FORM 10-Q
Exhibit 10.2
1997 CONE MILLS CORPORATION
SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN
1. Purpose. The purpose of the 1997 Cone Mills Corporation
(the "Company") Senior Management Compensation Incentive
Plan (the "Plan") is to enable the Company to attract,
retain, motivate and reward those corporate officers,
division presidents and other key management employees
who are in a position to make a significant contribution
to the Company's success by providing them with an annual
at-risk (i.e., nonguaranteed) compensation opportunity
related to achieving significant pre-established
performance goals.
2. Administration. The Compensation Committee of the Board
of Directors of the Company or such other Committee of
the Board as the Board shall designate (the "Committee")
shall administer the Plan in accordance with its
provisions. The Committee shall consist of no less than
two persons, and all Committee members must be "outside
directors" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code").
The interpretation and construction of the Plan by the
Committee shall be final and binding on all persons,
including the Company and the Participants.
3. Participation. Corporate officers, division presidents
and other key management employees who are designated by
the Committee as participants in the Plan are eligible to
participate in the Plan (a "Participant"). In order to
earn an incentive payment under the Plan (an "Incentive
Payment") for a Plan Year, a Participant must maintain
employment in the same or a similar job throughout that
Plan Year (as hereafter defined). No vesting of
Incentive Payments occurs; a Participant whose employment
with the Company terminates during a Plan Year or
thereafter before his or her Incentive Payment is made
ceases eligibility under the Plan for such Plan Year.
Corporate officers and division presidents who join the
Company during a Plan Year may participate in the Plan on
a pro-rata basis for that Plan Year with the approval of
the Committee, based upon the Performance Goals (as
hereafter defined) established in accordance with Section
5 of this Plan for the employment position that such
Participant assumes. Participation in the Plan creates
no guaranty of continued employment with the Company.
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FORM 10-Q
Exhibit 10.2 (continued)
4. Amount of Incentive Payment. A Participant may earn an
Incentive Payment in an amount up to ninety percent (90%)
of his or her Base Compensation as in effect on the date
that the Performance Goals are established in accordance
with Section 5 of this Plan of the fiscal year (a "Plan
Year") for which the Incentive Payment is made. "Base
Compensation" means a Participant's regular salary,
excluding Incentive Payments, discretionary bonuses or
employee benefits.
5. Performance Measurement. Not later than 90 days
following the beginning of each Plan Year, the Committee
will establish in writing the following:
(a) A minimum level of performance by the Company
("Circuit Breaker") before which any incentives can
be paid to any Participant. A net profit after
taxes and preferred dividends shall be the Circuit
Breaker unless the Committee establishes a
different performance measure based upon some other
level of net profit or upon some or all of the
criteria set forth in paragraphs (b) and (c)
below. Any extraordinary accounting item,
accounting for discontinued operations, and the
cumulative effect of accounting change that have
the effect of reducing net income shall be excluded
in determining the achievement of the Circuit
Breaker unless the Committee in its absolute
discretion, determines to include such items in the
aggregate or separately.
(b) The business criteria which shall be the basis of
the measurement of corporate performance for the
Plan Year. The criteria utilized shall be return
on capital employed, return on equity, and earnings
per share or any one or two of said criteria. The
Committee shall set in its absolute discretion the
minimum, maximum and target goals (the "Corporate
Goal") for the Plan Year for the Company's return
on capital employed (ROCE), return on equity, and
earnings per share, as determined with reference to
the Company's audited consolidated financial
statements for the Plan Year.
(c) Goals for each division or function for which a
Participant is responsible (the "Individual Goal",
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FORM 10-Q
Exhibit 10.2 (continued)
the Corporate Goal and the Individual Goal being
sometimes referred to as the "Performance Goals"),
based on the following measured criteria:
Divisional return on capital employed
Divisional return on net assets
Net sales of a division or operating unit
Cash flow levels
Operating margins
Specific cost savings
Specific quality results for products
Specific manufacturing efficiencies
Control of standard budget expense items
Establishment of new business units or products
Inventory turn or levels
Maintaining a specific credit rating
Overdue receivables
Late payment charges
Safety record of a specific plant or business
unit
Absenteeism rates
(d) For each Participant, the percentage of the total
Incentive Payment opportunity that consists of the
Corporate Goal and the percentage of the total
bonus opportunity attributable to the Individual
Goal for that Participant.
(e) The percentage of Incentive Payment opportunity
that may be earned by each Participant based on the
level of success within the preestablished range in
achieving the established Performance Goals.
In accordance with Section 162(m) of the Code, all Performance
Goals must be (i) based upon objective formulae and standards
and (ii) substantially uncertain of attainment at the time
they are established.
6. Certain Definitions. For purposes of Section 5 of this
Plan, the following terms shall have the definitions
indicated:
(a) "Return on capital employed" means corporate
consolidated operating earnings of the Company
before interest and taxes adjusted for any discount
on sale of accounts receivable and adjusted for
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FORM 10-Q
Exhibit 10.2 (continued)
equity in earnings or losses of Unconsolidated
Affiliates divided by average Net Current Cost
Investment. Net Current Cost Investment is defined
as the current cost of total assets less non-
interest bearing liabilities.
(b) "Divisional return on capital employed" means
operating earnings of the division or other
operating unit, and allocated operating earnings of
Unconsolidated Affiliates divided by current cost
of assets of, or allocated to, the division or
operating unit, including current cost of assets of
Unconsolidated Affiliates allocated to the
respective division or operating unit.
(c) "Earnings per share" means consolidated net income
of the Company for a fiscal year less dividends on
Class A Preferred Stock, divided by the weighted
average common shares and common shares equivalents
outstanding on a fully diluted basis.
(d) "Return on equity" means consolidated net income of
the Company divided by average shareholders'
equity.
(e) "Divisional return on net assets" means operating
earnings of the division or other operating unit,
including allocated earnings of Unconsolidated
Affiliates, divided by current cost assets net of
non-interest bearing liabilities of, or allocated
to, the division or operating unit, including
current cost of assets net of non-interest bearing
liabilities of Unconsolidated Affiliates allocated
to the respective division or operating unit.
(f) "Unconsolidated Affiliates" is as defined by
generally accepted accounting principles as
recognized by the American Institute of Certified
Pubic Accountants and Financial Accounting
Standards Board, consistently applied.
Any extraordinary accounting item, accounting for
discontinued operations, and the cumulative effect of
accounting change that have the effect of reducing
operating earnings for "return on capital employed" or
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FORM 10-Q
Exhibit 10.2 (continued)
for "return on net assets" or net income for "earnings
per share" or "return on equity" shall be excluded in
determining operating earnings or net income unless the
Committee, in its absolute discretion, determines to
include such items in the aggregate or separately.
7. Payment of Earned Incentives. After the end of the Plan
Year for which Performance Goals have been established,
the Committee shall determine whether, and the extent to
which, the Performance Goals have been achieved and shall
certify in writing its determinations and the specific
Incentive Payment payable to each Participant, which
certification shall be contained in the approved minutes
of the Committee, or in a certificate signed by all
members of the Committee, and retained with the corporate
records of the Company. The Committee shall have
discretion to decrease, but not to increase, any
Incentive Payment payable under the Plan in accordance
with the Performance Goals. All Incentive Payments will
be paid in cash in a lump sum based on the Committee's
certificate.
8. Funding. The Plan is intended to constitute an
"unfunded" plan. With respect to any payments not yet
made by the Company, nothing set forth in this document
shall give any Participant any rights other than those of
a general creditor of the Company.
9. Death, Disability and Change of Control. In the event of
the death or total and permanent disability of a
Participant or a Change of Control of the Company as
hereafter defined, the Committee shall determine
incentive payments in accordance with this Plan,
prorating, however, all Performance Goals based on the
percentage of the year completed as of the date of the
death, disability or Change of Control, as the case may
be, and, provided further, that expenses directly related
to any Change of Control shall be disregarded for
purposes of determining whether or not the Incentive
Payments have been earned.
For purposes of this Plan, a "Change of Control" means
the occurrence of any of the following:
A. When any "person," as such term is used in Section
13(d) and 14(d) of the Exchange Act [other than the
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FORM 10-Q
Exhibit 10.2 (continued)
Company or a Subsidiary or any Company employee
benefit plan (including its trustee)], is or
becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or
indirectly of securities of Cone Mills Corporation
representing 20 percent or more of the combined
voting power of the Company's then outstanding
securities;
B. When, during any period of two consecutive years
during the existence of the Plan, the individuals
who, at the beginning of such period, constitute
the Board cease, for any reason other than death,
to constitute at least a majority thereof, unless
each director who was not a director at the
beginning of such period was elected by, or on the
recommendation of, at least two-thirds of the
directors at the beginning of such period; or
C. The occurrence of a transaction requiring
stockholder approval for the acquisition of Cone
Mills Corporation by an entity other than the
Company or a subsidiary through purchase of assets,
or by merger, or otherwise, if such transaction did
not have the approval of a majority of the Board of
Directors.
10. Term. The term of the Plan shall be for the fiscal years
beginning on December 30, 1996 and ending on December 30,
2001 unless sooner terminated by the Board of Directors.
11. Compliance with Section 162(m). This Plan is intended to
comply with the provisions of Section 162(m) of the Code,
as amended, and the regulations promulgated thereunder,
and the Committee is authorized and directed to make such
interpretations hereunder and take such other action as
it deems appropriate in order to assure such compliance.
12. Amendments and Termination. The Board of Directors may
amend, alter or discontinue the Plan at any time, and
such amendment, alteration or discontinuance will be
binding upon all Participants.
13. Not Exclusive. Nothing set forth in the Plan shall
prevent the Company from adopting other or additional
compensation arrangements, subject to shareholder
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FORM 10-Q
Exhibit 10.2 (continued)
approval or approval of the Board of Directors, if such
approval is required; and such arrangements may either
generally be applicable or applicable only in specific
cases.
14. No Liability. No members of the Board of Directors or of
the Committee, nor any officer or employee of the Company
acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination or
interpretation taken or made in good faith with respect
to the Plan, and all members of the Board or the
Committee and each and every officer or employee of the
Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by
the Company with respect to such action, determination or
interpretation.
15. Applicable Law. The validity, interpretation and
administration of the Plan and of any rules, regulations,
determinations or decisions made hereunder, and the
rights of any and all persons having or claiming to have
any interests hereunder or thereunder, shall be
determined exclusively in accordance with the laws of the
state of North Carolina. Without limiting the generality
of the foregoing, the period within which any action in
connection with the Plan must be commenced shall be
governed by the laws of North Carolina.
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