common Stock held of 15 18 record by such persons and will pay such brokers and other fiduciaries all of their reasonable out-of-pocket expenses incurred in connection therewith. OTHER MATTERS As of the date of this Proxy Material, the Board does not intend to present, and has not been informed that any other person intends to present, any matter for action at the Annual Meeting other than those specifically referred to herein. If other matters should properly come before the Annual Meeting, it is intended that the holders of the proxies will vote in accordance with their best judgment. Dixie Yarns, Inc. Daniel K. Frierson Chairman of the Board Dated: March 31, 1995 16 19 APPENDIX A THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS DIXIE YARNS, INC. Annual Meeting of Shareholders May 4, 1995 The undersigned hereby appoints Daniel K. Frierson, James H. Martin, Jr., and Robert J. Sudderth, Jr., and each of them, proxies, with full power of substitution, to act and to vote the shares of common stock which the undersigned is entitled to vote at the Annual Meeting of Shareholders to be held at 1100 South Watkins Street, Chattanooga, Tennessee 37404, at 10:00 A.M., Eastern Daylight Time, on May 4, 1995, and any adjournment or adjournments thereof, as follows: 1. ELECTION OF DIRECTORS: / / FOR all nominees / / WITHHOLD ALL AUTHORITY (Except as indicated to the to vote for all nominees contrary below) listed below Paul K. Brock; Lovic A. Brooks, Jr.; Daniel K. Frierson; Paul K. Frierson; J. Frank Harrison, Jr.; James H. Martin, Jr.; Peter L. Smith; Joseph T. Spence, Jr.; Robert J. Sudderth, Jr. (Instruction: To withhold authority to vote for any individual, write that nominee's name in the space provided below.) ------------------------------------------------------------------------------------------------------------------------------------ 2. Acting upon any other business which may be properly brought before said meeting or any adjournment or adjournments thereof. (Continued on reverse side) THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED IN FAVOR OF PROPOSAL 1. THE BOARD IS NOT AWARE OF ANY OTHER MATTER TO BE BROUGHT BEFORE THE ANNUAL MEETING FOR A VOTE OF SHAREHOLDERS. IF, HOWEVER, OTHER MATTERS ARE PROPERLY PRESENTED, THE PROXIES WILL VOTE IN ACCORDANCE WITH THEIR BEST JUDGMENT. The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders, dated March 31, 1995, and the Proxy Materials furnished therewith. Dated this day of , 1995. ---- --- ------------------------------ ------------------------------ Note: Signature should agree with name on stock certificate as printed hereon. When signing in a representative capacity, please give your full title. Please sign, date and return this Proxy in the accompanying prepaid self-addressed envelope. Thank you.