<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Cone Mills Corporation
(Name of Registrant as Specified In Its Charter)
Terry L. Weatherford, Vice President, Secretary
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange
Act Rule 0-11 (Set forth the amount on which the filing fee is calculated
and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
CONE MILLS CORPORATION
GREENSBORO, N.C. 27415
April 5, 1996
DEAR SHAREHOLDER:
On behalf of the Board of Directors, we are pleased to invite you to attend
the Annual Meeting of Shareholders of Cone Mills Corporation to be held at 10:00
a.m. on Tuesday, May 14, 1996, at the Cone Corporate Center, 3101 North Elm
Street, Greensboro, NC.
The notice of meeting and proxy statement accompanying this letter describe
the matters on which action will be taken. At the Annual Meeting we will also
review the Corporation's activities and provide time for questions from
shareholders.
Please sign and return the enclosed proxy form in the envelope provided as
soon as possible to ensure that your shares will be voted at the meeting.
Sincerely,
(Signtaure of Dewey L. Trogdon)
Dewey L. Trogdon
Chairman of the Board
(Signature of J. Patrick Danahy)
J. Patrick Danahy
President and Chief Executive Officer
(Cone Mills Logo Appears Here)
<PAGE>
CONE MILLS CORPORATION
CONE CORPORATE CENTER
3101 NORTH ELM STREET
GREENSBORO, NC 27415-6540
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 5, 1996
TO THE HOLDERS OF COMMON STOCK OF
CONE MILLS CORPORATION:
The Annual Meeting of the Shareholders of Cone Mills Corporation will be
held at the Cone Corporate Center, 3101 North Elm Street, in Greensboro, North
Carolina, on Tuesday, May 14, 1996, at 10:00 a.m. for the following purposes:
1. To elect two directors as Class I Directors, for a term of three years
or until their successors are elected and qualified.
2. To vote upon a proposal to approve the Amended and Restated 1992 Stock
Option Plan.
3. To vote upon a proposal to approve the 1996 Senior Management Incentive
Compensation Plan.
4. To ratify the appointment of McGladrey & Pullen, LLP, as independent
auditors for the Corporation for the fiscal year ending December 29, 1996.
5. To act upon such other business as may properly come before the meeting
and any adjournment thereof.
The Board of Directors of the Corporation has fixed the close of business
on March 15, 1996, as the record date for the determination of shareholders
entitled to notice of and to vote at the meeting.
YOUR PROXY IS ENCLOSED. YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING,
BUT WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE DATE AND SIGN YOUR PROXY AND
RETURN IT IN THE ENCLOSED POSTAGE PAID ENVELOPE. THE GIVING OF THIS PROXY WILL
NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE EVENT YOU FIND IT CONVENIENT TO
ATTEND.
TERRY L. WEATHERFORD
VICE PRESIDENT AND SECRETARY
<PAGE>
CONE MILLS CORPORATION
CONE CORPORATE CENTER
3101 NORTH ELM STREET
GREENSBORO, NC 27415-6540
PROXY STATEMENT FOR
ANNUAL MEETING TO BE HELD MAY 14, 1996
DATED: APRIL 5, 1996
Your proxy is solicited on behalf of the Board of Directors of Cone Mills
Corporation (the "Corporation" or "Cone") for use at the Annual Meeting of
Shareholders to be held at the time and place set forth in the accompanying
Notice of Annual Meeting. It may be revoked by you at any time before it is
exercised. All unrevoked proxies that are properly executed will be voted and,
if a choice is specified with respect to any matter to be acted on, the shares
will be voted in accordance with such specifications. If no specifications are
given, the persons named in the accompanying proxy intend to vote the shares
represented thereby in favor of: (i) election of the two nominees for Director
(Class I) named herein for terms of three years; (ii) approval of the Amended
and Restated 1992 Stock Option Plan; (iii) approval of the 1997 Senior
Management Incentive Compensation Plan; and (iv) ratification of the Board of
Directors' appointment of McGladrey & Pullen as independent auditors.
This Proxy Statement and the enclosed proxy are being first mailed to
shareholders on or about April 5, 1996. The cost of soliciting proxies will be
borne by the Corporation. In addition to solicitation by mail, arrangements will
be made with brokerage houses and other custodians, nominees and fiduciaries to
send proxy materials to their principals, and the Corporation will reimburse
them for their expenses in so doing. Personal solicitation may also be conducted
by telephone and mail by officers and employees of Cone without added
compensation. In addition the Corporation has retained Georgeson & Company, Inc.
to assist in the solicitation of proxies and distribution of proxy materials for
which it will pay approximately $5,000 in fees plus expenses.
Holders of Common Stock of record at the close of business March 15, 1996,
will be entitled to vote at the meeting. On that date 27,381,933 shares of
Common Stock were outstanding. Each share is entitled to one vote and a majority
of the shares of Common Stock outstanding is necessary to constitute a quorum
for the meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth each person or entity who may be deemed to
have beneficial ownership of more than five percent (5%) of the Company's
outstanding Common Stock:
<TABLE>
<CAPTION>
NAME OF AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP PERCENTAGE OF CLASS
<S> <C> <C>
The Equitable Companies Incorporated................................................ 2,047,700(2) 7.48%
787 Seventh Avenue
New York, N.Y. 10019
State of Wisconsin Investment Board................................................. 2,105,900(3) 7.69%
P.O. Box 7842
Madison, WI 53707
</TABLE>
(1) Does not include Crestar Bank, trustee of the Cone Employee Equity Plan
which held of record for the plan 2,773,190 shares of Common Stock on March
15, 1996. This represents 10.13% of the Company's outstanding Common Stock.
The plan trustee votes shares held in the plan only if participants do not
exercise pass-through voting rights, and exercises investment or dispositive
rights only in accordance with the terms of the plan. The trustee,
therefore, disclaims beneficial ownership.
(2) According to a Schedule 13G filed with the Securities and Exchange
Commission and received by the Corporation from The Equitable Companies
Incorporated ("Equitable), these shares may be deemed to be owned by a group
consisting of Equitable, AXA (a French holding company), and five French
mutual insurance companies consisting of AXA Assurances I.A.R.D. Mutuelle,
AXA Assurances Vie Mutuelle, Alpha Assurances I.A.R.D. Mutuelle, Alpha
Assurances Vie Mutuelle and Uni Europe Assurance Mutuelle. According to the
Schedule 13G, the shares are held by The Equitable Life Insurance Society of
the United States and Alliance Capital Management L.P., a subsidiary of
Equitable. The Schedule
1
<PAGE>
13G states that the group may be deemed to exercise sole voting power as to
2,047,700 shares and sole investment power as to 2,644,100 shares.
(3) According to a Schedule 13G filed with the Securities and Exchange
Commission and received by the Corporation from State of Wisconsin
Investment Board, this public pension fund has sole voting and investment
power with respect to these shares.
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES
AND NAMED EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
beneficial ownership of the Corporation's Common Stock as of March 15, 1996:
<TABLE>
<CAPTION>
NAME OF DIRECTOR AMOUNT AND NATURE OF
NOMINEE OR OFFICER BENEFICIAL OWNERSHIP (L)(2)
<S> <C>
John L. Bakane (3).............................................................. 198,979
Doris R. Bray................................................................... 17,000
James S. Butner................................................................. 117,887
J. Patrick Danahy (3)(4)........................................................ 307,119
Leslie W. Gaulden (5)........................................................... 352,000
Jeanette C. Kimmel.............................................................. 125,000
Neil W. Koonce.................................................................. 140,694
Charles M. Reid................................................................. 7,000
John W. Rosenblum............................................................... 3,000
Dewey L. Trogdon (6)............................................................ 817,194
Richard S. Vetack (3)(7)........................................................ 105,833
Bud W. Willis III (3)(8)........................................................ 269,160
All Directors, Nominees and Officers as a Group (15 persons)(3)................. 2,800,789
<CAPTION>
NAME OF DIRECTOR
NOMINEE OR OFFICER PERCENTAGE OF CLASS
<S> <C>
John L. Bakane (3).............................................................. *
Doris R. Bray................................................................... *
James S. Butner................................................................. *
J. Patrick Danahy (3)(4)........................................................ 1.12%
Leslie W. Gaulden (5)........................................................... 1.29%
Jeanette C. Kimmel.............................................................. *
Neil W. Koonce.................................................................. *
Charles M. Reid................................................................. *
John W. Rosenblum............................................................... *
Dewey L. Trogdon (6)............................................................ 2.98%
Richard S. Vetack (3)(7)........................................................ *
Bud W. Willis III (3)(8)........................................................ *
All Directors, Nominees and Officers as a Group (15 persons)(3)................. 10.17%
</TABLE>
* Represents less than 1%.
(1) Unless otherwise indicated, all shares are owned of record and the
beneficial ownership consists of sole voting power and sole investment
power. Includes shares subject to options which are presently exercisable or
are exercisable within 60 days of March 15, 1996 as follows: Mr. Bakane
(25,000 shares), Mr. Butner (13,000 shares), Mr. Danahy (34,000 shares), Mr.
Koonce (13,000 shares), Mr. Willis (32,600 shares), 1,000 shares for Mr.
Vetack and 2,000 for each of Mrs. Bray, Mr. Gaulden, Mrs. Kimmel, Mr. Reid,
Mr. Rosenblum and Mr. Trogdon, and all Directors, Nominees, and Officers as
a Group (145,400 shares). Does not include 1,000 shares to be granted to
each nonemployee director as of May 21, 1996, pursuant to the 1994 Stock
Option Plan for Non-Employee Directors.
(2) Does not include shares of the Corporation's Class A Preferred Stock
allocated to the individual accounts of officers in the Cone Mills
Corporation 1983 ESOP.
(3) Includes shares of Common Stock allocated to the individual accounts of
directors and Named Executive Officers in the Cone Mills Corporation
Employee Equity Plan as of December 31, 1995, as follows:
<TABLE>
<S> <C>
Mr. Bakane.................................................................................. 28,919 shares
Mr. Butner.................................................................................. 15,223 shares
Mr. Danahy.................................................................................. 40,771 shares
Mr. Koonce.................................................................................. 24,021 shares
Mr. Willis.................................................................................. 47,312 shares
All Directors, Nominees and Officers as a group (15 persons)................................ 216,860 shares
</TABLE>
(4) Includes 72,000 shares owned of record by Mr. Danahy's wife.
(5) Includes 100,000 shares owned of record by Mr. Gaulden's wife.
(6) Includes 250,000 shares owned of record by Mr. Trogdon's wife and 50,694
shares owned of record by the Trustee for Mr. Trogdon's Individual
Retirement Account.
(7) Includes 60,667 shares owned of record by Mr. Vetack's wife and 9,998 shares
owned of record by the Trustee for Mr. Vetack's Individual Retirement
Account.
(8) Includes 78,753 shares owned of record by Mr. Willis' wife and two children.
2
<PAGE>
ELECTION OF DIRECTORS
The Restated Articles of Incorporation of Cone Mills Corporation provide
for a Board of Directors consisting of not less than nine (9) or more than
fifteen (15) members as determined by the majority vote of the entire Board of
Directors. The Restated Articles of Incorporation further provide that the Board
shall be divided into three classes, as nearly equal in number as the then total
number of directors constituting the entire Board permits. The terms of three
Class I Directors expire at the 1996 Annual Meeting, and Richard S. Vetack has
notified the Board of Directors that he shall not stand for re-election. The
Board has not yet identified a suitable nominee to succeed Mr. Vetack and,
therefore, proposes that the position be left vacant at this time. However, the
Board intends to continue its efforts to identify an appropriate nominee to fill
the vacancy and, if a nominee is identified prior to the next meeting of
shareholders, the Board may fill the vacancy for the interim period. If the
Board of Directors fills the position, the nominee will be submitted to the
shareholders for election at the next annual meeting. Persons elected as Class I
Directors at the Annual Meeting to fill the Class I vacancies will serve terms
of three years or until their successors are elected and qualified. The Board of
Directors proposes that the two persons nominated below be elected as Class I
Directors for terms expiring at the 1999 Annual Meeting. Each person nominated
below is an incumbent director of the Corporation.
The persons nominated below will be elected if they receive a plurality of
the votes cast for their election. Abstentions and broker nonvotes will not
affect the election results if a quorum is present. Unless otherwise specified,
the persons named in the accompanying proxy intend to vote the shares
represented by proxy for election of the nominees named below. If any nominee
should not be available to serve for any reason (which is not anticipated), the
proxy holders may vote for substitute nominees designated by the Board of
Directors. A proxy cannot be voted for more than the number of nominees named.
The following information is furnished with respect to the nominees:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION; BUSINESS
EXPERIENCE PAST FIVE YEARS; DIRECTOR
NAME PRESENT AGE AND OTHER DIRECTORSHIPS SINCE
<S> <C> <C> <C>
NOMINEES FOR THREE-YEAR TERM (CLASS I)
John L. Bakane 45 Executive Vice President of the Corporation as of February 17, 1995; Chief 1989
Financial Officer of the Corporation
(1988-Present); Vice President of the Corporation (1986-1995)
Charles M. Reid 61 Director, President and Chief Executive Officer, United Guaranty Corporation 1988
(1987-Present)
</TABLE>
3
<PAGE>
The following information is furnished with respect to directors continuing
in office.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION; BUSINESS
EXPERIENCE PAST FIVE YEARS; DIRECTOR
NAME OF NOMINEE PRESENT AGE AND OTHER DIRECTORSHIPS SINCE
<S> <C> <C> <C>
CLASS II (TERM EXPIRING IN 1997)
J. Patrick Danahy 52 President and Chief Executive Officer of the Corporation (1990-Present); 1989
President and Chief Operating Officer (1989-1990); Vice President of the
Corporation and President of the Cone Finishing Division (1986-1989)
Leslie W. Gaulden 73 Retired November 30, 1987; Vice President and Controller of the Corporation 1986
(1984-1987)
Jeanette C. Kimmel 57 Private Investment Management 1971
John W. Rosenblum 52 Tayloe Murphy Professor of the Darden Graduate School of Business 1993
Administration, University of Virginia (1993-Present); Dean, Darden Graduate
School of Business Administration (1982-1993); Director, Cadmus Communications
Corporation; Chesapeake Corporation, Comdial Corporation; The Providence
Journal Company; and T. Rowe Price & Associates.
</TABLE>
<TABLE>
<CAPTION>
CLASS III (TERM EXPIRING IN 1998)
<S> <C> <C> <C>
Doris R. Bray 58 Partner, Schell Bray Aycock Abel & Livingston L.L.P. (Attorneys at Law) 1989
(1987-Present); Director, Vanguard Cellular Systems, Inc.
Dewey L. Trogdon 64 Retired March 31, 1992; Chairman of the Board of Directors 1978
(1981-Present); Chief Executive Officer of the Corporation (1980-1990);
President of the Corporation (1979-1980; 1987-1989); Director, First Union
Corporation
Bud W. Willis III 53 Executive Vice President of the Corporation as of February 17, 1995; Vice 1988
President of the Corporation (1985-1995); Executive Vice President of the
Textile Products Group (1991-1992); President, Denim Division of Textile
Products Group (1992-1994); and President, Textile Product Group since January
1, 1995
</TABLE>
COMMITTEES AND DIRECTOR ATTENDANCE
During the year ended December 31, 1995, the Board of Directors of the
Corporation held eight meetings and the Executive, Audit, and Compensation
Committees held five, three, and two meetings, respectively. Each director
attended at least 75% of the aggregate of Board of Directors' meetings and
meetings of Committees of the Board on which he or she served during 1995.
The Executive Committee generally has the same authority as the Board to
manage the affairs of the Corporation but may not make determinations with
respect to dissolutions, mergers, amendments to the Articles of Incorporation or
Bylaws, compensation or removal of directors, or declaration of dividends.
Executive Committee members are Dewey L. Trogdon, Chair, John L. Bakane, Doris
R. Bray, J. Patrick Danahy and Charles M. Reid.
The Audit Committee's principal responsibilities consist of recommending to
the Board of Directors the selection of the Corporation's independent
accountants, reviewing the scope and results of completed audits, reviewing the
Corporation's internal audit staff functions and evaluating the quality of the
Corporation's financial reporting and internal control systems. Audit Committee
members are Leslie W. Gaulden, Chair, Jeanette C. Kimmel and Doris R. Bray.
The Corporation also has a Compensation Committee. See "Compensation
Committee Report on Executive Compensation" and "Compensation Committee
Interlocks and Insider Participation."
The Board of Directors does not have a standing nominating committee;
however, in relation to nominations, the Executive Committee considers and makes
recommendations to the Board with respect to the size and composition of the
Board and candidates for membership on the Board. The Committee has not
established procedures for the submission by shareholders of proposed candidates
for its consideration.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Under federal securities laws, the Company's directors, its executive
officers, and any persons holding more than 10 percent of the Company's stock
are required to report their ownership of the Company's stock and any changes in
that
4
<PAGE>
ownership to the Securities and Exchange Commission. Specific due dates for
these reports have been established and the Company is required to report in
this proxy statement any failure to file by these dates during fiscal 1995. All
of these filing requirements were satisfied by its directors and officers. In
making these statements, the Company has relied on the written representations
of its directors and officers and copies of the reports that they have filed
with the Commission. The Company is not aware of the existence of any ten
percent (10%) holders other than Crestar Bank (see Security Ownership table on
page 1).
EXECUTIVE COMPENSATION
The following information relates to all compensation awarded to, earned by
or paid pursuant to a plan or otherwise, to (i) the Chief Executive Officer of
the Corporation (the "CEO") and (ii) the four most highly compensated executive
officers, other than the CEO, who were serving as executive officers of the
Corporation on December 31, 1995. The CEO and the four most highly compensated
officers are referred to herein as the Named Executive Officers.
The following information does not reflect any compensation earned and paid
to the Named Executive Officers subsequent to December 31, 1995, unless
otherwise indicated. Any such compensation earned and paid to the Named
Executive Officers during 1996 will be recorded in the proxy statement for the
Corporation's 1997 Annual Meeting of Shareholders, unless such compensation is
required to be reported previously.
SUMMARY COMPENSATION TABLE
The following table sets forth for the Named Executive Officers for each of
the last three fiscal years annual compensation amounts as indicated by the
applicable table headings. Annual Compensation, columns (c), (d) and (e),
includes base salary and bonus earned during the year covered and, if
applicable, other annual compensation not properly categorized as salary or
bonus. Long-Term Compensation, column (g), reports the number of shares
underlying stock option grants to the Named Executive Officers during the
respective fiscal year. The Named Executive Officers were not awarded, granted
or paid any forms of compensation that are required to be reported in the
Long-Term Compensation columns (f) or (h).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION PAYOUTS
(G)
(E) SECURITIES (H)
(C) (D) OTHER ANNUAL (F) UNDERLYING LTIP
(A) (B) SALARY BONUS COMPENSATION RESTRICTED STOCK OPTIONS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2)(3) AWARDS ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
J. Patrick Danahy 1995 450,000 -- -- -- --
President and 1994 425,000 100,000 -- -- 40,000
Chief Executive Officer 1993 400,000 290,000 50,501 -- 30,000 --
John L. Bakane 1995 280,000 -- -- -- --
Vice President and 1994 260,000 72,000 -- -- 25,000
Chief Financial Officer 1993 245,000 165,000 67,499 -- 25,000 --
Bud W. Willis III 1995 280,000 -- -- -- --
Vice President, the 1994 250,000 93,000 -- -- 25,000
Corporation; President 1993 235,000 137,000 -- -- 25,000 --
Denim Division
Neil W. Koonce 1995 177,000 15,000 -- -- --
Vice President and 1994 170,000 33,000 -- -- 10,000
General Counsel 1993 160,000 69,000 278,317 -- 15,000
James S. Butner 1995 167,000 18,000 -- -- --
Vice President 1994 160,000 32,000 -- -- 10,000
Industrial and 1993 150,000 69,000 278,317 -- 15,000
Public Relations
<CAPTION>
(I)
ALL OTHER
(A) COMPENSATION
NAME AND PRINCIPAL POSITION ($)(4)
<S> <C>
J. Patrick Danahy 9,038
President and 7,458
Chief Executive Officer 10,784
John L. Bakane 6,344
Vice President and 6,310
Chief Financial Officer 8,652
Bud W. Willis III 9,210
Vice President, the 6,240
Corporation; President 8,483
Denim Division
Neil W. Koonce 6,045
Vice President and 5,683
General Counsel 5,914
James S. Butner 6,243
Vice President 5,614
Industrial and 5,544
Public Relations
</TABLE>
(l) All bonuses were paid pursuant to a Management Incentive Plan for the fiscal
years shown. See "Compensation Committee Report on Executive Compensation."
(2) Does not include the amount of the incremental cost of certain incidental
benefits, perquisites and other benefits, securities or property which in
the aggregate do not exceed the lesser of $50,000 or 10% of the total amount
of salary and bonus reported for the Named Executive Officer.
5
<PAGE>
(3) Represents cash payments based upon federal and state income tax savings
expected to be realized by the Corporation upon the exercise of Nonqualified
Options under the Cone Mills Corporation 1984 Stock Option Plan. See
"Compensation Committee Report on Executive Compensation."
(4) Represents the Corporation's matching contributions to the 401(k) Program
(Supplemental Retirement Plan and Employee Equity Plan) and the dollar value
of insurance premiums paid by the Corporation with respect to group term
life insurance and universal life insurance for benefit of the Named
Executive Officers as follows:
A. 401(k) Plan matching contributions for 1995 were $4,500 each for: Mr.
Danahy, Mr. Bakane, Mr. Willis, Mr. Koonce, and Mr. Butner.
B. Insurance Premiums for 1995 respectively: Mr. Danahy ($4,538); Mr.
Bakane ($1,844); Mr. Willis ($4,710); Mr. Koonce ($1,545); and Mr.
Butner ($1,743).
STOCK OPTION SAR GRANTS IN LAST FISCAL YEAR
No options were granted to the Named Executive Officers during the fiscal
year ended December 31, 1995.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE
The following table shows stock option exercises by the Named Executive
Officers during 1995, including the aggregate value of gains on the date of
exercise ("Value Realized"). In addition, this table includes the number of
shares covered by exercisable and unexercisable options as of December 31, 1995.
Also reported, both as to exercisable and unexercisable options, are the values
of "in-the-money" options, which are options with a positive spread between the
fiscal year-end market price of the underlying Common Stock and the exercise
price of such stock options.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995 AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
(D)
NUMBER OF
SECURITIES
UNDERLYING
(B) UNEXERCISED OPTIONS
SHAREES (C) AT 12/31/95
(A) ACQUIRED ON VALUE REALIZED EXERCISABLE/
NAME EXERCISE (#) ($)(1) UNEXERCISABLE
<S> <C> <C> <C>
J. Patrick Danahy -- -- 26,000/44,000
John L. Bakane -- -- 20,000/30,000
Bud W. Willis III -- -- 27,600/57,600
Neil W. Koonce -- -- 11,000/25,000
James S. Butner -- -- 11,000/25,000
<CAPTION>
(E)
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT 12/31/95 ($)(2)
(A) EXERCISABLE/
NAME UNEXERCISABLE
<S> <C>
J. Patrick Danahy 0/0
John L. Bakane 0/0
Bud W. Willis III 45,600/0
Neil W. Koonce 0/0
James S. Butner 0/0
</TABLE>
(1) Fair market value on date of exercise less exercise price.
(2) Based on $11.25 fair market value per share on December 29, 1995, the last
trading day of fiscal year 1995.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
The Corporation had no long-term incentive plan in effect in 1995.
PENSION PLAN TABLE
The following table sets forth in the ERP column the estimated annual
benefits payable upon retirement in 1996 at age 65 under the Employees'
Retirement Plan of Cone Mills Corporation (the "ERP") in the compensation and
years of service categories indicated. Benefit amounts shown are payable for
life with no contingent death benefits. Benefits are based upon total annual
salary and bonus, compensation in excess of the amount covered by Social
Security as determined in the year of retirement and total years of service. The
years of service credited as of March 31, 1996, for the Named Executive Officers
are: Mr. Danahy -- 24 years; Mr. Bakane -- 20 years; Mr. Willis -- 25 years; Mr.
Koonce -- 22 years; and Mr. Butner -- 23 years.
Pension benefits under the ERP are subject to certain limitations imposed
by the Internal Revenue Code of 1986, as amended (the "Code"). The aggregate
annual pension that may be paid under the ERP and all other defined benefit
plans of
6
<PAGE>
the Corporation taken together is generally restricted to $120,000 in 1995 and
1996. In addition, the Code limits annual compensation of each employee that can
be taken into account in computing pension benefits to $150,000 in 1995 and
1996. These amounts may be adjusted for cost of living as provided in the Code.
Pension benefits that cannot be paid from the ERP by reason of the limitations
in the Code are provided by the Corporation's Excess Benefit Plan and by the
Supplemental Executive Retirement Plan, both of which are unfunded, nonqualified
benefit plans. Such amounts are identified in the following table in the columns
headed "SERP". The Corporation accrues annually the estimated expense for
providing benefits under the ERP and the nonqualified plans, as determined by an
independent consulting actuary; however, this expense cannot be specifically
allocated to any individual or to the Named Executive Officers as a group under
the funding method used by the actuary.
APPROXIMATE ANNUAL BENEFIT FOR YEARS OF SERVICE INDICATED (1)
<TABLE>
<CAPTION>
AVERAGE ANNUAL
COMPENSATION FOR
HIGHEST CONSECUTIVE
FIVE YEARS DURING LAST
TEN YEARS BEFORE 15TH YEAR 20TH YEAR 25TH YEAR 30TH YEAR
RETIREMENT ERP SERP ERP SERP ERP SERP ERP SERP
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$200,000 $ 59,731 $ 2,964 $ 78,433 $ 2,964 $ 91,057 $ 1,812 $ 102,529 $ 1,812
$250,000 59,870 19,294 78,635 24,172 91,310 25,987 102,816 28,972
$300,000 59,870 35,762 78,635 45,581 91,310 50,415 102,816 56,419
$400,000 59,870 68,699 78,635 88,399 91,310 99,272 102,816 111,314
$500,000 59,870 101,636 78,635 131,217 91,310 148,128 102,816 166,209
$600,000 59,870 134,573 78,635 174,035 91,310 196,985 102,816 221,104
$700,000 59,870 167,510 78,635 216,853 91,310 245,841 102,816 275,999
$800,000 59,870 200,447 78,635 259,671 91,310 294,698 102,816 330,894
$900,000 59,870 233,384 78,635 302,489 91,310 343,555 102,816 385,789
<CAPTION>
AVERAGE ANNUAL
COMPENSATION FOR
HIGHEST CONSECUTIVE
FIVE YEARS DURING LAST
TEN YEARS BEFORE 35TH YEAR
RETIREMENT ERP SERP
<S> <C> <C>
$200,000 $ 109,637 $ 988
$250,000 109,951 29,768
$300,000 109,951 58,862
$400,000 109,951 117,051
$500,000 109,951 175,240
$600,000 109,951 233,428
$700,000 109,951 291,617
$800,000 109,951 349,806
$900,000 109,951 407,995
</TABLE>
(1) Pension benefits provided by the ERP with respect to service after 1983 are
subject to a "floor offset" arrangement in conjunction with the Cone Mills
Corporation 1983 ESOP (the "1983 ESOP"), a separate defined contribution
pension plan maintained by the Corporation. The amounts shown in the above
table are calculated on the assumption that the participant elects to
receive the maximum pension benefit available under the ERP, and in
accordance with the terms of each plan, authorizes a transfer of funds in
his 1983 ESOP account to the trustee of the ERP in a dollar amount equal to
the actuarial equivalent of the pension benefit attributable to service
after 1983. The balance, if any, in the 1983 ESOP account will be
distributed to the participant. To the extent that a participant's 1983 ESOP
account is insufficient to fund the pension benefits attributable to service
after 1983, the cost of benefits not covered by the 1983 ESOP will be funded
through the ERP. If the participant does not elect to transfer funds from
his 1983 ESOP account to the trustee of the ERP, his account balance will be
distributed in accordance with the terms of the 1983 ESOP, and his pension
payable from the ERP with respect to service after 1983 will be reduced (but
not below zero) by the actuarial equivalent of his 1983 ESOP account
balance. The 1983 ESOP is designed to invest primarily in qualifying
securities under ERISA. Assets of the 1983 ESOP consist of shares of the
Corporation's Class A Preferred Stock and other money market and marketable
debt securities that are allocated to individual accounts of participants.
The fair market value of the stock is determined by independent appraisal
performed several times each year. No contributions to the 1983 ESOP have
been made for salaried employees since 1986. The value of the account in the
1983 ESOP for each of the Named Executive Officers as of December 31, 1995,
was: Mr. Danahy -- $109,879; Mr. Bakane -- $58,929; Mr. Willis -- $126,953;
Mr. Koonce -- $42,502; and Mr. Butner -- $20,666.
COMPENSATION OF DIRECTORS
Directors who are also officers of the Corporation do not receive
additional compensation for service as directors or as members of committees of
the Board of Directors. Nonemployee directors receive a retainer fee of $17,000
per year and an attendance fee of $1,000 per diem for meetings of the Board of
Directors. No additional fee is paid for meetings of any committee of the Board
held on the same day as a Board meeting. The fee for a Committee meeting not
held on the same day as a Board meeting is $500. Travel expenses of directors
incurred in attending meetings are reimbursed by the Corporation. In 1995,
retainers and attendance fees paid to all directors totaled $180,000.
The Shareholders approved at the 1994 annual meeting the 1994 Non-Employee
Director Stock Option Plan whereby each nonemployee director receives each year
after the annual meeting of shareholders a stock option grant to purchase 1,000
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shares of Common Stock at the fair market value of a share of Common Stock on
the grant date. The grant date is the fifth business day after the annual
meeting.
The Board of Directors has approved a Consulting Agreement between the
Corporation and Dewey L. Trogdon whereby Mr. Trogdon provides consultation and
advice. Mr. Trogdon's consulting fee was $15,000 per calendar quarter in 1995
and is $15,000 per calendar quarter in 1996. In addition, Mr. Trogdon was
reimbursed for expenses incurred by him in providing such consulting services.
The consulting fee payments are in addition to any pension or other supplemental
retirement benefits that Mr. Trogdon is entitled to receive by reason of his
service as an employee of the Corporation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Mr. Charles M. Reid,
Mrs. Jeanette C. Kimmel, and Dr. John W. Rosenblum, all of whom are directors
who are not currently or formerly employees of the Corporation.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Corporation's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Committee's membership is
comprised of nonemployee directors, none of whom participate in any of the plans
administered by the Committee. It is the responsibility of the Compensation
Committee to review and make recommendations to the Board of Directors
concerning the salaries and incentive compensation and to approve stock option
grants for the Chief Executive Officer and the other executive officers of the
Corporation.
COMPENSATION POLICY
The Corporation strives to provide executives an opportunity to earn
compensation that is fair, reasonable and competitive with that paid by
comparable companies to executives in similar positions with similar duties and
responsibilities. In accordance with the policy, the Committee is guided by
three goals as it considers the compensation of executive officers. First,
executive compensation must be effective in attracting, motivating and retaining
executives who possess the skills and experience necessary to ensure the
Corporation's success. Second, the Corporation should recognize and reward
executives for their contributions to the success of the business. Third, the
corporation must be aware of the importance of planning and controlling the cost
of executive compensation.
To implement this policy, the Corporation maintains an executive
compensation program that consists of base salaries, annual incentive plans,
stock option plans and competitive benefits. It is the belief of the Committee
that through these components executives are provided compensation and benefits
that are competitive; are provided incentives for additional annual compensation
that is earned only upon achievement of performance standards as established and
approved each year; and are provided long-term incentive compensation through
the grant of stock options that can appreciate in value.
SALARIES
The Committee's objective in establishing the base salaries of the named
executive officers is to provide salaries at competitive market levels with
other industry leaders in order to reward and encourage individual performance.
The salary of the Chief Executive Officer is evaluated solely by the
Compensation Committee and the salary of other executive officers is determined
by the Committee based upon recommendations from the Chief Executive Officer.
Final approval of salaries of the Chief Executive Officer and the other
executive officers are made by the independent members of the Board of Directors
after receiving recommendations of the Committee. The Committee deems its
compensation decisions to be a cumulative process involving a substantial amount
of judgement concerning an executive's experience and responsibilities against
objective information furnished by compensation consultants.
In developing current salary levels, including that of the Chief Executive
Officer, the Committee reviewed the Corporation's assessment of salaries in the
textile industry in addition to an analysis of cash compensation (base salary
and annual bonus or incentives) prepared specifically for the Corporation and
the Compensation Committee by a major compensation consulting firm. In the
analysis, the Corporation's executive positions were matched with similar
positions at other companies based on data from executive compensation surveys,
a proprietary survey of the textile industry and proxy statements of companies
that are in the Peer Group for the Performance Graph set forth below. A weighted
composite was developed, and the Committee compared executive salaries to the
market composite and considered those comparisons in making salary increase
decisions. In general, the Committee targets executive salaries at the market
median; however, in a given year an individual executive's salary may vary from
median due to experience, performance, or other factors deemed relevant by the
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<PAGE>
Committee and considered on a subjective basis. Specifically, the Committee
determined that a salary increase for the Chief Executive Officer for 1995 was
in order to place his salary closer to the market median rate.
INCENTIVE COMPENSATION
The Corporation has established an annual management incentive plan that
links executive compensation to the performance of the Corporation and the
executive. Under the plan, executive officers and other key management employees
can earn annual cash incentive awards based upon the achievement of corporate
and individual goals established at the beginning of each year. Special awards
can be made to recognize exceptional individual performance at the discretion of
the Committee and the Board. Performance goals are set at the corporate level
and at division levels depending upon the responsibilities of each of the
executives. Corporate level performance targets are determined by measuring
return on capital employed and earnings per share. The Committee examines the
returns on capital employed and earnings of other public companies (including
companies that appear in the Performance Graph below) as it establishes and
approves these targets. Division-level goals are established based upon return
on capital employed for the division. Awards to individual officers and the
aggregate amounts of awards to all key management employees are reviewed by the
Committee and approved by the Board after the close of the fiscal year.
The achievable incentive award for each officer and management employee is
based upon a blend of corporate and/or division and individual goals tailored to
that particular executive, based upon his or her responsibilities. Specifically,
for the Chief Executive Officer, the corporate goals of return on capital
employed and earnings per share account for 80% of his incentive compensation
and 20% is attributable to individual goals. The weight given to each factor
comprising the incentive award varies per each executive.
The Corporation's performance for earnings per share and return on capital
employed for 1995 did not meet the minimum goal for the payment of incentives
for corporate performance under the Corporation's incentive compensation plan.
Accordingly, no incentive payments based on corporate performance were granted
for the year. However, in order to encourage the continuing efforts of key
management employees to "work through" the current business environment and to
recognize the achievement of divisional and individual functional goals, the
Committee approved the payment of discretionary incentives to certain
individuals. As a result of the overall performance of the Corporation for 1995,
the Committee did not authorize the grant of any incentive compensation to the
Chief Executive Officer and the Executive Vice Presidents notwithstanding a
general satisfaction with their performance during a difficult business and
textile market and contingencies beyond their control that affected
profitability of the Corporation.
The Committee agrees that incentive compensation should be paid as much as
practical according to plans approved by the shareholders as encouraged by
Section 162(m) of the Internal Revenue Code (See discussion below entitled
Deductibility of Compensation). Although compensation in excess of $1 million is
not foreseen for the near future, the Committee has recommended to the Board of
Directors the adoption by the shareholders of the 1997 Senior Management
Incentive Compensation Plan for officers and division presidents. The
recommended plan establishes the business criteria on which incentive
compensation can be granted according to pre-established objective, numerical
formulae. (See Item No. 3 -- Proposal to Approve the 1997 Senior Management
Incentive Compensation Plan.) However, the Committee is also of the opinion that
not all incentive compensation can be objectively measured even though it is
based upon strategic performance goals and that some judgmental discretion is
warranted in administering compensation plans. For that reason it has
recommended for 1997 that the Board of Directors maintain a separate
discretionary incentive plan for officers and division presidents pursuant to
which no more than thirty percent (30%) of a participant's base salary can be
awarded for achievement of performance goals not measurable by numerical
formulae. The current management incentive compensation plan will be maintained
for selected key management employees who are not corporate officers or division
presidents.
STOCK OPTIONS
The Corporation maintains the 1992 Stock Option Plan through which key
management employees have received and may receive grants of stock options. No
additional grants are available under the Corporation's 1984 Stock Option Plan
but some options remain outstanding under that Plan. It is the belief of the
Committee that, since executives earn no rewards through these stock options
unless the stock price increases, this form of executive compensation has the
potential to benefit shareholders as well as executives by aligning the
interests of the Corporation's executives with those of shareholders.
The Corporation's stock option plans permit the granting of both incentive
stock options, as defined under the Internal Revenue Code, and nonqualified
options. The exercise price of these options may not be less than 100 percent of
the fair market value of the Common Stock on the date the option is granted.
Nonqualified stock options granted by the Committee
9
<PAGE>
may include a provision whereby the Corporation will pay to the executive an
amount that is equal to the savings the Corporation realizes through tax
deductions related to the option exercise. The amount of payments to the Named
Executive Officers under this tax reimbursement feature of the stock option
plans is reported in column (e) of the Summary Compensation table. The Committee
believes this form of compensation is in accordance with the Compensation Policy
of the Committee because it enables the executives to retain shares that
otherwise may be sold to meet tax obligations.
The Compensation Committee currently operates under the general objective
that stock option grants to executives should be considered on a regular basis.
Recently, the Committee has granted options approximately every two years. It
concurred in the Chief Executive Officer's recommendation that the 1,500,000
shares available for grant under the 1992 Stock Option Plan be granted in blocks
of approximately 400,000 in 1994 and 300,000 biennially thereafter with 100,000
available to be granted from time to time as the Committee so determines. Grants
are recommended to the Committee by the Chief Executive Officer. The
Corporation's consultant provides advice as to equity ownership of and the size
of grants to the named executive officers of public companies within the textile
industry including members of the Company's Peer Group.
Certain compensation recognized as a result of grants issued pursuant to
stock-based plans qualifies for tax deduction under Section 162(m). (See the
discussion below on Deductibility of Compensation.) The Committee recommended
and the Board of Directors approved a conforming amendment to the 1992 Stock
Option Plan to meet Section 162(m) requirements, I.E. a maximum amount of stock
that can be granted to any one individual must be set forth in the plan
document. In addition, the Committee recommended and the Board approved
amendments to the 1992 Stock Option Plan to authorize the grant of "restricted
shares" and "performance shares" as well as stock options. This would give the
Committee greater flexibility in structuring a stock-based long term incentive
program to meet the purposes of the plan for different levels of key management
employees. (See the discussion following on Item No. 2 -- Proposal to Approve
the Amended and Restated 1992 Stock Plan.)
DEDUCTIBILITY OF COMPENSATION
As part of the Omnibus Budget Reconciliation Act passed by Congress in
1993, the Internal Revenue Code of 1986 was amended to add Section 162(m), which
limits the deductibility for federal income tax purposes of compensation paid to
the Chief Executive Officer and the next four most highly compensated executive
officers of the Company. Under Section 162(m), compensation paid to each of
these officers in excess of $1 million per year is not deductible unless it is
"performance based." The Internal Revenue Service issued final regulations under
Section 162(m) on December 19, 1995. The Committee did not consider the
deductibility limits in making its compensation decisions for any one of the
Named Executive Officers for 1994 or 1995 fiscal years as the deductibility
limits would not be exceeded under any circumstances. However, the Committee's
policy is to design and administer compensation programs that meet the
objectives set forth above and that reward executives for corporate performance
which meets established financial goals, and to the extent reasonably
practicable and to the extent consistent with its other compensation objectives,
to maximize the amount of compensation expense that is tax deductible by the
Corporation. The Committee will continue to review the developments of the law
and the regulations and will consider amendments to its compensation plans as
deemed appropriate to meet its policies and objectives.
COMPENSATION COMMITTEE
Charles M. Reid, Chair
Jeanette C. Kimmel
John W. Rosenblum
10
<PAGE>
PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
shareholder return on the Corporation's Common Stock with the cumulative return
of the Standard & Poor's 500 Stock Index and with a peer group index developed
by KPMG Peat Marwick, assuming reinvestment of dividends. The Corporation's
Common Stock was registered under Section 12 of the Securities Exchange Act of
1934 on June 18, 1992, in connection with an initial public offering of
6,000,000 shares. Accordingly, the measurement period selected by the
Corporation for its Performance Graph begins on June 17, 1992, the last trading
day before the initial public trading of Cone Common Stock, and ends on December
29, 1995, the last trading day of the Corporation's fiscal year.
The Peer Group index has been constructed by calculating the cumulative
total return of the common stock of the following companies: Burlington
Industries, Inc.; Delta Woodside Industries, Inc.; Dixie Yarns, Inc.; Fieldcrest
Cannon, Inc.; Guilford Mills, Inc.; and Springs Industries, Inc. The return of
each peer company was weighted according to its stock market capitalization as
of the beginning of the period.
COMPARISON OF SHAREHOLDER RETURN
AMONG CONE MILLS, S&P 500 AND PEER GROUP
(The performance graph appears here with the following plot points:)
6/18/92 12/31/92 12/31/93 12/31/94 12/31/95
Cone Mills $100 $143 $169 $119 $113
S&P 500 $100 $111 $122 $124 $170
Peer Group $100 $102 $104 $ 92 $91
11
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ITEM 2. PROPOSAL TO APPROVE THE AMENDED AND RESTATED 1992 STOCK PLAN
On March 17, 1992, the Board of Directors adopted the Cone Mills
Corporation 1992 Stock Option Plan and the plan was approved by the shareholders
of the Company on March 30, 1992. On February 15, 1996, the Board of Directors
approved amendments amending and restating the plan as the Amended and Restated
1992 Stock Plan ("the Plan") (i) to authorize the grant of "restricted stock"
and "performance shares" as described below and (ii) and to include a provision
that options may not be granted to any one individual during the term of the
Plan in excess of 200,000 shares.
Two million (2,000,000) shares are authorized to be granted pursuant to the
Plan. Grants of options to purchase 500,000 shares were made on February 18,
1993, to 70 employees at an exercise price of $15.625 per share and grants of
options to purchase 410,000 shares were made on November 9, 1994, to 74
employees at an exercise price of $12.00 per share. As of March 15, 1996,
options to purchase 54,000 shares have been cancelled, no options have been
exercised, and 1,144,000 shares remain available for future grant.
The Company is seeking shareholder approval of the Plan as originally
adopted and as now amended in order to comply with the requirements of Rule
16b-3, promulgated pursuant to the Securities Exchange Act of 1934 as amended,
and the requirements of Section 162(m) of the Internal Revenue Code, as amended
(the "Code"). The following summary of the Plan is qualified in its entirety by
express reference to the text of the Plan as filed with the Securities and
Exchange Commission.
THE PLAN
Shares of the Common Stock, par value $.10 per share, of the Company (the
"Common Stock") are subject to options and stock grants issued to the Plan. The
Plan authorizes the Committee to grant incentive stock options, nonqualified
stock options, restricted stock, and performance shares with the characteristics
as set forth in this Summary.
The purposes of the Plan are to encourage stock ownership by officers and
key management employees, to create an incentive to encourage certain officers
and other key management employees to acquire, or increase, a proprietary
interest in the Company and to encourage them to remain in the employ of the
Company.
The Plan shall terminate no later than March 16, 2002. No grants may be
made after the Plan has terminated, but grants previously awarded may extend
beyond that date. The Board of Directors of the Company from time to time may
suspend, discontinue, revise or amend the Plan with respect to any shares not
then subject to grants; however, without shareholder approval, the Board may not
increase the number of shares subject to the Plan, change the class of employees
eligible to receive grants, or decrease the minimum option price.
The Plan is not subject to any provisions of the Employee Retirement Income
Security Act of 1974 and is not qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
ADMINISTRATION OF THE PLAN
The Plan is administered by a stock committee appointed by the Board of
Directors of the Company. The Compensation Committee (the "Committee") has been
designated by the Board of Directors as the stock committee. The Committee
consists of no less than two members of the Board none of whom are eligible to
participate in the Plan. The Board from time to time may remove members from or
add members to the Committee. All vacancies on the Committee are filled by the
Board of Directors.
The Committee has full power and discretion to interpret the Plan, to
adopt, amend and rescind rules and regulations relating to the Plan, to select
the officers and key management employees who will receive grants, to determine
the number of shares that will be subject to each grant and whether a particular
grant will be an incentive stock option, a nonqualified stock option, restricted
shares, or performance shares, and to impose such terms and conditions upon the
grants (which need not be identical for each recipient) as the Committee may
deem necessary or desirable, subject only to the limitations contained in the
Plan and in applicable law and regulations.
The interpretation and construction by the Committee of any provisions of
the Plan or any grant under it shall be final and conclusive. The Plan provides
that no member of the Board of Directors or the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
grant under it.
The current members of the Committee are Charles M. Reid, Chairman of the
Committee, Jeanette C. Kimmel, and John W. Rosenblum.
12
<PAGE>
SECURITIES TO BE OFFERED
The shares of Common Stock that are to be issued under the Plan are shares
that have been authorized and unissued by the Company. The maximum number of
shares of Common Stock that may be issued under the Plan is 2,000,000 shares. As
of March 15, 1996, 1,144,000 shares are available for grant. No eligible
employee may receive options, restricted stock or performance shares with
respect to more than 200,000 shares in the aggregate during the term of the
Plan.
ELIGIBLE EMPLOYEES
Grants may be awarded only to key management employees of the Company and
its subsidiaries as the Committee shall select from time to time.
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 or lapse of any risk of forfeiture of restricted stock from among the
following: return on capital employed, return on equity, earnings per share,
divisional return on capital employed, or divisional return on net assets. The
performance criteria are defined terms as set forth in the Plan and are the same
as set forth in the 1997 Senior Management Incentive Compensation Plan. (See
page 17 and 18 herein for the definitions.)
GRANT OF OPTIONS
An employee who is granted a stock option under the Plan may elect to
purchase Common Stock in accordance with the terms of the Plan and Stock Option
Agreements that are entered into between the employee and the Company.
(A) PRICE OF OPTIONS. The exercise price for any shares purchased pursuant
to an option under the Plan may not be less than 100% of the fair market value
of the Common Stock on the date the option is granted. The fair market value of
the Common Stock shall be determined with reference to the price of Common Stock
as quoted on the New York Stock Exchange. Without the consent of a participant,
the exercise price under any option granted pursuant to the Plan may be modified
by the Committee only in the event of a stock dividend, stock split or other
change in the capitalization of the Company and only to reflect a proportionate
change in the outstanding shares.
(B) TERM OF OPTIONS. Unless a particular stock option agreement provides
otherwise, each option granted under the Plan shall be for a term of 10 years
and shall be exercisable in cumulative installments as follows:
(i) up to 20% of the 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 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 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 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; and
(v) up to 100% of the 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.
The Committee may, in its discretion, accelerate the time at which any
outstanding option may be exercised. No option may be exercised after the
expiration of 10 years from the date of its grant.
The option agreements authorized under the Plan may contain other
provisions not inconsistent with the Plan as the Board of Directors or the
Committee may deem advisable, such as a condition that a specified performance
criteria by the Company or the optionee be met before the option may be
exercised.
(C) EXERCISE AND PAYMENT FOR SHARES. Options may be exercised only by
written notice from the optionee (or his estate or other legal representative)
to the Company accompanied by payment of the option price in full. At least 100
shares must 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 option
price may be paid in cash or by check or, at the election of the optionee and
with the prior consent of the Committee, it may be paid in whole or in part by
delivery to the Company of duly endorsed certificates evidencing shares of
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<PAGE>
the Common Stock. If payment is made by delivery of shares of Common Stock, the
fair market value of such stock (determined pursuant to the Plan as described
above) will be applied to the option price.
No optionee is entitled to issuance of a certificate evidencing option
shares until full payment for the shares has been made in accordance with the
Plan. No optionee has any rights as a shareholder with respect to any shares
issuable or deliverable pursuant to the Plan until the date the certificate for
those shares is issued to him.
(D) LIMITATIONS. With respect to Incentive Stock Options that may be
granted, to the extent the aggregate fair market value (determined when the
option is granted) of shares subject to such an option that become exercisable
for the first time exceeds $100,000 in any calendar year, such options would not
be taxed as "incentive stock options" under the Code.
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.
(A) RESTRICTIONS AND CONDITIONS. Restricted stock granted under the Plan
shall be evidenced by written agreements which set forth all restrictions and
conditions pursuant to which shares issued can be forfeited. The restrictions
and conditions, including the satisfaction of corporate or individual
performance objectives, may differ from one grant to another. The Committee has
the right to determine whether any cash consideration shall be paid by the
grantee for issuance of the restricted shares. The restrictions and conditions
imposed will lapse in no event later than ten years from the date of the grant.
(B) RESTRICTED STOCK CERTIFICATES AND RIGHTS OF HOLDERS. Each certificate
issued for shares of restricted stock will be registered in the name of the
grantee but will be deposited along with a duly endorsed stock power with the
Corporation to be held until the restrictions and conditions have lapsed. The
shares are issued with a restrictive legend referencing the restrictions and
conditions. Subject to the restrictions and conditions, the Grantee is the owner
of the restricted stock and shall have all rights of a shareholder, including
but not limited to the right to receive any dividends paid on the restricted
stock and the right to vote the shares. Once the restrictions and conditions
have lapsed, new certificates without restrictive legend are issued to the
grantee by the Corporation.
GRANT OF PERFORMANCE SHARES
The Committee may cause the Corporation to grant performance shares to
grantees in such amounts as the Committee determines. 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.
(A) TERMS AND CONDITIONS. Performance Shares granted under the Plan shall
be evidenced by written agreements which shall specify the the performance
objectives and the period of duration of the Performance Shares. A grantee shall
not be deemed to be a holder of any shares subject to a Performance Share 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
or distributions or other rights for which the record date is prior to the date
stock certificates are issued pursuant to any Performance Share grant (except as
provided in the Section entitled Adjustment set forth below).
(B) 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 the performance objective is achieved multiplied by the
number of Performance Shares.
(C) PERFORMANCE OBJECTIVE PERIOD. The duration of the period within which
to achieve the performance objectives is determined by the Committee but in no
event shall the duration be later than ten years from the date of the grant.
TERMINATION OF EMPLOYMENT
All options granted under the Plan must be exercised while the optionee is
an employee of the Company, except that following termination of employment with
the Company for any reason other than retirement in good standing under the
Company's then established policies or death, an optionee may exercise (in whole
or in part) his option prior to its expiration, during the three-month period
following the termination of his employment, but only to the extent that it was
exercisable on the date his employment terminated. In the event of an optionee's
retirement in good standing under the Company's then established policies, or in
the event of his death during employment, he or his personal representative or
his heirs may exercise his option prior to its expiration, in whole or in part
(regardless of the extent to which the option was exercisable immediately prior
to the optionee's retirement or death), for a period of three months in the case
of early or normal retirement
14
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and for a period of one year in the case or retirement due to disability, under
the Company's then established policies, or death. During an optionee's
lifetime, only he may exercise his option.
ADJUSTMENTS
In the event of a merger or consolidation in which the Company is not the
surviving corporation or pursuant to which the shareholders of the Company
exchange their Common Stock, or if the Company shall dissolve or liquidate or
sell substantially all of its assets, all options outstanding under the Plan
shall terminate on the effective date of such merger, consolidation,
dissolution, liquidation or sale. However, the Committee, in its discretion
prior to the effective date of such an event, may accelerate the time at which
any outstanding option may be exercised, may authorize a payment to each
optionee that approximates the economic benefit that he would realize if his
option were exercised immediately before such effective date, may authorize a
payment in such other amount as it deems appropriate to compensate each optionee
for the termination of his option, or may arrange for the granting of a
substitute option to each optionee.
Subject to any required action by the shareholders, the number of shares of
Common Stock covered by each outstanding option, and the option price per share,
will be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a subdivision or consolidation of
shares or the payment of a stock dividend on the Common Stock or any other
increase or decrease in the number of such shares effected without receipt of
consideration by the Company. Such adjustments will be made by the Committee,
whose determination in that respect will be final, binding and conclusive.
APPLICATION OF SECTION 16(B)
Certain officers and directors who are eligible to participate under the
Plan may be subject to Section 16(b) of the Securities Exchange Act of 1934
("Insiders"). Under Section 16(b), the Company has the right to recover from
Insiders any profits realized by them on any non-exempt short-swing transaction,
i.e. any purchase or sale, or sale and purchase, of any equity security within a
period of less than six months. Grants of options and shares pursuant to
employee benefit plans can be exempted from some provisions of Rule 16b-3 if the
plan conforms to the requirements of the rule and is approved by shareholders.
The Plan is intended to comply with the requirements of Section 16b-3.
TAX REIMBURSEMENTS AND WITHHOLDING
The Committee may, in its discretion, make grants which provide for tax
reimbursement payments to recipients of nonqualified stock options, restricted
stock, or performance shares. See "Certain Federal Income Tax Consequences". The
Plan also requires that no exercise of any option granted or issuance of shares
under the Plan will be effective until all withholding tax requirements have
been satisfied in a manner acceptable to the Company. If the grantee is entitled
to a tax reimbursement payment, the Company will generally withhold from that
payment all amounts the Company is required to withhold as a result of the
exercise of the option or issuance of shares and the tax reimbursement payment.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options granted under the Plan are intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code (the
"Code"). The grant of an incentive stock option generally does not result in
taxable income to the optionee at the time of grant or at the time of exercise.
However, for any year in which Common Stock is purchased upon exercise of the
option, the difference between the fair market value of the Common Stock at the
time of exercise and its cost to the employee will be a tax preference item for
purposes of computation of the employee's alternative minimum tax under Section
55 of the Code. If the optionee exercises the option and then sells the Common
Stock purchased under the option at a gain, the excess of the sales price of the
Common Stock over its cost to the optionee will be taxable as a long-term
capital gain if the sale is made more than two years from the granting of the
option and more than one year from the transfer of the stock to the optionee. If
the sale is made within two years after the granting of the option or within one
year after the Common Stock is transferred to the optionee and if sales proceeds
exceed the fair market value of the Common Stock on the date of exercise, the
optionee generally will recognize ordinary income, equal to the fair market
value of the Common Stock on the date of exercise less the option price, and
capital gain (long-term or short-term as the case may be), equal to the amount
realized in excess of the fair market value of the Common Stock on the date of
exercise. No tax deduction generally will be available to the Company as a
result of the granting of incentive stock options, the exercise of such options,
or the sale by optionees of the Common Stock purchased. However, the Company
will be entitled to a deduction in an amount equal to the ordinary income, if
any, realized by an optionee on the sale of Common Stock purchased pursuant to
the exercise of an incentive stock option.
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Nonqualified stock options granted under the Plan are not intended to
qualify as "incentive stock options" under the Code. The grant of a Nonqualified
Stock Option will not result in taxable income to the employee or a deduction to
the Company. On the date any such option is exercised, an optionee generally
will be deemed to receive ordinary income equal to the amount by which the fair
market value of the Common Stock on the exercise date exceeds the option price,
and the Company will generally receive a deduction in the same amount. The
options will generally be taxed immediately upon the exercise of a Nonqualified
Stock Option, provided at least six months have elapsed from the date of the
grant to the date of the exercise. In the event less than six months have
elapsed, Insiders will recognize ordinary income at the time such six-month
period elapses in an amount equal to the excess, if any, of the fair market
value of the shares on such date over the exercise price.
The terms of the award of restricted stock or performance shares contain
various conditions before shares can be issued which constitutue a substantial
risk of forfeiture under the Code. Accordingly, no income will be recognized by
a recipient and the Corporation will not be entitled to a deduction for federal
income tax purposes at the time the award is made. The recipient will recognize
income and the Corporation will be entitled to a deduction for federal income
tax purposes in an amount equal to the income recognized by the recipient at the
time the shares become fully vested under the Plan and the terms of the award.
However, each recipient would be entitled to make an election at the time of the
award under Section 83(b) of the Code to be taxed currently on the value of an
award in which case the Corporation would be entitled to a corresponding
deduction.
The Plan allows for the grant of nonqualified stock options, restricted
stock, and performance shares which by their terms include a tax reimbursement
provision. The amount of the tax reimbursement payment is not related to the
amount of the tax payable by the grantee by reason of exercising an option or
issuance of stock. Instead, the amount of the payment is equal to the amount of
tax benefit expected to be or actually realized by the Company through the
utilization of deductions claimed for income tax purposes as a result of the
exercise of a nonqualified stock option and the issuance of stock and any cash
reimbursement payment made in accordance with the Plan provisions. Any tax
reimbursement payment to which an optionee may be entitled is made by the last
day of the calendar year in which the optionee recognizes taxable income under
Section 83 of the Code. The tax reimbursement payment constitutes ordinary
income to the recipient and the Company is entitled to a corresponding
deduction. Tax reimbursement payments are subject to the withholding
requirements of the Plan.
Any discussion above pertaining to a deduction for the Corporation is
qualified by the application of Section 162(m) of the Code. The allowable
deduction for compensation paid or accrued with respect to the named executive
officers is limited to $1million per year. However, certain types of
compensation are exempted from such limitation, e.g. "performance-based
compensation". Performance based compensation is defined in part by Section
162(m) as compensation paid (1) upon the attainment of an objective performance
goal or goals; (2) upon approval by the Compensation Committee; and (3) pursuant
to a plan which has been approved by shareholders. Compensation realized upon
the exercise of stock options is considered performance-based if the option
price was at least equal to fair market value at date of grant. The Plan and its
administration is designed to meet the requirements of Code Section 162(m) and
if shareholder approval is obtained, the Corporation expects that any deductions
realized from transactions of the Plan will not be limited by Section 162(m)
insofar as any performance standards for restricted stock or performance shares
are as set forth herein.
The foregoing discussion does not purport to be more than a summary of the
federal income tax consequences of transactions under the Plan as of the date of
this Proxy Statement. The federal income tax laws and regulations are frequently
amended. This discussion is not intended to be exhaustive and does not describe
the state or local tax consequences.
APPROVAL BY SHAREHOLDERS
The amendments to the Plan will not become effective unless the proposal
receives an affirmative vote of a majority of the shares present at the Annual
Meeting, in person or by proxy, and entitled to vote thereon. If such approval
is not obtained, the 1992 Stock Option Plan as currently in effect will remain
effective until March 17, 2002; provided however, any compensation realized upon
the exercise of options will not be deemed performance-based compensation
pursuant to Code Section 162(m).
NEW PLAN BENEFITS
Because the Plan is a discretionary plan, it is not possible to determine
what grants or awards the Compensation Committee will grant or award under this
Plan. No grants of stock options were made by the Compensation Committee during
the last fiscal year. See the Section above entitled "Aggregate Option Exercises
and Year-End Option Value Table for a listing of the outstanding options held by
the Named Executive Officers.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDED AND
RESTATED 1992 STOCK PLAN.
ITEM 3. -- PROPOSAL TO APPROVE THE 1997 SENIOR MANAGEMENT INCENTIVE
COMPENSATION PLAN
The Board of Directors, after a recommendation from the Compensation
Committee, adopted on February 16, 1996, the 1997 Cone Mills Corporation Senior
Management Incentive Compensation Plan ("Incentive Plan"), subject to approval
by the Corporation's shareholders. The Incentive Plan is similar to the annual
incentive compensation plan described in the Compensation Committee Report but
changes have been made to assure compensation paid pursuant to the Incentive
Plan is deemed to be qualified performance-based compensation as defined in Code
Section 162(m) and therefore retain its tax deductibility to the Corporation.
ELIGIBILITY. Eligibility for participation in the Incentive Plan is limited
to the corporate officers, division presidents, and other key management
employees who are designated by the Committee to participate. A participant must
maintain employment in the same or similar job throughout the fiscal year and
must be employed through the time incentive payment is made for the fiscal year
in order to remain eligible for an incentive payment. The Corporation has 18
employees as of February 16, 1996 who are officers and division presidents and,
therefore, would qualify for the Incentive Plan if implemented on that date.
ADMINISTRATION. The Incentive Plan is administered by the Compensation
Committee. The Committee designates for each year, commencing for fiscal year
1997, the key management employees beyond the officers and division presidents
who will participate in the incentive plan and establishes the Company's
performance level, the performance goals, and the incentive opportunity for each
participant. The Committee consists of no less than two persons all of whom must
be "outside directors" within the meaning of Section 162 (m) of the Code. See
the section entitled "Compensation Committee Interlocks and Insider
Participation" above for a listing of members of the Compensation Committee.
INCENTIVE PAY. The amount of incentive pay a participant can earn is based
upon a percentage of the participant's annual base salary which is in effect at
the time the performance goals are established. The maximum amount a participant
can receive is ninety percent (90%) of his or her annual base salary.
PERFORMANCE GOALS. The Incentive Plan is designed so that any compensation
paid pursuant to the Incentive Plan is "qualified performance-based
compensation" as defined by Section 162(m) of the Code. For such incentive
compensation to qualify it must be paid solely on account of the attainment of
one or more preestablished, objective performance goals ("Performance Goals").
No later than 90 days after the beginning of each Plan Year (fiscal year of
the Corporation), the Committee establishes in writing the following for each
Plan Year: (a) the key management employee, if any, designated to participate;
(b) the minimum level of performance ("circuit breaker") before which any
incentives can be paid; (c) the minimum, maximum, and target goals for the
Corporation ("Corporate Goals"); (d) the goals for each division or function for
which a participant is responsible ("Individual Goals"); (e) the incentive pay
opportunity for each participant defined as a percentage of base annual salary;
and (f) the percentage of incentive pay opportunity for each participant
allocated to the Corporate Goals and the Individual Goals.
No participant shall receive an incentive payment for any performance
period in which the circuit breaker is not achieved. 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 below for Corporate Goals.
The Corporate Goals are specifically tied to one or more of the following
business criteria:
(a) "RETURN ON CAPITAL EMPLOYED" which is defined as corporate consolidated
operating earnings of the Corporation before interest and taxes
adjusted for any discount on sale of account 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) "EARNINGS PER SHARE" which is defined as 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 share
equivalents outstanding on a fully diluted basis.
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(c) "RETURN ON EQUITY" which is defined as consolidated net income of the
Company divided by average shareholders' equity.
The Individual Goals are based upon a performance measure against one or
more of the following standards:
(a) "DIVISIONAL RETURN ON CAPITAL EMPLOYED" which is defined as 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.
(b) "DIVISIONAL RETURN ON NET ASSETS" which is defined as 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.
(c) Net sales of a division or operating unit
(d) Cash flow levels
(e) Operating margins
(f) Specific cost savings
(g) Specific quality results for products
(h) Specific manufacturing efficiencies
(i) Control of standard budget expense items
(j) Establishment of new business units or products
(k) Inventory turn or levels
(l) Maintaining a specified credit rating
(m) Overdue receivables
(n) Late payment charges
(o) Safety record of a specific plant or business unit
(p) Absenteeism rates
"Unconsolidated Affiliates" is as defined for these purposes by generally
accepted accounting principles, as recognized by the American Institute of
Certified Public Accountants and Financial Accounting Standards Board,
consistently applied.
Any extraordinary accounting item, accounting for discontinued operations,
and the cumulative effect of acounting change that have the effect of reducing
operating earnings for "return on capital employed", and "return on net assets"
and net income for the "circuit breaker", "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.
No participant shall receive an incentive payment pursuant to the Plan for
any performance period in which the circuit breaker is not met. The Committee
has the authority to reduce the amount of or eliminate any incentive otherwise
payable, although it does not have the power to increase the amount of an
incentive award as determined pursuant to the formula. The Incentive Plan is in
addition to, not in lieu of, any other employee benefit plan or program in which
any participant may be or become eligible to participate.
TIME AND FORM OF PAYMENT. Following the close of each Plan Year for which
Performance Goals have been established, the Committee determines the extent to
which Performance Goals have been achieved and certifies in writing its
determinations and the specific amount payable to each participant. All
incentive payments are paid in cash in a lump sum based upon the Committee's
certification.
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<PAGE>
DEATH, DISABILITY, OR 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,
the Committee will determine incentive payments earned in accordance with the
Incentive Plan through the date of such event. The Performance Goals are
prorated based on the percentage of the Plan Year completed as of the date of
death, disability, or Change of Control.
A Change of Control is defined as 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 is or becomes the beneficial owner directly or indirectly of
securities of the Company representing twenty percent (20%) 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 Incentive
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 the Company 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.
TERM. The term of the Incentive Plan is the fiscal years beginning on
December 31, 1996 and ending on December 30, 2001 unless sooner terminated by
the Board of Directors.
AMENDMENTS AND TERMINATION. The Board of Directors reserves the authority
to amend, alter, or discontinue the Incentive Plan at any time. Such amendments,
alteration or discontinuance is binding upon all participants.
APPROVAL BY SHAREHOLDERS. The effectiveness of the Incentive Plan is
subject to approval by an affirmative vote of a majority of the shares present
at the Annual Meeting, in person or by proxy, and entitled to vote thereon.
Until such approval is obtained, the Incentive Plan shall not be effective.
As stated previously, the Compensation Committee and the Board of Directors
believe that annual incentive compensation is an important component of the
executive compensation program. An annual incentive that is earned only upon
achievement of performance standards established each year helps drive the
success of the Company. However, the Committee and the Board believe that purely
numeric formula incentive plans eliminates the judgment and discretion that
shareholders expect from its Board members and eliminates the use of performance
standards that are not necessarily quantifiable by an objective measure. For
that reason, the Board of Directors has approved a 1997 Senior Management
Discretionary Bonus Plan that will authorize the grant of a completely
discretionary bonus if the Compensation Committee and the Board deem special
circumstances warrant the grant of a bonus. The plan provides that no such bonus
will exceed thirty percent (30%) of a participant's annual base salary. The
officers and division presidents are eligible to participate in this plan and
the Committee may determine each year whether any other key management employee
shall participate the plan. The bonus plan is a separate plan from the Incentive
Plan. Compensation granted under such plan will not qualify as "qualified
performance-based compensation" under Code section 162(m) for it is not paid
pursuant to a plan approved by shareholders and it is not based on a
preestablished, objective performance goal. Accordingly, a situation could
develop whereby such compensation would not be tax deductible to the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
1997 SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN.
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NEW PLAN BENEFITS
Set forth below is a tabular presentation of the amounts which would have
been received by or allocated to each of the indicated persons or groups under
the 1997 Senior Managament Incentive Compensation Plan if the plan had been in
effect for fiscal year 1995.
1997 SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE ($)
<S> <C>
J. Patrick Danahy, President and Chief Executive Officer -0-
John L. Bakane, Vice President and Chief Financial Officer -0-
Bud W. Willis III, Vice President and President,
Cone Apparel Products -0-
Neil W. Koonce, Vice President and General Counsel* -0-
James S. Butner, Vice President -- Industrial and Public Relations* -0-
Executive Group (9 officers) -0-
Non-Executive Director Group **
Non-Executive Officer Employee Group (3 officers) -0-
</TABLE>
* Messrs Koonce and Butner would have received $18,000 and $15,000 respectively
under the 1997 Senior Management Discretionary Bonus Plan.
** Not eligible for participation
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Doris R. Bray, a Class III director, is a partner of Schell Bray Aycock
Abel & Livingston, LLP, a law firm that regularly serves as counsel to the
Corporation. The Corporation and its subsidiary, Cornwallis Development Co.,
paid to the firm legal fees of $000,000 in 1995.
SELECTION OF AUDITORS
The Corporation's Board of Directors has appointed McGladrey & Pullen, LLP,
independent certified public accountants, as auditors of the Corporation's
records for the fiscal year 1996. McGladrey & Pullen, LLP, or its predecessor
has acted as auditors for the Corporation since 1943 and continue to be
considered by the Board to be well qualified.
Although not required to do so, the Board believes it is desirable to
submit its appointment of said firm to the shareholders at the Annual Meeting
for ratification. Representatives of McGladrey & Pullen, LLP, are expected to be
present at the meeting and will be available to respond to appropriate questions
or make a statement if they desire to do so.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors recommends that shareholders vote FOR electing the
Board of Directors' nominees for director as set forth in this proxy statement,
FOR adoption of the Amended and Restated 1992 Stock Option Plan as amended, FOR
adoption of the 1997 Senior Management Incentive Compensation Plan, and FOR
ratifying the Board of Directors' appointment of McGladrey & Pullen, LLP, as
independent auditors for the year ending December 29, 1996.
SHAREHOLDER PROPOSALS
In the event any shareholder wishes to present a proposal at the 1997
Annual Meeting of Shareholders, such proposal must be received by the
Corporation for inclusion in the proxy statement and form of proxy relating to
such meeting on or before December 7, 1996, and must conform to such other
requirements as may be imposed by the Securities and Exchange Commission.
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OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
intend to present, and has not been informed of any matter to be acted upon at
the Annual Meeting other than those specifically referred to in this Proxy
Statement. If other matters should properly come before the Annual Meeting it is
intended that the holders of the proxies will act in respect thereto in
accordance with their best judgment.
By order of the Board of Directors.
TERRY L. WEATHERFORD
VICE PRESIDENT AND SECRETARY
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Filed Pursuant to Instruction 3 of Item 10 of SCHEDULE 14A
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.
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.
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, paragraph 1 of the Plan, in which case it will be designated an
Incentive Stock Option, or pursuant to Article III, paragraph 2 of the Plan, in
which case it will be
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<PAGE>
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, vested
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, 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 record date is
prior to the date such stock certificate is issued, except as provided in
Section 6 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 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 Article I,
paragraph 18 shall be deducted from such payments.
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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.
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:
(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.
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"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.
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 "return of
assets" 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.
18. 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, Restricted Stock, or
Performance Shares granted pursuant to the Plan, the Committee may, in its
discretion, grant Nonqualified Options, Restricted Stock, or Performance Shares
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 or
issuance of Restricted Stock or Performance Shares 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.
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,
paragraph 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. 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.
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.
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(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.
(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).
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 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
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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 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.
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 III -- 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.
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The Committee shall have the discretion to determine that a grant may or may not
require payment of cash consideration by the recipient.
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 6 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 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 9 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 6 of Article I. The
settlement of any Performance Shares Grant shall be subject to the withholding
requirement as set forth in Section 9 of Article I.
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.
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1997 CONE MILLS CORPORATION
SENIOR MANAGEMENT INCENTIVE PLAN
1. PURPOSE. The purpose of the 1997 Cone Mills Corporation (the "Company")
Senior Management 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.
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", 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
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Specific manufacturing efficiencies
Contol 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 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 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.
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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 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 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.
31
<PAGE>
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APPENDIX
CONE MILLS CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE UNDERSIGNED HEREBY APPOINTS TERRY L. WEATHERFORD AND NEIL W. KOONCE, OR
EITHER OF THEM, PROXIES WITH FULL POWER OF SUBSTITUTION TO VOTE ALL SHARES OF
COMMON STOCK OF CONE MILLS CORPORATION, STANDING IN THE NAME OF THE UNDERSIGNED
AT THE ANNUAL MEETING OF SHAREHOLDERS OF THE COMPANY TO BE HELD MAY 14, 1996,
AND ANY ADJOURNMENT THEREOF, AS FOLLOWS:
1. ELECTION OF DIRECTORS (CLASS III).
<TABLE>
<S> <C>
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY TO VOTE FOR
(EXCEPT ALL NOMINEES LISTED BELOW
AS MARKED TO THE CONTRARY
BELOW)
</TABLE>
JOHN L. BAKANE, CHARLES M. REID
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW).
2. TO APPROVE THE AMENDED AND RESTATED 1992 STOCK PLAN.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
3. TO APPROVE THE ADOPTION OF THE 1997 SENIOR MANAGEMENT INCENTIVE COMPENSATION
PLAN.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
4. TO RATIFY APPOINTMENT OF MCGLADREY & PULLEN, LLP, AS INDEPENDENT AUDITORS.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
(Continued on Reverse Side)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE NOMINEES NAMED IN THE PROXY STATEMENT AND FOR PROPOSALS 2, 3, AND 4.
Please sign exactly as your name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
DATED: , 1996
