<PAGE>
THE DIXIE GROUP, INC.
1100 South Watkins Street
Chattanooga, Tennessee 37404
(423) 698-2501
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of The Dixie Group, Inc.:
The Annual Meeting of Shareholders of The Dixie Group, Inc. will be held at
the Company's general office, 1100 South Watkins Street, Chattanooga, Tennessee
37404, on May 4, 2000 at 10:00 a.m., Eastern Daylight Time, for the following
purposes:
1. Election of nine individuals to the Board of Directors for a term of one
year each;
2. Approval of a Stock Incentive Plan to permit the Company to continue to
issue incentive stock options in accordance with applicable Internal
Revenue Service regulations; and
3. Such other business as may properly come before the Annual Meeting of
Shareholders, or any adjournment thereof.
Only shareholders of record of the Common Stock and Class B Common Stock at
the close of business on March 10, 2000, are entitled to notice of, and to vote
at, the Annual Meeting or any adjournment thereof.
Your attention is directed to the Proxy Statement accompanying this Notice for
more complete information regarding the matters to be acted upon at the Annual
Meeting.
By Order of the Board of Directors
Daniel K. Frierson
Chairman of the Board
Chattanooga, Tennessee
Dated: April 6, 2000
PLEASE READ THE ATTACHED MATERIAL CAREFULLY AND COMPLETE, DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT PROMPTLY TO THE COMPANY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE SO THAT YOUR SHARES OF COMMON STOCK AND CLASS B COMMON
STOCK WILL BE REPRESENTED AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY
REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON, SHOULD YOU SO DESIRE.
<PAGE>
THE DIXIE GROUP, INC.
1100 South Watkins Street
Chattanooga, Tennessee 37404
(423) 698-2501
ANNUAL MEETING OF SHAREHOLDERS
May 4, 2000
PROXY STATEMENT
INTRODUCTION
The enclosed proxy is solicited on behalf of the Board of Directors of the
Company for the purposes set forth in the accompanying Notice of Annual Meeting
of Shareholders. This proxy statement and the enclosed proxy will be mailed
on or about April 6, 2000, to shareholders of record of the Company's Common
Stock and Class B Common Stock as of the close of business on March 10, 2000.
At the Annual Meeting, holders of the Company's Common Stock, $3.00 par value
per share ("Common Stock"), and Class B Common Stock, $3.00 par value per share
("Class B Common Stock"), will be asked to: (i) elect nine individuals to
the Board of Directors for a term of one year each, (ii) approve the new Stock
Incentive Plan and (iii) transact any other business that may properly come
before the meeting.
The Board of Directors recommends that the Company's shareholders vote FOR the
election of the nominees for director, and FOR approval of the new Stock
Incentive Plan.
RECORD DATE, VOTE REQUIRED AND RELATED MATTERS
The Board has fixed the close of business on March 10, 2000, as the Record
Date for the determination of shareholders entitled to notice of, and to vote
at, the Annual Meeting. Each outstanding share of Common Stock is entitled to
one vote, and each outstanding share of Class B Common Stock is entitled to 20
votes, exercisable in person or by properly executed Proxy, on each matter
brought before the Annual Meeting. Cumulative voting is not permitted. As of
March 10, 2000, 10,748,503 shares of Common Stock, representing 10,748,503
votes, were held of record by approximately 3,500 shareholders (including
an estimated 2,500 shareholders whose shares are held in nominee names), and
795,970 shares of Class B Common Stock, representing 15,919,400 votes, were
held by 15 individual shareholders, together representing an aggregate of
26,667,903 votes.
Shares represented at the Annual Meeting by properly executed Proxy will be
voted in accordance with the instructions indicated therein unless such Proxy
has previously been revoked. If no instructions are indicated, such shares
will be voted FOR the election of the nine nominees for director as set forth
in this Proxy Statement.
Any Proxy given pursuant to this solicitation may be revoked at any time by
the shareholder giving it by delivering to the Secretary of the Company a
written notice of revocation bearing a later date than the Proxy, by submitting
a later-dated, properly executed Proxy, or by revoking the Proxy and voting in
person at the Annual Meeting. Attendance at the Annual Meeting will not, in
and of itself, constitute a revocation of a Proxy. Any written notice revoking
a Proxy should be sent to The Dixie Group, Inc., P. O. Box 751, Chattanooga,
Tennessee 37401, Attention: Starr T. Klein, Secretary.
The persons designated as proxies were selected by the Board of Directors and
are Daniel K. Frierson, John W. Murrey, III, and Robert J. Sudderth, Jr. The
cost of solicitation of Proxies will be borne by the Company.
The presence, in person or by Proxy, of the holders of a majority of the
aggregate outstanding vote of Common Stock and Class B Common Stock entitled to
vote is necessary to constitute a quorum at the Annual Meeting. The
affirmative vote of a plurality of the total votes cast that are represented in
person or by Proxy at the Annual Meeting is required to elect the Board of
Directors' nominees; the affirmative vote of a majority of the total votes
eligible to be cast is required to approve the new Stock Incentive Plan.
The Board is not aware of any other matter to be brought before the Annual
Meeting for a vote of shareholders. If, however, other matters are properly
presented, Proxies representing shares of Common Stock and Class B Common Stock
will be voted in accordance with the best judgment of the proxyholders.
Shares covered by abstentions and broker non-votes, while counted for purposes
of determining the presence of a quorum at the Annual Meeting, are not
considered affirmative votes and thus will have no effect upon the election of
directors by a plurality vote.
A copy of the Company's Annual Report for the year ended December 25, 1999, is
enclosed herewith.
PRINCIPAL SHAREHOLDERS
Shareholders of record at the close of business on March 10, 2000, the Record
Date, will be entitled to vote at the Annual Meeting. Messrs. Daniel K.
Frierson, T. Cartter Frierson, and Paul K. Frierson collectively have the power
to direct 16,376,502 votes (492,862 shares of Common Stock and 794,182 shares
of Class B Common Stock), representing 61.41% of the total votes eligible to be
cast at the Company's Annual Meeting.
The following table presents information regarding beneficial ownership of the
Company's equity securities by beneficial owners of more than 5% of the Common
Stock or Class B Common Stock. The table also presents beneficial ownership
information for the executive officers named in the Summary Compensation Table,
the nominees for director, and all directors and executive officers as a group
as of March 10, 2000.
<TABLE>
<CAPTION>
Name and Address Number of Shares
of Beneficial Owner Title of Class Beneficially Owned(1) % of Class (1)
<S> <C> <C> <C>
Daniel K. Frierson Common Stock 1,660,160(2)(3)(4) 15.45%
111 East and West Road Class B Common Stock 722,182(5) 90.73%
Lookout Mountain, TN 37350
Paul K. Frierson Common Stock 1,398,625(3)(4)(6) 13.01%
606 Fleetwood Drive Class B Common Stock 376,512(7) 47.30%
Lookout Mountain, TN 37350
T. Cartter Frierson Common Stock 264,863(3)(8) 2.46%
1103 Tinker Bell Lane Class B Common Stock 226,121(9) 28.41%
Lookout Mountain, GA 30750
SunTrust Banks, Inc. Common Stock 1,518,489(10) 14.13%
25 Park Place Class B Common Stock - -
Atlanta, GA 30303
Dimensional Fund Advisors, Common Stock 645,588(11) 6.00%
Inc. Class B Common Stock - -
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Additional Directors
And Executive Officers:
Philip H. Barlow Common Stock 140,128(12) 1.30%
Class B Common Stock - -
J. Don Brock Common Stock 25,965(13)(15) *
Class B Common Stock - -
Paul K. Brock Common Stock 26,565(14)(15) *
Class B Common Stock - -
Lovic A. Brooks, Jr. Common Stock 1,204,545(4)(15)(16) 11.18%
Class B Common Stock - -
Kenneth L. Dempsey Common Stock 83,486(17) *
Class B Common Stock - -
William N. Fry, IV Common Stock 175,820(18) 1.63%
Class B Common Stock - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of Shares
of Beneficial Owner Title of Class Beneficially Owned(1) % of Class (1)
<S> <C> <C> <C>
Jeffrey L. Gregg Common Stock 77,015(19) *
Class B Common Stock - -
John W. Murrey, III Common Stock 13,165(15)(20) *
Class B Common Stock - -
Peter L. Smith Common Stock 21,150(15)(21) *
Class B Common Stock - -
Robert J. Sudderth, Jr. Common Stock 1,190,545(4)(15)(22) 11.05%
Class B Common Stock - -
Gary A. Harmon Common Stock 82,030(23) *
Class B Common Stock - -
All Directors and Executive Common Stock 2,652,180(4)(24) 22.51%
Officers as a Group Class B Common Stock 794,182(5)(7)(9) 99.78%
(16 Persons)
</TABLE>
*Percentage of shares beneficially owned does not exceed 1% of the Class.
(1) Under the rules of the Securities and Exchange Commission and for the
purposes of the disclosures in this table, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose or to direct the
disposition of such security. Under these rules, more than one person may be
deemed to be a beneficial owner of the same securities. The Class B Common
Stock is convertible on a share-for-share basis into shares of Common Stock;
however, information presented in this table as to the number of shares of
Common Stock beneficially owned and the percent of class does not give effect
to the possible conversion of shares of Class B Common Stock into shares of
Common Stock.
(2) Includes: (i) 2,526 shares of Common Stock as to which Mr. Frierson has
sole investment and sole voting power; (ii) 104,653 shares of Common Stock for
which Mr. Frierson has subscribed but has not yet purchased, pursuant to the
Company's Stock Ownership Plan; (iii) 129,218 shares of Common Stock owned by
the wife, children, and grandchildren of Daniel K. Frierson and as to which he
shares voting and investment power; (iv) options, which are exercisable within
60 days of the Record Date, to purchase 208,250 shares of Common Stock owned
directly by Mr. Frierson; and (v) options, which are exercisable within 60 days
of the Record Date, to purchase 9,500 shares of Common Stock owned by one of
his children and as to which he shares voting and investment power.
(3) Includes 27,433 shares of Common Stock held by Daniel K. Frierson, Paul K
Frierson, and T. Cartter Frierson, as trustees of a charitable remainder trust
formed by Rowena K. Frierson.
(4) Includes 1,178,580 shares of Common Stock owned by The Dixie Group, Inc.
Retirement Plans for which Daniel K. Frierson, Paul K. Frierson, Lovic A.
Brooks, Jr., and Robert J. Sudderth, Jr. are fiduciaries and for which SunTrust
Bank, Chattanooga, N.A. serves as trustee.
(5) Includes: (i) 105,072 shares of Class B Common Stock owned by Mr.
Frierson's wife and children as to which he shares investment and voting power
and (ii) 617,110 shares of Class B Common Stock held pursuant to a shareholder
<PAGE>
agreement under which he has been granted a proxy, which expires October 2005,
to vote such shares (the "Shareholder Agreement"). The proxy is terminable
under certain limited circumstances prescribed in the Shareholder Agreement.
The Shareholder Agreement is among the Estate of J. Burton Frierson, the wife
of J. Burton Frierson (Rowena K. Frierson), and the five sons of J. Burton and
Rowena K. Frierson (Daniel K. Frierson; Paul K. Frierson; T. Cartter Frierson;
James W. Frierson; and J. Burton Frierson, III). The 617,110 shares of Class B
Common Stock subject to the Shareholder Agreement include: (a) 296,920 shares
of Class B Common Stock owned directly by him; 94,069 shares of Class B Common
Stock owned directly by Paul K. Frierson; 15,678 shares of Class B Common Stock
owned directly by T. Cartter Frierson; (b) 40,000 shares of Class B Common
Stock held by Paul K. Frierson, T. Cartter Frierson, and Daniel K. Frierson as
co-trustees of the Frierson Family Trusts; (c) 45,304 shares of Class B Common
Stock held by Paul K. Frierson, T. Cartter Frierson, and Daniel K. Frierson as
co-trustees of the Special Purpose Trust of J. Burton Frierson; and (d) 125,139
shares of Class B Common Stock owned directly by Rowena K. Frierson but
subject to a general power of attorney granted to Daniel K. Frierson, Paul K.
Frierson and T. Cartter Frierson.
(6) Includes: (i) 48,453 shares of Common Stock as to which Mr. Frierson holds
sole investment and sole voting power; (ii) 43,357 shares of Common Stock for
which Mr. Frierson has subscribed but has not yet purchased, pursuant to the
Company's Stock Ownership Plan; (iii) 47,802 shares of Common Stock owned by
his wife and children and as to which he shares investment and voting power;
and (iv) options, which are exercisable within 60 days of the Record Date, to
purchase 53,000 shares of Common Stock owned directly by Mr. Frierson.
(7) Includes: (i) 94,069 shares of Class B Common Stock owned directly by Mr.
Frierson; (ii) 40,000 shares of Class B Common Stock held by Paul K. Frierson,
T. Cartter Frierson, and Daniel K. Frierson as co-trustees of the Frierson
Family Trusts; (iii) 45,304 shares of Class B Common Stock held by Paul K.
Frierson, T. Cartter Frierson, and Daniel K. Frierson as co-trustees of the
Special Purpose Trust of J. Burton Frierson; and (iv) 125,139 shares of Class B
Common Stock owned directly by Rowena K. Frierson but subject to a general
power of attorney granted to Daniel K. Frierson, Paul K. Frierson and T.
Cartter Frierson, all held subject to the Shareholder Agreement described
in Note 5. Also includes 72,000 shares of Class B Common Stock owned by his
children and as to which he shares investment and voting power.
(8) Includes: (i) 148,402 shares of Common Stock as to which Mr. Frierson
holds sole investment and sole voting power and (ii) 89,028 shares of Common
Stock owned by his wife and children as to which he shares investment and
voting power.
(9) Includes: 15,678 shares of Class B Common Stock owned directly by Mr.
Frierson; (ii) 40,000 shares of Class B Common Stock held by Paul K. Frierson,
T. Cartter Frierson, and Daniel K. Frierson as co-trustees of the Frierson
Family Trusts; (iii) 45,304 shares of Class B Common Stock held by Paul K.
Frierson, T. Cartter Frierson, and Daniel K. Frierson as co-trustees of the
Special Purpose Trust of J. Burton Frierson; and (iv) 125,139 shares of Class B
Common Stock owned directly by Rowena K. Frierson but subject to a general
power of attorney granted to Daniel K. Frierson, Paul K. Frierson and T.
Cartter Frierson. All such shares of Class B Common Stock are held
subject to the Shareholder Agreement described in Note 5.
(10) SunTrust Banks, Inc. ("STB"), as Parent Holding Company for SunTrust Banks
of Tennessee, Inc.; SunTrust Banks of Georgia, Inc.; SunTrust Equitable
Securities Corporation; and in various fiduciary capacities, has reported
beneficial ownership of a total of 1,518,489 shares of Common Stock, with
respect to which it holds voting and investment power as follows: 1,438,159
shares of Common Stock over which STB has sole power to vote, 60,555 shares of
Common Stock over which STB has shared power to vote, 1,253,878 shares of
Common Stock over which STB has sole investment power, and 86,642 shares of
Common Stock over which STB has shared investment power.
(11) Dimensional Fund Advisors, Inc. has reported beneficial ownership of
645,588 shares of Common Stock, for which it has sole voting and sole
investment power.
<PAGE>
(12) Includes: (i) 30,518 shares of Common Stock owned directly by Mr. Barlow;
(ii) 15,000 shares of restricted Common Stock which Mr. Barlow holds pursuant
to a grant under the 1990 Incentive Stock Plan; (iii) 42,816 shares of Common
Stock for which Mr. Barlow has subscribed but has not yet purchased, pursuant
to the Company's Stock Ownership Plan; and (iv) options to acquire 51,794
shares of Common Stock which are immediately exercisable or exercisable within
60 days of the Record Date.
(13) Includes 15,000 shares owned directly by Dr. Brock, and 3,465 shares held
pursuant to performance units issued as payment of one-half of the annual
retainer for the Company's non-employee directors.
(14) Includes 15,600 shares owned directly by Mr. Brock, and 3,465 shares held
pursuant to performance units issued as payment of one-half of the annual
retainer for the Company's non-employee directors.
(15) Includes an option to acquire 7,500 shares of Common Stock, which is
immediately exercisable, issued to all non-employee directors.
(16) Includes 15,000 shares owned directly by Mr. Brooks, and 3,465 shares held
pursuant to performance units issued as payment of one-half of the annual
retainer for the Company's non-employee directors.
(17) Includes: (i) 800 shares held directly by Mr. Dempsey; (ii) options to
acquire 27,250 shares of Common Stock which are immediately exercisable or
exercisable within 60 days of the Record Date; and (iii) 55,436 shares of
Common Stock for which Mr. Dempsey has subscribed but has not yet purchased,
pursuant to the Company's Stock Ownership Plan.
(18) Includes: (i) 18,820 shares owned directly by Mr. Fry; (ii) 40,000 shares
of restricted Common Stock which Mr. Fry holds pursuant to a grant under the
1990 Incentive Stock Plan; (iii) 70,000 shares of Common Stock for which Mr.
Fry has subscribed but has not yet purchased, pursuant to the Company's Stock
Ownership Plan; and (iv) options, which are immediately exercisable or
exercisable within 60 days of the Record Date, to acquire 47,000 shares of
Common Stock.
(19) Includes: (i) 500 shares held directly by Mr. Gregg; (ii) 11,250 shares
held subject to options which are exercisable within 60 days of the Record
Date; and (iii) 65,265 shares of Common Stock for which Mr. Gregg has
subscribed but has not yet purchased, pursuant to the Company's Stock Ownership
Plan.
(20) Includes 2,200 shares owned directly by Mr. Murrey and 3,465 shares held
pursuant to performance units issued as payment of one-half of the annual
retainer for the Company's non-employee directors.
(21) Includes: (i) 10,145 shares owned directly by Mr. Smith; (ii) 40 shares
held indirectly by relatives; and (iii) 3,465 shares held pursuant to
performance units issued as payment of one-half of the annual retainer for the
Company's non-employee directors.
(22) Includes: (i) 1,000 shares owned directly by Mr. Sudderth and (ii) 3,465
shares held pursuant to performance units issued as payment of one-half of the
annual retainer for the Company's non-employee directors.
(23) Includes: (i) 10,076 shares owned directly by Mr. Harmon; (ii) 20,750
shares held pursuant to options which are exercisable within 60 days of the
record date; (iii) and 51,204 shares of Common Stock for which Mr. Harmon has
subscribed but has not yet purchased, pursuant to the Company's Stock Ownership
Plan.
(24) Includes: (i) options, which are either immediately exercisable or
exercisable within 60 days of the Record Date, to acquire 538,794 shares of
Common Stock; (ii) 475,638 shares for which individuals in this group have
subscribed, but have not yet purchased, pursuant to the Company's Stock
Ownership Plan; (iii) 20,790 shares held pursuant to performance units issued
as payment of one-half of the annual retainer for the Company's non-employee
directors; and (iv) 204,493 shares of Common Stock held by immediate family
members of certain individuals comprising this group.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Information About Nominees for Director
Pursuant to the Company's Bylaws, all Directors are elected to serve a one
year term, or until their successors are elected and qualified. The Board of
Directors is permitted to appoint directors to fill the unexpired terms of
directors who resign.
The names of the nominees for election to the Board, their ages, their
principal occupation or employment (which has continued for at least the past
five years unless otherwise noted), directorships held by them in other
publicly-held corporations or investment companies, the dates they first became
directors of the Company, and certain other relevant information with respect
to such nominees are as follows:
J. Don Brock, age 61, is the Chairman of the Board and the Chief Executive
Officer of Astec Industries, Inc., a manufacturer of asphalt and environmental
equipment located in Chattanooga, Tennessee. He has been a director of the
Company since 1997. Dr. Brock is a member of the Company's Audit Committee.
Paul K. Brock, age 67, was the Chairman of Brach & Brock Confections, Inc.,
a candy manufacturer headquartered in Chattanooga, Tennessee until 1995. He
has been a director of the Company since 1983. Mr. Brock is Chairman of the
Company's Compensation Committee and a member of the Company's Executive
Committee.
Lovic A. Brooks, Jr., age 72, is a Member of Constangy, Brooks & Smith,
LLC, attorneys-at-law, in Atlanta, Georgia. He has been a director of the
Company since 1993. Mr. Brooks is a member of the Company's Compensation
Committee and is a member of the Company's Retirement Plans Committee.
Daniel K. Frierson, age 58, is Chairman of the Board of the Company, a
position he has held since 1987. He also has been Chief Executive Officer of
the Company since 1980 and a director of the Company since 1973. Mr. Frierson
serves as a director of SunTrust Bank, Chattanooga, N.A., of Astec Industries,
Inc., headquartered in Chattanooga, Tennessee, and of Printpack, Inc.,
headquartered in Atlanta, Georgia. Mr. Frierson is Chairman of the Company's
Executive Committee and Chairman of the Company's Retirement Plans Committee.
Paul K. Frierson, age 62, is Vice President of the Company and President of
the Company's Candlewick Yarns subsidiary, positions he has held since 1989.
He served as Executive Vice President of Candlewick Yarns from 1984 to 1989 and
has been a director of the Company since 1988. Mr. Frierson serves as a
director of Bank of America/Chattanooga. Mr. Frierson is a member of the
Company's Retirement Plans Committee.
<PAGE>
William N. Fry, IV, age 41 is President and Chief Operating Officer of the
Company, a position he has held since February, 1999. He has been a director
of the Company since 1998. He served as Executive Vice President and Chief
Operating Officer, Floorcovering Business, from January, 1997 to February,
1999; Executive Vice President and Chief Operating Officer, Candlewick,
Carriage and Bretlin from January, 1996 to January, 1997; President of Bretlin
from January, 1995 to January, 1996; and Executive Vice President of Bretlin
from November, 1993 to January, 1995.
John W. Murrey, III, age 57, is a Senior Member of the law firm of Witt,
Gaither & Whitaker, P.C., general counsel to the Company, in Chattanooga,
Tennessee. He has been a director of the Company since 1997. Mr. Murrey is
chairman of the Company's Audit Committee. Mr. Murrey serves as a director of
Coca-Cola Bottling Co. Consolidated in Charlotte, North Carolina.
Peter L. Smith, age 58, is a Managing Director of Lazard Freres & Co.,
LLC, investment bankers, in New York, New York. He has been a director of the
Company since 1987. Mr. Smith is a member of the Company's Audit Committee.
Robert J. Sudderth, Jr., age 57, is Chairman and Chief Executive Officer
of SunTrust Bank, Chattanooga, N.A. in Chattanooga, Tennessee. He has been a
director of the Company since 1983. Mr. Sudderth is a member of the Company's
Executive Committee, a member of the Company's Compensation Committee, and a
member of the Company's Retirement Plans Committee.
Daniel K. Frierson and Paul K. Frierson are brothers. Paul K. Brock is the
first cousin of Daniel K. Frierson and Paul K. Frierson. Other than as set
forth above, no director, nominee, or executive officer of the Company has any
family relationship, not more remote than first cousin, to any other director,
nominee, or executive officer.
Committees, Attendance, and Directors' Fees
The Company has a standing Executive Committee, Audit Committee, Retirement
Plans Committee, and Compensation Committee, but no nominating committee.
Members of the Executive Committee during 1999 were Daniel K. Frierson, Paul
K. Brock, and Robert J. Sudderth, Jr. Except as otherwise limited by law or by
resolution of the Board of Directors, the Committee has and may exercise all
of the powers and authority of the Board of Directors for the management of the
business and affairs of the Company, which power the Committee exercises
between the meetings of the full Board of Directors. The Executive Committee
met four times in 1999.
Members of the Audit Committee during 1999 were John W. Murrey, III.,
Chairman, J. Don Brock, and Peter L. Smith. The Audit Committee evaluates
audit performance, handles relations with the Company's independent
accountants, and evaluates policies and procedures relating to internal
accounting functions and controls. The Committee recommends to the Board of
<PAGE>
Directors the appointment of the independent accountants for the Company. The
Audit Committee met four times in 1999.
Members of the Retirement Plans Committee during 1999 were Daniel K. Frierson,
Lovic A. Brooks, Jr., Paul K. Frierson and Robert J. Sudderth, Jr. The
Retirement Plans Committee administers the Company's retirement plans. The
committee met six times in 1999.
Members of the Compensation Committee during 1999 were Paul K. Brock, Lovic A.
Brooks, Jr., and Robert J. Sudderth, Jr. The Compensation Committee
administers the Company's compensation plans, reviews and may establish the
compensation of the Company's officers, and makes recommendations to the Board
of Directors concerning such compensation and related matters. The
Compensation Committee met four times in 1999.
During 1999, no director attended fewer than 75% of the total of meetings of
the Board of Directors and any Committee of the Board of Directors on which he
served.
Directors who are employees of the Company do not receive any additional
compensation for their services as members of the Board of Directors.
Non-Employee directors receive an annual retainer of $10,000 cash and $10,000
in value of Performance Units under the Directors Stock Plan. In addition to
the annual retainer, directors who are not employees of the Company receive
$500 for each Board meeting attended and $400 for each committee meeting
attended.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, and regulations of the
Securities and Exchange Commission ("SEC") thereunder, require the Company's
executive officers and directors and persons who beneficially own more than
10% of the Company's Common Stock, as well as certain affiliates of such
persons, to file initial reports of such ownership and monthly transaction
reports covering any changes in such ownership with the SEC and the National
Association of Securities Dealers. Executive officers, directors and persons
owning more than 10% of the Company's Common Stock are required by SEC
regulations to furnish the Company with all such reports they file. Based on
its review of the copies of such reports received by it and written
representations that no other reports were required for such persons, the
Company believes that, during fiscal year 1999, all filing requirements
applicable to its executive officers, directors, and owners of more than 10% of
the Company's Common Stock were complied with; however one report concerning
one transaction was filed late on behalf of Dr. J. Don Brock by Company
Counsel.
Certain Transactions Between the Company and Directors and Officers
The Company adopted a Stock Ownership Plan in 1996 for its most senior
executive officers, to encourage such officers to own a number of shares of
Common Stock with a fair market value equal to twice such participant's base
salary. All subscriptions are at the prevailing market price on the relevant
subscription date and are payable either in cash or through a combination of
<PAGE>
cash and/or the surrender to the Company of either (i) shares of Common Stock
already owned by the participant or (ii) a portion of the shares of Common
Stock otherwise covered by the subscription. During the fiscal year ended
December 25, 1999, officers listed in the Summary Compensation Table settled
outstanding subscriptions under the plan as follows: Daniel K. Frierson
settled subscriptions covering 151,288 shares (resulting in the aquisition of
2,542 shares of Common Stock and 148,746 shares of Class B Common Stock);
William N. Fry, IV settled subscriptions covering 72,500 shares (resulting in
the acquisition of 17,920 shares); Philip H. Barlow settled subscriptions
covering 58,942 shares (resulting in the acquisition of 18,943 shares); Kenneth
L. Dempsey settled subscriptions covering 20,000 shares (resulting in a
reduction in his aggregate subscriptions under the plan).
Effective August 23, 1999, officers listed in the Summary Compensation Table
subscribed for additional shares under the plan (at a subscription price of
$8.875 per share) as follows: Daniel K. Frierson-104,653 shares; William N.
Fry, IV-70,000 shares; Philip H. Barlow-42,816 shares; Kenneth L. Dempsey-
39,436 shares; and Jeffrey L. Gregg-38,309 shares.
As of March 10, 2000, officers listed in the Summary Compensation Table have
total outstanding subscriptions under the plan as follows: Daniel K. Frierson-
104,653 shares; William N. Fry, IV-70,000 shares; Philip H. Barlow-42,816
shares; Kenneth L. Dempsey-55,436 shares; and Jeffrey L. Gregg-65,265 shares.
Mr. Murrey is a Senior Member of Witt, Gaither & Whitaker, P.C., a law firm to
which the Company paid $818,768 in 1999 for legal services performed for the
Company. Mr. Smith is a managing director of Lazard Freres & Co., LLC, an
investment banking firm that performs certain investment banking functions for
the Company from time to time.
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The Peer Group represented in the following table is composed of fifteen
publicly traded companies in the business of producing floorcovering and other
textile home furnishing products (American Biltrite Inc.; Armstrong World
Industries, Inc.; Burlington Industries, Inc.; Congoleum Corporation; Crown
Crafts, Inc.; Culp, Inc.; Dal-Tile International Inc.; Flooring America, Inc.
(formerly The Maxim Group, Inc.); Interface, Inc.; Mohawk Industries, Inc.;
Pillowtex Corporation; Shaw Industries, Inc.; Springs Industries, Inc.;
Synthetic Industries, Inc.; and WestPoint Stevens Inc.). Set forth below is a
line graph comparing the yearly change in the cumulative total shareholder
return on the Company's Common Stock against the total return of the Standard &
Poor's 600 Stock Index, and the floorcovering and home furnishings Peer Group
for the five year period ended December 25, 1999. The comparison assumes that
$100.00 was invested on December 31, 1994, in the Company's Common Stock, the
S&P 600 Index, and the peer group, and assumes the reinvestment of dividends.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD DIXIE S & P PEER
(FISCAL YEAR COVERED) GROUP INC 600 GROUP
<S> <C> <C> <C>
1994 100.00 100.00 100.00
1995 55.36 129.96 124.42
1996 110.71 157.67 135.12
1997 162.50 198.01 157.26
1998 117.92 195.42 179.73
1999 107.04 219.66 112.43
</TABLE>
<PAGE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee reviews and recommends compensation for all
executive officers of the Company. The Committee considers recommendations
from senior management and reviews public and private compensation surveys, as
well as the publicly reported executive compensation of other carpet and floor
covering companies. The Committee's final decisions respecting compensation of
executive officers are reported to the Board for review and ratification.
Individual officers abstain from decisions concerning their own compensation.
The Committee believes that executive compensation should reflect overall
Company performance as well as each executive's performance in specific areas
of responsibility. During 1999, the Committee updated its comprehensive review
of executive compensation. The Company utilized the services of an
independent consultant to assist with its review.
The Committee determined that the Company's executive officers were paid total
annual compensation that generally approximates median compensation levels of
comparable companies in 1999.
The Elements of Executive Officer Compensation
Compensation for each of the Company's executive officers may consist of four
elements: base salary; annual bonuses; stock plan awards; and retirement and
other fringe benefits. Overall, compensation is intended to be competitive and
in the median range of compensation for comparable companies. A significant
portion of each executive's compensation consists of stock options, restricted
stock awards, or other stock ownership elements designed to align the interests
of executive officers with the interests of the Company's shareholders.
Base Salary
Recommendations with respect to base salary depend on a variety of factors,
including qualifications and experience, duties and responsibilities, and the
competitive market for executive talent. Increases in base salary were awarded
in 1999 to the Company's Chief Executive Officer and to each of the Named
Executive Officers, to reflect such officers' performance and to maintain their
base salaries at competitive levels.
Bonus
The Company's management incentive plan permits the award of bonuses to
executive officers based on the Company's achieving specified levels of return
on equity and on individual performance. The Committee establishes goals under
the plan at the beginning of each year. Recommendations are made by senior
management, and final bonus amounts are approved by the Compensation Committee.
Bonuses were awarded under the plan during 1999 to all of the officers named
in the Summary Compensation Table.
<PAGE>
Stock Options, Restricted Stock Awards, and the Stock Ownership Plan
Each executive officer of the Company is entitled to participate in the
Company's Incentive Stock Plan. The Company's practice has been to grant
options under the plan exercisable generally at or above then existing market
prices and subject to phase-in vesting schedules. The Committee believes that
such stock options create an important incentive to enhance long-term
shareholder value.
Certain senior executive officers of the Company also participate in the
Company's Stock Ownership Plan. Each participant is encouraged to subscribe
for the purchase of shares having a fair market value equal to two times such
executive officer's base salary.
The Committee believes that participation in the Company's stock plans will
result in ownership of its Common Stock in amounts that are significant for its
executive officers, and will serve to align the interests of such officers
with the Company's shareholders.
Retirement Plans and Other Benefits
The Company's compensation for its executive officers also includes the
opportunity to participate in two retirement plans, one qualified for federal
tax purposes and one non-qualified, and certain health insurance, life
insurance, relocation allowances, and other benefits. Such benefits are
designed to be substantially similar to the benefits available to those for
other exempt, salaried associates.
Executive officers receive a Company contribution to the qualified plan based
on a fixed percentage of their compensation and may elect to contribute an
additional limited amount of their compensation to the plan and receive a
matching Company contribution of one-half of their deferral, up to 3% of their
compensation. Participants in the non-qualified plan may make deferrals into
that plan (up to 90% of total compensation), receive contributions from the
Company equal to a percentage of their compensation in excess of certain
levels, and receive contributions from the Company equal to a percentage
of their compensation, based primarily on the Company's return on equity.
CEO Compensation
The Chief Executive Officer's compensation in 1999 included his base salary; a
bonus awarded under the management incentive plan; an additional stock option
award to bring his total incentive compensation in line with the prevailing
industry median, and retirement plan and other customary benefits. The factors
and criteria upon which such compensation was based are the same as those
applied to the Company's other executive officers.
Compensation Committee:
Paul K. Brock
Robert J. Sudderth, Jr.
Lovic A. Brooks, Jr.
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Brooks is a member of Constangy, Brooks & Smith, LLC, a law firm that
performed certain legal services for the Company in 1999.
EXECUTIVE COMPENSATION INFORMATION
The following table sets forth the annual and long-term compensation during
the last three fiscal years for the Company's Chief Executive Officer and the
other four most highly compensated executive officers (the "Named Executive
Officers") for the year ended December 25, 1999, as well as the annual
compensation of each such individual for the Company's two previous fiscal
years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------
Long-Term
Compensation Awards
---------------------
Securities
Other Restricted Underlying All
Annual Stock Options/ Other
Name and Principal Salary Bonus Compensation Awards SARs Compensation
Position Year ($) ($) ($) (a) (b) ($) (c) (#) (d) (c)
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel K. Frierson 1999 $442,617 $350,000 $ 1,240 - - $47,420
Chairman of the Board and 1998 400,000 150,000 - - 80,000 23,400
Chief Executive Officer 1997 366,667 200,000 270,193 - 80,000 29,750
William N. Fry, IV 1999 303,236 160,000 10,835 - - 29,260
President and 1998 250,000 110,000 1,675 - 25,000 16,400
Chief Operating 1997 216,667 150,000 5,733 520,000 18,000 40,375
Officer
Philip H. Barlow 1999 187,083 90,000 8,984 - - 19,110
Vice President and 1998 180,000 70,000 1,363 - 12,000 12,725
President, Carriage 1997 170,000 115,000 15,145 195,000 10,000 34,987
Industries, Inc.
Kenneth L. Dempsey 1999 170,625 125,000 5,717 - - 18,123
Vice President and 1998 160,000 70,000 3,990 - 15,000 12,025
President, Masland 1997 153,333 115,000 6,307 - 19,000 14,300
Carpets
Jeffrey L. Gregg 1999 167,500 100,000 6,936 - - 17,858
Vice President and 1998 153,854 70,000 387 - 27,000 10,399
President, Bretlin, Inc. 1997 127,500 80,000 1,803 - - 15,640
</TABLE>
<PAGE>
(a) Reflects the excess of actual earnings of funds held for such officers'
retirement in the Company's qualified and non-qualified defined contribution
and salary savings plans over 120% of the average applicable federal rates,
determined in accordance with applicable regulations of the Securities and
Exchange Commission. The actual rate of earnings of such plans is
substantially the same as the rate of earnings on the Company's other such
plans for salaried employees and is not established or guaranteed by the
Company. Such rate of earnings may vary from year to year.
(b) No named officer received perquisites or other personal benefits in an
amount exceeding the lesser of $50,000 or 10% of such officer's salary and
bonus for periods presented.
(c) The value of the restricted stock awards at December 25, 1999 is $295,000
and $110,625 for Mr. Fry and Mr. Barlow, respectively. The value of such
awards included in the table is determined by the market price of the stock at
the grant date. The number of shares of Common Stock subject to restricted
stock awards held by Mr. Fry and Mr. Barlow at December 25, 1999 was 40,000 and
15,000, respectively. Restrictions lapse at the end of five years from the
date of grant for Mr. Fry and Mr. Barlow.
(d) Reflects the number of shares of the Company's Common Stock subject to
options granted to the Named Executive Officers for the periods presented.
(e) Amounts reported in the "All Other Compensation" column for 1999 consist of
Company contributions on behalf of the Named Executive Officers to defined
contribution plans.
<PAGE>
The following table presents summary information concerning options exercised
during 1999 and estimates the value of unexercised options held by the Named
Executive Officers at fiscal year end.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of Unexercised
In-The-Money
Number of Unexercised Options/SARs
Options at FY-End (#) at Fiscal Year-End ($)
---------------------------------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Daniel K. Frierson - - $174,750 $193,250 $60,588 $24,363
William N. Fry, IV - - 39,500 63,500 43,438 43,438
Philip H. Barlow (a) - - 45,544 34,250 52,795 16,000
Kenneth L.
Dempsey _ _ 21,000 38,000 8,125 8,125
Jeffrey L. Gregg - - 7,500 34,500 15,250 15,250
</TABLE>
(a) Includes options to purchase 15,794 shares of the Company's Common Stock
issued on March 12, 1993, to replace options to purchase shares of Carriage's
common stock which were canceled upon the acquisition of Carriage by the
Company. Such options include: (i) options to purchase 3,057 shares of Common
Stock at an exercise price of $4.2934 per share; (ii) options to purchase 2,547
shares of Common Stock at an exercise price of $5.0294 per share; and (iii)
options to purchase 10,190 shares of Common Stock at an exercise price of
$5.2748 per share.
<PAGE>
PROPOSAL 2
APPROVAL OF NEW STOCK INCENTIVE PLAN
The Board of Directors has, subject to stockholder approval, adopted a new
Stock Incentive Plan (the "Stock Incentive Plan") attached hereto as ANNEX I to
replace the Company's existing 1990 incentive stock plan and to preserve
availability of the plan's remaining 436,500 shares for issuance as incentive
stock options. Under applicable Internal Revenue Service regulations,
incentive stock options may only be granted under written plans which have a
minimum term of 10 years. Accordingly, in order to continue to issue
incentive stock options, the Company is adopting a new plan, subject to
shareholder approval. As proposed, the Stock Incentive Plan is substantially
similar to the 1990 plan in terms of the types of stock compensation awards
which may be made.
The Board of Directors believes that there is a continuing need for a
long-term incentive plan tied to stockholder value and applicable to a broad
class of key associates. Previously, this element of the Company's overall
compensation philosophy was addressed through awards under the 1990 Incentive
Stock Plan. Under applicable Internal Revenue Service regulations, the Company
is no longer able to grant Incentive Stock Options under the 1990 Incentive
Stock Plan. The Board of Directors believes that the Company needs the
flexibility of an ongoing plan that provides for a variety of different types
of stock compensation awards (including tax qualified Incentive Stock Options)
in order to structure executive compensation packages suited to the Company's
needs. For these reasons, the Board of Directors believes that adoption of
the new Stock Incentive Plan, with terms substantially similar to the 1990
plan, is necessary and in the best interests of the Company and its
shareholders, and recommends that shareholders vote in favor of approval and
adoption of plan. The number of shares reserved for issuance under the new
plan will be set at the number of shares remaining for issuance under the 1990
plan. If additional availability is needed, the Company will have to obtain
shareholder approval.
STOCK INCENTIVE PLAN
The Stock Incentive Plan has been approved by the Company's Board of Directors
to be effective upon approval by the Company's Shareholders. The following
description of the terms of the plan is qualified in its entirety by reference
to the full text of the plan attached as ANNEX I to this Proxy Statement.
Capitalized terms used but not defined in the following description are used as
defined in the plan.
The Stock Incentive Plan provides for the grant of Stock Options (which may be
either Incentive Stock Options or Non-qualified Stock Options), Stock
Appreciation Rights ("SARs"), Restricted Stock and Performance Share Units to
officers and members of the Board of Directors who are employees of the Company
or of any Affiliated Company (as designated by the Board of Directors) in
which the Company holds a substantial direct or indirect equity interest. The
Stock Incentive Plan also provides (subject to Board discretion) for a one-time
grant of Non-qualified Stock Options to each individual who becomes a
non-employee director of the Company after the effective date of the Plan.
These awards may be made in connection with, or independent of, any deferrals
of other compensation payable to plan participants. A total of 436,500
shares of Common Stock have been reserved and may be issued in connection with
awards under the Stock Incentive Plan, which represents the number of available
shares remaining for issuance under the Company's 1990 plan. The Stock
Incentive Plan, like the 1990 plan, includes a feature that will permit any
participant who already owns shares of the Company's Class B Common Stock
to elect to receive any shares to which he may be entitled pursuant to any
Award under the plan either entirely in Common Stock or in a combination of
Common Stock and Class B Common Stock that would match the proportion of the
participant's existing ownership of each class. The Stock Incentive Plan will
be administered by the Compensation Committee of the Company's Board of
Directors, which may adopt, amend or repeal the administrative rules,
guidelines and practices relating to the plan.
<PAGE>
INCENTIVE STOCK OPTIONS; NON-QUALIFIED STOCK OPTIONS
The Compensation Committee may award Incentive Stock Options and Non-qualified
Stock Options, and determine the number of shares to be covered by each
option, the conditions and limitations applicable to the exercise of the option
and the option price therefor, which, in the case of Incentive Stock Options,
must be at least 100% (110% in the case of Incentive Stock Options granted to a
stockholder owning in excess of 10% of the Common Stock) of the fair market
value of the Common Stock as of the date of grant. Incentive Stock Options
shall be subject to and comply with Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Payment of the option exercise price may be
made in cash, through surrender to the Company of shares of Common Stock or of
another Award held by the participant under the Plan, or by any other method
approved by the Compensation Committee. The option exercise period for
Incentive Stock Options shall not exceed ten years from the date of grant, or
five years if granted to a stockholder owning in excess of 10% of the Common
Stock.
STOCK APPRECIATION RIGHTS
The Compensation Committee may award SARs entitling recipients on exercise of
the SAR to receive an amount, in cash or stock or a combination thereof,
determined in whole or in part by reference to appreciation in the fair market
value of the Common Stock between the date of the award and the exercise of the
award. SARs may be granted in tandem with, or independently of, options
granted under the Stock Incentive Plan.
PERFORMANCE SHARE AWARDS
The Compensation Committee may make Performance Share Awards entitling
recipients to acquire shares of Common Stock upon the attainment of specified
performance goals, as determined by the Compensation Committee, which may
include earnings per share or revenue targets, completed acquisitions and other
corporate or individual executive objectives. The Compensation Committee may
make Performance Share Awards independent of or in connection with any other
award under the Incentive Plan. Performance Share Awards and all rights with
respect to such awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
RESTRICTED STOCK AWARDS
The Compensation Committee may grant Restricted Stock Awards entitling
recipients to acquire shares of Common Stock subject to the right of the
Company to have such shares revert to the Company, in the event that conditions
specified by the Compensation Committee are not satisfied prior to the end of
the applicable Restricted Period established by the Compensation Committee for
such award. Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered during the applicable Restricted Period.
In the event of a recapitalization, stock split, stock dividend, exchange,
combination, or reclassification of shares, merger, consolidation,
reorganization, Change in Control or other change in or affecting the capital
<PAGE>
structure or capital stock of a Corporation, the Board of Directors, upon the
recommendation of the Compensation Committee, may make appropriate adjustments
in the number of shares of Common Stock authorized for the Plan; and the
Compensation Committee may make such appropriate adjustments in the terms of
any outstanding Award as it deems equitable, in its absolute discretion, to
prevent dilution or enlargement of the rights of Participants.
FEDERAL INCOME TAX CONSEQUENCES
The following brief description of the tax consequences of awards under the
Stock Incentive Plan is based on Federal tax laws currently in effect and does
not purport to be a complete description of such Federal tax consequences.
Options.
There are no Federal tax consequences either to the optionee or to the Company
upon the grant of an Incentive Stock Option or Non-qualified Stock Option. On
the exercise of an Incentive Stock Option, the optionee will not recognize any
income and the Company will not be entitled to a deduction, although such
exercise may give rise to alternative minimum tax liability for the optionee.
Generally, if the optionee disposes of shares acquired upon exercise of an
Incentive Stock Option within two years of the date of grant or one year of the
date of exercise, the optionee will recognize ordinary income and generally
the Company will be entitled to a compensation expense deduction, equal to the
excess of the fair market value of the shares of the date of exercise over the
option price (limited generally to the gain on the sale). The balance of any
gain, and any loss, will be treated as a capital gain or loss to the optionee.
If the shares are disposed of after the foregoing holding requirements are
met, the Company will not be entitled to any deduction, and the entire gain or
loss for the optionee will be treated as a capital gain or loss.
On exercise of a Non-qualified Stock Option, the excess of the date-of-
exercise fair market value of the shares acquired over the option price will
generally be taxable to the optionee as ordinary income and generally
deductible by the Company as compensation expense. The disposition of shares
acquired upon exercise of a Non-qualified Stock Option will generally result in
a capital gain or loss for the optionee, but will have no tax consequences for
the Company.
Stock Appreciation Rights.
The amount of any cash (or the fair market value of any Common Stock) received
by the holder of an SAR upon the exercise of the SAR under the Stock Incentive
Plan will be subject to ordinary income tax in the year of receipt and
generally, the Company will be entitled to a deduction for such amount.
Performance Share Awards.
An associate who has been awarded Performance Share Awards will not recognize
taxable income, and the Company will not be entitled to a deduction, at the
<PAGE>
time of the award. When the associate becomes entitled to receive the shares
of Common Stock, cash or other consideration payable at the maturity of the
award, he will recognize ordinary income equal to the sum of the cash and the
fair market value of the shares of Common Stock or other property at such time,
and generally, the Company will be entitled to a corresponding compensation
expense deduction.
Restricted Stock Awards.
An associate (the "Recipient") who has been awarded Restricted Stock will not
recognize taxable income at the time of the award unless he elects otherwise.
At the time any restrictions applicable to the Restricted Stock award lapse,
the Recipient will recognize ordinary income and generally the Company will be
entitled to a corresponding deduction equal to the excess of the fair market
value of such stock at such time over the amount paid therefor. Dividends paid
to the Recipient on the Restricted Stock during the Restricted Period will be
ordinary compensation income to the Recipient and deductible as such by the
Company.
SHAREHOLDER PROPOSALS
In the event any shareholder wishes to present a proposal at the 2001 Annual
Meeting of Shareholders, such proposal must be received by the Company on or
before December 1, 2000, to be considered for inclusion in the Company's proxy
materials.
INDEPENDENT AUDITORS
The firm of Ernst & Young LLP has been selected as independent auditors for
the Company. A representative of Ernst & Young LLP is expected to be present
at the Annual Meeting and will have the opportunity to make a statement if he
so desires and to respond to appropriate questions from shareholders.
ADDITIONAL INFORMATION
The entire cost of soliciting proxies will be borne by the Company. In
addition to solicitation of proxies by mail, proxies may be solicited by the
Company's directors, officers, and other employees by personal interview,
telephone, and telegram. The persons making such solicitations will receive no
additional compensation for such services. The Company also requests that
brokerage houses and other custodians, nominees, and fiduciaries forward
solicitation materials to the beneficial owners of the shares of Common Stock
held of record by such persons and will pay such brokers and other fiduciaries
all of their reasonable out-of-pocket expenses incurred in connection
therewith.
<PAGE>
OTHER MATTERS
As of the date of this Proxy Material, the Board does not intend to present,
and has not been informed that any other person intends to present, any matter
for action at the Annual Meeting other than those specifically referred to
herein. If other matters should properly come before the Annual Meeting, it is
intended that the holders of the proxies will vote in accordance with their
best judgment.
The Dixie Group, Inc.
Daniel K. Frierson
Chairman of the Board
Dated: April 6, 2000
<PAGE>
PROXY
This Proxy is Solicited on Behalf of the Board of Directors
THE DIXIE GROUP, INC.
Annual Meeting of Shareholders
May 4, 2000
The undersigned hereby appoints Daniel K. Frierson, John W. Murrey, III, and
Robert J. Sudderth, Jr., and each of them, proxies, with full power of
substitution, to act and to vote the shares of common stock which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be
held at 1100 South Watkins Street, Chattanooga, Tennessee 37404, at 10:00 A.M.,
Eastern Daylight Time, on May 4, 2000, and any adjournment or adjournments
thereof, as follows:
<TABLE>
<S> <C> <C>
1. Election of Directors: [ ] FOR all nominees [ ] WITHHOLD ALL AUTHORITY
(Except as indicated to vote for all nominees listed below
to the contrary below)
</TABLE>
J. Don Brock; Paul K. Brock; Lovic A. Brooks, Jr.; Daniel K. Frierson; Paul K.
Frierson; William N. Fry, IV, John W. Murrey, III; Peter L. Smith; Robert J.
Sudderth, Jr.
(Instruction: To withhold authority to vote for any individual, write that
nominee's name in the space provided below.)
_______________________________________________________________________________
2. Approval of Stock Incentive Plan:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Acting upon any other business which may be properly brought before said
meeting or any adjournment or adjournments thereof.
(Continued on reverse side)
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED IN
FAVOR OF PROPOSAL 1 AND PROPOSAL 2. THE BOARD IS NOT AWARE OF ANY OTHER MATTER
TO BE BROUGHT BEFORE THE ANNUAL MEETING FOR A VOTE OF SHAREHOLDERS. IF,
HOWEVER, OTHER MATTERS ARE PROPERLY PRESENTED, THE PROXIES WILL VOTE IN
ACCORDANCE WITH THEIR BEST JUDGMENT.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and the Proxy Materials and Annual Report to Shareholders
furnished therewith.
Dated this ____ day of ___________, 2000.
____________________________________
____________________________________
Note: Signature should agree with
name on stock certificate as printed
hereon. When signing in a
representative capacity, please give
your full title.
Please sign, date and return this Proxy in the accompanying prepaid
self-addressed envelope. Thank you.
<PAGE>
ANNEX 1
THE DIXIE GROUP, INC.
STOCK INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of this Stock Incentive Plan (the "Plan"), is to advance the
interests of The Dixie Group, Inc. (the "Corporation") and its shareholders by
providing an opportunity for selected officers and other key employees of the
Corporation and its Affiliated Companies (as hereinafter defined) and for non-
employee directors of the Corporation to acquire or increase a proprietary
interest in the Corporation and thereby to provide an additional incentive to
officers and other key employees to devote their maximum efforts and skills to
the advancement, betterment, and prosperity of the Corporation and its
shareholders. The Plan provides for the grant of a variety of equity-based
Awards, in accordance with the terms and conditions set forth below.
SECTION 2. DEFINITIONS
The terms used herein shall have the following meanings unless otherwise
specified or unless a different meaning is clearly required by the context:
Affiliated Company Any entity in which the Corporation has a substantial
direct or indirect equity interest, as determined by the
Committee.
Award Any one or more of the following: Incentive Stock Option;
Non-qualified Stock Option; Stock Appreciation Right;
Restricted Shares; Performance Share Units; and
Performance Shares.
Beneficiary The person or persons designated in writing by the
Participant as his Beneficiary in respect of Awards or,
in the absence of such a designation or if the designated
person or persons predecease the Participant, the person
or persons who shall acquire the Participant's rights in
respect of Awards by bequest or inheritance in accordance
with the applicable laws of descent and distribution. In
order to be effective, a Participant's designation of a
Beneficiary must be made in the manner prescribed by the
Committee and must be on file with the Corporation before
the Participant's death. Any such designation may be
revoked and a new designation substituted therefor by the
Participant at any time before his death without the
consent of the previously designated Beneficiary.
Payment of amounts due to any Participant's Beneficiary
pursuant to an Award in accordance with the terms of the
Plan shall relieve the Corporation, as well as all of the
members of the Board and the Committee, of all liability
to anyone with respect to such payment.
<PAGE>A-1
Board of Directors The Board of Directors of the Corporation.
Change in Control Any event which results in a "person" (as such term is
defined in Sections 3(a)(9) and 13(d)(3) of the Exchange
Act, and the regulations promulgated thereunder)
acquiring directly or indirectly, whether by sale,
transfer, assignment, pledge, hypothecation, gift, or
other disposition, in one or more transactions, a
majority controlling interest in the voting capital stock
of the Corporation (or the entering into of any agreement
with the Corporation to do any of the foregoing);
provided, however, that a Change in Control shall not
include any transaction in which one or more members of
the Frierson family (which shall include all current
members of the family of J. Burton Frierson, including
descendants and spouses, and trusts for the benefit of
same, who presently own capital stock) shall have a
majority controlling interest in the Corporation.
Code The Internal Revenue Code of 1986, as amended from time
to time.
Committee The Compensation Committee of the Board of Directors, or
any other committee or group of officers and/or directors
designated by the Board to administer the Plan; provided,
however, that so long as Rule 16b-3 shall so require as a
condition to the exemption from Section 16 of the
Exchange Act provided thereby, each member of the
Committee shall be a "non-employee director" within the
meaning of Rule 16b-3. Additionally, unless the Board
should determine that Awards under the Plan need not
qualify as "performance-based compensation" under Code
Section 162(m), each member of the Committee also shall
qualify as an "outside director" for purposes of Code
Section 162(m).
Common Stock The Common Stock of the Corporation.
Class B Common Stock The Class B Common Stock of the Corporation.
Disability A disability that enables the Participant to be eligible
for and receive a disability benefit under the Long Term
Disability Benefit Plan of the Corporation or a long-term
disability plan of an Affiliated Company (whichever is
applicable), as amended from time to time. If the
Participant is not eligible for benefits under any such
plan, he shall be considered to have a disability if the
Committee determines that his physical or mental
condition would entitle him to such benefits if he were
eligible therefor.
<PAGE>A-2
Election Date The date, as prescribed under Section 5(c) of the Plan
for a particular Award, on which a Participant who holds
shares of both Common Stock and Class B Common Stock
must elect whether he chooses to receive both Common
Stock and Class B Common Stock in proportion to his
existing shareholdings with respect to the exercise of
such Award.
Employed or Employment Subject to Section 15 of the Plan, the use of the terms
"Employed" or "Employment" with respect to a Participant
shall be deemed to indicate an employment relationship
with the Corporation or an Affiliated Company (as
applicable) which satisfies the requirements of Section
1.421-7(h) of the tax regulations prescribed under the
Code (or any successor regulations).
Exchange Act The Securities Exchange Act of 1934, as amended.
Exercise Gain Shares With respect to a Stock Appreciation Right, all of the
shares of Common Stock received upon exercise of the
Stock Appreciation Right. With respect to an Option,
the portion of the shares of Common Stock received upon
exercise of the Option equal to the excess of the Fair
Market Value, as of the exercise date, over the Option
price, multiplied by the number of shares purchased
under the Option on the exercise date, divided by such
Fair Market Value, and rounded down to the nearest whole
number of shares.
Fair Market Value The value of Common Stock or any other forms of payment
of Awards under the Plan as of any specific time shall
mean such value as determined by the Committee in
accordance with applicable law. In light of the
conversion feature of Class B Common Stock, which is not
publicly traded, the Fair Market Value of Class B Common
Stock shall be deemed to be identical to that of Common
Stock for any given date.
Incentive Stock Option An Option that complies with the terms and conditions
set forth in Section 422(b) of the Code and is
designated by the Committee as an Incentive Stock
Option.
Non-qualified Stock
Option An Option granted under the Plan other than an Incentive
Stock Option.
Option Any option to purchase Common Stock and/or Class B
Common Stock (as applicable) granted pursuant to the
provisions of Section 6 or Section 7 of the Plan.
<PAGE>A-3
Optionee A Participant who is the holder of an Option.
Outside Director Any member of the Board who is not an employee of the
Corporation or of an Affiliated Company.
Participant Any officer or key employee of the Corporation or an
Affiliated Company selected by the Committee to
participate in the Plan, as well as any Outside
Director who is granted a Non-qualified Stock Option
in accordance with Section 7(b) of the Plan.
Performance Cycle The period of time, designated by the Committee, over
which Performance Shares may be earned.
Performance Shares Shares of Common Stock and/or Class B Common Stock (as
applicable) granted pursuant to Section 10 of the Plan,
which may be made subject to the restrictions and other
terms and conditions prescribed in Section 11 of the
Plan.
Performance Share Units Contingent rights to receive Performance Shares
pursuant to Section 10 of the Plan.
Restricted Shares Shares of Common Stock and/or Class B Common Stock (as
applicable) granted pursuant to Section 9 of the Plan
and subject to the restrictions and other terms and
conditions set forth therein.
Restriction Period A period of time to be determined by the Committee in
its sole discretion, commencing on the date as of which
Restricted Shares are granted, during which the
restrictions imposed by paragraph (b) of Section 9 of
the Plan shall apply. The Committee shall determine the
length of the Restriction Period at the time that the
Restricted Shares are granted.
Retirement Early, normal or late retirement from the Corporation
or an Affiliated Company pursuant to the provisions of
an approved retirement plan of the Corporation or an
approved retirement plan of an Affiliated Company
(whichever is applicable), or any other plan or
arrangement which may be approved by the Committee for
this purpose.
Rule 16b-3 Rule 16b-3 promulgated by the United States Securities
and Exchange Commission under the Exchange Act,
including any successor to such rule.
Stock Appreciation
Right The right, granted pursuant to the provisions of
Section 8 of the Plan, to receive a payment equal to
<PAGE>A-4
the excess of the Fair Market Value of Common Stock
and/or Class B Common Stock (as applicable) over the
Option price of such stock, as specified in Section 8
of the Plan.
Ten Percent Employee An employee Participant who owns, directly or
indirectly (as determined by reference to Section
424(d) of the Code), stock representing more than ten
percent of the voting power of all classes of stock of
the Corporation or of its parent or subsidiary.
SECTION 3. ADMINISTRATION
The Plan shall be administered by the Committee, which, subject to the
limitations set forth herein, shall have the full and complete authority and
sole discretion from time to time to construe and interpret the Plan; to select
the officers and other key employees who shall be granted Awards under the
Plan; to determine the type, size, terms, and conditions of the Award or Awards
to be granted to each such Participant; to authorize the grant of such Awards
pursuant to the Plan; to modify the terms of any Award that has been granted
(subject to Section 19 of the Plan); to adopt, amend and rescind rules and
regulations relating to the Plan; and to make all other determinations and take
all other action it may deem necessary or advisable for the implementation and
administration of the Plan. The Committee may correct any defect or supply
any omission or reconcile any inconsistency in the Plan or in any Award in the
manner and to the extent the Committee deems necessary or desirable to carry it
into effect. The Committee may authorize the grant of more than one type of
Award, and Awards subject to differing terms and conditions, to any eligible
employee. The Committee's decision to authorize the grant of an Award to an
employee at any time shall not require the Committee to authorize the grant of
an Award to that employee at any other time or to any other employee at any
time; nor shall its determination with respect to the size, type, or terms and
conditions of the Award to be granted to an employee at any time require it to
authorize the grant of an Award of the same type or size or with the same terms
and conditions to that employee at any other time or to any other employee at
any time. The Committee shall not be precluded from authorizing the grant of an
Award to any eligible employee solely because the employee previously may have
been granted an Award of any kind under the Plan.
All such actions of the Committee shall be by a majority of its members (except
that the Committee may authorize any of its members or any officer of the
Corporation to execute documents or to take any other ministerial action with
regard to the Plan or any Award) and shall be final, conclusive and binding.
Each member of the Committee, while serving as such, shall be considered to be
acting in his capacity as a director of the Corporation. No member of the
Board or of the Committee, and no officer of the Corporation or of an
Affiliated Company, shall be liable for anything done or omitted to be done by
him, by any other member of the Board or the Committee, or by any officer of
the Corporation or of an Affiliated Company, in connection with the
implementation or administration of the Plan, except for his own willful
misconduct or as expressly provided by statute.
<PAGE>A-5
SECTION 4. ELIGIBILITY
To be eligible for selection by the Committee to participate in the Plan, an
individual must be a full-time salaried officer or key employee who is Employed
by the Corporation, or by an Affiliated Company, on the date on which the
Committee authorizes the grant to such individual of an Award; provided,
however, that participation in the Plan by employees of an Affiliated Company
may be made subject to such additional terms and conditions (concerning either
the Participant or the Affiliated Company) as the Committee may prescribe from
time to time. Outside Directors of the Corporation shall be eligible for a
Non-qualified Stock Option Award in accordance with Section 7(b) of the Plan,
but otherwise shall not be eligible for any Awards under the Plan.
SECTION 5. SHARES AVAILABLE
(a) General-Subject to the provisions of Section 16 of the Plan, no more than
an aggregate of four hundred, thirty-six thousand, five hundred (436,500)
shares of the Corporation's common stock may be issued pursuant to Awards under
the Plan (which may include both shares of Common Stock and shares of Class B
Common Stock issued in accordance with Section 5(c) of the Plan). Such shares
may be either authorized but unissued shares, treasury shares, reacquired
shares, or any combination thereof. Any number of shares of Common Stock or
Class B Common Stock which were subject to an Option, a Stock Appreciation
Right, or a Performance Share Unit, and which were not issued prior to the
expiration of the Award shall thereafter again be added back to the total
number of shares available for award under the Plan. Upon the forfeiture of
any Restricted Shares, the number of forfeited shares of Common Stock or Class
B Common Stock shall thereafter be added back to the total number of shares
available for award under the Plan.
(b) Annual Limitation on Awards-Notwithstanding any other provision to the
contrary (except for any customary antidilution adjustments pursuant to Section
16 of the Plan), no Participant may be awarded a grant in any one year, which,
when added to any other Award of Options, Restricted Shares, and Performance
Share Units granted in the same year, shall cause the aggregate number of
shares of Common Stock and/or Class B Common Stock subject to all such Awards
to exceed 100,000 shares. If an Option granted in a given year is canceled,
the canceled Option continues to count against the maximum number of shares for
which Options may be granted to a Participant in such year.
(c) Proportional Exercise for Common Stock and Class B Common Stock-All Awards
granted under the Plan shall be denominated and documented with reference to
the number of shares of Common Stock subject to such Award; provided, however,
that any Participant who already owns shares of the Corporation's Class B
Common Stock prior to exercising any Award granted to him under the Plan shall
be entitled to elect to receive shares of both Common Stock and Class B Common
Stock with respect to such Award in proportion to the relative number of shares
of Common Stock and Class B Common Stock held by such participant on the
Election Date. For any Award which is an Incentive Stock Option, Non-qualified
Stock Option or Stock Appreciation Right (or portion thereof, in the case of
<PAGE>A-6
Options or SARs which vest in installments over time), the Election Date shall
be the date on which such Award (or any applicable installment) is exercised.
For any Award of Restricted Shares, the Election Date shall be the date on
which the applicable restrictions lapse in accordance with Section 9 of the
Plan. For any Award of Performance Share Units, the Election Date shall be the
first business day following the last day of the relevant Performance Cycle
for such Award. In order to exercise the rights granted by this Section 5(c),
any Participant who holds shares of Class B Common Stock must make the
applicable election no later than the Election Date with respect to the Award
in question; otherwise, the Participant will receive only shares of Common
Stock with respect to such Award. All references to "Common Stock" in the Plan
or in any Award agreement issued under the Plan shall be deemed to refer to
the appropriate number of shares of Common Stock and Class B Common Stock as
applied to any eligible Participant who makes the election provided by this
Section 5(c).
SECTION 6. INCENTIVE STOCK OPTIONS
(a) General-The Committee may authorize the grant of Incentive Stock Options
to any Participant who is Employed by the Corporation or an Affiliated Company,
subject to the terms and conditions set forth in this Section 6. Incentive
Stock Options may be granted alone or in tandem with an Award of Stock
Appreciation Rights as provided in Section 8 of the Plan. The grant of an
Incentive Stock Option shall be evidenced by a written Incentive Stock Option
Agreement between the Corporation and the Optionee in the form prescribed by
the Committee, setting forth the number of shares of Common Stock subject to
the Incentive Stock Option evidenced thereby and the terms, conditions, and
restrictions applicable thereto.
(b) Option Price-The Committee shall determine the Option price for each share
of Common Stock purchased under an Option (which either may be fixed or may be
determined in accordance with a formula prescribed by the Committee), but,
subject to the provisions of Section 16 of the Plan, in no event shall the
Option price be less than one hundred percent (100%) of the Fair Market Value
of the Common Stock on the date the Option is granted (or, in the case of an
Incentive Stock Option granted to a Ten Percent Employee, one hundred ten
percent (110%) of such Fair Market Value).
(c) Duration of Options-The Committee shall fix the term or duration of
Options, provided that such term shall not exceed ten (10) years from the date
the Option is granted (five (5) years in the case of an Option granted to a Ten
Percent Employee), and that such term shall be subject to earlier termination
pursuant to the provisions of paragraph (g) of this Section 6 or paragraph (f)
of Section 8 of the Plan.
(d) Non-transferability of Options-Options are not transferable other than by
will or the applicable laws of descent and distribution following the death of
the Optionee. Options may be exercised during the lifetime of the Optionee
only by him (or by a duly appointed guardian or personal representative), and
following his death only by his Beneficiary.
<PAGE>A-7
(e) Exercise of Options-The Committee shall determine the time or times at
which Options may be exercised (including any applicable vesting schedule);
provided that such time or times shall not occur before the latest of:
(i) six months following the date on which the Option was granted (unless
waived by the Committee due to the Participant's death or Disability);
(ii) approval of the Plan, as hereby amended, by the stockholders of the
Corporation in the manner provided under Section 18(a) of the Plan; and
(iii) the effectiveness of any registration statement required to be filed
under the Securities Act of 1933 for the registration of the Common Stock
to be issued upon exercise of the Option.
(f) Payment of Option Price-The purchase price of Common Stock upon exercise
of an Option shall be paid in full to the Corporation at the time of the
exercise of the Option in cash or, at the discretion of the Committee and
subject to any limitations or requirements that the Committee may adopt, by the
surrender to the Corporation of any outstanding Award (or portion thereof) or
of shares of previously acquired Common Stock and/or Class B Common Stock,
which (if acquired through the exercise of another Incentive Stock Option)
have been held by the Optionee for at least twelve (12) months and which shall
be valued at Fair Market Value on the date that the Option is exercised, or, at
the discretion of the Committee, by a combination of cash and any such Award
or stock or by any other method approved by the Committee.
(g) Termination of Options-No Option shall be exercisable after it expires.
Each Option shall expire upon the earliest of:
(i) the expiration of the term for which the Option was granted;
(ii) (A) in the case of an Optionee whose employment with the Corporation or
an Affiliated Company is terminated due to Retirement, Disability or
death, the expiration of twelve (12) months after such termination of
employment, or such other date as may be determined by the Committee
(provided, however, that any exercise of the Option more than three (3)
months after the date of an Optionee's termination due to Retirement, or
more than twelve (12) months after the date of an Optionee's termination
due to Disability, shall convert the Option into a Non-qualified Stock
Option rather than an Incentive Stock Option), or
(B) in the case of an Optionee whose employment with the Corporation or
an Affiliated Company is terminated for any reason other than Retirement,
Disability, or death, at the close of business on the ninetieth (90th)
day following the last day of active service by the Optionee with the
Corporation or an Affiliated Company or such other date as may be
determined by the Committee (provided, however, that any exercise of the
Option more than three (3) months after the date of an Optionee's
<PAGE>A-8
termination shall convert the Option into a Non-qualified Stock Option
rather than an Incentive Stock Option).
(h) Limitation on Vesting and Exercisability-The aggregate Fair Market Value
(determined as of the time the Incentive Stock Option is granted) of the
Common Stock with respect to which Incentive Stock Options (granted on or after
January 1, 1987) are exercisable for the first time by the Optionee during any
calendar year shall not exceed $100,000.
(i) Order of Exercise-An Incentive Stock Option granted prior to January 1,
1987, shall not be exercisable while there is outstanding any Incentive Stock
Option which was granted to the Optionee before the grant of the first-
mentioned Incentive Stock Option. For this purpose, an Incentive Stock Option
shall be treated as outstanding until it is exercised in full or expires in
accordance with paragraph (c) of this Section 6.
As used in paragraphs (h) and (i) of this Section 6, the term Incentive Stock
Option shall mean an option to purchase stock which is granted pursuant to the
provisions of this Plan or of any other plan of the Corporation or of a parent
or subsidiary corporation (as defined by Section 424(f) of the Code) and which
complies with the terms and conditions set forth in Section 422(b) of the Code.
(j) Intent-It is the intent of the Corporation that Non-qualified Stock
Options granted under the Plan not be classified as Incentive Stock Options,
that Incentive Stock Options granted under the Plan be consistent with and
contain or be deemed to contain all provisions required under Section 422 and
the other appropriate provisions of the Code and any implementing regulations
(including any successor provisions thereto), and that any ambiguities in
construction shall be interpreted in order to effectuate such intent.
SECTION 7. NON-QUALIFIED STOCK OPTIONS
(a) General-The Committee may authorize the grant of Non-qualified Stock
Options subject to the terms and conditions specified in this Section 7. The
grant of a Non-qualified Stock Option shall be evidenced by a written Non-
qualified Stock Option Agreement between the Corporation and the Optionee,
setting forth the number of shares of Common Stock subject to the Non-qualified
Stock Option evidenced thereby, the exercise price per share (which either may
be fixed or may be determined in accordance with a formula prescribed by the
Committee but, subject to the provisions of Section 16 of the Plan, in no event
may be less than 85% of the Fair Market Value of the underlying shares) and
the terms, conditions, and restrictions applicable thereto. Non-qualified
Stock Options granted pursuant to the provisions of this Section 7 shall be
subject to the terms, conditions, and restrictions set forth in paragraphs (c)
through (g) of Section 6 of the Plan. The limitations set forth in paragraphs
(h) and (i) of Section 6 of the Plan shall not apply to Non-qualified Stock
Options.
(b) Option Grants to Outside Directors-Each person who becomes an Outside
Director of the Corporation following the date on which this Plan is approved
<PAGE>A-9
by the Corporation's shareholders shall be eligible, subject to approval by the
full Board of Directors, to be granted a Non-qualified Stock Option to
purchase a number of shares of Common Stock to be determined by the Board of
Directors at the time of such grant, with an exercise price per share equal to
the Fair Market Value of such shares on the date of grant and with such other
terms, consistent with this Plan, as may be established by the Board of
Directors at the time of grant. In the case of such Non-qualified Stock
Options granted to Outside Directors, the provisions of Section 6(g)(ii) of the
Plan shall be modified by setting a default Option expiration date of twelve
(12) months following termination of the Participant's service as a director of
the Corporation for any reason.
SECTION 8. STOCK APPRECIATION RIGHTS
(a) General-The Committee may grant Stock Appreciation Rights entitling
recipients on exercise of the SAR to receive an amount determined in whole or
in part by reference to appreciation in the Fair Market Value of the Stock
between the date of the Award and the exercise of the Award. A Stock
Appreciation Right shall entitle the Participant to receive, with respect to
each share of Stock as to which the SAR is exercised, the excess of the share's
Fair Market Value on the date of exercise over its Fair Market Value on the
date the SAR was granted. The grant of a Stock Appreciation Right shall be
evidenced either by provisions in the Option agreement evidencing a related
Option or by a written Stock Appreciation Right Agreement between the
Corporation and the Optionee, identifying the related Option (if any),
specifying the number of shares of Common Stock subject thereto, and setting
forth the terms and conditions applicable to the Stock Appreciation Right.
(b) Relationship to Options-Stock Appreciation Rights may be granted in tandem
with, or independently of, Options granted under the Plan. A Stock
Appreciation Right granted in tandem with a Non-qualified Stock Option may be
granted either at or after the time the Option is granted. A Stock
Appreciation Right granted in tandem with an Incentive Stock Option may be
granted only at the time the Option is granted. Stock Appreciation Rights
granted in tandem with Options shall be subject to all of the same conditions
and limitations as the associated Option. In addition to the requirements of
Section 8(c) below, exercise of any SAR granted in tandem with an Option shall
require the simultaneous surrender of the related Option, or the portion
thereof pertaining to the shares with respect to which the Stock Appreciation
Right is exercised. Additionally, any Stock Appreciation Right granted in
connection with an Incentive Stock Option may not be exercised on any date on
which the Fair Market Value of a share of Common Stock is less than or equal to
the Option price per share under the related Incentive Stock Option.
(c) Exercise-The Committee shall determine the time or times at which Stock
Appreciation Rights may be exercised (including any applicable vesting
schedule), provided that such time or times shall not occur before the latest
of:
(i) six months following the date on which the SAR was granted (unless
waived by the Committee due to the Participant's death or Disability);
<PAGE>A-10
(ii) approval of the Plan, as hereby amended, by the stockholders of the
Corporation in the manner provided under Section 18(a) of the Plan; and
(iii) the effectiveness of any registration statement required to be filed
under the Securities Act of 1933 for the registration of the Common
Stock to be issued upon exercise of the SAR.
A Stock Appreciation Right shall be exercised by providing the Corporation with
a written notice in such form and containing such information (including the
number of shares of Common Stock with respect to which the Stock Appreciation
Right is being exercised) as the Committee may specify. For any SAR granted in
tandem with an Option, the date on which the Corporation receives such notice
shall be the date on which the related Option, or portion thereof, shall be
deemed surrendered and the Stock Appreciation Right shall be deemed
exercised.
(d) Payment-Upon exercise of a Stock Appreciation Right in the manner provided
in paragraph (c) of this Section 8, the Optionee shall be entitled to receive
Exercise Gain Shares equal to the number of shares of Common Stock that have an
aggregate Fair Market Value on the exercise date equal to the amount by which
the Fair Market Value of a share of Common Stock on the exercise date exceeds
the baseline price per share for the SAR (or the Option price per share of the
related Option, as applicable), multiplied by the number of shares with respect
to which the SAR is being exercised (or the number of shares covered by the
related Option, or portion thereof, surrendered in connection with the exercise
of the Stock Appreciation Right). No fractional shares shall be delivered
under this Section 8(d), but in lieu thereof a cash or other adjustment may be
made as determined by the Committee. In the sole discretion of the Committee,
all or part of the payment in respect of a Stock Appreciation Right may be made
in cash or other property in lieu of Exercise Gain Shares.
(e) Termination of SARs-The termination provisions prescribed by Section 6(g)
of the Plan for Options also shall apply to any Stock Appreciation Right
granted under the Plan (substituting the phrase "Stock Appreciation Right" for
the word "Option" as appropriate), regardless of whether or not such SAR was
granted in tandem with an Option.
(f) Effect of Option Exercise-A Stock Appreciation Right granted in tandem
with an Option shall be canceled when, and to the extent that, the related
Option is exercised, and an Option shall be canceled when, and to the extent
that, the Option is surrendered to the Corporation upon the exercise of a
related Stock Appreciation Right.
(g) Deemed Exercise-A Stock Appreciation Right may provide that it shall be
deemed to have been exercised at the close of business on the business day
preceding the expiration date of the Stock Appreciation Right or of the related
Option, or such other date as specified by the Committee, if at such time such
Stock Appreciation Right has a positive value. Such deemed exercise shall be
settled or paid in the manner prescribed by Section 8(d) of the Plan.
<PAGE>A-11
SECTION 9. RESTRICTED SHARES
(a) General-The Committee, in its sole discretion, may from time to time
authorize the grant of Restricted Shares to a Participant. Any such Award of
Restricted Shares shall be documented in a Restricted Share Agreement in such
form as the Committee may prescribe, consistent with the Plan, which shall
specify the length of the Restriction Period and any other specific terms and
conditions applicable to such Award. A certificate or certificates
representing the number of Restricted Shares granted shall be registered in the
name of the Participant, or shall be evidenced in such other manner permitted
by applicable law as determined by the Committee. Such certificate(s) shall
bear an appropriate legend referring to the applicable restrictions and shall
be deposited by the Award holders with the Corporation, together with a stock
power endorsed in blank. Until the expiration of the Restriction Period or the
lapse of restrictions in the manner provided in paragraph (d) or paragraph
(e) of this Section 9, the certificate or certificates shall be held by the
Corporation for the account of the Participant, and the Participant shall have
beneficial ownership of the Restricted Shares, including the right to receive
dividends on, and the right to vote, the Restricted Shares.
(b) Restrictions-Until the expiration of the Restriction Period or the lapse
of restrictions in the manner provided in paragraph (d) or paragraph (e) of
this Section 9, Restricted Shares shall be subject to the following
restrictions and to any additional restrictions that the Committee, in its sole
discretion, may from time to time prescribe in individual Restricted Share
Awards in furtherance of the objectives of the Plan:
(i) the Participant shall not be entitled to receive the certificate or
certificates representing the Restricted Shares;
(ii) the Restricted Shares may not be sold, transferred, assigned, pledged,
conveyed, hypothecated, or otherwise disposed of, except by will or
the laws of descent and distribution; and
(iii) the Restricted Shares may be forfeited immediately as provided in
paragraph (d) of this Section 9.
(c) Distribution of Restricted Shares-If a Participant to whom Restricted
Shares have been granted remains in the continuous Employment of the
Corporation or an Affiliated Company during the entire Restriction Period, upon
the expiration of the Restriction Period all restrictions applicable to the
Restricted Shares shall lapse, and the certificate or certificates representing
the shares of Common Stock that were granted to the Participant in the form of
Restricted Shares shall be delivered to the Participant.
(d) Termination of Employment-If the Employment of a Participant is terminated
for any reason other than the Disability or death of the Participant in
service before the expiration of the Restriction Period, the Restricted Shares
shall be forfeited immediately and all rights of the Participant to such shares
shall terminate immediately without further obligation on the part of the
<PAGE>A-12
Corporation or any Affiliated Company. If the Participant's Employment is
terminated by reason of the Disability or death of the Participant in service
before the expiration of the Restriction Period, the restrictions shall lapse
on the date the Participant's employment terminated with respect to a number of
Restricted Shares equal to that fraction of the Restricted Shares with respect
to which the Corporation or the Affiliated Company has recognized compensation
expense under generally accepted accounting principles (as such principles are
in effect on the date this Award is effective) as of the date of Participant's
death or Disability; and the certificate or certificates representing the
shares of Common Stock upon which the restrictions have lapsed shall be
delivered to the Participant (or, in the event of the Participant's death, to
his Beneficiary). All other Restricted Shares subject to such Award shall be
deemed canceled and surrendered to the Corporation.
(e) Waiver of Restrictions-The Committee, in its sole discretion, may waive
any or all restrictions with respect to Restricted Shares.
SECTION 10. PERFORMANCE SHARE UNITS
(a) General-The Committee, in its sole discretion, may from time to time
authorize the grant of Performance Share Units to a Participant, which shall be
documented in a Performance Share Award agreement in such form as the
Committee may prescribe, consistent with the Plan, which shall specify the
relevant performance goals, the Performance Cycle, and other terms and
conditions of the Award. Performance Share Units shall entitle the Participant
to Performance Shares (or cash or other property in lieu thereof, as
determined by the Committee) upon the achievement of such performance goals as
may be established by the Committee at the time of grant. The Committee in its
sole discretion shall determine the performance goals, the related Performance
Cycle during which performance is to be measured, and all other limitations
and conditions applicable to the awarded Performance Shares; provided, however,
that the Committee may rely on the performance goals and other standards
applicable to any other performance plans of the Corporation in setting the
standards for Performance Share Awards under the Plan. At such time as it is
certified by the Committee that the performance goals established by the
Committee have been attained or otherwise satisfied, the Committee shall
authorize the payment of cash in lieu of Performance Shares or the issuance of
Performance Shares registered in the name of the Participant.
(b) Termination of Employment-If the Participant's employment with the
Corporation or an Affiliated Company is terminated before the end of a
Performance Cycle for any reason other than Participant's Disability or death,
or any other reason initiated by the Company (excluding any termination for
cause unless the Committee shall expressly determine otherwise), the
Participant shall forfeit all rights with respect to any Performance Shares
that were being earned during the Performance Cycle. The Committee, in its
sole discretion, may establish guidelines providing that if a Participant's
employment is terminated before the end of a Performance Cycle by reason of
the Participant's Disability or death, or for any other reason where the
termination is initiated by the Company (excluding any termination for cause
unless the Committee shall expressly determine otherwise), the Participant
<PAGE>A-13
shall be entitled to a prorated payment with respect to any Performance
Shares that were being earned during the Performance Cycle.
SECTION 11. OWNERSHIP RIGHTS WITH RESPECT TO AWARDS
(a) General-Unless otherwise determined by the Committee pursuant to Section
11(b) below, and except for a Participant's beneficial ownership rights with
respect to Restricted Shares under Section 9 of the Plan, a Participant to whom
an Award is made (or his successor) shall have no rights as a holder with
respect to any shares or other securities issuable pursuant to such Award until
the date of the issuance to him of a stock certificate or other instrument of
ownership representing such securities. Except as provided in Section 16 of
the Plan (and except for a Participant's beneficial ownership rights with
respect to Restricted Shares under Section 9 of the Plan), no adjustment shall
be made for dividends, distributions or other rights (whether ordinary or
extraordinary, and whether in cash, securities, other property or any
combination thereof) for which the record date is prior to the date such stock
certificate or other instrument of ownership is issued.
(b) Committee Discretion Concerning Dividends-The Committee may authorize the
payment of dividend equivalents on some or all of the shares of Common Stock
covered by Options or Performance Share Units granted under the Plan, in an
amount equal to, and commensurate with, dividends declared by the Board of
Directors and paid on Common Stock. Dividend equivalents payable on Option
shares or on Performance Share Units under this Section 11 may be paid in cash
or in Common Stock at the discretion of the Committee. The Committee may
authorize the automatic payment of dividend equivalents under this Section 11
with respect to any Option for all or some portion of its term by including a
specific provision, authorizing such automatic payment, in the Incentive Stock
Option Agreement required under Section 6(a) of the Plan or the Non-qualified
Stock Option Agreement required under Section 7 of the Plan. The Committee may
authorize the automatic payment of dividend equivalents under this Section 11
with respect to any Performance Share Unit for all or some portion of its term
as a term and condition of the Performance Share Unit grant.
SECTION 12. DEFERRAL OF COMPENSATION
The Committee shall determine whether an Award shall be made in conjunction
with deferral of the Participant's salary, bonus or other compensation, or any
combination thereof, and whether such deferred amounts may be:
(i) forfeited to the Corporation or to other Participants, or any combination
thereof, under certain circumstances (which may include, but need not be
limited to, certain types of termination of Employment);
(ii) subject to increase or decrease in value based upon the attainment of or
failure to attain, respectively, certain performance measures; and/or
<PAGE>A-14
(iii) credited with income equivalents (which may include, but need not be
limited to, interest, dividends or other rates of return) until the date or
dates of payment of the Award.
SECTION 13. DEFERRED PAYMENT OF AWARDS
The Committee may specify that the payment of all or any portion of the cash,
Common Stock or other property a Participant is entitled to receive with
respect to an Award shall be deferred until a later date. Deferrals shall be
for such periods or until the occurrence of such events, and upon such terms,
as the Committee shall determine. Deferred payments of Awards may be made by
undertaking to make payment in the future based upon the performance of certain
investment equivalents (which may include, but need not be limited to,
government securities, Common Stock, other securities, property or
consideration, or any combination thereof), together with such additional
amounts of income equivalents (which may be compounded and may include, but
need not be limited to, interest, dividends or other rates of return, or any
combination thereof) as may accrue thereon until the date or dates of payments,
with such investment equivalents and such additional amounts of income
equivalents to be determined by the Committee.
SECTION 14. AMENDMENT OR SUBSTITUTION OF AWARDS
The terms of any outstanding Award under the Plan may be amended from time to
time by the Committee in any manner that it deems appropriate (including, but
not limited to, acceleration of the date of exercise of any Award and/or
payments thereunder); provided that no such amendment shall reduce the amount
of any benefit which a Participant is then entitled to obtain or collect under
such Award, unless the Committee determines that there have occurred or are
about to occur significant changes in the Participant's position, duties or
responsibilities, or significant changes in economic, legislative, regulatory,
tax, accounting or cost-benefit conditions which are determined by the
Committee to have or to be expected to have a substantial effect on such Award
or on the performance of the Corporation, or any Affiliated Company, division
or department thereof. The Committee may require or permit holders of Awards
under the Plan to surrender outstanding Awards in order to exercise or realize
the rights under other Awards, or in exchange for the grant of new Awards, and
may require holders of Awards to surrender outstanding Awards as a condition
precedent to the grant of new Awards under the Plan.
SECTION 15. TERMINATION OF A PARTICIPANT
For all purposes under the Plan, the Committee shall determine whether a
Participant has terminated his Employment; provided, however, that transfers
between the Corporation and an Affiliated Company or between Affiliated
Companies, and approved leaves of absence may not be deemed such a termination,
in the Committee's discretion.
<PAGE>A-15
SECTION 16. DILUTION, CHANGE IN CONTROL AND OTHER ADJUSTMENTS
In the event of a recapitalization, stock split, stock dividend, exchange,
combination, or reclassification of shares, merger, consolidation,
reorganization, Change in Control or other change in or affecting the capital
structure or capital stock of the Corporation, the Board of Directors, upon the
recommendation of the Committee, may make appropriate adjustments in the
number of shares of Common Stock authorized for the Plan and in the annual
limitation imposed by Section 5 of this Plan; and the Committee may make such
appropriate adjustments in the terms of any outstanding Award as it deems
equitable, in its absolute discretion, to prevent dilution or enlargement of
the rights of Participants.
SECTION 17. REGULATORY APPROVALS
The exercise of each Option and Stock Appreciation Right, and the grant or
distribution of Restricted Shares and Performance Shares, shall be subject to
the condition that if at any time the Corporation shall determine in its
discretion that the satisfaction of withholding tax or other tax liabilities,
or the listing, registration, or qualification of any shares of Common
Stock upon any securities exchange or under any Federal or state law, or the
consent or approval of any regulatory body, is necessary or desirable as a
condition of, or in connection with, such exercise, grant, or distribution,
then in any such event such exercise, grant, or distribution shall not be
effective unless such liabilities have been satisfied or such listing,
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Corporation.
SECTION 18. EFFECTIVE DATE AND TERM OF THE PLAN
(a) Effective Date-The Plan, as hereby amended, shall be effective when
approved by the Board of Directors, and Options, Stock Appreciation Rights, and
Performance Share Units may be granted immediately thereafter; provided, that
no Option or Stock Appreciation Right may be exercised and no Restricted Shares
or Performance Shares may be granted under the Plan unless and until the Plan,
as hereby amended, is approved by the vote of the holders of a majority of the
shares of Common Stock present or represented and entitled to vote at a
meeting of the stockholders of the Corporation, at which a quorum is present,
held within twelve (12) months after the date of adoption of the Plan, as
hereby amended, by the Board of Directors.
(b) Term of the Plan-Awards may be granted from time to time under the terms
and conditions of the Plan, but no Incentive Stock Option may be granted after
the expiration of ten (10) years from the date of adoption of the Plan, as
hereby amended, by the Board of Directors; provided, however, that any future
amendment to the Plan that is approved by the stockholders of the Corporation
in the manner provided under paragraph (a) of this Section 18 shall be regarded
as creating a new Plan, and an Incentive Stock Option may be granted under
such new Plan until the expiration of ten (10) years from the earlier of the
approval by the Board of Directors, or the approval by the stockholders of the
Corporation, of such new Plan. Incentive Stock Options theretofore granted may
<PAGE>A-16
extend beyond the expiration of that ten-year period, and the terms and
conditions of the Plan shall continue to apply thereto and to shares of Common
Stock acquired upon the subsequent exercise of any such Incentive Stock Option
or related Stock Appreciation Right.
SECTION 19. AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors may at any time and from time to time alter or amend, in
whole or in part, any or all of the provisions of the Plan, or may at any time
suspend or terminate the Plan, provided that no alteration or amendment may be
made without the approval of the holders of a majority of the Common Stock then
outstanding and entitled to vote if such stockholder approval is necessary to
comply with the requirements of any rules promulgated under Section 16 of the
Securities Exchange Act of 1934, the Incentive Stock Option rules under the
Code, or such other Federal or state laws or regulations as may be applicable.
SECTION 20. MISCELLANEOUS
(a) Fractional Shares-The Corporation shall not be required to issue or
deliver any fractional share of Common Stock upon the exercise of an Option or
Stock Appreciation Right, or the award of Performance Shares, but may pay, in
lieu thereof, an amount in cash equal to the Fair Market Value of such
fractional share.
(b) Withholding-The Corporation and its Affiliated Companies shall have the
right, to the extent permitted by law, to deduct from any payment of any kind
otherwise due to a Participant any Federal, state or local or foreign taxes of
any kind required by law to be withheld with respect to Awards under the Plan,
and to the extent any such withholding requirements are not satisfied, each
Participant shall be required to pay to the Corporation any Federal, state or
local or foreign taxes of any kind required by law to be withheld with respect
to Awards under the Plan. A Participant may elect to satisfy this requirement
by delivery to the Corporation of any combination of cash, securities or other
property (subject to approval by the Committee) having a market value equal to
the amount of such obligation; provided, however, that any election by a
Participant to utilize any security of the Corporation to satisfy such tax
liability must fully comply with all applicable requirements of Rule 16b-3 and
of Code Section 422. Failure by a Participant to satisfy these requirements
with respect to any Award may result in the Participant's forfeiture of all
rights with respect to such Award. In no event shall the Corporation or any
Affiliated Company be required to make any payment of cash, Common Stock or
other property in respect of any Award until the requirements of this
Section 20(b) are satisfied in full.
(c) Required Filings-The appropriate officers of the Corporation shall cause
to be filed any reports, returns or other information regarding the Plan and
Awards hereunder or any Common Stock issued pursuant hereto as may be required
by the Code, by the Exchange Act or by any other applicable statute, rule or
regulation (or any successor provisions thereto).
<PAGE>A-17
(d) Written Awards; Participant Consent-No Participant or other person shall
have any right with respect to the Plan, the Common Stock reserved for issuance
under the Plan or in any Award, contingent or otherwise, until written
evidence of the Award shall have been delivered to the Participant and all the
terms, conditions and provisions of the Plan and the Award applicable to such
Participant or his successor have been met. The rights of each Participant
shall be limited to those that are specifically granted in the Plan or in the
written evidence of the Award. Any right not specifically granted therein is
reserved entirely to the discretion of the Board. By accepting any Award or
other benefit under the Plan, each Participant or his successor shall be
conclusively deemed to have indicated his acceptance and ratification of, and
consent to, any action taken under the Plan by the Corporation, the Board or
the Committee or its delegates.
(e) No Contract of Employment or Employment Rights-This Plan shall not be
deemed to be an employment contract between the Corporation or any Affiliated
Company and any Participant or other employee. No action taken with respect to
this Plan and nothing contained herein, or in any agreement, certificate or
other document evidencing, providing for, or setting forth the terms and
conditions applicable to any Awards shall be deemed to confer upon any
Participant or other employee a right to continue in the employment of the
Corporation or any Affiliated Company, or to interfere with the right of the
Corporation or any Affiliated Company to terminate the employment of such
Participant or employee at any time.
(f) No Alienation-Except as may be approved by the Committee where such
approval does not adversely affect compliance of the Plan with Rule 16b-3, a
Participant's rights and interest under the Plan and any Award may not be
assigned or transferred, hypothecated or encumbered in whole or in part either
directly or by operation of law and otherwise (except in the event of a
Participant's death) including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner. Any
transferee of a Participant's rights approved by the Committee shall be treated
as the "Participant" for all purposes of the Plan, unless the Committee
directs otherwise.
(g) Compliance with ISO Rules, Rule 16b-3 and Other Applicable Law-No cash,
Common Stock or other forms of payment shall be issued hereunder with respect
to any Award unless counsel for the Corporation is satisfied that such issuance
will be in compliance with all applicable requirements of Federal, state, local
and foreign laws and regulations, including any requirements of the Nasdaq
National Market of the National Association of Securities Dealers or of any
other exchange or market on which the Corporation's stock is then traded.
Additionally, it is the intent of the Corporation that the Plan comply in all
respects with Rule 16b-3 and (with respect to Incentive Stock Options) with
Section 422 of the Code, that any ambiguities or inconsistencies in
construction of the Plan be interpreted to give effect to such intention and
that if any provision of the Plan is found not to be in compliance with Rule
16b-3 or with Code Section 422 (as applicable), such provision shall be deemed
null and void to the extent required to permit such compliance. The Board
shall have the power, without further approval of the Corporation's
shareholders, to amend the Plan in any respect necessary at any point in time
to permit the Plan, and Awards granted under the Plan, to continue to comply
with Rule 16b-3 and with Section 422 of the Code, as applicable.
<PAGE>A-18
(h) Plan Expenses and Affiliated Company Participation-The expenses of the
Plan shall be borne by the Corporation. However, in the case of Awards made
to Participants Employed by or performing services for an Affiliated Company,
where the Corporation does not own (directly or indirectly) 100% of the equity
of such Affiliated Company, the Committee may impose any conditions which it
deems appropriate as a precondition to the granting of such Awards, including
without limitation conditions related to the partial or complete reimbursement
of the costs associated with such Awards to the Corporation by such Affiliated
Company.
(i) Committee Discretion-Determinations made by the Committee under the Plan
need not be uniform and may be made selectively among eligible individuals
under the Plan, whether or not such eligible individuals are similarly
situated. All determinations and decisions made by the Committee shall be
final, conclusive, and binding on all parties concerned and are made in the
sole and absolute discretion of the Committee unless a contrary standard for
action is expressly stated in the Plan.
(j) Unfunded Plan-Except as may otherwise be provided in the Plan, the Plan
shall be unfunded. Neither the Corporation nor any Affiliated Company shall
be required to segregate any assets that may be represented by Options, Stock
Appreciation Rights, or Performance Share Units, and neither the Corporation
nor any Affiliated Company shall be deemed to be a trustee of any amounts to be
paid under an Option, Stock Appreciation Right, or Performance Share Unit.
Any liability of the Corporation to pay any Participant or Beneficiary with
respect to an Option, Stock Appreciation Right, or Performance Share Unit shall
be based solely upon any contractual obligations created pursuant to the
provisions of the Plan, and the rights of such Participant or Beneficiary
therein shall be no greater that the rights of the Corporation's general
creditors. No such obligation shall be deemed to be secured by any pledge or
encumbrance on any property of the Corporation or an Affiliated Company.
(k) Governing Law-The Plan, its validity, interpretation, and administration,
and the rights and obligations of all persons having an interest therein, shall
be governed by and construed in accordance with the laws of the State of
Tennessee, except to the extent that such laws may be preempted by Federal law.
(l) Gender and Number-Wherever used in the Plan, words in the masculine form
shall be deemed to refer to females as well as to males, and words in the
singular or plural shall be deemed to refer also to the plural or singular,
respectively, as the context may require.
<PAGE>A-19
