Page 1 of 60
Index to Exhibits-Pages 21-30
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission file number 1-3634
CONE MILLS CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 56-0367025
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3101 North Elm Street, Greensboro, North Carolina 27408
(Address of principal executive offices) (Zip Code)
(910) 379-6220
(Registrant's telephone number, including area code)
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
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of common stock outstanding as of May 1,
1996: 27,383,933 shares.
Page 1
<PAGE>
FORM 10-Q
CONE MILLS CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen weeks ended March 31, 1996 and
April 2, 1995 (Unaudited). . . . . . . . . . . . . . . .3
Consolidated Balance Sheets
March 31, 1996 and April 2, 1995
(Unaudited) and December 31, 1995. . . . . . . . . . . .4 & 5
Consolidated Statements of Stockholders' Equity
Thirteen weeks ended March 31, 1996
and April 2, 1995 (Unaudited). . . . . . . . . . . . . .6
Consolidated Statements of Cash Flows
Thirteen weeks ended March 31, 1996
and April 2, 1995 (Unaudited). . . . . . . . . . . . . .7
Notes to Consolidated Financial Statements
(Unaudited). . . . . . . . . . . . . . . . . . . . . . .8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . .14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . .19
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . .20
Page 2
<PAGE>
FORM 10-Q
PART I
Item 1.
<TABLE>
<S> <C> <C>
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
Thirteen Thirteen
Weeks Ended Weeks Ended
March 31, 1996 April 2, 1995
(Unaudited) (Unaudited)
Net Sales $ 199,282 $ 226,205
Operating Costs and Expenses:
Cost of sales 161,236 185,948
Selling and administrative 21,116 20,827
Depreciation 7,136 7,201
Gain on sale of division (4,675) -
184,813 213,976
Income from Operations 14,469 12,229
Other Income (Expense):
Interest income 96 225
Interest expense (3,837) (3,001)
(3,741) (2,776)
Income before Income Taxes and Equity in
Earnings (Loss) of Unconsolidated Affiliates 10,728 9,453
Income Taxes 3,755 3,304
Income before Equity in Earnings (Loss) of
Unconsolidated Affiliates 6,973 6,149
Equity in Earnings (Loss) of Unconsolidated Affiliates 212 (2,515)
Net Income $ 7,185 $ 3,634
Income Available to Common Shareholders:
Net Income $ 6,465 $ 2,962
Earnings Per Share - Fully Diluted:
Net Income $ .24 $ .11
Weighted Average Common Shares and
Common Share Equivalents Outstanding -
Fully Diluted 27,462 27,465
</TABLE>
See Notes to Consolidated Financial Statements.
Page 3
<PAGE>
FORM 10-Q
<TABLE>
<S> <C> <C> <C>
Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and par value data)
March 31, April 2, December 31,
ASSETS 1996 1995 1995
(Unaudited) (Unaudited) (Note)
Current Assets:
Cash $ 1,447 $ 912 $ 336
Accounts receivable - trade, less provision for
doubtful accounts $3,000; $3,000; $3,200 78,747 95,833 60,955
Inventories:
Greige and finished goods 92,823 82,684 84,822
Work in process 13,143 15,995 14,786
Raw materials 11,794 23,026 29,274
Supplies and other 32,599 31,151 33,492
150,359 152,856 162,374
Other current assets 13,781 7,558 10,227
Total Current Assets 244,334 257,159 233,892
Investments in Unconsolidated Affiliates 37,087 32,148 37,680
Other Assets 41,815 39,718 45,540
Property, Plant and Equipment:
Land 18,398 20,090 19,615
Buildings 81,821 79,253 89,128
Machinery and equipment 304,024 293,101 322,361
Other 30,605 31,435 34,292
434,848 423,879 465,396
Less accumulated depreciation 191,243 184,073 198,188
Property, Plant and Equipment-Net 243,605 239,806 267,208
$ 566,841 $ 568,831 $ 584,320
</TABLE>
Note: The balance sheet at December 31, 1995, has been
derived from the audited financial statements at that date.
See Notes to Consolidated Financial Statements.
Page 4
<PAGE>
FORM 10-Q
Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and par value data)
<TABLE>
<S> <C> <C> <C>
March 31, April 2, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 1995
(Unaudited) (Unaudited) (Note)
Current Liabilities:
Notes payable $ 11,391 $ 8,210 $ 8,875
Current maturities of long-term debt 11,096 414 11,236
Accounts payable - trade 33,124 37,380 40,023
Sundry accounts payable and accrued expenses 43,655 41,891 64,800
Income taxes payable 1,124 3,756 -
Deferred income taxes 26,317 28,188 25,938
Total Current Liabilities 126,707 119,839 150,872
Long-Term Debt 161,420 172,629 161,782
Deferred Items:
Deferred income taxes 40,849 37,753 40,836
Other deferred items 9,934 6,215 8,705
50,783 43,968 49,541
Stockholders' Equity:
Class A Preferred Stock - $100 par value; authorized
1,500,000 shares; issued and outstanding 383,948
shares - Employee Stock Ownership Plan 38,395 38,395 38,395
Class B Preferred Stock - no par value; authorized
5,000,000 shares - - -
Common Stock - $.10 par value; authorized 42,700,000
shares; issued and outstanding 27,383,933 shares;
1995, 27,380,409 shares 2,738 2,738 2,738
Capital in excess of par 71,100 71,090 71,090
Retained earnings 124,160 126,743 119,825
Currency translation adjustment (8,462) (6,571) (9,923)
Total Stockholders' Equity 227,931 232,395 222,125
$ 566,841 $ 568,831 $ 584,320
</TABLE>
Note: The balance sheet at December 31, 1995, has been
derived from the audited financial statements at that date.
See Notes to Consolidated Financial Statements.
Page 5
<PAGE>
FORM 10-Q
Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THIRTEEN WEEKS ENDED MARCH 31, 1996 AND APRIL 2, 1995
(amounts in thousands, except share data)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Class A Preferred
Stock Common Stock
Shares Amount Shares Amount
Balance, December 31, 1995 383,948 $ 38,395 27,380,409 $ 2,738
Net income - - - -
Currency translation adjustment -
Sale of stock of affiliate - - - -
Class A Preferred Stock -
Employee Stock Ownership Plan:
Cash dividends paid - - - -
Common Stock:
Options exercised - - 6,000 -
Purchase of common shares - - (2,476) -
Balance, March 31, 1996 383,948 $ 38,395 27,383,933 $ 2,738
Class A Preferred
Stock Common Stock
Shares Amount Shares Amount
Balance, January 1, 1995 383,948 $ 38,395 27,403,621 $ 2,740
Net income - - - -
Currency translation loss (net
of income tax benefit of $3,262) - - - -
Class A Preferred Stock -
Employee Stock Ownership Plan:
Cash dividends paid - - - -
Common Stock:
Options exercised - - 4,000 1
Purchase of common shares - - (27,212) (3)
Balance, April 2, 1995 383,948 $ 38,395 27,380,409 $ 2,738
</TABLE>
See Notes to Consolidated Financial Statements.
Page 6
<PAGE>
FORM 10-Q
Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THIRTEEN WEEKS ENDED MARCH 31, 1996 AND APRIL 2, 1995
(amounts in thousands, except share data)
(Unaudited)
<TABLE>
<S> <C> <C> <C>
Capital in Currency
Excess Retained Translation
of Par Earnings Adjustment
Balance, December 31, 1995 $ 71,090 $ 119,825 $ (9,923)
Net income - 7,185 -
Currency translation adjustment -
Sale of stock of affiliate - - 1,461
Class A Preferred Stock -
Employee Stock Ownership Plan:
Cash dividends paid - (2,850) -
Common Stock:
Options exercised 36 - -
Purchase of common shares (26) - -
Balance, March 31, 1996 $ 71,100 $ 124,160 $ (8,462)
Capital in Currency
Excess Retained Translation
of Par Earnings Adjustment
Balance, January 1, 1995 $ 71,354 $ 125,771 $ (1,380)
Net income - 3,634 -
Currency translation loss (net
of income tax benefit of $3,262) - - (5,191)
Class A Preferred Stock -
Employee Stock Ownership Plan:
Cash dividends paid - (2,662) -
Common Stock:
Options exercised 25 - -
Purchase of common shares (289) - -
Balance, April 2, 1995 $ 71,090 $ 126,743 $ (6,571)
</TABLE>
See Notes to Consolidated Financial Statements.
Page 6a
<PAGE>
FORM 10-Q
Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<S> <C> <C>
Thirteen Thirteen
Weeks Ended Weeks Ended
March 31, 1996 April 2, 1995
(Unaudited) (Unaudited)
Cash Flows Used In Operating Activities $ (16,647) $ (24,312)
Cash Flows from Investing Activities:
Proceeds from sale of division (a) 40,053 -
Capital expenditures (5,341) (9,640)
Other 1,486 (6,464)
Net cash provided by (used in) investing activities 36,198 (16,104)
Cash Flows from Financing Activities:
Increase (decrease) in checks issued in excess of deposits (17,502) 865
Principal payments - long-term debt (614) (97,056)
Proceeds from long-term debt borrowings - 48,000
Proceeds from debentures issued - 99,831
Other (324) (11,470)
Net cash (used in) provided by financing activities (18,440) 40,170
Net increase (decrease) in cash 1,111 (246)
Cash at Beginning of Period 336 1,158
Cash at End of Period $ 1,447 $ 912
(a)Divestiture:
Inventories $ 14,926
Property, plant and equipment 21,516
Other (1,064)
Gain on sale 4,675
Proceeds from sale $ 40,053
Supplemental Disclosures of Additional Cash Flow Information:
Cash payments for:
Interest, net of interest capitalized $ 7,495 $ 4,817
Income taxes, net of refunds $ 103 $ (1,338)
Supplemental Schedule of Noncash Investing and Financing Activities:
Receivable recorded from sale of division $ 4,449 $ -
</TABLE>
See Notes to Consolidated Financial Statements.
Page 7
<PAGE>
FORM 10-Q
Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
Note 1. Basis of Financial Statement Preparation
The Cone Mills Corporation (the "Company") condensed
consolidated financial statements for March 31, 1996 and
April 2, 1995 are unaudited, but in the opinion of
management reflect all adjustments necessary to present
fairly the consolidated balance sheets of Cone Mills
Corporation and Subsidiaries at March 31, 1996, April 2,
1995, and December 31, 1995 and the related consolidated
statements of income, stockholders' equity and cash flows
for the thirteen weeks ended March 31, 1996 and April 2,
1995. All adjustments are of a normal recurring nature.
The results are not necessarily indicative of the results
to be expected for the full year.
These statements should be read in conjunction with the
audited financial statements and related notes included
in the Company's annual report on Form 10-K for fiscal
1995.
Substantially all components of textile inventories are
valued at the lower of cost or market using the last-in,
first-out (LIFO) method. Nontextile inventories are
valued at the lower of average cost or market. Because
amounts for inventories under the LIFO method are based
on an annual determination of quantities as of the year-
end, the inventories at March 31, 1996 and April 2, 1995
and related consolidated statements of income for the
thirteen weeks then ended are based on certain estimates
relating to quantities and cost as of the end of the
fiscal year.
Page 8
<PAGE>
FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Sale of Accounts Receivable
The Company has an agreement with the subsidiary of a
major financial institution which allows the sale without
recourse of up to $50 million of an undivided interest in
eligible trade receivables. This agreement is extendable
to August 1997. Accounts receivable is shown net of $25
million sold at March 31, 1996, net of $26 million sold
at April 2, 1995, and net of $40 million sold at December
31, 1995. As a result of the sale of the interest in
these receivables, cash flows provided by operating
activities include decreases of $15 million and $24
million for the thirteen weeks ended March 31, 1996 and
April 2, 1995, respectively.
Note 3. Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliated companies are
accounted for by the equity or cost method depending upon
ownership and the Company's ability to exert influence.
In 1995, the Company accounted for the results of CIPSA
by the equity method. Based upon a reduction in
ownership to 18% and certain other factors, the Company
will account for its investment in CIPSA by the cost
method in 1996 and future periods.
In December 1994, the Mexican government devalued the
peso and allowed it to freely trade against the U.S.
dollar resulting in a substantial decline in value of the
peso versus the U.S. dollar. On January 1, 1995, the
peso was trading at 4.94 pesos per U.S. dollar versus an
exchange rate of approximately 3.45 prior to the
devaluation. The devaluation of the peso created foreign
currency transaction losses for the Company's Mexican
affiliates, primarily related to debt denominated in U.S.
dollars for Compania Industrial de Parras S.A.,
("CIPSA"). Primarily due to the devaluation of the peso,
the Company recognized $2.4 million loss as its pro rata
share of these losses in its first quarter 1995 income
statement.
Page 9
<PAGE>
FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C>
Note 4. Long-Term Debt
March 31, 1996
Current
Total Maturity Long-Term
(amounts in thousands)
8% Senior Note $ 75,000 $ 10,714 $ 64,286
8-1/8% Debentures 96,021 - 96,021
Capital Lease Obligation 1,374 344 1,030
Other 121 38 83
Total $ 172,516 $ 11,096 $ 161,420
April 2, 1995
Current
Total Maturity Long-Term
(amounts in thousands)
8% Senior Note $ 75,000 $ - $ 75,000
8-1/8% Debentures 95,577 - 95,577
Capital Lease Obligation 1,610 155 1,455
Industrial Revenue Bonds 701 224 477
Other 155 35 120
Total $ 173,043 $ 414 $ 172,629
</TABLE>
Note 5. Class A Preferred Stock
The dividend rate for Class A Preferred Stock is 7.50%,
which is payable March 31, 1997.
Page 10
<PAGE>
FORM 10-Q
Item 1. (continued)
<TABLE>
<S> <C> <C> <C> <C>
Note 6. Stock Option Plans
1995 Exercise 1996 Exercise
Number Price Number Price
Of Weighted Of Weighted
Options Average Options Average
Outstanding -
beginning
of year 1,086,000 $ 12.66 1,047,000 $ 12.55
Granted - - - -
Exercised (4,000) 6.50 (6,000) 6.08
Forfeited (35,000) 15.63 (4,000) 13.81
Outstanding -
end of period 1,047,000 $ 12.58 1,037,000 $ 12.59
Exercisable at
end of period 335,850 568,600
</TABLE>
The following table summarizes information about stock options
outstanding at March 31, 1996:
<TABLE>
<S> <C> <C> <C>
Number Number
Exercise Outstanding Exercisable Expiration
Price at 3/31/96 at 3/31/96 Date
$ 5.250 76,200 76,200 June, 1999
$ 6.500 91,800 91,800 February, 2002
$11.625 7,000 7,000 May, 2002
$12.000 408,000 104,800 November, 2004
$12.875 6,000 6,000 May, 2001
$15.625 448,000 282,800 February, 2003
1,037,000 568,600
</TABLE>
Page 11
<PAGE>
FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C> <C>
Note 7. Earnings Per Share
Thirteen Thirteen
Weeks Ended Weeks Ended
March 31, 1996 April 2, 1995
Fully Fully
Primary Diluted Primary Diluted
(amounts in thousands,
except per share data)
Income from
continuing operations $ 7,185 $ 7,185 $ 3,634 $ 3,634
Less: Class A Preferred
dividends (720) (720) ( 672) ( 672)
Adjusted net income $ 6,465 $ 6,465 $ 2,962 $ 2,962
Weighted average common
shares outstanding 27,381 27,381 27,380 27,380
Common share equivalents
from assumed exercise
of outstanding options,
less shares assumed
repurchased 75 81 85 85
Weighted average common
shares and common share
equivalents outstanding 27,456 27,462 27,465 27,465
Earnings per common
share and common share
equivalent $ .24 $ .24 $ .11 $ .11
</TABLE>
Page 12
<PAGE>
FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Sale of Division
On January 22, 1996, the Company completed the sale of
its Olympic Products Division to British Vita PLC. The
Company sold all inventory and substantially all of the
property, plant and equipment of this division and will
collect the trade accounts receivable as they become due.
Proceeds of $40,053,000 had been realized at March 31,
1996. Total proceeds to be realized from the sale of
this division, including collection of receivables, will
be in excess of $50 million. Gain from disposal of this
division has been recognized in the Company's first
quarter 1996 financial statements.
Sales revenues of the Olympic Products Division for 1995
were $94.7 million.
Page 13
<PAGE>
FORM 10-Q
Item 2.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
First Quarter Ended March 31, 1996 Compared with First Quarter
Ended April 2, 1995.
While U.S. consumer spending in apparel and home furnishings
continued to grow sluggishly in the first quarter of 1996,
manufacturers were adversely affected by reductions in
softgoods inventories, which were in response to retail sales
being less than expected. These inventory liquidations have
been disruptive to textile industry operating schedules and
pricing particularly in the apparel fabrics industry. In
addition, weak consumer preference for printed home
furnishings fabrics have adversely affected the decorative
print business.
Cone Mills had first quarter 1996 sales of $199.3 million,
down 11.9%, as compared with sales of $226.2 million for the
first quarter of 1995. After eliminating the sales of the
Olympic Products Division, which was sold in January 1996,
sales decreased 4.1%. Lower sales in specialty sportswear
products and decorative prints more than offset increased
denim and export sales. Export sales were $52.6 million, or
26.4% of total sales, as compared with $38.2 million, or 16.9%
of sales, for the first quarter of 1995.
The Company had net income of $7.2 million, or $.24 per share
after preferred dividends, for the first quarter of 1996,
including an after-tax gain on the sale of the Olympic
Division of $3.0 million or $.11 per share. For comparison,
first quarter 1995 net income was $3.6 million or $.11 per
share, which included a $2.5 million after-tax charge, or $.09
per share, arising primarily from losses associated with the
effect of the peso devaluation on Cone's minority investment
in Compania Industrial de Parras S.A. de C.V. (CIPSA).
Excess inventories throughout the apparel softgoods pipeline
and weak consumer demand for home furnishings prints are
expected to continue to depress earnings for the near term.
Gross profit for first quarter 1996 (net sales less cost of
sales and depreciation) was 15.5% of sales as compared with
14.6% for the previous year. The increase was primarily the
result of improved margins in denims and the elimination of
Olympic operations which had low gross profits.
Page 14
<PAGE>
FORM 10-Q
Item 2. (continued)
Business Segment. Cone Mills operates in two principal
business segments, apparel fabrics and home furnishings
products. The following table sets forth certain net sales and
operating income information.
<TABLE>
<S> <C> <C> <C> <C>
First Quarter
1996 1995
(Dollar amounts in millions)
NET SALES
Apparel $ 165.7 83.2% $ 170.3 75.3%
Home Furnishings(1) 33.6 16.8 55.9 24.7
Total $ 199.3 100.0% $ 226.2 100.0%
OPERATING INCOME(2)
Apparel $ 13.0 7.8% $ 8.9 5.3%
Home Furnishings(3) 2.8 8.2 3.8 6.8
</TABLE>
(1) Net sales include the Olympic Products Division's net
sales of $4.8 million and $23.4 million in 1996 and 1995,
respectively.
(2) Operating income excludes general corporate expenses.
Percentages reflect operating income as a percentage of
segment net sales.
(3) Operating income includes the Olympic Products Division's
operating income of $4.7 million and $.1 million in 1996
and 1995, respectively.
Apparel Fabrics. Apparel fabric segment sales for the first
quarter of 1996 were $165.7 million, down 2.7% from 1995
amounts. Higher denim sales, which resulted from price
increases and improved mix, were more than offset by lower
specialty sportswear sales. First quarter 1996 operating
margins for the apparel segment were 7.8% of sales as
compared with 5.3% in 1995. Improved denim margins were
partially offset by lower operating results in specialty
sportswear fabrics product lines. Export sales, primarily
denims, were up 37.5% compared with the previous year
amounts.
Home Furnishings. Excluding the Olympic Products Division,
first quarter 1996 home furnishings segment sales were
$28.8 million, down 11.3% from 1995. Both the Cone
Finishing and Cone Decorative Fabrics Divisions had lower
sales in 1996 resulting from weak furniture markets and
Page 15
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FORM 10-Q
Item 2. (continued)
customer preference for fabrics other than prints. The home
furnishings segment, excluding the Olympic Products
Division, had an operating loss of $1.9 million compared
with income of $3.7 million for the 1995 period. The loss
was primarily the result of the lower sales volume and
operating levels substantially less than capacity.
Total Company selling and administrative expenses were up
marginally to $21.1 million, 10.6% of sales, as compared with
$20.8 million, or 9.2% of sales, for the 1995 period.
Consistent with the Company's growth initiatives, selling and
administrative expenses have been increased to support an
infrastructure for substantially higher levels of business.
Interest expense was up $.8 million in the period resulting
primarily from the Company's issuing $100 million of
investment grade bonds in the last month of the first quarter
of 1995.
Income taxes as a percent of taxable income were 35.0% for
both the first quarters of 1996 and 1995. Both periods reflect
tax benefits resulting from operation of the Company's foreign
sales corporation.
Liquidity and Capital Resources
The Company's principal long-term capital sources are a $75
million Note Agreement with The Prudential Insurance Company
of America (the "Term Loan"), its 8 1/8% Debentures issued on
March 15, 1995 and due March 15, 2005 (the "Debentures"), and
stockholders' equity. Primary sources of liquidity are
internally generated funds, an $80 million Credit Agreement
with a group of banks with Morgan Guaranty Trust Company of
New York ("Morgan Guaranty") as Agent Bank (the "Revolving
Credit Facility"), and a $50 million Receivables Purchase
Agreement (the "Receivables Purchase Agreement") with Delaware
Funding Corporation, an affiliate of Morgan Guaranty. On March
31, 1996, the Company had funds available of $105.0 million
under its Revolving Credit Facility and Receivables Purchase
Agreement.
For the first quarter of 1996, the Company generated $14.9
million from earnings before noncash charges from
depreciation, amortization and unconsolidated Mexican
affiliate results as compared with $14.0 million for the first
Page 16
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FORM 10-Q
Item 2. (continued)
quarter of 1995. For the 1996 period, the Company increased
its investments in working capital which resulted in net cash
used in operations of $16.6 million. During the quarter, the
Company sold the Olympic Products Division which provided in
excess of $50 million of cash proceeds including the
collection of accounts receivable. Additional uses of cash
during the quarter included capital spending of $5.3 million,
and the preferred stock dividend of $2.9 million.
The Company believes that the proceeds from the sale of the
Olympic Products Division, together with Cone's internally
generated operating funds and funds available under its
existing credit facilities, will be sufficient to meet its
working capital, capital spending, possible stock repurchases,
and financing commitment needs for the foreseeable future.
On March 31, 1996, the Company's long-term capital structure
consisted of $161.4 million of long-term debt and $227.9
million of stockholders' equity. For comparison, at April 2,
1995, the Company had $172.6 million of long-term debt and
$232.4 million of stockholders' equity. Long-term debt
(including current maturities of long-term debt) as a
percentage of long-term debt and stockholders' equity was 43%
at the end of both the first quarter 1996 and first quarter
1995.
Accounts receivable on March 31, 1996, were $78.7 million,
down from $95.8 million at April 2, 1995. At the end of the
first quarter of 1996, the Company had sold $25 million of
accounts receivable, a decrease of $1 million from the amount
sold at the end of the first quarter of 1995. The decrease in
accounts receivable is primarily due to the lower sales level
in 1996 and the collection of Olympic Products Division
receivables. Receivables, including those sold pursuant to the
Receivables Purchase Agreement, represented 49 days of sales
outstanding at March 31, 1996 compared with 50 days at April
2, 1995.
Inventories on March 31, 1996, were $150.4 million, up
approximately $12 million from first quarter 1995 levels when
adjusted for the sale of Olympic Products Division
inventories. The Company's additional finished goods
inventories were the result of a decline in unit sales.
Capital spending in 1996 is expected to be $52 million.
Projects include new weaving machines that replace 1970s
Page 17
<PAGE>
FORM 10-Q
Item 2. (continued)
vintage weaving machines and approximately $4 million for
computers, software and information systems. First quarter
1996 spending was $5.3 million. The Company has agreements
with CIPSA to purchase up to an additional 33% of the
outstanding common stock of Parras Cone for an amount of $20
million or the August 1995 book value, if CIPSA does not meet
certain financial obligations.
Federal, state and local regulations relating to the workplace
and the discharge of materials into the environment continue
to change and, consequently, it is difficult to gauge the
total future impact of such regulations on the Company.
Existing government regulations are not expected to cause a
material change in the Company's competitive position,
operating results or planned capital expenditures. The Company
has an active environmental committee which fosters protection
of the environment and compliance with laws.
The Company is a party to various legal claims and actions.
Management believes that none of these claims or actions,
either individually or in the aggregate, will have a material
adverse effect on the financial condition of the Company.
Page 18
<PAGE>
FORM 10-Q
PART II
Item 3. Legal Proceedings
In November 1988, William J. Elmore and Wayne Comer (the
"Plaintiffs") former employees of the Company, instituted a
class action suit against the Company and certain other
defendants in which the Plaintiffs asserted a variety of
claims related to the Cone Mills Corporation 1983 ESOP (the
"1983 ESOP") and certain other employee benefit plans
maintained by the Company. In March 1992, the United States
District Court in Greenville, South Carolina entered a
judgment in the amount of $15.5 million (including an
attorneys' fee award) against the Company with respect to an
alleged promise to make additional Company contributions to
the 1983 ESOP and all claims unrelated to the alleged promise
were dismissed. The Company, certain individual defendants
and the Plaintiffs appealed.
On May 6, 1994, the United States Court of Appeals for the
Fourth Circuit, sitting en banc, affirmed the prior conclusion
of a panel of three of its judges and unanimously reversed the
$15.5 million judgment and unanimously affirmed all of the
District Court's rulings in favor of the Company. However,
the Court of Appeals affirmed, by an equally divided court,
the District Court's holding that Plaintiffs should be allowed
to proceed on an alternative theory whether, subject to proof
of detrimental reliance, Plaintiffs could establish that a
letter to salaried employees on December 15, 1983 created an
enforceable obligation that could allow recovery on a theory
of equitable estoppel. Accordingly, the case was remanded to
the District Court for a determination of whether the
Plaintiffs could establish detrimental reliance creating
estoppel of the Company.
On April 19, 1995, the District Court granted a motion by the
Company for summary judgment on the issues of equitable
estoppel and third-party beneficiary of contract which had
been remanded to it by the Court of Appeals. The court ruled
that the Plaintiffs could not forecast necessary proof of
detrimental reliance. The District Court, however, granted
Plaintiffs motion to amend the complaint insofar as they
sought to pursue a "new" claim for unjust enrichment, but
denied their motion to amend so far as they sought to add
claims for promissory estoppel and unilateral contract. The
court further denied the Company's motion to decertify the
class.
Page 19
<PAGE>
FORM 10-Q
Item 1. (continued)
The District Court held a hearing on July 24, 1995 to decide
on the merits Plaintiffs' lone remaining claim of unjust
enrichment, and in an order entered September 25, 1995, the
District Court dismissed that claim with prejudice. On
October 20, 1995, the Plaintiffs appealed to the Court of
Appeals from the April 19, 1995 and September 25, 1995 orders
of the District Court. Due to the uncertainties inherent in
the litigation process, it is not possible to predict the
ultimate outcome of this lawsuit. However, the Company has
defended this matter vigorously, and it is the opinion of the
Company's management that the probability is remote that this
lawsuit, when finally concluded, will have a material adverse
affect on the Company's financial condition or results of
operations.
The Company is a party to various other legal claims and
actions incidental to its business. Management believes that
none of these claims or actions, either individually or in the
aggregate, will have a material adverse effect on the
financial condition of the Company or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits to this Form 10-Q are listed in the
accompanying Index to Exhibits.
(b) Reports on Form 8-K
None
Page 20
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit Sequential
No. Description Page No.
* 2.1 Receivables Purchase Agreement dated
as of August 11, 1992, between the
Registrant and Delaware Funding
Corporation filed as Exhibit 2.01 to
the Registrant's report on Form 8-K
dated August 13, 1992.
* 2.1(a) Amendment to Receivables Purchase
Agreement dated April 4, 1994, between
the Registrant and Delaware Funding
Corporation filed as Exhibit 2.1 to
the Registrant's report on Form 8-K
dated March 1, 1995.
* 2.1(b) Amendment to Receivables Purchase
Agreement dated June 7, 1994, between
the Registrant and Delaware Funding
Corporation filed as Exhibit 2.2 to
the Registrant's report on Form 8-K
dated March 1, 1995.
* 2.1(c) Amendment to Receivables Purchase
Agreement dated as of June 30, 1994,
between the Registrant and Delaware
Funding Corporation filed as Exhibit
2.1 to the Registrant's report on
Form 10-Q for the quarter ended
July 3, 1994.
* 2.1(d) Amendment to Receivables Purchase
Agreement dated as of November 15, 1994,
between the Registrant and Delaware
Funding Corporation filed as Exhibit
2.4 to the Registrant's report on
Form 8-K dated March 1, 1995.
* 2.1(e) Amendment to Receivables Purchase
Agreement dated as of June 30, 1995,
between the Registrant and Delaware
Funding Corporation filed as Exhibit
2.1(e) to the Registrant's report on
Form 10-Q for the quarter ended
July 2, 1995.
Page 21
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 2.1(f) Amendment to Receivables Purchase
Agreement dated as of December 31,
1995, between the Registrant and
Delaware Funding Corporation,
filed as Exhibit 2.1(f) to the
Registrant's report on Form 10-K
for the year ended December 31, 1995.
* 2.2(a) Investment Agreement dated as of
June 18, 1993, among Compania Industrial
de Parras, S.A. de C.V., Sr. Rodolfo
Garcia Muriel, and Cone Mills
Corporation, filed as Exhibit 2.2(a)
to Registrant's report on Form 10-Q for
the quarter ended July 4, 1993, with
exhibits herein numbered 2.2(b),(c),
(d), (f), (g), and (j) attached.
* 2.2(b) Commercial Agreement dated as of June
25, 1993, among Compania Industrial de
Parras, S.A. de C.V., Cone Mills
Corporation and Parras Cone de Mexico,
S.A., filed as Exhibit 2.2(b) to
Registrant's report on Form 10-Q for the
quarter ended July 4, 1993.
* 2.2(c) Guaranty Agreement dated as of June 25,
1993, between Cone Mills Corporation and
Compania Industrial de Parras, S.A. de
C.V., filed as Exhibit 2.2(c) to
Registrant's report on Form 10-Q for the
quarter ended July 4, 1993.
* 2.2(d) Joint Venture Agreement dated as of
June 25, 1993, between Compania
Industrial de Parras, S.A. de C.V., and
Cone Mills (Mexico), S.A. de C.V. filed as
Exhibit 2.2(d) to Registrant's report on
Form 10-Q for the quarter ended
July 4, 1993.
* 2.2(e) First Amendment to Joint Venture
Agreement dated as of June 14, 1995,
between Compania Industrial de Parras,
S.A. de C.V., and Cone Mills (Mexico),
S.A. de C.V., filed as Exhibit 2.2(e)
to the Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
Page 22
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 2.2(f) Joint Venture Registration Rights
Agreement dated as of June 25, 1993,
among Parras Cone de Mexico, S.A.,
Compania Industrial de Parras, S.A. de
C.V. and Cone Mills (Mexico),
S.A. de C.V. filed as Exhibit 2.2(e)
to Registrant's report on Form 10-Q
for the quarter ended July 4, 1993.
* 2.2(g) Parras Registration Rights Agreement
dated as of June 25, 1993, between Compania
Industrial de Parras, S.A. de C.V. and
Cone Mills Corporation filed as Exhibit
2.2(f) to the Registrant's report on Form
10-Q for the quarter ended July 4, 1993.
* 2.2(h) Guaranty Agreement dated as of June 14,
1995, between Compania Industrial de
Parras, S.A. de C.V. and Cone Mills
Corporation filed as Exhibit 2.2(h) to
the Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
* 2.2(I) Guaranty Agreement dated as of June 15,
1995, between Cone Mills Corporation
and Morgan Guaranty Trust Company of
New York filed as Exhibit 2.2(I) to
the Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
* 2.2(j) Support Agreement dated as of June 25,
1993, among Cone Mills Corporation, Sr.
Rodolfo L. Garcia, Sr. Rodolfo Garcia
Muriel and certain other person listed
herein ("private stockholders") filed
as Exhibit 2.2(g) to Registrant's
report on Form 10-Q for the quarter
ended July 4, 1993.
* 2.2(k) Call Option dated September 25, 1995,
between Registrant and SMM Trust, 1995
- M, a Delaware business trust, filed
as Exhibit 2.2(k) to the Registrant's
report on Form 10-Q for the quarter
ended October 1, 1995.
Page 23
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 2.2(l) Put Option dated September 25, 1995,
between Registrant and SMM Trust, 1995
- M, a Delaware business trust, filed
as Exhibit 2.2(l) to the Registrant's
report on Form 10-Q for the quarter
ended October 1, 1995.
* 2.2(m) Letter Agreement dated January 11, 1996
among Registrant, Rodolfo Garcia Muriel,
and Compania Industrial de Parras,
S.A. de C.V., filed as Exhibit 2.2(m) to
the Registrant's report on Form 10-K
for the year ended December 31, 1995.
* 2.3 Asset Purchase Agreement dated as
of December 2, 1994 between the
Registrant, Lancer Industries, Inc.
and M.P.M. Transportation, Inc.,
filed as Exhibit 2 to the Registrant's
Current Report on Form 8-K dated
December 2, 1994.
* 2.4 Olympic Division Acquisition Agreement
by and among Vitafoam Incorporated,
British Vita PLC, and Registrant
dated January 19, 1996 with related
Lease Agreement, Lease Agreement and
Option to Purchase, Sublease Agreement,
Services Agreement, License Agreement
And Hold Back Escrow Agreement, each
dated January 22, 1996, filed as Exhibit
2.4 to the Registrant's report on Form
10-K for year ended December 31, 1995.
The following exhibits and schedules to
the Acquisition Agreement have been
omitted. The Registrant hereby
undertakes to furnish supplementally
a copy of such omitted exhibit or
schedule to the Commission upon
request.
Exhibits
Exhibit A1 Form of Buyer Lease
Exhibit A2 Form of Buyer Lease
Exhibit B Form of Holdback Escrow
Agreement
Page 24
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
Exhibit C1 Facility 1
Exhibit C2 Facility 2
Exhibit C3 Facility 3
Exhibit C4 Facility 4
Exhibit C5 Facility 5
Exhibit C6 Facility 6
Exhibit D Form of Sublease Agreement
Exhibit E Form of Opinion of Buyer's
Counsel
Exhibit F Form of Opinion of Seller's
Counsel
Exhibit G Form of Assumption Agreement
Exhibit H Form of Services Agreement
Exhibit I Inventory Valuation Principles
Exhibit J Form of License Agreement
Schedules
Schedule 1.1(a) Excluded Assets
Schedule 1.1(b) Tangible Fixed Assets
Schedule 2.8 Assigned Contracts
Schedule 2.10 Allocation of Purchase
Price
Schedule 4.3 Consents and
Authorizations
Schedule 4.7 Contracts by Category
Schedule 4.9 Litigation
Schedule 4.11 Tax Matters
Schedule 4.12 Licenses and Permits
Schedule 4.14 Tangible Personal
Property
Schedule 4.15 Employees and Wage Rates
Schedule 4.16 Insurance Policies
Schedule 4.17 Intellectual Property
Schedule 4.18 Licenses to Intellectual
Property; Third-party
Patents
Schedule 4.19 Purchases from One Party
Schedule 4.22 Real Property
Schedule 4.23 Business Names
Schedule 4.24 Environmental Matters
Schedule 9.4 Facility 5 Remediation Plan
* 4.1 Restated Articles of Incorporation of
the Registrant effective August 25, 1993,
filed as Exhibit 4.1 to Registrant's
report on Form 10-Q for the quarter ended
October 3, 1993.
Page 25
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 4.2 Amended and Restated Bylaws of Registrant,
Effective June 18, 1992, filed as Exhibit
3.5 to the Registrant's Registration
Statement on Form S-1 (File No. 33-46907).
* 4.3 Note Agreement dated as of August 13, 1992,
between Cone Mills Corporation and The
Prudential Insurance Company of America,
with form of 8% promissory note attached,
filed as Exhibit 4.01 to the Registrant's
report on Form 8-K dated August 13, 1992.
* 4.3(a) Letter Agreement dated September 11, 1992,
amending the Note Agreement dated August 13,
1992, between the Registrant and The
Prudential Insurance Company of America
filed as Exhibit 4.2 to the Registrant's
report on Form 8-K dated March 1, 1995.
* 4.3(b) Letter Agreement dated July 19, 1993,
amending the Note Agreement dated
August 13, 1992, between the Registrant
and The Prudential Insurance Company of
America filed as Exhibit 4.3 to the
Registrant's report on Form 8-K dated
March 1, 1995.
* 4.3(c) Letter Agreement dated June 30, 1994,
amending the Note Agreement dated
August 13, 1992, between the Registrant
and The Prudential Insurance Company of
America filed as Exhibit 4.4 to the
Registrant's report on Form 8-K dated
March 1, 1995.
* 4.3(d) Letter Agreement dated November 14, 1994,
amending the Note Agreement dated
August 13, 1992, between the Registrant
and The Prudential Insurance Company of
America filed as Exhibit 4.5 to the
Registrant's report on Form 8-K dated
March 1, 1995.
Page 26
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 4.3(e) Letter Agreement dated as of June 30,
1995, amending the Note Agreement dated
August 13, 1992, between the Registrant
and the Prudential Insurance Company
of America filed as Exhibit 4.3(e) to
the Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
* 4.3(f) Letter Agreement dated as of June 30,
1995, between the Registrant and
The Prudential Insurance Company
of America superseding Letter Agreement
filed as Exhibit 4.3(e) to the
Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
4.3(g) Letter Agreement dated as of March 30,
1996, between the Registrant and The
Prudential Insurance Company of
America. 32
* 4.4 Credit Agreement dated as of August 13,
1992, among Cone Mills Corporation,
the banks listed therein and Morgan
Guaranty Trust Company of New York,
as Agent, with form of note attached
filed as Exhibit 4.02 to the Registrant's
report on Form 8-K dated August 13, 1992.
* 4.4(a) Amended and Restated Credit Agreement
dated November 18, 1994, among the
Registrant, various banks and Morgan
Guaranty Trust Company of New York,
as Agent, filed as Exhibit 4.1
to the Registrant's report on Form 8-K
dated March 1, 1995.
* 4.4(b) Amendment to Credit Agreement dated as of
June 30, 1995, amending the Amended and
Restated Credit Agreement dated
November 18, 1994, among the Registrant,
various banks and Morgan Guaranty Trust
Company of New York, as Agent filed as
Exhibit 4.4(b) to the Registrant's
report on Form 10-Q for the quarter
ended July 2, 1995.
Page 27
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 4.4(c) Amendment No. 2 to Credit Agreement
dated as of December 31, 1995, amending
the Amended and Restated Credit
Agreement dated November 18, 1994,
among the Registrant, various banks
and Morgan Guaranty Trust Company
of New York, as Agent, filed as
Exhibit 4.4(c) to the Registrant's
report on Form 10-K for year ended
December 31, 1995.
* 4.5 Specimen Class A Preferred Stock
Certificate, filed as Exhibit 4.5
to the Registrant's Registration
Statement on Form S-1(File No. 33-46907).
* 4.6 Specimen Common Stock Certificate,
effective June 18, 1992, filed as
Exhibit 4.7 to the Registrant's
Registration Statement on Form S-1
(File No. 33-46907).
* 4.7 Registration rights agreement dated
as of March 30, 1992, among the
Registrant and the shareholders listed
therein, filed as Exhibit 4.8 to the
Registrant's Registration Statement on
Form S-1 (File No. 33-46907).
* 4.8 The 401(k) Program of Cone Mills
Corporation, amended and restated
effective December 1, 1994, filed as
Exhibit 4.8 to the Registrant's
report on Form 10-K for year ended
January 1, 1995.
* 4.8(a) First Amendment to the 401(k)
Program of Cone Mills Corporation
dated May 9, 1995, filed as
Exhibit 4.8(a) to the Registrant's
report on Form 10-K for year ended
December 31, 1995.
Page 28
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 4.8(b) Second Amendment to the 401(k)
Program of Cone Mills Corporation
dated December 5, 1995, filed as
Exhibit 4.8(b) to the Registrant's
report on Form 10-K for year ended
December 31, 1995.
* 4.9 Cone Mills Corporation 1983 ESOP as
amended and restated effective
December 1, 1994, filed as Exhibit
4.9 to the Registrant's report on
Form 10-K for year ended January 1,
1995.
* 4.9(a) First Amendment to the Cone Mills
Corporation 1983 ESOP dated
May 9, 1995, filed as Exhibit 4.9(a)
to the Registrant's report on Form 10-K
for year ended December 31, 1995.
* 4.9(b) Second Amendment to the Cone Mills
Corporation 1983 ESOP dated
December 5, 1995, filed as
Exhibit 4.9(b) to the Registrant's
report on Form 10-K for year ended
December 31, 1995.
* 4.10 Indenture dated as of February 14,
1995, between Cone Mills Corporation
and Wachovia Bank of North Carolina,
N.A. as Trustee, filed as Exhibit 4.1
to Registrant's Registration Statement
on Form S-3 (File No. 33-57713).
* 4.11 Form of 8 1/8% Debenture in aggregate
principal amount of $100,000,000 due
March 15, 2005, filed as Exhibit 4.11
to the Registrant's report on Form 10-K
for the year ended January 1, 1995.
Page 29
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
Management contract or compensatory plan or arrangement
(Exhibits 10.1 and 10.2)
10.1 1992 Stock Plan as amended and
restated and as approved as amended
and restated as of February 15, 1996. 34
10.2 1997 Senior Management Incentive
Compensation Plan adopted on
February 16, 1996 subject to share-
holder approval on May 14, 1996. 53
27 Financial Data Schedule 60
</TABLE>
* Incorporated by reference to the statement or report
indicated.
Page 30
<PAGE>
FORM 10-Q
SIGNATURES
Pursuant to the requirements 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.
CONE MILLS CORPORATION
(Registrant)
Date May 13, 1996 /s/ John L. Bakane
John L. Bakane
Executive Vice President and
Chief Financial Officer
Page 31
FORM 10-Q
EXHIBIT 4.3(g)
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
c/o Prudential Capital Group
Four Gateway Center
Newark, New Jersey 07102
As of March 30, 1996
CONE MILLS CORPORATION
3101 North Elm Street
Greensboro, North Carolina 27408
Attn: Mr. David Bray, Treasurer
Ladies and Gentlemen:
This letter is to amend the Note Agreement dated as of
August 13, 1992, as amended previously (the "Note Agreement")
between Cone Mills Corporation (the "Company") and The
Prudential Insurance Company of America ("Prudential").
Capitalized words in this letter shall have the same meaning
as in the Note Agreement except as otherwise defined herein.
Prudential and the Company agree that the Note Agreement shall
be amended as follows:
1. Paragraph 6A is hereby amended and restated in its
entirety as follows:
"6A. Ratings Maintenance. The Company covenants
that it will maintain long term debt ratings of not
less than BBB-, by Standard & Poor's Ratings Group,
and Baa3, by Moody's Investors Service, Inc.
2. Except as amended herein, all of the terms,
conditions and obligations of the Note Agreement shall remain
in full force and effect.
If you agree to these changes, please sign each copy of
this letter enclosed and return two of them to Prudential, at
which time this letter shall become a binding agreement as of
the date first above written.
Page 32
<PAGE>
FORM 10-Q
Exhibit 4.3(g) (continued)
Very truly yours,
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Robert R. Derrick
Vice President
Agreed to and accepted as of March 30, 1996
CONE MILLS CORPORATION
By: /s/ David E. Bray
Treasurer
Page 33
FORM 10-Q
Exhibit 10.1
CONE MILLS CORPORATION
AMENDED AND RESTATED 1992 STOCK PLAN
ARTICLE I - GENERAL PROVISIONS
1. PURPOSE
This Amended and Restated 1992 Stock Plan (the "Plan") is
intended as an incentive to encourage certain officers
and other key management employees of Cone Mills
Corporation (the "Corporation") and its subsidiaries to
acquire, or increase, a proprietary interest in the
Corporation and to encourage them to remain in the employ
of the Corporation or a subsidiary of the Corporation.
The Plan authorizes the grant of stock options,
restricted stock, and performance shares.
Stock options ("Options") granted pursuant to Article II,
paragraph 1 of the Plan are intended to qualify as
Incentive Stock Options under Section 422 of the Internal
Revenue Code of 1986, as amended, and, therefore, Article
II, paragraph 1 of this Plan and the Options granted
thereunder shall be construed and interpreted so as to
comply with the requirements of that section and of any
regulations issued thereunder. Options granted pursuant
to Article II, paragraph 2 of the Plan are not intended
to qualify as Incentive Stock Options.
2. ADMINISTRATION
The Plan shall be administered by a Stock Committee
appointed by the Board of Directors of the Corporation
(the "Committee"). The Committee shall consist of not
less than two members of the Corporation's Board of
Directors all of whom are disinterested persons within
the meaning of Rule 16b-3 of the Rules under the
Securities Exchange Act of 1934, as amended, and outside
directors within the meaning of Section 162(m) of the
Internal Revenue Code and the regulations promulgated
thereunder. The Board of Directors may from time to time
remove members from, or add members to, the Committee.
Vacancies on the Committee, howsoever caused, shall be
filled by the Board of Directors.
Page 34
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
The Committee shall select one of its members as Chairman
and shall hold meetings at such times and places as it
may determine. Acts by a majority of the members of the
Committee at a meeting at which a quorum is present, or
acts reduced to or approved in writing by all of the
members of the Committee, shall be the valid acts of the
Committee. Subject to the provisions of the Plan, the
Committee shall have plenary authority to interpret the
Plan and to prescribe, amend and rescind rules and
regulations relating to it.
The interpretation and construction by the Committee of
any provision of the Plan or any option or stock granted
under it shall be final and conclusive. No member of the
Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any option
granted under it.
3. SHARES SUBJECT TO PLAN
Shares of the Corporation's common stock, par value $.10
per share ("Common Stock"), will be subject to Options
and stock granted under the Plan. Shares deliverable
under the Plan will be shares of the Corporation's
authorized but unissued Common Stock. Shares deliverable
upon exercise of Options granted under the Plan will be
issued or transferred on the date that payment in full
for such shares is made.
The number of shares that may be granted as Restricted
Stock or Performance Shares (as defined in Articles III
and IV, respectively) or may be purchased upon the
exercise of Options granted under the Plan shall not
exceed in the aggregate 2,000,000 shares of Common Stock
and no individual Grantee may receive grants of shares or
Options to purchase shares exceeding in the aggregate
more than 200,000 under the Plan, subject, in both cases,
to adjustment as provided in Section 6 of this Article I.
In the event that any outstanding Option for any reason
expires or is terminated, any Restricted Stock is
forfeited, or any grant of Performance Shares lapses, the
shares of Common Stock allocable to the unexercised
portion of such Option, or the forfeited or lapsed stock
may again be subject to an Option or grant under the
Plan.
Page 35
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
4. ELIGIBILITY
Options or shares may be granted under the Plan to such
key management employees (including officers, whether or
not they are directors) of the Corporation or any of its
subsidiaries as the Committee shall select from time to
time. No Option or stock grant, however, may be granted
under the Plan to any person who is then a member of the
Committee.
5. GRANTING OF OPTIONS, RESTRICTED STOCK, AND PERFORMANCE
SHARES
The Committee may grant Options, Restricted Stock or
Performance Shares from time to time to such eligible
employees of the Corporation or any of its subsidiaries
as it shall determine ("Grantees"). Each Option shall be
granted pursuant to Article II.A of the Plan, in which
case it will be designated an Incentive Stock Option, or
pursuant to Article III.B of the Plan, in which case it
will be designated a Nonqualified Option. Restricted
Stock and Performance Shares shall be granted under
Articles III and IV, respectively. More than one Option
or stock grant may be granted to the same Grantee.
The date of valid action by the Committee approving the
granting of an Option, Restricted Stock or Performance
Shares, as the case may be, shall be considered as the
date on which such grant was made.
6. MERGER, CONSOLIDATION OR SALE OF ASSETS; RECAPITALIZATION
If the Corporation shall be a party to any merger or
consolidation in which it is not the surviving
corporation or pursuant to which the shareholders of the
Corporation exchange their Common Stock, or if the
Corporation shall dissolve or liquidate or sell all or
substantially all of its assets, all Options, invested
Restricted Stock and unearned Performance Shares
outstanding under this Plan shall terminate on the
effective date of such merger, consolidation,
dissolution, liquidation or sale; provided, however,
that, prior to such effective date, the Committee, in its
discretion, may accelerate the time at which any
outstanding Option may be exercised or any stock
restrictions lapse, waive any performance criteria,
Page 36
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
authorize a payment to each Grantee that approximates the
economic benefit that he would realize if his Option were
exercised or his stock vested immediately before such
effective date, authorize a payment in such other amount
as it deems appropriate to compensate each Grantee for
the termination of his Option or his stock grant, or
arrange for the granting of a substitute Option or stock
grant to each Grantee.
Subject to any required action by the shareholders of the
Corporation, the number of shares of Common Stock covered
by each outstanding Option or stock grant, and, in the
case of Options, the option price per share, shall be
proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock of the
Corporation resulting from a subdivision or consolidation
of shares or the payment of a stock dividend (but only on
the Common Stock) or any other increase or decrease in
the number of such shares effected without receipt of
consideration by the Corporation. Such adjustments shall
be made by the Committee, whose determination in that
respect shall be final, binding and conclusive.
In the event of a change in the Common Stock of the
Corporation as presently constituted, which is limited to
a change of all of its authorized shares with par value
into the same number of shares with a different par value
or without par value, the shares resulting from any such
change shall be deemed to be Common Stock within the
meaning of the Plan.
The grant of stock or an Option under the Plan shall not
affect in any way the right or power of the Corporation
to make adjustments, reclassifications, reorganizations
or changes in its capital or business structure.
7. RIGHTS AS A SHAREHOLDER
A Grantee, or a permitted transferee, of an Option or
Performance Shares shall have no rights as a shareholder
with respect to any shares issuable or deliverable
pursuant to this Plan until the date of the issuance of
a stock certificate to him for such shares. No
adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the
Page 37
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
record date is prior to the date such stock certificate
is issued, except as provided in Section 7 above.
Separate stock certificates shall be issued for shares
purchased upon exercise of an Incentive Stock Option and
for shares purchased upon exercise of a Nonqualified
Option, even if such shares are purchased at or about the
same time.
8. COMPLIANCE WITH SECURITIES LAWS
The Options granted under the Plan and the shares
issuable pursuant to the Plan may, at the option of the
Corporation, be registered under applicable federal and
state securities laws, but the Corporation shall have no
obligation to undertake such registrations and may, in
lieu thereof, issue Options and shares hereunder only
pursuant to applicable exemptions from such
registrations. In the event that no such registrations
are undertaken, Options and shares will be granted only
to persons who qualify to receive such Options or shares,
and in the case of Options, the underlying shares upon
exercise thereof, in accordance with the exemptions from
registration on which the Corporation relies. In
connection with the granting of any Option or the
issuance of any shares, the Committee may require
appropriate representations from the Grantee and take
such other action as the Committee deems necessary to
assure compliance with such exemptions from registration,
including but not limited to placing restrictive legends
on certificates evidencing such shares and delivering
stop transfer instructions to the Corporation's transfer
agent. Notwithstanding any other provision of the Plan,
no shares will be issued pursuant to this Plan unless
said shares have been registered under all applicable
federal and state securities laws or unless, in the
opinion of counsel satisfactory to the Corporation,
exemptions from such registrations are available.
9. WITHHOLDING FOR TAXES
No Grantee shall be entitled to issuance of a stock
certificate evidencing Performance Shares or shares
purchased by him upon exercise of a Nonqualified Option
or delivery of Restricted Stock held by the Secretary
until he has paid, or made arrangements for payment, to
Page 38
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
the Corporation of an amount equal to the income and
other taxes that the Corporation is required to withhold
from the Grantee as a result of the vesting of his
Restricted Stock or Performance Shares or his exercise of
the Nonqualified Option. In addition, such amounts as
the Corporation is required to withhold by reason of any
tax reimbursement payments made pursuant to Section 1 of
Article III shall be deducted from such payments.
10. OTHER PROVISIONS
The option agreements and stock grant agreements
authorized under the Plan shall contain such other
provisions not inconsistent with the Plan as the
Committee may in its discretion deem advisable from time
to time, including, without limitation, conditions
precedent to the exercise of the option or the vesting of
shares covered by any agreement, which conditions may
include the satisfaction of specified performance
criteria by the Corporation or the Grantee. If, at the
time any Option under the Plan is exercised or stock is
issued under the Plan, all or substantially all of the
shares of Common Stock then owned by employees of the
Corporation are subject to a shareholders' agreement by
which the transfer of such shares is restricted and/or a
voting agreement pursuant to which such shares will be
voted as provided therein, then all shares of Common
Stock issued pursuant to a Restricted Stock grant or upon
vesting of Performance Shares or exercise of an Option
shall be subject to the terms and provisions of such
shareholders' agreement and/or voting agreement.
11. TERM OF PLAN
Options and stock may be granted under the Plan from time
to time for a period of ten years from and after March
17, 1992, the date of adoption of the Plan by the Board
of Directors.
12. INDEMNIFICATION
Members or former members of the Committee shall be
entitled to indemnification by the Corporation to the
extent permitted by applicable law and by the
Corporation's Articles of Incorporation or Bylaws with
respect to any liability or expenses, including
attorneys' fees, arising out of such person's activities
as a Committee member.
Page 39
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
13. AMENDMENT OF THE PLAN
The Board of Directors of the Corporation may, from time
to time, with respect to any shares at the time not
subject to Options or grants, suspend or discontinue the
Plan or revise or amend it in any respect whatsoever
except that, without the approval of the shareholders, no
such revision or amendment shall increase the number of
shares subject to the Plan (except to the extent
permitted by Section 6 of this Article I) or expand the
designation of the class of employees eligible to receive
Options or grants.
14. APPLICATION OF FUNDS
The proceeds received by the Corporation of Common Stock
from the sale of Common Stock pursuant to Options granted
or Restricted Shares issued for cash consideration, if
any, under the Plan will be used for general corporate
purposes.
15. NO OBLIGATION TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon
the Grantee to exercise such Option.
16. SURRENDER OF OPTIONS AND GRANTS
Subject to the terms and conditions and within the
limitations of the Plan, as now existing or hereafter
amended, the Committee may accept the surrender of
Options, Performance Shares, or Restricted Stock granted
under the Plan (to the extent not theretofore exercised
or vested) and authorize the granting of new Options and
substitutions thereof (to the extent not theretofore
exercised or vested).
17. PERFORMANCE CRITERIA
The Committee may, in its discretion, establish
achievement of specified performance criteria as a
condition to the vesting of any Option or Performance
Shares hereunder or the lapse of any risk of forfeiture
of Restricted Stock from among the following:
Page 40
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
(a) "Return on capital employed" means corporate
consolidated operating earnings of the Company
before interest and taxes adjusted for any discount
on sale of accounts receivable and adjusted for
equity in earnings or losses of Unconsolidated
Affiliates divided by average Net Current Cost
Investment. Net Current Cost Investment is defined
as the current cost of total assets less non-
interest bearing liabilities.
(b) "divisional return on capital employed" means
operating earnings of the division or other
operating unit, and allocated operating earnings of
Unconsolidated Affiliates divided by current cost
of assets of, or allocated to, the division or
operating unit, including current cost of assets of
Unconsolidated Affiliates allocated to the
respective division or operating unit.
(c) "Earnings per share" means consolidated net income
of the Company for a fiscal year less dividends on
Class A Preferred Stock, divided by the weighted
average common shares and common shares equivalents
outstanding on a fully diluted basis.
(d) "Return on equity" means consolidated net income of
the Company divided by average shareholders'
equity.
(e) "Divisional Return on Net Assets" means operating
earnings of the division or other operating unit,
including allocated earnings of Unconsolidated
Affiliates, divided by current cost assets net of
non-interest bearing liabilities of, or allocated
to, the division or operating unit, including
current cost of assets net of non-interest bearing
liabilities of Unconsolidated Affiliates allocated
to the respective division or operating unit.
"Unconsolidated Affiliates" is as defined by generally
accepted accounting principles, as recognized by the
American Institute of Certified Public Accountants and
Financial Accounting Standards Board, consistently
applied.
Page 41
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
Any extraordinary accounting item, accounting for
discontinued operations, and the cumulative effect of
accounting change that have the effect of reducing
consolidated operating earnings for "return on capital
employed" or consolidated net income for "earnings per
share" or "return on equity" shall be excluded in
determining operating earnings or net income unless the
Committee, in its absolute discretion, determines to
include such items in the aggregate or separately.
ARTICLE II - STOCK OPTIONS
1. INCENTIVE STOCK OPTIONS
Options granted pursuant to this Article II shall
constitute Incentive Stock Options under Section 422 of
the Internal Revenue Code of 1986, as amended, and shall
be designated as such by the Committee at the time of the
grant. Such Options shall be subject to the terms,
conditions and limitations set forth in Article I above
and Article II, paragraph 3, and to the following
additional limitation: The aggregate fair market value
(determined as of the time the Option is granted) of the
stock with respect to which Incentive Stock Options are
exercisable for the first time by any employee during any
calendar year (under Article II of this Plan and all
other Incentive Stock Option Plans of the Corporation and
its parent and subsidiary corporations) shall not exceed
$100,000.
2. NONQUALIFIED OPTIONS
Options granted pursuant to this Article II.2 shall
constitute Nonqualified Options and shall be designated
as such by the Committee at the time of the grant. Such
Options shall be subject to the terms, conditions and
limitations set forth in Article I above and Article II,
paragraph 3, and, in addition, to the following
additional terms:
(a) Tax Reimbursement
In view of the federal and state income tax savings
expected to be realized by the Corporation upon
exercise of a Nonqualified Option granted pursuant
Page 42
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
to Article III of the Plan, the Committee may, in
its discretion, grant Nonqualified Options the
terms of which provide that, upon exercise, the
Corporation will pay to the Grantee (or his
personal representatives or heirs) an amount in
cash equal to the amount of tax benefit, to the
extent such tax benefit is, or is expected to be,
realized by the Corporation through the utilization
of deductions claimed for income tax purposes as a
result of the exercise of a Nonqualified Option and
any cash reimbursement payment hereunder. Any tax
reimbursement payment authorized by the Committee
shall be made on or before the last day of the
calendar year in which taxable income is recognized
by a Grantee under Section 83 of the Internal
Revenue Code.
[No person subject to the operation of Section
16(b) of the Securities Exchange Act of 1934, as
amended, shall be entitled to any tax reimbursement
payment authorized by the Committee pursuant to
this Section 1, except with respect to Nonqualified
Options that are exercised during the period
beginning on the third business day and ending on
the twelfth business day following release of
quarterly and annual summary statements of sales
and earnings of the Corporation or any successor to
the Corporation which assumes the obligations of
the Corporation hereunder.]
(b) Modification, Extension and Renewal of Options
Subject to the terms and conditions and within the
limitations of the Plan, as now existing or
hereafter amended, the Committee may modify, extend
or renew outstanding Nonqualified Options granted
pursuant to the Plan. Notwithstanding the
foregoing, however, no modification of an Option
shall, without the consent of the Grantee, alter or
impair any rights or obligations under any Option
theretofore granted.
Page 43
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
3. TERMS AND CONDITIONS OF OPTIONS
Options granted under the Plan shall be evidenced by
agreements in such form as the Committee may from time to
time approve, which agreements shall comply with and be
subject to the following terms and conditions:
(a) Number of Shares; Designation
Each Option shall state the number of shares to
which it pertains and whether it is an Incentive
Stock Option or a Nonqualified Option.
(b) Option Price
Each Option shall state the option price, which
shall be not less than 100% of the fair market
value per share of the Common Stock of the
Corporation on the date the Option is granted and,
in the case of a Major Shareholder (as hereinafter
defined), not less than 110% of the fair market
value per share on the date the Option is granted.
Subject to the foregoing, the Committee shall have
full authority and discretion in fixing the option
price. For purposes of the Plan, the fair market
value per share of the Common Stock of the
Corporation on any day shall mean (i) if the Common
Stock is listed on any national securities exchange
or on the NASDAQ National Market System, the last
reported sale price on the composite tape or, if no
sale takes place on any day, the average of the
reported closing bid and asked prices on that day,
or (ii) if the Common Stock is not listed on a
national securities exchange or on the NASDAQ
National Market System, the average of the closing
bid and asked prices in the over-the-counter
market, as furnished by the National Association of
Securities Dealers, Inc., or (iii) if none of the
prices described above is available, the fair
market value per share of the Common Stock as most
recently determined by an independent appraiser
selected by the Board of Directors. "Major
Shareholder" shall mean any person who, immediately
before an Option is granted to him under the Plan,
owns stock possessing more than 10% of the total
combined voting power of all classes of stock of
either the Corporation or any parent or subsidiary
corporation of the Corporation.
Page 44
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
(c) Exercise of Options
Options granted under the Plan may be exercised by
the Grantee's delivery to the Corporation of
written notice, which notice shall specify the
number of shares to be purchased. The date of
actual receipt by the Corporation of such notice
shall be deemed the date of exercise of the Option.
If the Grantee makes full payment for option shares
in cash or by check, such full payment shall
accompany the notice of exercise of the Option. If
the Grantee makes payment for option shares, in
whole or in part, by delivery of Common Stock, as
provided in Section 6(d) of this Article I, he
shall deliver with the notice of exercise the duly
endorsed certificates evidencing such delivered
shares. Upon receipt of such notice and
certificates, the Corporation shall thereupon
determine the fair market value of the delivered
shares, as provided in Section 6(d). If the fair
market value of such delivered shares is equal to
the option price for the option shares, payment in
full shall be deemed to have been made. If the
fair market value of such delivered shares is less
than the option price for the option shares, the
Corporation shall promptly advise the Grantee of
the balance due on the option price, which amount
shall then be promptly paid by the Grantee. If the
fair market value of such delivered shares is
greater than the option price for the option
shares, the Corporation shall promptly return to
the Grantee a certificate (which may be a
certificate delivered by the Grantee or, if
necessary, a new certificate) evidencing the
smallest whole number of delivered shares which is
sufficient to reduce the fair market value of the
remaining delivered shares to an amount equal to or
less than the option price of the option shares.
Such returned certificate shall be accompanied by a
statement of the balance due, if any, on the option
price, which amount shall then be promptly paid by
the Grantee. No Grantee shall be entitled to
issuance of a certificate evidencing option shares
until payment in full for such shares has been made
as provided in this Section 6(c).
Page 45
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
Except as otherwise provided in this Article I, or
in the applicable option agreement, each Option
shall be for a term of ten years and shall be
exercisable in cumulative installments as follows:
(i) up to 20% of the total shares subject to
the Option at any time after the date of
grant and prior to termination of the
Option;
(ii) up to 40% of the total shares subject to
the Option (less any shares previously
purchased pursuant to the Option) at any
time after 12 months from the date of
grant and prior to termination of the
Option;
(iii) up to 60% of the total shares subject to
the Option (less any shares previously
purchased pursuant to the Option) at any
time after 24 months from the date of
grant and prior to termination of the
Option;
(iv) up to 80% of the total shares subject to
the Option (less any shares previously
purchased pursuant to the Option) at any
time after 36 months from the date of
grant and prior to termination of the
Option;
(v) up to 100% of the total shares subject to
the Option (less any shares previously
purchased pursuant to the Option) at any
time after 48 months from the date of
grant and prior to termination of the
Option; provided, however, that not less
than one hundred shares may be purchased
at any one time unless the number
purchased is the total number that may be
purchased under the Option at that time.
The Committee may, in its discretion,
grant Options that are exercisable in
amounts and at times other than those set
Page 46
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
forth above in this Section 6(c);
provided, however, that each Option shall
be subject to the limitations on exercise
contained in Section 6(f) below, and no
Option shall be exercisable after the
expiration of ten years from the date it
is granted. In addition, the Committee
may, in its discretion, accelerate the
time at which any outstanding Option may
be exercised. Notwithstanding any other
provision of this Section 6(c), any
Option granted to a Major Shareholder
shall provide that it is not exercisable
after the expiration of five years from
the date of grant.
(d) Medium of Payment
The option price may be paid in cash or by check
or, at the election of the Grantee and with the
prior consent of the Committee, it may be paid in
whole or in part by delivery to the Corporation of
duly endorsed certificates evidencing shares of
Common Stock. If a Grantee elects to make payment
for option shares by delivery of shares of Common
Stock, the fair market value of such delivered
shares, on the date of delivery to the Corporation,
shall be applied to the option price, as provided
in Section 6(c) above.
(e) Transferability
Options granted under the Plan shall not be
transferable by the Grantee otherwise than by will
or under the laws of descent and distribution.
During the Grantee's lifetime, his Options shall be
exercisable only by him.
(f) Termination of Employment; Death of Grantee
Subject to the provisions of this Section 6(f) with
respect to a Grantee's death or retirement from the
employ of the Corporation or any of its
subsidiaries, Options granted under the Plan may be
Page 47
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
exercised only while the Grantee is an employee of
the Corporation or any of its subsidiaries, except
that the Grantee may exercise his Options prior to
their expiration, in whole or in part, for a period
of three months after a severance of his employment
relationship with the Corporation or any of its
subsidiaries, but only to the extent that such
Options were exercisable on the date of such
severance. Except as so exercised, such Options
shall expire at the end of such three-month period.
Whether authorized leave of absence or absence on
military or government service shall constitute
severance of the employment relationship shall be
determined by the Committee at the time thereof.
For purposes of the Plan, the date of severance of
a Grantee's employment shall be determined by the
Committee, which determination shall be final and
conclusive.
If a Grantee shall retire in good standing from the
employ of the Corporation or any of its
subsidiaries under the then established retirement
policies of the Corporation, the Grantee shall have
the right to exercise his Option, prior to its
expiration, in whole or in part (regardless of the
extent to which such Option was exercisable
immediately prior to his retirement), for a period
of three months from and after his retirement, and,
except as so exercised, such Option shall expire at
the end of such three-month period.
If, before the date of expiration of his Options, a
Grantee shall retire in good standing from the
employ of the Corporation or any of its
subsidiaries by reason of disability under the then
established policies of the Corporation, the
Grantee shall have the right to exercise his
Options prior to their expiration, in whole or in
part (regardless of the extent to which such
Options were exercisable immediately prior to his
retirement), for a period of one year from and
after his retirement. Except as so exercised, such
Options shall expire at the end of such one-year
period.
Page 48
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
In the event of the death of a Grantee while in the
employ of the Corporation or any of its
subsidiaries and before the date of expiration of
his Options, his personal representatives, or any
person or persons who shall have acquired his
Options by bequest or inheritance from the Grantee,
shall have the right to exercise the Grantee's
Options prior to their expiration, in whole or in
part (regardless of the extent to which such
Options were exercisable immediately prior to the
Grantee's death), for a period of one year from and
after the Grantee's death. Except as so exercised,
such Options shall expire at the end of such one-
year period.
ARTICLE IV - RESTRICTED STOCK
1. GRANT OF RESTRICTED STOCK
The Committee may cause the Corporation to grant
Restricted Stock to Grantees under the Plan in such
amounts as the Committee, in its sole discretion, shall
determine. Such shares of Restricted Stock may be issued
either alone or in addition to other grants under the
Plan.
2. RESTRICTIONS AND CONDITIONS
Restricted Stock granted under the Plan shall be
evidenced by written agreements in such form as the
Committee may from time to time approve. The
restrictions and conditions imposed on Restricted Stock
granted under the Plan, including the satisfaction of
corporate or individual performance objectives, may
differ from one grant to another as the Committee shall,
in its discretion, determine as long as all grants
satisfy the requirements of the Plan. The Committee shall
have the discretion to determine that a grant may or may
not require payment of cash consideration by the
recipient.
Page 49
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
3. DURATION OF GRANTS
The restrictions and conditions imposed upon any
Restricted Stock shall lapse, in whole or in part, as
provided in the agreement pursuant to which the grant is
made, but in no event later than ten years from the date
of the grant.
4. RESTRICTED STOCK CERTIFICATES
Each certificate issued for shares of Restricted Stock
shall be registered in the name of the Grantee and shall
be deposited by him with the Corporation, to the
attention of the Secretary, together with a stock power
endorsed in blank. The shares shall be subject to such
restrictions and conditions as may be imposed by the
Committee at the time of making the Grant (the
"restrictions and conditions"), which shall be referenced
by a conspicuous legend on the reverse side of the stock
certificate representing the shares, and Restricted Stock
may not be transferred until all restrictions and
conditions have lapsed.
5. RIGHTS OF HOLDERS OF RESTRICTED STOCK
Subject to the restrictions and conditions, the Grantee
shall be the owner of the Restricted Stock and shall have
all of the rights of a shareholder, including, but not
limited to, the right to receive all dividends paid on
the Restricted Stock and the right to vote the shares.
In the event there is a change in the Common Stock as
described in Section 7 of Article I, any shares or other
securities issued with respect to shares subject to
restrictions and conditions under the Plan shall be
subject to the same restrictions and conditions, and the
certificates therefor, together with a stock power
endorsed in blank, shall be delivered to the Corporation,
to the attention of the Secretary.
6. DELIVERY OF RESTRICTED STOCK
Following the lapse of the restrictions and conditions
imposed on any Restricted Stock, the certificate or
certificates evidencing such shares shall be reissued by
the Corporation in the name of the Grantee without a
Page 50
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
legend (except to the extent that a legend may be
necessary for compliance with applicable securities laws)
and shall be delivered to the Grantee. The delivery of
Restricted Stock under the Plan shall be subject to the
withholding requirements as set forth in Section 10 of
Article I.
ARTICLE IV - PERFORMANCE SHARES
1. GRANT OF PERFORMANCE SHARES
The Committee may cause the Corporation to grant
Performance Shares to Grantees under the Plan in such
amounts as the Committee, in its sole discretion, shall
determine. Such Performance Shares may be issued either
alone or in addition to other grants under the Plan.
Each Performance Share grant shall confer upon the
Grantee the right to receive a specified number of shares
of Common Stock contingent upon the achievement of
specified corporate or individual performance objectives
within a specified period.
2. TERMS AND CONDITIONS
Performance Shares granted under the Plan shall be
evidenced by written agreements in such form as the
Committee may from time to time approve. The Committee
shall specify the performance objectives and the period
of duration of the Performance Shares grant at the time
granted. Any Performance Shares granted under this Plan
shall constitute an unfunded promise to issue shares of
Common Stock to the Grantee in the future upon the
completion of specified conditions. No Grantee shall be
deemed to be a holder of any shares subject to a
Performance Shares grant unless and until a stock
certificate or certificates for such are issued to such
Grantee under the terms of the Plan. No adjustment shall
be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property) or distributions
or other rights for which the record date is prior to the
date stock certificates are issued pursuant to any
Performance Shares Grant, except as provided in Section
7 of Article I. The settlement of any Performance Shares
Grant shall be subject to the withholding requirement as
set forth in Section 10 of Article I.
Page 51
<PAGE>
FORM 10-Q
Exhibit 10.1 (continued)
3. CASH IN LIEU OF STOCK
In lieu of some or all of the shares earned by
achievement of the specified performance objectives
within the specified period, the Committee may distribute
cash in an amount equal to the fair market value of the
stock at the time that the performance objective is
achieved within the specified period multiplied by the
number of Performance Shares.
4. PERFORMANCE OBJECTIVE PERIOD
The duration of the period within which to achieve the
performance objectives is to be determined by the
Committee, but in no event shall the duration be later
than ten years from the date of the grant.
Page 52
FORM 10-Q
Exhibit 10.2
1997 CONE MILLS CORPORATION
SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN
1. Purpose. The purpose of the 1997 Cone Mills Corporation
(the "Company") Senior Management Compensation Incentive
Plan (the "Plan") is to enable the Company to attract,
retain, motivate and reward those corporate officers,
division presidents and other key management employees
who are in a position to make a significant contribution
to the Company's success by providing them with an annual
at-risk (i.e., nonguaranteed) compensation opportunity
related to achieving significant pre-established
performance goals.
2. Administration. The Compensation Committee of the Board
of Directors of the Company or such other Committee of
the Board as the Board shall designate (the "Committee")
shall administer the Plan in accordance with its
provisions. The Committee shall consist of no less than
two persons, and all Committee members must be "outside
directors" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code").
The interpretation and construction of the Plan by the
Committee shall be final and binding on all persons,
including the Company and the Participants.
3. Participation. Corporate officers, division presidents
and other key management employees who are designated by
the Committee as participants in the Plan are eligible to
participate in the Plan (a "Participant"). In order to
earn an incentive payment under the Plan (an "Incentive
Payment") for a Plan Year, a Participant must maintain
employment in the same or a similar job throughout that
Plan Year (as hereafter defined). No vesting of
Incentive Payments occurs; a Participant whose employment
with the Company terminates during a Plan Year or
thereafter before his or her Incentive Payment is made
ceases eligibility under the Plan for such Plan Year.
Corporate officers and division presidents who join the
Company during a Plan Year may participate in the Plan on
a pro-rata basis for that Plan Year with the approval of
the Committee, based upon the Performance Goals (as
hereafter defined) established in accordance with Section
5 of this Plan for the employment position that such
Participant assumes. Participation in the Plan creates
no guaranty of continued employment with the Company.
Page 53
<PAGE>
FORM 10-Q
Exhibit 10.2 (continued)
4. Amount of Incentive Payment. A Participant may earn an
Incentive Payment in an amount up to ninety percent (90%)
of his or her Base Compensation as in effect on the date
that the Performance Goals are established in accordance
with Section 5 of this Plan of the fiscal year (a "Plan
Year") for which the Incentive Payment is made. "Base
Compensation" means a Participant's regular salary,
excluding Incentive Payments, discretionary bonuses or
employee benefits.
5. Performance Measurement. Not later than 90 days
following the beginning of each Plan Year, the Committee
will establish in writing the following:
(a) A minimum level of performance by the Company
("Circuit Breaker") before which any incentives can
be paid to any Participant. A net profit after
taxes and preferred dividends shall be the Circuit
Breaker unless the Committee establishes a
different performance measure based upon some other
level of net profit or upon some or all of the
criteria set forth in paragraphs (b) and (c)
below. Any extraordinary accounting item,
accounting for discontinued operations, and the
cumulative effect of accounting change that have
the effect of reducing net income shall be excluded
in determining the achievement of the Circuit
Breaker unless the Committee in its absolute
discretion, determines to include such items in the
aggregate or separately.
(b) The business criteria which shall be the basis of
the measurement of corporate performance for the
Plan Year. The criteria utilized shall be return
on capital employed, return on equity, and earnings
per share or any one or two of said criteria. The
Committee shall set in its absolute discretion the
minimum, maximum and target goals (the "Corporate
Goal") for the Plan Year for the Company's return
on capital employed (ROCE), return on equity, and
earnings per share, as determined with reference to
the Company's audited consolidated financial
statements for the Plan Year.
(c) Goals for each division or function for which a
Participant is responsible (the "Individual Goal",
Page 54
<PAGE>
FORM 10-Q
Exhibit 10.2 (continued)
the Corporate Goal and the Individual Goal being
sometimes referred to as the "Performance Goals"),
based on the following measured criteria:
Divisional return on capital employed
Divisional return on net assets
Net sales of a division or operating unit
Cash flow levels
Operating margins
Specific cost savings
Specific quality results for products
Specific manufacturing efficiencies
Control of standard budget expense items
Establishment of new business units or products
Inventory turn or levels
Maintaining a specific credit rating
Overdue receivables
Late payment charges
Safety record of a specific plant or business
unit
Absenteeism rates
(d) For each Participant, the percentage of the total
Incentive Payment opportunity that consists of the
Corporate Goal and the percentage of the total
bonus opportunity attributable to the Individual
Goal for that Participant.
(e) The percentage of Incentive Payment opportunity
that may be earned by each Participant based on the
level of success within the preestablished range in
achieving the established Performance Goals.
In accordance with Section 162(m) of the Code, all Performance
Goals must be (i) based upon objective formulae and standards
and (ii) substantially uncertain of attainment at the time
they are established.
6. Certain Definitions. For purposes of Section 5 of this
Plan, the following terms shall have the definitions
indicated:
(a) "Return on capital employed" means corporate
consolidated operating earnings of the Company
before interest and taxes adjusted for any discount
on sale of accounts receivable and adjusted for
Page 55
<PAGE>
FORM 10-Q
Exhibit 10.2 (continued)
equity in earnings or losses of Unconsolidated
Affiliates divided by average Net Current Cost
Investment. Net Current Cost Investment is defined
as the current cost of total assets less non-
interest bearing liabilities.
(b) "Divisional return on capital employed" means
operating earnings of the division or other
operating unit, and allocated operating earnings of
Unconsolidated Affiliates divided by current cost
of assets of, or allocated to, the division or
operating unit, including current cost of assets of
Unconsolidated Affiliates allocated to the
respective division or operating unit.
(c) "Earnings per share" means consolidated net income
of the Company for a fiscal year less dividends on
Class A Preferred Stock, divided by the weighted
average common shares and common shares equivalents
outstanding on a fully diluted basis.
(d) "Return on equity" means consolidated net income of
the Company divided by average shareholders'
equity.
(e) "Divisional return on net assets" means operating
earnings of the division or other operating unit,
including allocated earnings of Unconsolidated
Affiliates, divided by current cost assets net of
non-interest bearing liabilities of, or allocated
to, the division or operating unit, including
current cost of assets net of non-interest bearing
liabilities of Unconsolidated Affiliates allocated
to the respective division or operating unit.
(f) "Unconsolidated Affiliates" is as defined by
generally accepted accounting principles as
recognized by the American Institute of Certified
Pubic Accountants and Financial Accounting
Standards Board, consistently applied.
Any extraordinary accounting item, accounting for
discontinued operations, and the cumulative effect of
accounting change that have the effect of reducing
operating earnings for "return on capital employed" or
Page 56
<PAGE>
FORM 10-Q
Exhibit 10.2 (continued)
for "return on net assets" or net income for "earnings
per share" or "return on equity" shall be excluded in
determining operating earnings or net income unless the
Committee, in its absolute discretion, determines to
include such items in the aggregate or separately.
7. Payment of Earned Incentives. After the end of the Plan
Year for which Performance Goals have been established,
the Committee shall determine whether, and the extent to
which, the Performance Goals have been achieved and shall
certify in writing its determinations and the specific
Incentive Payment payable to each Participant, which
certification shall be contained in the approved minutes
of the Committee, or in a certificate signed by all
members of the Committee, and retained with the corporate
records of the Company. The Committee shall have
discretion to decrease, but not to increase, any
Incentive Payment payable under the Plan in accordance
with the Performance Goals. All Incentive Payments will
be paid in cash in a lump sum based on the Committee's
certificate.
8. Funding. The Plan is intended to constitute an
"unfunded" plan. With respect to any payments not yet
made by the Company, nothing set forth in this document
shall give any Participant any rights other than those of
a general creditor of the Company.
9. Death, Disability and Change of Control. In the event of
the death or total and permanent disability of a
Participant or a Change of Control of the Company as
hereafter defined, the Committee shall determine
incentive payments in accordance with this Plan,
prorating, however, all Performance Goals based on the
percentage of the year completed as of the date of the
death, disability or Change of Control, as the case may
be, and, provided further, that expenses directly related
to any Change of Control shall be disregarded for
purposes of determining whether or not the Incentive
Payments have been earned.
For purposes of this Plan, a "Change of Control" means
the occurrence of any of the following:
A. When any "person," as such term is used in Section
13(d) and 14(d) of the Exchange Act [other than the
Page 57
<PAGE>
FORM 10-Q
Exhibit 10.2 (continued)
Company or a Subsidiary or any Company employee
benefit plan (including its trustee)], is or
becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or
indirectly of securities of Cone Mills Corporation
representing 20 percent or more of the combined
voting power of the Company's then outstanding
securities;
B. When, during any period of two consecutive years
during the existence of the Plan, the individuals
who, at the beginning of such period, constitute
the Board cease, for any reason other than death,
to constitute at least a majority thereof, unless
each director who was not a director at the
beginning of such period was elected by, or on the
recommendation of, at least two-thirds of the
directors at the beginning of such period; or
C. The occurrence of a transaction requiring
stockholder approval for the acquisition of Cone
Mills Corporation by an entity other than the
Company or a subsidiary through purchase of assets,
or by merger, or otherwise, if such transaction did
not have the approval of a majority of the Board of
Directors.
10. Term. The term of the Plan shall be for the fiscal years
beginning on December 30, 1996 and ending on December 30,
2001 unless sooner terminated by the Board of Directors.
11. Compliance with Section 162(m). This Plan is intended to
comply with the provisions of Section 162(m) of the Code,
as amended, and the regulations promulgated thereunder,
and the Committee is authorized and directed to make such
interpretations hereunder and take such other action as
it deems appropriate in order to assure such compliance.
12. Amendments and Termination. The Board of Directors may
amend, alter or discontinue the Plan at any time, and
such amendment, alteration or discontinuance will be
binding upon all Participants.
13. Not Exclusive. Nothing set forth in the Plan shall
prevent the Company from adopting other or additional
compensation arrangements, subject to shareholder
Page 58
<PAGE>
FORM 10-Q
Exhibit 10.2 (continued)
approval or approval of the Board of Directors, if such
approval is required; and such arrangements may either
generally be applicable or applicable only in specific
cases.
14. No Liability. No members of the Board of Directors or of
the Committee, nor any officer or employee of the Company
acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination or
interpretation taken or made in good faith with respect
to the Plan, and all members of the Board or the
Committee and each and every officer or employee of the
Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by
the Company with respect to such action, determination or
interpretation.
15. Applicable Law. The validity, interpretation and
administration of the Plan and of any rules, regulations,
determinations or decisions made hereunder, and the
rights of any and all persons having or claiming to have
any interests hereunder or thereunder, shall be
determined exclusively in accordance with the laws of the
state of North Carolina. Without limiting the generality
of the foregoing, the period within which any action in
connection with the Plan must be commenced shall be
governed by the laws of North Carolina.
Page 59
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Cone Mills
Corporation consolidated financial statements dated March 31, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,447
<SECURITIES> 0
<RECEIVABLES> 81,747
<ALLOWANCES> 3,000
<INVENTORY> 150,359
<CURRENT-ASSETS> 244,334
<PP&E> 434,848
<DEPRECIATION> 191,243
<TOTAL-ASSETS> 566,841
<CURRENT-LIABILITIES> 126,707
<BONDS> 161,420
0
38,395
<COMMON> 2,738
<OTHER-SE> 186,798
<TOTAL-LIABILITY-AND-EQUITY> 566,841
<SALES> 199,282
<TOTAL-REVENUES> 199,282
<CGS> 168,372
<TOTAL-COSTS> 184,813
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,741)
<INCOME-PRETAX> 10,940
<INCOME-TAX> 3,755
<INCOME-CONTINUING> 7,185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,185
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
