INTERFACE INC, 424B2, 1998-03-16

INTERFACE INC
424B2, 1998-03-16
CARPETS & RUGS

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<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-46611

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THIS
PRELIMINARY PROSPECTUS SUPPLEMENT RELATES TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE DELIVERY OF A FINAL PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND PROSPECTUS
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED MARCH 16, 1998

<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT

(TO PROSPECTUS DATED MARCH 16, 1998) (LOGO)

1,500,000 SHARES

INTERFACE, INC.
CLASS A COMMON STOCK
</TABLE>

------------------

All of the 1,500,000 shares of Class A Common Stock, $0.10 par value per
share (the "Common Stock"), offered hereby (the "Stock Offering") are being sold
by Interface, Inc. ("Interface" or the "Company"). The Common Stock is traded on
the Nasdaq National Market ("Nasdaq") under the symbol "IFSIA". The last sale
price of the Common Stock as reported on the Nasdaq on March 12, 1998 was $40.00
per share.

The Company's authorized capital stock includes the Common Stock and shares
of Class B Common Stock, par value $.10 per share (the "Class B Common Stock").
The voting rights of the Common Stock and the Class B Common Stock are
essentially identical, except that the holders of Class B Common Stock have the
right to elect the smallest number of directors that constitutes a majority of
the entire Board of Directors of the Company and the holders of Common Stock
elect the remaining directors. See "Description of Capital Stock" in the
accompanying Prospectus.

Concurrently with the Stock Offering, the Company is offering to the public
$150,000,000 aggregate principal amount of % Senior Notes due 2008 (the
"Notes") by a separate prospectus supplement (the "Notes Offering"). This Stock
Offering is not contingent upon the completion of the Notes Offering.
------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR
CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
===============================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ---------------------------------------------------------------------------------------------------------------
Total(3) $ $ $
===============================================================================================================
</TABLE>

(1) For information regarding indemnification of the Underwriters, see
"Underwriting".
(2) Before deducting expenses estimated at $ , which are payable by
the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 225,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting". If such option is exercised
in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $ , $ and
$ , respectively.

------------------

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1998 at the offices of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
------------------
SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
THE ROBINSON-HUMPHREY COMPANY
WHEAT FIRST UNION
, 1998
<PAGE> 2

[PICTURES AND CAPTIONS TO BE PROVIDED BY COMPANY]

CERTAIN PERSONS PARTICIPATING IN THE STOCK OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE STOCK OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".

IN CONNECTION WITH THE STOCK OFFERING, CERTAIN UNDERWRITERS (AND SELLING
GROUP MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M.
SEE "UNDERWRITING".
<PAGE> 3

PROSPECTUS SUPPLEMENT SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements included and incorporated by
reference in this Prospectus Supplement. Unless otherwise indicated or the
context otherwise requires, (i) all information in this Prospectus Supplement
assumes that the over-allotment option granted to the Underwriters by the
Company is not exercised and (ii) the terms "Company" and "Interface" refer to
Interface, Inc. and its consolidated subsidiaries. All references to years,
unless otherwise noted, refer to the Company's fiscal year which ends on the
Sunday closest to December 31.

THE COMPANY

Interface, Inc. ("Interface" or the "Company") is a global manufacturer,
marketer, installer and servicer of products for the commercial and
institutional interiors market. With a 40% market share, the Company is the
worldwide leader in the modular carpet segment, which includes both carpet tile
and two-meter roll goods. The Company's Bentley Mills, Prince Street and Firth
brands are leaders in the high quality, designer-oriented sector of the
broadloom segment. The Company provides carpet installation and maintenance
services through its domestic dealer network, Re:Source Americas, and provides
specialized carpet replacement services through its Renovisions, Inc.
("Renovisions") subsidiary. The Company's Interior Fabrics Group includes the
leading U.S. manufacturer of panel fabrics for use in open plan office furniture
systems, with a market share in excess of 60%. The Company's specialty products
operations produce raised/access flooring systems, antimicrobial additives,
adhesives and various other chemical compounds and products. These complementary
product offerings, together with an integrated marketing philosophy, enable
Interface to take a "total interior solutions" approach to serving the diverse
needs of its customers around the world.

The Company markets products in over 100 countries around the world under
such established brand names as Interface and Heuga in modular carpet; Bentley
Mills, Prince Street and Firth in broadloom carpets; Guilford of Maine, Stevens
Linen, Camborne, Toltec and Intek in interior fabrics and upholstery products;
Intersept in chemicals; and C-Tec and Intercell in raised/access flooring
systems. The Company utilizes an internal marketing and sales force of over
1,100 experienced personnel (the largest in the commercial floorcovering
industry), stationed at over 95 locations in over 39 countries, to market the
Company's carpet products and services in person to its customers. The Company's
principal geographic markets are North America (70% of 1997 net sales), the
United Kingdom and Western Europe (23% of 1997 net sales), and Asia-Pacific (7%
of 1997 net sales). The Company is aggressively developing opportunities in
Greater China and Southeast Asia, South America, and Central and Eastern Europe,
which management believes represent significant growth markets for the Company.

While the Company's net sales from U.S. operations have historically been
derived primarily from the renovation market, Interface believes that the
recovery in the U.S. commercial office market, which began in the mid 1990's,
will drive growth in the new construction market over the next several years.
From a high of nearly 24% in 1986, suburban office vacancy rates dropped to a
decade low of 9.7% as of September 1997, according to CB Commercial/Torto
Wheaton Research. In addition, CB Commercial/Torto Wheaton Research reports that
34 out of 54 major metropolitan areas were below the 10% vacancy level in
September 1997. The Company believes that a 10% vacancy level is a critical
threshold which drives new construction. Given the decade-long downturn in the
office market, the Company believes the recovery should continue for a number of
years. The Company expects that all of its domestic operations will benefit from
these industry developments. In its international markets, the Company expects
to benefit from both increased use and acceptance of its products as well as a
recovery in several commercial office markets, particularly in Europe. The
Company also believes that, within the overall floorcovering market, the demand
for modular carpet is increasing worldwide as more customers recognize its
advantages in terms of greater design options and flexibility, longer average
life, and ease of access to sub-floor wiring.

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16% and 5% of total net sales, respectively. The Company achieved a compound
annual growth rate in its net sales and net income of 16% and 28%, respectively,
over the five-year period from 1993 to 1997.

COMPANY STRENGTHS

Management believes that the Company benefits from several significant
competitive advantages, which will assist it in sustaining and enhancing its
position as a market leader. The Company's principal strengths include:

Strong Brand Names with Reputation for Quality and Reliability. The
Company's products are known in the industry for their high quality and
reliability. The Company's strong brand names in carpets, interior fabrics,
and raised/access flooring systems are leaders in the industry. Interface
and Heuga are the pre-eminent brand names in carpet tiles for commercial
and institutional use worldwide. The Prince Street and Bentley Mills brands
are rated the number one and two brands, respectively, for carpet design in
the U.S. according to a 1997 survey of interior designers published in the
Floor Focus industry publication. Internationally, Firth Carpets has a
reputation in Europe for manufacturing high-quality woven and tufted
products. Guilford and Camborne are leading brand names in their respective
markets for interior fabrics.

Efficient and Low-Cost Global Manufacturing Operations. The Company's
global manufacturing capabilities are an important competitive advantage to
Interface in serving the needs of multinational corporate customers who
require uniform products and services at their various locations around the
world. Global manufacturing locations enable the Company to compete
effectively with local producers in its international markets, while also
affording international customers more favorable delivery times and freight
costs. The Company's capital investment program to consolidate and
modernize the yarn manufacturing operations of its Interior Fabrics Group
has resulted in significant efficiencies and cost savings, as well as new
product capabilities. In addition, this has allowed Interface to respond to
a shift in demand towards lighter weight, less expensive fabrics by OEM
panel fabric customers. The Company's new, state-of-the-art yarn
manufacturing facility in Guilford, Maine began operating in 1996, and
became fully operational in July 1997.

Dedicated Distribution and Service Capability Through Re:Source
Americas. The Company's dealer network, Re:Source Americas, now consists
of 18 owned and 75 affiliated dealers. The Company believes that the
service, marketing and distribution capabilities added by Re:Source
Americas have resulted in (i) increased sales of Company products as
dealers in the network have begun to supply Company products on a preferred
basis, (ii) enhanced customer satisfaction by assisting customers in the
process of selecting, purchasing, installing, maintaining and recycling
carpet products, (iii) improved pricing for the Company's floorcovering
products and (iv) increased operating margins by consolidating
administrative functions and coordinating and streamlining sales efforts by
Company and dealer sales personnel.

Strong Customer and Architectural and Design Community
Relationships. The Company focuses its sales efforts at the design phase
of commercial projects. Interface personnel cultivate relationships both
with the owners and users of the facilities involved in the projects and
with specifiers such as architects, interior designers, engineers and
contracting firms who are directly involved in specifying products and
often make or significantly influence purchase decisions. The Company
emphasizes its product design and styling capabilities and its ability to
provide creative, high-value solutions to its customers. Interface
marketing and sales personnel also serve as a primary technical resource
for the Company's customers, both with respect to product maintenance and
service as well as on design matters.

Award-Winning and Innovative Product Design and Development
Capabilities. The Company's product design and development capabilities
give Interface a significant competitive advantage. Interface has an
exclusive consulting contract with a leading design firm, David Oakey
Designs, Inc. (hereinafter referred to, along with David Oakey's prior
design firm, Roman Oakey, Inc., as "Oakey Designs"), to augment the
Company's internal research, development and design staff. Since engaging
Oakey Designs in 1994, the Company has introduced more than 130 new carpet
designs in the U.S. and has enjoyed
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considerable success in winning U.S. carpet industry design awards bestowed
by the International Interior Design Association (IIDA), particularly in
the carpet tile division. In 1996, Oakey Designs' design services were
extended to the Company's international carpet operations, and an affiliate
of that firm was engaged to provide similar design services to the
Company's interior fabrics business.

Seasoned Management Team and Committed Employees. An important
component of the Company's recent success has been the continued
strengthening of its management team and its commitment to developing and
maintaining an enthusiastic and collaborative work force. In 1993, Ray C.
Anderson, the Company's Chairman and Chief Executive Officer, hired
industry veteran Charles R. Eitel to manage the Company's domestic carpet
tile operations. Mr. Eitel became President and Chief Operating Officer of
the Company in February 1997. Mr. Anderson and Mr. Eitel have put in place
a team of seasoned executives to manage the Company's continued growth and
diversification. In addition, over the past three years, the Company has
made a substantial investment in its approximately 7,300 employees
worldwide. In 1997, for example, the Company created an internal employee
training and education team, known as One World Learning, which implements
corporate-wide learning programs. In December 1997, Fortune rated Interface
one of the top 100 employers in the U.S. on the strength of the Company's
commitment to its employees.

BUSINESS STRATEGY AND PRINCIPAL INITIATIVES

Interface's long-standing corporate strategy has been to diversify and
integrate worldwide. The Company seeks to diversify by developing internally or
acquiring related product lines and businesses in the commercial interiors
field. The Company also seeks to integrate by identifying and developing
synergies and operating efficiencies among the Company's products and global
businesses. In continuing that strategy, the Company is pursuing the following
principal strategic initiatives:

Globalization of the "Mass Customization" Production Strategy. The
Company is implementing aspects of its successful U.S. mass customization
production initiative at its floorcovering operations in Europe and
Asia-Pacific and at its global interior fabrics operations. Through mass
customization the Company is able to respond to customers' requirements for
custom or highly styled products by quickly and efficiently producing both
custom samples and the ultimate products, and to more readily determine
proven "winners" that can be manufactured for inventory for broader
distribution. Mass customization was introduced to the Company's U.S.
carpet tile business in 1994, and its principal components include (i)
developing a simplified but versatile yarn utilization system, (ii)
investing in highly efficient, state-of-the-art tufting and custom sampling
equipment, and (iii) utilizing innovative design and styling to create
products. This strategy has resulted in substantial operating improvements
in the U.S. carpet tile business, including increased margins and reduced
inventory levels of both raw materials and standard products.

"Total Interior Solutions". The Company's objective is to use the
diverse but complementary nature of its product lines to offer "total
interior solutions" to its customers worldwide, meeting their diverse needs
for products and services. The Company combines its global marketing and
manufacturing capabilities to successfully target multinational companies
and compete effectively in local markets worldwide. The Company has
organized a 45-person global account team with responsibility for the
Company's largest multinational customers and prospects, and is
implementing a marketing communications network to link its worldwide
marketing and sales force. The Company has also consolidated management
responsibility for certain key operational areas, which has significantly
increased global cooperation and coordination in product planning,
production and marketing activities -- in effect, "hooking it up"
worldwide. In addition, the new Re:Source Americas network provides a
channel for delivery of a variety of services and products offered by the
Company in addition to commercial carpet, including carpet replacement and
reclamation services, furniture moving and installation, adhesives and
cleaning chemicals, specialty products, and raised/access flooring systems.

Ecological Sustainability Through War-on-Waste and EcoSense
Programs. In January 1995, the Company began a worldwide war-on-waste
initiative referred to internally as "QUEST". Applying a

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zero-based definition of waste (broadly defined as any measurable cost that
goes into manufacturing a product but does not result in identifiable value
to the customer), the Company realized an aggregate of approximately $50
million in savings through eliminating such waste from 1995 to 1997.
Management has identified an additional $80 million of waste and believes
the Company can eliminate half of such waste by the end of 2001. The
war-on-waste program represents a first step in the Company's broader
EcoSense initiative, which is the Company's long-range program to achieve
greater resource efficiency and, ultimately, ecological
"sustainability" -- that is, the point at which Interface is no longer a
net "taker" from the earth. The Company believes that its pursuit of these
initiatives provides a competitive advantage in marketing its products to
an increasing number of customers.

Selective Strategic Acquisitions. The Company has successfully
expanded its business and product lines through strategic acquisitions. The
Company expanded its carpet operations with the acquisitions of Heuga in
1988, Bentley Mills in 1993, Prince Street in 1994 and Firth Carpets in
1998, while its fabrics business has been expanded significantly with the
acquisitions of Stevens Linen in 1993, Toltec and Intek in 1995 and
Camborne Holdings, Ltd. ("Camborne") in 1997. In addition, the Company's
acquisitions of Renovisions in 1996 and Facilities Resource Group in 1997,
and the formation of the Re:Source Americas dealer network primarily
through acquisitions in 1996 and 1997, have enabled the Company to expand
rapidly into a variety of commercial interior services. The Company intends
to continue to selectively target companies and product lines that
complement existing product lines and further the Company's ability to
provide total interior solutions to its customers. The Company believes
that its cash flow from operations and strengthened balance sheet will
enable it to continue to capitalize on attractive strategic acquisition
opportunities.

RECENT ACQUISITION

On December 30, 1997, the Company completed the acquisition of the European
carpet businesses of Readicut International plc ("Readicut"), for approximately
$50 million, subject to final adjustment. After the planned divestiture of
certain assets of Readicut, including its Network Flooring dealer division and
Joseph, Hamilton & Seaton Ltd., the Company's final investment for the retained
Readicut businesses is expected to be less than $15 million. The retained
businesses will include Firth Carpets Ltd., based in West Yorkshire, England, a
leading manufacturer of high quality woven and tufted carpet primarily for the
contract markets; and a 40% interest in Vebe Floorcoverings BV, located in the
Netherlands, a leading manufacturer of needlepunch carpet. Firth Carpets is
located in close proximity to the Company's Camborne fabrics facility and its
Shelf, England modular carpet facility, which is expected to allow Interface to
realize significant synergies with these existing operations. In February 1998,
the Company entered into a joint venture arrangement with Condor Carpets plc
pursuant to which Condor Carpets acquired a 60% interest in Vebe Floorcoverings.
---------------------

The Company was incorporated under the laws of the State of Georgia in
1973. The Company's principal executive offices are located at 2859 Paces Ferry
Road, Suite 2000, Atlanta, Georgia 30339, and its telephone number is (770)
437-6800.

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THE STOCK OFFERING

<TABLE>
<S> <C>
Class A Common Stock offered by the Company................. 1,500,000 shares
Shares to be outstanding after the Stock Offering (1):
Class A Common Stock................................... 22,977,996 shares
Class B Common Stock................................... 2,801,349 shares
-----------
25,779,345 shares
===========
Use of proceeds............................................. To reduce bank debt and for general
corporate purposes, including working
capital and future acquisitions.
Nasdaq symbol............................................... IFSIA
</TABLE>

- ---------------

(1) Excludes shares of Class A Common Stock or Class B Common Stock reserved for
issuance upon the exercise of outstanding stock options granted to certain
employees of the Company pursuant to the Company's stock option plans.

THE NOTES OFFERING

Concurrently with this Stock Offering, the Company is offering to the
public $150,000,000 aggregate principal amount of Notes in the Notes Offering by
a separate prospectus supplement. The consummation of this Stock Offering and
the Notes Offering are not conditioned upon each other. The Notes will be issued
pursuant to an indenture and will be unsecured senior debt of the Company and
rank on parity with all other unsecured and unsubordinated indebtedness of the
Company. All of the capital stock of the Company's Material U.S. Subsidiaries
and two-thirds of the capital stock of the Company's principal foreign
subsidiaries is pledged as collateral under the Company's bank credit facility.
The Company has requested that the lenders under this credit facility release
this collateral, but there can be no assurance that such collateral will be
released.

RISK FACTORS

Investment in the Common Stock involves certain risks discussed under "Risk
Factors" beginning on page 5 of the accompanying Prospectus that should be
considered by prospective investors.

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SUMMARY CONSOLIDATED FINANCIAL DATA

PRO FORMA AS ADJUSTED DATA: (6)
Interest expense.......................................... $ 33,100
Net income applicable to common shareholders.............. 38,700
Diluted earnings per common share......................... 1.49
Weighted average number of diluted shares................. 26,151
Ratio of total debt to EBITDA............................. 2.68x
Ratio of EBITDA to interest expense....................... 4.08x
Ratio of earnings to fixed charges........................ 2.78x
</TABLE>

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<TABLE>
<CAPTION>
AS OF DECEMBER 28, 1997
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
-------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $183,403 $183,403 $183,403
Total assets................................................ 929,563 929,563 931,637
Total debt.................................................. 414,514 358,114 361,339
Common shareholders' equity................................. 316,365 372,765 372,765
Total capitalization........................................ 711,604 711,604 714,829
</TABLE>

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(1) Increases in net sales, gross profit, depreciation and amortization,
operating income, interest expense, net income and the balance sheet data at
December 29, 1996 and for the year then ended are partially attributable to
the impact of the acquisitions of the commercial floorcovering dealers in
the Company's Re:Source Americas network.
(2) Before extraordinary loss, net of tax, of $0.19.
(3) EBITDA represents income before income taxes plus net interest expense and
depreciation and amortization (excluding amortization of deferred financing
costs). While EBITDA should not be construed as a substitute for operating
income or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with generally accepted
accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditures and working capital requirements. In
addition, the Company believes that certain investors find EBITDA to be a
useful tool for measuring the ability of the Company to service its debt.
EBITDA is not necessarily a measure of the Company's ability to fund cash
needs.
(4) The ratio of earnings to fixed charges is determined by dividing the sum of
earnings before extraordinary items, interest expense, taxes on income, and
a portion of rent expense representative of the interest component by the
sum of interest expense and the portion of rent expense representative of
the interest component.
(5) Reflects the sale of 1,500,000 shares of Common Stock offered hereby by the
Company at an assumed offering price of $40.00 per share and application of
the estimated net proceeds of $56.4 million therefrom and the related
reduction of interest expense.
(6) Reflects (i) the issuance of the Notes and application of the estimated net
proceeds of $146.8 million therefrom, (ii) the sale of Common Stock
described in Note 5 above and (iii) the related net decrease in interest
expense. The consummation of the Notes Offering and the Stock Offering are
not conditioned upon each other.

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USE OF PROCEEDS

Based upon the last sale price of the Common Stock on March 12, 1998 of
$40.00 per share, the net proceeds to the Company from the sale of the shares of
Common Stock offered hereby are estimated to be $56.4 million ($65.0 million if
the Underwriters' over-allotment option is exercised in full) after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company. The Company intends to use the net proceeds of the Stock
Offering to reduce amounts outstanding under the Company's $370 million
revolving credit and term loan facility (the "Credit Facility"), and for general
corporate purposes, including working capital and future acquisitions.

The Credit Facility matures on December 31, 2001 (except for $20 million
and $25 million of the term portion which mature on December 29, 1998 and
December 29, 2000, respectively), and bears interest at a rate based, at the
Company's option, on either the banks' certificate of deposit rate or LIBOR,
plus an applicable margin of .35% to 1%, depending upon the Company's ability to
meet certain performance criteria, or the bank's prime lending rate. Amounts
applied to the revolving credit portion of the Credit Facility will be available
for reborrowing.

The net proceeds to the Company from the Notes Offering are estimated to be
approximately $146.8 million after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company. The Company intends to use the net proceeds of the Notes Offering to
reduce amounts outstanding under the revolving portion of the Credit Facility,
and for general corporate purposes, including working capital and future
acquisitions.

Pending application of the net proceeds as described above, the Company may
invest the net proceeds in short-term, interest-bearing investment grade or
government securities.

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "IFSIA". The following table shows, for the periods indicated, the
range of high and low bid prices per share for the Common Stock as reported by
Nasdaq, and the cash dividends declared per share.

<TABLE>
<CAPTION>
CASH DIVIDENDS
FISCAL YEAR ENDED HIGH LOW PER SHARE
- ----------------- ---- --- --------------
<S> <C> <C> <C>
DECEMBER 29, 1996
First Quarter............................................. $17 3/8 $12 $.060
Second Quarter............................................ 15 1/2 11 5/8 .060
Third Quarter............................................. 17 1/8 13 7/16 .060
Fourth Quarter............................................ 20 1/2 16 1/8 .065
DECEMBER 28, 1997
First Quarter............................................. 25 5/8 18 1/2 .065
Second Quarter............................................ 25 21 .065
Third Quarter............................................. 30 5/8 22 1/8 .065
Fourth Quarter............................................ 31 5/8 25 .075
JANUARY 3, 1999
First Quarter (through March 12, 1998).................... 40 28 7/8 .075
</TABLE>

The last sale price of the Common Stock on March 12, 1998 was $40.00, as
reported by Nasdaq. As of March 9, 1998, there were 425 holders of record of the
Common Stock. Management believes that there are in excess of 5,000 beneficial
holders of the Common Stock.

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CAPITALIZATION

The following table sets forth, at December 28, 1997, (i) the consolidated
historical capitalization of the Company, (ii) the pro forma capitalization
reflecting the sale of the shares of Common Stock offered hereby (at an assumed
public offering price of $40.00 per share) and the application of the estimated
net proceeds therefrom, and (iii) the pro forma, as adjusted capitalization
reflecting the sale of the shares of Common Stock offered hereby (at an assumed
public offering price of $40.00 per share) and the issuance of $150,000,000 of
Notes and the application of the net proceeds therefrom. See "Use of Proceeds".

<TABLE>
<CAPTION>
AS OF DECEMBER 28, 1997
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
-------- ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current maturities of long-term debt...................... $ 2,751 $ 2,751 $ 2,751
-------- -------- --------
Long-term debt, less current maturities:
Senior revolving credit facility........................ 143,797 87,397 --
Notes................................................... -- -- 150,000
Senior term loans....................................... 100,000 100,000 40,622
Senior subordinated notes............................... 125,000 125,000 125,000
Other long-term debt.................................... 20,702 20,702 20,702
-------- -------- --------
Total long-term debt............................ 389,499 333,099 336,324
-------- -------- --------
Minority interest......................................... 2,989 2,989 2,989
-------- -------- --------
Common shareholders' equity:
Class A Common Stock: $.10 par value; 40,000,000 shares
authorized; 24,985,825 shares issued; 26,485,825
shares issued, as adjusted for Stock Offering(3)..... 2,499 2,649 2,649
Class B Common Stock: $.10 par value; 40,000,000 shares
authorized; 2,769,470 shares issued and
outstanding.......................................... 277 277 277
Additional paid-in capital.............................. 161,584 217,834 217,834
Retained earnings....................................... 197,906 197,906 197,906
Foreign currency translation adjustment................. (28,155) (28,155) (28,155)
Treasury stock, 3,600,000 Class A shares, at cost....... (17,746) (17,746) (17,746)
-------- -------- --------
Total common shareholders' equity............... 316,365 372,765 372,765
-------- -------- --------
Total capitalization.................................... $711,604 $711,604 $714,829
======== ======== ========
</TABLE>

- ---------------

(1) Reflects the sale of 1,500,000 shares of Common Stock offered hereby by the
Company at an assumed offering price of $40.00 per share and application of
the estimated net proceeds of $56.4 million therefrom.
(2) Reflects (i) the issuance of the Notes and application of the estimated net
proceeds of $146.8 million therefrom and (ii) the sale of Common Stock
described in Note 1 above. The consummation of the Notes Offering and the
Stock Offering are not conditioned upon each other.
(3) Includes 3,600,000 shares of Common Stock, deemed to be treasury shares.

S-11
<PAGE> 12

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth the selected consolidated financial data of
the Company, which should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and with the
Company's Consolidated Financial Statements and Notes thereto included elsewhere
in this Prospectus Supplement. The selected consolidated financial data for the
years ended January 2, 1994, January 1, 1995, December 31, 1995, December 29,
1996 and December 28, 1997 have been derived from the consolidated financial
statements of the Company audited by BDO Seidman, LLP, independent certified
public accountants.

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 29, DECEMBER 28,
1994 1995 1995 1996(1) 1997
---------- ---------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales......................................... $625,067 $725,283 $802,066 $1,002,076 $1,135,290
Gross profit on sales............................. 197,746 221,185 250,423 317,621 379,556
Operating income.................................. 46,170 50,810 61,543 78,689 97,801
Interest and other expenses, net.................. 24,866 25,097 29,867 35,262 36,530
Income before taxes on income and extraordinary
item............................................ 21,304 25,713 31,676 43,427 61,271
Taxes on income................................... 7,455 9,257 11,336 17,032 23,757
Extraordinary loss, net of tax.................... -- -- 3,512 -- --
Net income........................................ $ 13,849 $ 16,456 $ 16,828 $ 26,395 $ 37,514
Preferred stock dividends......................... 913 1,750 1,750 1,678 --
-------- -------- -------- ---------- ----------
Net income applicable to common shareholders...... $ 12,936 $ 14,706 $ 15,078 $ 24,717 $ 37,514
======== ======== ======== ========== ==========
SHARE DATA:
Basic earnings per common share................... $ 0.75 $ 0.82 $ 1.02(2) $ 1.23 $ 1.58
Diluted earnings per common share................. $ 0.75 $ 0.82 $ 1.00 $ 1.20 $ 1.53
Weighted average number of diluted shares......... 17,302 18,013 18,599 20,657 24,651
Dividends per common share........................ $ 0.240 $ 0.240 $ 0.240 $ 0.245 $ 0.270
OTHER DATA:
EBITDA(3)......................................... $ 68,656 $ 77,987 $ 87,373 $ 111,504 $ 134,914
Depreciation and amortization..................... 24,512 28,180 28,944 35,305 38,605
Capital expenditures.............................. 20,639 21,315 42,123 36,436 38,654
Interest expense.................................. 22,840 24,094 26,753 32,772 35,038
Ratio of total debt to EBITDA..................... 4.61x 4.10x 3.82x 3.56x 3.07x
Ratio of EBITDA to interest expense............... 3.01x 3.24x 3.27x 3.40x 3.85x
Ratio of earnings to fixed charges(4)............. 1.90x 2.02x 2.13x 2.25x 2.64x
PRO FORMA DATA: (5)
Interest expense.......................................... $ 31,400
Net income applicable to common shareholders.............. 39,700
Diluted earnings per common shares........................ 1.52
Weighted average number of diluted shares................. 26,151
Ratio of total debt to EBITDA............................. 2.65x
Ratio of EBITDA to interest expense....................... 4.30x
Ratio of earnings to fixed charges........................ 2.93x
PRO FORMA AS ADJUSTED DATA: (6)
Interest expense.......................................... $ 33,100
Net income applicable to common shareholders.............. 38,700
Diluted earnings per common shares........................ 1.49
Weighted average number of diluted shares................. 26,151
Ratio of total debt to EBITDA............................. 2.68x
Ratio of EBITDA to interest expense....................... 4.08x
Ratio of earnings to fixed charges........................ 2.78x
</TABLE>

S-12
<PAGE> 13

<TABLE>
<CAPTION>
PRO FORMA
PRO AS
AS OF FORMA(5) ADJUSTED(6)
-------------------------------------------------------------------- ------------ ------------
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 29, DECEMBER 28, DECEMBER 28, DECEMBER 28,
1994 1995 1995 1996 1997 1997 1997
---------- ---------- ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............ $140,575 $174,620 $159,031 $189,584 $183,403 $183,403 $183,403
Total assets............... 642,319 683,408 714,351 862,546 929,563 929,563 931,637
Total debt................. 316,492 319,942 334,128 397,190 414,514 358,114 361,339
Common shareholders'
equity................... 181,884 214,090 231,914 273,118 316,365 372,765 372,765
Total capitalization....... 515,676 553,531 582,496 678,265 711,604 711,604 714,829
</TABLE>

- ---------------

S-13
<PAGE> 14

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

For 1997, the Company had net sales and net income of $1.1 billion and
$37.5 million, respectively, the highest in the Company's history. Net sales
were made up of sales of floorcovering products (primarily modular and broadloom
carpets) and related services ($898.2 million) interior fabrics sales ($184.7
million) and chemical and specialty product sales ($52.4 million), accounting
for 79%, 16% and 5% of total net sales, respectively. The Company achieved a
compound annual growth rate in its net sales and net income of 16% and 28%,
respectively, over the five-year period from 1993 to 1997.

The Company's business, as well as the commercial interiors market in
general, is somewhat cyclical in nature. The Company's strong financial
performance in recent years is attributable in part to increased U.S. demand for
its products, resulting from a recovery in the U.S. commercial office market
which began in the mid 1990's. The Company believes that this recovery will
continue for a number of years, and that all of its domestic operations will
continue to benefit from these industry developments. However, a downturn in the
new construction sector of the market could lessen the overall demand for
commercial interiors products and could impair the Company's growth. Management
believes that the impact upon the Company of such a downturn would be less
pronounced given that the predominant portion of its sales are generated from
the renovation sector of the market as opposed to the new construction sector.

The Company's growth could also be impacted by international developments.
Specifically, certain countries in the Asia-Pacific region have recently
experienced weaknesses in their currency, banking and equity markets. These
weaknesses could adversely affect demand for the Company's products. Excluding
Japan and Australia, sales in the Asia-Pacific region represented approximately
2% of the Company's 1997 net sales. The Company engages in hedging transactions
to reduce its exposure to adverse fluctuations in foreign currency exchange
rates.

RESULTS OF OPERATIONS

Net sales of $1.1 billion and net income of $37.5 million during 1997 were
the highest levels in the Company's history. The following table shows, as a
percentage of net sales, certain items included in the Company's consolidated
statements of income.

<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................. 68.8 68.3 66.6
----- ----- -----
Gross profit on sales..................................... 31.2 31.7 33.4
Selling general and administrative expense.................. 23.6 23.8 24.8
----- ----- -----
Operating income............................................ 7.6 7.9 8.6
Other expense, net.......................................... 3.7 3.5 3.2
Income before taxes and extraordinary item................ 3.9 4.4 5.4
Taxes on income............................................. 1.4 1.8 2.1
----- ----- -----
Income before extraordinary item.......................... 2.5 2.6 3.3
Extraordinary loss (net of tax)............................. 0.4 0.0 0.0
----- ----- -----
Net income.................................................. 2.1 2.6 3.3
Preferred dividends......................................... 0.2 0.1 0.0
----- ----- -----
Net Income applicable to common shareholders................ 1.9% 2.5% 3.3%
===== ===== =====
</TABLE>

S-14
<PAGE> 15

Fiscal 1997 Compared with Fiscal 1996

The Company's net sales increased $133 million (13.3%) compared with 1996.
The increase was attributable primarily to increased sales volume (i) of
products and related services in the Company's U.S. floorcovering operations,
due to increased demand for and increased market share of its modular carpet
products, as well as additional sales generated by the Re:Source Americas
network, (ii) of floorcovering products (in local currency) in Continental
Europe and Asia-Pacific and (iii) in the Company's interior fabrics operations
due to increased U.S. demand for and increased market share of its fabric
products, as well as the acquisition of Camborne Holdings, Ltd. during the year.
These increases were offset somewhat by a weakening of certain key currencies
(particularly the Dutch guilder, British pound sterling and Japanese yen)
against the U.S. dollar, the Company's reporting currency.

Cost of sales as a percentage of net sales decreased to 66.6% in 1997
compared to 68.3% in 1996. Decreased manufacturing costs through the Company's
mass customization production strategy and its war-on-waste initiative, as well
as a shift to higher margin products, were the primary factors fueling the
increased manufacturing efficiencies in the Company's floorcovering operations.
The Company's interior fabrics operations also experienced decreased
manufacturing costs as a result of continued efficiencies generated from the
new, state-of-the-art yarn manufacturing facility in Guilford, Maine.
Additionally, the Company continued to experience improved pricing in its
floorcovering operations. These benefits were somewhat offset by the higher cost
of sales of the dealers comprising the Re:Source Americas network.

Selling, general and administrative expenses as a percentage of net sales
increased to 24.8% in 1997 compared to 23.8% in 1996. The increase was
attributable primarily to (i) the continued development of the Re:Source
Americas network infrastructure, (ii) consulting and development expenses
associated with the Year 2000 compliance initiative, and (iii) increased
marketing and sampling expenses in the Company's floorcovering operations
associated with the introduction of new products as the Company continues to
implement a mass customization strategy in both its domestic and international
operations. The increase was somewhat offset by the lower selling, general and
administrative ratios of the dealers comprising the Re:Source Americas network.

Other expense increased $1.3 million in 1997, due primarily to an increase
in the Company's interest expense associated with an increase in bank debt
incurred as a result of the Company's acquisitions.

The effective tax rate was 38.8% for 1997, compared to 39.2% in 1996. The
decrease in the effective rate was primarily due to the effect of an increase in
income before tax in proportion to the amortization expense of the Company's
goodwill, which is not deductible for tax purposes.

As a result of the aforementioned factors, the Company's net income
increased 42.1% to $37.5 million for fiscal 1997, compared to $26.4 million for
fiscal 1996.

Fiscal 1996 Compared with Fiscal 1995

The Company's net sales increased $200 million (24.9%) compared with 1995.
The increase was attributable primarily to increased sales volume in (i) the
Company's floorcovering operations in the United States associated in part with
the acquisitions of the commercial floorcovering dealers in the Company's
Re:Source Americas network, (ii) the Company's floorcovering operations in
Continental Europe and Australia, (iii) the Company's interior fabrics
operations associated with the acquisitions of Toltec and Intek in June and
December 1995, respectively, and (iv) the Company's specialty products division
associated with the C-Tec (now Interface Architectural Resources) acquisition in
February, 1996. These increases were offset somewhat by a weakening of certain
key currencies (particularly the British pound sterling, Dutch guilder and
Japanese yen) against the U.S. dollar, the Company's reporting currency.

Cost of sales decreased as a percentage of net sales to 68.3% in 1996
compared with 68.8% in 1995. The Company recognized a decrease in manufacturing
costs in its floorcovering operations as a result of further benefits obtained
from the Company's mass customization and war-on-waste strategies, which have
continued to provide manufacturing efficiencies and help facilitate a shift to
higher margin products. In addition, the Company achieved improved pricing in
its floorcovering operations. These benefits were somewhat offset by
S-15
<PAGE> 16

the acquisitions of Toltec, Intek, C-Tec, and the commercial floorcovering
dealers comprising the Company's new distribution network, which historically
had higher cost of sales ratios than the Company.

Selling, general and administrative expenses as a percentage of net sales
increased to 23.8% in 1996 compared with 23.5% in 1995. The increase was due
primarily to (i) administrative expenses associated with building an
infrastructure to manage the Re:Source Americas network, (ii) increased
marketing and sampling expenses in the Company's floorcovering operations
associated with the introduction of new products as the Company moved to
implement the mass customization production strategy in its European and
Asia-Pacific operations, and continued to implement such strategy in its U.S.
operations, and (iii) the acquisitions of Toltec and Intek, which historically
had higher selling, general and administrative ratios than the Company. The
increase was somewhat offset by the acquisitions of the commercial floorcovering
dealers comprising the Company's new distribution and services network, which
historically had lower selling, general and administrative ratios than the
Company.

Other expense increased $5.4 million in fiscal 1996, due primarily to an
increase in the Company's interest expense associated with (i) an increase in
bank debt incurred as a result of the Company's acquisitions, and (ii) higher
interest rates associated with the Company's redemption of its 8% Convertible
Subordinated Debentures in December 1995 and the issuance of $125 million in
aggregate principal amount of 9.5% Senior Subordinated Notes in November 1995.

The effective tax rate was 39.2% for fiscal 1996, compared to 35.8% in
fiscal 1995. The increase in the effective income tax rate was due primarily to
the elimination of valuation allowances associated with the Company's Dutch and
Australian operations in 1995, which did not occur in 1996. This increase was
offset somewhat by the effect of the increase in the Company's income before
taxes in proportion to the amortization of the Company's goodwill, which is not
deductible for tax purposes.

As a result of the aforementioned factors, the Company's net income before
extraordinary items increased 29.8% to $26.4 million for fiscal 1996, compared
to $20.3 million for fiscal 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of cash over the last three fiscal years have
been funds provided by operating activities and proceeds from additional
long-term debt. In 1997, operating activities generated $74.7 million of cash
compared with $56.5 million and $76.0 million in 1996 and 1995, respectively.
The increase in 1997 operating cash flows compared with 1996 was caused
primarily by increased levels of net income, accounts payables and accruals.

The primary uses of cash during the three fiscal years ended December 28,
1997 have been (i) additions to property and equipment at the Company's
manufacturing facilities, (ii) acquisitions of businesses, and (iii) cash
dividends. For the three years ended December 28, 1997, the aggregate additions
to property and equipment required cash outlays of $117.2 million, while
acquisitions of businesses required $92.4 million, and dividends required $19.2
million. Management believes the capital investments will result in an expanded
market presence and improved efficiency in the Company's production and
distribution.

In 1997, the Company issued 548,645 shares of Class A Common Stock or Class
B Common Stock in addition to cash as consideration for acquisitions. Also, in
January 1997, the Company issued 1,357,407 shares of Class A Common Stock in
conjunction with the conversion of $19.8 million (face value) of its Series A
Cumulative Convertible Preferred Stock.

The Company is concurrently offering to the public $150 million aggregate
principal amount of Notes and 1.5 million shares of Class A Common Stock. The
Company intends to use the net proceeds of both offerings to reduce amounts
outstanding under its $370 million Credit Facility, and for general corporate
purposes, including working capital and future acquisitions. Amounts applied to
the revolving credit portion of the Credit Facility will be available for
reborrowing.

At the end of fiscal 1997, the Company estimated capital expenditure
requirements of approximately $40 million, excluding Year 2000 requirements, and
had purchase commitments of approximately $13 million for

S-16
<PAGE> 17

1998. The Company also intends to continue to selectively acquire companies and
related product lines that complement its existing product lines and further its
ability to offer total interior solutions to its customers. Management believes
that cash provided by operations and long-term loan commitments, including the
Credit Facility, will provide adequate funds for current commitments and other
requirements in the foreseeable future.

YEAR 2000

As is the case with other companies using computers in their operations,
the Company is faced with the task of addressing the Year 2000 issue during the
next two years. The Year 2000 issue arises from the widespread use of computer
programs that rely on two-digit date codes to perform computations or decision-
making functions. The Company has done a comprehensive review of its computer
programs to identify the systems that would be affected by the Year 2000 issue,
and is in the process of reviewing the Company's Year 2000 exposure to third
party customers, distributors, suppliers, and banking institutions. The Company
has also hired an outside consulting firm to assist in this conversion process
and is beginning the process of modifying its computer program code to the four
digit fields necessary to be Year 2000 compliant.

The Company currently estimates the total cost of such modifications,
excluding the cost of modifications to program logic control systems relative to
manufacturing equipment, to be at least $17 million, although it could be
significantly more. The Company and its outside consultants are currently
evaluating the costs of modifications to these program logic control systems. Of
the total project cost, approximately $10 million is attributable to the cost of
new hardware and software which will be required in connection with the global
consolidation of the Company's management and financial accounting systems. This
new equipment and upgraded technology will have a definable value lasting beyond
the Year 2000. In these instances, where Year 2000 compliance is ancillary, the
Company may capitalize and depreciate such costs. The remaining $7 million will
be expensed as incurred over the next two years. During the year ended December
28, 1997, the Company expensed approximately $0.6 million in regards to such
modifications.

There can be no guarantee that these estimates will be achieved and actual
results could differ from those anticipated. Specific factors that might cause
differences include, but are not limited to, the ability of other companies on
which the Company's systems rely to modify or convert their systems to be Year
2000 compliant, the ability to locate and correct all relevant computer codes
and similar uncertainties.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company employs the use of derivative financial instruments for the
purpose of reducing its exposure to adverse fluctuations in interest and foreign
currency exchange rates. While these hedging instruments are subject to
fluctuations in value, such fluctuations are generally offset by the
fluctuations in value of the underlying exposures being hedged. The Company does
not hold or issue derivative financial instruments for trading purposes. The
Company monitors the use of derivative financial instruments through the use of
objective measurable systems, well-defined market and credit risk limits, and
timely reports to senior management according to prescribed guidelines. The
Company has established strict counterparty credit guidelines and only enters
into transactions with financial institutions of investment grade or better. As
a result, the Company considers the risk of counterparty default to be minimal.

Management of the Company has developed and implemented a policy to
maintain the percentage of fixed and variable rate debt within certain
parameters. The Company enters into interest rate swap agreements, which
maintain the fixed/variable mix within these defined parameters. In these swaps,
the Company agrees to exchange, at specified intervals, the difference between
fixed and variable interest amounts calculated by reference to an agreed-upon
notional principal linked to LIBOR. At December 28, 1997, the Company had
utilized interest rate swap agreements to effectively convert approximately
$64.5 million of variable rate debt to fixed rate debt. The weighted average
rate on these borrowings was 6.6% at December 28, 1997. The interest rate swap
agreements have maturity dates ranging from five to twenty-four months.

The purpose of the Company's foreign currency hedging activities is to
reduce the risk that the eventual local currency inflows resulting from sales to
foreign customers will be adversely affected by changes in
S-17
<PAGE> 18

exchange rates. The Company enters into forward exchange and currency swap
contracts to hedge certain firm sales commitments denominated in foreign
currencies. At December 28, 1997, the Company had approximately $14.5 million
(notional amount) of foreign currency hedge contracts outstanding. The contracts
served to hedge firmly committed Dutch guilder, German mark, Japanese yen,
French franc, British pound sterling, and other foreign currency sales. The
contracts generally have maturity dates of six to nine months.

The Company recognized a $25.1 million decrease in its foreign currency
translation adjustment account during 1997, because of the weakening of the
Dutch guilder, British pound sterling, Thai baht and Japanese yen against the
U.S. dollar. The 1997 decrease was associated primarily with the Company's
investments in certain foreign subsidiaries located in the United Kingdom,
Continental Europe and the Asia-Pacific region. The translation adjustment to
shareholders' equity was converted by the guidelines of SFAS 52.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS 131, Disclosures About Segments of an
Enterprise and Related Information, which supersedes SFAS 14, Financial
Reporting for Segments of a Business Enterprise. SFAS 131 establishes standards
for the reporting by public companies of information about operating segments in
annual financial statements and for the first time, requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.

SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997 and requires the restatement of comparative information for
earlier periods. Management has been evaluating the impact the new statement
will have on future financial statement disclosures and has determined that the
Company will have three reportable segments: Floorcovering Products and Related
Services, Interior Fabrics, and Chemical and Specialty Products. Historically,
the Company has not reported information concerning operating segments. The
Company's future reportable segments are strategic business units that offer
different products and services. The results of operations and financial
position will be unaffected by implementation of the standard.

S-18
<PAGE> 19

BUSINESS

GENERAL

Interface is a global manufacturer, marketer, installer and servicer of
products for the commercial and institutional interiors market. With a 40%
market share, the Company is the worldwide leader in the modular carpet segment,
which includes both carpet tile and two-meter roll goods. The Company's Bentley
Mills, Prince Street and Firth brands are leaders in the high quality,
designer-oriented sector of the broadloom segment. The Company provides carpet
installation and maintenance services through its domestic dealer network,
Re:Source Americas, and provides specialized carpet replacement services through
its Renovisions subsidiary. The Company's Interior Fabrics Group includes the
leading U.S. manufacturer of panel fabrics for use in open plan office furniture
systems, with a market share in excess of 60%. The Company's specialty products
operations produce raised/access flooring systems, antimicrobial additives,
adhesives and various other chemical compounds and products. These complementary
product offerings, together with an integrated marketing philosophy, enable
Interface to take a "total interior solutions" approach to serving the diverse
needs of its customers around the world.

The Company markets products in over 100 countries around the world under
such established brand names as Interface and Heuga in modular carpet; Bentley
Mills, Prince Street and Firth in broadloom carpets; Guilford of Maine, Stevens
Linen, Camborne, Toltec and Intek in interior fabrics and upholstery products;
Intersept in chemicals; and C-Tec and Intercell in raised/access flooring
systems. The Company utilizes an internal marketing and sales force of over
1,100 experienced personnel (the largest in the commercial floorcovering
industry), stationed at over 100 locations in over 35 countries, to market the
Company's carpet products and services in person to its customers. The Company's
principal geographic markets are North America (70% of 1997 net sales), the
United Kingdom and Western Europe (23% of 1997 net sales), and Asia-Pacific (7%
of 1997 net sales). The Company is aggressively developing opportunities in
Greater China and Southeast Asia, South America, and Central and Eastern Europe,
which management believes represent significant growth markets for the Company.

While the Company's net sales from U.S. operations have historically been
derived primarily from the renovation market, Interface believes that the
recovery in the U.S. commercial office market, which began in the mid 1990's,
will drive growth in the new construction market over the next several years.
From a high of nearly 24% in 1986, suburban office vacancy rates dropped to a
decade low of 9.7% as of September 1997, according to CB Commercial/Torto
Wheaton Research. In addition, CB Commercial/Torto Wheaton Research reports that
34 out of 54 major metropolitan areas were below the 10% vacancy level in
September 1997. The Company believes that a 10% vacancy level is a critical
threshold which drives new construction. Given the decade-long downturn in the
office market, the Company believes the recovery should continue for a number of
years. The Company expects that all of its domestic operations will benefit from
these industry developments. In its international markets, the Company expects
to benefit from both increased use and acceptance of its products as well as
recoveries in the commercial office markets, particularly in Europe. The Company
also believes that, within the overall floorcovering market, the demand for
modular carpet is increasing worldwide as more customers recognize its
advantages in terms of greater design options and flexibility, longer average
life, and ease of access to sub-floor wiring.

For 1997, the Company had net sales and net income of $1.1 billion and
$37.5 million, respectively, the highest in the Company's history. Net sales
were composed of floorcovering sales ($898.2 million), interior fabrics sales
($184.7 million) and chemical and specialty product sales ($52.4 million),
accounting for 79%, 16% and 5% of total net sales, respectively. The Company
achieved a compound annual growth rate in its net sales and net income of 16%
and 28%, respectively, over the five-year period from 1993 to 1997.

S-19
<PAGE> 20

COMPANY STRENGTHS

Dedicated Distribution and Service Capability Through Re:Source
Americas. The Company's dealer network, Re:Source Americas, now consists
of 18 owned and 75 affiliated dealers. The Company believes that the
service, and marketing and distribution capabilities added by Re:Source
Americas have resulted in (i) increased sales of Company products as
dealers in the network have begun to supply Company products on a preferred
basis, (ii) enhanced customer satisfaction by assisting customers in the
process of selecting, purchasing, installing, maintaining and recycling
carpet products, (iii) improved pricing for the Company's floorcovering
products and (iv) increased operating margins by consolidating
administrative functions and coordinating and streamlining sales efforts by
Company and dealer sales personnel.

Strong Customer and Architectural and Design Community
Relationships. The Company focuses its sales efforts at the design phase
of commercial projects. Interface personnel cultivate relationships both
with the owners and users of the facilities involved in the projects and
with specifiers such as architects, interior designers, engineers and
contracting firms who are directly involved in specifying products and
often make or significantly influence purchase decisions. The Company
emphasizes its product design and styling capabilities and its ability to
provide creative, high-value solutions to its customers' needs. Interface
marketing and sales personnel also serve as a primary technical resource
for the Company's customers, both with respect to product maintenance and
service as well as design matters.

Award-Winning and Innovative Product Design and Development
Capabilities. The Company's product design and development capabilities
give Interface a significant competitive advantage. Interface has an
exclusive consulting contract with the leading design firm Oakey Designs to
augment the Company's internal research, development and design staff.
Since engaging Oakey Designs in 1994, the Company has introduced more than
130 new carpet designs in the U.S. and has enjoyed considerable success in
winning U.S. carpet industry design awards bestowed by the International
Interior Design Association (IIDA), particularly in the carpet tile
division. In 1996, Oakey Designs' design services were

S-20
<PAGE> 21

extended to the Company's international carpet operations, and an affiliate
of that firm was engaged to provide similar design services to the
Company's interior fabrics business.

BUSINESS STRATEGY AND PRINCIPAL INITIATIVES

Interface's long-standing corporate strategy has been to diversify and
integrate worldwide. The Company seeks to diversify by developing internally or
acquiring related product lines and businesses in the commercial interiors
field; and to integrate by identifying and developing synergies and operating
efficiencies among the Company's products and global businesses. In continuing
that strategy, the Company is pursuing the following principal strategic
initiatives:

Globalization of the "Mass Customization" Production Strategy. The
Company is implementing aspects of its successful U.S. mass customization
production initiative at its floorcovering operations in Europe and
Asia-Pacific and at its interior fabrics operations. Through mass
customization the Company is able to respond to customers' requirements for
custom or highly styled products by quickly and efficiently producing both
custom samples and the ultimate products, and to more readily determine
proven "winners" that can be manufactured for inventory for broader
distribution. Mass customization was introduced to the Company's U.S.
carpet tile business in 1994, and its principal components include (i)
developing a simplified but versatile yarn utilization system, (ii)
investing in highly efficient, state-of-the-art tufting and custom sampling
equipment, and (iii) utilizing innovative design and styling to create
products. This strategy has resulted in substantial operating improvements
in the U.S. carpet tile business, including increased margins and reduced
inventory levels of both raw materials and standard products.

Ecological Sustainability Through War-on-Waste and EcoSense
Programs. In January 1995, the Company began a worldwide war-on-waste
initiative referred to internally as "QUEST". Applying a zero-based
definition of waste (broadly defined as any measurable cost that goes into
manufacturing a product but does not result in identifiable value to the
customer), the Company realized an aggregate of

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approximately $50 million in savings through eliminating such waste from
1995 to 1997. Management has identified an additional $80 million of waste
and believes the Company can eliminate half of such waste by the end of
2001. The war-on-waste represents a first step in the Company's broader
EcoSense initiative, which is the Company's long-range program to achieve
greater resource efficiency and, ultimately, ecological
"sustainability" -- that is, the point at which Interface is no longer a
net "taker" from the earth. The Company believes that its pursuit of these
initiatives provides a competitive advantage in marketing its products to
an increasing number of customers.

Selective Strategic Acquisitions. The Company has successfully
expanded its business and product lines through strategic acquisitions. The
Company expanded its carpet operations with the acquisitions of Heuga in
1988, Bentley Mills in 1993, Prince Street in 1994 and Firth Carpets in
1998, while its fabrics business has been expanded significantly with the
acquisitions of Stevens Linen in 1993, Toltec and Intek in 1995 and
Camborne in 1997. In addition, the Company's acquisitions of Renovisions in
1996 and Facilities Resource Group in 1997, and the formation of the
Re:Source Americas dealer network primarily through acquisitions in 1996
and 1997, have enabled the Company to expand rapidly into a variety of
commercial interior services. The Company intends to continue to
selectively target companies and product lines that complement existing
product lines and further the Company's ability to provide total interior
solutions for its customers. The Company believes that its cash flow from
operations and strengthened balance sheet will enable it to continue to
capitalize on attractive strategic acquisition opportunities.

MODULAR AND BROADLOOM CARPET

Products

The Company is the world's largest manufacturer and marketer of modular
carpet, which includes carpet tile and two-meter roll goods, with a 40%
worldwide market share. Broadloom carpet generally consists of tufted carpet
sold primarily in twelve-foot rolls. The Company's broadloom carpet
operations -- Bentley Mills, Prince Street and Firth Carpets -- focus on the
high quality, designer-oriented sector of the U.S. and U.K. broadloom carpet
markets. Through a joint venture arrangement with Condor Carpets, the Company
also has a 40% interest in Vebe Floorcoverings, which management believes is the
low-cost European manufacturer of needlepunch carpet.

Modular Carpet. Marketed under the leading global brands Interface and
Heuga, the Company's free-lay modular carpet system utilizes carpet tiles cut in
precise, dimensionally stable squares (usually 50 square centimeters) to produce
a floorcovering which combines the appearance and texture of broadloom carpet
with the advantages of a modular carpet system. The growing use of open plan
interiors and modern office arrangements utilizing demountable, movable
partitions and modular furniture systems has encouraged the use of carpet tile,
as compared to other soft surface flooring products. The Company's GlasBac(R)
technology employs a unique, fiberglass-reinforced polymeric composite backing
that allows the tile to be installed and remain flat on the floor without the
need for general application of adhesives or use of fasteners. This type of
carpet tile thus may be easily removed and replaced, permitting rearrangement of
office partitions and modular furniture systems without the inconvenience and
expense associated with removing, replacing or repairing other soft surface
flooring products, including broadloom carpeting. Carpet tile facilitates access
to sub-floor telephone, electrical, computer and other wiring by lessening
disruption of operations, and also eliminates the cumulative damage and
unsightly appearance commonly associated with frequent cutting of conventional
carpet as utility connections and disconnections are made. Because a relatively
small portion of a carpet installation often receives the bulk of traffic and
wear, the ability to rotate carpet tiles between high traffic and low traffic
areas and to selectively replace worn tiles can significantly increase the
average life and cost efficiency of the floorcovering.

The Company uses a number of conventional and technologically advanced
methods of carpet construction to produce carpet tiles in a wide variety of
colors, patterns, textures, pile heights and densities designed to meet both the
practical and aesthetic needs of a broad spectrum of commercial
interiors -- particularly offices, health care facilities, airports, educational
and other institutions, and retail facilities. The Company's carpet

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tile systems permit distinctive styling and patterning that can be used to
complement interior designs, to set off areas for particular purposes and to
convey graphic information. While the Company continues to manufacture and sell
the major portion of its carpet tile in standard styles, an increasing volume of
the Company's modular carpet sales are custom or made-to-order products designed
to meet particular customer specifications.

The Company produces and sells carpet tile specially adapted for the health
care facilities market. The Company's carpet tile possesses
characteristics -- such as the use of the Intersept(R) antimicrobial, static-
controlling nylon yarns, and thermally pigmented, colorfast yarns -- making it
suitable for use in such facilities in lieu of hard surface flooring.

The Company also manufactures and sells two-meter roll goods which are
structure-backed and offer many of the advantages of both carpet tiles and
broadloom carpet. They are often used in conjunction with carpet tiles to create
special design effects. The Company's current principal customers for such
products are in the education, health care and government sectors. The Company
believes, however, that the demand for two-meter roll goods is increasing
generally within the commercial and institutional interiors market, and expects
two-meter roll goods to account for a growing percentage of its U.S. modular
carpet sales in the future.

Broadloom Carpet. The Company has obtained a significant share of the
high-end, designer-oriented broadloom carpet segment by combining innovative
product design and styling capabilities and short production and delivery times
with a marketing strategy geared toward serving and working closely with
interior designers, architects and other specifiers. Prince Street's
design-sensitive broadloom products center around unique, multi-dimensional
textured carpets with a hand-tufted look, while Bentley Mills' designs emphasize
the dramatic use of color. The Prince Street and Bentley Mills brands were rated
the number one and two brands, respectively, for carpet design in the U.S.
according to a 1997 survey of interior designers published in the Floor Focus
industry publication. In addition, Firth Carpets has a reputation for
manufacturing high-quality woven and tufted products, mostly using woolen spun
blends. Vebe Floorcoverings, one of the largest needlepunch producers in Europe,
focuses its business on volume sales to large distributors of carpet products.

Services

The Company provides commercial carpet installation and maintenance
services through the Re:Source Americas network. The Re:Source Americas network
presently comprises approximately 93 owned or affiliated commercial
floorcovering dealers strategically located throughout the United States. The
new network: (i) allows the Company to influence and monitor customer
satisfaction throughout the ownership cycle, from specification through
reclamation; (ii) reduces the Company's cost of selling by bolstering efforts of
sales representatives at the mill level with dealer-level support; (iii)
improves pricing for products; and (iv) achieves efficiencies by augmenting
administrative functions of dealers. The Re:Source Americas network also
provides a channel for delivery of a variety of services and products offered by
the Company in addition to commercial carpet, including carpet replacement
services offered by Renovisions, adhesives and cleaning chemicals manufactured
by Rockland React-Rite, specialty products manufactured by Pandel, raised/access
flooring systems produced by Interface Architectural Resources, furniture
installation by Facilities Resource Group, and carpet maintenance through the
Company's IMAGE(R) maintenance system.

Renovisions, acquired by the Company in February 1996, is a nationwide
installation services firm that has pioneered a new method of carpet
replacement. The Renovisions(R) process utilizes patented lifting equipment and
specialty tools to lift office equipment and modular workstations in place,
permitting the economical replacement of existing carpet with virtually no
disruption of the customer's business. Other proprietary products facilitate the
movement of file cabinets, office furniture, and even complete work stations
without the inefficiency and disruption associated with unloading and
dismantling the items being moved. Facilities Resource Group, Inc., acquired by
the Company in July 1997, is a Chicago, Illinois-based provider of furniture
installation and related services. The Company intends to replicate Facilities
Resource Group's business in various other markets throughout the United States.

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In the U.S., the Company also provides carpet maintenance services through
its IMAGE maintenance system. The IMAGE system includes a custom-engineered
maintenance methodology and a line of cleaning chemicals manufactured by
Rockland React-Rite. In Europe, the Company has recently re-launched the
European version of the IMAGE program, pursuant to which the Company has
licensed selected independent service contractors to provide carpet maintenance
services.

Marketing and Sales

The Company traditionally has focused its carpet marketing strategy on
major accounts, seeking to build lasting relationships with national and
multinational end-users, and on specifiers, such as architects, interior
designers, engineers and contracting firms who often make or significantly
influence the purchase decision. The acquisitions of Bentley Mills and Prince
Street significantly strengthened the Company's relationships with interior
designers and architects and has enhanced the Company's ability to target those
and other specifiers at the critical design stage of commercial projects. The
Company emphasizes sales to the commercial office sector, both new construction
and renovation, as well as to health care facilities, governmental institutions
and public facilities, including libraries, museums, convention and hospitality
centers, airports, schools and hotels. The Company's marketing efforts are
enhanced by the well-known brand names of its carpet products, including
Interface and Heuga in modular carpet, and Bentley Mills, Prince Street and
Firth in broadloom carpet.

An important part of the Company's marketing and sales efforts involves the
preparation of custom made samples of requested carpet designs, in conjunction
with the development of innovative product designs and styles that meet the
customer's particular needs. (See "Business Strategy and Principal Initiatives",
above, and "Product Design, Research and Development", below.) The Company's
mass customization initiative, implemented for its U.S. modular carpet
operations in 1994, included the simplification of the Company's carpet
manufacturing operations and the purchase of five custom sample production
machines, which significantly improved its ability to respond quickly and
efficiently to requests for samples. The turnaround time for the Company to
produce made-to-order carpet samples to customer specifications has been reduced
from an average of 30 days in 1993 to 3 days in 1997, and the average number of
carpet samples produced per month has increased from 90 per month in 1993 to
over 1,400 per month in 1997. This ability has significantly enhanced the
Company's marketing and sales efforts, and has increased the Company's volume of
higher margin custom or made-to-order sales.

The Company primarily uses its internal marketing and sales force of over
1,100 persons to market its carpet products, and it also relies on Re:Source
Americas network dealers to bolster its sales efforts. The Company maintains a
Creative Services staff that works directly with clients on major design
projects. The efforts of these personnel in helping with product selection,
customer specifications and unique approaches to design and styling issues are
an important component of the marketing aspect of the Company's mass
customization approach. In order to implement its global marketing efforts, the
Company has product and design studios in the United States, England, France,
Germany, Spain, Norway, the Netherlands, Australia, Japan and Singapore. The
Company expects to continue to open such offices in other locations around the
world as necessary to capitalize on emerging marketing opportunities.

As part of its full service approach to marketing, the Company maintains a
field services staff to provide on-site customer service for both in-progress
and completed installations. In the U.S., the Re:Source Americas network
significantly enhances the Company's ability to provide customer service and
derive marketing benefits.

Manufacturing

The Company manufactures carpet in the United States, the Netherlands, the
United Kingdom, Canada, Australia and Southeast Asia. In addition to enhancing
the Company's ability to develop a strong local presence in foreign markets,
having foreign manufacturing operations enables the Company to supply its
customers with carpet from the location offering the most advantageous terms for
delivery times, exchange rates, duties and tariffs and freight expense. The
Company believes that the ability to offer consistent products

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and services on a worldwide basis at attractive prices is an important
competitive advantage in servicing multinational customers seeking global supply
relationships. Consistent with this strategy, the Company in 1996 entered into a
joint venture (owned 70% by the Company) with BASF Corporation and Shanghai
China Textile International Science & Technological Industrial City Development
Company, a Chinese government-sponsored company, to build a carpet tile
manufacturing facility in China, which is expected to be operational in April
1998. The Company will consider additional locations for manufacturing
operations in other parts of the world as necessary to meet the demands of
customers in growing international markets.

The Company currently obtains a significant percentage of its requirements
for synthetic fiber (the principal raw material used in the Company's carpet
products) from DuPont. The Company believes that its arrangements with DuPont
permit the Company to obtain favorable terms. However, the Company currently
purchases fiber from other long-term suppliers, and there are adequate
alternative sources of supply from which the Company could fulfill its synthetic
fiber requirements if its arrangements with DuPont should change. Other raw
materials used by the Company are also readily available from a number of
sources.

In 1995 and 1996, the Company implemented a manufacturing plan in which it
standardized its worldwide manufacturing procedures. In connection with the
implementation of this plan, the Company adopted global standards for its
tufting equipment, yarn systems and product styling, and changed its standard
carpet tile size from 18 square inches to 50 square centimeters. The Company
believes that changing its standard carpet tile size has allowed it to reduce
operational waste and fossil fuel energy consumption, in addition to offering
consistent product sizing for its global customers.

The Company's significant international operations are subject to various
political, economic and other uncertainties, including risks of restrictive
taxation policies, foreign exchange restrictions, changing political conditions
and governmental regulations. The Company also receives a substantial portion of
its revenues in currencies other than U.S. dollars, which makes it subject to
the risks inherent in currency translations. Although the Company's ability to
manufacture and ship products from facilities in several foreign countries
reduces the risks of foreign currency fluctuations it might otherwise
experience, and the Company also engages from time to time in hedging programs
intended to reduce further those risks, the scope and volume of the Company's
global operations make it impossible to eliminate completely all foreign
currency translation risks as a factor for the Company's financial results.

Competition

The commercial floorcovering industry is highly competitive. The Company
competes, on a global basis, in the sale of its modular and broadloom carpet
with other carpet manufacturers and manufacturers of vinyl and other types of
floorcoverings. Although the industry recently has experienced significant
consolidation, a large number of manufacturers remain in the industry.
Management believes that the Company is the largest manufacturer of modular
carpet in the world, possessing a global market share that is more than two
times that of its nearest competitor. However, a number of domestic and foreign
competitors manufacture modular carpet as one segment of their business, and
certain of these competitors have financial resources in excess of the
Company's.

The Company believes the principal competitive factors in its primary
floorcovering markets are quality, design, service, broad product lines, product
life, marketing strategy, and pricing. In the commercial office market, modular
carpet competes with various floorcoverings, of which broadloom carpet is the
most common. In the health care facilities market, the Company's products
compete primarily with resilient tile. The Company believes that treatment of
its modular carpet with the Intersept antimicrobial chemical agent is a material
factor in its ability to compete successfully in the health care market. The
quality, service, design, longer average life, flexibility (design options,
selective rotation or replacement, use in combination with roll goods) and
convenience of the Company's modular carpet are its principal competitive
advantages, which are offset in part by its higher initial cost for comparable
grades of broadloom carpet. The acquisitions of Bentley Mills, Prince Street and
Firth Carpets, with their broadloom carpet product lines, have enhanced the
Company's competitive position by enabling the Company to offer one-stop
shopping to commercial carpet customers, and thus, to capture some sales that
would have gone to competitors. In addition, the Company

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believes that its global manufacturing capabilities are an important competitive
advantage in serving the needs of multinational corporate customers. Finally,
the Company believes that the formation of the Re:Source Americas network, and
the resulting improvement in customer service, has further enhanced the
Company's competitive position.

INTERIOR FABRICS

Products

The Company, through its Interior Fabrics Group, designs, manufactures and
markets specialty fabrics for open plan office furniture systems and commercial
interiors. Sales of panel fabrics to original equipment manufacturers (OEMs) of
movable office furniture systems constitute approximately 50% of total U.S.
fabrics sales in fiscal 1997. In addition, the Company produces woven and
knitted seating fabrics, wall covering fabrics, fabrics used for vertical blinds
in office interiors, and fabrics used for cubicle curtains in health care
facilities.

Open plan office furniture systems are typically panel-enclosed work
stations customized to particular work environments. The open plan concept
offers a number of advantages over conventional office designs, including more
efficient floor space utilization, reduced energy consumption and greater
flexibility to redesign existing space. Since carpet and fabrics are used in the
same types of commercial interiors, the Company's carpet and interior fabrics
operations are able to coordinate the color, design and marketing of both
product lines to their respective customers as part of the Company's "total
interior solutions" approach.

The Company, in recent years, has diversified and expanded significantly
both its product offerings and markets for interior fabrics. The Company's 1993
acquisition of the Stevens Linen(TM) lines added decorative, upscale upholstery
fabrics and specialty textile products to the Interior Fabrics Group's
traditional product offerings. The Company's June 1995 acquisition of Toltec
Fabrics, a manufacturer and marketer of fabric for the contract and home
furnishings upholstery markets, enhanced the Company's presence in the contract
jobber market; and its December 1995 acquisition of the Intek division of
Springs Industries, a manufacturer experienced in the production of
lighter-weight panel fabrics, has strengthened the Interior Fabrics Group's
capabilities in that market. In addition, the June 1997 acquisition of Camborne
Holdings Ltd., the United Kingdom's leading textile manufacturer for the office
and contract furnishings markets has enhanced the Company's access to the
European and Asia-Pacific markets. The Camborne acquisition also added wool
upholstery fabrics specifically designed for the European market to the Interior
Fabrics Group's product offering. All of these developments have reinforced the
Interior Fabrics Group's dominant position with OEMs of movable office furniture
systems.

The Company manufactures fabrics made of 100% polyester, as well as
wool-polyester blends and numerous other natural and man-made blends, which are
either woven or knitted. Its products feature a high degree of color
consistency, natural dimensional stability and fire retardancy, in addition to
their overall aesthetic appeal. All of the Company's product lines are color and
texture coordinated. The Company seeks continuously to enhance product
performance and attractiveness through experimentation with different fibers,
dyes, chemicals and manufacturing processes. Product innovation in the interior
fabrics market (similar to the floorcoverings market) is important to achieving
and maintaining market share. (See "Business Strategy and Principal
Initiatives", above, and "Product Design, Research and Development", below.)

In 1997, the Company introduced its Terratex(TM) line of panel fabrics. The
Terratex label is intended to denote fabrics manufactured from 100% recycled
polyester, and will include both new products and traditional product offerings.
The first fabric to bear the Terratex label is Guilford of Maine's FR701(R). The
Company intends for all of the Interior Fabrics Group's companies to manufacture
and market products using the Terratex label.

The Company anticipates that future growth opportunities will arise from
the growing market for retrofitting services, where fabrics are used to re-cover
existing panels. In addition, the increased importance being placed on the
aesthetic design of office space, should lead to a significant increase in
upholstery fabric sales. Management also believes that significant growth
opportunities exist in international sales, in domestic

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health care markets, in contract wallcoverings and in the provision of ancillary
textile processing services such as the lamination of fabrics onto substrates
for pre-formed panels.

Marketing and Sales

The Company's principal interior fabrics customers are OEMs of movable
office furniture systems. The Interior Fabrics Group sells to essentially all of
the major office furniture manufacturers. The Interior Fabrics Group also sells
to manufacturers and distributors of wallcoverings, vertical blinds, cubicle
curtains, acoustical wallboards, ceiling tiles and residential furniture, and,
since the acquisition of Toltec Fabrics, to contract jobbers. The Guilford of
Maine, Stevens Linen, Toltec, Intek and Camborne brand names are well-known in
the industry and enhance the Company's fabric marketing efforts.

The majority of the Company's sales are made through Interior Fabrics
Group's own sales force. The sales team works closely with designers,
architects, facility planners and other specifiers who influence the purchasing
decisions of buyers in the interior fabrics segment. In addition to facilitating
sales, the resulting relationships also provide the Company with marketing and
design ideas that are incorporated into the development of new product
offerings. The Interior Fabrics Group maintains a design studio in Dudley,
Massachusetts which facilitates coordination between its in-house designers and
the design staffs of major customers. The Interior Fabrics Group's design
capabilities have also benefited from the product design services provided to it
by an affiliate of Oakey Designs. (See "Business Strategy and Principal
Initiatives", above, and "Product Design, Research and Development", below.)

The Company's sales offices are located in Saddle Brook, New Jersey, Grand
Rapids, Michigan and the United Kingdom. The Interior Fabrics Group also has
marketing and distribution facilities in Canada and Hong Kong, and sales
representatives in Japan, Hong Kong, Singapore, Korea and South Africa. The
Company has sought increasingly, over the past several years, to expand its
export business and international operations in the fabrics segment, both to
accommodate the demand of principal OEM customers that are expanding their
businesses overseas, and to facilitate additional coordinated marketing to
multinational customers of the Company's carpet business as part of the
Company's "total interior solutions" approach.

Manufacturing

The Company's fabrics manufacturing facilities are located in Maine,
Massachusetts, Michigan, North Carolina and West Yorkshire, England. The
production of synthetic and wool blended fabrics is relatively complex and
requires many steps. Raw fiber is placed in pressurized vats, and dyes are then
forced into the fiber. Particular attention is devoted to the dyeing process,
which requires a high degree of expertise in order to achieve color consistency.
Following dyeing, the fiber is blended and proceeds through multiple steps,
including carding, spinning, cone winding, twisting, dressing, weaving and
finishing. All raw materials used by the Company are readily available from a
number of sources. The Interior Fabrics Group has recently begun using 100%
recycled fiber manufactured from PET soda bottles in its manufacturing process.

In response to a shift in the Interior Fabrics Group's traditional panel
fabric market toward lighter weight, less expensive products, the Company
implemented a major capital investment program in 1994 which included the
construction of a new facility and the acquisition of equipment to enhance the
efficiency and breadth of the Interior Fabrics Group's yarn manufacturing
processes. The program is designed to improve the Interior Fabrics Group's cost
effectiveness in producing such lighter weight fabrics, reduce manufacturing
cycle time, and enable the Interior Fabrics Group to reinforce its product
leadership position with its OEM customers. The Interior Fabrics Group already
has begun to achieve cost savings as a result of this program. The acquisition
of Intek in December 1995 provided the Company with immediate and significant
capabilities in the efficient production of lighter weight, less expensive panel
fabrics and the acquisition of Camborne provided a European-based manufacturing
facility and much needed expertise in the production of wool fabrics. The
Company believes that it has recently been successful in designing fabrics that
have simplified the manufacturing process, thereby reducing complexity while
improving efficiency and quality. Through the use of existing raw materials, new
fabrics are being manufactured using the mass customization production strategy.
The capabilities that are now available with the Company's new manufacturing
facility should

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augment the Company's ability to apply the mass customization production
strategy to the manufacture of fabrics will be expanded. See "Business Strategy
and Principal Initiatives", above.

The Company offers textile processing services through the Interior Fabrics
Group's Component Technologies division in Grand Rapids, Michigan. Such services
include the lamination of fabrics onto substrates for pre-formed office
furniture system panels, facilitating easier and more cost effective assembly of
the system components by the Interior Fabrics Group's OEM customers.

Competition

The Company competes in the interior fabrics market on the basis of product
design, quality, reliability, price and service. By electing to concentrate on
the open plan office furniture systems segment, the Interior Fabrics Group has
been able to specialize its manufacturing capabilities, product offerings and
service functions, resulting in a leading market position. Through Guilford of
Maine, Toltec, Camborne and Intek, the Company is the largest U.S. manufacturer
of panel fabric for use in open plan office furniture systems.

Drawing upon its dominant position in the panel fabric segment and through
its strategic acquisitions, the Company has been successfully diversifying its
product offerings for the commercial interiors market to include a variety of
non-panel fabrics, including upholstery, cubicle curtains, wallcoverings,
ceiling fabrics and window treatments. The competition in these segments of the
market is highly fragmented and includes both large, diversified textile
companies, several of which have greater financial resources than the Company,
as well as smaller, non-integrated specialty manufacturers. However, the
Company's capabilities and strong brand names in these segments should enable it
to continue to compete successfully.

SPECIALTY PRODUCTS

The Interface Specialty Products Group is composed of: Rockland React-Rite,
Inc. ("Rockland"), which develops, manufactures and markets specialty chemical
products and which includes the Company's Intersept(R) antimicrobial sales and
licensing program; Pandel, Inc. ("Pandel"), which produces vinyl carpet tile
backing and specialty mat and foam products; and Interface Architectural
Resources, Inc. ("Interface Architectural Resources"), which produces and
markets raised/access flooring systems.

One of the Company's leading chemical products, in terms of applicability
for the commercial and institutional interiors market, is its proprietary
antimicrobial chemical compound, sold under the registered trademark Intersept.
The Company uses Intersept in many of its carpet products and has licensed
Intersept to other companies for use in a number of products that are
noncompetitive with the Company's products, such as paint, vinyl wallcoverings,
ceiling tiles and air filters.

The Company also manufactures a line of adhesives for carpet installation,
as well as a line of carpet cleaning and maintenance chemicals, which it markets
as part of its IMAGE maintenance system. In addition, the Company produces and
markets Protekt(2)(TM), a proprietary soil and stain retardant treatment; water-
proof sheathing for the fiber optic cable industry and other applications;
accelerators, used to speed the curing process for rubber used in tires, hoses
and other products; and Fatigue Fighter(R), an impact-absorbing modular flooring
system typically used where people stand for extended periods.

The Company manufactures cable management raised/access flooring systems, a
specialty product which it markets through Interface Architectural Resources.
The initial product offering, marketed under the name Intercell(R), is a
low-profile (total height of less than three inches) cable management flooring
system, particularly well suited for use in the renovation of existing
buildings. In 1995, the Company acquired the rights to the Interstitial
Systems(TM) access flooring product, a patented, multiple plenum system that
serves to separate pressurized, climate-controlled air flow from the electrical
and telecommunications cables included within the same access flooring system.
In February 1996, the Company acquired C-Tec, Inc., the second largest
manufacturer of raised/access flooring systems in the United States. Interface
Architectural Resources markets the successful C-Tec line of products (Tec-Cor
and Tec-Crete), which combine the tensile strength of steel and the compressive
strength of concrete to create a durable, uniform and sound-absorbent panel
which comes in a variety of surfaces.

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In September 1997, Interface Architectural Resources and Herman Miller,
Inc. announced their intent to form a joint venture company to produce
integrated work environment solutions for commercial environments. Herman Miller
is a globally recognized leader in the design and manufacture of innovative
office furniture systems for a wide range of commercial and health care
environments. The Company believes that the joint venture, which is subject to
the negotiation and execution of a definitive agreement, will effectively
combine Herman Miller's expertise in flexible office furniture systems with the
Company's command of architectural flooring products. Interface Architectural
Resources and Herman Miller have begun to develop the joint venture's initial
product concept.

INTERFACE RESEARCH CORPORATION

Interface Research Corporation provides technical support and research and
development for the entire family of Interface companies. Interface Research
Corporation has developed a new polycarbite polymer carpet tile backing, which
has demonstrated excellent performance in field tests conducted to date. The new
backing material has also proved to be useful as an improved and lower cost
precoat for broadloom applications. Interface Research Corporation also provides
significant support to the Company's EcoSense initiative, primarily through its
efforts in identifying recyclable products and raw materials and procedures to
achieve, ultimately, closed-loop recycling of the Company's carpet products. A
major technical effort has been launched to define optimum recycling processes
for the Company's carpet and fabric products. See "Environmental Initiatives".

PRODUCT DESIGN, RESEARCH AND DEVELOPMENT

The Company maintains an active research, development and design staff of
approximately 100 persons, and also draws on the research and development
efforts of its suppliers, particularly in the areas of fibers, yarns and modular
carpet backing materials.

Innovation and increased customization in product design and styling are
the principal focus of the Company's product development efforts. The Company's
carpet design and development team is recognized as the industry leader in
carpet design and product engineering for the commercial and institutional
markets. Under the leadership of David Oakey since January 1994 (pursuant to the
Company's exclusive consulting contract with Oakey Designs), the Company has
introduced over 130 new carpet designs during the last four years and has
enjoyed considerable success in winning U.S. carpet industry awards bestowed by
the IIDA. In addition, Prince Street and Bentley Mills were rated the number one
and two brands, respectively, for carpet design in the U.S., according to a 1997
survey by the Floor Focus industry publication.

Mr. Oakey was also instrumental in the Company's implementation of a new
product development concept -- "simple inputs, pretty outputs" -- resulting in
the ability to efficiently produce many products from a single yarn system. The
Company's mass customization production approach evolved, in major part, from
this concept. In addition to increasing the number and variety of product
designs (which enables the Company to increase high margin custom sales), the
mass customization approach increases inventory turns and reduces inventory
levels (for both raw materials and standard products) and its related costs
because of the Company's more rapid and flexible production capabilities.

Oakey Designs' design services have been extended to the Company's
international carpet tile operations and its domestic and international
broadloom companies. An affiliate of Oakey Designs has been engaged to provide
similar design services to the Company's interior fabrics business. The Company
expects increased levels of innovation in product design and development for
those divisions to be achieved in the future.

ENVIRONMENTAL INITIATIVES

An important initiative of the Company over the past several years has been
the development of the Envirosense Consortium, an organization of companies
concerned with addressing workplace environmental issues, particularly poor
indoor air quality. The Consortium now totals 21 member organizations, including
interior products manufacturers (a number of which are licensees of the
Company's Intersept antimicrobial agent), professional service organizations and
design professionals.
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In the latter part of 1994, the Company commenced a new industrial ecology
initiative called EcoSense, inspired in major part by the interest of important
customers concerned about the environmental implications of how they and their
suppliers do business. EcoSense is directed towards the elimination of energy
and raw materials waste in the Company's businesses, and, on a broader and more
long-term scale, the practical reclamation -- and ultimate restoration -- of
shared environmental resources. The initiative involves a commitment by the
Company (i) to learn to meet its raw material and energy needs through recycling
of carpet and other petrochemical products and harnessing benign energy sources,
and (ii) to pursue the creation of new processes to help sustain the earth's
non-renewable natural resources. The EcoSense initiative includes the Company's
war-on-waste, pursuant to which the Company realized an aggregate of $49 million
in savings from 1995 to 1997. See "Business Strategy and Principal
Initiatives -- Ecological Sustainability through War-on-Waste and EcoSense
Programs".

The Company has engaged some of the world's leading authorities on global
ecology as environmental consultants. The current list of consultants includes
Paul Hawken, author of The Ecology of Commerce, The Next Economy, and Chairman
of The Natural Step, U.S.A.; Bill McDonough, Dean of Architecture, University of
Virginia; Amory Lovins, energy consultant, director of Rocky Mountain Institute;
Daniel Quinn, author of Ishmael, Providence, and The Story of B; John Picard,
President of E2, American environmental consultant; David Brower, former
executive director of the Sierra Club, and founder of The Earth Island
Institute; Jonathan Porritt, director of Forum for the Future; Bernadette
Cozart, founder of the Greening of Harlem Coalition; and Bill Browning, the
director of the Rocky Mountain Institute's Green Development Services.

The Company believes that its environmental initiatives are valued by its
employees and an increasing number of its important customers and provide a
competitive advantage in marketing products to such customers. The Company also
believes that the resulting long-term resource efficiency (reduction of wasted
environmental resources) will ultimately produce cost savings to the Company.

ENVIRONMENTAL MATTERS

The Company's operations are subject to federal, state and local laws and
regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Management
believes that the Company is in substantial compliance with all applicable
federal, state and local provisions relating to the protection of the
environment. The costs of complying with environmental protection laws and
regulations have not had a material adverse impact on the Company's financial
condition or results of operations in the past and are not expected to have a
material adverse impact in the future.

BACKLOG

The Company's backlog of unshipped orders was approximately $153.4 million
at February 22, 1998, compared to approximately $123.2 million at February 23,
1997. Historically, backlog is subject to significant fluctuations due to the
timing of orders for individual large projects and currency fluctuations. All of
the backlog of orders at February 22, 1998 is expected to be shipped during the
succeeding six to nine months.

PATENTS AND TRADEMARKS

The Company owns numerous patents in the United States and abroad on its
modular carpet and manufacturing processes and on the use of its Intersept
antimicrobial chemical agent in various products. The duration of United States
patents is between 14 and 20 years from the date of filing of a patent
application or issuance of the patent; the duration of patents issued in other
countries varies from country to country. The Company considers its know-how and
technology more important to its current business than patents, and,
accordingly, believes that expiration of existing patents or nonissuance of
patents under pending applications would not have a material adverse effect on
its operations. However, the Company maintains an active patent and trade secret
program in order to protect its proprietary technology, know-how and trade
secrets.

The Company also owns numerous trademarks in the United States and abroad.
In addition to the United States, the primary countries in which the Company has
registered its trademarks are the United Kingdom,
S-30
<PAGE> 31

Germany, Italy, France, Canada, Australia, and Japan. Some of the more prominent
registered trademarks of the Company include: Interface, Heuga, Intersept,
GlasBac, Guilford of Maine, Bentley and Prince Street Technologies. Trademark
registrations in the United States are valid for a period of 10 years and are
renewable for additional 10-year periods as long as the mark remains in actual
use. The duration of trademarks registered in other countries varies from
country to country.

EMPLOYEES

At February 28, 1998, the Company employed a total of approximately 7,300
employees worldwide. Of such employees, approximately 2,000 are clerical, sales,
supervisory and management personnel and the balance are manufacturing
personnel.

The Company's Facilities Resource Group subsidiary and six of the
commercial flooring dealers recently acquired by the Company have employee
groups that are represented by unions. In addition, certain of the Company's
production employees in Australia and the United Kingdom are represented by
unions. As required by the laws of the Netherlands, a Works Council, the members
of which are Company employees, is required to be consulted by management with
respect to certain matters relating to the Company's operations in that country,
such as a change in control of Interface Europe B.V. (the Company's modular
carpet subsidiary based in the Netherlands), and the approval of such Council is
required for certain actions, including changes in compensation scales or
employee benefits. Management believes that its relations with the Works
Council, the unions and all of its employees are good.

PROPERTIES

The Company maintains its corporate headquarters in Atlanta, Georgia in
approximately 15,565 square feet of leased space. The following table lists the
Company's principal manufacturing facilities, all of which are owned by the
Company except as otherwise noted:

<TABLE>
<CAPTION>
FLOOR SPACE
LOCATION PRIMARY PRODUCTS (SQ.FT.)
- -------- ---------------- -----------
<S> <C> <C>
Athens, Tennessee(1)................................... Modular carpet 71,577
Bangkok, Thailand(2)................................... Modular carpet 66,072
Craigavon, N. Ireland.................................. Modular carpet 125,060
Heckmondwike, England.................................. Modular carpet 90,000
LaGrange, Georgia...................................... Modular carpet 326,666
Ontario (Belleville), Canada........................... Modular carpet 77,000
Picton, Australia...................................... Modular carpet 89,560
Scherpenzeel, the Netherlands.......................... Modular carpet; 292,142
Specialty products
Shanghai, China(2)(3).................................. Modular carpet 106,962
Shelf, England......................................... Modular carpet 223,342
West Point, Georgia.................................... Modular carpet 161,000
Cartersville, Georgia.................................. Broadloom carpet 210,000
Cartersville, Georgia.................................. Broadloom carpet 45,000
City of Industry, California(1)........................ Broadloom carpet 539,641
Genemuiden, The Netherlands(4)......................... Broadloom carpet 36,788
West Yorkshire, England................................ Broadloom carpet 674,666
Aberdeen, North Carolina............................... Interior fabrics 88,000
Dudley, Massachusetts.................................. Interior fabrics 300,000
East Douglas, Massachusetts ........................... Interior fabrics 301,772
Grand Rapids, Michigan(1).............................. Interior fabrics 55,800
Greensboro, North Carolina(1).......................... Interior fabrics 63,700
Guilford, Maine........................................ Interior fabrics 396,690
Guilford, Maine........................................ Interior fabrics 96,200
Lancashire, England(1)................................. Interior fabrics 54,000
</TABLE>

S-31
<PAGE> 32

<TABLE>
<CAPTION>
FLOOR SPACE
LOCATION PRIMARY PRODUCTS (SQ.FT.)
- -------- ---------------- -----------
<S> <C> <C>
Newport, Maine......................................... Interior fabrics 208,932
West Yorkshire, England................................ Interior fabrics 135,000
Cartersville, Georgia(1)............................... Specialty products 124,500
Grand Rapids, Michigan................................. Access flooring 120,000
Rockmart, Georgia...................................... Chemicals 37,500
</TABLE>

- ---------------

(1) Leased.
(2) Owned by a joint venture in which the Company has a 70% interest.
(3) Expected to be operational in April 1998.
(4) Owned by a joint venture in which the Company has a 40% interest.

The Company maintains marketing offices in approximately 95 locations in 39
countries and distribution facilities in approximately 40 locations in six
countries. Most of the marketing locations and many of the distribution
facilities are leased.

The Company believes that its manufacturing and distribution facilities,
and its marketing offices, are sufficient for its present operations. The
Company will continue, however, to consider the desirability of establishing
additional facilities and offices in other locations around the world as part of
its business strategy to meet expanding global market demands.

LEGAL PROCEEDINGS

The Company is not aware of any material pending legal proceedings
involving it or any of its property.

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<PAGE> 33

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning the executive
officers and directors of the Company as of March 1, 1998:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Ray C. Anderson........................ 63 Chairman of the Board and Chief
Executive Officer
Charles R. Eitel....................... 48 President, Chief Operating Officer and
Director
Michael D. Bertolucci.................. 57 Senior Vice President
Brian L. DeMoura....................... 52 Senior Vice President and Director
Daniel T. Hendrix...................... 43 Senior Vice President -- Finance, Chief
Financial Officer, Treasurer and
Director
Donald E. Russell...................... 60 Senior Vice President and Director
John H. Walker......................... 53 Senior Vice President and Director
Gordon D. Whitener..................... 35 Senior Vice President and Director
Raymond S. Willoch..................... 39 Senior Vice President, General Counsel
and Secretary
Alan S. Kabus.......................... 40 Vice President and Subsidiary President
John R. Wells.......................... 36 Vice President and Subsidiary President
Dianne Dillon-Ridgley.................. 46 Director
Carl I. Gable.......................... 58 Director
June M. Henton......................... 58 Director
J. Smith Lanier, II.................... 70 Director
Leonard G. Saulter..................... 71 Director
Clarinus C. Th. van Andel.............. 68 Director
</TABLE>

Mr. Anderson founded the Company in 1973, and has served as the Company's
Chairman and Chief Executive Officer since its founding. Mr. Anderson was
appointed by President Clinton to the President's Council on Sustainable
Development in 1996 and currently serves as Co-Chair. Mr. Anderson is a member
of the Board of Directors of NationsBank Corporation. He also serves on the
Boards of numerous nonprofit organizations.

Mr. Eitel joined the Company in November 1993 as President of Interface
Flooring Systems, Inc. ("IFS", the Company's principal U.S. modular carpet
subsidiary) and Interface Americas, Inc. (a wholly-owned U.S. holding company),
with responsibility for the Company's modular carpet operations throughout the
Americas. He was elected director in February 1994, and promoted to Executive
Vice President of the Company and President and Chief Executive Officer of the
Floorcoverings Group in October 1994, thereby assuming overall responsibility
for the Company's worldwide carpet business. Mr. Eitel was promoted to President
and Chief Operating Officer of the Company in February 1997. From July 1987
until joining the Company, Mr. Eitel served as President of the Floorcoverings
Division (based in Dalton, Georgia) of Collins & Aikman Corporation, a
diversified textile producer headquartered in North Carolina. Mr. Eitel also
serves as a director of Weeks Corporation, an industrial real estate company
based in Atlanta, and Ladd Furniture, Inc., a North Carolina-based furniture
manufacturer.

Mr. Bertolucci joined the Company in April 1996 as President of Interface
Research Corporation and Senior Vice President of the Company. From October 1989
until joining the Company, he was Vice President of Technology for Highland
Industries, an industrial fabric company located in Greensboro, North Carolina.

Mr. DeMoura joined the Company in March 1994 as President and Chief
Executive Officer of Guilford of Maine, Inc. (now Interface Fabrics) and Senior
Vice President of the Company. In May 1994, he was elected to the Board of
Directors of the Company. He is currently responsible for the entire Interior
Fabrics

S-33
<PAGE> 34

Group, which includes Interface Fabrics, Toltec Fabrics, Inc., Intek, Inc. and
Camborne Holdings Ltd. From August 1990 until joining the Company, Mr. DeMoura
served as President and CEO of Fashion Fabrics of America, Inc., an Orangeburg,
South Carolina based producer of fabrics for the upscale men's and women's
apparel markets.

Mr. Hendrix, who was previously with a national accounting firm, joined the
Company in 1983. He was promoted to Treasurer of the Company in 1984, Chief
Financial Officer in 1985, Vice President -- Finance in 1986, and Senior Vice
President-Finance in October 1995. He was elected to the Board in October 1996.

Mr. Russell, a director since 1974, has served in various executive
capacities since 1973. He became a Senior Vice President in 1986. From September
1995 until April 1997, Mr. Russell served as President and Chief Executive
Officer of the Company's Specialty Products Group, composed of the Company's
chemical and specialty surfaces subsidiaries (Rockland and Pandel), Intersept
antimicrobial sales and licensing program, and Interface Architectural
Resources. Mr. Russell served as President and CEO of Interface Europe, Inc.
(the Company's U.S. holding company for its subsidiaries in Europe) and
Interface Europe B.V. from 1991 until August 1995. Mr. Russell intends to retire
in April 1998.

Mr. Walker began his career with the Company as Financial Controller of the
U.K. Division of Heuga Holding B.V. (now Interface Europe B.V.), a
Netherlands-based carpet tile manufacturer, which was acquired by the Company in
1988. He later served as Vice President Sales & Marketing of Interface Europe,
B.V. and in July 1995 was promoted to the position of Senior Vice President of
the Company and President and Chief Executive Officer of Interface Europe, Inc.
In his current position, he has responsibility for the Company's floorcovering
operations in both Europe and the Asia-Pacific region. He was elected to the
Board in October 1996.

Mr. Whitener joined the Company in November 1993 as Senior Vice
President -- Sales & Marketing of IFS. In October 1994, he became a Senior Vice
President of the Company and President and Chief Executive Officer of IFS and
Interface Americas, assuming responsibility for the Company's modular carpet
operations throughout the Americas, and Prince Street. Mr. Whitener also assumed
corporate responsibility for Bentley Mills in July 1995, at which time he became
a director of the Company, and the Specialty Products Group in April 1997. He is
thus responsible for all of the Company's businesses in the Americas, except the
Interior Fabrics Group. From April 1988 until joining the Company, Mr. Whitener
served in various sales management capacities with Collins & Aikman
(Floorcoverings Division), including Vice President Marketing.

Mr. Willoch joined the Company as Corporate Counsel in June 1990. He was
promoted to Assistant Secretary in 1991, Assistant Vice President in 1993, Vice
President in January 1996 and Secretary and General Counsel in August 1996. In
February 1998, Mr. Willoch was promoted to Senior Vice President.

Mr. Kabus joined the Company in 1993 as a result of the Company's
acquisition of Bentley Mills, which he had joined as a salesman in 1984. At the
time of the acquisition, Mr. Kabus was serving as Regional Sales
Manager -- Northeast Region of Bentley Mills. He was promoted to Vice President
of the Company and President and Chief Executive Officer of Bentley Mills in
July 1995. From July 1995 until March 1998, Mr. Kabus served as President and
Chief Executive Officer of Bentley Mills. In March 1998, Mr. Kabus assumed
responsibility for the Company's Re:Source Americas dealer network and its other
service companies.

Mr. Wells joined the Company in February 1994 as Vice President -- Sales of
IFS and was promoted to Senior Vice President -- Sales and Marketing of IFS in
October 1994. He was promoted to Vice President of the Company and President and
Chief Executive Officer of IFS in July 1995. In March 1998, Mr. Wells was also
named President and Chief Executive Officer of both Prince Street and Bentley
Mills, making him President and Chief Executive Officer of all three of the
Company's U.S. carpet mills. Prior to joining the Company, Mr. Wells worked with
the commercial division of Shaw Industries for 13 years, where he was a key
member of the management team that started the Networx Modular Carpet Division
of that company and where he also held various sales management responsibilities
for the Shaw Commercial and Stratton Commercial Divisions.

S-34
<PAGE> 35

Ms. Dillon-Ridgley was elected to the Board in February 1997. Since 1994,
Ms. Dillon-Ridgley has served as president of Zero Population Growth, the
nation's largest grassroots organization concerned with the impacts of rapid
population growth. She has also served as a senior policy analyst with the
Women's Environment and Development Organization since 1993, and as an associate
with the Kettering Foundation in Dayton, Ohio since 1991. In 1994, she was
appointed by President Clinton to the President's Council on Sustainable
Development where she serves as Co-Chair of the Council's Population and
Consumption Task Force.

Mr. Gable, a director since March 1984, is an attorney-at-law with the
Atlanta based law firm of Troutman Sanders LLP. From September 1992 until
joining Troutman Sanders in March 1996, he was a member of another Atlanta law
firm, Booth Owens & Jospin (formerly Booth, Wade & Campbell). Mr. Gable serves
on the Boards of numerous nonprofit organizations.

Dr. Henton was elected as a director in February 1995. Since 1985, Dr.
Henton has served as Dean of the School of Human Sciences at Auburn University,
which includes a program in interior environments. Dr. Henton, who received her
Ph.D. from the University of Minnesota, is an accomplished author and lecturer
on child and family issues. She has provided leadership for a wide variety of
professional, policy and civic organizations. As a charter member of the
Operating Board of the National Textile Center, Dr. Henton has significant
expertise in the integration of academic and research programs within the
textile industry.

Mr. Lanier has been a director since 1973. He is Chairman and Chief
Executive Officer of J. Smith Lanier & Co., a general insurance agency based in
West Point, Georgia. Mr. Lanier also serves as a director of National Vision
Associates, Ltd., a Lawrenceville, Georgia based operator of retail optical
centers. He also serves on the boards of numerous nonprofit organizations.

Mr. Saulter has been a director since July 1987. He served as a Senior Vice
President of the Company from October 1987 until June 1991. He served as
President of Guilford of Maine, Inc. (now Interface Fabrics), the Company's
principal interior fabrics subsidiary, until January 1990, and as Interface
Fabrics' Chairman from January 1990 until his retirement in June 1991. In
October 1993, Mr. Saulter resumed the position of President of Interface Fabrics
on an interim basis, serving until March 1994.

Mr. Th. van Andel, who has been a director since October 1988, was a
partner in the law firm of Schut & Grosheide, Amsterdam, until his retirement in
January 1996. He served as Chairman of the supervisory board of Interface Europe
B.V. (formerly Interface Heuga B.V. and Heuga Holding, B.V.), the Company's
modular carpet subsidiary based in the Netherlands, from 1984 until 1996, when
the supervisory board was dissolved.

S-35
<PAGE> 36

SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS

The following table sets forth, as of February 1, 1998 (unless otherwise
indicated), certain information with respect to the beneficial ownership of each
class of the Company's Common Stock by (i) each person, including any "group" as
that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934,
who is known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of any class of the Company's voting securities, (ii) the
Company's Chief Executive Officer and four other most highly compensated
executive officers, (iii) each director of the Company, and (iv) all directors
and executive officers of the Company as a group. Unless otherwise indicated,
each of the shareholders listed below has sole voting and investment power with
respect to the shares of Common Stock beneficially owned by him.

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT PERCENT OF
TITLE OF BENEFICIAL OF CLASS A
NAME CLASS OWNERSHIP(1) CLASS(1) AFTER CONVERSION(2)
- ---- -------- ------------ -------- -------------------
<S> <C> <C> <C> <C>
Ray C. Anderson........................... Class A 5,182(3) * 7.0%
2859 Paces Ferry Road, Suite 2000 Class B 1,609,363(4) 57.6%
Atlanta, Georgia 30339
Ariel Capital Management, Inc............. Class A 2,844,420(5)(6) 13.3
307 N. Michigan Avenue
Chicago, Illinois 60601
ICM Asset Management, Inc................. Class A 1,211,063(5)(7) 5.7
601 W. Main Avenue, Suite 600
Spokane, Washington 99201
Brian L. DeMoura.......................... Class B 35,825(8) 1.3 *
Dianne Dillon-Ridgley..................... Class B 4,000(9) * *
Charles R. Eitel.......................... Class A 141(10) * *
Class B 119,060(11) 4.1
Carl I. Gable............................. Class A 70(12) * *
Class B 32,622(12) 1.0
Daniel T. Hendrix......................... Class A 10,830(13) * *
Class B 16,980(13) *
June M. Henton............................ Class B 12,000(14) * *
J. Smith Lanier, II....................... Class A 10,500(15) * *
2920 Brandywine Road Class B 160,824(15) 5.8
Atlanta, Georgia 30366
Donald E. Russell......................... Class A 23,177(16) * *
Class B 84,732 3.1
Leonard G. Saulter........................ Class A 2,000(17) * *
Class B 12,000(17) *
Clarinus C. Th. van Andel................. Class B 37,000(18) 1.3 *
John H. Walker............................ Class A 1,500 * *
Class B 29,165(19) 1.0
Gordon D. Whitener........................ Class A 141(20) * *
Class B 29,980(20) 1.0
All executive officers and directors...... Class A 63,986(21) * 9.9
as a group (19 persons) Class B 2,280,429(21) 72.3
</TABLE>

- ---------------

* Represents less than 1%.
(1) Shares of Class B Common Stock are convertible, on a share-for-share basis,
into shares of Class A Common Stock. The number of Class A shares indicated
as beneficially owned by each person or group

S-36
<PAGE> 37

does not include Class A shares such person or group could acquire upon
conversion of Class B shares. The Percent of Class is calculated assuming
that the beneficial owner has exercised any conversion rights, options or
other rights to subscribe held by such beneficial owner that are
exercisable within 60 days (not including Class A shares that could be
acquired upon conversion of Class B shares), and that no other conversion
rights, options or rights to subscribe have been exercised by anyone else.
(2) Represents the percent of Class A shares the named person or group would
beneficially own if such person or group, and only such person or group,
converted all Class B shares beneficially owned by such person or group
into Class A shares.
(3) Includes 4,000 shares held by Mr. Anderson's wife, although Mr. Anderson
disclaims beneficial ownership of such shares. Also includes 1,182 shares
that Mr. Anderson beneficially owns through the Company's Savings and
Investment Plan. All Savings and Investment Plan information included in
the above table is as of December 31, 1997.
(4) Includes 12,000 shares that Mr. Anderson has the right to acquire pursuant
to exercisable stock options.
(5) Based upon information included in statements provided to the Company by
such beneficial owners. Information with respect to ICM Asset Management is
as of December 31, 1997.
(6) All such shares are held by Ariel Capital Management, Inc. ("Ariel") for
the accounts of clients. Ariel disclaims beneficial ownership of all such
shares. Ariel, in its capacity as investment adviser, has sole voting power
with respect to 2,628,270 shares and shared voting power with respect to
42,400 shares. Ariel has sole investment power with respect to all such
shares. (John W. Rogers, Jr., President and a controlling person of Ariel,
may be deemed to beneficially own all such shares, but he disclaims such
beneficial ownership.)
(7) All such shares are held by ICM Asset Management, Inc. ("ICM"), an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940. ICM, in its capacity as investment adviser, has sole voting
power with respect to 919,163 of such shares and sole investment power with
respect to all such shares.
(8) All such shares may be acquired by Mr. DeMoura pursuant to exercisable
stock options.
(9) All such shares may be acquired by Ms. Dillon-Ridgley pursuant to
exercisable stock options.
(10) All such shares are beneficially owned by Mr. Eitel pursuant to the
Company's Savings and Investment Plan.
(11) Includes 109,060 shares that Mr. Eitel has the right to acquire pursuant to
exercisable stock options.
(12) All such Class A shares are held by Mr. Gable as custodian for his son.
Includes 12,000 Class B shares that Mr. Gable has the right to acquire
pursuant to exercisable stock options.
(13) Includes 10,000 Class A shares and 1,980 Class B shares that Mr. Hendrix
has the right to acquire pursuant to exercisable stock options. Includes
830 Class A shares that Mr. Hendrix beneficially owns through the Company's
Savings and Investment Plan.
(14) All such shares may be acquired by Dr. Henton pursuant to exercisable stock
options.
(15) Includes 200 Class A shares and 78,502 Class B shares held by Mr. Lanier's
wife, and 12,000 Class B shares Mr. Lanier has the right to acquire
pursuant to exercisable stock options. Mr. Lanier disclaims beneficial
ownership of the shares owned by his wife.
(16) Includes 20,500 shares that Mr. Russell has the right to acquire pursuant
to exercisable stock options. Includes 985 Class A shares that Mr. Russell
beneficially owns through the Company's Savings and Investment Plan.
(17) All such Class A shares are held by Mr. Saulter's wife, and Mr. Saulter
disclaims beneficial ownership of the shares. All such Class B shares may
be acquired by Mr. Saulter pursuant to exercisable stock options.
(18) Includes 12,000 shares that may be acquired by Mr. Th. van Andel pursuant
to exercisable stock options.
(19) All such shares may be acquired by Mr. Walker pursuant to exercisable stock
options.
(20) All such Class A shares are beneficially owned by Mr. Whitener pursuant to
the Company's Savings and Investment Plan. All such Class B shares may be
acquired by Mr. Whitener pursuant to exercisable stock options.
(21) Includes an aggregate of 38,500 Class A shares and 373,888 Class B shares
that all executive officers and directors as a group have the right to
acquire pursuant to exercisable stock options.
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<PAGE> 38

UNDERWRITING

Subject to the terms and subject to the conditions stated in the
Underwriting Agreement dated the date hereof, each Underwriter named below has
severally agreed to purchase, and the Company has agreed to sell to such
Underwriter, the number of shares of Common Stock set forth opposite the name of
such Underwriter.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Smith Barney Inc. ..........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
The Robinson-Humphrey Company, LLC..........................
Wheat First Securities, Inc. ...............................
---------
Total............................................. 1,500,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc. is acting as Representative,
propose to offer part of the shares directly to the public at the public
offering price set forth on the cover page of this Prospectus Supplement and
part of the shares to certain dealers at a price which represents a concession
not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. After the initial offering of
the shares to the public, the public offering price and such concessions may be
changed by the Representative.

The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids for and purchases of the Common Stock so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market in order
to cover syndicate short positions. Syndicate short positions may also be
covered by exercise of the Underwriters' over-allotment option described below
in lieu of or in addition to open market purchases. Penalty bids permit the
Underwriters to reclaim a selling concession from a syndicate member where
shares of the Common Stock originally sold by such syndicate member were
purchased in a stabilizing transaction or syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Common Stock
to be higher than it would otherwise be in the absence of such transactions.
These transactions may be effected on the Nasdaq or otherwise and, if commenced,
may be discontinued at any time.

In connection with the Stock Offering, certain Underwriters and selling
group members who are qualifying registered market makers on the Nasdaq National
Market may engage in passive market making transactions in the Common Stock on
the Nasdaq National Market in accordance with Rule 103 of Regulation M. Passive
market making transactions must comply with certain volume and price limitations
and be identified as such. In general, a passive market maker may display its
bid at a price not in excess of the highest independent bid for the security,
and, if all independent bids are lowered below the passive market maker's bid,
then such bid must be lowered when certain purchase limits are exceeded.

The Company and its executive officers and directors, have agreed that, for
a period of 90 days from the date of this Prospectus Supplement, they will not,
without prior written consent of Smith Barney Inc., offer, sell, contract to
sell, or otherwise dispose of, any shares of Common Stock of the Company or any
securities convertible into, or exercisable or exchangeable for, Common Stock of
the Company.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus Supplement, to purchase up to 225,000
additional shares of Common Stock at the price to the

S-38
<PAGE> 39

public set forth on the cover page of this Prospectus Supplement minus the
underwriting discounts and commissions. The Underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, in connection
with the sale of the shares of Common Stock offered hereby. To the extent such
option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth opposite each Underwriter's name in the
preceding table bears to the total number of shares listed in such table.

From time to time in the ordinary course of its business, Smith Barney
Inc., the Representative of the Underwriters in this offering, has provided and
may in the future provide investment banking or other services to the Company.
The Robinson-Humphrey Company, LLC is a subsidiary of Smith Barney Inc. Smith
Barney Inc. and Salomon Brothers Inc are affiliated but separately registered
broker/dealers under the common control of Salomon Smith Barney Holdings Inc.
Salomon Brothers Inc, Merrill Lynch, Pierce, Fenner & Smith Incorporated, The
Robinson-Humphrey Company, LLC and Wheat First Securities, Inc. are also acting
as underwriters in the Notes Offering, along with First Chicago Capital Markets,
Inc. and NationsBanc Montgomery Securities LLC.

Wheat First Securities, Inc. (and its Wheat First Union division), one of
the Underwriters in this Offering, is a subsidiary of First Union Corporation,
which is also the parent company of First Union National Bank ("First Union").
First Union has been appointed as Trustee under the Indenture covering the Notes
and also serves as trustee under the indenture covering the Company's 9 1/2%
Senior Subordinated Notes due 2005.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

LEGAL MATTERS

Certain legal matters regarding the validity of the shares of Common Stock
offered hereby will be passed upon for the Company by Kilpatrick Stockton LLP,
Atlanta, Georgia. Certain legal matters relating to the Notes Offering will be
passed upon for the Underwriters by Smith, Gambrell & Russell, LLP, Atlanta,
Georgia. As of February 28, 1998, attorneys at Kilpatrick Stockton LLP who
worked on the preparation of this Prospectus Supplement and the accompanying
Prospectus beneficially owned in the aggregate 5,000 shares of the Company's
outstanding Class A and Class B Common Stock.

EXPERTS

The Consolidated Financial Statements of the Company and its subsidiaries
included in this Prospectus Supplement and incorporated by reference in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report appearing elsewhere in this Prospectus Supplement, and have been so
included in reliance upon such report given upon the authority of said firm as
experts in accounting and auditing.

S-39
<PAGE> 40

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated Statements of Income -- years ended December
28, 1997, December 29, 1996 and December 31, 1995......... F-3
Consolidated Balance Sheets -- December 28, 1997 and
December 29, 1996......................................... F-4
Consolidated Statements of Cash Flow -- years ended December
28, 1997, December 29, 1996 and December 31, 1995......... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>

F-1
<PAGE> 41

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders of Interface, Inc.
Atlanta, Georgia

We have audited the accompanying consolidated balance sheets of Interface,
Inc. and subsidiaries as of December 28, 1997 and December 29, 1996, and the
related consolidated statements of income and cash flows for each of the three
years in the period ended December 28, 1997. The financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Interface, Inc.
and its subsidiaries as of December 28, 1997 and December 29, 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 28, 1997, in conformity with generally
accepted accounting principles.

BDO SEIDMAN, LLP
Atlanta, Georgia
February 17, 1998

F-2
<PAGE> 42

INTERFACE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
1997 1996 1995
---------- ---------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net sales................................................... $1,135,290 $1,002,076 $802,066
Cost of sales............................................... 755,734 684,455 551,643
---------- ---------- --------
Gross profit on sales....................................... 379,556 317,621 250,423
Selling, general and administrative expenses................ 281,755 238,932 188,880
---------- ---------- --------
Operating income............................................ 97,801 78,689 61,543
---------- ---------- --------
Other expense
Interest expense.......................................... 35,038 32,772 26,753
Other..................................................... 1,492 2,490 3,114
---------- ---------- --------
Total other expense............................... 36,530 35,262 29,867
---------- ---------- --------
Income before taxes on income and extraordinary item........ 61,271 43,427 31,676
Taxes on income............................................. 23,757 17,032 11,336
---------- ---------- --------
Income before extraordinary item............................ 37,514 26,395 20,340
Extraordinary loss, net of tax.............................. -- -- 3,512
---------- ---------- --------
Net income........................................ 37,514 26,395 16,828
Preferred stock dividends................................... -- 1,678 1,750
---------- ---------- --------
Net income applicable to common shareholders...... $ 37,514 $ 24,717 $ 15,078
========== ========== ========
Basic earnings per common share
Income before extraordinary item.......................... $ 1.58 $ 1.23 $ 1.02
Extraordinary loss, net of tax............................ -- -- 0.19
---------- ---------- --------
Net Income........................................ $ 1.58 $ 1.23 $ 0.83
Diluted earnings per common share
Income before extraordinary item.......................... $ 1.53 $ 1.20 $ 1.00
Extraordinary loss, net of tax............................ -- -- 0.19
---------- ---------- --------
Net income........................................ $ 1.53 $ 1.20 $ 0.81
========== ========== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 43

INTERFACE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current
Cash...................................................... $ 10,212 $ 8,762
Accounts receivable....................................... 177,977 167,817
Inventories............................................... 157,630 146,678
Prepaid expenses.......................................... 24,265 22,986
Deferred income taxes..................................... 5,156 7,057
-------- --------
Total current assets.............................. 375,240 353,300
Property and equipment...................................... 228,781 208,791
Miscellaneous............................................... 46,945 51,385
Excess of cost over net assets acquired..................... 278,597 249,070
-------- --------
$929,563 $862,546
======== ========

LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current liabilities
Notes payable............................................. $ 22,264 $ 14,918
Accounts payable.......................................... 79,279 74,960
Accrued expenses.......................................... 87,543 70,919
Current maturities of long-term debt...................... 2,751 2,919
-------- --------
Total current liabilities......................... 191,837 163,716
Long-term debt, less current maturities..................... 264,499 254,353
Senior subordinated notes................................... 125,000 125,000
Deferred income taxes....................................... 28,873 23,484
-------- --------
Total liabilities................................. 610,209 566,553
Minority interest........................................... 2,989 3,125
Series A redeemable preferred stock......................... -- 19,750
Common stock................................................ 2,776 2,536
Additional paid-in capital.................................. 161,584 124,557
Retained earnings........................................... 197,906 166,828
Foreign currency translation adjustment..................... (28,155) (3,057)
Treasury stock, 3,600,000 Class A shares, at cost........... (17,746) (17,746)
-------- --------
$929,563 $862,546
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 44

INTERFACE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 37,514 $ 26,395 $ 16,828
Adjustments to reconcile net income to cash provided by
operating activities
Depreciation and amortization............................... 38,605 35,305 28,944
Extraordinary loss on early extinguishment of debt, net of
tax....................................................... -- -- 3,512
Deferred income taxes....................................... 7,849 5,438 1,431
Working capital changes
Cash equivalents.......................................... -- 1,489 (596)
Accounts receivable....................................... (16,386) (17,465) 25,978
Inventories............................................... (16,233) (2,199) 5,979
Prepaid expenses and other................................ (2,273) (6,870) 8
Accounts payable and accrued expenses..................... 25,647 14,419 (6,132)
-------- -------- --------
74,723 56,512 75,952
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures........................................ (38,654) (36,436) (42,123)
Acquisitions of businesses.................................. (34,647) (30,151) (27,554)
Changes in escrowed and restricted funds.................... -- -- 2,663
Other....................................................... (17,902) (11,425) (5,145)
-------- -------- --------
(91,203) (78,012) (72,159)
-------- -------- --------
FINANCING ACTIVITIES
Borrowings on long-term debt................................ 153,624 154,224 61,471
Principal repayments on long-term debt...................... (142,884) (107,561) (73,406)
Proceeds from issuance of subordinated notes................ -- -- 121,543
Extinguishment of convertible subordinated debentures....... -- -- (106,419)
Borrowings (repayments) under lines of credit............... 7,617 (20,102) 1,965
Proceeds from issuance of common stock...................... 6,414 2,916 984
Dividends paid.............................................. (6,436) (6,606) (6,132)
-------- -------- --------
18,335 22,871 6
-------- -------- --------
Net cash provided by operating, investing, and financing
activities................................................ 1,855 1,371 3,799
Effect of exchange rate changes on cash..................... (405) 130 (34)
-------- -------- --------
CASH
Net increase................................................ 1,450 1,501 3,765
Balance, beginning of year.................................. 8,762 7,261 3,496
-------- -------- --------
Balance, end of year........................................ $ 10,212 $ 8,762 $ 7,261
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 45

INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Interface, Inc. (the "Company") is a recognized leader in the worldwide
commercial interiors market, offering floorcoverings, fabrics, specialty
chemicals and interior architectural products. The Company manufactures modular
carpet under the Interface and Heuga brands. The Company's broadloom carpet
operations are conducted through Bentley Mills and Prince Street, both of which
focus on the high quality, designer-oriented sector of the U.S. broadloom carpet
market, and Firth Carpets in the United Kingdom. The Company also provides
specialized carpet replacement, installation, and maintenance services. The
Company also produces interior fabrics and upholstery products, which it markets
under the Guilford of Maine, Stevens Linen, Toltec, Intek, and Camborne brands.
In addition, the Company provides chemicals used in various rubber and plastic
products; licenses Intersept(R), a proprietary antimicrobial used in a host of
interior finishes; sponsors the Envirosense(R) Consortium in its mission to
address workplace environmental issues; and markets low-profile and multiple
plenum raised/access flooring systems under the C-Tec, Intercell and
Interstitial Systems brands.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions are
eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Examples include provisions for returns, bad debts, claims
reserves, inventory obsolescence and the length of product life cycles, income
tax exposures, and excess of cost over net assets acquired and fixed asset
lives. Actual results could vary from these estimates.

INVENTORIES

Inventories are valued at the lower of cost (standards which approximate
actual cost on a first-in, first-out basis) or market. Inventories include the
cost of raw materials, labor and manufacturing overhead. The Company makes
provisions for obsolete or slow moving inventories as necessary to properly
reflect inventory value.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives: buildings
and improvements -- ten to fifty years; furniture and equipment -- three to
twelve years. Interest costs for the construction of certain long-term assets
are capitalized and amortized over the related assets' estimated useful lives.
The Company capitalized net interest costs of approximately $0.4 million, $0.1
million, and $1.4 million for the years ended 1997, 1996, and 1995,
respectively. Depreciation expense amounted to approximately $25.7 million,
$25.0 million, and $18.2 million for the years ended 1997, 1996, and 1995,
respectively.

Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and carrying value of the asset.

F-6
<PAGE> 46
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EXCESS OF COST OVER NET ASSETS ACQUIRED

Excess of cost over net assets acquired is the excess of the purchase price
over the fair value of net assets acquired in business combinations accounted
for as purchases. Excess of cost over net assets acquired is amortized on a
straight-line basis over the periods benefited, principally twenty-five to forty
years. Accumulated amortization amounted to approximately $51.5 million and
$43.5 million at December 28, 1997 and December 29, 1996, respectively.

The Company's operational policy for the assessment and measurement of any
impairment in the value of excess of cost over net assets acquired which is
other than temporary is to evaluate the recoverability and remaining life and
determine whether it should be completely or partially written off or the
amortization period accelerated. The Company will recognize an impairment if
undiscounted estimated future operating cash flows of the acquired business are
determined to be less than the carrying amount. The amount of impairment, if
any, is measured based on projected discounted future operating cash flows using
a discount rate reflecting the Company's average cost of funds.

TAXES ON INCOME

The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than enactments of changes in tax laws or rates. The effect on deferred tax
assets and liabilities of a change in tax rates will be recognized as income or
expense in the period that includes the enactment date.

EARNINGS PER COMMON SHARE AND DIVIDENDS

In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." The new Standard simplifies the computation of earnings per share and
requires presentation of two amounts, basic and diluted earnings per share. As
required by the Standard, the Company has retroactively restated earnings per
share data for all periods presented.

Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of shares of Class A and Class B
Common Stock outstanding during each year. Shares issued during the year and
shares reacquired during the year have been weighted for the portion of the year
that they were outstanding. Basic earnings per share are based upon 23,707,918
shares, 20,060,347 shares, and 18,254,965 shares for the years ended 1997, 1996,
and 1995, respectively. Diluted earnings per share is calculated in a manner
consistent with that of basic earnings per share while giving effect to all
dilutive potential common shares that were outstanding during the period.
Diluted earnings per share are based upon 24,651,014 shares, 20,657,105 shares,
and 18,598,965 shares for the years ended 1997, 1996, and 1995, respectively.
For the purposes of computing earnings per common share and dividends per common
share, the Company is treating as treasury stock (and therefore not outstanding)
the shares that are owned by a wholly owned subsidiary (3,600,000 Class A shares
recorded at cost).

REVENUE RECOGNITION

Revenue is generally recognized on the sale of products or services when
the products are shipped or the services performed, all significant contractual
obligations have been satisfied, and the collection of the resulting receivable
is reasonably assured. Revenues and estimated profits on long-term performance
contracts are recognized under the percentage of completion method of accounting
using the cost-to-cost methodology.

F-7
<PAGE> 47
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Profit estimates are revised periodically based upon changes in facts. Any
losses identified on contracts are recognized immediately.

CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS

Highly liquid investments with insignificant interest rate risk and with
original maturities of three months or less are classified as cash and cash
equivalents. Investments with maturities greater than three months and less than
one year are classified as short-term investments.

At December 28, 1997 and December 29, 1996, checks issued against future
deposits totaled approximately $12.8 million and $12.3 million, respectively.
Cash payments for interest amounted to approximately $33.8 million, $27.8
million, and $27.9 million for the years ended 1997, 1996, and 1995,
respectively. Income tax payments amounted to approximately $18.2 million, $9.8
million, and $8.2 million for the years ended 1997, 1996, and 1995,
respectively.

FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair values of cash and cash equivalents, short-term investments and
short-term debt approximate cost due to the short period of time to maturity.
Fair values of long-term investments, debt, swaps, forward currency contracts
and currency options are based on quoted market prices or pricing models using
current market rates.

TRANSLATION OF FOREIGN CURRENCIES

The financial position and results of operations of the Company's foreign
subsidiaries are measured generally using local currencies as the functional
currency. Assets and liabilities of these subsidiaries are translated into U.S.
dollars at the exchange rate in effect at each year end. Income and expense
items are translated at average exchange rates for the year. The resulting
translation adjustments are recorded in the foreign currency translation
adjustment account. In the event of a divestiture of a foreign subsidiary, the
related foreign currency translation results are reversed from equity to income.
Foreign currency exchange gains and losses which are not material are included
in income.

DERIVATIVES

The Company uses various financial instruments, including derivative
financial instruments, for purposes other than trading. The Company does not
enter into derivative financial instruments for speculative purposes.
Derivatives, used as a part of the Company's risk management strategy, are
designated at inception as hedges, and are measured for effectiveness both at
inception and on an ongoing basis. Gains and losses on hedges of existing assets
or liabilities are included in the carrying amounts of those assets or
liabilities and are ultimately recognized in income as part of those carrying
amounts. Gains or losses related to qualifying hedges of firm commitments or
anticipated transactions also are deferred and are recognized in income or as
adjustments of carrying amounts when the hedged transaction occurs.

FISCAL YEAR

The Company's fiscal year ends on the Sunday nearest December 31. All
references herein to "1997", "1996", and "1995" mean the fiscal years ended
December 28, 1997, December 29, 1996 and December 31, 1995, respectively, each
comprising 52 weeks. Quarterly financial results are based upon a 13 week
reporting period.

F-8
<PAGE> 48
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECLASSIFICATIONS

Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.

2. BUSINESS ACQUISITIONS AND DIVESTITURES

In December 1997, the Company sold certain assets related to the commercial
manufacture of zinc diacrylate, a chemical compound used in the production of
golf balls, for $14.1 million in cash. An immaterial gain was realized on the
sale. The Company generated 1997 sales of $7.9 million and operating income of
$1.1 million related to the manufacture of this chemical compound.

During 1997, the Company acquired 100% of the outstanding capital stock of
five floorcovering contractors: Canaan Corporation, based in Connecticut; Carpet
Services of Tampa, Inc., based in Florida; Facilities Resource Group, Inc.,
based in Illinois; Floormart, Inc. based in California; and Carpet Solutions
Holdings Pty Ltd., based in Queensland, Australia. These contractors are engaged
primarily in the installation of commercial floorcoverings. As consideration,
the Company issued 257,584 shares of Class A Common Stock valued at
approximately $3.5 million and $11.1 million in cash. All transactions have been
accounted for as purchases, and accordingly, the results of operations of the
acquired companies since their acquisition dates have been included within the
consolidated financial statements. The excess of the purchase price over the
fair value of the net assets acquired was approximately $17.5 million and is
being amortized over 25 years.

In June 1997, the Company acquired 100% of the outstanding common stock of
Camborne Holdings, Ltd., a manufacturer of interior fabrics based in West
Yorkshire, U.K. for approximately $19.9 million, which was comprised of $17.1
million in cash and 127,806 shares of Class B Common Stock valued at
approximately $2.8 million. The transaction was accounted for as a purchase. The
results of operations of Camborne have been included with the consolidated
financial statements since the acquisition date. The excess of the purchase
price over the fair value of the assets was approximately $16.8 million and is
being amortized over 40 years.

During 1996, the Company acquired 100% of the outstanding capital stock of
fifteen floorcovering contractors: Earl W. Bentley Operating Co., Inc., based in
Oklahoma; Quaker City International, Inc., based in Pennsylvania; Superior
Holding Inc., based in Texas; Landry's Commercial Flooring Co., Inc., based in
Oregon; Reiser Associates, Inc., based in Texas; Southern Contract Systems, Inc.
based in Georgia; A & F Installations, Inc., based in New Jersey; ParCom, Inc.,
based in Virginia; Congress Flooring Corp., based in Massachusetts; Flooring
Consultants, Inc., based in Arizona; B. Shehadi & Sons, Inc., based in New
Jersey; Lasher/White Carpet Co., Inc., based in New York; Oldtown Carpet Center,
Inc., based in North Carolina; Architectural Floors, a division of Continental
Office Furniture Corp., based in Ohio; and Floor Concepts, Inc., based in
Maryland. These contractors are engaged primarily in the installation of
commercial floorcoverings. As consideration, the Company issued 2,674,906 shares
of Common Stock valued at approximately $19.3 million, $0.8 million in 7% notes
and $23.0 million in cash. All transactions have been accounted for as
purchases, and accordingly, the results of operations of the acquired companies
since their acquisition dates have been included within the consolidated
financial statements. The excess of the purchase price over the fair value of
the net assets acquired was approximately $33.9 million and is being amortized
over 25 years.

During 1997, the Company issued additional consideration of approximately
$2.5 million for the purchase of the floorcovering contractors which were
acquired during 1996. The additional consideration was recorded as excess of
cost over net assets acquired.

In February 1996, the Company acquired the outstanding common stock of
Renovisions, Inc., a nationwide installation services firm based in Georgia that
has pioneered a new method of carpet replacement, for approximately $4 million
in cash at closing and $1 million in guaranteed payments. The transaction was
accounted for as a purchase, and accordingly, the results of operations of
Renovisions since the acquisition
F-9
<PAGE> 49
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

date have been included within the consolidated financial statements. The excess
of the purchase price over the fair value of net assets acquired was
approximately $4.3 million and is being amortized over 25 years.

In February 1996, the Company acquired the outstanding common stock of
C-Tec, Inc., a Michigan based producer of raised/access flooring systems, for
approximately $8.8 million, which was comprised of $4.5 million in cash and $4.3
million in 6% subordinated convertible notes. The transaction was accounted for
as a purchase, and accordingly, the results of operations of C-Tec since the
acquisition date have been included within the consolidated financial
statements. The excess of the purchase price over the fair value of net assets
acquired was approximately $3.1 million and is being amortized over 25 years.

In December 1995, the Company acquired substantially all of the assets of
the Intek division of Spring Industries, a manufacturer of panel fabrics based
in Aberdeen, North Carolina, for approximately $13.9 million. The transaction
was accounted for as a purchase. The excess of the purchase price over the fair
value of the net assets was approximately $5.1 million and is being amortized
over 40 years. The results of operations of Intek have been included within the
consolidated financial statements since the acquisition date.

In June 1995, the Company acquired substantially all of the assets of
Toltec Fabrics, Inc., a manufacturer of panel fabrics based in North Carolina,
for approximately $13.3 million, which was comprised of $7.7 million in cash and
$5.6 million in notes. The transaction was accounted for as a purchase. The
excess of the purchase price over the fair value of the net assets was
approximately $6.9 million and is being amortized over 40 years. The results of
operations of Toltec have been included within the consolidated financial
statements since the acquisition date.

3. RECEIVABLES

The Company maintains an agreement with a financial institution to sell a
participating interest in a designated pool of commercial receivables, with
limited recourse, in amounts up to $65 million. The agreement relates to
specific operating subsidiaries of the Company. Under the agreement, a
participating interest in new receivables is sold as previous receivables are
collected. A service fee consisting of the financial institution's commercial
paper rate plus .45% is charged based upon the resulting participating interest.
This amount is included in other expense in the accompanying consolidated
statements of income. At December 28, 1997, the rate was 6.43%. The Company acts
as an agent for the purchaser by performing record keeping and collection
functions. The uncollected receivables sold at December 28, 1997 and December
29, 1996 amounted to $49.6 million and $31.7 million, respectively. As of
December 28, 1997 and December 29, 1996, the allowance for bad debts amounted to
approximately $7.4 million and $7.3 million, respectively, for all accounts
receivable of the Company.

The Company has adopted credit policies and standards intended to reduce
the inherent risk associated with potential increases in its concentration of
credit risk due to increasing trade receivables from sales to owners and users
of commercial office facilities and with specifiers such as architects,
engineers and contracting firms. Management believes that credit risks are
further moderated by the diversity of its end customers and geographic sales
areas. Interface performs ongoing credit evaluations of its customers' financial
condition and requires collateral as deemed necessary.

In June 1996, the FASB issued SFAS No 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The Company's
adoption of this Standard had no impact on the consolidated results of
operations or financial position.

F-10
<PAGE> 50
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. INVENTORIES

Inventories are summarized as follows:

<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Finished goods.............................................. $ 91,016 $ 81,034
Work-in-process............................................. 29,094 30,464
Raw materials............................................... 37,520 35,180
-------- --------
$157,630 $146,678
======== ========
</TABLE>

5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 12,485 $ 13,038
Buildings................................................... 130,450 98,706
Equipment................................................... 264,656 232,489
Construction-in-progress.................................... 6,890 32,078
--------- ---------
414,481 376,311
Accumulated depreciation.................................... (185,700) (167,520)
--------- ---------
$ 228,781 $ 208,791
========= =========
</TABLE>

The estimated cost to complete construction in progress for which the
Company was committed at December 28, 1997 was approximately $11.3 million.

6. ACCRUED EXPENSES

Accrued expenses are summarized as follows:

<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Taxes....................................................... $21,482 $16,868
Compensation................................................ 25,671 20,541
Interest.................................................... 3,813 5,276
Other....................................................... 36,577 28,234
------- -------
$87,543 $70,919
======= =======
</TABLE>

7. SENIOR SUBORDINATED NOTES

The Company has outstanding $125 million in 9.5% Senior Subordinated Notes
due 2005 (the "Notes"). Interest is payable semi-annually on May 15 and November
15.

The Notes are guaranteed, jointly and severally, on an unsecured senior
subordinated basis, by each of the Company's principal domestic subsidiaries
(the "Guarantors"). The Guarantors include Interface Flooring Systems, Inc.,
Bentley Mills, Inc., Interface Interior Fabrics, Inc., Prince Street
Technologies, Inc. and several other smaller domestic subsidiaries. (See Note 18
for Supplemental Guarantor Condensed Consolidating Financial Statements.) The
Notes are redeemable for cash at any time on or after November 15, 2000 at the
Company's option and in whole or in part, initially at a redemption price equal
to 104.75% of the principal amount, declining to 100% of the principal amount on
November 15, 2003, plus accrued interest thereon to

F-11
<PAGE> 51
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the date fixed for redemption. At December 28, 1997 and December 29, 1996, the
estimated fair value of the notes was approximately $132.5 million and $135.2
million, respectively.

8. LONG-TERM DEBT

Long-term debt, exclusive of the Company's 9.5% Senior Subordinated Notes
due 2005 (see Note 7), consisted of the following:

<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Senior term loans........................................... $100,000 $ 50,000
Revolving credit facility................................... 143,797 181,211
Other....................................................... 23,453 26,061
-------- --------
Total long-term debt........................................ 267,250 257,272
Less current maturities..................................... (2,751) (2,919)
-------- --------
$264,499 $254,353
======== ========
</TABLE>

At December 28, 1997 the Company maintained a revolving credit and term
facility which provided a maximum credit limit of $370 million. The facility is
collateralized by substantially all of the outstanding stock of the Company's
operating subsidiaries (except certain foreign subsidiaries, for which only 66%
of the outstanding stock is pledged). The $120 million term portion of the
facility consists of four separate notes of which $25 million and $75 million is
due December 29, 2000 and December 31, 2001, respectively. The revolving credit
facility matures and related borrowings are due December 31, 2001, concurrent
with the final installment of the term portion. Interest is charged, at the
Company's option, at a rate based on either the bank's certificate of deposit
rate or LIBOR (London Interbank Offered Rate), plus an applicable margin of .35%
to 1%, depending upon the Company's ability to meet certain performance
criteria; or the bank's prime lending rate (8.5% at December 28, 1997). For a
discussion of the Company's utilization of interest rate swap agreements to
convert approximately $64.5 million of variable rate debt to fixed rate debt see
Note 12.

The agreements require prepayment from specified excess cash flows or
proceeds from certain asset sales and provide for restrictions which, among
other things, require maintenance of certain financial ratios, restrict
encumbrance of assets and limit the payment of dividends. At December 28, 1997,
approximately $38.1 million of the Company's retained earnings were unrestricted
and available for payment of dividends under the most restrictive terms of the
agreement. Long-term debt recorded in the accompanying balance sheets
approximates fair value based on the borrowing rates currently available to the
Company for bank loans with similar terms and average maturities.

Future maturities of long-term debt based on fixed payments (amounts could
be higher if excess cash flows or asset sales require prepayment of debt under
the credit agreements) are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
- ----------- --------------
<S> <C>
1998........................................................ $ 2,751
1999........................................................ 5,772
2000........................................................ 31,621
2001........................................................ 657
2002........................................................ 225,954
Thereafter.................................................. 495
--------
$267,250
========
</TABLE>

In addition to the amounts available under the revolving credit facility
described above, the Company maintains approximately $38 million in
complementary revolving lines of credit through several of its

F-12
<PAGE> 52
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

subsidiaries. Interest is generally charged at the prime lending rate or LIBOR.
The weighted average interest rate for 1997 related to the complimentary lines
was approximately 7.9%. Approximately $22.3 million and $14.9 million was
outstanding under these lines at December 28, 1997 and December 29, 1996,
respectively.

9. PREFERRED STOCK

The Company is authorized to create and issue up to 5,000,000 shares of
$1.00 par value Preferred Stock in one or more series and to determine the
rights and preferences of each series, to the extent permitted by the Articles
of Incorporation, and to fix the terms of such preferred stock without any vote
or action by the shareholders. The issuance of any series of preferred stock may
have an adverse effect on the rights of holders of common stock, and could
decrease the amount of earnings and assets available for distribution to holders
of common stock. In addition, any issuance of preferred stock could have the
effect of delaying, deferring or preventing a change in control of the Company.

In conjunction with the acquisition of Bentley Mills in June 1993, the
Company issued 250,000 shares of Series A Cumulative Convertible Preferred Stock
with a face value of $100 per share. The Series A Preferred Stock was entitled
to a 7% annual cumulative cash dividend ($7.00 per preferred share) that was
payable quarterly. Series A Preferred Stock was non-voting, except as required
by law or in limited circumstances to protect its preferential rights. The
Series A Preferred Stock was convertible into shares of the Company's Class A
Common Stock at the rate of one share of Class A Common Stock for each $14.79
face value thereof plus the amount of any accrued but unpaid dividends. During
the period from September 1996 through January 1997, the Series A preferred
shareholders, with one exception, notified the Company of their intent to
convert all of their shares of Series A Preferred Stock into an aggregate of
1,715,900 shares of the Company's Class A Common Stock. During each of the years
ended 1996 and 1995, the Company paid cash dividends of approximately $7.00 per
preferred share.

Subsequent to year end, the Board of Directors of the Company declared a
dividend of one purchase right (a "Right") to be distributed in respect of each
outstanding share of Common Stock, payable to shareholders of record as of March
16, 1998. Each right will entitle the registered holder to purchase from the
Company one one-hundredth of a share (a "Unit") of newly created Series B
Participating Cumulative Preferred Stock (the "Series B Preferred Stock").

The Rights may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that acquires more than 15% of the
outstanding shares of Common Stock or if other specified events occur without
the Rights having been redeemed or in the event of an exchange of the rights for
Common Stock as permitted under the Shareholder Rights Plan.

The dividend and liquidation rights of the Series B Preferred Stock are
designed so that the value of one one-hundredth of a share of Series B Preferred
Stock issuable upon exercise of each Right will approximate the same economic
value as one share of Common Stock, including voting rights. The exercise price
per right will be $180, subject to adjustment. Shares of Series B Preferred
Stock will entitle the holder to a minimum preferential dividend of $1.00 per
share, but will entitle the holder to an aggregate dividend payment of 100 times
the dividend declared on each share of Common Stock. In the event of
liquidation, each share of Series B Preferred Stock will be entitled to a
minimum preferential liquidation payment of $1.00, plus accrued and unpaid
dividends and distributions thereon, but will be entitled to an aggregate
payment of 100 times the payment made per share of Common Stock. In the event of
any merger, consolidation or other transaction in which Common Stock is
exchanged for or changed into other stock or securities, cash or other property,
each share of Series B Preferred Stock will be entitled to receive 100 times the
amount received per share of Common Stock. Series B Preferred Stock is not
convertible into Common Stock.

Each share of Series B Preferred Stock will be entitled to 100 votes on all
matters submitted to a vote of the shareholders of the Company, and shares of
Series B Preferred Stock will generally vote together as one

F-13
<PAGE> 53
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

class with the Common Stock and any other voting capital stock of the Company on
all matters submitted to a vote of the Company's shareholders. While the
Company's Class B Common Stock remains outstanding, holders of Series B
Preferred Stock will vote as a single class with the Class A Common Stock for
election of directors. Further, whenever dividends on the Series B Preferred
Stock are in arrears in an amount equal to six quarterly payments, the Series B
Preferred Stock, together with any other shares of preferred stock then entitled
to elect directors, shall have the right, as a single class, to elect one
director until the default has been cured.

10. COMMON STOCK AND STOCK OPTIONS

The Company is authorized to issue 40,000,000 shares of $.10 par value
Class A Common Stock and 40,000,000 shares of $.10 par value Class B Common
Stock. Class A and Class B Common Stock have identical voting rights except for
the election or removal of directors. Holders of Class B Common Stock are
entitled as a class to elect a majority of the Board of Directors. Under the
terms of the Class B Common Stock, its special voting rights to elect a majority
of the Board members would terminate irrevocably if the total outstanding shares
of Class B Common Stock ever comprises less than ten percent (10%) of the
Company's total issued and outstanding shares of Class A and Class B Common
Stock. On December 28, 1997, the outstanding Class B shares constituted
approximately 11.5% of the total outstanding shares of Class A and Class B
Common Stock. The Company's Class A Common Stock is traded in the over-the-
counter market under the symbol IFSIA and is quoted on Nasdaq. The Company's
Class B Common Stock is not publicly traded. Class B Common Stock is convertible
into Class A Common Stock on a one-for-one basis. Both classes of Common Stock
share in dividends available to common shareholders (see Note 8 for discussion
of restrictions on the payment of dividends). Cash dividends on Common Stock
were $.27 per share for the year ended 1997, $.245 per share for the year ended
1996 and $.24 per share for the year ended 1995.

The Company has Key Employee Stock Option Plans ("the 1983 Plan" and "the
1993 Plan"), an Offshore Stock Option Plan ("Offshore Plan"), and an Omnibus
Stock Incentive Plan ("Omnibus Plan") under which a committee of the Board of
Directors is authorized to grant key employees, including officers, options to
purchase the Company's Common Stock. Options are exercisable for shares of Class
A or Class B Common Stock at a price not less than 100% of the fair market value
on the date of grant. The options generally become exercisable 20% per year over
a five year period from the date of the grant and the options generally expire
ten years from the date of the grant. The 1983 Plan, the 1993 Plan and the
Offshore Plan were terminated effective January 20, 1997. There were no
additional awards issued under any of the terminated plans after effective
termination, however, outstanding awards issued prior to such date are not
affected. The maximum number of shares of Class A or Class B Common Stock that
may be issued under the Omnibus Plan is 1,800,000, plus any shares subject to
stock options granted under the terminated plans that are forfeited, terminated
or otherwise expire unexercised.

F-14
<PAGE> 54
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table shows changes in common shareholders' equity:

<TABLE>
<CAPTION>
FOREIGN
CLASS A CLASS B ADDITIONAL CURRENCY
--------------- --------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT
------ ------ ------ ------ ---------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995....... 18,715 $1,871 3,077 $308 $ 93,450 $136,343 $ (136)
Net income..................... -- -- -- -- -- 16,828 --
Conversion of common stock..... 88 8 (88) (8) -- -- --
Issuance of common stock....... 241 24 -- -- 3,413 -- --
Cash dividends paid............ -- -- -- -- -- (6,132) --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- 3,691
------ ------ ------ ---- -------- -------- --------
BALANCE AT DECEMBER 31, 1995..... 19,044 1,903 2,989 300 96,863 147,039 3,555
Net income..................... -- -- -- -- -- 26,395 --
Conversion of common stock..... 14 2 (14) (2) -- -- --
Issuance of common stock....... 2,956 297 -- -- 22,428 -- --
Conversion of Series A
Preferred Stock............. 358 36 5,266
Cash dividends paid............ -- -- -- -- -- (6,606) --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- (6,612)
------ ------ ------ ---- -------- -------- --------
BALANCE AT DECEMBER 29, 1996..... 22,372 2,238 2,975 298 124,557 166,828 (3,057)
Net income..................... -- -- -- -- -- 37,514 --
Conversion of common stock..... 381 38 (381) (38) -- -- --
Issuance of common stock....... 876 87 175 17 17,087 -- --
Conversion of Series A
Preferred Stock............. 1,357 136 19,940
Cash dividends paid............ -- -- -- -- -- (6,436) --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- (25,098)
------ ------ ------ ---- -------- -------- --------
BALANCE AT DECEMBER 28, 1997..... 24,986 $2,499 2,769 $277 $161,584 $197,906 $(28,155)
====== ====== ====== ==== ======== ======== ========
</TABLE>

F-15
<PAGE> 55
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following tables summarize activity on stock options:

<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1995............................. 1,896,000 $13.43
Granted.................................................. 360,000 14.49
Exercised................................................ (96,000) 10.53
Forfeited or canceled.................................... (125,000) 14.03
---------
Outstanding at December 31, 1995........................... 2,035,000 13.18
Granted.................................................. 308,000 13.47
Exercised................................................ (224,000) 13.04
Forfeited or canceled.................................... (112,000) 13.76
---------
Outstanding at December 29, 1996........................... 2,007,000 13.30
Granted.................................................. 314,000 20.09
Exercised................................................ (502,000) 13.03
Forfeited or canceled.................................... (70,000) 13.15
---------
Outstanding at December 28, 1997........................... 1,749,000 14.61
=========
Options exercisable at December 29, 1996................... 821,000 $13.35
Options exercisable at December 28, 1997................... 745,000 $13.22
</TABLE>

<TABLE>
<CAPTION>
WEIGHTED AVERAGE FAIR VALUE OF OPTIONS
GRANTED DURING THE YEAR ENDED (IN THOUSANDS)
- -------------------------------------- --------------
<S> <C>
December 29, 1996........................................... $1,395
December 28, 1997........................................... $2,912
</TABLE>

The weighted average remaining life of options outstanding at December 28,
1997 was 7.5 years. The range of exercise prices was $10.31 - $26.75.

Interface has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its stock
option plans. Compensation expense was immaterial for 1997 and 1996. If
Interface had elected to recognize compensation cost based on the fair value at
the grant dates for options issued under the plans described above, consistent
with the method prescribed by SFAS No. 123, net income applicable to common
shareholders and earnings per share would have been changed to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED
---------------------
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Net income applicable to common shareholders
as reported............................................... $37,514 $24,717
pro forma................................................. $36,533 $24,202
Basic earnings per common share
as reported............................................... $ 1.58 $ 1.23
pro forma................................................. $ 1.54 $ 1.21
Diluted earnings per common share
as reported............................................... $ 1.53 $ 1.20
pro forma................................................. $ 1.49 $ 1.18
</TABLE>

F-16
<PAGE> 56
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The fair value of stock options used to compute pro forma net income
applicable to common shareholders and earnings per share disclosures is the
estimated present value at grant date using the Black-Scholes option-pricing
model with the following weighted average assumptions for 1997 and 1996:
Dividend yield of .71% in 1997 and .49% in 1996; expected volatility of 35% in
1997 and 30% in 1996; a risk free interest rate of 6.32% in 1997 and 6.11% in
1996; and an expected option life of 6.0 years in 1997 and 4.92 years in 1996.

11. TAXES ON INCOME

Provisions for federal, foreign, and state income taxes in the consolidated
statements of income consisted of the following components:

<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................. $ 5,569 $ 5,968 $ 5,331
Foreign................................................. 9,052 3,284 5,844
State................................................... 1,192 2,418 1,592
------- ------- -------
15,813 11,670 12,767
======= ======= =======
Deferred (reduction):
Federal................................................. 4,675 818 1,495
Foreign................................................. 2,173 5,770 (1,189)
State................................................... 1,096 (1,226) (316)
------- ------- -------
7,944 5,362 (10)
======= ======= =======
Decrease in valuation allowance........................... -- -- (1,421)
------- ------- -------
$23,757 $17,032 $11,336
======= ======= =======
</TABLE>

Income before taxes on income consisted of the following:

<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. operations........................................... $29,134 $17,186 $20,212
Foreign operations........................................ 32,137 26,241 11,464
------- ------- -------
$61,271 $43,427 $31,676
======= ======= =======
</TABLE>

Deferred income taxes for the years ended December 28, 1997 and December
29, 1996, reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.

The sources of the temporary differences and their effect on the net
deferred tax liability at December 28, 1997 and December 29, 1996, are as
follows:

<TABLE>
<CAPTION>
1997 1996
-------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Basis difference of property and equipment........ $ -- $23,886 $ -- $23,484
Net operating loss carryforwards.................. 2,853 -- 3,212 --
Other differences in bases of assets and
liabilities..................................... -- 525 7,051 --
------ ------- ------- -------
$2,853 $24,411 $10,263 $23,484
====== ======= ======= =======
</TABLE>

F-17
<PAGE> 57
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 28, 1997, the Company's foreign subsidiaries had approximately
$1.4 million in net operating losses available for an unlimited carryforward
period. Additionally, the Company had approximately $53 million in state net
operating losses expiring at various times through 2012.

The effective tax rate on income before taxes differs from the United
States statutory rate. The following summary reconciles taxes at the United
States statutory rate with the effective rates:

<TABLE>
<CAPTION>
YEAR ENDED
--------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Taxes on income at U.S. statutory rate...................... 35.0% 35.0% 35.0%
Increase (reduction) in taxes resulting from:
State income taxes, net of federal benefit................ 2.4 1.8 2.6
Amortization of excess of cost over net assets acquired
and related purchase accounting adjustments............ 4.7 5.1 6.1
Foreign and U.S. tax effects attributable to foreign
operations............................................. (2.2) (2.1) (2.4)
Valuation allowance....................................... -- -- (4.5)
Other..................................................... (1.1) (0.6) (1.0)
---- ---- ----
Taxes on income at effective rates........................ 38.8% 39.2% 35.8%
==== ==== ====
</TABLE>

Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $86 million at December 28, 1997. Those earnings are considered to
be indefinitely reinvested and, accordingly, no provision for United States
federal and state income taxes has been provided thereon. Upon distribution of
those earnings in the form of dividends or otherwise, the Company would be
subject to both United States income taxes (subject to an adjustment for foreign
tax credits) and withholding taxes payable to the various foreign countries.
Determination of the amount of unrecognized deferred United States income tax
liability is not practicable because of the complexities associated with its
hypothetical calculation. Withholding taxes of approximately $4.3 million would
be payable upon remittance of all previously unremitted earnings at December 28,
1997.

12. HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS

The Company employs the use of derivative financial instruments for the
purpose of reducing its exposure to adverse fluctuations in interest and foreign
currency exchange rates. While these hedging instruments are subject to
fluctuations in value, such fluctuations are generally offset by the
fluctuations in values of the underlying exposures being hedged. The Company
does not hold or issue derivative financial instruments for trading purposes.
The Company monitors the use of derivative financial instruments through the use
of objective measurable systems, well-defined market and credit risk limits, and
timely reports to senior management according to prescribed guidelines. The
Company has established strict counterparty credit guidelines and only enters
into transactions with financial institutions of investment grade or better. As
a result, the Company considers the risk of counterparty default to be minimal.

INTEREST RATE MANAGEMENT

Management of the Company has developed and implemented a policy to
maintain the percentage of fixed and variable rate debt within certain
parameters. The Company enters into interest rate swap agreements, which
maintain the fixed/variable mix within these defined parameters. In these swaps,
the Company agrees to exchange, at specified intervals, the difference between
fixed and variable interest amounts calculated by reference to an agreed-upon
notional principal linked to LIBOR. Any differences paid or received on interest
rate swap agreements are recognized as adjustments to interest expense over the
life of each swap, thereby adjusting the effective interest rate on the
underlying obligation. At December 28, 1997 and December 29, 1996, the Company
had utilized interest rate swap agreements to effectively convert

F-18
<PAGE> 58
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

approximately $64.5 million and $73.0 million, respectively, of variable rate
debt to fixed rate debt. The weighted average rate on these borrowings was 6.6%
at December 28, 1997 and 6.9% at December 29, 1996.

FOREIGN CURRENCY EXCHANGE RATE MANAGEMENT

The Company enters into currency swap contracts to hedge certain firm sales
commitments denominated in foreign currencies. Net gains and losses are deferred
and recognized in income in the same period as the hedged transaction. Net
deferred gains/losses from hedging anticipated but not yet firmly committed
transactions were not material at December 28, 1997 and December 29, 1996. The
contracts served to hedge firmly committed Dutch guilder, German mark, Japanese
yen, French franc, British pound sterling, and other foreign currency revenues.
The interest rate and currency swap agreements have maturity dates ranging from
nine to twenty-four months.

The estimated fair values of derivatives used to hedge or modify the
Company's risks will fluctuate over time. These fair value amounts should not be
viewed in isolation, but rather in relation to the fair values of the underlying
hedged obligations and transactions and the overall reduction in the Company's
exposure to adverse fluctuations in interest and foreign exchange rates.

The notional amounts of the derivative financial instruments do not
necessarily represent amounts exchanged by the parties and, therefore, are not a
direct measure of the exposure of the Company through its use of derivatives.
The amounts exchanged are calculated on the basis of the notional amounts and
the other terms of the derivatives, which relate to interest rates or currency
exchange rates.

The following table represents the aggregate notional amounts, fair values,
and maturities of the Company's derivative financial instruments. The liability
amounts shown within the table under foreign currency management represent
contracts under which the Company is required to deliver Japanese yen and Dutch
guilder currency at dates in the future.

<TABLE>
<CAPTION>
1997 1996
----------------- ------------------
NOTIONAL FAIR NOTIONAL FAIR
AMOUNTS VALUES AMOUNTS VALUES
-------- ------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Rate Management Liabilities
Swap agreements.......................................... $64,500 $(319) $73,000 $ (448)
Foreign Currency Management Liabilities
Swap agreements.......................................... $14,500 $(751) $40,063 $(3,864)
</TABLE>

F-19
<PAGE> 59
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. COMMITMENTS AND CONTINGENCIES

The Company leases certain marketing, production and distribution
facilities, and equipment. At December 28, 1997 aggregate minimum rent
commitments under operating leases with initial or remaining terms of one year
or more consisted of the following:

<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
- ----------- --------------
<S> <C>
1998........................................................ $17,848
1999........................................................ 13,990
2000........................................................ 11,748
2001........................................................ 8,535
2002........................................................ 5,948
Thereafter.................................................. 4,947
-------
$63,016
=======
</TABLE>

Rental expense amounted to approximately $20.7 million, $16.2 million, and
$15.8 million for the fiscal years ended 1997, 1996 and 1995, respectively.

YEAR 2000 RISK

The Company currently estimates the total cost of such modifications,
excluding the cost of modifications to program logic control systems relative to
manufacturing equipment, to be at least $17 million, although it could be
significantly more. The Company and its outside consultants are currently
evaluating the costs of modifications to these program logic control systems. Of
the total project cost, approximately $10 million is attributable to the cost of
new hardware and software which will be required in connection with the global
consolidation of the Company's management and financial accounting systems. This
new equipment and upgraded technology will have a definable value lasting beyond
the Year 2000. In these instances, where Year 2000 compliance is ancillary, the
Company may capitalize and depreciate such costs. The remaining $7 million will
be expensed as incurred over the next two years. During the year ended December
28, 1997 the Company expensed approximately $0.6 million in regards to such
modifications.

F-20
<PAGE> 60
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. EMPLOYEE BENEFIT PLANS

The Company and its subsidiaries have trusteed defined benefit retirement
plans ("Plans") which cover substantially all of their employees except those of
Interface Interior Fabrics, Inc.("IIF"). The benefits are generally based on
years of service and the employee's average monthly compensation. Pension
benefit was $0.1 million for the year ended 1997 and pension expense was $1.3
million and $1.1 million for the years ended 1996 and 1995, respectively.

On November 1, 1997, the Company elected to freeze the defined benefit plan
covering its United States employees. Accordingly, all further benefit accruals
under the Plan will cease and all actively employed participants became 100%
vested in their benefits. In connection with the election to freeze the Plan, a
curtailment gain of $1.7 million was reflected in net periodic pension cost for
1997.

The ranges of assumptions used to calculate the funded status of the Plans
reflect the different economic environments within the various countries where
the Plans exist. In fiscal 1997, the assumed weighted average rate of return on
plan assets was 7.3% and the measurement of the projected benefit obligation at
December 28, 1997 was based on an assumed weighted average discount rate of 7.4%
and long-term rate of compensation increases of 4.1%. In fiscal 1996, the
assumed weighted average rate of return on plan assets was 7.7% and the
measurement of the projected benefit obligation at December 29, 1996 was based
on an assumed weighted average discount rate of 7.8% and long-term rate of
compensation increases of 4.3%.

The Company has 401(k) retirement investment plans ("401(k) Plans"), which
are open to all U.S. employees, except for IIF which has a separate Plan, with
one or more years of service. Effective October 1, 1996, all existing 401(k)
plans of the Company's subsidiaries, except for IIF, were merged into one plan,
"The Interface, Inc. Savings and Investment Plan and Trust." The 401(k) Plans
call for Company matching contributions on a sliding scale based on the level of
the employee's contribution. The Company may, at its discretion, make additional
contributions to the Plans based on the attainment of certain performance
targets by its subsidiaries. Approximately 78% of eligible employees were
enrolled in the 401(k) Plans as of December 28, 1997. The Company's matching
contributions are funded monthly and totalled approximately $1.6 million, $1.1
million and $0.6 million for the years ended 1997, 1996 and 1995, respectively.
The Company's discretionary contributions totalled $0.9 million, $0.4 million
and $1.0 million for the years ended 1997, 1996 and 1995, respectively.

F-21
<PAGE> 61
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The table presented below sets forth the funded status of the Company's
significant domestic and foreign defined benefit plans and amounts recognized in
the consolidated financial statements.

<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Plan assets at fair value, primarily equity and fixed income
securities................................................ $79,879 $72,951
Actuarial present value of benefit obligations:
Vested benefits........................................... 71,329 59,558
Nonvested benefits........................................ 1,469 1,454
------- -------
Accumulated benefit obligation.............................. 72,798 61,012
Effect of projected future salary increases................. 3,946 6,007
------- -------
Projected benefit obligation................................ 76,744 67,019
------- -------
Plan assets in excess of projected benefit obligation....... 3,135 5,932
Unrecognized net gain from past experience different from
that assumed.............................................. (1,653) (7,165)
Unrecognized prior service cost............................. 320 327
Unrecognized net liability existing at the date of initial
application of SFAS 87.................................... 1,240 1,503
------- -------
Prepaid pension cost........................................ $ 3,042 $ 597
======= =======
Net pension cost included the following components:
Service cost -- benefits earned during the period......... $ 2,177 $ 1,928
Interest cost on projected benefit obligation............. 5,228 4,893
Actual return on plan assets.............................. (8,987) (6,124)
Net amortization and deferral............................. 3,178 642
Curtailment gain.......................................... (1,713) --
------- -------
Net pension cost (benefit).................................. $ (117) $ 1,339
======= =======
</TABLE>

15. SUBSEQUENT EVENTS

On December 30, 1997, the Company completed the acquisition of the European
carpet business of Readicut International plc ("Readicut"), for an estimated $50
million, subject to final adjustments. After the planned divestiture of certain
assets of Readicut, including its Network Flooring dealer division and Joseph,
Hamilton & Seaton Ltd., the Company's final investment for the retained Readicut
businesses are expected to be less than $15 million. The retained businesses
will include Firth Carpets Ltd., based in Brighouse, West Yorkshire, a leading
manufacturer of high quality woven and tufted carpet primarily for the contract
markets; and Vebe Floorcoverings BV, located in the Netherlands, a leading
manufacturer of needlepunch carpet.

During February 1998, the Company filed a Universal Shelf Registration for
the issuance of up to $300 million of debt securities, Preferred Stock, and
Class A Common Stock. The Company contemplates an offering of approximately $150
million of Senior Notes which will be due in 2008, and an offering of
approximately 1.5 million shares of Class A Common Stock. Proceeds of any
offering would be used for general corporate purposes, which may include future
acquisitions and the repayment of outstanding debt.

Also, subsequent to year end, the Board of Directors adopted a Rights
Agreement pursuant to which holders of Common Stock will be entitled to purchase
from the Company a fraction of a share of the Company's Series B Participating
Cumulative Preferred Stock (see Note 9) if a third party acquires beneficial
ownership of 15% or more of the Common Stock and will be entitled to purchase
the stock of an Acquiring Person at a discount upon the occurrence of certain
triggering events.

F-22
<PAGE> 62
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. BUSINESS AND FOREIGN OPERATIONS

The Company operates predominantly in one industry segment. The Company and
its subsidiaries are engaged predominantly in the manufacture and sale of
commercial and institutional interior finishings. The Company's principal
markets are in the United States, Europe, Asia Pacific and Canada, with the U.S.
and Europe being the largest based on revenues. Financial information by
geographic area for the years ended 1997, 1996 and 1995 is as follows:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to Unaffiliated Customers
United States..................................... $ 774,718 $ 656,044 $440,715
Americas, excluding the United States............. 23,991 22,030 23,165
Europe............................................ 259,829 257,243 267,116
Asia-Pacific...................................... 76,752 66,759 71,070
---------- ---------- --------
Total..................................... $1,135,290 $1,002,076 $802,066
========== ========== ========
Operating Income
United States..................................... $ 65,985 $ 51,251 $ 40,608
Americas, excluding the United States............. 2,906 1,519 1,170
Europe............................................ 29,440 30,815 26,046
Asia-Pacific...................................... 7,389 2,286 134
Corporate expenses................................ (7,919) (7,182) (6,415)
---------- ---------- --------
Total..................................... $ 97,801 $ 78,689 $ 61,543
========== ========== ========
Identifiable Assets
United States..................................... $ 545,144 $ 523,635 $366,128
Americas, excluding the United States............. 8,448 11,985 8,313
Europe............................................ 315,513 273,094 290,486
Asia-Pacific...................................... 60,458 53,832 49,424
---------- ---------- --------
Total..................................... $ 929,563 $ 862,546 $714,351
========== ========== ========
</TABLE>

In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information ("SFAS 131"), which supersedes SFAS No.
14, Financial Reporting for Segments of a Business Enterprise. SFAS 131
establishes standards for the reporting by public companies of information about
operating segments in annual financial statements and for the first time,
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance.

F-23
<PAGE> 63
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)

The following table sets forth, for the fiscal periods indicated, selected
consolidated financial data and information regarding the market price per share
of the Company's Class A Common Stock. The prices represent the reported high
and low closing sale prices.

<TABLE>
<CAPTION>
YEAR ENDED 1997
-------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. $257,345 $271,746 $297,352 $308,847
Gross profit.............................. 82,913 89,404 100,653 106,586
Net income applicable to common
shareholders............................ 6,353 7,960 10,511 12,690
Basic earnings per common share........... 0.28 0.34 0.44 0.52
Diluted earnings per common share......... 0.27 0.33 0.42 0.51
Share prices:
High.................................... 25 5/8 25 30 5/8 31 5/8
Low..................................... 18 1/2 21 22 1/8 25
Dividends per common share................ 0.065 0.065 0.065 0.075
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED 1996
-------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. $205,017 $237,488 $275,041 $284,530
Gross profit.............................. 62,913 74,664 87,460 92,584
Net income................................ 3,708 6,025 7,581 9,081
Net income applicable to common
shareholders............................ 3,271 5,596 7,148 8,702
Basic earnings per common share........... 0.18 0.29 0.35 0.41
Diluted earnings per common share......... 0.18 0.29 0.33 0.40
Share prices:
High.................................... 17 3/8 15 1/2 17 1/8 20 1/2
Low..................................... 12 11 5/8 13 7/16 16 1/8
Dividends per common share................ 0.06 0.06 0.06 0.065
</TABLE>

F-24
<PAGE> 64
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS

<TABLE>
<CAPTION>
YEAR ENDED 1997
------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ --------------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales......................... $900,825 $347,735 $ -- $(113,270) $1,135,290
Cost of sales..................... 640,308 228,696 -- (113,270) 755,734
-------- -------- ------- --------- ----------
Gross profit on sales... 260,517 119,039 -- -- 379,556
Selling, general and
administrative expenses......... 184,559 78,124 19,072 -- 281,755
-------- -------- ------- --------- ----------
Operating income........ 75,958 40,915 (19,072) -- 97,801
Other expense (income)
Interest expense................ 10,629 4,571 19,838 -- 35,038
Other........................... 15,438 6,212 (20,158) -- 1,492
-------- -------- ------- --------- ----------
Total other expense..... 26,067 10,783 (320) -- 36,530
-------- -------- ------- --------- ----------
Income before taxes on
income and equity in
income of
subsidiaries.......... 49,891 30,132 (18,752) -- 61,271
Taxes on income................... 19,341 11,692 (7,276) -- 23,757
Equity in income of
subsidiaries.................... -- -- 48,991 (48,991) --
-------- -------- ------- --------- ----------
Net income applicable to common
shareholders.................... $ 30,550 $ 18,440 $37,515 $ (48,991) $ 37,514
======== ======== ======= ========= ==========
</TABLE>

F-25
<PAGE> 65
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED 1996
-------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION
GUARANTOR NON-GUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales........................ $738,812 $406,020 $ -- $(142,756) $1,002,076
Cost of sales.................... 524,584 302,318 -- (142,447) 684,455
-------- -------- -------- --------- ----------
Gross profit on
sales................ 214,228 103,702 -- (309) 317,621
Selling, general and
administrative expenses........ 152,484 69,227 17,221 -- 238,932
-------- -------- -------- --------- ----------
Operating income....... 61,744 34,475 (17,221) (309) 78,689
Other expense (income)
Interest expense............... 8,679 5,263 18,830 -- 32,772
Other.......................... 10,380 4,001 (11,891) -- 2,490
-------- -------- -------- --------- ----------
Total other expense.... 19,059 9,264 6,939 -- 35,262
-------- -------- -------- --------- ----------
Income before taxes on
income and equity in
income of
subsidiaries......... 42,685 25,211 (24,160) (309) 43,427
Taxes on income.................. 13,029 8,842 (4,839) -- 17,032
Equity in income of
subsidiaries................... -- -- 46,025 (46,025) --
-------- -------- -------- --------- ----------
Net income............. 29,656 16,369 26,704 (46,334) 26,395
Preferred stock dividends........ -- -- 1,678 -- 1,678
-------- -------- -------- --------- ----------
Net income applicable to common
shareholders................... $ 29,656 $ 16,369 $ 25,026 $ (46,334) $ 24,717
======== ======== ======== ========= ==========
</TABLE>

F-26
<PAGE> 66
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED 1995
-------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION
GUARANTOR NON-GUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales........................ $499,398 $411,462 $ 246 $(109,040) $ 802,066
Cost of sales.................... 351,209 308,994 193 (108,753) 551,643
-------- -------- -------- --------- ----------
Gross profit on
sales................ 148,189 102,468 53 (287) 250,423
Selling, general and
administrative expenses........ 98,372 77,242 13,266 -- 188,880
-------- -------- -------- --------- ----------
Operating income....... 49,817 25,226 (13,213) (287) 61,543
-------- -------- -------- --------- ----------
Other expense (income)
Interest expense............... 6,609 8,766 11,378 -- 26,753
Other.......................... 17,715 (7,817) (6,784) -- 3,114
-------- -------- -------- --------- ----------
Total other expense.... 24,324 949 4,594 -- 29,867
-------- -------- -------- --------- ----------
Income before taxes on
income and equity in
income of
subsidiaries......... 25,493 24,277 (17,807) (287) 31,676
Taxes on income.................. 13,957 4,343 (6,964) -- 11,336
Equity in income of
subsidiaries................... -- -- 31,470 (31,470) --
-------- -------- -------- --------- ----------
Income before
extraordinary
items................ 11,536 19,934 20,627 (31,757) 20,340
Extraordinary loss (net
of tax).............. -- -- 3,512 -- 3,512
-------- -------- -------- --------- ----------
Net income............. 11,536 19,934 17,115 (31,757) 16,828
Preferred stock dividends........ -- -- 1,750 -- 1,750
-------- -------- -------- --------- ----------
Net income applicable to common
shareholders................... $ 11,536 $ 19,934 $ 15,365 $ (31,757) $ 15,078
======== ======== ======== ========= ==========
</TABLE>

F-27
<PAGE> 67
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 28, 1997
--------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION AND
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ --------------- ----------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current
Cash............................... $ 4,362 $ 6,501 $ (651) $ -- $ 10,212
Accounts receivable................ 131,120 74,652 (27,795) -- 177,977
Inventories........................ 105,193 52,437 -- -- 157,630
Miscellaneous...................... 8,521 15,768 5,132 -- 29,421
-------- -------- -------- ----------- --------
Total current assets....... 249,196 149,358 (23,314) -- 375,240
Property and equipment, less
accumulated depreciation........... 150,038 71,453 7,290 -- 228,781
Investments in subsidiaries.......... 129,033 15,799 381,670 (526,502) --
Miscellaneous........................ 121,361 20,871 472,083 (567,370) 46,945
Excess of cost over net assets
acquired........................... 182,652 92,087 3,858 -- 278,597
-------- -------- -------- ----------- --------
$832,280 $349,568 $841,587 $(1,093,872) $929,563
======== ======== ======== =========== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current
Notes payable...................... $ 12,322 $ 9,942 $ -- $ -- $ 22,264
Accounts payable................... 40,158 38,363 758 -- 79,279
Accrued expenses................... 42,647 36,443 8,453 -- 87,543
Current maturities of long-term
debt............................ 1,742 1,009 -- -- 2,751
-------- -------- -------- ----------- --------
Total current
liabilities.............. 96,869 85,757 9,211 -- 191,837
Long-term debt, less current
maturities......................... 240,475 44,423 321,169 (341,568) 264,499
Senior subordinated notes -- -- 125,000 -- 125,000
Deferred income taxes................ 12,852 3,483 12,538 -- 28,873
-------- -------- -------- ----------- --------
Total liabilities.......... 350,196 133,663 467,918 (341,568) 610,209
Minority interests................... 2,989 -- -- -- 2,989
Series A redeemable preferred
stock.............................. 57,891 -- -- (57,891) --
Common stock......................... 81,704 102,199 2,776 (183,903) 2,776
Additional paid-in capital........... 187,195 11,030 161,584 (198,225) 161,584
Retained earnings.................... 158,027 122,120 212,298 (294,539) 197,906
Foreign currency translation
adjustment......................... (5,722) (19,444) (2,989) -- (28,155)
Treasury stock....................... -- -- -- (17,746) (17,746)
-------- -------- -------- ----------- --------
$832,280 $349,568 $841,587 $(1,093,872) $929,563
======== ======== ======== =========== ========
</TABLE>

F-28
<PAGE> 68
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 29, 1996
-------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION
GUARANTOR NON-GUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current
Cash.......................... $ 3,481 $ 4,791 $ 490 $ -- $ 8,762
Accounts receivable........... 124,118 61,479 (17,780) -- 167,817
Inventories................... 100,305 45,777 596 -- 146,678
Miscellaneous................. 6,414 12,231 11,398 -- 30,043
-------- -------- -------- ----------- --------
Total current
assets.............. 234,318 124,278 (5,296) -- 353,300
Property and equipment, less
accumulated depreciation...... 143,599 60,924 4,268 -- 208,791
Investments in subsidiaries..... 108,977 17,768 379,992 (506,737) --
Miscellaneous................... 142,228 44,637 374,105 (509,585) 51,385
Excess of cost over net assets
acquired...................... 171,526 74,512 3,032 -- 249,070
-------- -------- -------- ----------- --------
$800,648 $322,119 $756,101 $(1,016,322) $862,546
======== ======== ======== =========== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current
Notes payable................. $ 11,685 $ 3,233 $ -- $ -- $ 14,918
Accounts payable.............. 47,814 26,160 986 -- 74,960
Accrued expenses.............. 45,610 27,581 (2,272) -- 70,919
Current maturities of
long-term debt............. 2,897 22 -- -- 2,919
-------- -------- -------- ----------- --------
Total current
liabilities......... 108,006 56,996 (1,286) -- 163,716
Long-term debt, less current
maturities.................... 234,697 42,756 299,156 (322,256) 254,353
Senior subordinated notes....... -- -- 125,000 -- 125,000
Deferred income taxes........... 12,936 1,009 9,539 -- 23,484
-------- -------- -------- ----------- --------
Total liabilities..... 355,639 100,761 432,409 (322,256) 566,553
Minority interest............... 3,125 -- -- -- 3,125
Series A redeemable preferred
stock......................... 57,891 -- 19,750 (57,891) 19,750
Common stock.................... 81,704 102,199 2,535 (183,902) 2,536
Additional paid-in capital...... 179,073 11,030 124,556 (190,102) 124,557
Retained earnings............... 127,477 103,678 181,219 (245,546) 166,828
Foreign currency translation
adjustment.................... (4,261) 4,451 (4,368) 1,121 (3,057)
Treasury stock.................. -- -- -- (17,746) (17,746)
-------- -------- -------- ----------- --------
$800,648 $322,119 $756,101 $(1,016,322) $862,546
======== ======== ======== =========== ========
</TABLE>

F-29
<PAGE> 69
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED 1997
------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ --------------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities... $ 29,585 $ 27,448 $ 17,690 $ -- $ 74,723
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of plant and equipment...... (25,062) (10,177) (3,415) -- (38,654)
Acquisitions, net of cash acquired... -- -- (34,647) -- (34,647)
Other................................ -- -- (17,902) -- (17,902)
-------- -------- -------- -------- --------
(25,062) (10,177) (55,964) -- (91,203)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net borrowings (repayments).......... (3,643) (15,155) 37,155 -- 18,357
Proceeds from issuance of common
stock............................. -- -- 6,414 -- 6,414
Cash dividends paid.................. -- -- (6,436) -- (6,436)
-------- -------- -------- -------- --------
(3,643) (15,155) 37,133 -- 18,335
-------- -------- -------- -------- --------
Effect of exchange rate changes on
cash................................. -- (405) -- -- (405)
-------- -------- -------- -------- --------
Net increase (decrease) in cash........ 880 1,711 (1,141) -- 1,450
Cash at beginning of year.............. 3,481 4,791 490 -- 8,762
-------- -------- -------- -------- --------
Cash at end of year.................... $ 4,361 $ 6,502 $ (651) $ -- $ 10,212
======== ======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED 1996
-------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION
GUARANTOR NON-GUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities.......................... $ 31,207 $ 61,218 $(35,913) $ -- $ 56,512
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of plant and equipment..... (21,671) (11,459) (3,306) -- (36,436)
Acquisitions, net of cash
acquired......................... -- -- (30,151) -- (30,151)
Other............................... -- (3,518) (7,907) -- (11,425)
-------- -------- -------- -------- --------
(21,671) (14,977) (41,364) -- (78,012)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net borrowings (repayments)......... (7,550) (46,718) 80,829 -- 26,561
Proceeds from issuance of common
stock............................ -- -- 2,916 -- 2,916
Cash dividends paid................. -- -- (6,606) -- (6,606)
-------- -------- -------- -------- --------
(7,550) (46,718) 77,139 -- 22,871
-------- -------- -------- -------- --------
Effect of exchange rate changes on
cash................................ -- 130 -- -- 130
-------- -------- -------- -------- --------
Net increase (decrease) in cash....... 1,986 (347) (138) -- 1,501
Cash at beginning of year............. 1,495 5,138 628 -- 7,261
-------- -------- -------- -------- --------
Cash at end of year................... $ 3,481 $ 4,791 $ 490 $ -- $ 8,762
======== ======== ======== ======== ========
</TABLE>

F-30
<PAGE> 70
INTERFACE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED 1995
-------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION
GUARANTOR NON-GUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities.......................... $ 14,926 $ 64,428 $ (3,402) $ -- $ 75,952
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of plant and equipment..... (30,880) (9,886) (1,357) -- (42,123)
Acquisitions, net of cash
acquired......................... (27,554) -- -- -- (27,554)
Other............................... (6,474) (15,219) 19,211 -- (2,482)
-------- -------- -------- -------- --------
(64,908) (25,105) 17,854 -- (72,159)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net borrowings (repayments)......... 34,092 31,926 (60,864) -- 5,154
Proceeds from issuance of common
stock............................ -- -- 984 -- 984
Cash dividends paid................. -- -- (6,132) -- (6,132)
Other............................... 17,862 (70,049) 52,187 -- --
-------- -------- -------- -------- --------
51,954 (38,123) (13,825) -- 6
-------- -------- -------- -------- --------
Effect of exchange rate changes on
cash................................ -- (34) -- -- (34)
-------- -------- -------- -------- --------
Net increase (decrease) in cash....... 1,972 1,166 627 -- 3,765
Cash at beginning of year............. (477) 3,972 1 -- 3,496
-------- -------- -------- -------- --------
Cash at end of year................... $ 1,495 $ 5,138 $ 628 $ -- $ 7,261
======== ======== ======== ======== ========
</TABLE>

F-31
<PAGE> 71

<TABLE>
<S> <C>
PROSPECTUS (INTERFACE LOGO)
$300,000,000
INTERFACE, INC.
DEBT SECURITIES
PREFERRED STOCK
CLASS A COMMON STOCK
</TABLE>

------------------

Interface, Inc. ("Interface" or the "Company") intends to issue from time
to time, in one or more series, up to $300,000,000 aggregate offering price of
its (i) unsecured debt securities ("Debt Securities"), which may be either
senior debt securities ("Senior Debt Securities") or subordinated debt
securities ("Subordinated Debt Securities"), (ii) preferred shares, par value
$1.00 per share ("Preferred Shares"), which may be issued in whole or in a
fraction of a Preferred Share in the form of depositary shares evidenced by
depositary receipts ("Depositary Shares") and (iii) shares of Class A Common
Stock, par value $.10 per share ("Common Stock"); the Debt Securities, Preferred
Shares, Depositary Shares and Common Stock are referred to collectively as the
"Securities". The Securities offered hereby (the "Offered Securities") may be
offered separately or together, in separate series, in amounts, at prices, and
on terms to be determined at the time of sale and to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement").

The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered, such as, where applicable, (i) in the case of
Debt Securities, the specific designation (including whether senior or
subordinated), aggregate principal amount, denomination, maturity, premium, if
any, priority, interest rate (which may be variable or fixed), time of payment
of any premium and any interest, terms for optional redemption or repayment or
for sinking fund payments, if any, and terms for conversion into or exchange for
other Offered Securities; (ii) in the case of Preferred Shares, the specific
title and stated value, number of shares or fractional interests therein, the
dividend, liquidation, redemption, conversion, voting and other rights, and
whether interests in the Preferred Shares will be represented by Depositary
Shares; and (iii) in the case of all Offered Securities, any initial offering
price, will be set forth in the applicable Prospectus Supplement. The Prospectus
Supplement will also contain information, where applicable, about material
United States federal income tax considerations relating to, and any listing on
a securities exchange of, the Offered Securities offered thereby.
------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT TO

AN INVESTMENT IN THE OFFERED SECURITIES.
------------------

The Offered Securities may be offered directly through underwriters or
dealers or through such firms or other firms acting alone or through dealers.
The Offered Securities may also be sold directly by the Company or through
agents to investors. The names of any agents, dealers or managing underwriters,
and of any underwriters involved in the sale of the Offered Securities in
respect of which this Prospectus is being delivered, the applicable agents'
commission, dealers' purchase price or underwriters' discounts and commissions,
and the net proceeds to the Company from such sale, will be set forth in the
applicable Prospectus Supplement. See "Plan of Distribution".
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------

This Prospectus may not be used to consummate the sale of the Securities
unless accompanied by a Prospectus Supplement.

March 16, 1998
<PAGE> 72

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information, may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, the Commission maintains a site on the
World Wide Web portion of the Internet, which contains reports, proxy and
information statements and other information regarding registrants (such as the
Company) that file electronically with the Commission, at http://www.sec.gov.

The Company has filed with the Commission a Registration Statement on Form
S-3 (including all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus, which is part of the Registration Statement, does not contain
all of the information set forth or incorporated by reference in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Securities offered hereby,
reference is hereby made to the Registration Statement and such exhibits and
schedules which may be inspected and copied in the manner and at the locations
described above. Statements contained herein concerning the provisions of any
document are not necessarily complete and, in each instance, reference is made
to the copy of the document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each statement is qualified in its entirety
by such reference.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The following documents heretofore filed by the Company with the Commission
are hereby incorporated by reference: (i) the Company's Annual Report on Form
10-K for the year ended December 29, 1996; (ii) the Company's quarterly reports
on Form 10-Q for the quarters ended March 30, 1997 (as amended by Form 10-Q/A
filed May 16, 1997), June 29, 1997, and September 28, 1997; (iii) the
description of the Company's capital stock contained in the Company's Form 8-A
filed on April 30, 1984, as amended by Form 8 filed on August 19, 1988,
including all amendments or reports filed for the purpose of updating such
description; (iv) the Company's current report on Form 8-K filed March 4, 1998;
and (v) the description of the Company's Series B Participating Cumulative
Preferred Stock Purchase Rights contained in the Company's Form 8-A filed on
March 4, 1998, as amended by Form 8-A/A filed on March 12, 1998.

All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Securities
offered hereby shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing of the reports and
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Prospectus or any Prospectus Supplement shall
be deemed to be modified or superseded for purposes of this Prospectus or any
Prospectus Supplement to the extent that a statement contained herein, therein
or in any other subsequently filed documents which also is or is deemed to be
incorporated by reference in this Prospectus or in any Prospectus Supplement
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus or any Prospectus Supplement.

The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
(without exhibits other than exhibits specifically incorporated by reference) of
any or all documents incorporated by reference into this Prospectus. Written or
oral requests for such copies should be directed to: Interface, Inc., 2859 Paces
Ferry Road, Suite 2000, Atlanta, Georgia 30339, Attention: Corporate Secretary
(telephone: 770-437-6800).

2
<PAGE> 73

THE COMPANY

RECENT ACQUISITION

3
<PAGE> 74

England, a leading manufacturer of high quality woven and tufted carpet
primarily for the contract markets; and a 40% interest in Vebe Floorcoverings
BV, located in the Netherlands, a leading manufacturer of needlepunch carpet.
Firth Carpets is located in close proximity to the Company's Camborne Holdings
Ltd. facility and its Shelf, England modular carpet facility, which is expected
to allow Interface to realize significant synergies with these existing
operations. In February 1998, the Company entered into a joint venture
arrangement with Condor Carpets plc pursuant to which Condor Carpets acquired a
60% interest in Vebe Floorcoverings.

4
<PAGE> 75

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Offered Securities. This Prospectus and the accompanying Prospectus Supplement
contain "forward-looking" statements as defined in the Private Securities
Litigation Reform Act of 1995, that are based on current expectations, estimates
and projections. Statements that are not historical facts, including statements
about the Company's beliefs and expectations, are forward-looking statements.
These statements contain potential risks and uncertainties; therefore, actual
results may differ materially. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise. Important factors that may affect such statements
include, but are not limited to, those set forth below.

STRONG COMPETITION

The commercial floorcovering industry is highly competitive. Globally, the
Company competes for sales of its modular and broadloom carpet with other carpet
manufacturers and manufacturers of vinyl and other types of floorcovering.
Although the industry recently has experienced significant consolidation, a
large number of manufacturers remain in the industry. Management believes that
the Company is the largest manufacturer of modular carpet in the world, with a
global market share over two times that of its nearest competitor. However, a
number of domestic and foreign competitors manufacture modular carpet as one
segment of their business, and certain of these competitors have financial
resources in excess of the Company's.

CYCLICAL NATURE OF INDUSTRY

Sales of the Company's principal products are related to the construction
and renovation of commercial and institutional buildings. Such activity is
cyclical and can be affected by the strength of a country's general economy,
prevailing interest rates and other factors that lead to cost control measures
by businesses and other users of commercial or institutional space. The effects
of such cyclicality upon the new construction sector of the market tend to be
more pronounced than its effects upon the renovation sector. Although the
predominant portion of the Company's sales are generated from the renovation
sector, any such adverse cycle, in either sector of the market, would lessen the
overall demand for commercial interiors products, which could impair the
Company's growth.

RELIANCE ON KEY PERSONNEL

The Company believes that its continued success will depend to a
significant extent upon the efforts and abilities of its senior management
executives, particularly Ray C. Anderson, Chairman of the Board and Chief
Executive Officer; Charles R. Eitel, President and Chief Operating Officer; and
Gordon D. Whitener, Senior Vice President. Each of Messrs. Anderson, Eitel and
Whitener have entered into employment agreements with the Company containing
certain covenants of non-competition, and the Company currently maintains
key-man insurance on each of Messrs. Anderson and Eitel. In addition, the
Company relies significantly on the leadership of its design staff by David
Oakey of David Oakey Designs, Inc., which provides product design/production
engineering services to the Company under an exclusive consulting contract that
contains certain covenants of non-competition. The loss of all or some of such
personnel could have an adverse impact on the Company.

RISKS OF FOREIGN OPERATIONS

The Company has substantial international operations. In fiscal 1997,
approximately 32% of the Company's net sales and a significant portion of the
Company's production were outside the United States, primarily in Europe but
also in Asia. The Company's corporate strategy includes the expansion of its
international business on a worldwide basis. As a result, the Company's
operations are subject to various political, economic and other uncertainties,
including risks of restrictive taxation policies, foreign exchange restrictions,
changing political conditions and governmental regulations. In addition, recent
economic events in

5
<PAGE> 76

Asia, including depreciation of certain Asian currencies, failures of financial
institutions, stock market declines and reductions in planned capital investment
at key enterprises, may adversely impact the Company's sales in the Asian
markets. The Company also makes a substantial portion of its net sales in
currencies other than U.S. dollars, which subjects it to the risks inherent in
currency translations. The Company's ability to manufacture and ship products
from facilities in several foreign countries reduces the risks of foreign
currency fluctuations it might otherwise experience, and the Company also
engages from time to time in hedging programs intended to further reduce those
risks. Despite this, the scope and volume of the Company's global operations
make it impossible to eliminate completely all foreign currency translation
risks as an influence on the Company's financial results.

HOLDING COMPANY STRUCTURE

The operations of the Company are conducted through its subsidiaries and,
therefore, any Debt Securities will be effectively subordinated to all
indebtedness and other liabilities and commitments of the Company's
subsidiaries, other than subsidiaries which are guarantors of any such Debt
Securities. The Company is substantially dependent on the earnings and cash flow
of its subsidiaries and must rely upon distributions from its subsidiaries to
meet its debt obligations, including its obligations with respect to any Debt
Securities. Any right of the holders of such Debt Securities to participate in
the assets of a non-guarantor subsidiary of the Company upon any liquidation or
reorganization of such subsidiary will be subject to the prior claims of such
subsidiary's creditors, including the lenders under the Company's bank credit
facility and trade creditors. In addition, 100% of the capital stock of the
Company's principal domestic subsidiaries and up to 66% of the capital stock of
its principal foreign subsidiaries are pledged as collateral to the lenders
under the Company's bank credit facility. Accordingly, upon any liquidation or
reorganization of the Company, the holders of such Debt Securities will have no
claim against such capital stock until the lenders under the Company's bank
credit facility are paid in full. The Company has requested that the lenders
under the credit facility release this collateral, but there can be no assurance
that such collateral will be released.

CONTROL OF ELECTION OF A MAJORITY OF BOARD

The Company's Chairman and Chief Executive Officer, Ray C. Anderson,
beneficially owns approximately 60% of the Company's outstanding Class B Common
Stock, and has entered into a voting agreement, which expires in April 1998,
with certain other holders of Class B Common Stock pursuant to which such other
holders have irrevocably appointed Mr. Anderson their proxy and attorney-in-fact
to vote their shares. The holders of the Class B Common Stock are entitled, as a
class, to elect a majority of the Board of Directors of the Company, which means
that Mr. Anderson has sufficient voting power (which voting power will be
unaffected by the expiration of the voting agreement) to elect a majority of the
Board of Directors. The holders of the Class B Common Stock generally vote
together as a single class with the holders of the Class A Common Stock on all
other matters submitted to the shareholders for a vote, however, and Mr.
Anderson's beneficial ownership of the outstanding Class A and Class B Common
Stock combined is less than 10%. See "Description of Capital Stock -- Class B
Stock Voting Agreement".

RELIANCE ON PETROLEUM-BASED RAW MATERIALS

Petroleum-based products comprise the predominant portion of the cost of
raw materials used by the Company in manufacturing. While the Company generally
attempts to match cost increases with corresponding price increases, large
increases in the cost of such petroleum-based raw materials could adversely
affect the Company if the Company were unable to pass through to its customers
such increases in raw material costs.

RELIANCE ON THIRD PARTY FOR SUPPLY OF FIBER

E. I. DuPont de Nemours and Company ("DuPont") currently supplies a
significant percentage of the Company's requirements for synthetic fiber, the
principal raw material used in the Company's carpet products. DuPont also
competes with the Company's Re:Source Americas network through DuPont's own
distribution channel and aligned carpet mills. While the Company believes that
there are adequate alternative sources of supply from which it could fulfill its
synthetic fiber requirements, the unanticipated termination or interruption
6
<PAGE> 77

of the supply arrangement with DuPont could have a material adverse effect on
the Company because of the cost and delay associated with shifting more business
to another supplier.

RESTRICTIONS DUE TO SUBSTANTIAL INDEBTEDNESS

The Company's indebtedness is substantial in relation to its shareholders'
equity. As of December 28, 1997, the Company's long-term debt (net of current
portion) totaled $389 million or approximately 55% of its total capitalization.
As a consequence of its level of indebtedness a substantial portion of the
Company's cash flow from operations must be dedicated to debt service
requirements. The terms of the Company's outstanding indebtedness also restrict
the ability of the Company and its subsidiaries to, among other things, incur
additional indebtedness, pay dividends or make certain other restricted payments
or investments in certain situations, consummate certain asset sales, enter into
certain transactions with affiliates, incur liens, or merge or consolidate with
any other person or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of their assets. They also require the Company to
meet certain financial tests and comply with certain other reporting,
affirmative and negative covenants.

YEAR 2000 RISK

The "year 2000 issue" arises from the widespread use of computer programs
that rely on two-digit date codes to perform computations or decision-making
functions. Many of these programs may fail due to an inability to properly
interpret date codes beginning January 1, 2000. For example, such programs may
misinterpret "00" as the year 1900 rather than 2000. In addition, some
equipment, being controlled by microprocessor chips, may not deal appropriately
with the year "00". The Company is evaluating its computer systems with the help
of outside consultants to determine which modifications and expenditures will be
necessary to make its systems compatible with year 2000 requirements. The
Company believes that its systems will be year 2000-compliant upon
implementation of such modifications.

The Company currently estimates the total cost of such modifications,
excluding the cost of modifications to program logic control systems relating to
manufacturing equipment, to be at least $17 million, although it could be
significantly more. The Company and its outside consultants are currently
evaluating the costs of modifications to these program logic control systems. Of
the total project cost, approximately $10 million is attributable to the cost of
new hardware and software which will be capitalized in connection with the
consolidation globally of the Company's management and financial accounting
systems. The remaining $7 million will be expensed as incurred over the next two
years. However, there can be no assurance that all necessary modifications will
be identified and corrected or that unforeseen difficulties or costs will not
arise. In addition, there can be no assurance that the systems of other
companies on which the Company's systems rely will be modified on a timely
basis, or that the failure by another company to properly modify its systems
will not negatively impact the Company's systems or operations.

FRAUDULENT CONVEYANCE CONSIDERATIONS

Under applicable provisions of the federal bankruptcy law or comparable
provisions of state fraudulent transfer laws, if any subsidiary of the Company
guarantees any Debt Securities, and at the time it incurs such a guarantee, such
subsidiary (a)(i) was or is insolvent or rendered insolvent by reason of such
incurrence, (ii) was or is engaged in a business or transaction for which the
assets remaining with such subsidiary constituted unreasonably small capital or
(iii) intended or intends to incur, or believed or believes that it would incur,
debts beyond its ability to pay such debts as they mature and (b) received or
receives less than reasonably equivalent value or fair consideration, the
obligations of such subsidiary under its guarantee could be avoided, or claims
in respect of such guarantee could be subordinated to all other debts of such
subsidiary. Among other things, a legal challenge of a guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by such
subsidiary as a result of the issuance by the Company of the Debt Securities. To
the extent that any guarantee were a fraudulent conveyance or held unenforceable
for any other reason, the holders of any such Debt Securities which are so
guaranteed would cease to have any claim in respect of such subsidiary and would
be solely creditors of the Company and any other guarantors whose guarantees
were not avoided or held unenforceable. In such event, the claims of the holders
of such Debt Securities would be
7
<PAGE> 78

subject to the prior payment of all liabilities of the subsidiary whose
guarantee was avoided. There can be no assurance that, after providing for all
prior claims, there would be sufficient assets to satisfy the claims of the
holders of such Debt Securities relating to any avoided portion of a guarantee.
Because the law of fraudulent transfers is inherently fact based and fact
specific, in rendering their opinions on the validity of any Debt Securities
guaranteed by subsidiaries of the Company, counsel for the Company and counsel
for any underwriters will express no opinion as to federal or state laws
relating to fraudulent transfers.

ABSENCE OF PUBLIC MARKET

There is no existing market for any of the Debt Securities and there can be
no assurance as to the liquidity of any market that may develop for the Debt
Securities, the ability of holders to sell Debt Securities, or the price at
which holders would be able to sell the Debt Securities. Future trading prices
of the Debt Securities will depend on many factors, including, among other
things, prevailing interest rates, the Company's operating results and the
market for similar securities. Historically, the market for securities similar
to the Debt Securities has been subject to disruptions that have caused
substantial volatility in the prices of such securities. There can be no
assurance that any market for the Debt Securities, if such market develops, will
not be subject to similar disruptions. Certain of the underwriters engaged with
respect to any offering of Debt Securities may intend to make a market in any
Debt Securities offered hereby; however, except as otherwise provided in a
prospectus supplement with respect to such Debt Securities, such underwriters
will not be obligated to do so and any market making may be discontinued at any
time without notice.

ANTI-TAKEOVER EFFECTS OF SHAREHOLDER RIGHTS PLAN

The Board of Directors has adopted a Rights Agreement pursuant to which
holders of Common Stock will be entitled to purchase from the Company a fraction
of a share of the Company's Series B Participating Cumulative Preferred Stock if
a third party acquires beneficial ownership of 15% or more of the Common Stock
and will be entitled to purchase the stock of an Acquiring Person (as defined in
the Rights Agreement) at a discount upon the occurrence of certain triggering
events. These provisions of the Rights Agreement could have the effect of
discouraging tender offers or other transactions that would result in
shareholders receiving a premium over the market price for the Common Stock. See
"Description of Capital Stock -- Description of Preferred Stock Purchase
Rights".

USE OF PROCEEDS

Unless otherwise specified in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
general corporate purposes, including working capital, the repayment or
refinancing of previously outstanding indebtedness, future acquisitions and
capital expenditures. Pending application of the net proceeds for specific
purposes, proceeds may be invested in short-term or marketable securities.

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth the historical consolidated ratios of
earnings to fixed charges for the Company for the periods indicated. The ratio
of earnings to fixed charges is determined by dividing net earnings before
interest expense, taxes on income, amortization of debt expense, and a portion
of rent expense representative of the interest component by the sum of interest
expense, amortization of debt expense and the portion of rent expense
representative of the interest component.

<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 29, DECEMBER 28,
1994 1995 1995 1996 1997
- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1.9x 2.0x 2.1x 2.3x 2.6x
</TABLE>

8
<PAGE> 79

DESCRIPTION OF DEBT SECURITIES

The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement (the "Offered Debt Securities") and the
extent, if any, to which such general provisions may not apply thereto will be
described in the Prospectus Supplement relating to such Offered Debt Securities.

The Debt Securities may be issued from time to time, in one or more series,
and will constitute either Senior Debt Securities or Subordinated Debt
Securities. Senior Debt Securities will be issued under an Indenture (the
"Senior Indenture"), between the Company, the Guarantors (as defined herein),
and First Union National Bank, as Trustee (the "Senior Trustee"). Subordinated
Debt Securities will be issued under an Indenture (the "Subordinated
Indenture"), between the Company, the Guarantors and a trustee to be named prior
to the offering of any Subordinated Debt Securities, as Trustee (the
"Subordinated Trustee"). The Senior Indenture and the Subordinated Indenture are
referred to herein individually as an "Indenture" and, collectively, as the
"Indentures", and the Senior Trustee and the Subordinated Trustee are referred
to herein individually as the "Trustee" and collectively as the "Trustees".

The following summaries of certain provisions of the Debt Securities,
guarantees of the Debt Securities ("Guarantees"), and the Indentures do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Indentures, including the
definitions therein of certain terms. Certain capitalized terms used herein are
defined in the Indentures. The Indentures are substantially identical, except
for certain covenants of the Company and provisions relating to subordination.

GENERAL

The Indentures do not limit the amount of Debt Securities that can be
issued thereunder and provide that Debt Securities of any series may be issued
thereunder up to the aggregate principal amount which may be authorized from
time to time by the Company. Except as may be set forth in any Prospectus
Supplement, the Indentures do not limit the amount of other Indebtedness or
securities, other than certain secured Indebtedness as described below, that may
be issued by the Company or its Subsidiaries. All Senior Debt Securities will be
unsecured obligations of the Company. The Senior Debt Securities and the
Guarantees will rank on a parity with all other unsecured and unsubordinated
Indebtedness of the Company and the Guarantors. All Subordinated Debt Securities
will be unsecured obligations of the Company. The Subordinated Debt Securities
and the Guarantees will be subordinated in right of payment to the prior payment
in full of Senior Indebtedness (which term includes the Senior Debt Securities)
of the Company and the Guarantors as described below under "Provisions
Applicable Solely to Subordinated Debt Securities -- Subordination."

Substantially all of the operations of the Company are conducted by
Subsidiaries of the Company. Accordingly, the Company is dependent upon the
distribution of the earnings of its Subsidiaries, whether in the form of
dividends, advances or payments on account of intercompany obligations, to
service its debt obligations. The subsidiaries of the Company that are not
Material U.S. Subsidiaries will not guarantee the Debt Securities.

Because creditors of non-guarantor Subsidiaries of the Company are entitled
to a claim on the assets of such Subsidiaries, in the event of a liquidation or
reorganization, creditors of such Subsidiaries are likely to be paid in full
before any distribution is made to the Company and holders of Senior Debt
Securities or Subordinated Debt Securities, except to the extent that the
Company is itself recognized as a creditor of such Subsidiary, in which case the
claims of the Company would still be subordinate to any security interests in
the assets of such Subsidiary and any Indebtedness of such Subsidiary senior to
that held by the Company.

Reference is made to the Prospectus Supplement for the following terms
thereof: (i) the title of the Offered Debt Securities and classification as
Senior Debt Securities or Subordinated Debt Securities; (ii) any limit upon the
aggregate principal amount of the Offered Debt Securities; (iii) if other than
100% of the principal amount, the percentage of the principal amount at which
the Offered Debt Securities will be offered; (iv) the date or dates on which the
principal of the Offered Debt Securities will be payable (or method of

9
<PAGE> 80

determination thereof); (v) the rate or rates (which may be fixed or variable)
at which the Offered Debt Securities will bear interest (or method of
determination thereof), if any, the date or dates from which any such interest
will accrue and on which such interest will be payable, and the record dates for
the determination of the holders to whom interest is payable; (vi) if other than
U.S. dollars, the currency or units based on or relating to currencies in which
the Offered Debt Securities are denominated and which the principal of, interest
on and any Additional Amounts (as defined below) will or may be payable; (vii)
if other than as set forth herein, the place or places where the principal of,
interest on and any Additional Amounts payable in respect of the Offered Debt
Securities will be payable; (viii) the price or prices at which, the period or
periods within which, and the terms and conditions upon which Offered Debt
Securities may be redeemed, in whole or in part, at the option of the Company;
(ix) whether the Offered Debt Securities are convertible into Common Stock and,
if so, the terms and conditions upon which such conversion will be effected,
including the initial conversion price or conversion rate, the conversion period
and other conversion provisions in addition to or in lieu of those described in
the applicable Indenture; (x) the obligation, if any, of the Company to redeem,
repurchase or repay Offered Debt Securities, whether pursuant to any sinking
fund or analogous provisions or pursuant to other provisions set forth therein
or at the option of a holder thereof; (xi) whether the Offered Debt Securities
will be represented in whole or in part by one or more global notes registered
in the name of a depository or its nominee; (xii) whether and under what
circumstances the Company will pay Additional Amounts in respect of certain
taxes imposed on certain holders of Offered Debt Securities or as otherwise
provided; and (xiii) any other terms or conditions not inconsistent with the
provisions of the Indenture upon which the Offered Debt Securities will be
offered. "Principal" when used herein includes, when appropriate, the premium,
if any, on the Debt Securities. For a description of the terms of the Offered
Debt Securities, reference must be made to both the Prospectus Supplement
relating thereto and to the description of Debt Securities set forth herein.

Unless otherwise provided in the Prospectus Supplement, principal, interest
and Additional Amounts, if any, will be payable, and the Debt Securities will be
transferable or, if applicable, convertible at the office or offices or agency
maintained by the Company for such purposes; provided that payment of interest
on registered Debt Securities may be made by check mailed to the persons
entitled thereto at the addresses of such persons appearing on the Debt Security
register. In the case of registered Debt Securities, interest on the Debt
Securities will be payable on any interest payment date to the persons in whose
name the Debt Securities are registered at the close of business on the record
date with respect to such interest payment date.

Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities will be issued only in fully registered form, without coupons, in
minimum denominations of $1,000 (or $5,000 in the case of Bearer Securities) and
any integral multiple thereof. The Debt Securities may be represented in whole
or in part by one or more global notes registered in the name of a depository or
its nominee and, if so represented, interests in such global note will be shown
on, and transfers thereof will be effected only through, records maintained by
the designated depository and its participants as described below. Where Debt
Securities of any series are issued in bearer form, the special restrictions and
considerations, including special offering restrictions and special income tax
considerations, applicable to any such Debt Securities and to payment on and
transfer and exchange of such Debt Securities will be described in the
applicable Prospectus Supplement.

Some of the Debt Securities may be issued as discounted Debt Securities
(bearing no interest or bearing interest at a rate that, at the time of
issuance, is below market rates) to be sold at a substantial discount below
their stated principal amount ("Original Issue Discount Securities"). Federal
income tax consequences and other special considerations applicable to any such
Original Issue Discount Securities will be described in the Prospectus
Supplement relating thereto.

If the purchase price of any Debt Securities is payable in one or more
foreign currencies or currency units, or if any Debt Securities are denominated
in one or more foreign currencies or currency units, or if the principal of or
interest, if any, on any Debt Securities is payable in one or more foreign
currencies or currency units, the restrictions, elections, certain income tax
considerations, specific terms and other information with respect to such issue
of Debt Securities and such foreign currency or currency units will be set forth
in the applicable Prospectus Supplement.

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<PAGE> 81

Debt Securities may be presented for exchange, and registered Debt
Securities may be presented for transfer, in the manner, at the places and
subject to the restrictions set forth in the applicable Indenture, the Debt
Securities and the Prospectus Supplement relating thereto. Debt Securities in
bearer form and the coupons, if any, appertaining thereto will be transferable
by delivery. No service charge will be made for any transfer or exchange of Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

The Indentures require the annual filing by the Company with the Trustee of
a certificate as to compliance with certain covenants contained in the
Indentures.

The Company will comply with Section 14(e) under the Exchange Act, and any
other tender offer rules under the Exchange Act that may then be applicable, in
connection with any obligation of the Company to purchase Debt Securities at the
option of the holders thereof. Any such obligation applicable to a series of
Debt Securities will be described in the Prospectus Supplement relating thereto.

Unless otherwise described in a Prospectus Supplement relating to any
Offered Debt Securities, the Indentures do not contain any provisions that would
limit the ability of the Company to incur indebtedness or that would afford
holders of Debt Securities protection in the event of a sudden and significant
decline in the credit quality of the Company or a takeover, recapitalization or
highly leveraged or similar transaction involving the Company. Accordingly, the
Company could in the future enter into transactions that could increase the
amount of Indebtedness outstanding at that time or otherwise affect the
Company's capital structure or credit rating. Reference is made to the
Prospectus Supplement relating to the particular series of Debt Securities
offered thereby for information with respect to any deletions from,
modifications of or addition to the Events of Default described below or
covenants of the Company contained in the Indentures, including any addition of
a covenant or other provision providing event risk or similar protection.

GLOBAL SECURITIES

The Debt Securities may be issued in whole or in part in the form of one or
more temporary or permanent global securities (the "Global Securities") that
will be deposited with, or on behalf of, a bank or trust company selected by the
Company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000 ("Depositary") or its nominee
identified in the applicable Prospectus Supplement. In such a case, one or more
Global Securities will be issued in a denomination or aggregate denomination
equal to the portion of the aggregate principal amount of outstanding Debt
Securities of the series to be represented by such Global Security or Global
Securities. Unless and until it is exchanged in whole or in part for Debt
Securities in registered form, a Global Security may not be registered for
transfer or exchange except as a whole by the Depositary for such Global
Security to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary or
any nominee to a successor Depositary or a nominee of such successor Depositary
and except in the circumstances described in the applicable Prospectus
Supplement.

The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the applicable Prospectus Supplement. The Company expects
that the following provisions will apply to depositary arrangements.

Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Depositary will be represented by a Global Security registered
in the name of such Depositary or its nominee. Upon the issuance of such Global
Security, and the deposit of such Global Security with or on behalf of the
Depositary of such Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
institutions that have accounts with such Depositary or its nominee
("participants"). The accounts to be credited will be designated by the
underwriters or agents of such Debt Securities or, if such Debt Securities are
offered and sold directly by the Company, by the Company. Ownership of
beneficial interests in such Global Security will be limited to participants or
Persons that may hold interests through participants. Ownership of beneficial
interests by participants in such Global Security will be shown on, and the
transfer of that ownership interest will be
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effected only through, records maintained by the Depositary or its nominee for
such Global Security. Ownership of beneficial interests in such Global Security
by Persons that hold through participants will be shown on, and the transfer of
that ownership interest within such participant will be effected only through,
records maintained by such participant. The laws of some jurisdictions require
that certain purchasers of securities take physical delivery of such securities
in certificated form. The foregoing limitations and such laws may impair the
ability to transfer beneficial interests in such Global Securities.

So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
applicable Indenture. Unless otherwise specified in the applicable Prospectus
Supplement, owners of beneficial interests in such Global Security will not be
entitled to have Debt Securities of the series represented by such Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of Debt Securities of such series in certificated form and
will not be considered the holders thereof for any purposes under the applicable
Indenture. Accordingly, each Person owning a beneficial interest in such Global
Security must rely on the procedures of the Depositary and, if such Person is
not a participant, on the procedures of the participant through which such
Person owns its interest, to exercise any rights of a holder under the
applicable Indenture. The Company understands that under existing industry
practices, if the Company requests any action of holders or an owner of a
beneficial interest in such Global Security desires to give any notice to take
any action a holder is entitled to give or take under the applicable Indenture,
the Depositary would authorize the participants to give such notice or take such
action, and participants would authorize beneficial owners owning through such
participants to give such notice or take such action or would otherwise act upon
the instructions of beneficial owners owning through them.

Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.

CERTAIN COVENANTS

Unless otherwise described herein or in a Prospectus Supplement relating to
any Offered Debt Securities, the Indentures contain the following covenants,
among others:

Limitation on Liens. The Senior Indenture provides that the Company
will not, and will not permit any of its Subsidiaries to, create, incur or
otherwise cause or suffer to exist or become effective any Liens of any
kind upon any of the Property of such Person or any shares of stock or debt
of any Subsidiary (whether such Property, shares of stock or debt are now
owned or hereafter acquired), unless all payments due under the Senior
Indenture and the Senior Debt Securities are secured on an equal and
ratable basis with the obligation so secured until such time as such
obligation is no longer secured by a Lien, except for Permitted Liens.

Notwithstanding the foregoing, the Company or any Subsidiary may
create, incur, suffer or permit to exist Liens which would otherwise be
subject to the restrictions set forth in the preceding paragraph, if after
giving effect thereto and at the time of determination, Exempted Debt does
not exceed 10% of Consolidated Net Assets.

Limitations on Sale and Lease-Back Transactions. The Indentures
provide that the Company will not, nor will it permit any of its
Subsidiaries to, sell or transfer any Property, whether now owned or
hereafter acquired, and thereafter rent or lease such Property or other
Property which the Company or any of its Subsidiaries intends to use for
substantially the same purpose or purposes as the Property being sold or
transferred, except for such transactions occurring after the Issue Date
(i) with respect to Properties first acquired by the Company or any of its
Subsidiaries after such dates with the intent at the time of such
acquisition that such Properties be the subjects of such transactions, and
such transactions are actually consummated within 60 days after the initial
acquisition of such Properties, so long as the Asset Value of such
Properties do not exceed $25,000,000 in the aggregate, and (ii) with
respect to all other Properties in all such other transactions, so long as
the Asset Value of such other Properties do not exceed $5,000,000 in the
aggregate.

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Limitation on Guarantees by Subsidiaries. The Indentures provide that
the Company will not permit any Subsidiary, directly or indirectly, to
assume, guarantee or in any manner become liable with respect to any
Indebtedness of the Company or any Guarantor unless such Subsidiary is a
Guarantor or simultaneously executes and delivers a supplemental indenture
to the Indentures providing for the guarantee of payment of the Debt
Securities by such Subsidiary on the terms of the Guarantees.

If the Company or any of its Subsidiaries acquire or form a Material
U.S. Subsidiary, the Company will cause any such Subsidiary to (i) execute
and deliver to the Trustee a supplemental indenture in form and substance
reasonably satisfactory to such Trustee pursuant to which such Subsidiary
shall guarantee all of the obligations of the Company with respect to the
Debt Securities issued under such Indenture on a senior or subordinated
basis, as the case may be and (ii) deliver to such Trustee an opinion of
counsel reasonably satisfactory to such Trustee to the effect that a
supplemental indenture has been duly executed and delivered by such
Subsidiary and such Subsidiary is in compliance with the terms of the
Indenture.

Notwithstanding the foregoing, upon any sale or disposition (by merger
or otherwise) of any Guarantor by the Company or a Subsidiary of the
Company to any Person that is not an Affiliate of the Company or any of its
Subsidiaries, such Guarantor will be deemed to be released from all
obligations under its Guarantee; provided, however, that each such
Guarantor is sold or disposed of in a transaction that does not violate the
Indenture.

MERGER, CONSOLIDATION OR SALE OF ASSETS

The Indentures provide that the Company will not consolidate or merge with
or into, or sell, lease, convey or otherwise dispose of all or substantially all
of its assets, or assign any of its obligations under the Debt Securities or
applicable Indenture, and the Company will not permit any of its Subsidiaries to
enter into any such transaction or series of transactions if such transaction or
series of transactions, in the aggregate, would dispose of all or substantially
all of the assets of the Company or the Company and its Subsidiaries, taken as a
whole, unless (i) the entity formed by or surviving any such consolidation or
merger (if other than the Company), or to which such sale, lease, conveyance or
other disposition shall have been made (the "Surviving Entity"), is a
corporation organized and existing under the laws of the United States, any
state thereof, or the District of Columbia; (ii) the Surviving Entity assumes by
supplemental indenture all of the obligations of the Company under the Debt
Securities and the applicable Indenture; and (iii) immediately after giving
effect to such transaction, no Default or Event of Default shall have occurred
and be continuing. With respect to the sale of assets, the phrase "all or
substantially all" as used in the Indentures varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under applicable law and is subject to judicial interpretation. Accordingly, in
certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of a person, and therefore it may be unclear as
to whether a disposition of assets comes within the terms of this provision.

CONVERSION

The Indentures contain certain general provisions regarding the possible
conversion of Debt Securities into Common Stock (or cash in lieu thereof). The
specific terms applicable to any series of Convertible Debt Securities that is
then being offered, including the initial conversion price or conversion rate,
any adjustments to such conversion price or conversion rate and the conversion
period, as well as the conditions upon which such conversion will be effected,
will be set forth in the Prospectus Supplement relating thereto.

EVENTS OF DEFAULT AND REMEDIES

An Event of Default with respect to the Debt Securities of any series is
defined in each Indenture as: (i) default in the payment of any installment of
interest on or any Additional Amounts payable in respect of any of the Debt
Securities of such series as and when the same shall become due and payable, and
continuance of such default for a period of 30 days; (ii) default in the payment
of all or any part of the principal of any of the Debt Securities of such series
as and when the same shall become due and payable either at maturity, upon any
redemption, or otherwise; (iii) the failure by the Company to perform or observe

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<PAGE> 84

any of its other covenants, conditions or agreements contained in the Debt
Securities of such series or set forth in the applicable Indenture and
continuance of such failure for a period of 30 days after due notice by the
applicable Trustee or by the holders of at least 25% in principal amount of the
Debt Securities of that series then outstanding; (iv) default in the payment of
any scheduled payment of principal of or interest on any Indebtedness of the
Company or any Subsidiary of the Company (other than the Debt Securities of such
series) aggregating more than $25 million in principal amount, when due after
giving effect to any applicable grace period, that results in such Indebtedness
becoming due and payable prior to the date on which it would otherwise become
due and payable, and such acceleration shall not have been rescinded or
annulled, or such Indebtedness shall not have been discharged; or (v) certain
events of bankruptcy, insolvency or reorganization involving the Company or its
Significant Subsidiaries as more fully described in the Indentures. Additional
Events of Default may be added for the benefit of holders of certain series of
Debt Securities which, if added, will be described in the Prospectus Supplement
relating to such Debt Securities. The Indentures provide that the Trustee shall
notify the holders of Debt Securities of each series of any continuing default
known to the Trustee which has occurred with respect to that series within 90
days after the occurrence thereof. The Indentures provide that notwithstanding
the foregoing, except in the case of default in the payment of the principal of,
interest on or any Additional Amounts payable in respect of any of the Debt
Securities of such series the Trustee may withhold such notice if the Trustee in
good faith determines that the withholding of such notice is in the interests of
the holders of Debt Securities of such series.

If an Event of Default of the type described in clause (v) above shall
happen and be continuing, then the principal of (or, with respect to a series of
Original Issue Discount Securities, such portion of the principal amount as may
be specified in the terms of such series), accrued and unpaid interest on, and
any Additional Amounts payable in respect of the Debt Securities will become
immediately due and payable. If one or more Events of Default of the type
described in clauses (i) through (iv) with respect to any series of Debt
Securities at the time outstanding shall happen and be continuing, then either
the Trustee or the holders of not less than 25% of the principal amount of that
series of the Debt Securities then outstanding may declare the principal (or,
with respect to a series of Original Issue Discount Securities, such portion of
the principal amount as may be specified in the terms of such series), accrued
and unpaid interest on and any Additional Amounts payable in respect of the Debt
Securities of that series due and payable immediately. This provision is subject
to the condition that if, after any declaration of acceleration and before
Stated Maturity of the principal with respect to the Debt Securities of any
series, all arrears of interest and any Additional Amounts and the expenses of
the Trustee, its agents or attorneys shall be paid by or for the account of the
Company, and all Defaults (other than the payment of principal that has been
declared due and payable) have been cured to the satisfaction of the Trustee,
then the Trustee shall, upon the written request of the holders of a majority in
principal amount of the Debt Securities of the applicable series, waive such
Default and rescind or annul the declaration of acceleration; but no such
waiver, rescission or annulment shall extend to or affect any subsequent Default
or impair any right consequent thereon.

No holder of any Debt Security of any series will have the right to pursue
a remedy under the applicable Indenture or the Debt Securities, unless (i) such
holder gives the Trustee notice of a continuing Default with respect to the Debt
Securities of that series, (ii) the holders of at least a majority of the Debt
Securities of the applicable series make a request to the Trustee to pursue the
remedy, (iii) such holder or holders offer the Trustee security or indemnity
satisfactory to the Trustee against any loss, liability or expense and (iv) the
Trustee does not comply with the request within 10 days after the receipt of the
request and the offer of security or indemnity. However, nothing contained in
the Indentures shall affect or impair the right of any holder of Debt Securities
to institute suit to enforce payment of the principal of, interest on and any
Additional Amounts payable in respect of such holder's Debt Securities on or
after the due dates expressed in such Debt Securities.

The Company must furnish to the Trustee a statement, detailing any Defaults
of which it is aware, within five days of becoming aware of the occurrence of
any Default.

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REPORTS

The Indentures provide that the Company will file with the Trustee copies
of the annual reports and other information, documents and reports that the
Company is required to file with the Commission pursuant to the Exchange Act. If
the Company is not required to file such reports and other information, the
Indentures provide that the Company shall file with the Trustee and cause to be
mailed to the holders of Debt Securities (i) annual reports containing the
information required to be contained in an annual report on Form 10-K, (ii)
quarterly reports containing the information required to be contained in a
quarterly report on Form 10-Q and (iii) promptly after the occurrence of an
event required to be therein reported, such other reports containing information
required to be contained in a current report on Form 8-K. The Company shall also
comply with the requirements of the Trust Indenture Act of 1939, as amended.

DISCHARGE

Each Indenture provides that it will cease to be of further effect (except
that certain obligations will survive) with respect to a series of Debt
Securities when all outstanding Debt Securities of such series authenticated and
issued have been delivered (other than destroyed, lost or stolen Debt Securities
that have been replaced or paid) to the Trustee for cancellation and the Company
has paid all sums payable under such Indenture with respect to such series of
Debt Securities.

MODIFICATION OF THE INDENTURES

Each Indenture contains provisions permitting the Company and the
applicable Trustee, with the consent of the holders of not less than a majority
in principal amount of the Debt Securities of each series at the time
outstanding under such Indenture, to enter into supplemental indentures to amend
any of the provisions of that Indenture or any supplemental indenture with
respect to the Debt Securities of such series; provided that, unless consented
to by each holder of Debt Securities of such series, no such supplemental
indenture may (i) reduce the amount of Debt Securities whose holders must
consent to an amendment or a waiver; (ii) reduce the rate of or change the time
for payment of interest or Additional Amounts, including default interest on any
Debt Security; (iii) reduce the principal of or change the Stated Maturity of
any Debt Security or alter the provisions with respect to redemption; (iv) make
any Debt Security payable in money other than that stated in the Debt Security;
(v) make any change in the types of amendment that need the approval of every
affected holder of Debt Securities; (vi) with respect to the Senior Indenture,
affect the ranking of the Debt Securities; or (vii) waive a Default in the
payment of principal of, any Additional Amounts payable in respect of or
interest on, or with respect to, any Debt Security.

The applicable Trustee and the Company may enter into supplemental
indentures which amend the applicable Indenture and the Debt Securities with
respect to a particular series without the consent of any holder of Debt
Securities in order to: (i) cure any ambiguity, omission, defect or
inconsistency; (ii) comply with such Indenture concerning the substitution of
successor corporations pursuant to a merger or consolidation or to permit any
additional Subsidiaries of the Company to guarantee the payment of the Debt
Securities; (iii) comply with any requirements of the Commission in connection
with the qualification of such Indenture under the Trust Indenture Act of 1939,
as amended; (iv) provide for uncertificated securities; (v) make any change that
does not materially adversely affect the legal rights of any holder of Debt
Securities under the applicable Indenture as then in effect; (vi) secure the
Debt Securities and make intercreditor arrangements with respect to any such
Debt Securities (unless prohibited by such Indenture); (vii) provide for a
replacement Trustee; or (viii) add to the covenants and agreements of the
Company for the benefit of all the holders of all of the Debt Securities with
respect to a series or surrender any right or power reserved for the Company in
such Indenture.

DEFEASANCE AND COVENANT DEFEASANCE

Each Indenture provides that the Company may elect either (i) to terminate
(and be deemed to have satisfied) all its obligations with respect to the Debt
Securities outstanding under such Indenture (except for the obligations to
register the transfer or exchange of such Debt Securities, to replace mutilated,
destroyed,

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<PAGE> 86

lost or stolen Debt Securities, to maintain an office or agency in respect of
the Debt Securities, to compensate and indemnify the applicable Trustee and to
punctually pay or cause to be paid the principal of, interest on and any
Additional Amounts payable in respect of all Debt Securities of such series when
due) ("defeasance") or (ii) to be released from its obligations with respect to
certain covenants ("covenant defeasance"), in either case upon the deposit with
the Trustee, in trust for such purpose, of money (and/or U.S. Government
Obligations (as defined in the Indentures) which through the payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient (in the opinion of a nationally recognized firm of independent
public accountants) to pay the principal of, interest on and any Additional
Amounts payable in respect of the outstanding Debt Securities of such series,
and any mandatory sinking fund or analogous payments thereon, on the scheduled
due dates therefor. Such a trust may be established only if, among other things,
the Company has delivered to the Trustee an opinion of counsel (as specified in
such Indenture) with regard to certain matters, including a ruling from the
Internal Revenue Service or an opinion to the effect that the holders of such
Debt Securities will not recognize income, gain or loss for income tax purposes
as a result of such deposit and discharge and will be subject to income tax on
the same amounts and in the same manner and at the same times as would have been
the case if such deposit and defeasance or covenant defeasance, as the case may
be, had not occurred. The applicable Prospectus Supplement may further describe
these or other provisions, if any, permitting defeasance or covenant defeasance
with respect to the Debt Securities of any series.

THE GUARANTEES

Under the Indentures, each of the Guarantors will unconditionally guarantee
on a joint and several basis all of the Company's obligations under the Debt
Securities, including its obligations to pay principal, premium, if any, and
interest with respect to the Debt Securities. Further, each Material U.S.
Subsidiary of the Company will be a Guarantor until the Guarantor is sold or
disposed of in a transaction that does not violate the Indenture. See
"-- Merger, Consolidation or Sale of Assets".

THE TRUSTEE

The Senior Trustee also serves as trustee under the indenture covering the
Company's 9 1/2% Senior Subordinated Notes due 2005. Prior to the issuance of
any Subordinated Debt Securities under the Subordinated Indenture, the Company
will engage a qualified trustee to serve as Trustee under the Subordinated
Indenture. Any such Trustee will be an "eligible trustee" under the Trust
Indenture Act of 1939, as amended.

The Indentures provide that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indentures. If an Event of Default has occurred
and is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.

PROVISIONS APPLICABLE SOLELY TO SUBORDINATED DEBT SECURITIES

Subordination. The Subordinated Debt Securities will be subordinate and
junior in right of payment, to the extent set forth in the Subordinated
Indenture, to all Senior Indebtedness (as defined below) of the Company. If the
Company should default in the payment of any principal of, interest on or any
Additional Amounts payable in respect of any Senior Indebtedness when the same
becomes due and payable, whether at maturity or at a date fixed for prepayment
or by declaration or otherwise, then, upon written notice of such default to the
Company by the holders of such Senior Indebtedness or any trustee therefor and
subject to certain rights of the Company to dispute such default and subject to
proper notification of the Trustee, unless and until such default shall have
been cured or waived or shall have ceased to exist, no direct or indirect
payment (in cash, property, securities, by set-off or otherwise) will be made or
agreed to be made for principal of, interest on or any Additional Amounts
payable in respect of the Subordinated Debt Securities, or in respect of any
redemption, retirement, purchase or other acquisition of the Subordinated Debt
Securities, other than those made in capital stock of the Company (or cash in
lieu of fractional shares thereof) pursuant to any conversion right of the
Subordinated Debt Securities or otherwise.

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The term "Senior Indebtedness" is defined to mean Indebtedness (including
the Senior Debt Securities) of the Company outstanding at any time except (a)
any Indebtedness as to which, by the terms of the instrument creating or
evidencing the same, it is provided that such Indebtedness is not senior in
right of payment to the Subordinated Debt Securities, (b) the Subordinated Debt
Securities, (c) any Indebtedness of the Company to a wholly-owned Subsidiary of
the Company, (d) interest accruing after the filing of a petition initiating
certain events of bankruptcy or insolvency unless such interest is an allowed
claim enforceable against the Company in a proceeding under federal or state
bankruptcy laws and (e) trade payables.

If (i) without the consent of the Company, a court shall enter an order for
relief with respect to the Company under the United States federal bankruptcy
laws or a judgment, order or decree adjudging the Company a bankrupt or
insolvent, or enter an order for relief for reorganization, arrangement,
adjustment or composition of or in respect of the Company under the United
States federal or state bankruptcy or insolvency laws or (ii) the Company shall
institute proceedings for the entry of an order for relief with respect to the
Company under the United States federal bankruptcy laws or for an adjudication
of insolvency, or shall consent to the institution of bankruptcy or insolvency
proceedings against it, or shall file a petition seeking, or seek or consent to
reorganization, arrangement, composition or similar relief under any applicable
law, or shall consent to the filing of such petition or to the appointment of a
receiver, custodian, liquidator, assignee, trustee, sequestrator or similar
official in respect of the Company or of substantially all of its property, or
the Company shall make a general assignment for the benefit of creditors, then
all Senior Indebtedness (including any interest thereon accruing after the
commencement of any such proceedings and any Additional Amounts payable in
respect thereof) will first be paid in full before any payment or distribution,
whether in cash, securities or other property, is made on account of the
principal of, interest on or any Additional Amounts payable in respect of the
Subordinated Debt Securities. In such event, any payment or distribution on
account of the principal of, interest on or any Additional Amounts payable in
respect of Subordinated Debt Securities, whether in cash, securities or other
property (other than securities of the Company or any other corporation provided
for by a plan of reorganization or readjustment, the payment of which is
subordinate, at least to the extent provided in the subordination provisions
with respect to the Subordinated Debt Securities, to the payment of all Senior
Indebtedness then outstanding and to any securities issued in respect thereof
under any such plan of reorganization or readjustment), which would otherwise
(but for the subordination provisions) be payable or deliverable in respect of
the Subordinated Debt Securities will be paid or delivered directly to the
holders of Senior Indebtedness in accordance with the priorities then existing
among such holders until all Senior Indebtedness (including any interest thereon
accruing after the commencement of any such proceedings and any Additional
Amounts payable in respect thereof) has been paid in full. If any payment or
distribution on account of the principal of, interest on or any Additional
Amounts payable in respect of the Subordinated Debt Securities of any character,
whether in cash, securities or other property (other than securities of the
Company or any other corporation provided for by a plan of reorganization or
readjustment, the payment of which is subordinate, at least to the extent
provided in the subordination provisions with respect to the Subordinated Debt
Securities, to the payment of all Senior Indebtedness then outstanding and to
any securities issued in respect thereof under any such plan of reorganization
or readjustment), shall be received by any holder of any Subordinated Debt
Securities in contravention of any of the terms of the Subordinated Indenture
and before all the Senior Indebtedness shall have been paid in full, such
payment or distribution of securities will be received in trust for the benefit
of, and will be paid over or delivered and transferred to, the holders of the
Senior Indebtedness then outstanding in accordance with the priorities then
existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness in full. In the event of any such proceeding, after payment in full
of all sums owing with respect to Senior Indebtedness, the holders of
Subordinated Debt Securities, together with the holders of any obligations of
the Company ranking on a parity with the Subordinated Debt Securities, will be
entitled to be repaid from the remaining assets of the Company the amounts at
that time due and owing on account of unpaid principal of, interest on and any
Additional Amounts payable in respect of the Subordinated Debt Securities and
such other obligations before any payment or other distribution, whether in
cash, property or otherwise, shall be made on account of any capital stock or
obligations of the Company ranking junior to the Subordinated Debt Securities
and such other obligations.

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By reason of such subordination, in the event of the insolvency of the
Company, holders of Senior Indebtedness may receive more, ratably, than holders
of the Subordinated Debt Securities. In addition, other creditors of the Company
who are not holders of Subordinated Debt Securities or holders of Senior
Indebtedness may recover less, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than holders of Subordinated Debt Securities. Such
subordination will not prevent the occurrence of an Event of Default or limit
the right of acceleration in respect of the Subordinated Debt Securities.

CERTAIN DEFINITIONS

"Affiliate" of any specified Person shall mean any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any specified
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting Debt Securities or by contract or otherwise. The
Trustee may request and conclusively rely on an Officers' Certificate to
determine whether any Person is an Affiliate of the Company.

"Asset Value" means, with respect to any property or asset of the Company
or any of its Subsidiaries, an amount equal to the greater of (i) the book value
of such property or asset as established in accordance with GAAP or (ii) the
fair market value of such property or asset as determined in good faith by the
board of directors (or equivalent governing body in the case of any foreign
Subsidiary) of such Person.

"Attributable Liens" means in connection with a sale and lease-back
transaction, the lesser of (a) the fair market value of the assets subject to
such transaction and (b) the present value (discounted at a rate per annum equal
to the average interest borne by all outstanding Securities issued under the
Indenture (which may include securities in addition to the Senior Debt
Securities) determined on a weighted average basis and compounded semiannually)
of the obligations of the lessee for rental payments during the term of the
related lease.

"Bank Receivables Agreement" means the Receivables Sale Agreement dated as
of December 27, 1996 (the "1996 Bank Receivables Agreement"), among Interface
Securitization Corporation, the Company, certain financial institutions parties
thereto, and Canadian Imperial Bank of Commerce, as Administrative Agent, as
such agreement, in whole or in part, may from time to time be amended, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented or
otherwise modified, whether with the same or any other Person(s) as
purchaser(s), lender(s) or agent(s) (including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplements or other modifications of the foregoing, whether with
the same or any other Person), provided that the sales of receivables pursuant
to any such Bank Receivables Agreement are on non-recourse terms not materially
less favorable to the Company and its Subsidiaries as provided for in the 1996
Bank Receivables Agreement and that the aggregate amount of sales under such
Bank Receivables Agreement and the Receivables Sales Agreement at any one time
outstanding shall not exceed a total of $100,000,000.

"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions and trust companies in
the City of New York, State of New York, or Atlanta, Georgia are authorized or
obligated by law, regulation or executive order to close.

"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, and rights (other than Debt Securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.

"Capitalized Lease Obligation" shall mean any obligation under a lease of
(or other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and the amount of any such obligation at
any date shall be the capitalized amount thereof at such date, determined in
accordance with GAAP.

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"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such Person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.

"Consolidated Net Assets" means as of any particular time the aggregate
amount of assets after deducting therefrom all current liabilities except for
(a) notes and loans payable, (b) current maturities of long-term debt and (c)
current maturities of obligations under capital leases, all as set forth on the
most recent consolidated balance sheet of the Company and its consolidated
Subsidiaries and computed in accordance with GAAP.

"Consolidated Net Worth" shall mean, with respect to any Person at any
date, the consolidated stockholders' equity of such Person and its Subsidiaries,
as determined from time to time in accordance with GAAP.

"Credit Agreements" means, collectively, (i) the Second Amended and
Restated Credit Agreement dated as of June 25, 1997, among the Company, certain
Subsidiaries of the Company, the banks and other lending institutions parties
thereto, SunTrust Bank, Atlanta, as Co-Agent and Collateral Agent, and The First
National Bank of Chicago, as Co-Agent, (ii) the Amended and Restated Letter of
Credit Agreement dated as of June 25, 1997, among the Company, certain
Subsidiaries of the Company, the banks and other lending institutions parties
thereto, and SunTrust Bank, Atlanta, as Domestic Agent and Collateral Agent and
(iii) the Term Loan Agreement, dated as of June 25, 1997, among the Company, the
banks and other lending institutions parties thereto, SunTrust Bank, Atlanta, as
Administrative Agent and Collateral Agent, and the First National Bank of
Chicago, as Syndication Agent, in each case as such agreement, in whole or in
part, may from time to time be amended, renewed, extended, substituted,
refinanced, restructured, replaced, supplemented or otherwise modified
(including, without limitation, any successive renewals, extensions,
substitutions, refinancings, restructurings, replacements, supplementations or
other modifications of the foregoing), and whether with the present lenders of
any other lenders.

"Currency Agreement" shall mean, with respect to any Person, any foreign
exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect such Person or any of its Subsidiaries against
fluctuations in currency values.

"Default" shall mean any event that is, or after notice or passage of time
or both would be, an Event of Default.

"Exempted Debt" means the sum of the following as of the date of
determination: (i) Indebtedness of the Company and any of its Subsidiaries
secured by Liens not otherwise permitted under the definition of "Permitted
Liens" below and (ii) Attributable Liens of the Company and its Subsidiaries in
respect of sale and lease-back transactions entered into after the Issue Date.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

"GAAP" shall mean generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, consistently applied, that are applicable to the circumstances as of
the date of determination.

"Guarantee" shall mean each guarantee of the Debt Securities by each
Guarantor created pursuant to the Indentures.

"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
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<PAGE> 90

"Guarantor" means each of Interface Interior Fabrics, Inc. (formerly
Guilford of Maine, Inc.), a Delaware corporation, Guilford (Delaware), Inc., a
Delaware corporation, Interface Flooring Systems, Inc., a Georgia corporation,
Interface Europe, Inc., a Delaware corporation, Interface Asia-Pacific, Inc., a
Georgia corporation, Bentley Mills, Inc., a Delaware corporation, Prince Street
Technologies, Ltd., a Georgia corporation, Intek, Inc., a Georgia corporation,
Toltec Fabrics, Inc., a Georgia corporation, Interface Architectural Resources,
Inc. (formerly C-Tec, Inc.), a Michigan corporation, Flooring Consultants, Inc.,
an Arizona corporation, Lasher/White Carpet Company, Inc., a New York
corporation, B. Shehadi & Sons, Inc., a New Jersey corporation, Guilford of
Maine, Inc., a Nevada corporation, Guilford of Maine Finishing Services, Inc., a
Nevada corporation, Guilford of Maine Decorative Fabrics, Inc., a Nevada
corporation, Guilford of Maine Marketing Co., a Nevada corporation, Intek
Marketing Co., a Nevada corporation, Interface Holding Company, a Nevada
corporation, Interface Americas, Inc., a Georgia corporation, Interface Americas
Services, Inc., a Georgia corporation, Interface Specialty Resources, Inc., a
Nevada corporation, Re:Source Americas Enterprises, Inc., a Georgia corporation,
Interface Royalty Company, a Nevada corporation, Interface Licensing Company, a
Nevada corporation, Prince Street Royalty Company, a Nevada corporation, Bentley
Royalty Company, a Nevada corporation, Superior/Reiser Flooring Resources, Inc.,
a Texas corporation, Quaker City International, Inc., a Pennsylvania
corporation, Commercial Flooring Systems, Inc., a Pennsylvania corporation,
Congress Flooring Corp., a Massachusetts corporation, and each other Material
U.S. Subsidiary and shall include any successor replacing such Person pursuant
to the terms of the Indentures, and thereafter means such successor.

"Guilford Equipment Lease" means the Master Equipment Lease Agreement dated
as of June 30, 1995, between Fleet Credit Corporation and Guilford of Maine,
Inc., relating to the leasing of various textile manufacturing equipment in
aggregate amount (acquisition costs) of not more than $19,000,000, as such
agreement, in whole or in part, may from time to time be amended, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented or
otherwise modified, whether with the same or any other Person(s) as lessor(s) or
lender(s) (including, without limitation, any successive renewals, extensions,
substitutions, refinancings, restructurings, replacements, supplements or other
modifications of the foregoing).

"Indebtedness" shall mean, with respect to any Person, without duplication,
(a) all liabilities of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities incurred in the ordinary course of business and
which are not overdue by more than 90 days, but including, without limitation,
all obligations, contingent or otherwise, of such Person in connection with any
letters of credit, banker's acceptance or other similar credit transaction; (b)
all obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments; (c) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade accounts payable arising in the ordinary
course of business; (d) all obligations of such Person arising under Capitalized
Lease Obligations; (e) all Indebtedness referred to in the preceding clauses of
other Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon property (including,
without limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness (the amount of such obligation being deemed to be the lesser of the
value of such property or asset or the amount of the obligation so secured); (f)
all guarantees of Indebtedness referred to in this definition by such Person;
(g) all Redeemable Capital Stock of such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued dividends;
(h) all obligations under or in respect of Currency Agreements and Interest Rate
Protection Obligations of such Person; and (i) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (a) through (h) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock which does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indentures, and if such price is based upon, or measured by, the
fair market value of such Redeemable Capital

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<PAGE> 91

Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.

"Interest Rate Protection Agreement" means, with respect to the Company or
any of its Subsidiaries, any arrangement with any other Person whereby, directly
or indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include without limitation, interest rate swaps, caps,
floors, collars and similar agreements.

"Interest Rate Protection Obligations" mean the obligations of any Person
pursuant to an Interest Rate Protection Agreement.

"Issue Date" means the first date on which a Debt Security is authenticated
by the Trustee.

"Lien" shall mean any mortgage, pledge, security interest, lien, charge,
hypothecation, assignment, deposit arrangement, title retention, preferential
right, trust or other arrangement having the practical effect of the foregoing
and shall include the interest of a vendor or lessor under any conditional sale
agreement, capitalized lease or other title retention agreement.

"Material Subsidiary" means each Subsidiary, now existing or hereinafter
established or acquired, that has or acquires total assets in excess of
$10,000,000, or that holds any fixed assets material to the operations or
business of another Material Subsidiary.

"Material U.S. Subsidiary" means each Material Subsidiary that is
incorporated in the United States or any State thereof.

"Permitted Liens" shall mean, with respect to any Person:

(a) Liens existing on the date the Indentures are executed;

(b) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or any of its Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP;

(c) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;

(d) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance or other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);

(e) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;

(f) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real Property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Subsidiaries;

(g) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease;

(h) purchase money Liens to finance the acquisition or construction of
Property or assets of the Company or any Subsidiary of the Company acquired
or constructed in the ordinary course of business; provided, however, that
(i) the related purchase money Indebtedness shall not be secured by any

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Property or assets of the Company or any Subsidiary of the Company other
than the Property and assets so acquired or constructed and (ii) the Lien
securing such Indebtedness either (x) exists at the time of such
acquisition or construction or (y) shall be created within 90 days of such
acquisition or construction;

(i) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;

(j) Liens on any Property securing the obligations of the Company or
any Subsidiaries in respect of letters of credit issued by the lenders
under the Credit Agreements and as permitted under the Credit Agreements in
support of industrial development revenue bonds;

(k) Liens, if any, that may be deemed to have been granted in
connection with accounts receivable or interests in accounts receivable of
the Company or any Subsidiary as a result of the assignment thereof
pursuant to the Receivables Sale Agreement or the Bank Receivables
Agreement;

(l) Liens, if any, arising under the Guilford Equipment Lease; and

(m) Liens on Property included in the IRB Collateral as may be
approved by the Collateral Agent pursuant to the terms of the Amended and
Restated Letter of Credit Agreement, dated as of June 25, 1997 referred to
in clause (ii) of the definition of "Credit Agreements" above (if not
defined in this Prospectus, all terms used in this paragraph (m) are
defined in such Letter of Credit Agreement).

"Person" shall mean any individual, corporation, partnership, limited
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof, or any other entity.

"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated financial statements of the Company and its
Subsidiaries under GAAP.

"Receivables Sale Agreement" means the Receivables Sale Agreement dated as
of August 4, 1995 (the "1995 Receivables Sale Agreement") among the Company,
Interface Securitization Corporation, Special Purpose Accounts Receivables
Cooperative Corporation, and Canadian Imperial Bank of Commerce as servicing
agent, as such agreement, in whole or in part, may from time to time be amended,
renewed, extended, substituted, refinanced, restructured, replaced, supplemented
or otherwise modified, whether with the same or any other Person(s) as
purchaser(s), lender(s) or agent(s) (including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplements or other modifications of the foregoing) provided that
the sales of receivables pursuant to any such Receivables Sale Agreement are on
non-recourse terms not materially less favorable to the Company and its
Subsidiaries as provided for in the 1995 Receivables Sale Agreement and that the
aggregate amount of sales under such Receivables Sale Agreement and the Bank
Receivables Agreement at any one time outstanding shall not exceed a total of
$100,000,000.

"Redeemable Capital Stock" means any shares of any class or series of
Capital Stock that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be, required to be
redeemed prior to the Stated Maturity with respect to the principal of any
Security or is redeemable at the option of the holder thereof at any time prior
to any such Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to any such Stated Maturity.

"Significant Subsidiary" shall have the same meaning as in Rule 1.02(v) of
Regulation S-X under the Securities Act.

"Stated Maturity," when used with respect to any Security or any
installment of interest thereon, shall mean the date specified in such Security
as the fixed date on which the principal of such Security or such installment of
interest is due and payable.

"Subsidiary" of any Person shall mean any Person, any corporation or other
entity (including, without limitation, partnerships, joint ventures and
associations) regardless of its jurisdiction of organization or
22
<PAGE> 93

formation, at least a majority of the total combined voting power of all classes
of voting stock or other ownership interests of which shall, at the time as of
which any determination is being made, be owned by such Person, either directly
or indirectly through one or more other Subsidiaries.

DESCRIPTION OF CAPITAL STOCK

The Company is authorized by its Articles of Incorporation, as amended (the
"Articles of Incorporation"), to issue 40,000,000 shares of Class A Common
Stock, par value $.10 per share (the "Class A Common Stock"); 40,000,000 shares
of Class B Common Stock, par value $.10 per share (the "Class B Common Stock");
and 5,000,000 shares of Preferred Stock, par value $1.00 per share (the
"Preferred Stock"). On December 28, 1997, the Company had issued and outstanding
21,385,825 shares of Class A Common Stock, 2,769,470 shares of Class B Common
Stock and no shares of Preferred Stock. The Board of Directors has approved an
amendment to the Articles of Incorporation which would increase the authorized
shares of Class A Common Stock to 80,000,000 shares, and recommended the
amendment to the shareholders of the Company for approval at the annual meeting
of shareholders to be held May 19, 1998.

Shareholders' rights and related matters are governed by the Georgia
Business Corporation Code, the Company's Articles of Incorporation, and its
Bylaws, as amended (the "Bylaws"). Certain provisions of the Articles of
Incorporation and Bylaws of the Company are summarized below and could have the
effect of preventing a change in control of the Company. The cumulative effect
of these provisions could make it more difficult for any person or entity to
acquire or exercise control of the Company and to effect changes in management.
The following summary is qualified in its entirety by reference to the Company's
Articles of Incorporation and Bylaws.

CLASS A AND CLASS B COMMON STOCK

Voting. The Class A Common Stock and Class B Common Stock have one vote
per share on all matters submitted to the Company's shareholders. The holders of
the Class B Common Stock have the right to elect the smallest number of
directors that constitutes a majority of the entire Board of Directors; the
holders of the Class A Common Stock elect the remaining directors. The holders
of shares of both classes vote together as a class on all other matters
submitted to the shareholders for a vote, except as otherwise required by law.
The directors elected by the holders of Class A Common Stock may be removed only
by the holders of Class A Common Stock and the directors elected by the holders
of the Class B Common Stock may be removed only by the holders of Class B Common
Stock.

Conversion. Shares of Class B Common Stock are convertible on a
one-for-one basis into Class A Common Stock at any time at the option of the
holder, and at other times upon the transfer of Class B shares to an ineligible
shareholder. If the outstanding shares of Class B Common Stock fall below 10% of
the aggregate outstanding shares of Class A and Class B Common Stock, then,
immediately upon the occurrence of such event, all the outstanding Class B
Common Stock will be automatically converted into Class A Common Stock, on a
share-for-share basis.

Dividends. Holders of Class A Common Stock are entitled to receive cash
dividends on at least an equal per share basis as holders of Class B Common
Stock if and when such dividends are declared by the Board of Directors of the
Company from funds legally available therefor. In the case of any dividend paid
in stock, holders of Class A Common Stock are entitled to receive the same
percentage dividend (payable in shares of Class A Common Stock) as the holders
of Class B Common Stock receive (payable in shares of Class B Common Stock).

Liquidation. Holders of Class A and Class B Common Stock share with each
other on a ratable basis as a single class in the net assets of the Company
available for distribution in respect of Class A and Class B Common Stock in the
event of liquidation.

Other Terms. The holders of the Class A Common Stock and Class B Common
Stock do not have preemptive rights enabling them to subscribe for or receive
shares of any class of stock of the Company or any other securities convertible
into shares of any class of stock of the Company. Except as otherwise summarized
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<PAGE> 94

above, the holders of shares of both classes of Common Stock, as such, have the
same rights and are subject to the same limitations.

CLASS B STOCK VOTING AGREEMENT

Certain holders of Class B Common Stock of the Company have entered into a
voting agreement (the "Voting Agreement") providing for certain of their Class B
shares to be voted as a block in the manner determined by the record owners of a
majority of the shares subject to the Voting Agreement. The Voting Agreement
expires on April 13, 1998. The shares of Class B Common Stock subject to the
Voting Agreement exceed a majority of the outstanding shares of Class B Common
Stock. Ray C. Anderson owns a majority of the shares subject to the Voting
Agreement, and thus can direct the voting of the entire block. (The Voting
Agreement also gives Mr. Anderson the right of first refusal to purchase any
shares subject to the Voting Agreement that are proposed to be sold in the
public market or in a private transaction.) Under the terms of the Class B
Common Stock, its special voting rights to elect a majority of the Board members
would terminate irrevocably if the total outstanding shares of Class B Common
Stock ever comprises less than ten percent (10%) of the Company's total issued
and outstanding shares of Class A and Class B Common Stock. On December 28,
1997, the outstanding Class B shares constituted approximately 11.5% of the
total outstanding shares of Class A and Class B Common Stock.

PREFERRED STOCK

General. Under the Articles of Incorporation, the Company's Board of
Directors is authorized to create and issue up to 5,000,000 shares of Preferred
Stock in one or more series and to determine the rights and preferences of each
series, to the extent permitted by the Articles of Incorporation. As of the date
of this Prospectus, no shares of Preferred Stock are outstanding.

Reference is made to the applicable Prospectus Supplement relating to the
series of any shares of Preferred Stock offered thereby and to the applicable
amendment to the Articles of Incorporation establishing such series of Preferred
Stock for specific terms, including: (i) the title and stated value of such
Preferred Stock; (ii) the number of shares of such Preferred Stock offered, the
liquidation preference per share and the initial offering price of such
Preferred Stock; (iii) the dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock; (iv) the
date from which dividends on such Preferred Stock shall accumulate, if
applicable; (v) the procedures for any auction and remarketing, if any, for such
Preferred Stock; (vi) the provisions for a sinking fund, if any, for such
Preferred Stock; (vii) the provisions for redemption, if applicable, of such
Preferred Stock; (viii) any listing of such Preferred Stock on any public
trading market; (ix) the terms and conditions, if applicable, upon which such
Preferred Stock will be convertible into Class A or Class B Common Stock of the
Company, including the conversion price (or manner of calculation thereof); (x)
a discussion of any material Federal income tax considerations applicable to
such Preferred Stock; (xi) the relative ranking and preferences of such
Preferred Stock as to dividend rights and rights upon liquidation, dissolution
or winding up of the affairs of the Company; (xii) any limitations on issuance
of any series of Preferred Stock ranking senior to or on a parity with such
series of Preferred Stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company; and (xiii) any other
specific terms, preferences, rights (including, without limitation, voting
rights), limitations or restrictions of such Preferred Stock.

Liquidation Preference. Unless otherwise specified in the applicable
Prospectus Supplement, upon any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of any series of
Preferred Stock in respect of which this Prospectus is being delivered will have
preference and priority over Class A or Class B Common Stock, and any other
class of stock or series of a class of stock of the Company ranking on
liquidation junior to such series of Preferred Stock, for payment out of the
assets of the Company or proceeds thereof, whether from capital or surplus, in
the amount set forth in the applicable Prospectus Supplement. After such
payment, the holders of such series of Preferred Stock will be entitled to no
other payments. If, in the case of any such liquidation, dissolution or winding
up of the Company, the assets of the Company or proceeds thereof shall be
insufficient to make the full liquidation payment in respect of such series of
Preferred Stock and liquidating payments on any other series of Preferred Stock
ranking as to
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<PAGE> 95

liquidation on a parity with such series, then those assets and proceeds will be
distributed among the holders of such series of Preferred Stock and any such
other series of Preferred Stock ratably in accordance with the respective
amounts that would be payable on such shares of such series of Preferred Stock
and such other series of Preferred Stock if all amounts thereon were paid in
full. A sale of all or substantially all of the Company's assets or a
consolidation or merger of the Company with one or more corporations shall not
be deemed to be a liquidation, dissolution or winding up of the Company.

DEPOSITARY SHARES

General. The Company may, at its option, elect to issue fractional shares
of Preferred Stock, rather than full shares of Preferred Stock. If such option
is exercised, the Company may elect to have a Depositary issue receipts for
Depositary Shares, each receipt representing a fraction (to be set forth in the
Prospectus Supplement relating to a particular series of Preferred Stock) of a
share of a particular series of Preferred Stock as described below. The shares
of any series of Preferred Stock represented by Depositary Shares will be
deposited under a Deposit Agreement ("Deposit Agreement") between the Company
and a Depositary. Subject to the terms of the Deposit Agreement, each owner of a
Depositary Share will be entitled, in proportion to the applicable fraction of a
share of Preferred Stock represented by such Depositary Share, to all the rights
and preferences of the Preferred Stock represented thereby (including dividend,
voting, redemption and liquidation rights).

The Depositary Shares will be evidenced by depositary receipts issued
pursuant to the Deposit Agreement ("Depositary Receipts"). Depositary Receipts
will be distributed to those persons purchasing the fractional shares of
Preferred Stock in accordance with the terms of an offering of the Preferred
Stock. In connection with the issuance of any series of Preferred Stock
represented by Depositary Shares, the forms of Deposit Agreement and Depositary
Receipt will be filed as exhibits to the Registration Statement of which this
Prospectus is a part, and the following summary is qualified in its entirety by
reference to such exhibits.

Pending the preparation of definitive engraved Depositary Receipts, the
Depositary may, upon the written order of the Company, issue temporary
Depositary Receipts substantially identical to (and entitling the holders
thereof to all the rights pertaining to) the definitive Depositary Receipts but
not in definitive form. Definitive Depositary Receipts will be prepared
thereafter without unreasonable delay, and temporary Depositary Receipts will be
exchangeable for definitive Depositary Receipts at the Company's expense.

Upon surrender of Depositary Receipts at the office of the Depositary and
upon payment of the charges provided in the Deposit Agreement and subject to the
terms thereof, a holder of Depositary Receipts is entitled to have the
Depositary deliver to such holder the whole shares of Preferred Stock relating
to the surrendered Depositary Receipts. Holders of Depositary Shares will be
entitled to receive whole shares of the related series of Preferred Stock on the
basis set forth in the related Prospectus Supplement for such series of
Preferred Stock, but holders of such whole shares will not thereafter be
entitled to receive Depositary Shares therefor. If the Depositary Receipts
delivered by the holder evidence a number of Depositary Shares in excess of the
number of Depositary Shares representing the number of whole shares of the
related series of Preferred Stock to be withdrawn, the Depositary will deliver
to such holder at the same time a new Depositary Receipt evidencing such excess
number of Depositary Shares.

Dividends and Other Distributions. The Depositary will distribute all cash
dividends or other cash distributions received in respect of the Preferred Stock
to the record holders of Depositary Shares relating to such Preferred Stock in
proportion to the numbers of such Depositary Shares owned by such holders.

In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may, with the approval of
the Company, sell such property and distribute the net proceeds from such sale
to such holders.

Redemption of Depositary Shares. If a series of Preferred Stock
represented by Depositary Shares is subject to redemption, the Depositary Shares
will be redeemed from the proceeds received by the Depositary resulting from the
redemption, in whole or in part, of such series of Preferred Stock held by the
Depositary.

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<PAGE> 96

The redemption price per Depositary Share will be equal to the applicable
fraction of the redemption price per share payable with respect to such series
of the Preferred Stock. Whenever the Company redeems shares of Preferred Stock
held by the Depositary, the Depositary will redeem as of the same redemption
date the number of Depositary Shares representing shares of Preferred Stock so
redeemed. If less than all the Depositary Shares are to be redeemed, the
Depositary Shares to be redeemed will be selected by lot or ratably as may be
determined by the Depositary.

Voting the Preferred Shares. Upon receipt of notice of any meeting at
which the holders of the Preferred Stock are entitled to vote, the Depositary
will mail the information contained in such notice of meeting to the record
holders of the Depositary Shares relating to such Preferred Stock. Each record
holder of such Depositary Shares on the record date (which will be the same date
as the record date for the Preferred Stock) will be entitled to instruct the
Depositary as to the exercise of the voting rights pertaining to the amount of
the Preferred Stock represented by such holder's Depositary Shares. The
Depositary will endeavor, insofar as practicable, to vote the amount of the
Preferred Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all action which may be deemed
necessary by the Depositary in order to enable the Depositary to do so. The
Depositary will abstain from voting shares of the Preferred Stock to the extent
it does not receive specific instructions from the holders of Depositary Shares
representing such Preferred Stock.

Amendment and Termination of the Deposit Agreement. The form of Depositary
Receipt evidencing the Depositary Shares and any provision of the Deposit
Agreement may at any time be amended by agreement between the Company and the
Depositary. However, any amendment which materially and adversely alters the
rights of the holders of Depositary Shares will not be effective unless such
amendment has been approved by the holders of at least a majority of the
Depositary Shares then outstanding. The Deposit Agreement may be terminated by
the Company or the Depositary only if (i) all outstanding Depositary Shares have
been redeemed or (ii) there has been a final distribution in respect to the
Preferred Stock in connection with any liquidation, dissolution or winding up of
the Company and such distribution has been distributed to the holders of
Depositary Receipts.

Charges of Depositary. The Company will pay all transfer and other taxes
and governmental charges arising solely from the existence of the depositary
arrangements. The Company will pay charges of the Depositary in connection with
the initial deposit of the Preferred Stock and any redemption of the Preferred
Stock. Holders of Depositary Receipts will pay other transfer and other taxes
and governmental charges and such other charges as are expressly provided in the
Deposit Agreement to be for their accounts.

Miscellaneous. The Depositary will forward to the record holders of the
Depositary Shares relating to such Preferred Stock all reports and
communications from the Company which are delivered to the Depositary.

Neither the Depositary nor the Company will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of the Company and the
Depositary under the Deposit Agreement will be limited to performance in good
faith of their duties thereunder, and they will not be obligated to prosecute or
defend any legal proceeding in respect of any Depositary Shares or Preferred
Stock unless satisfactory indemnity is furnished. They may rely upon written
advice of counsel or accountants, or information provided by persons presenting
Preferred Stock for deposit, holders of Depositary Receipts or other persons
believed to be competent and on documents believed to be genuine.

Resignation and Removal of Depositary. The Depositary may resign at any
time by delivering to the Company notice of its election to do so, and the
Company may at any time remove the Depositary, any such resignation or removal
to take effect upon the appointment of a successor Depositary and its acceptance
of such appointment. Such successor Depositary must be appointed within 60 days
after delivery of the notice of resignation or removal and must be a bank or
trust company having its principal office in the United States and having a
combined capital and surplus of at least $50,000,000.

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<PAGE> 97

CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION

The Company's Articles of Incorporation eliminate, to the extent permitted
under Georgia law, the liability of directors to the Company or its shareholders
or any other person for monetary damages for breach of any duty as a director,
whether as a fiduciary or otherwise. Georgia law provides that no provision in a
corporation's articles of incorporation or bylaws shall eliminate or limit the
liability of a director for (i) any appropriation, in violation of the
director's duties, of any business opportunity of the corporation, (ii) acts or
omissions which involve intentional misconduct or a knowing violation of law,
(iii) unlawful corporate distributions or (iv) any transaction from which the
director received an improper benefit. Liability for monetary damages would
remain unaffected by the Articles of Incorporation if liability is based on any
of these grounds. This provision of the Articles of Incorporation will limit the
remedies available to a shareholder dissatisfied with a Board decision that is
protected by this provision, and a shareholder's only remedy in such a
circumstance may be to bring a suit to prevent the Board's action. In many
situations, this remedy may not be effective, for example, when shareholders are
not aware of a transaction or an event until it is too late to prevent it. In
these cases, the shareholders and the Company could be injured by a Board
decision and have no effective remedy.

DESCRIPTION OF PREFERRED STOCK PURCHASE RIGHTS

On February 24, 1998, the Company's Board of Directors declared a dividend
of one preferred share purchase right (a "Right") for each share of Common Stock
of the Company. Each Right entitles the registered holder to purchase from the
Company one one-hundredth ( 1/100) of a share of Series B Participating
Cumulative Preferred Stock (the "Preferred Shares"), of the Company at a price
of $180.00 per one one-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustments to the exercise price and the number of Preferred Shares
issuable upon exercise from time to time to prevent dilution. The Rights are not
exercisable until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") have acquired beneficial ownership of 15% or more of the
outstanding Common Stock or (ii) 10 business days following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of the outstanding shares of Common Stock (the earlier of
such dates being called the "Distribution Date").

In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power is sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right. In the event that any person or group of affiliated
or associated persons becomes an Acquiring Person, proper provision shall be
made so that each holder of a Right, other than Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the right
to receive upon exercise that number of shares of Common Stock having a market
value of two times the exercise price of the Right.

Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per share of Common Stock.
In the event of liquidation, the holders of the Preferred Shares will be
entitled to a minimum preferential liquidation payment of $100.00 per share but
will be entitled to an aggregate payment of 100 times the payment made per share
of Common Stock. Each Preferred Share will have 100 votes, voting together with
the shares of Common Stock. Finally, in the event of any merger, consolidation
or other transaction in which shares of Common Stock are exchanged, each
Preferred Share will be entitled to receive 100 times the amount received per
share of Common Stock. These rights are protected by customary antidilution
provisions.

Prior to the Distribution Date, the Rights may not be detached or
transferred separately from the Common Stock. The Rights will expire on March
15, 2008 (the "Final Expiration Date"), unless the Final

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<PAGE> 98

Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below. At any time prior to
the acquisition by a person or group of affiliated or associated persons of
beneficial ownership of 15% or more of the outstanding Common Stock, the Board
of Directors of the Company may redeem the Rights in whole, but not in part, at
a price of $0.01 per Right (the "Redemption Price"). Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.
A more detailed description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and Wachovia Bank, N.A.
as Rights Agent.

TRANSFER AGENT

The transfer agent for the Company's Common Stock is Wachovia Bank, N.A.

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<PAGE> 99

PLAN OF DISTRIBUTION

GENERAL

The Company may sell the Securities (i) through underwriters or dealers;
(ii) directly to one or more other purchasers; (iii) through agents; or (iv) to
both investors and dealers through a specific bidding or auction process or
otherwise. The Prospectus Supplement with respect to the Offered Securities will
set forth the terms of the offering of such Offered Securities, including the
name or names of any underwriters, dealers or agents, the purchase price of such
Offered Securities and the proceeds to the Company from such sale, any
underwriting discounts and other items constituting underwriters' compensation,
any initial public offering price and any discounts, commissions or concessions
allowed or reallowed or paid to dealers, and any bidding or auction process. Any
initial offering price and any discounts, commissions or concessions allowed or
reallowed or paid to dealers may be changed from time to time.

If underwriters are used in an offering, the Offered Securities will be
acquired by the underwriters for their own account. The Offered Securities may
be sold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The Offered Securities may be offered to the public either
through underwriting syndicates represented by one or more managing underwriters
or directly by one or more of such firms. The specific managing underwriter or
underwriters, if any, will be set forth in the Prospectus Supplement relating to
the Offered Securities, together with the members of the underwriting syndicate,
if any. Unless otherwise set forth in the Prospectus Supplement, the obligations
of the underwriters to purchase the Offered Securities will be subject to
certain conditions precedent, and the underwriters will be obligated to purchase
all such Offered Securities if any are purchased.

Offered Securities may be sold directly by the Company or through agents
designated by the Company from time to time. The Prospectus Supplement will set
forth the name of any agent involved in the offer or sale of the Offered
Securities in respect of which the Prospectus Supplement is delivered as well as
any commissions or other compensation payable by the Company to such agent.
Unless otherwise indicated in the Prospectus Supplement, any such agent is
acting on a best efforts basis for the period of its appointment.

Any underwriters, dealers or agents participating in the distribution of
the Offered Securities may be deemed to be underwriters and any discounts or
commissions received by them on the sale or resale of the Offered Securities may
be deemed to be underwriting discounts and commissions under the Securities Act.
Agents, dealers or underwriters may be entitled, under agreements entered into
with the Company, to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, and to contribution with respect
to payments that the agents, dealers or underwriters may be required to make in
respect thereof. Agents, dealers and underwriters may engage in transactions
with or perform services for the Company in the ordinary course of business.

The Offered Securities, other than any Common Stock, will be a new issue or
issues of securities with no established trading market. Any Common Stock issued
by the Company pursuant to this Registration Statement will be quoted on The
Nasdaq Stock Market. Unless otherwise indicated in a Prospectus Supplement, the
Company does not currently intend to list any Offered Debt Securities on any
securities exchange or other public trading market. No assurance can be given
that the underwriters, dealers or agents, if any, involved in the sale of the
Offered Securities will make a market in such Offered Securities. Whether or not
any of the Offered Securities are listed on a national securities exchange or
other public trading market, or the underwriters, dealers or agents, if any,
involved in the sale of the Offered Securities make a market in such Offered
Securities, no assurance can be given as to the liquidity of the trading market
for such Offered Securities.

Agents and underwriters may be entitled under agreements entered into with
the Company to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act that may arise from any untrue
statement or alleged untrue statement of a material fact or any omission or
alleged omission to state a material fact in this Prospectus, any supplement or
amendment hereto, or in the Registration Statement of which this Prospectus
forms a part, or to contribution with respect to payments
29
<PAGE> 100

which the agents or underwriters may be required to make in respect thereof.
Agents and underwriters may engage in transactions with, or perform services
for, the Company in the ordinary course of business.

DELAYED DELIVERY ARRANGEMENTS

If so indicated in the Prospectus Supplement, the Company may authorize
underwriters or other persons acting as the Company's agents to solicit offers
by certain institutions to purchase Offered Securities from the Company pursuant
to contracts providing for payment and delivery on a future date. Institutions
with whom such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases will be subject to the
approval of the Company. The obligations of any purchaser under any such
contract will be subject to the condition that the purchase of the Offered
Securities shall not at the time of delivery be prohibited under the laws of the
jurisdiction to which such purchaser is subject. The underwriters and such
agents will not have any responsibility in respect of the validity or
performance of such contracts.

LEGAL MATTERS

Certain legal matters regarding the validity of the Securities offered
hereby will be passed upon for the Company by Kilpatrick Stockton LLP, Atlanta,
Georgia. Certain legal matters relating to this offering will be passed upon for
the underwriters, if any, by Smith, Gambrell & Russell, LLP, Atlanta, Georgia,
or such other firm as may be identified in an applicable Prospectus Supplement.
As of February 28, 1998, attorneys at Kilpatrick Stockton LLP who worked on the
preparation of the Prospectus beneficially owned in the aggregate 5,000 shares
of the Company's outstanding Class A and Class B Common Stock.

EXPERTS

The consolidated financial statements and schedule incorporated by
reference in this Prospectus have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports incorporated hereby by reference, and are incorporated herein in
reliance upon such reports given upon the authority of said firm as experts in
auditing and accounting.

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<PAGE> 101

======================================================

NO DEALER, SALESPERSON, OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary........ S-3
Use of Proceeds...................... S-10
Price Range of Common Stock and
Dividends.......................... S-10
Capitalization....................... S-11
Selected Consolidated Financial
Information........................ S-12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... S-14
Business............................. S-19
Management........................... S-33
Security Ownership of Management and
Principal Shareholders............. S-36
Underwriting......................... S-38
Legal Matters........................ S-39
Experts.............................. S-39
Index to Consolidated Financial
Statements......................... F-1
PROSPECTUS
Available Information................ 2
Incorporation of Certain Information
by Reference....................... 2
The Company.......................... 3
Risk Factors......................... 5
Use of Proceeds...................... 8
Ratio of Earnings to Fixed Charges... 8
Description of Debt Securities....... 9
Description of Capital Stock......... 23
Plan of Distribution................. 29
Legal Matters........................ 30
Experts.............................. 30
</TABLE>

======================================================
======================================================

1,500,000 SHARES

INTERFACE, INC.

CLASS A COMMON STOCK

(INTERFACE LOGO)
------------

PROSPECTUS SUPPLEMENT

, 1998

------------
SALOMON SMITH BARNEY

MERRILL LYNCH & CO.

THE ROBINSON-HUMPHREY
COMPANY

WHEAT FIRST UNION
======================================================