<PAGE>
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
 
                              WASHINGTON, DC 20549
 
                               ----------------
 
                                   Form 10-K
 
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the Fiscal Year Ended June 25, 2000 - Commission File Number 1-10542
 
                               ----------------
 
                                  Unifi, Inc.
             (Exact name of registrant as specified in its charter)
 

<TABLE>
 <S>                                           <C>
                  New York                                     11-2165495
 -------------------------------------------   -------------------------------------------
       (State or other jurisdiction of            (I.R.S. Employer identification no.)
        incorporation or organization)
 
          7201 West Friendly Avenue
         Greensboro, North Carolina                               27410
 -------------------------------------------   -------------------------------------------
  (Address of principal executive offices)                     (Zip code)
 
               (336) 294-4410
 -------------------------------------------
 (Registrant's telephone no., including area
                    code)
</TABLE>

 
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 

<TABLE>
<CAPTION>
            Title of each class              Name of each exchange on which registered
<S>                                         <C>
  Common Stock, par value $.10 per share              New York Stock Exchange
</TABLE>

 
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
 
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
 
                                 Yes X  No
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
 
Aggregate market value of the voting stock held by non-affiliated of the
registrant as of August 24, 2000 based on a closing price of $11.3125 per
share: $580,331,182
 
Number of shares outstanding as of August 24, 2000: 54,526,659
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the definitive proxy statement for the Annual Meeting of the
Shareholders of Unifi, Inc., to be held on October 26, 2000, are incorporated
by reference into Part III.
 
Exhibits, Financial Statement Schedules and Reports on Form 8-K index is
located on pages 32 and 33.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>
 

                                     PART I
 

Item 1. BUSINESS
 
   Unifi, Inc., a New York corporation formed in 1969, together with its sub-
sidiaries, hereinafter set forth, (the "Company" or "Unifi"), is one of the
largest and most diversified producers and processors of textile yarns in the
world. The Company is primarily engaged in the processing of synthetic yarns in
two primary business segments, polyester and nylon. The polyester segment is
comprised of textured, dyed, twisted and beamed yarns with sales to knitters
and weavers that produce fabrics for the apparel, automotive and furniture up-
holstery, home furnishings, industrial and other end use markets. The nylon
segment is comprised of textured nylon and covered spandex products with sales
to knitters and weavers that produce fabrics for the apparel, hosiery, socks
and other end use markets. See the Consolidated Financial Statements Footnote 2
("Acquisitions and Alliances") on pages 20 and 21 and Consolidated Financial
Statements Footnote 11 ("Investment in Unconsolidated Affiliates") on page 28
of this Report for information concerning recent mergers, acquisitions, alli-
ances and consolidations of the Company's business, which is incorporated
herein by reference.
 
   Texturing polyester and nylon filament fiber involves the processing of par-
tially oriented yarn ("POY"), which is either raw polyester or nylon filament
fiber purchased from chemical manufacturers or produced internally, to give it
greater bulk, strength, stretch, consistent dyeability and a softer feel,
thereby making it suitable for use in knitting and weaving of fabrics. The
texturing process involves the use of high-speed machines to draw, heat and
twist the POY to produce yarn having various physical characteristics, depend-
ing on its ultimate end use.
 
   During the fourth quarter of fiscal year 1999, the Company formed Unifi
Technology Group, LLC ("UTG"), to provide consulting services focused on inte-
grated manufacturing, factory automation and electronic commerce solutions to
other domestic manufacturers. Effective June 1, 1999, UTG acquired the assets
of Cimtec, Inc. ("Cimtec"), a manufacturing automation solutions provider, for
$10.5 million. Subsequently, ownership interest in the new entity was sold to
certain former Cimtec shareholders and former Unifi executives. See Consoli-
dated Financial Statements Footnote 2 ("Acquisitions and Alliances") on pages
20 and 21 of this Report for additional information on UTG.
 
SOURCES AND AVAILABILITY OF RAW MATERIALS
 
   The primary third party suppliers of POY to the Company's polyester segment
are E. I. DuPont de Nemours and Company ("DuPont"), Nanya Plastics Corp. of
America ("Nanya"), Kosa (formerly Hoechst Celanese Corporation), Wellman Indus-
tries, Reliance Industries, LTD. Korteks and P.T. Indorama Synthetics TBK, with
the majority of the Company's polyester POY being supplied by DuPont. In addi-
tion, the Company has polyester POY manufacturing facilities in Yadkinville,
North Carolina (which provides approximately 35% of its total domestic polyes-
ter POY supply needs) and in Ireland. The production of POY is comprised of two
primary processes, polymerisation (performed in Ireland only) and spinning
(performed in both Ireland and Yadkinville). The polymerisation process is the
production of polymer by a chemical reaction involving terephthalic acid and
ethylene glycol, which are combined to form chip. The spinning process involves
the extrusion and melting of chip to form molten polymer. The molten polymer is
then extruded through spinnerettes to form continuous multi-filament raw yarn
(POY). Substantially all of the raw materials for such manufactured POY are
supplied by Nanya for domestic production and by DuPont and Bayer AG for our
Irish operation. The primary suppliers of POY to the Company's nylon segment
are DuPont, Universal Premier Fibers LLC (formerly Cookson Fibers, Inc.), and
Nilit, Ltd. with the majority of the Company's nylon POY being supplied by
DuPont.
 
   Effective June 1, 2000, Unifi and DuPont began operating their America's
manufacturing alliance to produce polyester filament yarn. The goal of the al-
liance is to reduce operating costs through collectively planning and operating
both companies' POY facilities as a single production unit. The resulting asset
optimization, along with the sharing of manufacturing technologies, should re-
sult in significant quality and yield improvements and product innovations. See
the Consolidated Financial Statements Footnote 2 ("Acquisitions and Alliances")
on pages 20 and 21 for further information.
 
                                       2

<PAGE>
 
   Although the Company is heavily dependent upon a limited number of suppli-
ers, the Company has not had and does not anticipate any significant diffi-
culty in obtaining its raw POY or raw materials used to manufacture polyester
POY.
 
   Patents and Licenses: The Company currently has several patents and regis-
tered trademarks, none of which it considers material to its business as a
whole.
 
   Customers: The Company, in fiscal year ended June 25, 2000, sold its poly-
ester yarns to approximately 1,512 customers and its nylon yarns to approxi-
mately 249 customers, one customer's purchases comprised approximately 11% of
net sales for the polyester segment during said period, while another customer
comprised approximately 20% of net sales for the nylon segment for this time
period. The Company does not believe that the loss of any one customer would
have a materially adverse effect on either the polyester or nylon segment.
 
   Backlog: The Company, other than in connection with certain foreign sales
and for textured yarns that are package dyed according to customers' specifi-
cations, does not manufacture to order. The Company's products can be used in
many ways and can be thought of in terms of a commodity subject to the laws of
supply and demand and, therefore, does not have what is considered a backlog
of orders. In addition, the Company does not consider its products to be sea-
sonal ones.
 
   Competitive Conditions: The textile industry in which the Company currently
operates is keenly competitive. The Company processes and sells high-volume
commodity products, pricing is highly competitive with innovation, product
quality and customer service being essential for differentiating the competi-
tors within the industry. Product innovation gives our customers competitive
advantages, while product quality insures manufacturing efficiencies. The
Company's polyester and nylon yarns compete in a worldwide market with a num-
ber of other foreign and domestic producers of such yarns. In the sale of
polyester filament yarns, major domestic competitors are Dillon Yarn Company,
Inc., Spectrum Dyed Yarns, Inc. and Milliken & Company and in the sale of ny-
lon yarns major domestic competitors are Jefferson Mills, Inc. and Worldtex,
Inc. Additionally, there are numerous foreign competitors that sell polyester
and nylon yarns in the United States.
 
   Research and Development: The estimated amount spent during each of the
last three fiscal years on Company-sponsored and customer-sponsored research
and development activities is considered immaterial.
 
   Compliance With Certain Government Regulations: Management of the Company
believes that the operation of the Company's production facilities and the
disposal of waste materials are substantially in compliance with applicable
laws and regulations.
 
   Employees: The number of full-time employees of the Company is approxi-
mately 6,680.
 
   Financial Information About Segments: See the Consolidated Financial State-
ments Footnote 9 ("Business Segments, Foreign Operations and Concentrations of
Credit Risk") on page 25 through page 27 of this Report for the Financial In-
formation About Segments required by Item 101 of Regulation S-K.
 

I
tem 2. PROPERTIES
 
   The Company currently maintains a total of 18 manufacturing and warehousing
facilities, one central distribution center and one recycling center in North
Carolina; one manufacturing and related warehousing facility in Staunton, Vir-
ginia; one central distribution center in Fort Payne, Alabama; four manufac-
turing operations in Letterkenny, County of Donegal, Republic of Ireland; two
warehousing locations in Carrickfergus, Ireland; one manufacturing and one of-
fice building in Brazil, one manufacturing and administration building in Man-
chester, England and one manufacturing and administration facility in Bogota,
Colombia. All of these facilities, which contain approximately 8.1 million
square feet of floor space, with the exception of one plant facility leased
from Bank of America Leasing and Capital LLC pursuant to a Sales-leaseback
Agreement entered on May 20, 1997, as amended, two warehouses in
Carrickfergus, Ireland, the office in Brazil and the plant and office location
in Manchester, England are owned in fee simple; and management believes they
are in good condition, well maintained, and are suitable and adequate for
present utilization.
 
 
                                       3

<PAGE>
 
   The polyester segment of the Company's business uses 16 manufacturing, five
warehousing and one dedicated office totaling 5.3 million square feet. The ny-
lon segment of the Company's business utilizes six manufacturing and four
warehousing facilities aggregating 2.8 million square feet.
 
   Unifi Technology Group, LLC. ("UTG") leases 9 office locations in four
states from which it conducts business utilizing approximately 80,000 square
feet.
 
   The Company leases sales offices and/or apartments in New York; Coleshill,
England; Oberkotzau, Germany; Lyon, France and Desenzano, Italy.
 
   The Company also leases its corporate headquarters building at 7201 West
Friendly Avenue, Greensboro, North Carolina, which consists of a building con-
taining approximately 121,125 square feet located on a tract of land containing
approximately 8.99 acres. This property is leased from Merrill Lynch Trust Com-
pany of North Carolina, Trustee under the Unifi, Inc. Profit Sharing Plan and
Trust, and Wachovia Bank & Trust Company, N.A., Independent. See the related
information included in the Consolidated Financial Statements Footnote 8
("Leases and Commitments") on page 25 of this Report.
 

Item 3. LEGAL PROCEEDINGS
 
   The Company is not currently involved in any litigation which is considered
material, as that term is used in Item 103 of Regulation S-K.
 

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
   No matters were submitted to a vote of security holders during the fourth
quarter for the fiscal year ended June 25, 2000.
 

                                    PART II
 

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
     MATTERS
 
   The Company's common stock is listed for trading on the New York Stock Ex-
change. The following table sets forth the range of high and low sales prices
of the Unifi Common Stock as reported on the NYSE Composite Tape and the regu-
lar cash dividends per share declared by Unifi during the periods indicated.
 
   On July 16, 1998, the Company announced its intention to discontinue the
payment of cash dividends and utilize the cash to purchase shares of the
Company's common stock. Accordingly, effective July 16, 1998, the Board of Di-
rectors of the Company terminated the previously established policy of paying
cash dividends equal to approximately 30% of the Company's after tax earnings
of the previous fiscal year.
 
   As of August 24, 2000, there were approximately 745 holders of record of the
Company's common stock.
 

<TABLE>
<CAPTION>
                                                          High   Low   Dividends
                                                         ------ ------ ---------
       <S>                                               <C>    <C>    <C>
       Fiscal year 1998:
        First quarter ended September 28, 1997.......... $43.63 $35.06   $.14
        Second quarter ended December 28, 1997.......... $42.25 $36.38   $.14
        Third quarter ended March 29, 1998.............. $42.13 $33.00   $.14
        Fourth quarter ended June 28, 1998.............. $39.56 $34.19   $.14
 
 
       Fiscal year 1999:
        First quarter ended September 27, 1998.......... $34.25 $17.13   $ --
        Second quarter ended December 27, 1998.......... $20.06 $11.94   $ --
        Third quarter ended March 28, 1999.............. $19.56 $10.69   $ --
        Fourth quarter ended June 27, 1999.............. $18.56 $11.56   $ --
 
 
       Fiscal year 2000:
        First quarter ended September 26, 1999.......... $21.25 $11.00   $ --
        Second quarter ended December 26, 1999.......... $13.50 $10.69   $ --
        Third quarter ended March 26, 2000.............. $12.81 $ 7.88   $ --
        Fourth quarter ended June 25, 2000.............. $14.94 $ 8.44   $ --
</TABLE>

 
 
                                       4

<PAGE>
 

Item 6. SELECTED FINANCIAL DATA
 

<TABLE>
<CAPTION>
(Amounts in thousands, except per  June 25, 2000 June 27, 1999 June 28, 1998 June 29, 1997 June 30, 1996
share data)                          (52 Weeks)    (52 Weeks)    (52 Weeks)    (52 Weeks)    (53 Weeks)
---------------------------------  ------------- ------------- ------------- ------------- -------------
<S>                                <C>           <C>           <C>           <C>           <C>
Summary of Earnings:
Net sales...............            $1,280,412    $1,251,160    $1,377,609    $1,704,926    $1,603,280
Cost of sales...........             1,116,841     1,076,610     1,149,838     1,473,667     1,407,608
Gross profit............               163,571       174,550       227,771       231,259       195,672
Selling, general and
 administrative
 expense................                58,063        55,338        43,277        46,229        45,084
Provision for bad
 debts..................                 8,694         1,129           724           750            --
Interest expense........                30,294        27,459        16,598        11,749        14,593
Interest income.........                (2,772)       (2,399)       (1,869)       (2,219)       (6,757)
Other (income) expense..                 1,052           440          (335)           69        (4,390)
Equity in (earnings)
 losses of
 unconsolidated
 affiliates.............                 2,989        (4,214)      (23,030)          399            --
Minority interest.......                 9,543         9,401           723            --            --
Non-recurring charge....                    --            --            --            --        23,826
                                    ----------    ----------    ----------    ----------    ----------
Income from continuing
 operations before
 income taxes and other
 items listed below.....                55,708        87,396       191,683       174,282       123,316
Provision for income
 taxes..................                17,675        28,369        62,782        58,617        44,939
                                    ----------    ----------    ----------    ----------    ----------
Income before
 extraordinary item and
 cumulative effect of
 accounting change......                38,033        59,027       128,901       115,665        78,377
                                    ----------    ----------    ----------    ----------    ----------
Extraordinary item, net
 of tax.................                    --            --            --            --         5,898
Cumulative effect of
 accounting change, net
 of tax.................                    --         2,768         4,636            --            --
                                    ----------    ----------    ----------    ----------    ----------
Net income..............                38,033        56,259       124,265       115,665        72,479
                                    ==========    ==========    ==========    ==========    ==========
 
Per Share of Common
 Stock:
Income before
 extraordinary item and
 cumulative effect of
 accounting change
 (diluted)..............            $      .65    $      .97    $     2.08    $     1.81    $     1.18
Extraordinary item
 (diluted)..............                    --            --            --            --          (.09)
Cumulative effect of
 accounting change
 (diluted)..............                    --          (.04)         (.07)           --            --
Net income (diluted)....                   .65           .93          2.01          1.81          1.09
Cash dividends..........                    --            --           .56           .44           .52
 
Financial Data:
Working capital.........            $   15,604    $  216,897    $  209,878    $  216,145    $  196,222
Gross property, plant
 and equipment..........             1,250,470     1,231,013     1,145,622     1,147,148     1,027,128
Total assets............             1,354,764     1,365,840     1,333,814     1,018,703       951,084
Long-term debt and other
 obligations............               261,830       478,898       458,977       255,799       170,000
Shareholders' equity....               622,438       646,138       636,197       548,531       583,206
</TABLE>

 
   Fiscal year 1996 and 1997 amounts include the spun cotton yarn operations
that were contributed to Parkdale America, LLC on June 30, 1997. The operating
results of our 34% ownership in Parkdale are accounted for as equity in (earn-
ings) losses of unconsolidated affiliates for fiscal 1998, 1999 and 2000.
 
   The Working capital and Long-term debt and other liabilities line items at
June 25, 2000, reflect the classification of the outstanding balance under the
revolving line of credit of $211.5 million as a current liability. The revolv-
ing line of credit matures in April 2001. The Company intends to refinance this
debt on a long-term basis prior to maturity, however, no commitments or agree-
ments were in place to do so at June 25, 2000. When the Company does refinance
the debt, amounts owed beyond one year from that date will once again be clas-
sified as long-term debt.
 
                                       5

<PAGE>
 

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS
 
FISCAL 2000
 
   Following is a summary of operating income by segment for fiscal years 2000
and 1999, as reported regularly to the Company's management:
 

<TABLE>
<CAPTION>
                                                               All
(Amounts in thousands)                    Polyester  Nylon    Other     Total
----------------------                    --------- -------- -------  ----------
<S>                                       <C>       <C>      <C>      <C>
Fiscal 2000
 Net sales............................... $852,202  $408,481 $31,917  $1,292,600
 Cost of sales...........................  747,917   352,379  21,024   1,121,320
 Selling, general and administrative.....   37,713    15,103   9,952      62,768
                                          --------  -------- -------  ----------
 Segment operating income................ $ 66,572  $ 40,999 $   941  $  108,512
                                          ========  ======== =======  ==========
Fiscal 1999
 Net sales............................... $822,763  $449,009 $ 1,561  $1,273,333
 Cost of sales...........................  719,535   384,772   1,090   1,105,397
 Selling, general and administrative.....   38,518    16,271     533      55,322
                                          --------  -------- -------  ----------
 Segment operating income (loss)......... $ 64,710  $ 47,966 $   (62) $  112,614
                                          ========  ======== =======  ==========
</TABLE>

 
   As described in Consolidated Financial Statements Footnote 9, the adjust-
ments to revenues and expenses required to reconcile the operating segments to
consolidated results are comprised primarily of intersegment sales and cost of
sales eliminations, the provision for bad debts and various expenses reported
internally at a consolidated level.
 
 Polyester operations
 
   In fiscal 2000, polyester net sales increased $29.4 million, or 3.6% com-
pared to fiscal 1999. The increase over fiscal year 1999 is primarily attrib-
utable to the acquisition of our Brazilian operation in the fourth fiscal
quarter of 1999 and the acquisition of our dyed yarn operation in England at
the end of our fiscal third quarter. Net domestic sales increased slightly
over fiscal 1999 due to strength in our dyeing and twisting operations, offset
slightly by pricing pressures in our natural textured business. International-
ly, sales in local currency of our Irish Operation declined 5.4% for the year
due to lower average selling prices. Volume for our Irish operations increased
approximately 2.1% for the year. The currency exchange rate change from the
prior year to the current year adversely effected sales translated to U.S.
dollars for this operation by $13.0 million.
 
   As described in the Consolidated Financial Statements Footnote 10 ("Deriva-
tive Financial Instruments and Fair Value of Financial Instruments"), the Com-
pany utilizes foreign currency forward contracts to hedge exposure for sales
in foreign currencies based on anticipated sales orders. Also, the purchases
and borrowings in those foreign currencies in which the Company has exchange
rate exposure provide a natural hedge and mitigate the effect of adverse fluc-
tuations in exchange rates.
 
   Gross profit on sales for our polyester operations increased $1.0 million
over fiscal year 1999. Gross margin (gross profit as a percentage of net
sales) declined from 12.5% in fiscal year 1999 to 12.2% in fiscal year 2000.
In the prior year, gross margin for this segment was adversely impacted by a
$4.0 million charge for an early retirement package offered to employees.
Gross margin in fiscal 2000 declined primarily as a function of higher fiber
prices. Offsetting the effects of higher fiber prices were lower manufacturing
costs and increased sales for this segment.
 
   Selling, general and administrative expenses for this segment declined $0.8
million from 1999 to 2000. In the prior year, this segment was allocated $5.7
million in selling, general and administrative expenses for the above men-
tioned early retirement package. Absent this charge, the current year selling,
general and adminis-
 
                                       6

<PAGE>
 
trative expenses for this segment would have increased $4.9 million. This in-
crease is primarily attributable to the start-up of our Brazilian operation,
which was only in operation two months of the prior year as well as the in-
crease in this segment's share of increased expenses incurred by our majority-
owned subsidiary, UTG. This subsidiary was formed in May 1999 and is a domestic
automation solutions provider.
 
 Nylon operations
 
   In fiscal 2000, nylon net sales decreased $40.5 million, or 9.0% compared to
fiscal 1999. Unit volumes for fiscal 2000 decreased by 5.3%, while average
sales prices, based on product mix, decreased 3.9%. The reductions in sales
volume and price are primarily attributable to the continuing softness of the
ladies hosiery market.
 
   Nylon gross profit decreased $8.1 million and gross margin decreased from
14.3% in 1999 to 13.7% in 2000. This segment's share of the prior year early
retirement plan costs impacting gross profit was $2.6 million. Before the ef-
fect of the prior year early retirement expense, gross profit from 1999 to 2000
declined $10.7 million. This was primarily attributable to lower sales volume
and the shift in product mix caused by softness in the hosiery market.
 
   Selling, general and administrative expense allocated to the nylon segment
decreased $1.2 million in fiscal 2000. The nylon segment selling, general and
administrative expenses in fiscal 1999 included a charge of $2.5 million for
the aforementioned early retirement plan. Before the effect of this charge,
selling general and administrative expenses for this segment would have in-
creased $1.3 million. This increase is primarily attributable to this segment's
share of increased selling, general and administrative expenses generated by
UTG.
 
   The "All Other" segment primarily reflects the Company's majority owned sub-
sidiary, UTG established in May 1999. UTG is a domestic automation solutions
provider.
 
 Consolidated operations
 
   In the current year, the Company recorded an $8.0 million provision for bad
debts resulting from the general decline of industry conditions.
 
   Interest expense increased $2.8 million, from $27.5 million in fiscal 1999
to $30.3 million in fiscal 2000. The increase in interest expense reflects
higher levels of interest-bearing debt outstanding at higher average interest
rates during fiscal 2000 and a $1.4 million reduction in capitalized interest
for major construction projects. The weighted average interest rate of our debt
outstanding at June 25, 2000 was 6.6%.
 
   Interest income improved by $373 thousand from 1999 to 2000 primarily as a
result of higher levels of invested funds generated by our Irish operation.
Other expense increased from $440 thousand to $1.1 million from 1999 to 2000.
Other income and expense was negatively impacted in the current year by a $2.6
million write-off related to the abandonment of certain equipment associated
with domestic plant consolidations and $1.7 million in currency losses. These
amounts were offset, in part, by a $1.1 million gain recognized for insurance
proceeds recovered for a claim filed for property damage sustained by a tornado
and a $0.6 million gain recognized on the sale of an investment.
 
   Earnings (losses) from our equity affiliates, Parkdale America, LLC. (the
"LLC") and Micell Technologies, Inc. ("Micell") totaled $(3.0) million in fis-
cal 2000 compared with $4.2 million in fiscal 1999. The decline in earnings is
primarily attributable to the reduced earnings of the LLC and higher start-up
expenses at Micell.
 
   Minority interest expense for fiscal 2000 was $9.5 million compared to $9.4
million in the prior year. This charge primarily relates to the minority inter-
est share of the earnings of Unifi Textured Polyester LLP formed with Burling-
ton Industries on May 29, 1998. Unifi, Inc. has an 85.42% ownership interest in
this entity and Burlington has a 14.58% interest. However, for the first five
years of the Partnership, Burlington is entitled to receive the first $9.4 mil-
lion in earnings. After the first five years, earnings of the partnership will
be allocated based an ownership percentages.
 
 
                                       7

<PAGE>
 
   The effective tax rate decreased from 32.5% in 1999 to 31.7% in 2000. The
difference between the statutory and effective tax rate in fiscal 2000 is pri-
marily due to a reduction of income taxes achieved through the resolution of
outstanding issues with taxing authorities.
 
   In the first quarter of fiscal 1999, the Company recognized a cumulative
effect of an accounting change of $4.5 million ($2.8 million after tax) or
$.04 per diluted share as a result of changing its accounting policy regarding
start-up costs. Pursuant to the AICPA issued SOP 98-5, "Reporting on the Costs
of Start-Up Activities," any previously capitalized start-up costs were re-
quired to be written-off as a cumulative effect of an accounting change. Ac-
cordingly, the Company has written-off the unamortized balance of the previ-
ously capitalized start-up costs.
 
   As a result of the above, the Company realized during the current year net
income of $38.0 million, or $0.65 per diluted share, compared to $56.3 mil-
lion, or $.93 per diluted share for the prior fiscal year period. Before the
previously described cumulative effect of an accounting change in the prior
year, earnings would have been $59.0 million or $0.97 per diluted share.
 
   In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS
133) and in June 1999, the FASB issued Statement of Financial Accounting Stan-
dards No. 137 "Accounting for Derivative Instruments and Hedging Activities -
 Deferral of the Effective Date of FASB Statement No. 133," which delayed the
effective date the Company is required to adopt SFAS 133 until its fiscal year
2001. In June 2000, the FASB issued Statement of Financial Accounting Stan-
dards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an Amendment to FASB Statement No. 133." This statement
amended certain provisions of SFAS 133. SFAS 133 requires the Company to rec-
ognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the deriva-
tive is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or recog-
nized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will
be immediately recognized in earnings. The Company does not enter into deriva-
tive financial instruments for trading purposes. As discussed in Footnote 10
to the Consolidated Financial Statements, the Company enters into forward con-
tracts to hedge certain transactions and commitments in foreign currency. Upon
adoption of SFAS 133 in the first fiscal quarter of 2001, these activities
will be recognized on the Consolidated Balance Sheet. The Company anticipates
that adoption of SFAS 133 will not have a material effect on the Company's
earnings.
 
   On March 8, 2000, the Company acquired Intex Yarns Limited (Intex) located
in Manchester, England for approximately $8.0 million plus assumed debt. This
acquisition adds high quality, package-dyeing capabilities in Europe and com-
pliments the Company's yarn production facility in Letterkenny, Ireland. The
acquisition, which is not considered significant to the Company's consolidated
net assets or results of operations, was accounted for by the purchase method
of accounting.
 
   Effective June 1, 2000, the Company and E.I. DuPont De Nemours and Company
(DuPont) initiated a manufacturing alliance to produce polyester filament
yarn. The alliance is expected to optimize Unifi's and DuPont's partially ori-
ented yarn (POY) manufacturing facilities, increase manufacturing efficiency
and improve product quality. Under its terms, DuPont and Unifi will coopera-
tively run their polyester filament manufacturing facilities as a single oper-
ating unit. This consolidation will shift commodity yarns from our Yadkinville
facility to DuPont's Kinston plant, and bring high-end specialty production to
Yadkinville from Kinston and Cape Fear. The companies will split equally the
costs to complete the necessary plant consolidation and the benefits gained
through asset optimization. Additionally, the companies will collectively at-
tempt to increase profitability through the development of new products. Like-
wise, the costs incurred and benefits derived from the product innovations
will be split equally. DuPont and Unifi will continue to own and operate their
respective sites and employees will remain with their respective employers.
DuPont will continue to provide POY to the marketplace and will use DuPont
technology to expand the specialty product range at each company's sites.
Unifi will continue to provide textured yarn to the marketplace.
 
 
                                       8

<PAGE>
 
FISCAL 1999
 
   Following is a summary of operating income by segment for fiscal years 1999
and 1998, as reported regularly to the Company's management:
 

<TABLE>
<CAPTION>
                                                               All
(Amounts in thousands)                     Polyester  Nylon   Other     Total
----------------------                     --------- -------- ------  ----------
<S>                                        <C>       <C>      <C>     <C>
Fiscal 1999
 Net sales................................ $822,763  $449,009 $1,561  $1,273,333
 Cost of sales............................  719,535   384,772  1,090   1,105,397
 Selling, general and administrative......   38,518    16,271    533      55,322
                                           --------  -------- ------  ----------
 Segment operating income (loss).......... $ 64,710  $ 47,966 $  (62) $  112,614
                                           ========  ======== ======  ==========
Fiscal 1998
 Net sales................................ $939,780  $470,994 $   --  $1,410,774
 Cost of sales............................  797,613   387,428     --   1,185,041
 Selling, general and administrative......   30,223    13,054     --      43,277
                                           --------  -------- ------  ----------
 Segment operating income................. $111,944  $ 70,512 $   --  $  182,456
                                           ========  ======== ======  ==========
</TABLE>

 
   As described in Consolidated Financial Statements Footnote 9, the adjust-
ments to revenues and expenses required to reconcile the operating segments to
consolidated results are comprised primarily of intersegment sales and cost of
sales eliminations, the provision for bad debts and various expenses reported
internally at a consolidated level.
 
 Polyester operations
 
   In fiscal 1999, polyester net sales decreased $117.0 million, or 12.5% com-
pared to fiscal 1998. Year-over-year performance continues to be negatively im-
pacted by the continuing effects of Asian imports of yarns, fabric and apparel,
which have kept sales volumes, sales pricing and gross margins under pressure
both domestically and internationally. The fiscal 1999 over 1998 volume in-
crease of 1.0% was aided by twelve months of sales volume generated by the
business venture with Burlington Industries consummated May 29, 1998 (see Con-
solidated Financial Statements Footnote 13). Average unit sales prices declined
13.5% during fiscal 1999. In addition to the decline in average unit sales
prices created by market pressures, the pricing decline was also influenced by
decreasing fiber costs and the strengthening of the U.S. dollar. As described
in Consolidated Financial Statements Footnote 10, the Company utilizes forward
contracts to hedge exposure for sales in foreign currencies based on specific
sales orders with customers or for anticipated sales activity for a future time
period. Additionally, currency exchange rate risks are mitigated by purchases
and borrowings in local currencies. The Company also enters currency forward
contracts for committed equipment and inventory purchases. The Company does not
enter into derivative financial instruments for trading purposes.
 
   Polyester gross profit decreased $38.9 million during fiscal 1999 and gross
margins declined from 15.1% in 1998 to 12.5% in 1999. Gross profit for fiscal
1999 was reduced by a $4.0 million charge resulting from employee acceptance of
an early retirement plan. The remainder of the decline in gross profit and
gross margin can be attributed to the aforementioned pressures on sales prices
caused by imports.
 
   Selling, general and administrative expense allocated to the polyester seg-
ment increased $8.3 million in fiscal 1999. Of this increase, $5.7 million re-
lated to a charge resulting from employee acceptance of an early retirement
program offered in fiscal 1999. Selling, general and administrative expense, as
a percentage of polyester net sales, increased from 3.2% in fiscal 1998 to 4.7%
in fiscal 1999.
 
 Nylon operations
 
   In fiscal 1999, nylon net sales decreased $22.0 million, or 4.7% compared to
fiscal 1998. Unit volumes for fiscal 1999 decreased by 4.8%, while average
sales prices, based on product mix, increased 0.1%. The reduction in sales vol-
ume is primarily attributable to the continuing decline of the ladies hosiery
market. The sales
 
                                       9

<PAGE>
 
price increase was impacted by a minor shift in domestic product mix to lower
volume, higher priced products.
 
   Nylon gross profit decreased $19.3 million and gross margin decreased from
17.7% in 1998 to 14.3% in 1999, due mainly to the previously noted decrease in
net sales and the corresponding lack of volume to cover existing fixed manu-
facturing costs and depreciation. In addition, depreciation increased $8.0
million in fiscal 1999 over 1998 resulting from the completion in fiscal 1999
of a nylon texturing and covering facility, constructed to replace older
equipment and consolidate several of the Company's older nylon facilities.
Gross profit was also reduced by a $2.6 million charge resulting from employee
acceptance of an early retirement plan offered in fiscal 1999.
 
   Selling, general and administrative expense allocated to the nylon segment
increased $3.2 million in fiscal 1999. Of this increase, $2.5 million related
to a charge resulting from employee acceptance of an early retirement program
offered in fiscal 1999. Selling, general and administrative expense, as a per-
centage of nylon net sales, increased from 2.8% in fiscal 1998 to 3.6% in fis-
cal 1999.
 
   The "All Other" segment primarily reflects the Company's majority owned
subsidiary, Unifi Technology Group established in May 1999. Unifi Technology
Group is a domestic automation solutions provider.
 
 Consolidated operations
 
   Interest expense increased $10.9 million, from $16.6 million in fiscal 1998
to $27.5 million in fiscal 1999. The increase in interest expense reflects
higher levels of debt outstanding at higher average interest rates during fis-
cal 1999 and a $4.8 million reduction in capitalized interest for major con-
struction projects, as certain significant projects in process during the
prior year period have been completed. The weighted average interest rate on
debt outstanding at June 27, 1999 was 5.94%.
 
   Interest income improved by $530 thousand from 1998 to 1999 primarily as a
result of higher levels of invested funds. Other expense decreased from $335
thousand income to $440 thousand expense from 1998 to 1999.
 
   Earnings from our equity affiliates, Parkdale America, LLC. (the "LLC") and
Micell Technologies, Inc. ("Micell") totaled $4.2 million in fiscal 1999 com-
pared with $23.0 million in fiscal 1998. The decline in earnings is primarily
attributable to the reduced earnings of the LLC and higher start-up expenses
at Micell. The LLC's operations were negatively impacted by excess capacity in
the markets and reduced sales volumes as imported apparel eroded their custom-
er's business.
 
   Effective May 29, 1998, the Company formed a limited liability company (the
"Partnership") with Burlington Industries, Inc. ("Burlington") to manufacture
and market natural textured polyester. The Company has an 85.42% ownership in-
terest in the Partnership and Burlington has 14.58%. However, for the first
five years of the Partnership, Burlington is entitled to receive the first
$9.4 million of earnings. Subsequent to this five-year period, earnings are to
be allocated based on ownership percentages. Burlington's share of the earn-
ings of the Partnership are reflected as minority interest and amounted to
$9.4 million in fiscal 1999 and $0.7 million in fiscal 1998.
 
   The effective tax rate decreased from 32.8% in 1998 to 32.5% in 1999. The
difference between the statutory and effective tax rate is primarily due to
the realization of state tax credits associated with significant capital ex-
penditures and the operating results of our Irish operations that are taxed at
a 10.0% effective rate.
 
   In the first quarter of fiscal 1999, the Company recognized a cumulative
effect of an accounting change of $4.5 million ($2.8 million after tax) or
$.04 per diluted share as a result of changing its accounting policy regarding
start-up costs. Pursuant to the AICPA issued SOP 98-5, "Reporting on the Costs
of Start-Up Activities," any previously capitalized start-up costs were re-
quired to be written-off as a cumulative effect of an accounting change. Ac-
cordingly, the Company has written-off the unamortized balance of the previ-
ously capitalized start-up costs.
 
 
                                      10

<PAGE>
 
   As a result of the above, the Company realized during the current year net
income of $56.3 million, or $0.93 per diluted share, compared to $124.3 mil-
lion, or $2.01 per diluted share for the prior fiscal year period. Before the
previously described cumulative effect of an accounting change in the current
year, earnings would have been $59.0 million or $0.97 per diluted share.
 
LIQUIDITY AND CAPITAL RESOURCES
 
   Cash provided by operations continues to be a primary source of funds to fi-
nance operating needs and capital expenditures. Cash generated from operations
was $126.5 million for fiscal 2000, compared to $209.8 million for fiscal 1999.
The primary sources of cash from operations, other than net income, were an in-
crease in accounts payable and accruals of $27.1 million, and non-cash adjust-
ments aggregating $124.4 million. Depreciation and amortization of $90.5 mil-
lion, the deferred income tax provision of $10.7 million, the provision for
doubtful accounts of $14.9 million and the losses from unconsolidated equity
affiliates, net of distributions of $6.2 million were the primary components of
the non-cash adjustments. Offsetting these sources were increases in accounts
receivable and inventories of $39.3 million and $18.1 million, respectively and
a decrease of income taxes payable of $4.4 million. All working capital changes
have been adjusted to exclude the effects of acquisitions and currency transla-
tion. Working capital levels at June 25, 2000, of $15.6 million reflect the
classification of the outstanding balance under the revolving line of credit of
$211.5 million as a current liability. The revolving line of credit matures in
April 2001. The Company intends to refinance this debt on a long-term basis
prior to maturity, however, no commitment or agreements were in place to do so
at June 25, 2000. When the Company does refinance the debt, amounts owed beyond
one year from that date will once again be classified as long-term debt.
 
   The Company utilized $78.1 million for net investing activities and $69.9
million for net financing activities during fiscal 2000. Significant expendi-
tures during this period included $58.6 million for capacity expansions and up-
grading of facilities and $8.0 million for acquisitions. A significant compo-
nent of capital expenditures includes the initial construction costs for the
Company's Unifi Technical Fabrics nonwoven facility and installment payments
for related equipment. Additionally, $16.1 million was expended for investments
in equity affiliates, $48.9 million for the purchase and retirement of Company
common stock, $12.0 million for distributions to minority interest shareholders
and $9.2 million for net payments under long-term debt agreements. The Company
purchased, effective March 8, 2000, the polyester dyed yarn plant and equipment
of Intex for $8.0 million.
 
   At June 25, 2000, the Company has committed approximately $55.1 million for
the purchase and upgrade of equipment and facilities during fiscal 2001.
 
   The Company periodically evaluates the carrying value of long-lived assets,
including property, plant and equipment and intangibles to determine if impair-
ment exists. If the sum of expected future undiscounted cash flows is less than
the carrying amount of the asset, additional analysis is performed to determine
the amount of loss to be recognized. The Company continues to evaluate for im-
pairment the carrying value of its polyester natural textured operations and
its investment in its spun-yarn partnership. The importation of fiber, fabric
and apparel continues to impair sales volumes and margins for these operations
and has negatively impacted the U.S. textile and apparel industry in general.
The effect of the importation of these products has resulted in downsizing in
the U.S. and relocation of production offshore. These operations have operated
in the most recent 18-month period at close to break-even, which heighten the
focus on impairment issues.
 
   Effective July 26, 2000, the Board of Directors increased the Company's re-
maining authorization to repurchase up to 10.0 million shares of the Company's
common stock. The Company purchased 4.5 million shares in fiscal year 2000 for
a total of $48.9 million. The Company will continue its commitment to repur-
chase shares of the Company's common stock throughout fiscal year 2001, as
deemed appropriate and financially prudent.
 
   Management believes the current financial position of the Company in connec-
tion with its operations and access to debt and equity markets are sufficient
to meet anticipated capital expenditure, strategic acquisition, working capi-
tal, Company common stock repurchases and other financial needs.
 
 
                                       11

<PAGE>
 
EURO CONVERSION
 
   The Company conducts business in multiple currencies, including the curren-
cies of various European countries in the European Union which began partici-
pating in the single European currency by adopting the Euro as their common
currency as of January 1, 1999. Additionally, the functional currency of our
Irish operation and several sales office locations will change before January
1, 2002, from their historical currencies to the Euro. During the period Janu-
ary 1, 1999, to January 1, 2002, the existing currencies of the member coun-
tries will remain legal tender and customers and vendors of the Company may
continue to use these currencies when conducting business. Currency rates dur-
ing this period, however, will no longer be computed from one legacy currency
to another but instead will first be converted into the Euro. The Company con-
tinues to evaluate the Euro conversion and the impact on its business, both
strategically and operationally. At this time, the conversion to the Euro has
not had, nor is expected to have, a material adverse effect on the financial
condition or results of operations of the Company.
 
FORWARD-LOOKING STATEMENTS
 
   Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and other sections of this annual report
contain forward-looking statements within the meaning of federal security laws
about the Company's financial condition and results of operations that are
based on management's current expectations, estimates and projections about the
markets in which the Company operates, management's beliefs and assumptions
made by management. Words such as "expects," "anticipates," "believes," "esti-
mates," variations of such words and other similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. Therefore, actual outcomes and results may dif-
fer materially from what is expressed or forecasted in, or implied by, such
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's judgment only
as of the date hereof. The Company undertakes no obligation to update publicly
any of these forward-looking statements to reflect new information, future
events or otherwise. Factors that may cause actual outcome and results to dif-
fer materially from those expressed in, or implied by, these forward-looking
statements include, but are not necessarily limited to, availability, sourcing
and pricing of raw materials, pressures on sales prices and volumes due to com-
petition and economic conditions, reliance on and financial viability of sig-
nificant customers, technological advancements, employee relations, changes in
construction spending and capital equipment expenditures (including those re-
lated to unforeseen acquisition opportunities), the timely completion of con-
struction and expansion projects planned or in process, continued availability
of financial resources through financing arrangements and operations, negotia-
tions of new or modifications of existing contracts for asset management and
for property and equipment construction and acquisition, regulations governing
tax laws, other governmental and authoritative bodies' policies and legisla-
tion, the continuation and magnitude of the Company's common stock repurchase
program and proceeds received from the sale of assets held for disposal. In ad-
dition to these representative factors, forward-looking statements could be im-
pacted by general domestic and international economic and industry conditions
in the markets where the Company competes, such as changes in currency exchange
rates, interest and inflation rates, recession and other economic and political
factors over which the Company has no control.
 

I
tem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
   See the information included in the Consolidated Financial Statements Foot-
note 10 ("Derivative Financial Instruments and Fair Value of Financial Instru-
ments") on pages 27 and 28 of this Report.
 

Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
   The Company's report of independent auditors and Consolidated Financial
Statements and related notes follow on subsequent pages of this Report.
 
                                       12

<PAGE>
 

Report of Independent Auditors
 
The Board of Directors and Shareholders of Unifi, Inc.
 
   We have audited the accompanying consolidated balance sheets of Unifi, Inc.
as of June 25, 2000, and June 27, 1999, and the related consolidated statements
of income, changes in shareholders' equity and comprehensive income, and cash
flows for each of the three years in the period ended June 25, 2000. Our audits
also include the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these fi-
nancial statements and schedule based on our audits.
 
   We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
 
   In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Unifi, Inc. at
June 25, 2000, and June 27, 1999, and the consolidated results of its opera-
tions and its cash flows for each of the three years in the period ended June
25, 2000, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in rela-
tion to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.


/s/ Ernst & Young LLP
[Signature of Ernst & Young LLP]
 
Greensboro, North Carolina
July 18, 2000

 
                                       13

<PAGE>
 
Consolidated Balance Sheets
 

<TABLE>
<CAPTION>
(Amounts in thousands)                              June 25, 2000 June 27, 1999
----------------------                              ------------- -------------
<S>                                                 <C>           <C>
ASSETS:
Current assets:
 Cash and cash equivalents.........................  $   18,778    $   44,433
 Receivables.......................................     214,001       185,784
 Inventories.......................................     147,640       129,917
 Other current assets..............................       2,958         2,015
                                                     ----------    ----------
    Total current assets...........................     383,377       362,149
                                                     ----------    ----------
 
Property, plant and equipment:
 Land..............................................       5,560         6,973
 Buildings and air conditioning....................     239,245       241,852
 Machinery and equipment...........................     853,553       848,701
 Other.............................................     152,112       133,487
                                                     ----------    ----------
                                                      1,250,470     1,231,013
Less accumulated depreciation......................     592,083       541,275
                                                     ----------    ----------
                                                        658,387       689,738
Investment in unconsolidated affiliates............     208,918       207,142
Other noncurrent assets............................     104,082       106,811
                                                     ----------    ----------
                                                     $1,354,764    $1,365,840
                                                     ==========    ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
 Accounts payable..................................  $   97,875    $   68,716
 Accrued expenses..................................      50,160        52,889
 Income taxes payable..............................       2,430         7,392
 Current maturities of long-term debt and other
  current liabilities..............................     217,308        16,255
                                                     ----------    ----------
    Total current liabilities......................     367,773       145,252
                                                     ----------    ----------
Long-term debt and other liabilities...............     261,830       478,898
                                                     ----------    ----------
Deferred income taxes..............................      86,046        78,369
                                                     ----------    ----------
Minority interests.................................      16,677        17,183
                                                     ----------    ----------
Shareholders' equity:
 Common stock......................................       5,516         5,955
 Capital in excess of par value....................          --            13
 Retained earnings.................................     649,444       658,353
 Unearned compensation.............................      (1,260)           --
 Accumulated other comprehensive loss..............     (31,262)      (18,183)
                                                     ----------    ----------
                                                        622,438       646,138
                                                     ----------    ----------
                                                     $1,354,764    $1,365,840
                                                     ==========    ==========
</TABLE>

 
The accompanying notes are an integral part of the financial statements.
 
                                       14

<PAGE>
 
Consolidated Statements of Income
 

<TABLE>
<CAPTION>
(Amounts in thousands, except per
share data)                            June 25, 2000 June 27, 1999 June 28, 1998
---------------------------------      ------------- ------------- -------------
 
<S>                                    <C>           <C>           <C>
Net sales............................   $1,280,412    $1,251,160    $1,377,609
                                        ----------    ----------    ----------
 
Costs and expenses:
 Cost of sales.......................    1,116,841     1,076,610     1,149,838
 Selling, general and administrative
  expense............................       58,063        55,338        43,277
 Provision for bad debts.............        8,694         1,129           724
 Interest expense....................       30,294        27,459        16,598
 Interest income.....................       (2,772)       (2,399)       (1,869)
 Other (income) expense..............        1,052           440          (335)
 Equity in (earnings) losses of
  unconsolidated affiliates..........        2,989        (4,214)      (23,030)
 Minority interest...................        9,543         9,401           723
                                        ----------    ----------    ----------
                                         1,224,704     1,163,764     1,185,926
                                        ----------    ----------    ----------
 
Income before income taxes and
 cumulative effect of accounting
 change..............................       55,708        87,396       191,683
Provision for income taxes...........       17,675        28,369        62,782
                                        ----------    ----------    ----------
Income before cumulative effect of
 accounting change...................       38,033        59,027       128,901
Cumulative effect of accounting
 change (net of applicable income
 taxes of $1,696 for June 27, 1999
 and $2,902 for June 28, 1998).......           --         2,768         4,636
                                        ----------    ----------    ----------
Net income...........................   $   38,033    $   56,259    $  124,265
                                        ==========    ==========    ==========
Earnings per common share:
 Income before cumulative effect of
  accounting change..................   $      .65    $      .97    $     2.10
 Cumulative effect of accounting
  change.............................           --          (.04)         (.07)
                                        ----------    ----------    ----------
 Net income per common share.........   $      .65    $      .93    $     2.03
                                        ==========    ==========    ==========
 
Earnings per common share -- assuming
 dilution:
 Income before cumulative effect of
  accounting change..................   $      .65    $      .97    $     2.08
 Cumulative effect of accounting
  change.............................           --          (.04)         (.07)
                                        ----------    ----------    ----------
 Net income per common share.........   $      .65    $      .93    $     2.01
                                        ==========    ==========    ==========
</TABLE>

 
 
The accompanying notes are an integral part of the financial statements.
 
                                       15

<PAGE>
 
Consolidated Statements of Changes
in Shareholders' Equity and Comprehensive Income
 

<TABLE>
<CAPTION>
                                             Capital in                            Other         Total     Comprehensive
(Amounts in thousands,     Shares    Common  Excess of  Retained    Unearned   Comprehensive Shareholders'    Income
except per share data)   Outstanding Stock   Par Value  Earnings  Compensation    Income        Equity        Note 1
----------------------   ----------- ------  ---------- --------  ------------ ------------- ------------- -------------
<S>                      <C>         <C>     <C>        <C>       <C>          <C>           <C>           <C>
Balance June 29, 1997...   61,210    $6,121   $    --   $545,099    $    --      $ (2,689)     $548,531      $110,761
                           ======    ======   =======   ========    =======      ========      ========      ========
Purchase of stock.......     (539)      (54)     (618)   (19,515)        --            --       (20,187)           --
Options exercised.......      402        40     2,154         --         --            --         2,194            --
Stock option tax
 benefit................       --        --        --      2,599         --            --         2,599            --
Stock issued for
 acquisition............      561        56    20,918         --         --            --        20,974            --
Cash dividends -- $.56
 per share..............       --        --        --    (34,320)        --            --       (34,320)           --
Currency translation
 adjustments............       --        --        --         --         --        (7,859)       (7,859)       (7,859)
Net income..............       --        --        --    124,265         --            --       124,265       124,265
                           ------    ------   -------   --------    -------      --------      --------      --------
 
Balance June 28, 1998...   61,634     6,163    22,454    618,128         --       (10,548)      636,197       116,406
                           ======    ======   =======   ========    =======      ========      ========      ========
Purchase of stock.......   (2,112)     (211)  (23,092)   (16,034)        --            --       (39,337)           --
Options exercised.......       26         3       651         --         --            --           654            --
Currency translation
 adjustments............       --        --        --         --         --        (7,635)       (7,635)       (7,635)
Net income..............       --        --        --     56,259         --            --        56,259        56,259
                           ------    ------   -------   --------    -------      --------      --------      --------
 
Balance June 27, 1999...   59,548     5,955        13    658,353         --       (18,183)      646,138        48,624
                           ======    ======   =======   ========    =======      ========      ========      ========
Purchase of stock.......   (4,462)     (446)     (840)   (47,623)        --            --       (48,909)           --
Options exercised.......        1        --        14         --         --            --            14            --
Grantor's trust tax
 benefit................       --        --        --        681         --            --           681            --
Stock forfeited to
 satisfy income tax
 withholding............      (53)       (5)     (630)        --         --            --          (635)           --
Issuance of restricted
 stock..................      129        12     1,443         --     (1,455)           --            --            --
Amortization of
 restricted stock.......       --        --        --         --        195            --           195            --
Currency translation
 adjustments............       --        --        --         --         --       (13,079)      (13,079)      (13,079)
Net income..............       --        --        --     38,033         --            --        38,033        38,033
                           ------    ------   -------   --------    -------      --------      --------      --------
 
Balance June 25, 2000...   55,163    $5,516   $    --   $649,444    $(1,260)     $(31,262)     $622,438      $ 24,954
                           ======    ======   =======   ========    =======      ========      ========      ========
</TABLE>

 
The accompanying notes are an integral part of the financial statements.
 
                                       16

<PAGE>
 
Consolidated Statements of Cash Flows
 

<TABLE>
<CAPTION>
(Amounts in thousands)                June 25, 2000 June 27, 1999 June 28, 1998
----------------------                ------------- ------------- -------------
<S>                                   <C>           <C>           <C>
Cash and cash equivalents at
 beginning of year...................   $ 44,433      $   8,372     $   9,514
Operating activities:
 Net income..........................     38,033         56,259       124,265
 Adjustments to reconcile net income
  to net cash provided by operating
  activities:
  Cumulative effect of accounting
   change (net of applicable income
   taxes)............................         --          2,768         4,636
  (Earnings) losses of unconsolidated
   equity affiliates, net of
   distributions.....................      6,200          5,287       (15,282)
  Depreciation.......................     83,037         82,993        65,033
  Amortization.......................      7,491          6,883         4,677
  Deferred income taxes..............     10,692          4,641        12,201
  Provision for bad debts and quality
   claims............................     14,866          6,241         3,917
  Other..............................      2,135            415          (350)
  Changes in assets and liabilities,
   excluding effects of acquisitions
   and foreign currency adjustments:
   Receivables.......................    (39,257)        28,234         5,711
   Inventories.......................    (18,088)        16,320          (793)
   Other current assets..............     (1,330)          (948)        1,556
   Payables and accruals.............     27,118        (13,959)      (25,213)
   Income taxes......................     (4,430)        14,697         1,329
                                        --------      ---------     ---------
 Net -- operating activities.........    126,467        209,831       181,687
                                        --------      ---------     ---------
 
Investing activities:
 Capital expenditures................    (58,609)      (118,846)     (250,064)
 Acquisitions........................     (7,953)       (27,112)      (25,776)
 Investments in unconsolidated equity
  affiliates.........................    (16,069)       (10,000)      (39,492)
 Sale of capital assets..............      5,637            847         2,428
 Other...............................     (1,138)        (4,508)       (2,755)
                                        --------      ---------     ---------
 Net -- investing activities.........    (78,132)      (159,619)     (315,659)
                                        --------      ---------     ---------
 
Financing activities:
 Borrowing of long-term debt.........     72,342         97,000       440,273
 Repayment of long-term debt.........    (81,589)       (61,596)     (252,844)
 Issuance of Company stock...........         14            654         2,194
 Stock option tax benefit............         --             --         2,599
 Purchase and retirement of Company
  stock..............................    (48,909)       (39,337)      (20,187)
 Cash dividends paid.................         --             --       (34,320)
 Distributions to minority
  shareholders.......................    (12,000)        (9,000)           --
 Other...............................        287            249        (4,006)
                                        --------      ---------     ---------
 Net -- financing activities.........    (69,855)       (12,030)      133,709
                                        --------      ---------     ---------
Currency translation adjustment......     (4,135)        (2,121)         (879)
                                        --------      ---------     ---------
Net increase (decrease) in cash and
 cash equivalents....................    (25,655)        36,061        (1,142)
                                        --------      ---------     ---------
Cash and cash equivalents at end of
 year................................   $ 18,778      $  44,433     $   8,372
                                        ========      =========     =========
</TABLE>

 
The accompanying notes are an integral part of the financial statements.
 
                                       17

<PAGE>
 

Notes to Consolidated Financial Statements
 
1. Accounting Policies and Financial Statement Information
 
   Principles of Consolidation: The Consolidated Financial Statements include
the accounts of the Company and all majority-owned subsidiaries. The portion
of the income applicable to noncontrolling interests in the majority-owned op-
erations is reflected as minority interests in the Consolidated Statements of
Income. The accounts of all foreign subsidiaries have been included on the ba-
sis of fiscal periods ended three months or less prior to the dates of the
Consolidated Balance Sheets. All significant intercompany accounts and trans-
actions have been eliminated. Investments in 20 to 50% owned companies and
partnerships where the Company is able to exercise significant influence, but
not control, are accounted for by the equity method and, accordingly, consoli-
dated income includes the Company's share of the affiliates' income.
 
   Fiscal Year: The Company's fiscal year is the fifty-two or fifty-three
weeks ending the last Sunday in June. All three fiscal years presented consist
of fifty-two weeks.
 
   Reclassification: The Company has reclassified the presentation of certain
prior year information to conform with the current presentation format.
 
   Revenue Recognition: Revenues from sales are recognized at the time ship-
ments are made.
 
   Foreign Currency Translation: Assets and liabilities of foreign subsidiar-
ies are translated at year-end rates of exchange and revenues and expenses are
translated at the average rates of exchange for the year. Gains and losses re-
sulting from translation are accumulated in a separate component of sharehold-
ers' equity and included in comprehensive income. Gains and losses resulting
from foreign currency transactions (transactions denominated in a currency
other than the subsidiary's functional currency) are included in net income.
 
   Cash and Cash Equivalents: Cash equivalents are defined as short-term in-
vestments having an original maturity of three months or less.
 
   Receivables: Certain customer accounts receivable are factored without re-
course with respect to credit risk. Factored accounts receivable at June 25,
2000, and June 27, 1999, were $42.9 million and $41.6 million, respectively.
An allowance for losses is provided for known and potential losses arising
from yarn quality claims and receivables from customers not factored based on
a periodic review of these accounts. Reserves for such losses were $17.2 mil-
lion at June 25, 2000 and $8.7 million at June 27, 1999.
 
   Inventories: The Company utilizes the last-in, first-out ("LIFO") method
for valuing certain inventories representing 51.3% of all inventories at June
25, 2000, and the first-in, first-out ("FIFO") method for all other invento-
ries. Inventory values computed by the LIFO method are lower than current mar-
ket values. Inventories valued at current or replacement cost would have been
approximately $5.9 million and $0.7 million in excess of the LIFO valuation at
June 25, 2000, and June 27, 1999, respectively. Finished goods, work in proc-
ess, and raw materials and supplies at June 25, 2000, and June 27, 1999,
amounted to $81.2 million and $69.7 million; $17.0 million and $14.6 million;
and $49.4 million and $45.6 million, respectively.
 
   Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Depreciation is computed for asset groups primarily utilizing the
straight-line method for financial reporting and accelerated methods for tax
reporting. For financial reporting purposes, asset lives have been assigned to
asset categories over periods ranging between three and forty years.
 
   Other Noncurrent Assets: Other noncurrent assets at June 25, 2000, and June
27, 1999, consist primarily of the cash surrender value of key executive life
insurance policies ($7.7 million and $8.1 million); unamortized bond issue
costs ($5.9 million and $6.7 million); and acquisition related assets consist-
ing of the excess cost over fair value of net assets acquired and other intan-
gibles ($83.2 million and $86.3 million), respectively. Bond issue costs are
being amortized on the straight-line method over the life of the bonds, which
approximates the effective interest method. The acquisition related assets are
being amortized on the straight-line method over periods ranging between five
and thirty years. Accumulated amortization at June 25, 2000, and June 27,
1999, for bond issue costs and acquisition related assets was $29.3 million
and $19.2 million, respectively.
 
                                      18

<PAGE>
 
   Long-Lived Assets: Long-lived assets, including the excess cost over fair
value of net assets acquired, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recover-
able. If undiscounted cashflows are not adequate to cover the asset carrying
value, additional analysis is conducted to determine the amount of loss to be
recognized. The impairment loss is determined by the difference between the
carrying amount of the asset and the fair value measured by future discounted
cashflows. To date, no impairment losses have been recorded.
 
   Income Taxes: The Company and its domestic subsidiaries file a consolidated
federal income tax return. Income tax expense is computed on the basis of
transactions entering into pretax operating results. Deferred income taxes have
been provided for the tax effect of temporary differences between financial
statement carrying amounts and the tax basis of existing assets and liabili-
ties. Income taxes have not been provided for the undistributed earnings of
certain foreign subsidiaries as such earnings are deemed to be permanently in-
vested.
 
   Earnings Per Share: The following table details the computation of basic and
diluted earnings per share:
 

<TABLE>
<CAPTION>
(Amounts in thousands)                June 25, 2000 June 27, 1999 June 28, 1998
----------------------                ------------- ------------- -------------
<S>                                   <C>           <C>           <C>
Numerator:
 Income before cumulative effect of
  accounting change..................    $38,033       $59,027      $128,901
 Cumulative effect of accounting
  change.............................         --         2,768         4,636
                                         -------       -------      --------
 Net income..........................    $38,033       $56,259      $124,265
                                         =======       =======      ========
 
Denominator:
 Denominator for basic earnings per
  share--weighted averages shares....     58,488        60,568        61,331
 Effect of dilutive securities:
  Stock options......................         19             2           525
  Restricted stock awards............          4            --            --
                                         -------       -------      --------
Diluted potential common shares
 denominator for diluted
 earnings per share -- adjusted
 weighted average shares and
 assumed conversions.................     58,511        60,570        61,856
                                         =======       =======      ========
</TABLE>

 
   Stock-Based Compensation: With the adoption of SFAS 123, the Company elected
to continue to measure compensation expense for its stock-based employee com-
pensation plans using the intrinsic value method prescribed by APB Opinion No.
25, "Accounting for Stock Issued to Employees." Had the fair value-based method
encouraged by SFAS 123 been applied, compensation expense would have been re-
corded on the 1,975,570 options granted in fiscal 2000 and the 414,000 options
granted in fiscal 1999 based on their respective vesting schedules. The fiscal
2000 options vest in annual increments over five years and the fiscal 1999 op-
tions vest primarily over two years. No options were granted in fiscal 1998.
Net income in fiscal 2000, 1999 and 1998 restated for the effect would have
been $32.7 million or $0.56 per diluted share, $53.3 million or $0.88 per di-
luted share and $122.8 million or $1.98 per diluted, respectively. The fair
value and related compensation expense of the 2000 and 1999 options were calcu-
lated as of the issuance date using the Black-Scholes model with the following
assumptions:
 

<TABLE>
<CAPTION>
           Options Granted                       2000  1999
           ---------------                       ----  ----
           <S>                                   <C>   <C>
           Expected life (years)................ 10.0  10.0
           Interest rate........................ 6.00% 6.14%
           Volatility........................... 49.5% 49.3%
</TABLE>

 
   Comprehensive Income: Comprehensive income includes net income and other
changes in net assets of a business during a period from non-owner sources,
which are not included in net income. Such non-owner changes may include, for
example, available-for-sale securities and foreign currency translation adjust-
ments. Other than net income, foreign currency translation adjustments pres-
ently represent the only component of comprehensive income for the Company. The
Company does not provide income taxes on the impact of currency translations as
earnings from foreign subsidiaries are deemed to be permanently invested.
 
                                       19

<PAGE>
 
   Recent Accounting Pronouncements: In June 1998, the FASB issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative Instru-
ments and Hedging Activities," (SFAS 133) and in June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," which delayed the effective date the Company is required
to adopt SFAS 133 until its fiscal year 2001. In June 2000, the FASB issued
Statement of Financial Accounting Standards No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment to FASB
Statement No. 133." This statement amended certain provisions of SFAS 133.
SFAS 133 requires the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a deriv-
ative's change in fair value will be immediately recognized in earnings. The
Company does not enter into derivative financial instruments for trading pur-
poses. As discussed in Footnote 10 to the Consolidated Financial Statements,
the Company enters into forward contracts to hedge certain transactions and
commitments in foreign currency. Upon adoption of SFAS 133 in the first fiscal
quarter of 2001, these activities will be recognized on the Consolidated Bal-
ance Sheet. The Company anticipates that adoption of SFAS 133 will not have a
material effect on the Company's earnings.
 
   Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make es-
timates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those es-
timates.
 
2. Acquisitions and Alliances
 
   Effective June 1, 2000, the Company and E.I. DuPont De Nemours and Company
(DuPont) initiated a manufacturing alliance. The alliance is expected to opti-
mize Unifi's and DuPont's partially oriented yarn (POY) manufacturing facili-
ties, increase manufacturing efficiency and improve product quality. Under its
terms, DuPont and Unifi will cooperatively run their polyester filament manu-
facturing facilities as a single operating unit. This consolidation will shift
commodity yarns from our Yadkinville facility to DuPont's Kinston plant, and
bring high-end specialty production to Yadkinville from Kinston and Cape Fear.
The companies will split equally the costs to complete the necessary plant
consolidation and the benefits gained through asset optimization. Addition-
ally, the companies will collectively attempt to increase profitability
through the development of new products and related technologies. Likewise,
the costs incurred and benefits derived from the product innovations will be
split equally. DuPont and Unifi will continue to own and operate their respec-
tive sites and employees will remain with their respective employers. DuPont
will continue to provide POY to the marketplace and will use DuPont technology
to expand the specialty product range at each company's sites. Unifi will con-
tinue to provide textured yarn to the marketplace. At termination of the alli-
ance or at any time after June 1, 2005, Unifi has the option to purchase from
DuPont and DuPont has the right to sell to Unifi, DuPont's U.S. polyester fil-
ament business for a price within a predetermined fair market value range.
 
   On March 8, 2000, the Company acquired Intex Yarns Limited (Intex) located
in Manchester, England for approximately $8.0 million plus assumed debt. This
acquisition adds high quality, package-dyeing capabilities in Europe and com-
pliments the Company's yarn production facility in Letterkenny, Ireland.
 
   During fiscal 1999, the Company formed Unifi do Brasil, LTDA to acquire the
assets of Fairway Polyester, LTDA., a Brazilian company, for $16.6 million ef-
fective April 1, 1999. Also, effective June 1, 1999, UNIFI Technology Group
LLC (UTG), a newly formed subsidiary of the Company, acquired the assets of
Cimtec Inc. ("Cimtec"), a manufacturing automation solutions provider, for
$10.5 million. Subsequently, a five-percent interest in the new entity was
sold to certain former Cimtec shareholders and an additional 2.875% was sold
to certain former Unifi executives. The Company also granted an additional
2.875% of its ownership interest in UTG to certain Unifi executives which
vests in annual increments over a five-year period.
 
   During fiscal 1998, the Company completed its Agreement and Plan of Trian-
gular Merger with SI Holding Company and thereby acquired their covered yarn
business for approximately $46.6 million effective November 17, 1997. Addi-
tionally, covenants-not-to-compete were entered into with the principal oper-
ating officers of the acquired company in exchange for $9.2 million, to be
paid generally over the terms of the covenants. After allocation of the pur-
chase price to the net assets acquired, the excess of cost over fair value has
been valued at $25.5 million.
 
                                      20

<PAGE>
 
   The Intex, Brazilian, Cimtec and SI Holding Company acquisitions were all
accounted for by the purchase method of accounting and accordingly, the net
assets and operations have been included in the Company's Consolidated Finan-
cial Statements beginning on the date the acquisition was consummated. The
transactions are not considered significant to the Company's consolidated net
assets or results of operations.
 
3. Cumulative Effect of Accounting Change
 
   In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-
Up Activities," which requires start-up costs, as defined, to be expensed as
incurred. In accordance with this SOP, any previously capitalized start-up
costs were required to be written-off as a cumulative effect of a change in
accounting principle. The Company, upon adoption of this SOP in the first
quarter of fiscal 1999, wrote off the unamortized balance of such previously
capitalized start-up costs as of June 29, 1998, of $4.5 million ($2.8 million
after tax) or $.04 per diluted share as a cumulative catch-up adjustment.
 
   Pursuant to Emerging Issues Task Force No. 97-13 issued in November 1997,
the Company changed its accounting policy in the second quarter of fiscal 1998
regarding a project to install an entirely new computer software system which
it began in fiscal 1995. Previously, substantially all direct external costs
relating to the project were capitalized, including the portion related to
business process reengineering. In accordance with this accounting pronounce-
ment, the unamortized balance of these reengineering costs as of September 28,
1997, of $7.5 million ($4.6 million after tax) or $.07 per diluted share was
written off as a cumulative catch-up adjustment in the second quarter of fis-
cal 1998.
 
4. Long-Term Debt and Other Liabilities
 
   A summary of long-term debt follows:
 

<TABLE>
<CAPTION>
 (Amounts in thousands)                              June 25, 2000 June 27, 1999
 ----------------------                              ------------- -------------
 <S>                                                 <C>           <C>
 Bonds payable......................................   $248,447      $248,242
 Revolving credit facility..........................    211,500       217,000
 Sale-leaseback obligation..........................      3,154         3,355
 Other bank debt and other obligations..............     16,037        26,556
                                                       --------      --------
  Total debt........................................    479,138       495,153
  Current maturities................................    217,308        16,255
                                                       --------      --------
  Total long-term debt and other liabilities........   $261,830      $478,898
                                                       ========      ========
</TABLE>

 
   On February 5, 1998, the Company issued $250 million of senior, unsecured
debt securities (the "Notes") which bear a coupon rate of 6.50% and mature in
2008. The estimated fair value of the Notes, based on quoted market prices, at
June 25, 2000, and June 27, 1999, was approximately $216.9 million and $229.7
million, respectively.
 
   The Company entered a $400 million revolving credit facility dated April
15, 1996, with a group of financial institutions that extends through April
15, 2001. The outstanding amounts due on the revolving credit facility at June
25, 2000 have been classified as current maturities. Although the Company in-
tends to refinance or negotiate additional borrowings to replace some or all
of the outstanding obligations under the revolving credit facility, no formal
commitments were entered into by fiscal year end. The rate of interest charged
is adjusted quarterly based on a pricing grid, which is a function of the ra-
tio of the Company's debt to earnings before income taxes, depreciation, amor-
tization and other non-cash charges. The credit facility provides the Company
the option of borrowing at a spread over the base rate (as defined) for base
rate loans or the Adjusted London Interbank Offered Rate (LIBOR) for Eurodol-
lar loans. In accordance with the pricing grid, the Company pays a quarterly
facility fee ranging from 0.090%-0.150% of the total amount available under
the revolving credit facility. The weighted average interest rates for fiscal
years 2000 and 1999 were 6.12% and 5.57%, respectively. At June 25, 2000, and
June 27, 1999, the interest rates on the outstanding balances were 6.68% and
5.29%, respectively. As a result of the variable nature of the credit
facility's interest rate, the fair value of the Company's revolving credit
debt approximates its carrying value.
 
                                      21

<PAGE>
 
   The revolving credit facility also provides the Company the option to borrow
funds competitively from the individual lenders, at their discretion, provided
that the sum of the competitive bid loans and the aggregate funds committed un-
der the revolving credit facility do not exceed the total committed amount. The
revolving credit facility allows the Company to reduce the outstanding commit-
ment in whole or in part upon satisfactory notice up to an amount no less than
the sum of the aggregate competitive bid loans and the total committed loans.
Any such partial termination is permanent. The Company may also elect to prepay
loans in whole or in part. Amounts paid in accordance with this provision may
be re-borrowed.
 
   The terms of the revolving credit facility contain, among other provisions,
requirements for maintaining certain net worth and other financial ratios and
specific limits or restrictions on additional indebtedness, liens and merger
activity. Provisions under this agreement are not considered restrictive to
normal operations.
 
   On May 20, 1997, the Company entered into a sales-leaseback agreement with a
financial institution whereby land, buildings and associated real and personal
property improvements of certain manufacturing facilities were sold to the fi-
nancial institution and will be leased by the Company over a sixteen-year peri-
od. This transaction has been recorded as a direct financing arrangement. On
June 30, 1997, the Company entered into a Contribution Agreement associated
with the formation of Parkdale America, LLC (see Consolidated Financial State-
ment Footnote 11). As a part of the Contribution Agreement, ownership of a sig-
nificant portion of the assets financed under the sales-leaseback agreement and
the related debt ($23.5 million) were assumed by the LLC. Payments for the re-
maining balance of the sales-leaseback agreement are due semi-annually and are
in varying amounts, in accordance with the agreement. Principal payments re-
quired over the next five years are approximately $100 thousand per year. The
interest rate implicit in the agreement is 7.84%.
 
   Other obligations consist of acquisition related liabilities due within the
next four years. Maturities of the obligations over the next four years are
$5.8 million, $6.4 million, $3.3 million and $.5 million, respectively.
 
   Interest capitalized during fiscal 2000 and 1999 was $0.6 million and $2.0
million, respectively.
 
5. Income Taxes
 
   The provision for income taxes for fiscal 2000, 1999 and 1998 consists of
the following:
 

<TABLE>
<CAPTION>
(Amounts in thousands)               June 25, 2000 June 27, 1999 June 28, 1998
----------------------               ------------- ------------- -------------
<S>                                  <C>           <C>           <C>
Currently payable:
 Federal............................    $ 6,629       $20,124      $ 43,245
 State..............................      1,682         2,951         5,704
 Foreign............................       (225)          653         1,474
                                        -------       -------      --------
 Total current......................      8,086        23,728        50,423
                                        -------       -------      --------
Deferred:
 Federal............................      9,772        10,219        23,799
 State..............................       (261)       (5,718)      (11,715)
 Foreign............................         78           140           275
                                        -------       -------      --------
 Total deferred.....................      9,589         4,641        12,359
                                        -------       -------      --------
Income taxes before cumulative
 effect of accounting change (1999
 and 1998)..........................    $17,675       $28,369      $ 62,782
                                        =======       =======      ========
</TABLE>

 
                                       22

<PAGE>
 
   Income taxes were 31.7%, 32.5% and 32.8% of pretax earnings in fiscal 2000,
1999 and 1998, respectively. A reconciliation of the provision for income
taxes (before cumulative effect of accounting changes, in 1999 and 1998) with
the amounts obtained by applying the federal statutory tax rate is as follows:
 

<TABLE>
<CAPTION>
                                      June 25, 2000 June 27, 1999 June 28, 1998
                                      ------------- ------------- -------------
<S>                                   <C>           <C>           <C>
Federal statutory tax rate..........      35.0%         35.0%         35.0%
State income taxes net of federal
 tax benefit........................       3.7           3.1           2.9
State tax credits net of federal tax
 benefit............................      (2.1)         (5.1)         (4.9)
Foreign taxes less than domestic
 rate...............................        --          (1.8)         (1.9)
Foreign tax benefit of losses less
 than domestic rate.................       2.5            --            --
Foreign Sales Corporation tax
 benefit............................      (1.1)         (0.7)         (0.4)
Research and experimentation
 credit.............................      (0.1)         (0.1)           --
Resolution of tax issues............      (7.4)           --            --
Nondeductible expenses and other....       1.2           2.1           2.1
                                          ----          ----          ----
Effective tax rate..................      31.7%         32.5%         32.8%
                                          ====          ====          ====
</TABLE>

 
   The deferred income taxes reflect the net tax effects of temporary differ-
ences between the bases of assets and liabilities for financial reporting pur-
poses and their bases for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of June 25, 2000, and June
27, 1999, were as follows:
 

<TABLE>
<CAPTION>
(Amounts in thousands)                               June 25, 2000 June 27, 1999
----------------------                               ------------- -------------
<S>                                                  <C>           <C>
Deferred tax liabilities:
 Property, plant and equipment......................   $ 97,051       $78,241
 Investments in equity affiliates...................     19,974        20,883
 Other..............................................        394            --
                                                       --------       -------
Total deferred tax liabilities......................    117,419        99,124
                                                       --------       -------
Deferred tax assets:
 Accrued liabilities and valuation reserves.........      9,795         1,568
 State tax credits..................................     16,511        17,043
 Other items........................................      5,067         2,144
                                                       --------       -------
Total deferred tax assets...........................     31,373        20,755
                                                       --------       -------
Net deferred tax liabilities........................   $ 86,046       $78,369
                                                       ========       =======
</TABLE>

 
6. Common Stock, Stock Option Plans and Restricted Stock
 
   Common shares authorized were 500 million in 2000 and 1999. Common shares
outstanding at June 25, 2000, and June 27, 1999, were 55,163,193 and
59,547,819, respectively.
 
   On October 21, 1999, the shareholders of the Company approved the 1999
Unifi, Inc. Long-Term Incentive Plan. The plan authorized the issuance of up
to 6,000,000 shares of Common Stock pursuant to the grant or exercise of stock
options, including Incentive Stock Option ("ISO"), Non-Qualified Stock Option
("NQSO") and restricted stock, but not more than 3,000,000 shares may be is-
sued as restricted stock. The 1,975,570 options granted in fiscal 2000 were
all from the 1999 Long-Term Incentive Plan.
 
                                      23

<PAGE>
 
   In addition, the Company has previous ISO plans with 846,357 shares reserved
and previous NQSO plans with 1,576,007 shares reserved at year end. No addi-
tional options will be issued under any previous ISO or NQSO plan. The transac-
tions for 2000, 1999 and 1998 of all three plans were as follows:
 

<TABLE>
<CAPTION>
                                        ISO                      NQSO
                              ------------------------ ------------------------
                                Options     Weighted     Options     Weighted
                              Outstanding avg. $/share outstanding avg. $/share
                              ----------- ------------ ----------- ------------
<S>                           <C>         <C>          <C>         <C>
Fiscal 1998:
Shares under option --
 beginning of year..........   1,446,591     $20.91     1,159,019     $26.75
Exercised...................    (504,458)     14.31       (47,852)     25.76
                               ---------     ------     ---------     ------
Shares under option -- end
 of year....................     942,133     $24.45     1,111,167     $26.79
                               =========     ======     =========     ======
 
Fiscal 1999:
Granted.....................     309,000     $16.31       105,000     $17.47
Exercised...................        (833)     16.31       (25,000)     25.65
Canceled....................     (12,435)     17.48        (6,668)     31.00
Converted from ISO to NQSO..    (391,508)     23.24       391,508      23.24
                               ---------     ------     ---------     ------
Shares under option -- end
 of year....................     846,357     $22.15     1,576,007     $25.29
                               =========     ======     =========     ======
 
Fiscal 2000:
Granted.....................   1,975,570     $11.90            --     $   --
Exercised...................        (833)     16.31            --         --
Canceled....................     (16,500)     22.73      (346,832)     24.74
                               ---------     ------     ---------     ------
Shares under option -- end
 of year....................   2,804,594     $14.93     1,229,175     $25.44
                               =========     ======     =========     ======
</TABLE>

 

<TABLE>
<CAPTION>
                                       Fiscal 2000   Fiscal 1999   Fiscal 1998
                                      ------------- ------------- -------------
<S>                                   <C>           <C>           <C>
ISO:
 Exercisable shares under option --
  end of year........................       829,024       685,918       942,133
 Option price range.................. $10.19-$25.38 $10.19-$25.38 $10.19-$25.38
 Weighted average exercise price for
  options exercisable................ $       22.14 $       23.52 $       24.45
 Weighted average remaining life of
  shares under option................           4.7           6.4           6.2
 Fair value of options granted....... $        7.58 $       11.21 $          --
 
NQSO:
 Exercisable shares under option --
  end of year........................     1,229,175     1,542,077     1,021,001
 Option price range.................. $16.31-$31.00 $16.31-$31.00 $25.38-$31.00
 Weighted average exercise price for
  options exercisable................ $       25.44 $       25.48 $       26.42
 Weighted average remaining life of
  shares under option................           5.1           6.0           6.8
 Fair value of options granted....... $          -- $       11.21 $          --
</TABLE>

 
   All options granted in fiscal 2000 vest in annual increments over five years
from the grant date. Substantially all options granted in fiscal 1999 vest over
a two year period from the date of grant.
 
   During fiscal 2000 the Company issued a combined total of 129,500 shares of
restricted stock to certain employees under the 1999 Unifi, Inc. Long-Term In-
centive Plan. The stock issued vests in equal annual increments over five years
from the grant dates. Compensation expense will be recognized over the vesting
terms of the shares based on the fair market value at the date of grant.
 
                                       24

<PAGE>
 
7. Retirement Plans
 
   The Company has a qualified profit-sharing plan, which provides benefits for
eligible salaried and hourly employees. The annual contribution to the plan,
which is at the discretion of the Board of Directors, amounted to $11.0 million
in both 2000 and 1999 and $13.0 million in 1998. The Company leases its corpo-
rate office building from its profit-sharing plan through an independent trust-
ee.
 
8. Leases and Commitments
 
   In addition to the direct financing sales-leaseback obligation described in
Consolidated Financial Statements Footnote 4, the Company is obligated under
operating leases consisting primarily of real estate and equipment. Future ob-
ligations for minimum rentals under the leases during fiscal years after June
25, 2000, are $7.3 million in 2001, $6.3 million in 2002, $4.5 million in 2003,
$2.7 million in 2004, $2.2 million in 2005 and $0.9 million in aggregate there-
after. Rental expense was $8.5 million, $7.6 million and $6.8 million for the
fiscal years 2000, 1999 and 1998, respectively. The Company had committed ap-
proximately $55.1 million for the purchase and upgrade of equipment and facili-
ties at June 25, 2000.
 
9. Business Segments, Foreign Operations and Concentrations of Credit Risk
 
   The Company and its subsidiaries are engaged predominantly in the processing
of yarns by texturing of synthetic filament polyester and nylon fiber with
sales domestically and internationally, mostly to knitters and weavers for the
apparel, industrial, hosiery, home furnishing, automotive upholstery and other
end-use markets. Additionally, during fiscal 1999, the Company formed a limited
liability company to provide integrated manufacturing, factory automation and
electronic commerce solutions to other domestic manufactures. The Company also
maintains investments in several minority-owned affiliates. See Footnote 11 in
these Consolidated Financial Statements for further information on unconsoli-
dated affiliates.
 
   In accordance with Statement of Financial Accounting Standards No. 131,
segmented financial information of the polyester and nylon operating segments,
as regularly reported to management for the purpose of assessing performance
and allocating resources, is detailed below. "All other" primarily represents
the results of the limited liability consulting company in fiscal 2000 and
1999.
 

<TABLE>
<CAPTION>
                                                               All
(Amounts in thousands)                    Polyester  Nylon    Other     Total
----------------------                    --------- -------- -------  ----------
<S>                                       <C>       <C>      <C>      <C>
Fiscal 2000
 Net sales to external customers......... $852,179  $408,073 $20,160  $1,280,412
 Intersegment net sales..................       23       408  11,757      12,188
 Depreciation and amortization...........   59,435    22,001     767      82,203
 Segment operating income................   66,572    40,999     941     108,512
 Total assets............................  695,363   358,205  17,721   1,071,289
                                          --------  -------- -------  ----------
 
Fiscal 1999
 Net sales to external customers......... $805,749  $443,850 $ 1,561  $1,251,160
 Intersegment net sales..................   17,014     5,159      --      22,173
 Depreciation and amortization...........   58,294    24,142      48      82,484
 Segment operating income (loss).........   64,710    47,966     (62)    112,614
 Total assets............................  710,277   206,661  13,392     930,330
                                          --------  -------- -------  ----------
 
Fiscal 1998
 Net sales to external customers......... $911,704  $465,905 $    --  $1,377,609
 Intersegment net sales..................   28,076     5,089      --      33,165
 Depreciation and amortization...........   46,003    15,030      --      61,033
 Segment operating income................  111,944    70,512      --     182,456
 Total assets............................  650,335   249,754      60     900,149
                                          --------  -------- -------  ----------
</TABLE>

 
                                       25

<PAGE>
 
   Segment operating income for fiscal 1999 was reduced $9.7 million and $5.1
million for polyester and nylon, respectively, as a result of the early retire-
ment and termination charge in the third quarter (see Consolidated Financial
Statements Footnote 14).
 
   Certain indirect manufacturing and selling, general and administrative costs
are allocated to the operating segments based on activity drivers relevant to
the respective costs. The primary differences between the segmented financial
information of the operating segments, as reported to management, and the
Company's consolidated reporting relates to intersegment transfer of yarn, fi-
ber costing and capitalization of property, plant and equipment costs. Prior to
the current fiscal year, substantially all intersegment transfers of yarn were
treated as internal sales at a selling price, which approximated cost plus a
normalized profit margin. In the current year, the majority of intersegment
yarn transfers were treated as inventory transfers, and profit margins recorded
only on intersegment transfers from our dyed operations. Domestic operating di-
visions' fiber costs are valued on a standard cost basis, which approximates
first-in, first-out accounting. For those components of inventory valued util-
izing the last-in, first-out method (see Consolidated Financial Statements
Footnote 1), an adjustment is made at the corporate level to record the differ-
ence between standard cost and LIFO. For significant capital projects, capital-
ization is delayed for management segment reporting until the facility is sub-
stantially complete. However, for consolidated financial reporting, assets are
capitalized into construction in progress as costs are incurred or carried as
unallocated corporate fixed assets if they have been placed in service but not
as yet been moved for management segment reporting.
 
   The increase in nylon total assets is attributable to the reclassification
of property, plant and equipment from unallocated corporate fixed assets. This
reclassification primarily relates to a new facility that was substantially
completed. The change in total assets for the "All Other" segment primarily re-
flects the establishment of the Company's majority owned subsidiary, Unifi
Technology Group in May 1999. Unifi Technology Group is a domestic automation
solutions provider.
 

<TABLE>
<CAPTION>
(Amounts in Thousands)                June 25, 2000 June 27, 1999 June 28, 1998
----------------------                ------------- ------------- -------------
<S>                                   <C>           <C>           <C>
Depreciation and amortization:
 Depreciation and amortization of
  specific reportable segment
  assets.............................  $   82,203    $   82,484    $   61,033
 Depreciation of unallocated assets..       7,146         6,362         6,138
 Amortization of unallocated assets..       3,841         3,373         2,539
                                       ----------    ----------    ----------
 Consolidated depreciation and
  amortization.......................  $   93,190    $   92,219    $   69,710
                                       ==========    ==========    ==========
Profit:
 Reportable segments operating
  income.............................  $  108,512    $  112,614    $  182,456
 Net standard cost (income) expense
  adjustment to LIFO.................       4,444        (8,040)       (2,038)
 Unallocated operating (income)
  expense project adjustment.........      (1,440)        1,442            --
 Provision for bad debts.............       8,694         1,129           724
 Interest expense....................      30,294        27,459        16,598
 Interest income.....................      (2,772)       (2,399)       (1,869)
 Other (income) expense..............       1,052           440          (335)
 Equity in (earnings) losses of
  unconsolidated affiliates..........       2,989        (4,214)      (23,030)
 Minority interests..................       9,543         9,401           723
                                       ----------    ----------    ----------
 Income before income taxes and
  cumulative effect of accounting
  change.............................  $   55,708    $   87,396    $  191,683
                                       ==========    ==========    ==========
Total assets:
 Reportable segments total assets....  $1,071,289    $  930,330    $  900,149
 Cash, receivables and other current
  assets.............................      16,254        17,661         2,604
 Unallocated corporate fixed assets..      44,159       176,161       188,311
 Other non-current corporate assets..      38,834        41,085        34,112
 Investments in equity affiliates....     208,918       207,142       212,488
 Intersegment notes and receivables..     (24,690)       (6,539)       (3,850)
                                       ----------    ----------    ----------
 Consolidated assets.................  $1,354,764    $1,365,840    $1,333,814
                                       ==========    ==========    ==========
</TABLE>

 
                                       26

<PAGE>
 
   The Company's domestic operations serve customers principally located in the
southeastern United States as well as international customers located primarily
in Canada, Mexico, Europe and South America. During fiscal 2000, 1999 and 1998
the Company did not have sales to any one customer in excess of 10% of consoli-
dated revenues. Export sales, excluding those to the Company's international
operations, aggregated $182.8 million in 2000, $153.9 million in 1999 and,
$185.5 million in 1998. The concentration of credit risk for the Company with
respect to trade receivables is mitigated due to the large number of customers,
dispersion across different industries and geographic regions and its factoring
arrangements.
 
   The Company's foreign operations primarily consist of manufacturing opera-
tions in Ireland, England, Brazil and Columbia. Net sales, pre-tax operating
income and total assets of the Company's foreign and domestic operations are as
follows:
 

<TABLE>
<CAPTION>
     (Amounts in Thousands)            June 25, 2000 June 27, 1999 June 28, 1998
     ----------------------            ------------- ------------- -------------
     <S>                               <C>           <C>           <C>
     Foreign operations:
      Net sales.......................  $  158,174    $  130,766    $  136,573
      Pre-tax income (loss)...........      (4,456)        6,804        15,107
      Total assets....................     193,860       173,298       127,586
     Domestic operations:
      Net sales.......................  $1,122,238    $1,120,394    $1,241,036
      Pre-tax income..................      60,164        80,592       176,576
      Total assets....................   1,160,904     1,192,542     1,206,228
</TABLE>

 
10. Derivative Financial Instruments and Fair Value of Financial Instruments
 
   The Company conducts its business in various foreign currencies. As a re-
sult, it is subject to the transaction exposure that arises from foreign ex-
change rate movements between the dates that foreign currency transactions are
recorded (export sales and purchases commitments) and the dates they are con-
summated (cash receipts and cash disbursements in foreign currencies). The Com-
pany utilizes some natural hedging to mitigate these transaction exposures. The
Company also enters into foreign currency forward contracts for the purchase
and sale of European, Canadian and other currencies to hedge balance sheet and
income statement currency exposures. These contracts are principally entered
into for the purchase of inventory and equipment and the sale of Company prod-
ucts into export markets. Counter-parties for these instruments are major fi-
nancial institutions.
 
   Currency forward contracts are entered to hedge exposure for sales in for-
eign currencies based on specific sales orders with customers or for antici-
pated sales activity for a future time period. Generally, 60-80% of the sales
value of these orders are covered by forward contracts. Maturity dates of the
forward contracts attempt to match anticipated receivable collections. The Com-
pany marks the outstanding accounts receivable and forward contracts to market
at month end and any realized and unrealized gains or losses are recorded as
other income and expense. The Company also enters currency forward contracts
for committed equipment and inventory purchases. Generally 50-75% of the asset
cost is covered by forward contracts although 100% of the asset cost may be
covered by contracts in certain instances. Forward contracts are matched with
the anticipated date of delivery of the assets and gains and losses are re-
corded as a component of the asset cost. The outstanding hedge agreements as of
June 25, 2000 mature through October 2001.
 
   The dollar equivalent of these forward currency contracts and their related
fair values are detailed below:
 

<TABLE>
<CAPTION>
         (Amounts in thousands)      June 25, 2000 June 27, 1999 June 28, 1998
         ----------------------      ------------- ------------- -------------
         <S>                         <C>           <C>           <C>
         Foreign currency purchase
          contracts:
          Notational amount.........    $49,343       $ 2,842       $29,184
          Fair value................     46,760         3,250        31,418
                                        -------       -------       -------
           Net unrecognized (gain)
            loss....................    $ 2,583       $  (408)      $(2,234)
                                        =======       =======       =======
 
         Foreign currency sales
          contracts:
          Notational amount.........    $26,303       $28,024       $28,446
          Fair value................     26,474        27,826        28,646
                                        -------       -------       -------
           Net unrecognized (gain)
            loss....................    $   171       $  (198)      $   200
                                        =======       =======       =======
</TABLE>

 
 
                                       27

<PAGE>
 
   The following methods were used by the Company in estimating its fair value
disclosures for financial instruments:
 
   Cash and cash equivalents, trade receivables and trade payables -- The car-
rying amounts approximate fair value because of the short maturity of these
instruments.
 
   Long-term debt -- The fair value of the Company's borrowings is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities
(see Consolidated Financial Statements Footnote 4).
 
   Foreign currency contracts -- The fair value is based on quotes obtained
from brokers or reference to publicly available market information.
 
11. Investment in Unconsolidated Affiliates
 
   Investments in affiliates consist of a 34% interest in Parkdale America,
LLC (the "LLC") and a 45.27% interest in Micell Technologies, Inc. ("Micell").
The LLC was created on June 30, 1997, when the Company and Parkdale Mills,
Inc. ("Parkdale") of Gastonia, North Carolina entered into a Contribution
Agreement (the "Agreement") that set forth the terms and conditions whereby
each entity's open-end and air jet spun cotton yarn assets and certain long-
term debt obligations were contributed to the LLC. In accordance with the
Agreement, each entity's inventory, owned real and tangible personal property
and improvements thereon and the Company's leased real property associated
with the operations were contributed to the LLC. Additionally, the Company
contributed $32.9 million in cash to the LLC on June 30, 1997, $10.0 million
in cash on June 30, 1998, and $10.0 million on June 30, 1999, whereas Parkdale
contributed cash of $51.6 million on June 30, 1997. The LLC assumed certain
long-term debt obligations of the Company and Parkdale in the amounts of
$23.5 million and $46.0 million, respectively. In exchange for the assets con-
tributed to the LLC and the liabilities assumed by the LLC, the Company re-
ceived a 34% interest in the LLC and Parkdale received a 66% interest in the
LLC.
 
   Condensed balance sheet and income statement information as of June 25,
2000, June 27, 1999 and June 28, 1998 and for the fiscal years ended June 25,
2000, June 27, 1999 and June 28, 1998, of the combined LLC and Micell is as
follows:
 

<TABLE>
<CAPTION>
        (Amounts in thousands)       June 25, 2000 June 27, 1999 June 28, 1998
        ----------------------       ------------- ------------- -------------
        <S>                          <C>           <C>           <C>
        Current assets..............   $223,068      $282,004      $260,358
        Noncurrent assets...........    234,093       256,513       264,194
        Current liabilities.........     37,632       125,730       134,110
        Shareholders' equity and
         capital accounts...........    398,113       390,935       390,442
 
        Net sales...................   $507,950      $594,445      $652,097
        Gross profit................     33,524        57,915       108,649
        Income from operations......        988        27,653        80,546
        Net income..................      2,453        21,262        75,788
</TABLE>

 
   The LLC is organized as a partnership for tax purposes. Taxable income is
passed through the LLC to the shareholders in accordance with the Operating
Agreement of the LLC. For the fiscal years ended June 25, 2000, June 27, 1999
and June 28, 1998, distributions received by the Company from the LLC amounted
to $3.2 million, $9.5 million and $7.7 million, respectively.
 
12. Supplemental Cash Flow Information
 
   Supplemental cash flow information is summarized below:
 

<TABLE>
<CAPTION>
      (Amounts in thousands)         June 25, 2000 June 27, 1999 June 28, 1998
      ----------------------         ------------- ------------- -------------
      <S>                            <C>           <C>           <C>
      Cash payments for:
       Interest, net of amounts
        capitalized.................    $28,978       $25,396       $16,521
       Income taxes, net of
        refunds.....................      9,315         8,225        47,488
      Stock issued for SI Holding
       Company acquisition..........         --            --        21,000
</TABLE>

 
 
                                      28

<PAGE>
 
13. Minority Interest
 
   Effective May 29, 1998, the Company formed a limited liability company (the
"Partnership") with Burlington Industries, Inc. ("Burlington") to manufacture
and market natural textured polyester yarns. The Company has an 85.42% interest
in the Partnership and Burlington has 14.58%. For the first five years of the
Partnership, Burlington is entitled to the first $9.4 million of earnings. Sub-
sequent to this five-year period, earnings are to be allocated based on owner-
ship percentages. The Partnership's assets, liabilities and earnings are con-
solidated with those of the Company and Burlington's interest in the Partner-
ship is included in the Company's financial statements as minority interest.
Burlington's share of the Partnership earnings in fiscal 2000, 1999 and 1998
amounted to $9.4 million, $9.4 million and $0.7 million, respectively.
 
14. Early Retirement and Termination Charge
 
   During the third quarter of fiscal 1999, the Company recognized a $14.8 mil-
lion charge associated with the early retirement and termination of 114 sala-
ried employees. The charge was recorded as a component of selling, general and
administrative expenses in the amount of $8.2 million and cost of goods sold in
the amount of $6.6 million. Substantially all employees were terminated effec-
tive March 31, 1999, with cash payments expected to be spread over a period not
to exceed three years. At June 25, 2000, there remained a reserve of $7.4 mil-
lion that is expected to equal the future cash expenditures to such terminated
employees.
 
15. Quarterly Results (Unaudited)
 
   Quarterly financial data for the years ended June 27, 1999, and June 25,
2000, is presented below:
 

<TABLE>
<CAPTION>
(Amounts in thousands,    First Quarter Second Quarter Third Quarter Fourth Quarter
except per share data)      (13 Weeks)    (13 Weeks)     (13 Weeks)    (13 Weeks)
----------------------    ------------- -------------- ------------- --------------
<S>                       <C>           <C>            <C>           <C>
1999:
Net sales...............    $328,815       $319,854      $294,805       $307,686
Gross profit............      47,477         50,460        29,970         46,643
Income before cumulative
 effect of accounting
 change.................      21,030         22,498         1,093         14,406
Cumulative effect of
 accounting change......       2,768
Net income..............      18,262         22,498         1,093         14,406
Income before cumulative
 effect of accounting
 change (basic).........         .34            .37           .02            .24
Income before cumulative
 effect of accounting
 change (diluted).......         .30            .37           .02            .24
Earnings per share
 (basic)................         .34            .37           .02            .24
Earnings per share
 (diluted)..............         .30            .37           .02            .24
 
2000:
Net sales...............    $304,714       $317,589      $319,302       $338,807
Gross profit............      34,259         41,742        42,870         44,700
Net income..............       3,332         10,173        13,236         11,292
Earnings per share
 (basic)................         .06            .17           .23            .20
Earnings per share
 (diluted)..............         .06            .17           .23            .20
</TABLE>

 

I
tem 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
     FINANCIAL DISCLOSURE
 
   The Company has not changed accountants nor are there any disagreements with
its accountants, Ernst & Young LLP, on accounting and financial disclosure that
should be reported pursuant to Item 304 of Regulation S-K.
 
                                       29

<PAGE>
 

                                   PART III
 

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT AND COMPLIANCE WITH
      SECTION 16(A) OF THE EXCHANGE ACT
 
(a) Directors of Registrant: The information included under the headings
"Election of Directors", "Nominees for Election as Directors", "Directors
Remaining in Office", "Security Holding of Directors, Nominees, and Executive
Officers", "Directors' Compensation", "Committees of the Board of Directors",
and compliance with Section 16(a) of The Securities and Exchange Act, beginning
on page 2 and ending on page 7 and on page 14 of the definitive proxy statement
filed with the Commission since the close of the Registrant's fiscal year ended
June 25, 2000, and within 120 days after the close of said fiscal year, are
incorporated herein by reference.
 
(b) Identification of Executive Officers:
 
Chairman of The Board of Directors
 
   G. Allen Mebane, IV Mr. Mebane is 70 and has been an Executive Officer and
member of the Board of directors of the Company since 1971, serving as Presi-
dent and Chief Executive Officer of the Company until 1980 and 1985, respec-
tively. He was the Chairman of the Board of Directors for many years, Chairman
of the Executive Committee from 1974 to 1995, and was elected as one of the
three members of the Office of Chairman on August 8, 1991. On October 22,
1992, Mr. Mebane was again elected as Chairman of the Board of Directors and
on January 20, 1999 resumed the positions of Chief Executive Officer (which he
held until January 26, 2000). Mr. Mebane has announced that he will retire as
an Executive Officer and Chairman of the Board of Directors effective after
the Company's annual meeting of shareholders on October 26, 2000.
 
President and Chief Executive Officer
 
   Brian R. Parke Mr. Parke is 52 and had been the Manager or President of the
Company's Irish subsidiary (Unifi Textured Yarns Europe) from its acquisition
by the Company in 1984 to January 20, 1999, when he was elected President and
Chief Operating Officer of the Company. On January 26, 2000, Mr. Parke was
elected Chief Executive Officer of the Company. Additionally, Mr. Parke has
been a Vice President of the Company since October 21, 1993 and on July 22,
1999 was elected to the Company's Board of Directors.
 
Executive Vice Presidents
 
   Willis C. Moore, III Mr. Moore is 47 and had been a Partner with Ernst &
Young LLP, or its predecessors from 1975 until December 1994, when he became
employed by the Company as its Chief Financial Officer. Mr. Moore was elected
as a Vice President of the Company on October 19, 1995, Senior Vice President
on October 23, 1997 and Executive Vice President on July 26, 2000. Addition-
ally, Mr. Moore continues to serve as the Company's Chief Financial Officer.
 
   G. Alfred Webster Mr. Webster is 52 and has been a Vice President or Execu-
tive Vice President since 1979. He has been a member of the Board of Directors
since 1986.
 
Senior Vice Presidents
 
   Thomas H. Caudle Mr. Caudle is 48 and has been an employee of the Company
since 1982. On January 20, 1999, Mr. Caudle was elected as a Vice President of
Manufacturing Services of the Company and on July 26, 2000 he was elected as a
Senior Vice President in charge of Manufacturing for the Company.
 
   Michael E. Delaney Mr. Delaney is 44 and has been an employee of the Com-
pany since January 2000, when he joined the Company as Senior Vice President
of Marketing. Prior to coming to the Company, Mr. Delaney was Vice President
of Marketing with Volvo Truck N.A. from July 1997 through December 1999, Vice
President of Marketing with GE Capital Transport International Pool from De-
cember 1995 through July 1997 and Vice President of TIP Intermodel Services
from December 1993 through December 1995.
 
   Stewart Q. Little Mr. Little is 46 and has been a Vice President of the
Company since October 24, 1985 and a Senior Vice President since January 20,
1999. He is currently serving as Senior Vice President of North American Yarn
Sales.
 
                                      30

<PAGE>
 
   Ottis "Lee" Gordon Mr. Gordon is 54 and has been an employee of the Company
since the Unifi merger with Macfield in 1991. Prior to the merger, Mr. Gordon
had been an employee of Macfield since 1973. On January 20, 1999, Mr. Gordon
was elected as a Vice President of Product Development of the Company and on
July 26, 2000 he was elected as a Senior Vice President of Product Develop-
ment.
 
   These executive officers, unless otherwise noted, were elected by the Board
of Directors of the Registrant at the Annual Meeting of the Board of Directors
held on October 21, 1999. Each executive officer was elected to serve until
the next Annual Meeting of the Board of Directors or until his successor was
elected and qualified.
 
(c) Family Relationship: Mr. Mebane, Chairman of the Board, and Mr. C. Clif-
ford Frazier, Jr., the Secretary of the Registrant, are first cousins. Except
for this relationship, there is no family relation between any of the Offi-
cers.
 

Item 11. EXECUTIVE COMPENSATION
 
   The information set forth under the headings "Compensation Committee Inter-
locks and Insider Participation in Compensation Decisions", "Report of the
Compensation Committee on Executive Compensation", "Executive Officers and
Their Compensation", "Options Grants in Fiscal Year 2000", "Option Exercises
and Option/SAR Values", "Employment and Termination Agreements", and the "Per-
formance Graph-Shareholder Return on Common Stock" beginning on page 7 and
ending on page 14 of the Company's definitive proxy statement filed with the
Commission since the close of the Registrant's fiscal year ended June 25,
2000, and within 120 days after the close of said fiscal year, are incorpo-
rated herein by reference.
 
   For additional information regarding executive compensation reference is
made to Exhibits (10i), (10k), (10l), and (10m), of this Form 10-K.
 

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
   Security ownership of certain beneficial owners and management is the same
as reported under the heading "Information Relating to Principal Security
Holders" on page 2 of the definitive proxy statement and under the heading
"Security Holding of Directors, Nominees and Executive Officers" on page 5 and
page 6 of the definitive proxy statement filed with the Commission pursuant to
Regulation 14 (a) within 120 days after the close of the fiscal year ended
June 25, 2000, which are hereby incorporated by reference.
 

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
   The information included under the heading "Compensation Committee Inter-
locks and Insider Participation In Compensation Decisions", on page 7 of the
definitive proxy statement filed with the Commission since the close of the
Registrant's fiscal year ended June 25, 2000, and within 120 days after the
close of said fiscal year, is incorporated herein by reference.
 
                                      31

<PAGE>
 

                                    PART IV
 

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
  (a) 1. Financial Statements
 
   The following financial statements and report of independent auditors are
filed as a part of this Report.
 

<TABLE>
<CAPTION>
                                                                           Pages
                                                                           -----
  <S>                                                                      <C>
     Report of Independent Auditors......................................    13
     Consolidated Balance Sheets at June 25, 2000 and June 27, 1999......    14
     Consolidated Statements of Income for the Years Ended June 25, 2000,
      June 27, 1999, and June 28, 1998...................................    15
     Consolidated Statements of Changes in Shareholders' Equity and
      Comprehensive Income for the Years Ended June 25, 2000, June 27,
      1999 and June 28, 1998.............................................    16
     Consolidated Statements of Cash Flows for the Years Ended June 25,
      2000, June 27, 1999 and June 28, 1998..............................    17
     Notes to Consolidated Financial Statements..........................    18
 
  2. Financial Statement Schedules
 
     Schedules for the three years ended June 25, 2000:
      II -- Valuation and Qualifying Accounts............................    35
</TABLE>

 
   Schedules other than those above are omitted because they are not required,
are not applicable, or the required information is given in the Consolidated
Financial Statements or notes thereto.
 
   Individual financial statements of the Registrant have been omitted because
it is primarily an operating company and all subsidiaries included in the Con-
solidated Financial Statements being filed, in the aggregate, do not have mi-
nority equity interest and/or indebtedness to any person other than the Regis-
trant or its consolidated subsidiaries in amounts which together exceed 5% of
the total assets as shown by the most recent year end Consolidated Balance
Sheet.
 
   With the exception of the information herein expressly incorporated by ref-
erence, the 2000 Proxy Statement is not deemed filed as a part of this Annual
Report on Form 10-K.
 
  3. Exhibits
 

<TABLE>
<CAPTION>
 Exhibit No. Description
 ----------- -----------
 <C>         <S>
   (2a-1)    Contribution Agreement, dated June 30, 1997, by and between
             Parkdale Mills, Inc., Unifi, Inc., UNIFI Manufacturing, Inc., and
             Parkdale America, LLC, filed as Exhibit (2) to Unifi's Form 8-K
             filed with the Commission on July 15, 1997, which is incorporated
             herein by reference.
     (3a)    Restated Certificate of Incorporation of Unifi, Inc., dated July
             21, 1994, filed herewith.
     (3b)    Restated by-laws of Unifi, Inc., effective July 22, 1999, (filed
             as Exhibit (3b) with the Company's Form 10-K for the fiscal year
             ended June 27, 1999), which is incorporated herein by reference.
     (4a)    Specimen Certificate of Unifi, Inc.'s common stock, filed as
             Exhibit 4(a) to the Registration Statement on Form S-1,
             (Registration No. 2-45405), which is incorporated herein by
             reference.
     (4b)    Unifi, Inc.'s Registration Statement for the 6 1/2% Notes due
             2008, Series B, filed on Form S-4 (Registration No. 333-49243),
             which is incorporated herein by reference.
     (4c)    Description of Unifi, Inc.'s common stock, filed on November 5,
             1998, as Item 5. (Other Events) on Form 8-K, which is incorporated
             herein by reference.
    (10a)    *Unifi, Inc. 1982 Incentive Stock Option Plan, as amended, filed
             as Exhibit 28.2 to the Registration Statement on Form S-8,
             (Registration No. 33-23201), which is incorporated herein by
             reference.
    (10b)    *Unifi, Inc. 1987 Non-Qualified Stock Option Plan, as amended,
             filed as Exhibit 28.3 to the Registration Statement on Form S-8,
             (Registration No. 33-23201), which is incorporated herein by
             reference.
</TABLE>

 
                                       32

<PAGE>
 

<TABLE>
<CAPTION>
 Exhibit No. Description
 ----------- -----------
 <C>         <S>
   (10c)     *Unifi, Inc. 1992 Incentive Stock Option Plan, effective July 16,
             1992, (filed as Exhibit (10c) with the Company's Form 10-K for the
             fiscal year ended June 27, 1993), and included as Exhibit 99.2 to
             the Registration Statement on Form S-8 (Registration No. 33-
             53799), which are incorporated herein by reference.
   (10d)     *Unifi, Inc.'s Registration Statement for selling Shareholders,
             who are Directors and Officers of the Company, who acquired the
             shares as stock bonuses from the Company, filed on Form S-3
             (Registration No. 33-23201), which is incorporated herein by
             reference.
   (10e)     Unifi Spun Yarns, Inc.'s 1992 Employee Stock Option Plan filed as
             Exhibit 99.3 to the Registration Statement on Form S-8
             (Registration No. 33-53799), which is incorporated herein by
             reference.
   (10f)     *Unifi, Inc.'s 1996 Incentive Stock Option Plan (filed as Exhibit
             10(f) with the Company's Form 10-K for the fiscal year ended June
             30, 1996) which is incorporated herein by reference.
   (10g)     *Unifi, Inc.'s 1996 Non-Qualified Stock Option Plan (filed as
             Exhibit 10(g) with the Company's Form 10-K for the fiscal year
             ended June 30, 1996) which is incorporated herein by reference.
   (10h)     Lease Agreement, dated March 2, 1987, between NationsBank, Trustee
             under the Unifi, Inc. Profit Sharing Plan and Trust, Wachovia Bank
             and Trust Co., N.A., Independent Fiduciary, and Unifi, Inc., filed
             herewith.
   (10i)     *Employment Agreement between Unifi, Inc. and G. Allen Mebane,
             dated July 19, 1990, filed herewith.
   (10j)     Credit Agreement, dated April 15, 1996, by and between Unifi, Inc.
             and The Several Lenders from Time to Time Party thereto and
             NationsBank, N.A. as agent, (filed as Exhibit (10o) with the
             Company's Form 10-K for the fiscal year ended June 30, 1996) which
             is incorporated herein by reference.
   (10k)     *Severance Compensation Agreement between Unifi, Inc. and Willis
             C. Moore, III, dated July 16, 1998, expiring on July 20, 2001 (a
             similar agreement was signed with Stewart Q. Little)(filed as
             Exhibit (10q) with the Company's Form 10-K for the fiscal year
             ended June 28, 1998).
   (10l)     *Severance Compensation Agreement between Unifi, Inc. and Brian R.
             Parke, dated October 1, 1998, expiring on July 20, 2001, (filed as
             exhibit (10r) with the Company's Form 10-K for the fiscal year
             ended June 27, 1999) which is incorporated herein by reference.
   (10m)     *Agreement, effective February 1, 1999, by and between Unifi, Inc.
             and Jerry W. Eller, (filed as Exhibit (10s) with the Company's
             Form 10-K for the fiscal year ended June 27, 1999).
   (10n)     *1999 Unifi, Inc. Long-Term Incentive Plan, (filed as Exhibit 99.1
             to the Registration Statement on Form S-8, (Registration No. 333-
             43158), which is incorporated herein by reference.
   (10o)     Master Agreement POY Manufacturing Alliance between Unifi, Inc.
             and E.I. du Pont de Nemours and Company, dated June 1, 2000, filed
             herewith.
    (21)     Subsidiaries of Unifi, Inc.
    (23)     Consent of Ernst & Young LLP.
    (27)     Financial Data Schedule.
</TABLE>

 
-------
* NOTE: These Exhibits are management contracts or compensatory plans or ar-
 rangements required to be filed as an exhibit to this Form 10-K pursuant to
 Item 14(c) of this report.
 
  (b) Reports on Form 8-K.
 
   None
 
                                       33

<PAGE>
 

                                   SIGNATURES
 
   Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
 
                                      Unifi, Inc.
 
   September 21, 2000                 By: /s/         Brian R. Parke
                                        _______________________________________
                                                     Brian R. Parke
                                                Chief Executive Officer
 
   September 21, 2000                 By: /s/      Willis C. Moore, III
                                        _______________________________________
                                                  Willis C. Moore, III
                                                Executive Vice President
                                               (Chief Financial Officer)
 
/s/     G. Allen Mebane, IV         Chairman and             September 21, 2000
----------------------------------   Director
       G. Allen Mebane, IV
 
/s/        Brian R. Parke           President, Chief         September 21, 2000
----------------------------------   Executive Officer and
          Brian R. Parke             Director
 
/s/      G. Alfred Webster          Executive Vice President September 21, 2000
----------------------------------   and Director
        G. Alfred Webster
 
/s/        Robert A. Ward           Director                 September 21, 2000
----------------------------------
          Robert A. Ward
 
/s/        Jerry W. Eller           Director                 September 21, 2000
----------------------------------
          Jerry W. Eller
 
/s/      Charles R. Carter          Director                 September 21, 2000
----------------------------------
        Charles R. Carter
 
/s/      Kenneth G. Langone         Director                 September 21, 2000
----------------------------------
        Kenneth G. Langone
 
/s/        Donald F. Orr            Director                 September 21, 2000
----------------------------------
          Donald F. Orr
 
/s/         J.B. Davis              Director                 September 21, 2000
----------------------------------
            J.B. Davis
 
/s/     R. Wiley Bourne, Jr.        Director                 September 21, 2000
----------------------------------
       R. Wiley Bourne, Jr.
 
/s/      Richard Greenbury          Director                 September 21, 2000
----------------------------------
      Sir Richard Greenbury
 
 
                                       34

<PAGE>
 
(27) Schedule II - Valuation and Qualifying Accounts
(Amounts in thousands)
 

<TABLE>
<CAPTION>
        Column A           Column B          Column C           Column D       Column E
------------------------ ------------ ----------------------  -------------  -------------
                                            Additions
                                      ----------------------
                                                 Charged to
                          Balance at  Charged to    Other
                         Beginning of Costs and  Accounts --  Deductions --   Balance at
      Description           Period     Expenses   Describe      Describe     End of Period
------------------------ ------------ ---------- -----------  -------------  -------------
<S>                      <C>          <C>        <C>          <C>            <C>
Allowance for doubtful
 accounts (a):
Year ended June 25,
 2000...................    $8,749     $14,866     $  225(b)     $(6,631)(c)    $17,209
Year ended June 27,
 1999...................     8,225       6,241        240(b)      (5,957)(c)      8,749
Year ended June 28,
 1998...................     5,462       3,917      3,665(b)      (4,819)(c)      8,225
</TABLE>

 
(a) The allowance for doubtful accounts includes amounts estimated not to be
    collectible for product quality claims, specific customer credit issues
    and a general provision for bad debts due to the decline in industry con-
    ditions.
 
(b) Includes acquisition related adjustments to write-down acquired accounts
    receivable to fair market value and effects of currency translation from
    restating activity of our foreign affiliates from their respective local
    currencies to the U.S. dollar.
 
(c) Includes accounts written off which were deemed not to be collectible and
    customer claims paid, net of certain recoveries.
 
                                      35





<PAGE>
 
                                                                    EXHIBIT 3(a)


                     RESTATED CERTIFICATE OF INCORPORATION

                                      OF

                                  UNIFI, INC.



               UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW


     THE UNDERSIGNED, Robert A. Ward and Clifford Frazier, Jr., being
respectively the Executive Vice President and Secretary of Unifi, Inc., pursuant
to Section 807 of the Business Corporation Law of the State of New York, hereby
restate, certify, and set forth:

     (1)  The name of the Corporation is Unifi, Inc..  The name under which the
Corporation was formed is Automated Environmental Systems, Inc.

     (2)  A Certificate of Incorporation of Unifi, Inc. was filed by the
Department of State on the 18th day of January, 1969, under the name Automated
Environmental Systems, Inc.  A Restated Certificate of Incorporation was filed
by the Department of State on the 6th day of November, 1990, a Certificate of
Amendment was filed by the Department of State on the 13th day of November,
1991, and a Certificate of Amendment was filed by the Department of State on the
20/th/ day of January, 1994.

     (3)  The text of the Certificate of Incorporation is hereby restated
without amendment or change to read as herein set forth in full:

<PAGE>
 
          "FIRST:  The name of the Corporation shall be Unifi, Inc.

          SECOND:  The purposes for which the Corporation is formed
 are to
     texture, prepare, buy, sell, deal in, trade, import, export, and generally
     deal in synthetic and natural yarns of every type and description.

          To dye and finish, knit, buy, sell, acquire, import, export,
     manufacture, prepare and generally deal in as dyers and finishers,
     knitters, manufacturers, converters, jobbers, purchasers, or as agents in
     all types and forms of knitted fabrics including, without limitation,
     polyesters, acetates, nylon, cotton, wool, rayon, silk, and otherwise with
     yarn and fabric of every kind and description; and to generally deal in and
     with any and all things made wholly or in part of composition, imitation,
     or substitutes of any raw or finished products thereof.

          To create, manufacture, contract for, buy, sell, import, export,
     distribute, job, and generally deal in and with, whether at wholesale or
     retail, and as principal, agent, broker, factor, commission merchant,
     licensor, licensee or otherwise, any and all kinds of goods, wares, and
     merchandise, and, in connection therewith or independent thereof, to
     construct, establish, and maintain, by any manner or means, factories,
     mills, buying offices, distribution centers, specialty, and other shops,
     stores, mail order establishments, concessions, leased departments, and any
     and all other departments, sites, and locations necessary, convenient or
     useful in the furtherance of any business of the corporation.

          To export from and import into the United States of America and its
     territories and possessions, and any and all foreign countries, as
     principal or agent, merchandise of every kind and nature, and to purchase,
     sell, and deal in and with, at wholesale and retail, merchandise of every
     kind and nature for exportation from, and importation into the United
     States, and to and from all countries foreign thereto, and for exportation
     from, and importation into, any foreign country, to and from any other
     country foreign thereto, and to purchase and sell domestic and foreign
     merchandise in domestic markets, and domestic and foreign merchandise in
     foreign markets and to do a general foreign and domestic exporting and
     importing business.

          To take, lease, purchase, or otherwise acquire, and to own, use, hold,
     sell, convey, exchange, lease, mortgage, clear, develop, redevelop, manage,
     operate, maintain,

<PAGE>
 
     control, license the use of, publicize, advertise, promote, and generally
     deal in and with, whether as principal, agent, broker, or otherwise, real
     and personal property of all kinds, and, without limiting the generality of
     the foregoing, stores, shops, markets, supermarkets, departments, and
     merchandising facilities, shopping centers, recreational centers, discount
     centers, merchandising outlets of all kinds, parking areas, offices and
     establishments of all kinds, and to engage in the purchase, sale, lease and
     rental of equipment and fixtures for the same and for other enterprises,
     for itself or on behalf of others.

          To carry on a general mercantile, industrial, investing, and trading
     business in all its branches; to devise, invent, manufacture, fabricate,
     assemble, install, service, maintain, alter, buy, sell, import, export,
     license as licensor or licensee, lease as lessor or lessee, distribute,
     job, enter into, negotiate, execute, acquire, and assign contracts in
     respect of, acquire, receive, grant, and assign licensing arrangements,
     options, franchises, and other rights in respect of, and generally deal in
     and with, at wholesale or retail, as principal, and as sales, business,
     special or general agent, representative, broker, factor, merchant,
     distributor, jobber, advisor, or in any other lawful capacity, goods,
     wares, merchandise, commodities, and unimproved, improved, finished,
     processed, and other real, personal and mixed property of any kind and all
     kinds, together with the components, resultants, and by-products thereof;
     to acquire by purchase or otherwise own, hold, lease, mortgage, sell, or
     otherwise dispose of, erect, construct, make, alter, enlarge, improve, and
     to aid or subscribe toward the construction, acquisition, or improvement of
     any factories, shops, storehouses, buildings, and commercial and retail
     establishments of every character, including all equipment, fixtures,
     machinery, implements, and supplies necessary, or incidental to, or
     connected with, any of the purposes or business of the corporation; and
     generally to perform any and all acts connected therewith or arising
     therefrom or incidental thereto, and all acts proper or necessary for the
     purpose of the business.

          THIRD:  The office of the Corporation is to be located in the City,
     County and State of New York.

          FOURTH:  The aggregate number of shares of capital stock which the
     Corporation shall have the authority to issue is five hundred million
     shares, all of which are to consist of one class of common stock only of
     the par value of $.10 each.

<PAGE>
 
          FIFTH:  The Secretary of State is designated as the agent of the
     Corporation, upon whom process against it may be served, and the post
     office address to which the Secretary of State shall mail a copy of any
     process against the Corporation served upon him is:

               c/o KREINDLER & RELKIN, P.C.           
               Attn:  Donald L. Kreindler, Esquire    
               Empire State Building                  
               350 Fifth Avenue, 65/th/ Floor           
               New York, New York 10118.               

          SIXTH:  No holder of any shares of any class of the Corporation shall
     as such holder have any pre-emptive right or be entitled as a matter of
     right to subscribe for or to purchase any other shares or securities of any
     class which at any time may be sold or offered for sale by the Corporation.

          SEVENTH:  The number of Directors shall be fixed in the By-Laws but in
     no case shall be less than nine (9), but this number may be increased and
     subsequently increased or decreased from time to time by the affirmative
     vote of the majority of the Board, except that the number of Directors
     shall not be less than nine (9). The Directors shall be divided into three
     classes designated as Class 1, Class 2 and Class 3. Each class shall be as
     nearly equal in number as possible and no class shall include less than
     three (3) Directors. The term of office of the Directors initially
     classified shall be as follows: Class 1 shall expire at the next (1992)
     Annual Meeting of the Shareholders, Class 2 at the second succeeding (1993)
     Annual Meeting of the Shareholders and Class 3 shall expire at the third
     succeeding (1994) Annual Meeting of the Shareholders. At each Annual
     Meeting after such initial Classification, Directors to replace those whose
     terms expire at such Annual Meeting shall be elected to hold office until
     the third succeeding Annual Meeting of the Shareholders. A Director shall
     hold office until the Annual Meeting of the year in which his term expires
     and until his successor shall be elected and qualified, subject to prior
     death, resignation, retirement, or removal from office.

          If the number of Directors is changed pursuant to the By-Laws of the
     Corporation after the effective date of this ARTICLE SEVENTH, any newly
     created Directorships or any decrease in Directorships shall be apportioned
     among the classes so as to make all classes as nearly equal in number as
     possible. Newly created Directorships resulting from an increase in the
     number of Directors and vacancies caused by

<PAGE>
 
     death, resignation, retirement, or removal from office, may be filled by
     the majority of the Directors present at the meeting, if a quorum is
     present. If the number of Directors then in office is less than a quorum,
     such newly created Directorships and vacancies may be filled by the
     affirmative vote of a majority of the Directors in office. When the number
     of Directors is increased by the Board, and the newly created Directorships
     are filled by the Board, there shall be no classification of the additional
     Directors until the next Annual Meeting of the Shareholders. Any Director
     elected by the Board to fill a vacancy shall serve until the next meeting
     of the Shareholders, at which the election of the Directors is in the
     regular order of business, and until his successor is elected and
     qualified. In no case will a decrease in the number of Directors shorten
     the term of an incumbent Director.

          EIGHTH:  A Director of the Corporation shall not be liable to the
     Corporation or its Shareholders for monetary damages for breach of duty as
     a Director, except to the extent such exemption from liability or
     limitation thereof is not permitted under the New York Business Corporation
     Law as the same exists or may hereafter be amended.

          Any repeal or modification of the foregoing paragraph by the
     Shareholders of the Corporation shall not adversely affect any right or
     protection of a Director of the Corporation existing at the time of such
     repeal or modification."

     (4)  The restatement of the Certificate of Incorporation was authorized by
resolution duly adopted by the Board of Directors of the Corporation at its
Regular Meeting on July 21, 1994.

     IN WITNESS WHEREOF, this Certificate has been subscribed this the 7/th/ day
of September, 1994, by the undersigned, who affirmed that the statements made
herein are true under penalties of perjury.

<PAGE>
 

                                        /s/ ROBERT A. WARD               
                                        ------------------------------
                                        Robert A. Ward               
                                        Executive Vice President of  
                                        Finance and Administration   
                                                                     
                                        /s/ CLIFFORD FRAZIER, JR.        
                                        ------------------------------
                                        Clifford Frazier, Jr.        
                                        Secretary                     



<PAGE>
 
                                 EXHIBIT (10h)

STATE OF NORTH CAROLINA
                                LEASE AGREEMENT
                                ---------------
COUNTY OF GUILFORD


     THIS LEASE AGREEMENT made and entered into this 2/nd/ day of March, 1987,
by and between NCNB NATIONAL BANK OF NORTH CAROLINA, Trustee under the Unifi,
Inc. Profit Sharing Plan and Trust, hereinafter called "Lessor"; WACHOVIA BANK &
TRUST COMPANY, N.A., hereinafter called "Independent Fiduciary"; and UNIFI,
INC., a New York corporation, hereinafter called "Lessee";

                                  WITNESSETH:
                                  -----------

     That for and in consideration of the covenants and agreements hereinafter
set out, to be kept and performed by Lessee, Lessor has demised and leased, and
does hereby demise and lease, to Lessee for the term and upon the conditions
hereinafter set out, the following described real property situated in Guilford
County, North Carolina, to wit:

     BEGINNING at a tack located in the center line of Friendly Road, said tack
     being situated North 79 degrees 00 minutes 50 seconds East 278.75 feet
     along said centerline from a tack marking the northwest corner of Lot No. 2
     as shown on the survey and recorded plat to which reference is hereinafter
     made; runs thence from said beginning point along the center line of
     Friendly Road North 79 degrees 00 minutes 50 seconds East 658.72 feet to a
     tack
 located in the center line of Friendly Road, said tack being situated
     North 79 degrees 00 minutes 50 seconds West 62.48 feet from the northwest
     corner of property now or formerly belonging to W.A. Stern; runs thence
     South 05 degrees 13 minutes 30 seconds West 775.88 feet to an iron pipe,
     said iron pipe marking a control corner with Lot No. 3; runs thence South
     79 degrees 00 minutes 50 seconds West 445.22 feet to an iron pipe, said
     iron pipe marking a control corner with Lot No. 3; runs thence North 10
     degrees 44 minutes 50 seconds West 745.00 feet to the point and place of
     BEGINNING.  The same being all of Lot No. 1 according to that survey
     entitled "Survey for Hiltin Company", dated August 4, 1972 and prepared by
     Marvin L. Borum and Associates, Registered Engineers, of Greensboro, North
     Carolina.  For reference see plat of property of Tri-City Terminals Inc.
     recorded in the Office of the Register of Deeds of Guilford County, North
     Carolina in Plat Book 43 at Page 53.

The above-described property is hereinafter referred to as "premises."

     TO HAVE AND TO HOLD said described property and the privileges and
appurtenances thereto belonging to Lessee, its successors and assigns, upon the
following terms and conditions:

     1.   TERM. The original term of this Lease shall be for a period of five
          -----                                                               
(5) years, beginning on the 13/th/ day of March, 1987 and, unless sooner
terminated as herein provided, shall continue until midnight on the expiration
of five (5) full years.

<PAGE>
 
     2.  RENTAL: The rental consideration to be paid by the Lessee to
         -------                                                      
Independent Fiduciary in monthly installments in advance without notice or
demand, for the original term of this Lease shall be paid as follows:
          (a)  The sum of $18,171.00 shall be due and payable on the 13/th/ day
of March, 1987, and a like amount of $18,171.00 shall be due and payable on the
13/th/ day of each calendar month thereafter, to and including the 13/th/ day of
February, 1990; and
          (b)  The sum of $21,131,58 shall be due and payable on the 13/th/ day
of March, 1990, and a like amount of $21,131.58 shall be due and payable on the
13/th/ day of each calendar month thereafter, to and including the 13/th/ day of
February, 1992 .

     3.   OPTIONS FOR TWO EXTENSIONS WITH RENT ADJUSTMENTS:
          ------------------------------------------------
          (a)  Initial Extension Option. Provided this Lease is in full force
               ------------------------                                       
and effect, Lessee shall have the right to extend the term of this Lease for the
demised premises at the end of the original five (5) year term, for a first
renewal term of five (5) years, provided Lessee shall notify Lessor in writing
no later than 180 days prior to the expiration of the original term of this
Lease (to wit: the 13/th/ day of September, 1991), that Lessee is exercising its
right to extend the Lease.  Notwithstanding the foregoing, any such extension
shall be subject to the approval of the Independent Fiduciary.

          (b)  Second Extension Option. If (i) Lessee shall have exercised its
               -----------------------                                         
option for the initial renewal term pursuant to the provisions of Section (a),
and (ii) if this Lease shall be in full force and effect, Lessee shall have the
right to extend the term of this Lease for a second renewal term of five (5)
years, commencing on the day following the expiration of the initial renewal
term, provided Lessee shall notify Lessor in writing no later than 180 days
prior to the expiration of the initial renewal term (to wit: the 13/th/ day of
September, 1996) that Lessee is exercising its right to extend the Lease.
Notwithstanding the foregoing, any such extension shall be subject to the
approval of the Independent Fiduciary.

          (c)  Renewal Rent Determination. If the Lessee exercises the initial
               --------------------------                                      
extension option, the rental consideration for each month of the first three (3)
years of such extension will be the Fair Market Rental Value (which for the
purposes of this Lease Agreement is the net operating income increased by the
deduction, if any, taken for vacancy, hereinafter referred to as "FMRV") as
determined by an MAI appraisal for the first year of such extension divided by
twelve (12), and the rental consideration for each month for the remaining two
(2) years of such extension shall be the FMRV as determined by an MAI appraisal
for the fourth year of said extended term divided by twelve (12).

          If the Lessee exercises the second extension option, the rental
consideration for each month of the first three (3) years of such extension will
be the FMRV as determined by an MAI appraisal for the first year of such
extension divided by twelve (12), and the rental consideration for each month of
the remaining two (2) years of such extension shall be the FMRV as determined by
an MAI appraisal for the fourth year of said extended term divided by twelve
(12).

          The Lessee shall, at its cost, deliver to the Lessor no later than
August 13, 1991, or prior to August 2, 1991, an MAI appraisal made within twenty
(20) days prior to the date of delivery determining the FMRV for the first three
(3) years of the first renewal term and for the last two years of the first
renewal term.  The Lessee shall, at its cost, deliver to the Lessor no later
than August 13, 1996, or prior to August 2, 1996, an MAI appraisal made within
twenty 

<PAGE>
 
(20) days prior to the date of delivery determining the FMRV for the first three
(3) years of the second renewal term and for the last two (2) years of the
second renewal term. The FMRV shall be computed under the same formula used in
arriving at the net operating income, increased by the amount of deduction taken
for vacancy, set forth in the appraisal report (date of value estimate, May 28,
1985, and updated on June 24, 1986) prepared by John McCracken and Associates,
Inc. In the event the Lessee does not agree with the FMRV for the initial or
second extension options as determined by the MAI appraisal, the parties agree
that the actual FMRV for such extensions shall be determined by arbitration
under the provisions of Paragraph 21 of this Lease.

          The rental consideration to be paid for both the initial extended term
and the second extended term shall be paid in monthly installments (rounded off
to the nearest dollar) in advance in the same manner as provided in Paragraph 2
with reference to the payment of the rental consideration for the original term
of this Lease.

     4.   Use. Lessee shall use the said property in a careful manner in
          ----                                                           
connection with the normal operation of its business.  No unlawful or offensive
use shall be made of the property.  Lessee agrees to comply with all laws,
ordinances and governmental regulations relating to the use of said property.

     5.   Maintenance and Repairs. Lessee shall, at its own expense, maintain
          ------------------------                                            
the building and demised premises in good condition and repair, including, but
not limited to, the foundation, exterior walls, plate glass, roof, heating
equipment, air conditioning equipment, plumbing, interior of building,
electrical system, and pavement and landscaping around said building, subject to
ordinary wear and tear.  Repairs, as used in this paragraph, do not mean
replacement of such capital improvements as the roof, heating and air
conditioning equipment or other major items which might wear out in their
ordinary use during the term of this Lease.  The Lessee shall indemnify the
Lessor against any mechanic lien or other liens rising out of the making of any
alterations, repairs, additions or improvements to the premises by the Lessee.

     The Lessor shall, at its expense, make all capital improvements, as opposed
to repairs, to the roof, heating and air-conditioning system, and other major
items in order to keep the same in good repair and operating condition during
the original term and any extended term of this Lease.  The parties agree that
the cost of each capital improvement will be amortized over the life of said
improvement, hereinafter sometimes referred to as "annual amortized cost", and
the Lessee shall, while it is in possession of the premises, during the life of
such improvement pay to the Lessor annually on the anniversary to date of the
completion of such capital improvement an amount equal to the annual amortized
cost.  By way of illustration: If a capital improvement which has a life
expectancy of twenty (20) years and costs $20,000.00, the annual amortized cost
would be $1,000.00, and if the improvement was completed on March 1, 1989, the
Lessee would pay to the Lessor on March 1, 1990 and on the 1/st/ day of March
each calendar year thereafter while the Lessee is in possession of the premises,
to and including the 1/st/ day of March, 1990, the sum of $1,000.00. Lessee has
no obligation to reimburse Lessor for any sums expended in making said capital
improvements that have not been paid prior to the termination of this Lease.

     6.   Insurance. Fire insurance and extended coverage on the leased premises
          ----------                                            
shall be the responsibility of the Lessee and the amount of coverage shall be
the full insurable 

<PAGE>
 
value of the leased premises. The policy proceeds shall be payable to the Lessor
to the extent of the full insurable value of the leased premises. Lessee will at
all times during the term of this Lease, at its own expense, maintain and keep
in force a policy of general public liability insurance against claims for
personal injury, death or property damage occurring in, on, or about the leased
premises, or on or about the streets, sidewalks or premises adjacent to the
leased premises, with the Lessor as named insured as its interests may appear.
The minimum limits of such general public liability insurance shall be Five
Hundred Thousand and No/100 ($500,000.00) Dollars for injury (or death) to any
one person, and One Million and No/100 ($1,000,000.00) for injury (or death) to
more than one person in any one accident or occurrence, and One Hundred Thousand
and No/100 ($100,000.00) Dollars in respect to property damage.

     7.   Damage by Casualty. If the building located on the demised premises
          -------------------                                                 
shall be damaged by fire or other casualty covered by the extended coverage
provision of a standard fire insurance policy,

          (a)  Lessor shall repair such damage as soon as it is reasonably
possible to do so unless either Lessor or Lessee shall elect to terminate this
Lease under the provisions of subparagraph (b) or (c) of this Paragraph 7 in the
event the provisions thereof are applicable to such damage;
          (b)  If the cost of such repairs shall exceed fifty percent (50%) of
the reasonable replacement cost of said building immediately prior to the
occurrence of such damage, Lessor and Lessee shall each have an option to
terminate this Lease by giving to the other written notice of its election to do
so within thirty (30) days after the date such damage occurs, such termination
to be effective as of the date such damage occurred;
          (c)  If the extent of the damage is such that the same cannot, with
reasonable diligence, be repaired within ninety (90) days or within the number
of days equal to one-fourth the unexpired portion of the term, whichever shall
be less, after the date such damages occurs, Lessor and Lessee shall each have
an option to terminate this Lease by giving to the other written notice of its
election to do so within thirty (30) days after the date such damage occurs,
such termination to be effective as of the date such damage occurred; and
          (d)  If this Lease is not terminated under the provisions of
subparagraph (b) or (c) of this Paragraph 7, the rent provided for in Paragraph
2 and 3 hereof shall be reduced proportionately with the diminution of the
usefulness of the demised premises for the period between the date such damage
occurs and the date such damage is repaired.

     8.   Taxes. During the term of this Lease, Lessee shall be responsible for
          ------                                                                
all property taxes and similar assessments that may be assessed or levied upon
or in respect of the real estate subject to this Lease.  Lessee shall furnish to
Lessor within thirty (30) days following the end of each calendar year a
statement that such taxes have been paid.  Lessee shall be responsible for all
property taxes that may be assessed or levied upon in respect of all personal
property located upon the leased premises, which belong to Lessee.  The property
taxes in respect of the real estate subject to this Lease for the last calendar
year of the term of this Lease will be prorated on a per diem basis.

     9.   Utilities. Lessee will pay all utility bills connected with the leased
          ----------                                             
premises during the term of this Lease, including, but not limited to, utility
bills for heating, air conditioning and lighting of the demised premises,
electricity, telephone, water, sewage, and garbage disposal.

<PAGE>
 
     10.  Janitorial Service  Lessee shall furnish, or cause to be furnished, at
          ------------------                                                    
Lessee's expense, janitorial services that will keep the leased premises in a
reasonable state of cleanliness for the business being operated therein.

     11.  Default. The happening of any one or more of the following listed
          -------                                                          
events (hereinafter referred to singularly as "Event of Default") shall
constitute a breach of this Lease Agreement on the part of Lessee, namely:

          (a)  The filing by, on behalf of, or against Lessee of any petition of
pleading to declare Lessee a bankrupt, voluntary or involuntary, under any
bankruptcy law or act.
          (b)  The appointment by any court or under any law of a receiver,
trustee, or other custodian of the property, assets, or business of Lessee.
          (c)  The assignment by Lessee of all or any part of its property or
assets for the benefit of creditors.
          (d)  The failure of Lessee to pay any rent payable under this Lease
Agreement.
          (e)  The failure of Lessee to perform fully and promptly any act
required of it in the performance of this Lease or otherwise to comply with any
term or provision thereof.

          Upon the happening of any event of default and the failure of Lessee
to cure or remove the same within thirty (30) days, except in default in the
payment of rent which shall be ten (10) days, after written notice from Lessor
to do so, Lessor, at its election, may terminate this Lease or may terminate
Lessee's right to possession or occupancy only without terminating this Lease by
written notice to Lessee.

          Upon termination of this Lease, whether by lapse of time or otherwise,
or upon any termination of Lessee's right to possession or occupancy of the
premises without terminating this Lease, Lessee shall promptly surrender
possession of and vacate the premises and deliver possession thereof to Lessor,
and Lessee hereby grants to Lessor full and free license to enter into and upon
the premises in such event and with or without process of law to repossess the
premises and to expel or remove Lessee and any others who may be occupying the
premises and to remove therefrom any and all property, using for such purpose
such force as may be necessary without being guilty of or liable for trespass,
eviction, or forcible entry or detainer and without relinquishing Lessor's right
to rent or any other right given to Lessor hereunder or by operation of law.

          If Lessor shall elect to terminate Lessee's right to possession only
as above provided, without terminating this Lease, Lessee shall nevertheless
remain obligated to pay the rent herein reserved for the full term hereof except
to the extent of any credit against said rent which Lessee is entitled by law to
receive for the reasonable rental value of said premises or for any rents
received by Lessor upon a re-letting of said premises as agent of Lessee, but in
the name of Lessor, or for any other credit to which Lessee is entitled by law.

     12.  Inspection. At all reasonable times, the Independent Fiduciary and
          ----------                                                        
its authorized representatives may inspect the leased property.

<PAGE>
 
     13.  Sublease. It is understood and agreed that if the Lessee sublets all
          --------                                                            
or any part of the premises or assigns this Lease, it shall, in either event,
remain fully liable to Lessor for full performance of this Lease Agreement.

     14.  Alterations. Lessee, at its own expense, may make reasonable
          -----------                                                 
alterations to the improvements located upon the leased premises, with the prior
written consent of Lessor, which will not be unreasonably withheld.

     15.  Property of Lessee. All of the equipment or other property installed
          ------------------                                                  
in or attached to the premises by Lessee shall be and remain the property of the
Lessee and may be removed by the Lessee upon the expiration of the lease period.

     16.  Eminent Domain. In the event that any portion of the premises shall
          --------------                                                     
be taken by any public authority under the power of eminent domain or like
power, which taking shall have significant effect on the operation of the
business conducted by the Lessee, this Lease Agreement may be terminated at the
option of the Lessee within sixty days of the earlier of the following:

          (a)  Specific written notice from Lessor to Lessee advising of the
proposed taking and giving all pertinent details with regard thereto; or
          (b)  Service of process upon Lessee in a suit of condemnation.

          Failure of Lessee to exercise its option of cancellation within such
sixty (60) day period shall constitute a forfeiture by Lessee of its right to
termination.  Damages awarded by the condemning authority shall belong solely to
Lessor.

          In making the determination as to whether such taking shall have
significant effect on the operation of the business conducted by Lessee, Lessor
and Lessee shall discuss such and both will apply reasonable judgment.  If
Lessor and Lessee are unable to agree, then the matter will be determined by
three (3) persons who are qualified to make such determination, one of which is
selected by Lessor, one of which is selected by Lessee, and the other which is
selected by the first two.  The determination by these three (3) people will be
binding upon Lessor and Lessee.

     17.  Warranty of Quiet Enjoyment. Lessor covenants that it has full power
          ---------------------------                                         
and lawful authority to execute this Lease Agreement and that upon compliance by
Lessee with the terms and provisions hereof, Lessee shall have enjoyment of the
premises during the term hereof.

<PAGE>
 
     18.  NOTICE: Any notice provided herein shall be deemed sufficient to have
          ------                                                               
been duly served if the same shall be in writing and mailed, postage prepaid,
until another address is furnished, addressed as follows:

                     Lessor                         Lessee
                     ------                         ------

               Wachovia Bank & Trust              Unifi, Inc.
               Company, N.A., Independent         P.O. Box 19109
               Fiduciary                          Greensboro, NC 27419-9109
               Trust Department
               Winston-Salem, NC 27150
               AND
               NCNB National Bank of
               North Carolina, Trustee
               Trust Department
               Charlotte, NC  28255

     19.  Holding Over. In the event the Lessee remains in possession of the
          ------------                                                      
premises after the expiration of the original term without exercising the rights
granted in the Paragraph 3, the Lessee shall not acquire any right, title or
interest in or to said premises.  Lessee, as a result of such holding over,
shall occupy the premises as a tenant from month to month with rental
consideration as provided in Paragraph 2 or 3, and subject to all conditions,
privileges and obligations set forth in this Lease during such holding over
period and the Lessor or Lessee shall have the right of canceling said month to
month tenancy by giving the other thirty (30) days written notice to vacate.

     20.  Attorney Fees. Upon the occurrence of any events of default by the
          -------------                                                     
Lessee, the Lessor may employ an attorney to enforce its rights and remedies and
the Lessee hereby agrees to pay to the Lessor the sum of 15% of the outstanding
rental owing on this Lease or 15% of any recovery for said Breach, whichever
amount is the larger as reasonable attorney fees plus all other reasonable
expenses incurred by the Lessor in enforcing any of the Lessees' rights and
remedies hereunder.

     21.  Arbitration. Any controversy which may arise between the Lessor and
          -----------                                                        
Lessee regarding the rights, duties, liabilities and FMRV for the initial and
second extension options will be settled by arbitration.  Such arbitration shall
be before three (3) disinterested arbitrators, one named by the Lessor, one
named by the Lessee, and one named by the two (2) thus chosen.  The arbitrators
shall determine the controversy and their determination shall be binding upon
both parties.  Each party shall pay one-half of the costs of such arbitration.

    22.  Interpretation. The provisions of this Lease Agreement shall
         --------------                                              
constitute the entire agreement between the parties.  All singular nouns,
pronouns shall include plural and all masculine nouns and pronouns shall include
the feminine and neuter.  This Lease Agreement shall be construed in accordance
with the laws of the State of North Carolina.  If any provision of this Lease
Agreement shall be determined to be void, such determination shall not affect
any other provision hereof, and all other provisions shall remain in full force
and effect.  This 

<PAGE>
 
Lease Agreement shall inure to the benefit of and be binding upon the parties
hereto, their successors, heirs, executors, administrators and assigns.

     23.  Memorandum of Lease. A Memorandum of Lease will be executed by the
          -------------------                                               
parties hereto in a form appropriate for recordation upon the public records.
The Memorandum of Lease shall include such provisions of this Lease Agreement as
may reasonably be requested by either party hereto, but shall not include the
amount of rental payments hereunder.

     The NCNB National Bank of North Carolina, as Trustee, the Wachovia Bank &
Trust Company, N.A., as Independent Fiduciary, and Unifi, Inc. entered into an
Independent Fiduciary Agreement on the 3/rd/ day of September, 1986, as amended,
under which the legal title to the premises would be in the Trustee, with the
Independent Fiduciary having the exclusive authority and responsibility for the
disposition, management and control of said premises; that the Independent
Fiduciary negotiated this Lease Agreement and has directed the Trustee to enter
into this Lease Agreement all in accordance with the aforesaid Independent
Fiduciary Agreement.

     IN WITNESS WHEREOF, the parties hereto have caused these presents to be
signed and attested and the corporate seals attached by the proper officials of
the respective parties hereto, the day and year first above written.

                                     TRUSTEE OF THE UNIFI, INC.
                                     PROFIT SHARING PLAN AND TRUST
                                     
                                     NCNB NATIONAL BANK OF NORTH CAROLINA
                                     
                                         
                                     BY:   GLENDA G. STEEL 
                                        ----------------------------------   
                                           Vice President

ATTEST:

ADA M. GASTON
---------------------------- 
Assistant Secretary


                                     INDEPENDENT FIDUCIARY UNDER THE
                                     UNIFI, INC. PROFIT SHARING PLAN AND TRUST

                                     WACHOVIA BANK & TRUST COMPANY, N.A.

               
                                     BY:     JOE O. LOVEL          
                                        ----------------------------------    
                                             Vice President

ATTEST:

<PAGE>
 
NANCY P. BLEDSOE
--------------------------- 
    Asst. Secretary



                                      UNIFI, INC.


                                      BY:   ROBERT A. WARD 
                                        ----------------------------------    
                                            Executive Vice President

ATTEST:

C. CLIFFORD FRAZIER, JR.
---------------------------
   Secretary

<PAGE>
 
STATE OF NORTH CAROLINA

COUNTY OF MECKLENBURG

          I, MARTHA L. LEE, a Notary Public of said County and State, do hereby
certify that ADA M. GASTON, personally came before me this day and acknowledged
that she is the ASST. Secretary of the NCNB NATIONAL BANK OF NORTH CAROLINA, and
that by authority duly given and as the act of the corporation, the foregoing
instrument was signed in its name by its VICE President, sealed with its
corporate seal, and attest by her as its ASST. Secretary.

          Witness my hand and notarial seal this the 4TH day of MARCH, 1987.


                                      MARTHA L. LEE
                                      -------------------------------
                                      Notary Public


My Commission Expires:

2-27-1991
------------------- 
 

STATE OF NORTH CAROLINA

COUNTY OF FORSYTH

     I, BONNIE D. BINDER, a Notary Public of said County and State, do hereby
certify that NANCY P. BLEDSOE, personally came before me this day and
acknowledged that she is the ASSISTANT Secretary of the WACHOVIA BANK & TRUST
COMPANY, N.A., and that by authority duly given and as the act of the
corporation, the foregoing instrument was signed in its name by its VICE
President, sealed with its corporate seal, and attest by her as its ASSISTANT
Secretary.

          Witness my hand and notarial seal this the 2ND day of MARCH, 1987.

 
                                      BONNIE D. BINDER
                                      ------------------------------- 
                                      Notary Public



My Commission Expires:

12-10-90
------------------- 
 

<PAGE>
 
STATE OF NORTH CAROLINA

COUNTY OF GUILFORD

     I, GRETCHEN WEST (THOMPSON), a Notary Public of said County and State, do
hereby certify that C. Clifford Frazier, Jr., personally came before me this day
and acknowledged that he is the Secretary of UNIFI, INC., and that by authority
duly given and as the act of the corporation, the foregoing instrument was
signed in its name by its EXECUTIVE VICE President, sealed with its corporate
seal, and attest by him as its Secretary.

          Witness my hand and notarial seal this the 6TH day of MARCH, 1987.


                                      GRETCHEN WEST (THOMPSON)
                                      ----------------------------------  
                                      Notary Public


     My Commission Expires:

     10-12-87
     ------------------



<PAGE>
 
                                 EXHIBIT (10I)

                              EMPLOYMENT AGREEMENT


     THIS EMPLOYMENT AGREEMENT, entered into this the 19/th/ day of July, 1990
between UNIFI, INC., a New York corporation (hereinafter called "Unifi"), and G.
ALLEN MEBANE (hereinafter called "Mr. Mebane");

                                  WITNESSETH:

     WHEREAS, Mr. Mebane is presently the Chairman of the Board of Directors,
and Chairman of the Executive Committee of Unifi and as such is an integral part
of Unifi management; and

     WHEREAS, Mr. Mebane, was an original founder and has served as a director
of Unifi since its organization; has served as a principal Executive Officer
including Chairman of the Board of Directors, President, and Chief Executive
Officer whose leadership and expertise have constituted and still constitute a
major factor in Unifi's development, growth, and outstanding success; and is
thoroughly familiar with Unifi's background, policies and operations in respect
to production, finance, sales, and all other aspects of its business; and

     WHEREAS, Mr. Mebane, through his knowledge and experience in the textile
business both before and after the organization of Unifi is exceptionally well
qualified, fitted and equipped to continue as a principal Executive Officer of
Unifi to wit the Chairman of its
 Board of Directors and Executive Committee and
as a consultant after his retirement as an active Executive Officer of Unifi;
and

     WHEREAS, Unifi deems it to be in its best interest to retain the unique
experience, ability and leadership of Mr. Mebane for the company, and for such
subsidiaries and affiliates as it may from time to time create or acquire, for a
fixed term of years, as an Executive officer and thereafter in consultative
capacity; and

     WHEREAS, Unifi and Mr. Mebane entered into an Employment Agreement dated
the 18th day of July 1985 and the parties hereto agreed that said 1985
Employment Agreement shall terminate effective as of July 1, 1990, upon the
execution of this agreement.

     NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained, and intending to be legally bound hereby, the parties agree as
follows:

     Part I.   EMPLOYMENT.
               -----------

     Section 1.  Executive Employment. Unifi hereby employs Mr. Mebane and Mr.
                 --------------------                                         
Mebane hereby accepts employment in a principal executive and managerial
capacity, with the designations of Chairman of the Board of Directors and
Chairman of the Executive Committee or such other titles as the Board of
Directors may designate for a term of ten years commencing on the first day of
July 1990 and terminating on the 30/th/ day of June 2000 (hereinafter referred
to as executive period), unless sooner terminated, on the terms and conditions
herein set out.

<PAGE>
 
     Section 2. Consultative Capacity. Upon the termination of his executive
                ---------------------                                       
employment as provided in Section 1 above, Unifi shall still retain Mr. Mebane
and Mr. Mebane agrees to continue serving the company in an advisory or
consultative capacity (hereinafter sometimes referred to as consultant period or
consultant) until June 30, 2005 on the terms and conditions herein set forth.

     Part II.  EXECUTIVE EMPLOYMENT.
               -------------------- 

     Section 1.  Compensation. For all services rendered by Mr. Mebane during
                 ------------                                                
his executive employment, Unifi agrees to pay Mr. Mebane a salary of $800,000.00
per annum ("Base Compensation"), payable in installments and in the same
frequency as other Executive Officers are paid, plus such additional
compensation and bonuses as may be awarded from time to time to Mr. Mebane by
the Board of Directors of Unifi.

     Section 2.  Duties. Mr. Mebane is employed during the executive period as a
                 ------                                                         
principal Executive Officer with the designation of Chairman of the Board of
Directors and Chairman of the Executive Committee or such other title as
designated by the Board of Directors, all other Executive Officers shall report
to him, upon his oral request, and the scope of his duties hereunder shall
consist in rendering such services and performing such functions of a chief
executive nature for Unifi as are necessary or customary, subject only to the
general direction, approval and control of the Board of Directors of Unifi.

     Mr. Mebane agrees to exert and devote substantially all of his time and
attention to the promotion of the business and interests of Unifi.  The
foregoing shall not be construed, however, to preventing Mr. Mebane from
investing his assets in such businesses as he desires, or rendering limited
services to such businesses, or serving on the Board of Directors of companies
in which he has made an investment.  Provided, however, if the company of which
Mr. Mebane is asked to be a director is in competition with Unifi, it must be
publicly owned, and Mr. Mebane's interest therein must be solely that of a
shareholder owning not more than three percent (3%) of the outstanding shares or
Mr. Mebane receives prior written approval from Unifi's Board of Directors to
serve as a director for said company.

     Unifi and Mr. Mebane recognize that Mr. Mebane will be required to travel
in order to perform the services to be rendered hereunto, but Unifi agrees that
the extent of such travelling necessary for the performance of Mr. Mebane's
services hereunder shall be within the reasonable discretion, exercised in good
faith, of Mr. Mebane.  In any event, Mr. Mebane shall not be required to change
his resident from the Greensboro, Yadkinville, Mocksville, North Carolina area
in order to render the services to be performed hereunder or to perform services
inconsistent with the type of services presently being performed by Mr. Mebane.

     Section 3.  Work Situs and Working Facilities. Mr. Mebane shall be
                 ---------------------------------                     
furnished at all times during his executive employment with working facilities,
including, without limitation, a private office; a private secretary of his own
selection; an adequate staff in Greensboro, North Carolina or such other
location as his duties may require to assist him in the performance of his
duties hereunder; and transportation, including use of company air craft,
commensurately with those being furnished to him on the date of the execution of
this Agreement.

<PAGE>
 
     Section 4.  Vacations. Mr. Mebane during the executive period shall be
                 ---------                                                 
entitled each year to a minimum vacation of four weeks plus such additional time
as may be approved by the Board of Directors, during which his Base Compensation
shall continue to be paid to him.  Mr. Mebane shall take his vacation at such
time or times as he shall determine.

     Section 5.  Reimbursement of Expenses. Mr. Mebane during the executive
                 -------------------------                                 
period shall be entitled to reimbursement for all expenses reasonably incurred
by him in connection with the performance of his duties hereunder, including,
without limitation, expenses incurred in travelling and entertaining reasonably
related to the business or interests of Unifi.  Such reimbursement shall be made
within a reasonable time after receipt of Mr. Mebane's expense statement.

     Section 6.  Disability and Death.
                 -------------------- 
     (a)  If, during the executive period, Mr. Mebane becomes disabled or
incapacitated for a period of twelve (12) consecutive months to the extent he is
unable to perform his duties hereunder ("Permanently Disabled"), Unifi shall
have the right at any time thereafter, so long as Mr. Mebane is then still
Permanently Disabled, to terminate his executive employment. If Unifi elects to
terminate his executive employment it shall continue to pay to Mr. Mebane
through the 30/th/ day of June 2000 an amount equaled to fifty percent (50%) of
the Base Compensation he was receiving at the time of said termination and in
the manner as provided in Section 1 of this Part II. In the event of Mr.
Mebane's death after such termination of his executive employment for
disability, Unifi shall pay through the 30/th/ day of June 2000 to the person
and in the manner set forth in paragraph (c) of this Section 6, an amount per
annum equal to the amount of the Base Compensation he was receiving during his
disability. The payments herein provided for shall be made in installments as
set forth in Section 1 of this Part II. If, and so long as Unifi's Board of
Directors does not elect to terminate Mr. Mebane's executive employment as a
result of his Permanent Disability, this Agreement shall continue in full force
and effect until the end of the executive period.

     (b)  If Mr. Mebane dies during the executive period of this Agreement other
than as provided in paragraph (a) of this Section 6, this Agreement shall
terminate, except that Unifi shall pay, through the 30/th/ day of June 2000, to
the persons and in the manner set forth in paragraph (c) of this Section 6, an
amount per annum equal to fifty percent (50%) of the Base Compensation Mr.
Mebane was receiving on the date of his death. The payments herein provided for
shall be made in installments as provided for in Section 1 of this Part II.

     (c)  With respect to any payments to be made, pursuant to paragraphs (a) or
(b) of this Section 6, to persons other than Mr. Mebane, such payments shall be
made as designated by Mr. Mebane in his Last Will and Testament, or if Mr.
Mebane dies intestate then the payment shall be made to Mr. Mebane's wife, Mrs.
Marianne Vaughn Cheek Mebane, and if she be deceased to Mr. Mebane's living
children and the living lineal descendants of any deceased child of Mr. Mebane,
per stirpes. The payments provided for herein shall be made in installments as
set forth in Section 1 of this Part II.

     Part III.  CONSULTATIVE CAPACITY.
                --------------------- 

     Section 1.  Compensation. The annual compensation to be paid by Unifi to
                 ------------                                                
Mr. Mebane during his engagement as a consultant as provided in Section 2 of
Part I of this agreement shall be an amount equal to one-fourth (1/4) of the
Base Compensation being paid 

<PAGE>
 
to Mr. Mebane during the last year of his executive employment payable in
installments and in the same frequency as executive officers are paid.

     Section 2.  Duties. During the term of his engagement as a consultant, Mr.
                 ------                                                        
Mebane shall perform all consulting and advisory services as Unifi's Board of
Directors may reasonably request in order that Unifi may continue to benefit
from his experience, knowledge, reputation and contacts in the industry.  Mr.
Mebane shall be available to advise and consult with Unifi's Officers and
Directors at all reasonable times by phone, mail, or in person, however, Mr.
Mebane's failure to render such service due to reasonable causes shall not
effect his right to receive the compensation provided for in Section 1 of this
Part III.

     During the consultant period Mr. Mebane shall not engage or render services
to any other business that is in competition with Unifi other than to serve on
the Board of Directors of other corporations as authorized under Section 2 of
Part II of this agreement, or give out any confidential information as more
particularly defined in Section 4 of Part IV of this agreement.

     Section. 3.  Reimbursement of Expenses. Mr. Mebane while acting as a
                  -------------------------                              
consultant shall be entitled to be reimbursed for all expenses reasonably
incurred by him in travelling, entertaining and other associated expenses
necessary to perform his duties and/or requested by Unifi's Board of Directors.
Such reimbursements shall be made within a reasonable time after receipt of Mr.
Mebane's expense statement.

     Part IV.    OTHER PROVISIONS.
                 ---------------- 

     Section 1.  Termination. This Agreement shall terminate and Unifi shall
                 -----------                                                
have no further obligations or responsibilities under this agreement, except as
provided in this Section, upon the occurrence of any of the following events:

     (a)  The death of Mr. Mebane during his executive employment or engagement
as a consultant, except for the payments due under the provisions of Section 5
and Section 6(b) of Part II and under Section 3 of Part III respectively of this
agreement;
     (b)  If during his executive employment, Mr. Mebane becomes permanently
disable and Unifi elects to terminate his employment, except for the payment due
under provisions of Section 5 and Section 6(a) of Part II of this agreement.
     (c)  Mr. Mebane becomes permanently disabled during the consultant period
except for payments which may due under provisions of Section 3 of Part III of
this agreement.
     (d)  For cause, as hereinafter defined upon sixty days prior written notice
to Mr. Mebane. The term "cause" for purposes of this agreement shall mean only
failure to carry out his duties, whether during the executive period or
consultant period, gross misconduct or dishonesty.

     Section 2.  Directors Compensation. In addition to all other compensation
                 ----------------------                                       
and reimbursement provided for in this agreement when Mr. Mebane during his
executive employment serves as a Director of Unifi he is entitled to receive a
Directors fee for such services to the same extent as other Executive Officers
who are acting as Directors of Unifi; and when he serves as a Director during
the consultant period, he is entitled to receive a Directors fee for such
services to the same extent as outside directors of Unifi.

     Section 3.  Fringe Benefits. This Agreement is not intended to and shall
                 ---------------                                             
not be deemed in lieu of any rights, benefits, and privileges to which Mr.
Mebane may be entitled as 

<PAGE>
 
an employee of Unifi under any retirement, profit sharing, insurance, hospital
or other plans which may now be in effect or which may hereafter be adopted; it
being understood that Mr. Mebane shall have the same rights and privileges to
participate in such plans and benefits provided for other Executive Officers and
key employees of Unifi during the period of his executive employment.

     Section 4.  Restrictions.
                 ------------ 

     (a)  Definitions. As used in this Agreement.
          -----------                           

          (i)  "Competitor" shall mean any company engaged in or about to be
                ----------    
               engaged in the business of developing, producing or distributing
               a product or service similar to any product or service produced
               or performed or about to be produced or performed by Unifi.
          (ii) Confidential Information" shall mean all information about Unifi
               -------------------------    
               or relating to any of its products or any phase of its operations
               including, without limitation, trade secrets, customer lists and
               Inventions, not generally known to any of its Competitors which
               Mr. Mebane knew or acquired knowledge of during the term of his
               employment.

     (b)  Disclosure of Information. Mr. Mebane shall not disclose or make
          -------------------------  
available to any person or other entity any confidential Information or any 
know-how or experience relating to Unifi's business without authorization of
Unifi's Board of Directors. Upon termination of this agreement Mr. Mebane if
requested by Unifi's Board of Directors shall leave with Unifi all documents in
his possession which contain Confidential Information.

     (c)  Injunctive Relief. It is agreed that Mr. Mebane's services hereunder
          -----------------  
are special and unique giving them peculiar value, the loss of which cannot be
reasonably or adequately compensated for by damages, and in the event of Mr.
Mebane's breach of this Agreement, Unifi shall be entitled to equitable relief
by way in injunction or otherwise.

     Section 5.  Notices. Any notice required or permitted to be given under
                 -------                                                    
this Agreement shall be sufficient, if in writing and if sent by registered or
certified mail, postage prepaid, or telecopier to his residence in the case of
Mr. Mebane or to its principal office in the case of Unifi.

     Section 6.  Assignment. The rights and obligations of Unifi under this
                 ----------                                                
Agreement shall inure to the benefit of and be binding upon its successors and
assigns; provided, however, that this Agreement is not assignable by Unifi
except as part of a merger, consolidation or sale of all or substantially all of
Unifi's assets as a going business to any other corporation or business
organization.  Unifi agrees that it will not merge into, consolidate with, or
sell all or substantially all of its assets to any other corporation or business
organization unless such successor or purchaser specifically agrees to assume
and be bound by all of the terms and conditions of this Agreement.

     This Agreement may not be assigned or otherwise transferred voluntarily or
involuntarily by Mr. Mebane.

<PAGE>
 
     Section 7.  Applicable Law. This Agreement shall be interpreted and
                 --------------                                         
construed under the laws of North Carolina.

     Section 8.  Entire Agreement. This instrument contains the entire agreement
                 ----------------                                               
of the parties.  It may not be changed or altered, except by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
their respective hands and seals as of the day and year first above written.

     UNIFI, INC.

               
     BY:   KENNETH G. LANGONE
        ---------------------------------
           Kenneth G. Langone
           Chairman of the Compensation Committee

                                   Attest:

                                   CLIFFORD FRAZIER, JR.
                                   ----------------------------
                                   Clifford Frazier, Jr.
                                   Secretary

     G. ALLEN MEBANE
     ------------------------------------(SEAL)
          G. Allen Mebane


     Witness:

     DONALD F. ORR
     ------------------------------



<PAGE>
 
                                                                   Exhibit 10(O)

Execution Copy


                                MASTER AGREEMENT

                           POY MANUFACTURING ALLIANCE


                                    Between


                                  Unifi, Inc.

                                      and

                      E. I. du Pont de Nemours and Company



                                  June 1, 2000

<PAGE>
 
                 MASTER AGREEMENT - POY MANUFACTURING ALLIANCE
                 ---------------------------------------------

                               TABLE OF CONTENTS
                               -----------------


<TABLE>
<S>                                                                          <C>
Background.................................................................   1
Article 1:  Definitions....................................................   1
Article 2:  Independent Marketing and Sales................................   7
Article 3:  Supply of Product - Shortfall Of Capacity......................   8
Article 4:  Sharing of Manufacturing Costs.................................   9
Article 5:  Sharing of Revenues............................................  11
Article 6:  Reconciliations................................................  12
Article 7:  Management / Governance........................................  12
Article 8:  Fairness Review................................................  15
Article 9:  Personnel and Plant Operations.................................  15
Article 10: Technology and Trademarks......................................  16
Article 11: Impact of Acquisitions.........................................  18
Article 12: Reporting, Tax and Auditing....................................  18
Article 13: Term; Termination..............................................  19
Article 14: Purchase / Sale Options........................................  21
Article 15: Conduct of Manufacturing Operations Until Termination..........  25
Article 16: Dispute Resolution.............................................  26
</TABLE>


Master Agreement - POY Manufacturing Alliance                                 i

<PAGE>
 
                 MASTER AGREEMENT - POY MANUFACTURING ALLIANCE
                 ---------------------------------------------

                         TABLE OF CONTENTS  (continued)
                         -----------------             


<TABLE>
<S>                                                                          <C>
Article 17: Assignment.....................................................  28
Article 18: Representations and Warranties.................................  28
Article 19: Operation Until Sale...........................................  29
Article 20: Confidentiality................................................  29
Article 21: Compliance.....................................................  30
Article 22: Further Assurances.............................................  30

Article 23: Amendment and Modification.....................................  31
Article 24: Entire Agreement...............................................  31
Article 25: Costs and Expenses.............................................  31
Article 26: Governing Law..................................................  31
Article 27: Counterparts...................................................  31
Article 28: Exhibits, Headings and Captions................................  32
Article 29: Notices........................................................  32
Article 30: Public Announcements...........................................  33
Article 31: Force Majeure..................................................  33
Article 32: Severability...................................................  33
Article 33: Survival.......................................................  33
Article 34: Specific Performance...........................................  33
Article 35: Limitation of Liability; Indemnification.......................  34
Article 36: Miscellaneous..................................................  35
</TABLE>


Master Agreement - POY Manufacturing Alliance                                ii

<PAGE>
 
                 MASTER AGREEMENT - POY MANUFACTURING ALLIANCE
                 ---------------------------------------------

                                   SCHEDULES
                                   ---------
                                        
Schedule 1  - Amoco Formula
Schedule 2  - Asset Transfer Agreement - Agreed Form
Schedule 3  - [reserved]
Schedule 4  - Unifi Base Cash Fixed Costs; Unifi Base Variable Costs
Schedule 5  - DuPont Base Cash Fixed Costs; DuPont Base Variable Costs
Schedule 6  - Definition of Greater Europe
Schedule 7  - Kinston Ground Lease - Agreed Form
Schedule 8  - Kinston Site Services Agreement - Agreed Form
Schedule 9  - POY Technology, Patent and Trademark Agreement - Agreed Form
Schedule 10 - Transition Services Agreement - Agreed Form
Schedule 11 - Treatment of Certain Capital Expenditures
Schedule 12 - Conditions Precedent
Schedule 13 - Material Supply Agreement - TPA - Agreed Form
Schedule 14 - Material Supply Agreement - MEG - Agreed Form

Master Agreement - POY Manufacturing Alliance                               iii

<PAGE>
 
                 MASTER AGREEMENT - POY MANUFACTURING ALLIANCE
                 ---------------------------------------------
                                        
     THIS MASTER AGREEMENT, (hereinafter "Agreement") effective as of June 1,
2000 by and between E. I. du Pont de Nemours and Company, a corporation
organized and existing under the laws of the State of Delaware, USA (hereinafter
"DuPont"); and Unifi, Inc., a corporation organized and existing under the laws
of the State of New York, USA (hereinafter "Unifi).

                                   BACKGROUND

A. DuPont produces, among other products, polyester textile filament products at
   its Cape Fear site near Wilmington, North Carolina, USA. and at its Kinston
   site near Kinston, North Carolina, USA;

B. Unifi produces, among other products, polyester textile filament and textured
   filament products at its Yadkinville site near Yadkinville, North Carolina,
   USA;

C. This Agreement sets forth the mutual agreements of DuPont and Unifi to form
   an alliance to manufacture partially oriented polyester yarn at the Cape Fear
   facility, the Kinston facility and the Yadkinville facility.

  NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the Parties agree as follows:

ARTICLE 1:  DEFINITIONS
-----------------------

"Affiliate" means with respect to any Party any entity of which fifty percent
(50%) or more of the total voting securities or other ownership interest giving
the right to vote in that entity is directly or indirectly owned or controlled
by such Party, or which entity, directly or indirectly owns or controls, or is
under common ownership or control with such Party.  For the purpose of this
definition "control" shall mean the power to direct or cause the direction of
the management and policies of an entity whether through the ownership of voting
securities, by contract or otherwise and "controlled" shall be construed
accordingly.

"Agreed Form" means, in relation to any document, the form of that document
(unless otherwise stated in this Agreement) which has been initialed for the
purpose of identifying such document as an Agreed Form by or on behalf of the
Parties to this Agreement.  Documents which are in Agreed Form contain
substantially all of the substantive provisions relating to the subject matter
of the document and such provisions have been agreed to, in principle, by the
Parties.  Documents in Agreed Form may be modified as a result of (i) agreement
of the Parties, (ii) issues arising during due diligence, or (iii) compliance
with requirements of all applicable law; and the schedules 

Master Agreement - POY Manufacturing Alliance                                  1

<PAGE>
 
and exhibits of such documents must be finalized and agreed to by the Parties by
the Closing Date.

"Americas" means North America, Caribbean countries, Central America and South
America.

"Amoco Formula" means the price formula for contract sales of TPA attached as
part of Schedule 1, or in the event the Amoco Formula is no longer used as the
        --------                                                              
industry-wide standard for TPA price, then such other comparable price formula.

"Ancillary Agreements" means the Technology Cross-License Agreement, the
Financial Models Agreement and the Supplemental Alliance Agreement, each of
which are effective on the Effective Date.

"Asset Transfer Agreement" means the contract for the sale and transfer of the
assets of the partially oriented polyester yarn business in Agreed Form between
DuPont and Unifi, attached hereto as Schedule 2.
                                     --------   

"Business" means the manufacture, marketing, distribution and sale of the
Products, as more fully described in the Asset Transfer Agreement.

"Business Assets" of a Party means the Unifi Business Assets or the DuPont
Business Assets, as the context may require.

"Business Premises" means, in the case of DuPont, the Kinston Facility, the Cape
Fear Facility and, in the case of Unifi, the Yadkinville Facility.

"Cape Fear Facility" means DuPont's POY manufacturing facility located at the
DuPont Cape Fear site near Wilmington, NC.

"Cash Fixed Manufacturing Costs" means those direct plant period costs listed in
Schedules 4 and 5attached hereto.
---------                        

"Closing" means the closing for the sale of DuPont's Business and DuPont's
Business Assets from DuPont to Unifi.

"Closing Date" means completion of signing of the Asset Transfer Agreement and
other relevant Implementation Agreements and completion of the relevant
transactions with regard to the sale of the DuPont Business from DuPont to
Unifi.

"DTY" means draw textured yarn.

"DuPont Base Cash Fixed Costs" means the Cash Fixed Manufacturing Costs at the
Kinston Facility and the Cape Fear Facility (based on the annualized cash
manufacturing fixed costs at the Kinston Facility and the Cape Fear Facility
during the first quarter of 

Master Agreement - POY Manufacturing Alliance                                  2

<PAGE>
 
2000) indexed quarterly based on actual changes in local labor costs. A summary
of the DuPont Base Cash Fixed Costs and an example of the method for indexing
such costs are attached hereto as Schedule 5. The Parties acknowledge that the
                                  --------        
DuPont Base Cash Fixed Costs have been adjusted to reflect the full impact of
the costs incurred for implementation of the Autopack system and cost savings
that will be derived from the Autopack systems that have been installed at the
Cape Fear Facility and the Kinston Facility.

"DuPont Base Variable Costs" means the average unit Variable Cash Cost by
product to manufacture POY at DuPont's Cape Fear Facility and Kinston Facility
during 1stQ 2000 indexed quarterly to (a) current TPA price (based on the Amoco
Formula), and (b) MEG price (based on DuPont's acquisition cost), times the sum
of the actual Unifi DuPont-Sourced Volume and the actual DuPont Merchant Market
Sales.  For purposes of this Agreement, the revenue derived from the sale of
Fiberstock to third parties shall be treated as a credit against variable cost.
A summary of the DuPont Base Variable Costs by product and an example of the
method for indexing such costs are attached hereto as Schedule 5.
                                                      --------   

"DuPont Business" means the Business conducted by DuPont and its Affiliates at
the Kinston Facility.

"DuPont Business Assets" means DuPont's assets related to the Business set forth
in the Agreed Form of Asset Transfer Agreement attached hereto.

"DuPont Merchant Market Sales" means the first 250 million pounds per year (or
any portion thereof as the context requires) of first grade POY which DuPont's
POY Business sells to parties (including internal sales to other DuPont
businesses) other than Unifi, reduced by fifty percent (50%) of the Shortfall of
Capacity.

"DuPont Polyester Technologies" means the global polyester research and
development organization of DuPont currently known by such name.

"Effective Date" means June 1, 2000.

"Extraordinary Costs" means out-of-pocket costs incurred by the Parties in
connection with operating the Facilities and related to: (i) costs to repair
damage to the Facilities arising from fire, flood, hurricane, tornado or other
natural disasters; (ii) non-recurring payments to third parties for liability,
claims (including product defect claims), damages, settlements or judgments
(irrespective of whether caused by negligence, willful misconduct or gross
negligence); (iii) fines or penalties paid to government authorities; (iv) costs
for clean-up, investigation, remediation of any past, present or future
environmental spills, discharges, releases or leaks; and (v) any other costs
decided by the Parties or the Policy Board.

Master Agreement - POY Manufacturing Alliance                                  3

<PAGE>
 
"Facilities" means the Cape Fear Facility, the Kinston Facility and the
Yadkinville Facility.

"Fiberstock" means POY sold by the Parties as non-first grade POY.

"Financial Models Agreement" means the financial models agreement - POY
manufacturing alliance between the Parties and effective on the Effective Date.

"Greater Europe" has the meaning set forth in Schedule 6.
                                              ---------- 

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, including any regulations promulgated pursuant thereto.

"Implementation Agreements" means such agreements, leases, assignments, bills of
sale, endorsements, notices, consents, assurances and such other instruments of
conveyance and transfer as counsel for each Party shall reasonably request in
order to vest the DuPont Business in Unifi.  Such instruments shall be in a form
to be agreed by the Parties.

"Inventory" means all finished goods held for sale in the Business of such
Party.

"Kinston Facility" means DuPont's POY manufacturing facility located at the
DuPont Kinston site in Kinston, NC.

"Kinston Ground Lease" means the lease or leases of land at the Kinston Facility
in Agreed Form, attached hereto as Schedule 7.
                                   ---------- 

"Kinston Site Services Agreement" means the site services agreement at the
Kinston Site between Unifi and DuPont in Agreed Form, attached hereto as
Schedule 8.
---------- 

"Material" or "Material Adverse Affect" means having a potential economic impact
on the pre-tax earnings of the Business of more than $1 million per annum.

"MEG" means mono-ethylene glycol.

"Ordinary Course of Business" or "Ordinary Course" means the ordinary course of
the Business and consistent with the Party's past practice.

"Parties" shall mean DuPont and Unifi.

"Person" means any individual, partnership (whether general or limited), limited
liability company, corporation, trust, estate, association, nominee or other
entity.

"Policy Board" means the governance board of the Alliance comprising two (2)
senior members of each Party, as more fully set forth in Article 7.2.

Master Agreement - POY Manufacturing Alliance                                  4

<PAGE>
 
"POY Patent, Technology and Trademark License Agreement" means the POY Patent,
Technology and Trademark License Agreement between DuPont and Unifi in Agreed
Form attached hereto as Schedule 9.
                        --------   

"Pre-Closing" means any preparatory execution of the Closing which will be done
by agreement of the Parties before the Closing Date.

"Product" or "POY" means partially oriented polyester yarn, including highly
oriented yarn (HOY), Softec partially oriented yarn and the specialty feed yarn
for the Coolmax family of products.  The term "Products" does not include, by
way of example and not limitation: the polyester filament textile family of
products that are used and sold under the Coolmax trademark or the Thermolite
trademark, 3GT polyester products, polyester textured textile fiber, and
polyester chip for the manufacture of textile fibers, polyester intermediates,
polyester films, polyester staple fiber, polyester or nylon industrial fibers,
polyester engineering polymers, polyester packaging or specialty resins
(including specialty resins manufactured by DuPont).

"Shared Revenue" means the revenue derived from the sale collectively of the
Unifi Other-Sourced Volume (based on the price set forth in Article 4.2(b)) and
any sales to the merchant market in excess of the DuPont Merchant Market Sales
(based on the lowest realized price of the DuPont Merchant Market Sales).

"Shortfall of Capacity" means 630 Million pounds per year minus the actual
amount of the Parties' combined U.S. capacity for POY production (but only after
shutdown of the Cape Fear Facility).

"Supervisory Board" means the governance board comprising two (2) senior members
of each Party, as more fully described in Article 7.1.

"Supplemental Alliance Agreement" means the supplemental alliance agreement
between the Parties and effective on the Effective Date.

"Supply Agreement for POY" means the supply agreement for partially oriented
polyester yarn between DuPont, as supplier, and Unifi, as purchaser.

"Technology Cross-License Agreement" means the technical information and patent
cross-license between Unifi and DuPont.

"TPA" means terephthallic acid and may also include or be referred to from time
to time as TPA or PGTPA.

"Transition Period" means the period from the Effective Date of the Alliance to
DuPont's shut down of the Cape Fear Facility.

Master Agreement - POY Manufacturing Alliance                                  5

<PAGE>
 
"Transition Services Agreement" means the transition services agreement between
DuPont and Unifi in Agreed Form, attached hereto as Schedule 10.
                                                    ----------- 

"Uncontrollable Event" means an event or condition beyond the control of any of
the Parties, including, but not limited to an act of God, fire, storm, flood,
earthquake, hurricane, governmental regulation or direction, acts of the public
enemy, war, rebellion, insurrection, riot, invasion, strike or lockout.

"Unifi Business" means the Business conducted by Unifi and its Affiliates at the
Yadkinville Facility.

"Unifi Business Assets" means Unifi's assets related to the Business.

"Unifi Base Cash Fixed Costs" means the Cash Fixed Manufacturing Costs at the
Yadkinville Facility (based on the annualized cash manufacturing fixed costs at
the Yadkinville Facility during the first quarter of 2000) indexed quarterly
based on actual changes in local labor costs. A summary of the Unifi Base Cash
Fixed Costs and an example of the method for indexing such costs are attached
hereto as Schedule 4.
          --------   

"Unifi's Base Variable Costs" means the average unit Variable Cash Cost, based
on a representative product mix in the 1/st/ quarter 2000 to manufacture POY at
Unifi's Yadkinville Facility during 1stQ 2000 indexed quarterly to (a) Unifi's
polyester chip price escalator times the actual Unifi Yadkinville Volume.  For
purposes of this Agreement, (a) the revenue derived from the sale of Fiberstock
to third parties shall be treated as a credit against variable cost.  A summary
of the Unifi Base Variable Costs, the representative product mix and an example
of the method for indexing such costs are attached hereto as Schedule 4.
                                                             --------   

"Unifi DuPont-Sourced Volume" means the volume and mix of first grade POY
purchased by Unifi from DuPont in 1999 in the approximate amount of 200 million
pounds, or any portion thereof as the context requires.

"Unifi Other-Sourced Volume" means new volume of POY purchased by Unifi from
DuPont to replace amounts which Unifi currently purchases from other producers
or any portion thereof as the context requires.

"Unifi Yadkinville Volume" means the volume (approximately 180MM pounds per year
of POY) and mix of products which Unifi presently manufactures at its
Yadkinville Facility or any portion thereof as the context requires, reduced by
fifty percent (50%) of the Shortfall of Capacity.

"Variable Cash Cost" means the variable costs listed in Schedule 4 and 5attached
                                                        --------                
hereto.

"Western Europe" means the European Economic Area.

Master Agreement - POY Manufacturing Alliance                                  6

<PAGE>
 
"Yadkinville Facility" means Unifi's POY manufacturing facility located at
Unifi's Yadkinville site in Yadkinville, NC.

ARTICLE 2:  INDEPENDENT MARKETING AND SALES
-------------------------------------------

2.1  DuPont's Independent Marketing and Sales.  Subject to the provisions of
     ----------------------------------------                               
     this Agreement, DuPont shall continue to independently use, market, sell
     and distribute and shall have sole control over all use and sales of DuPont
     Product (including Unifi DuPont-Sourced Volume, Unifi Other-Sourced Volume,
     DuPont Merchant Market Sales and any sales to the merchant market in excess
     thereof, as well as overall sales of Fiberstock to third parties).  The
     Parties shall not integrate any of their marketing, sales and technical
     service functions.

2.2  Unifi's Independent Use of POY.  Unifi shall continue to independently use
     ------------------------------                                            
     the Unifi Yadkinville Volume.   For avoidance of doubt, all profits on
     Unifi's sales of DTY manufactured by Unifi shall be for the account of
     Unifi (except for value added from the sale of upgraded Fiberstock which
     shall be shared as provided in Article 5 herein).

2.3  No Agency.  It is expressly understood and agreed that the Parties are
     ---------                                                             
     acting independently and that this Agreement does not constitute either
     Party as an employee, agent or other representative of the other Party for
     any purpose whatsoever.  Neither Party has the right or authority to enter
     into any contract, warranty, guarantee or other undertaking in the name or
     for the account of the other Party, or to assume or create any obligation
     or liability of any kind, express or implied, on behalf of the other Party,
     or to bind the other Party in any manner whatsoever, or to hold itself out
     as having any right, power or authority to create any such obligation or
     liability on behalf of the other or to bind the other Party in any manner
     whatsoever (except as to any actions taken by either Party at the express
     written request and direction of the other Party).

2.4  Integration of Other POY Manufacturing.
     -------------------------------------- 

     2.4.1  Principle.  During the term of this Agreement, the Parties and their
            ---------                                                           
     Affiliates will carry out their activities in the Americas related to the
     manufacture of POY exclusively through the Alliance, subject to the
     following.

     2.4.2  Unifi Acquisitions.  During the term of this Agreement if  Unifi
            ------------------                                              
     desires to:

          (a) acquire or build a facility for the manufacture or sale of POY, or
          (b)  acquire, directly or indirectly, an interest in a business which
          manufactures or sells  POY within the Americas,
          (together referred to as the "Acquired Business")

Master Agreement - POY Manufacturing Alliance                                  7

<PAGE>
 
     then Unifi shall obtain DuPont's prior written consent, which consent shall
     not be unreasonably withheld, and further provided that such transaction
     shall not adversely impact the value created by the Alliance.  In the event
     that Unifi builds or acquires an Acquired Business, then the Policy Board
     shall determine whether or not the Acquired Business shall be included in
     this Alliance, in which case this Agreement and the Ancillary Agreements
     shall be amended to integrate the Acquired Business.  If the Policy Board
     decides that the Acquired Business shall not be included in this Alliance,
     then Unifi shall operate the Acquired Business so as to not adversely
     impact the value created by the Alliance.

     2.4.3  DuPont Acquisitions.  Unless otherwise agreed by Unifi, during the
            ----------------------                                            
     term of this Agreement DuPont shall not build or acquire, directly or
     indirectly, a controlling interest in a business which is engaged in the
     manufacture or sale of POY in the Americas, unless such manufacture or sale
     of POY is incidental to the main purpose of the business (i.e. constituting
     less than twenty-five percent (25%) of the total revenue of such business).
     If DuPont does acquire a controlling interest in a business with incidental
     manufacturing or sale of POY, the Parties shall confer in order to
     determine whether such business shall (a) be included in this Alliance, in
     which case this Agreement and the Ancillary Agreements shall be amended to
     integrate such incidental business, (b) sold to Unifi (and the Parties
     shall decide whether it shall be included in this Alliance, in which case
     this Agreement and the Ancillary Agreements shall be amended to integrate
     such incidental business), or (c) sold to a third party.


ARTICLE 3:  SUPPLY OF PRODUCT - SHORTFALL OF CAPACITY
-----------------------------------------------------

3.1  Shortfall of Capacity. If for any reason there is a Shortfall of Capacity,
     ---------------------                                                      
     then the Parties shall equally reduce the volume of POY that they draw from
     the Facilities.  The Parties intend that the reduced production arising
     from such lost capacity shall be from lower value Products.


ARTICLE 4:  SHARING OF MANUFACTURING COSTS
------------------------------------------

Each Party will pay the cost of operation for its own Facilities.  Each month
during the term of the Alliance, the Parties shall reconcile certain costs of
manufacture, as follows:

4.1  Cash Fixed Manufacturing Costs.
     ------------------------------ 

     (a)  DuPont Manufacturing Costs.  DuPont will bear the DuPont Base Cash
          --------------------------                                        
          Fixed Costs.

Master Agreement - POY Manufacturing Alliance                                  8

<PAGE>
 
     (b)  Unifi Manufacturing Costs.  Unifi will bear the Unifi Base Cash Fixed
          -------------------------                                            
          Costs.

     (c)  Calculation of Cash Fixed Manufacturing Costs.  Cash fixed
          ---------------------------------------------             
          manufacturing costs shall be calculated as per Schedules 4 and 5 and
          consistently applied, provided, however:
               (i)  at the Kinston Facility and the Yadkinville Facility, the
                    Parties shall not benefit from the addition of new non-POY
                    business operations and shall not be penalized by the
                    departure of non-POY business operations from such
                    Facilities.
               (ii) at the Cape Fear Facility, the Parties shall not benefit
                    from the addition of new non-POY business operations and
                    shall not be penalized by the departure of non-POY business
                    operations; provided, however, that after the shutdown of
                    the Cape Fear Facility (where the dismantlement and
                    rearrangement costs for the POY Facility are shared by the
                    Parties) the Parties shall benefit from the reallocation in
                    non-reducible cash fixed manufacturing costs previously
                    allocated to the POY cash fixed manufacturing costs arising
                    from the addition of new non-POY business operations.

     (d)  Sharing of Cash Fixed Manufacturing Costs.  Any difference between:
          -----------------------------------------                          
               (i)  the sum of DuPont's actual cash fixed manufacturing costs
                    and Unifi's actual cash fixed manufacturing costs, and
               (ii) the sum of the DuPont Base Cash Fixed Costs and the Unifi
                    Base Cash Fixed Costs
          shall be shared equally by the Parties (subject to the proviso in
               paragraph (c) above).

4.2  Variable Costs.
     -------------- 

     (a)  DuPont Variable Costs. DuPont will bear the DuPont Base Variable
          ---------------------                                            
          Costs.

     (b)  Unifi Variable Costs. Unifi will bear the Unifi Base Variable Costs.
          --------------------                                                 

     (c)  Calculation of Variable Costs. Variable cash costs shall be calculated
          -----------------------------                                         
          as per Schedules 4 and 5 consistently applied.

     (d)  Sharing of Variable Costs. Any difference between:
          -------------------------                          
          (i)  the sum of DuPont's actual variable cash costs and Unifi's actual
               variable cash costs, and
          (ii) the sum of the DuPont Base Variable Costs and the Unifi Base
               Variable Costs,

Master Agreement - POY Manufacturing Alliance                                  9

<PAGE>
 
               shall be shared equally by the Parties.

4.3  Sharing of Costs and Expenditures to Optimize Assets.
     ---------------------------------------------------- 

     4.3.1  Equal Sharing of Certain Cash Costs.  The Parties shall share
            -----------------------------------                          
            equally all costs and expenditures related to the ongoing
            implementation of this Agreement including but not limited to all
            costs and expenditures necessary to achieve the asset optimization
            plan, including costs and expenditures incurred to reduce the total
            manufacturing costs to both Parties. Such costs and expenditures, by
            way of example, shall include all cash costs for DuPont's shutting
            down or scaling back production at the Cape Fear Facility (including
            employee severance costs and dismantlement and rearrangement of the
            POY Facility), one-time costs for transferring production from one
            Facility to another Facility to achieve manufacturing cost savings,
            capital expenditures at any of the Facilities if the primary purpose
            of such capital expenditures would be to expand production,
            manufacture the Unifi Other-Sourced Volume, enrich the Product mix,
            or reduce manufacturing costs, etc. However, such expenditures shall
            not include capital expenditures for maintenance or creep investment
            even if such expenditures produced ancillary manufacturing cost
            savings. Such maintenance or creep investment is solely for the
            account of the Party owning the Facility in question.

     4.3.2  Treatment of Certain Capital Expenditures.  Capital expenditures
            -----------------------------------------                       
            (estimated to total $5 - 10 million) for new assets for shared cost
            savings or expansion will be shared equally by both Parties, and the
            Parties will jointly own such assets and share equally in the
            depreciation thereon, but only if such assets are separable from the
            existing equipment of the Parties. If the new equipment is such an
            integral part of one Party's existing equipment that it could not be
            later separated from the existing equipment, then the Party owning
            the existing equipment shall make all of the new capital expenditure
            and the other Party shall compensate the investing Party over time
            in a way that puts both Parties in the same cash flow position as
            though they had made the investment jointly, including compensation
            to the investing Party for lost time value of money, as shown by way
            of example in Schedule 11 attached hereto. Any amounts owing by one
                          --------                                              
            Party to the other with respect to such inseparable expenditures at
            the time of the exercise of the put or call options (described in
            Article 14 below) shall be taken into consideration in determining
            the purchase price for the Business.

4.4  Extraordinary Costs. The Parties agree that Extraordinary Costs shall be
     -------------------                                                     
     paid solely by the Party incurring those costs and such Extraordinary Costs
     shall not be considered in connection with determining sharing of costs or
     revenues.

Master Agreement - POY Manufacturing Alliance                                 10

<PAGE>
 
4.5  Depreciation. Each Party shall bear all depreciation on its own equipment
     -------------                                                             
     and assets in operation on the Effective Date and on all maintenance or
     creep investment for which it is solely responsible pursuant to Section
     4.3.1 above. All depreciation on capital expenditures which are to be split
     between the Parties shall be shared equally pursuant to Section 4.3.

4.6  Mix Impact on Variable Cost. To the extent that the mix of Products
     ---------------------------                                         
     comprising the DuPont Merchant Market Sales and the Unifi DuPont-Sourced
     Volume changes materially from the base period (with respect to the DuPont
     Base Variable Costs), the Parties shall equitably adjust the DuPont Base
     Variable Costs arising from such changes.

4.7  Warehousing Costs. After the Transition Period, the Parties shall
     -----------------                                                 
     establish a baseline for their respective warehousing costs for Products
     during the first full calendar quarter after such Transition Period.
     Thereafter, any changes in the Parties' total warehousing costs shall be
     equally shared by the Parties.

4.8   Working Capital, Freight, Etc. Consistent with the overall intent of this
      -----------------------------                                             
      Agreement, neither Party shall be advantaged or disadvantaged by changes
      in working capital (inventory, accounts receivable, and accounts payable),
      freight, or other cash or expense items that may change solely as a result
      of the formation or operation of the Alliance. Further, the Parties will
      share equally in changes (increases or decreases) in these items.
      Procedures for sharing such changes will be determined at a later date.

ARTICLE 5:  SHARING OF REVENUES
-------------------------------

5.1  Sharing of Certain Revenues.  The Parties shall share certain revenues
     ---------------------------                                           
     arising from the Businesses, as follows:

     5.1.1  All sales and revenues with respect to the Unifi DuPont-Sourced
            Volume and DuPont Merchant Market Sales shall be solely for the
            account of DuPont.

     5.1.2  The Shared Revenues shall be shared equally by the Parties.

     5.2    Treatment of Fiberstock. The Parties shall explore opportunities to
            -----------------------                                             
     add value to the Fiberstock produced by DuPont.  The value added by the
     Parties from further processing (excluding "Clover" processing) of
     Fiberstock shall be shared equally.

Master Agreement - POY Manufacturing Alliance                                 11

<PAGE>
 
ARTICLE 6: RECONCILIATIONS
--------------------------

6.1  The Parties will reconcile monthly in arrears on the sharing of costs and
     revenues as set forth herein. Cash imbalances will be settled quarterly on
     a year-to-date basis.  A final settlement of all elements will made
     annually.  For this purpose (a) quarterly is each three (3) months
     beginning June 1, 2000; and (b) annually is the twelve (12) month period
     from June 1 to May 31.  Cash imbalances will be paid as soon as possible,
     but not later than the 25/th/ of the month after the actual month covered
     by the reconciliation. For example, quarterly cash imbalances will be paid
     not later than the 25/th/ of September (for 1/st/ quarter actual), December
     (for 6 months actual), March (9 month actual), and June (for the actual
     contract year).

6.2  Any reconciliation shall specifically exclude access to any information
     regarding the Parties' marketing, sales and distribution of Products.


ARTICLE 7:  MANAGEMENT/GOVERNANCE
---------------------------------

7.1  Supervisory Board - General. A Supervisory Board consisting of two (2)
     ---------------------------                                           
     member chosen by DuPont and two (2) member chosen by Unifi shall be formed.
     The Supervisory Board shall be responsible for the strategic direction of
     the Alliance and resolution of disputes not resolved by the Policy Board.
     Supervisory Board decisions shall be made only by unanimous vote (except
     where expressly agreed otherwise by the Parties in writing).  The members
     of the Supervisory Board shall not receive remuneration for their services.

     The Supervisory Board shall meet upon the request of either Party, with
     written notice to each of the members.  The meeting will be held in such
     locations as the Parties may mutually agree.  Decisions can also be made in
     writing by the Supervisory Board, without a meeting being held, provided
     that both members shall confirm their approval of such decisions in
     writing.  Either Party may invite any employee of the Parties to attend a
     meeting of the Supervisory Board, provided, however, that it notifies the
     other Party of the identity of the guest and the purpose for the
     invitation.

7.2  Policy Board - General.
     ---------------------- 

     7.2.1  The Parties shall cause the Alliance to function in a coordinated
            manner, under the overall direction of a Policy Board made up as
            provided in this Article 7.

     7.2.2  The Parties and the Policy Board shall to the extent practicable,
            make decisions which maximize the creation of economic value for the
            Parties

Master Agreement - POY Manufacturing Alliance                                 12

<PAGE>
 
            as a whole, rather than deciding in favor of any one Party over the
            other Party.

7.3  Policy Board Members. On the Effective Date hereof a Policy Board,
     --------------------                                               
     consisting of two (2) members chosen by DuPont and two (2) members chosen
     by Unifi shall be formed. Policy Board decisions shall be made only by
     unanimous vote (except where expressly agreed otherwise by the Parties in
     advance in writing).  The members of the Policy Board shall not receive
     remuneration for their services.

7.4  Policy Board Matters. The Policy Board's responsibility is to resolve
     --------------------                                                  
     disputes and insure fairness between the Parties consistent with the intent
     of the Alliance.  The Policy Board will approve all shared costs and
     capital expenditures and the asset optimization plans.  The Policy Board
     shall monitor the progress of such asset optimization plans.  Additionally,
     for personnel who are severed in connection with implementation of the
     asset optimization plans, the Policy Board will proactively seek to find
     employment with the Parties.  The Policy Board shall monitor quarterly the
     placement of personnel who are severed in connection with implementation of
     the asset optimization plans.  The Policy Board shall decide matters which
     (i) are material to the economic value of the Parties, or (ii) would
     materially affect the financial results of the Parties as such financial
     result relates to the Alliance.  Such issues comprise primarily, but are
     not limited to:

       (a) Annual operating and shared capital investment plans;

       (b) Contractual arrangements relating to the Alliance between the Parties
           or their Affiliates entered into after the Effective Date; and

       (c) Acquisitions or dispositions of assets (including permanent shutdown
           of capacity) relating to the Alliance.

     In addition, the Policy Board shall periodically review:

          (a) The operation of the Facilities versus historical operating
              parameters;

          (b) Manufacturing cost performance;

          (c) Future operations plans, forecasts of production and shipments,
              scheduling and delivery concerns; and

          (d) Capital projects (the expenditure of which is to be shared
              pursuant to Section 4.3), including the status of current
              projects, review of upcoming and new projects and allocations of
              capital projects.

Master Agreement - POY Manufacturing Alliance                                 13

<PAGE>
 
7.5  Meetings. The Policy Board shall meet upon the request of either Party,
     --------                                                                
     with written notice to each of the members, but in no event less frequently
     than four (4) times per calendar year.  The meeting will be held in such
     locations as the Parties may mutually agree.  Valid meetings of the Policy
     Board require that at least more than half of the members are present in
     person.  Decisions can also be made in writing by the Policy Board, without
     a meeting being held, provided that all of the members shall confirm their
     approval of such decisions in writing.  Either Party may invite an employee
     of the Parties to attend a meeting of the Policy Board, provided, however,
     that it notifies the other Party of the identity of the guest and the
     purpose for the invitation.

7.6  Management Committees. The Parties shall form the following management
     ---------------------                                                 
     teams to support the objectives of the Alliance:

     7.6.1  Asset Optimization. An asset optimization team shall develop the
            ------------------                                               
     overall strategy for optimizing the operation and reducing the cost of the
     Facilities.  The asset optimization team shall include business
     representatives of both Parties.

     7.6.2  Supply Chain Management. The Parties shall cooperatively develop
            -----------------------                                          
     overall production scheduling and a supply chain plan for the Alliance.
     The supply chain team shall include business representatives of both
     Parties and representatives from all Facilities.  DuPont shall have lead
     responsibility for the overall production scheduling and supply chain
     planning of the Alliance.  DuPont, following consultation with Unifi, shall
     resolve all conflicts with respect to production scheduling and supply
     chain planning, taking into account Unifi's requirements for POY.

     7.6.3  Management Process. The Parties or the Policy Board may establish
            -------------------                                               
     other management committee(s) to oversee the Alliance and make
     recommendations to the Policy Board and shall:

       (a) Provide long-term direction to the Alliance in making operational
           decisions and determining policies to ensure manufacturing
           optimization.

       (b) Facilitate performance through setting targets for the manufacturing
           operation and monitoring performance.

       (c) Lead the integration effort to bring both Parties' manufacturing
           operations that relate to the Businesses together by monitoring
           transition/integration progress and resolving conflicts.

       (d) Develop principles for operations planning and scheduling processes
           and coordinate scheduling of Products on production lines with strong
           focus on lowest cost production, highest quality products and
           greatest customer satisfaction.

Master Agreement - POY Manufacturing Alliance                                 14

<PAGE>
 
       (e) Develop asset plans (e.g., upgrades, best practice transfer
           initiatives, new investments, moves or shutdowns) consistent with the
           purpose of the Alliance.

       (f) Develop critical operating tasks for various elements in the
           manufacturing organization.

  7.7  Further Relationships.  During the term of this Alliance, the members of
       ---------------------                                                   
       the Policy Board and the Parties may explore alternate structures for the
       Alliance.


ARTICLE 8:  FAIRNESS REVIEW
---------------------------

     The Policy Board will review continually the fairness of the cost and
benefit sharing, and the Policy Board may consider any changes necessary to
reflect changes in the Product market or the needs of the Parties.


ARTICLE 9:  PERSONNEL AND PLANT OPERATIONS
------------------------------------------

9.1  All personnel of the Businesses shall remain on the rolls of their
     respective employers. DuPont and Unifi, as the case may be, shall have full
     function and management of their respective employees.

9.2  To the extent that the asset optimization plan results in severance of any
     personnel (including the personnel at the Cape Fear Facility), both Parties
     shall use diligent and conscientious efforts in good faith to find
     opportunities for such severed employees.

9.3  The Parties shall be responsible for operation of their respective
     Facilities, and shall do so in accordance with their respective corporate
     policies concerning matters such as health, safety, environmental
     protection and employee relations.

     9.3.1  Recognizing that operating decisions and practices relating to the
            Facilities affect cost, quality, and availability of POY for both
            Parties, the Parties, consistent with their responsibility for
            operation of the Facilities, shall treat the other Party's interests
            with respect thereto equally with their interests. It is the intent
            of both Parties to drive toward continuous improvement in and
            reduction of the cost of manufacture of POY.

9.4  The Parties shall comply with all laws that govern the employment
     relationship with their respective employees, including but not limited to
     laws regarding discrimination in employment, workers' compensation, and
     wage and salary administration.  During the term of this Agreement, the
     Parties shall also fulfill 

Master Agreement - POY Manufacturing Alliance                                 15

<PAGE>
 
     their obligations under collective bargaining agreements, if any,
     applicable to the personnel. The Parties shall independently have the
     ultimate right and responsibility:

     (i)   to direct the hiring terminating and transferring of their personnel;

     (ii)  to direct, control, supervise and evaluate the manner and means of
           the personnel's performance of services; and

     (iii) to determine the amount of compensation and bonus payable to their
           respective personnel.


ARTICLE 10: TECHNOLOGY AND TRADEMARKS
-------------------------------------

10.1  License of Existing Technology. On the Effective Date, Unifi shall grant
      ------------------------------                                           
      DuPont a non-exclusive, non-transferable (with no right to sublicense)
      license with no royalty or other payment for the right to use only at the
      Cape Fear Facility and the Kinston Facility Unifi's patents and technical
      know-how in commercial use only at the Yadkinville Facility as more fully
      described in the Technology Cross-License Agreement. Unifi shall seek to
      obtain approval for the sub-license of "MOD-4" technology (from Zimmer);
      if such approval is not obtained then such technology shall be excluded.
      On the Effective Date, DuPont shall grant Unifi a non-exclusive, non-
      transferable (with no right to sublicense) license with no royalty or
      other payment for the right to use only at the Yadkinville Facility
      DuPont's patents and technical know how in commercial use only at the Cape
      Fear Facility and the Kinston Facility as more fully described in the
      Technology Cross-License Agreement. DuPont's 3GT technology and know-how
      is excluded.

10.2  License of Other Technology. The Parties can license future technical
      ----------------------------                                          
      developments from the other on a royalty basis, in which case to the
      extent that the benefit of such license shall be shared equally by the
      Parties the cost of such royalties shall be shared equally by the Parties.
      To the extent that the Kinston Facility or the Cape Fear Facility obtain
      research or development services from DuPont related to asset
      optimization, cost savings or productivity improvement, the cost for such
      services shall be shared equally by the Parties. To the extent that the
      Yadkinville Facility obtains research or development services from Unifi
      related to asset optimization, cost savings or productivity improvement,
      the cost for such services shall be shared equally by the Parties. Any
      shared license fees or costs for research and development services shall
      be negotiated between the Parties.

10.3  Jointly Developed Process Technology.  The Parties shall jointly own any
      ------------------------------------                                    
      patents, technical knowledge or other intangible rights of any kind or
      nature related to the POY manufacturing processes at the Facilities that
      are developed 

Master Agreement - POY Manufacturing Alliance                                 16

<PAGE>
 
     during the term of the Alliance by the Parties pursuant to a specific joint
     development program approved by the Parties. The Parties shall share the
     costs associated with obtaining and maintaining any patents, trademarks
     and/or copyrights on such jointly developed technology.

10.4 Rights of the Parties.  The Parties acknowledge that, unless otherwise
     ---------------------                                                 
     agreed, no Party shall obtain ownership rights or the right to use
     intellectual property rights or technical information of the other Party by
     virtue of its status as a participant in the Alliance.  DuPont and Unifi
     shall license to each other technology in commercial use as of the
     Effective Date at their respective Facilities for the manufacture of
     Products at the Facilities, pursuant to the terms of the Technology Cross-
     License Agreement.

10.5 Product Scale-Up of Newly Developed Products.  Unifi grants to DuPont the
     ---------------------------------------------                            
     right to conduct scale-up of newly developed Products at the Yadkinville
     Facility.  Such scale-up shall be conducted in essentially the same manner
     as DuPont presently conducts the scale-up of Products at the Kinston
     Facility or the Cape Fear Facility.

     DuPont grants to Unifi the right to conduct scale-up of newly developed
     Products at the Kinston Facility and the Cape Fear Facility.  Such scale-up
     shall be conducted in essentially the same manner as Unifi presently
     conducts the scale-up of Products at the Yadkinville Facility.

     Costs for any such Product scale-up shall be included in the Parties' Cash
     Fixed Manufacturing Costs and the Variable Cash Costs. Such costs are
     currently included in the base period manufacturing costs.

10.6 DACRON(R) Trademark. In order to create and preserve value for the Parties:
     -------------------                                                        
     (a) Unifi shall be permitted to continue to sell DTY using the DACRON(R)
     trademark under existing marketing programs approved by DuPont; (b) DuPont
     shall consider any additional or new uses of the DACRON(R) trademark by
     Unifi, which additional or new uses shall be approved in writing in advance
     by DuPont.

10.7 No Other Rights.  Except as expressly provided herein or in the Technology
     ---------------                                                           
     Cross-License Agreement, the Parties grant no right or license, either
     express or implied, under any patent or trademark or to any know-how.


ARTICLE 11: IMPACT OF ACQUISITIONS
----------------------------------

11.1 In the event Unifi acquires another DuPont POY customer located in the
Americas, then DuPont shall continue to supply at least the same quantity of POY
(or lower quantities if such customer's demand for POY is reduced due to changes
in market demand) to such acquired company (or directly to Unifi if such
acquired company shall 

Master Agreement - POY Manufacturing Alliance                                 17

<PAGE>
 
be merged into Unifi), and such quantity shall continue to be considered as
DuPont Merchant Market Sales (assuming that such quantity is within the first
250 million pounds base of DuPont Merchant Market Sales); provided, however that
the price for such POY shall be the actual net product price (including freight
if paid by the other supplier and excluding freight if paid by Unifi) to such
POY customer in effect on the date of acquisition by Unifi, adjusted quarterly
for relative changes in Unifi's DTY prices for the corresponding Product
segment/application.

11.2 The term "acquires" as used in Section 11.1 shall be construed broadly and
shall include without limitation, the acquisition of control of another entity
or an entity, directly or indirectly owns or controls, or is under common
ownership or control with Unifi.  For the purpose of this definition "control"
shall mean the power to direct or cause the direction of the management and
policies of an entity whether through the ownership of voting securities, by
contract or otherwise and "controlled" shall be construed accordingly.


ARTICLE 12:  REPORTING, TAX AND AUDITING
----------------------------------------


12.1 Books and Records.  The Parties shall keep full and adequate books and
     -----------------                                                     
     accounts and other records to allow proper monthly financial reconciliation
     to be provided to the Parties for the purpose of reconciling the financial
     results in accordance with the terms of this Agreement.  The Parties shall
     cooperate with each other to set up the necessary accounting and financial
     reporting procedures in order to minimize the burden and cost of their
     requirements, while achieving the necessary end result in a satisfactory
     way.  Books and records include books, files, reports, plans, drawings and
     operating records of every kind used in the POY manufacturing operation.
     The Parties shall retain such books and records and the Business Data (as
     defined in Section 12.3) for a period of at least seven (7) years following
     the date of creation of such information.


12.2 Periodic Reports.  The Parties shall furnish the Policy Board with monthly
     ----------------                                                          
     written reports of financial results and reconciliations in a form
     acceptable to the Policy Board.  Such reports shall include significant
     actions and events affecting the Alliance including manufacturing costs.
     The Parties shall prepare such additional reports as the Policy Board shall
     require from time to time.

12.3 Auditing.  The Parties will maintain and provide upon request by the other
     --------                                                                  
     Party such accounting records and information required to meet the
     reporting obligations of each Party in relation to its participation in the
     Alliance.  Each of the Parties at its own expense shall have the right at
     any time to audit (a) the manufacturing costs of the other Party, (b)
     changes in Unifi's DTY prices, (c) Shared Revenues (including the costs and
     benefits mix of such Products), (d) the price of POY previously supplied by
     third parties to Unifi (and now supplied by 

Master Agreement - POY Manufacturing Alliance                                 18

<PAGE>
 
     DuPont as the DuPont Other Sourced Volume), (e) information required to be
     submitted to government authorities, and (f) such other costs as the
     Parties shall mutually agree ("collectively, the "Business Data"). The
     timing of any audit shall be reasonably acceptable to the Parties, and the
     audit shall be conducted in a manner that does not interfere with the
     normal operations of the Parties. The audit shall be conducted by a
     mutually acceptable independent accounting firm. Unless otherwise agreed,
     details of the review and all work papers and related supporting data
     pertaining to the review shall be held in strict confidence by the
     accounting firm and will not be shown, divulged or delivered to the other
     Party or any third party. The Parties agree that, under normal
     circumstances, an audit on a particular activity should not take place more
     often than once a year.

12.4 Internal Controls.  The Parties shall maintain adequate internal controls.
     -----------------                                                         


ARTICLE 13:  TERM; TERMINATION
------------------------------

13.1 Effective Date.  This Agreement shall become effective on the Effective
     --------------                                                         
     Date and shall continue in full force and effect until terminated in
     accordance with this Article 13.

13.2 Termination.  This Agreement and the Ancillary Agreements may, subject to
     -----------                                                              
     the other provisions of this Article 13, be terminated as follows:

     13.2.1  by mutual agreement of the Parties;

     13.2.2  by any Non-Bankrupt or Non-Breaching Party (both as defined below)
             on written notice following entry of final judgment, that is not
             subject to appeal, by a court of competent jurisdiction ordering
             the dissolution of a Party pursuant to applicable law;

     13.2.3  by a Party (a "Non-Bankrupt Party") on written notice after the
             filing of bankruptcy proceedings or insolvency proceedings with
             respect to the other Party (such other Party, the "Bankrupt
             Party"), which proceedings are not dismissed or discharged within
             thirty (30) days of such filing; provided, however, that the Non-
             Bankrupt Party shall have, in addition to the right so to terminate
             this Agreement, all such other rights and remedies to which it is
             entitled at law or in equity;

     13.2.4  by a Party (the "Non-Breaching Party"), where the other Party or
             its Affiliate (the "Breaching Party") has committed a substantial
             breach of any of its obligations under this Agreement or any of the
             Ancillary Agreements and shall have failed to cure such breach
             within sixty (60) days after receipt of written notice thereof from
             the Non-Breaching Party specifying such breach; provided, however,
             that the Non-Breaching Party 

Master Agreement - POY Manufacturing Alliance                                 19

<PAGE>
 
             shall, in addition to the right so to terminate this Agreement,
             have all such other rights and remedies to which it is entitled at
             law or in equity; and

     13.2.5  by a Party where the other Party is unable to perform its
             obligations hereunder due to an Uncontrollable Event for a period
             of more than sixty (60) days beyond the date or period otherwise
             specified for such performance, provided, however, that the
             termination of this Agreement and the Ancillary Agreements shall be
             extended for up to ninety (90) days in the event that the non-
             performing Party is diligently seeking to remedy the non-
             performance.

13.3 Termination of Ancillary Agreements.  If (a) this Agreement is terminated
     -----------------------------------                                      
     under the provisions of this Article 13 or (b) DuPont's Business is sold to
     Unifi pursuant to the provisions of Article 14 or (c) Unifi's Business is
     sold to DuPont pursuant to the provisions of Article 14, then the
     Technology Cross-License Agreement shall terminate.  This Agreement and the
     Ancillary Agreements shall, notwithstanding the service of written notice
     and commencement of termination procedures under this Article 13, continue
     in full force and effect; and the Parties shall continue their performance
     hereunder and thereunder, until the sale of one Party's Business to the
     other pursuant to Article 14.


ARTICLE 14:  PURCHASE / SALE OPTIONS
------------------------------------

14.1 Options to Sell/ Purchase DuPont's Business.  Unless otherwise agreed, at
     -------------------------------------------                              
     the time of termination of this Agreement for any reason or at any time
     after the end of the fifth (5th) year of the term of this Agreement:

     (a)  DuPont shall have the irrevocable right but not the obligation to put
          to Unifi all (but not less than all) of DuPont's Business and the
          DuPont Business Assets in accordance with the Asset Transfer
          Agreement.  Unifi shall be obliged to purchase DuPont's Business and
          Business Assets, subject to the provisions of this Article.

     (b)  Unifi shall have the irrevocable right but not the obligation to call
          all (but not less than all) of DuPont's Business and the DuPont
          Business Assets in accordance with the Asset Transfer Agreement.
          DuPont shall be obliged to sell DuPont's Business and Business Assets,
          subject to the provisions of this Article.

14.2 Manner of Exercise.  Such put/call options shall be exercised by written
     ------------------                                                      
     notice ("Notice of Exercise") by one Party to the other, in which case the
     Parties shall use all reasonable efforts to proceed to Closing as quickly
     as possible.  The Parties shall not be required to make any option payments
     or pay any other consideration for the right to exercise the put/call.

Master Agreement - POY Manufacturing Alliance                                 20

<PAGE>
 
14.3 Price for DuPont's Business.
     ----------------------------

     (a)  The purchase price for DuPont's Business and Business Assets shall be
          determined by mutual agreement of the Parties.  In the event the
          Parties cannot mutually agree on the price within thirty (30) days
          following receipt of the Notice of Exercise or such other time as the
          Parties may agree, then the Parties shall appoint a single appraiser
          to determine the value of the business.  In the event the Parties
          cannot decide on a single appraiser within forty-five (45) days
          following receipt of the Notice of Exercise, then each Party will
          nominate an appraiser.  Such appraisers shall promptly, but in no
          event more than ninety (90) days following receipt of the Notice of
          Exercise, determine the fair market value of DuPont's Business,
          including the Business Assets.  If the lower of the two appraisals is
          within ten (10%) percent of the higher of the two appraisals, then the
          price will be the average of the two appraisals.  If the two
          appraisals are not within ten percent (10%), then the two appraisers
          will nominate a third appraiser who shall promptly determine such fair
          market value, in which case the price will be the average of the two
          closest appraisals.

     (b)  The appraisals shall value the Business as an on-going concern and
          shall take into consideration all technical and market factors
          relating to the Business, the benefit of any shared savings arising
          from the Alliance, the strategic value of the Business and any
          technology rights conveyed by DuPont to Unifi, the potential future
          cash flow and earnings of the Business; and an identified risk of
          specific business that may reasonably be expected to be lost as a
          result of the change in control.

     (c)  The cost of the appraisal experts selected by the Parties shall be
          paid by the selecting party and the cost of an appraisal expert
          jointly selected by the Parties' or by the Parties' appraisal experts
          shall be borne by the Parties on an equal basis. Each appraiser
          selected pursuant to the provisions of this Section shall be an
          independent, qualified firm with prior experience in appraising
          businesses comparable to POY manufacturing and sale and that is not an
          interested person with respect to any Party.  The determination of
          fair market value of the Business shall be final and conclusive.

14.4 Maximum/Minimum Price for DuPont's Business.  Notwithstanding anything to
     --------------------------------------------                             
     the contrary contained herein, in the event DuPont exercises the put or
     Unifi exercises the call prior to the end of the 6th year of this Alliance,
     then the maximum price for the DuPont Business and the DuPont Business
     Assets shall be Six Hundred Million U.S. Dollars ($600,000,000) and the
     minimum price for the DuPont Business and the DuPont Business Assets shall
     be Three Hundred Million 

Master Agreement - POY Manufacturing Alliance                                 21

<PAGE>
 
     U.S. Dollars ($300,000,000). For clarity, the Parties agree that the DuPont
     Business Assets to be valued and acquired by Unifi shall include the
     inventory of raw materials, work in process, finished goods, stores,
     supplies and packaging materials as more fully set forth in the Asset
     Transfer Agreement, but the valuation shall specifically exclude the
     inventories of finished product which DuPont may acquire from Unifi on or
     after the Effective Date.

14.5 Remedy - DuPont's Right to Purchase Unifi's Business.  If for any reason
     ----------------------------------------------------                    
     (including without limitation breach of this Agreement or any
     Implementation Agreement, insolvency or bankruptcy or Unifi's inability to
     obtain financing), Unifi cannot or does not purchase DuPont's Business and
     the DuPont Business Assets within two hundred seventy (270) days following
     receipt of the Notice of Exercise, then DuPont shall have the option but
     not the obligation to purchase Unifi's Business and the Unifi Business
     Assets by giving written notice of exercise to Unifi.  The price for the
     Unifi's Business and the Unifi Business Assets shall be determined by the
     same mechanism set forth in Section 14.3 above, and the sale shall be on
     substantially the same terms as those contained in the Asset Transfer
     Agreement and the Implementation Agreements. Notwithstanding anything to
     the contrary contained herein, in the event DuPont purchases Unifi's
     Business and the Unifi Business Assets as provided in this Section 14.5,
     then for a period of twelve (12) months following receipt of the Notice of
     Exercise (defined in Section 14.2), the maximum price shall be One Hundred
     Seventy-Five Million U.S. Dollars ($175,000,000) and the minimum price
     shall be One Hundred Twenty-Five Million U.S. Dollars ($125,000,000).

14.6 Conditions Precedent to Closing.  The obligations of the Parties to
     -------------------------------                                    
     complete the proposed transactions under this Article are subject to the
     Conditions Precedent; provided, however, that the Parties may conduct the
     Pre-Closing necessary for the complete performance of the Closing as
     quickly as possible without waiting for the fulfillment of the Conditions
     Precedent.  The Pre-Closing shall also be agreed by the Parties.

     The Parties shall use reasonable efforts to satisfy the Conditions
     Precedent as soon as possible after the Notice of Exercise. The Conditions
     Precedent shall be deemed to have been fulfilled when they have been
     satisfied in accordance with the terms described in Schedule 12. Each
                                                         -----------       
     Party shall advise the other as soon as the Conditions Precedent which
     relate to that Party have been fulfilled and the Closing Date shall be
     confirmed or newly determined as the case may be.

     Subject to agreement between the Parties on the timing and approach to the
     antitrust and regulatory authorities, the Parties jointly will be
     responsible for obtaining all antitrust or regulatory approvals of all the
     governmental authorities of relevant countries necessary to complete the
     proposed transactions. The Parties will use all reasonable efforts to
     obtain such approvals as promptly as possible and, in this regard, provide
     all information requested, shall assist and cooperate


Master Agreement - POY Manufacturing Alliance                                 22

<PAGE>
 
     with one another to make the necessary filings and take other steps to
     secure the non-objection of the antitrust and regulatory authorities.

14.7 Non-Competition.  It is agreed by the Parties and shall be incorporated
     ----------------                                                       
     into the Asset Transfer Agreement (as more fully provided therein) that
     following Closing for the sale of DuPont's Business to Unifi, Unifi and its
     Affiliates will not, directly or indirectly, engage in the sale in or
     transfer to Greater Europe of Products manufactured at the Facilities;
     provided, however, that Unifi shall have the right to transfer specialty
     POY manufactured at the Yadkinville Facility to Unifi's Affiliates located
     in Greater Europe for subsequent processing by such Affiliates (and not for
     resale) if such Affiliates cannot acquire specialty POY of like quality at
     competitive prices from DuPont SA or other European POY suppliers.

     In the unlikely event that Unifi is unable to purchase commodity POY for
     consumption by its Affiliates in Western Europe from DuPontSA or other
     suppliers at prices that are competitive for POY in Western Europe, then
     Unifi shall have the right only for so long as this condition exists to
     transfer commodity POY manufactured at the Yadkinville Plant to its
     Affiliates in Western Europe for subsequent processing by such Affiliates
     (and not for resale).

     It is agreed by the Parties and shall be incorporated into the Asset
     Transfer Agreement (as more fully provided therein) that for a period of
     seven (7) years following Closing of the sale of DuPont's Business to
     Unifi, DuPont will not, directly or indirectly, engage in the sale of
     Products in the Americas.

14.8 Efforts.  Each Party shall use its diligent efforts to obtain all
     -------                                                          
     authorizations, consents, orders and approvals of, and to give all notices
     to and make all filings with, all governmental authorities and other third
     parties that may be or become necessary for such party's execution and
     delivery of, and the performance of its obligations pursuant to this
     Agreement and the Implementation Agreements.  Each Party will cooperate
     fully with the other Party in promptly seeking to obtain all such
     authorizations, consents, orders and approvals, giving such notices, and
     making such filings. The Parties acknowledge that time shall be of the
     essence in this Agreement and agree not to take any action that will have
     the effect of unreasonably delaying, impairing or impeding the receipt of
     any required authorizations, consents, orders or approvals.

14.9 Implementation Agreements.  As soon as reasonably possible, but in no
     --------------------------                                           
     event later than the Closing Date, the Parties shall discuss and finalize
     material and service agreements between DuPont and Unifi, which shall be
     substantially in the form of the following attached Implementation
     Agreements:

Master Agreement - POY Manufacturing Alliance                                 23

<PAGE>
 
     (a)  Attached hereto as Schedule 10 is an Agreed Form Transition Services
                             -----------                                      
          Agreement relative to administrative services that may be provided by
          DuPont to Unifi after the Closing Date.

     (b)  Attached hereto as Schedule 8 is an Agreed Form Kinston Site Services
                             ----------                                        
          Agreement relative to site services to be provided by Unifi to DuPont
          at the Kinston Site after the Closing Date.

     (c)  Attached hereto as Schedule 7 is an Agreed Form Kinston Ground Lease
                             ----------                                       
          Agreement relative to the lease of land at the Kinston Site by DuPont
          to Unifi after the Closing Date.

     (d)  Attached hereto as Schedule 13 is an Agreed Form Material Supply
                             -----------                                  
          Agreement relative to the sale of TPA by DuPont to Unifi after the
          Closing Date.

     (e)  Attached hereto as Schedule 14 is an Agreed Form Material Supply 
                             -----------
          Agreement relative to the sale of MEG by DuPont to Unifi after the
          Closing Date.

     (f)  Attached hereto as Schedule 9 is an Agreed POY Trademark, Patent and
                             ----------                                      
          Technology License Agreement.

     In the event that the Cape Fear Facility is still operating on the Closing
     Date, then the Parties shall enter into a services agreement, in a mutually
     agreeable form,  whereby DuPont shall contract manufacture POY for Unifi.

     In the event DuPont purchases Unifi's Business pursuant to Article 14.5,
     then the Asset Transfer Agreement and the Implementation Agreements shall
     be revised to the limited extent necessary to reflect such transaction.


ARTICLE 15:  CONDUCT OF MANUFACTURING OPERATIONS UNTIL TERMINATION
------------------------------------------------------------------

15.1 Cooperation.  Following the Effective Date, the Parties shall conduct
     -----------                                                         
     their POY manufacturing operation subject to the following provisions:

     a.   The Parties shall do all things as may be required to give effect to
          this Article, including, without limitation, executing all documents,
          convening all necessary meetings, giving all necessary waivers and
          consents, passing all resolutions and otherwise exercising all powers
          and rights available to it.

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<PAGE>
 
     b.   The Parties shall cooperatively discuss and diligently plan for
          integration of their manufacturing operations so as to enable the
          Parties to maximize the synergies that may be derived from the
          formation of the Alliance.

15.2 Conduct of Business.  In the period from the Effective Date until
     --------------------                                             
     termination of the Alliance, the Parties shall conduct their Businesses as
     follows:

     a.   the Business is carried on in the Ordinary Course, with the duty and
          care of a good manager (due care);

     b.   unless otherwise agreed by the Parties capital expenditures project
          which the Parties have commenced to implement within the Business
          shall not be discontinued or progressed other than pursuant to their
          respective capital expenditures project plan;

     c.   except as required by law or by any governmental, administrative, or
          judicial authority of competent jurisdiction or pursuant to any
          agreement, commitment and/or arrangement existing as of the date of
          this Agreement, the Parties shall not:

          (1)  make a substantial change in the terms of employment or benefits
               of any employees except in the Ordinary Course of Business; or

          (2)  sell land or buildings related to the Business Assets which are
               in commercial use; or

          (3)  fail to comply in any substantial respect with applicable laws;
               or

          (4)  fail to maintain in its substance the equipment in its current
               state of repair, excepting normal wear and tear or fail to
               replace consistent with the Parties' past practices.

15.3 Access to Facilities.  Representatives and customers of the Parties may
     ---------------------                                                  
     access the Facilities following reasonable advance notice, provided that
     such Persons comply with applicable site rules and regulations and such
     Persons shall execute confidentiality agreements as may be reasonably
     required by the Parties.


ARTICLE 16: DISPUTE RESOLUTION
------------------------------

16.1 Consultation to Resolve Disputes.  Subsequent to the Effective Date, the
     --------------------------------                                        
Parties shall attempt in good faith to settle disputes between the Parties
relative to (a) the interpretation of this Agreement or any Ancillary Agreement
or (b) the accounting of costs or revenues as provided herein.  In the event
that the Parties cannot resolve a dispute, it may be submitted by either Party
to the Policy Board.  If, after such 

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<PAGE>
 
consultation, the members of the Policy Board cannot solve the dispute, they
will wait for not less than sixty (60) days after the dispute arises and at the
end of such period meet for a second consultation. If the dispute still cannot
be resolved after this second consultation, the matter shall be referred to the
Supervisory Board. The Supervisory Board shall diligently attempt to resolve the
dispute, including, if they deem it necessary, meeting directly in order to
provide full consideration of the dispute. If the Supervisory Board is unable to
resolve the dispute or agree to submission to a non-binding alternate dispute
resolution process within sixty (60) additional days after the second
consultation, then (a) issues relative to the interpretation of this Agreement
or an Ancillary Agreement may be resolved by either Party's referring the matter
to arbitrators for binding arbitration in accordance with this Article 16 for
the purpose of deciding the issue and (b) issues relative to accounting may be
referred to accountants for binding resolution in accordance with this Article
16.

In the case the Parties cannot resolve a dispute relative to all or part of a
budget, the Parties will continue to operate to the extent possible in
accordance with the last approved budget.

16.2  Arbitration Notice.  If the Parties are unable to resolve a dispute
      ------------------                                                 
relative to the interpretation of this Agreement or an Ancillary Agreement
through negotiation as provided in Section 16.1 or to agree upon an alternate
method for doing so, the matter shall, at the written request of either Party,
be finally determined and settled pursuant to arbitration in Washington, D.C.,
by three (3) arbitrators, one (1) to be appointed by Unifi, one (1) to be
appointed by DuPont, and a neutral arbitrator to be appointed by such two (2)
Party-appointed arbitrators.  The neutral arbitrator shall be an attorney and
shall act as chairperson.  Any such arbitration may be initiated by a Party by
written notice ("Arbitration Notice") to the other Party specifying the subject
of the requested arbitration and appointing such Party's arbitrator for such
arbitration.

16.3  Appointment of Arbitrator.  Should (i) a Party receiving an Arbitration
      -------------------------                                              
Notice fail to appoint an arbitrator as herein above contemplated by written
notice to the Party giving the Arbitration Notice within twenty (20) days after
the receipt of the Arbitration Notice, or (ii) the two (2) arbitrators appointed
by or on behalf of the Parties as contemplated in Paragraph 16.2 hereof fail to
appoint a neutral arbitrator as herein above contemplated within twenty (20)
days after the date of the appointment of the last arbitrator appointed by or on
behalf of the Parties, then the American Arbitration Association, upon
application of Unifi or of DuPont, shall appoint an arbitrator to fill any such
position with the same force and effect as though such arbitrator had been
appointed as herein above contemplated.

16.4  Arbitration Proceedings.  The arbitration proceeding shall be conducted in
      -----------------------                                                
the English language in Washington, D.C., in accordance with the Commercial
Rules of the American Arbitration Association. A determination, award or other
action shall be considered the valid action of the arbitrators if supported by
the affirmative vote of two (2) or three (3) of the three (3) arbitrators. The
costs of arbitration (exclusive of the 

Master Agreement - POY Manufacturing Alliance                                 26

<PAGE>
 
expense of a Party in obtaining and presenting evidence and attending the
arbitration, and of the fees and expenses of legal counsel to such Party, all of
which shall be borne by such Party) shall be shared equally by Unifi and DuPont.
The arbitration award shall be final and conclusive and shall receive
recognition, and judgment upon such award may be entered and enforced in any
court of competent jurisdiction.

16.5 Resolution of Accounting Disputes. (a)  If the Parties are unable to
     ---------------------------------                                   
     resolve a dispute relative to accounting matters through negotiation as
     provided in Section 16.1 or to agree upon an alternate method for doing so,
     the matter shall, at the written request of either Party, be finally
     determined by an independent accountant (the "Independent Accountant")
     selected by the Parties.  Any such accounting may be initiated by a Party
     by written notice ("Accounting Notice") to the other Party specifying the
     subject of the requested accounting.

     (b) If the Parties are unable to agree upon the Independent Accountant
     within fourteen (14) days of such Accounting Notice, then the Independent
     Accountant shall be appointed by the President of the American Institute of
     Certified Public Accountants on the application of either Party.

     (c) The Independent Accountant shall act as an expert and not as an
     arbitrator and his/her decision shall (in the absence of manifest error) be
     final and binding on the Parties.  The Independent Accountant shall afford
     the Parties the opportunity of making written representations to him or
     her.


     (d) The fees and expenses of the Independent Accountant shall be borne by
     the Parties in equal shares unless the Independent Accountant otherwise
     determines.

16.6 Disputed Payments.  If a payment made or to be made hereunder is disputed,
     ------------------                                                        
     then the undisputed portion of the payment shall be made and the disputed
     portion of the payment shall thereafter be resolved pursuant to the terms
     of this Article 16.  If the resolution of the disputed payment requires
     payment from one Party to another upon final determination of the
     Independent Accountant, then such payment shall bear interest at a
     reasonable rate from the date of the original disputed payment.


ARTICLE 17:  ASSIGNMENT
-----------------------

17.1 This Agreement may not be transferred or assigned to a third party without
     the prior written consent of the other Party, which consent shall not be
     unreasonably withheld; provided, however, that this Agreement may be freely
     assigned by either Party to an Affiliate in which case the Affiliate shall
     assume the transferring Party's rights and obligations under this Agreement
     and the transferring Party shall guarantee its Affiliate's performance
     thereunder.

Master Agreement - POY Manufacturing Alliance                                 27

<PAGE>
 
ARTICLE 18:  REPRESENTATIONS AND WARRANTIES
-------------------------------------------

18.1 Each Party represents and warrants to the other Party as follows:

     (a)  The Party is a corporation duly organized, validly existing and in
          good standing under the laws of the jurisdiction of its organization
          and has full corporate power to own, lease or operate its assets,
          properties and businesses and to enter into this Agreement.

     (b)  The execution, delivery and performance by the Party of this Agreement
          and the consummation of the transactions contemplated hereby:  (1)
          have been duly authorized and approved by the governing board of the
          Party; (2) do not conflict with any provision of the Certificate of
          Incorporation, Bylaws or other organizational documents of the Party;
          (3) do not violate any law, regulation, order of judgment or decree by
          which the Party is bound; or (4) do not conflict with or result in a
          breach of any agreement, contract or commitment to which the Party is
          obligated.

     (c)  Other than any action contemplated by the relevant antitrust
          authorities, there are no material actions or proceedings pending, or
          to the knowledge of the Party, threatened, at law or in equity, before
          any court or before or by any governmental agency, or by any private
          person or entity which would challenge the validity or enforceability
          of this Agreement, interfere with the performance by the Party of its
          obligations hereunder or result in the imposition of any encumbrance
          of any kind on or result in any diminution in value of the Parties'
          respective Business Assets.


ARTICLE 19.  OPERATION UNTIL SALE
----------------------------------

19.1 The Parties covenant and agree that between the Effective Date and the
     Closing Date the Parties shall not, without having received the prior
     written consent of the other Party, do any of the following with respect to
     its Business:

     (a)  sell, demolish, remove, alter, enlarge or dispose (or permit same) of
          any of the Business Assets to any material extent, other than in the
          Ordinary Course of Business (including sales of Inventory in the
          ordinary course);

     (b)  make any material change in the operation of its Business Assets other
          than in the Ordinary Course of Business;

     (c)  alter or revise in any material respect the accounting principles,
          procedures, methods or practices being used in connection with the
          Alliance.

Master Agreement - POY Manufacturing Alliance                                 28

<PAGE>
 
ARTICLE 20:  CONFIDENTIALITY
----------------------------

20.1 The Parties shall provide that their employees, officers, directors,
     advisors, affiliates shall treat as confidential and not use for purposes
     other than as contemplated by the Agreement for the term of this Agreement
     and a period of ten (10) years following termination hereof, the Letter of
     Intent dated March 12, 2000 (the "LOI"), or any of their provisions, as
     well as all business, technical and intellectual property information
     disclosed or which otherwise becomes known pursuant to this Agreement
     ("Confidential Information").  This obligation of confidentiality shall not
     apply to:

     (a)  information which is or becomes known publicly through no fault of the
          receiving Party;

     (b)  information learned by the receiving Party from a third party entitled
          to disclose it;

     (c)  information already known to the receiving Party before receipt from
          the other Party as shown by the receiving Party's written records.

     (d)  information which a Party is legally obliged by a court or
          governmental entity to furnish but only to the extent such Party is so
          obligated, and only after such Party has notified the other Party of
          such obligation.

     (e)  the furnishing of the documents in connection with (i) the Parties'
          HSR Act filings, (ii) documents required to be submitted to the
          Securities and Exchange Commission or (iii) compliance with other
          governmental laws or regulations.

20.2 Confidential Information disclosed with regard to this Agreement shall not
     be disclosed to any person or entity which is not either an employee,
     officer, director of a Party or its Affiliates or its advisors who requires
     to see the Confidential Information for the purposes of this Agreement or
     who has not agreed in writing to treat such Confidential Information as
     confidential in accordance with the terms of this Agreement.  Upon
     termination or expiration of this Agreement, all materials containing
     Confidential Information disclosed hereunder shall promptly be returned to
     the disclosing Party upon its request.

ARTICLE 21:  COMPLIANCE
-----------------------

21.1 The covenants and agreements set out in this Agreement shall bind the
     Parties, and their permitted successors and assigns.  Each of the Parties
     shall cause compliance with this Agreement by its Affiliates.

Master Agreement - POY Manufacturing Alliance                                 29

<PAGE>
 
ARTICLE 22:  FURTHER ASSURANCES
-------------------------------

22.1 Each of the Parties agrees to take all reasonably necessary steps to do
     all such further acts and things as may be necessary to cause the purposes
     and intentions of this Agreement to be carried out.


ARTICLE 23:  AMENDMENT AND MODIFICATION
---------------------------------------

23.1 This Agreement may be amended, modified, and supplemented only by written
     agreement of the Parties.  Whenever this Agreement requires or permits
     waivers or consents by or on behalf of any Party, any such waiver or
     consent shall be given in writing.

ARTICLE 24: ENTIRE AGREEMENT
----------------------------

24.1 This Agreement (including the Appendices, Exhibits, Schedules and other
     agreements referred to herein) embodies the entire agreement and
     understanding of the Parties with respect to the matters contemplated
     thereby.  There are no restrictions, promises, representations, warranties,
     covenants, or undertakings with respect thereto, other than those set forth
     or referred to in this Agreement, the Appendices, and the Schedules and
     Exhibits appended hereto.  This Agreement supersedes all prior agreements
     and understandings between the Parties with respect to the subject matter
     hereof, including but not limited to the Letter of Intent between the
     Parties dated March 12, 2000.  Except as provided for herein, no rights in
     favor of third parties are hereby created.  In the event and to the extent
     that the provisions of the Ancillary Agreements conflict with the terms of
     this Agreement, the terms of the Ancillary Agreements shall control unless
     otherwise specifically provided herein.


ARTICLE 25:  COSTS AND EXPENSES
-------------------------------

25.1 Each Party hereto shall pay its own legal, accounting and other expenses
     incident to this Agreement and the agreements appended hereto and the
     consummation of the transactions contemplated hereby.


ARTICLE 26:  GOVERNING LAW
--------------------------

26.1 This Agreement shall be interpreted and construed in accordance with the
     laws of the State of North Carolina, USA.  To the extent that any Ancillary
     Agreement contains its own choice of law provision, the terms of that
     choice of law provision 

Master Agreement - POY Manufacturing Alliance                                 30

<PAGE>
 
     shall prevail over this provision with respect to any dispute under that
     Ancillary Agreement.


ARTICLE 27:  COUNTERPARTS
-------------------------

27.1 This Agreement may be executed in counterparts, each of which shall be
     deemed an original, but all of which together shall constitute one and the
     same instrument.


ARTICLE 28:  EXHIBITS, HEADINGS, AND CAPTIONS
---------------------------------------------

29.1 The Appendices, Schedules and Exhibits to this Agreement are an integral
     part of this Agreement.  The headings and captions contained in this
     Agreement are for reference purposes only and shall not affect in any way
     the meaning or interpretation of this Agreement.


ARTICLE 29:  NOTICES
--------------------

29.1 All notices, consents, requests, demands and other communications
     authorized or required to be given pursuant to this Agreement shall be
     given in writing to the following addresses or to such other addresses as
     the Parties shall provide in a written notice delivered to all other
     parties:

          If to DuPont:
          ------------ 

          E. I. du Pont de Nemours and Company
          1007 Market Street
          Wilmington, DE  19898, USA
          Attention: Group Vice President - Polyester Enterprise (presently
          George F. MacCormack)

          If to Unifi:
          ------------

          Unifi, Inc.
          P. O. Box 19109
          7201 W. Friendly Avenue
          Greensboro, NC 27419-9109, USA
          Attention: Chief Financial Officer (presently Willis C. Moore III)

29.2 Notices under this Agreement shall be deemed effective on the earlier of:
     actual receipt; one (1) working day after dispatch when sent by telex,
     cable or by facsimile to the recipient's proper telex or facsimile number,
     or when delivered by hand; or five (5) working days after being sent by
     express or overnight delivery 

Master Agreement - POY Manufacturing Alliance                                 31

<PAGE>
 
     service addressed as set out above (or as otherwise designated by any party
     in writing by notice given in accordance with this Article 29).


ARTICLE 30:  PUBLIC ANNOUNCEMENTS
---------------------------------

30.1 The Parties hereto agree that no public release or announcement concerning
     this Agreement or the transactions contemplated hereby shall be issued by a
     Party without the prior written consent of DuPont and Unifi as to the
     nature and content of the disclosure (which consent shall not be
     unreasonably withheld), except as such release or announcement may be
     required by law or the rules or regulations of the United States.


ARTICLE 31:  FORCE MAJEURE
--------------------------

31.1 A Party or its Affiliate whose performance hereunder is prevented by an
     Uncontrollable Event shall, upon providing written notice to the other
     Party within ten (10) days after the occurrence of such Uncontrollable
     Event, be excused from such performance for an additional period of sixty
     (60) days beyond the date or period otherwise specified for such
     performance to the extent the Uncontrollable Event prevents its
     performance, provided that the Party so affected shall use reasonable
     efforts to avoid or remove the cause of non-performance and shall continue
     performance hereunder immediately upon the removal of such cause.


ARTICLE 32:  SEVERABILITY
-------------------------

32.1 If any provision of this Agreement is held to be invalid by a court of
     competent jurisdiction or by any regulatory agency, the remaining
     provisions of this Agreement shall remain in full force and effect and the
     Parties will renegotiate a suitable replacement for the term or terms held
     invalid.


ARTICLE 33:  SURVIVAL
---------------------

33.1 The covenants contained in this Agreement which contemplate their
     performance after the expiration or termination of this Agreement shall be
     enforceable notwithstanding the expiration or other termination of this
     Agreement.

Master Agreement - POY Manufacturing Alliance                                 32

<PAGE>
 
ARTICLE 34:  SPECIFIC PERFORMANCE
---------------------------------

34.1 Each party hereto agrees with the other Party that the other Party would
     be irreparably damaged if any of the provisions of this Agreement are not
     performed in accordance with their specific terms and that monetary damages
     would not provide an adequate remedy in such event.  Accordingly, it is
     agreed that in addition to any other remedy to which a Non-Breaching Party
     may be entitled, at law or in equity, the Non-Breaching Party shall be
     entitled to injunctive relief to prevent breaches of the provisions of this
     Agreement and specifically to enforce the terms and provisions hereof.


ARTICLE 35: LIMITATION OF LIABILITY; INDEMNIFICATION
----------------------------------------------------

35.1 Limitation of Liability.  Neither Party shall incur any liability to the
     -----------------------                                                 
     other in connection with the Alliance and the performance of obligations
     under this Agreement for any mistakes or errors in judgment made in good
     faith and in the exercise of due care in connection with the Businesses,
     and no Party shall be deemed to have violated any of the provisions of this
     Agreement for any such mistakes or errors in judgment.

35.2 Indemnity for Actions of Parties.  The Parties shall indemnify, defend and
     --------------------------------                                          
     hold the other harmless from and against any and all claims, liabilities,
     damages, losses, costs, expenses (including, but not limited to,
     settlements, judgments, court costs and reasonable attorneys' fees), fines
     and penalties arising out of any injury, loss or damage of any nature
     whatsoever (including, without limitation, loss of or damage to property,
     or damage to the environment) due or relating to operation of its Business,
     including without limitation, (i) any environmental liabilities arising
     from events, acts, omissions, circumstances, or violations of environmental
     laws, (ii) any liability for claims for actions that relate to the benefit
     plans or employment practices of a Party, including without limit claims
     for accidents, injuries, sexual harassment, and labor relations from
     employees of a Party, (iii) any liability for taxes with respect to the
     Business, or (iv) liabilities arising from the actions the Party's
     respective personnel or any contract personnel who are managed and directed
     by the Parties.


35.3 Limitation - Consequential Damages.
     ---------------------------------- 

     NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR 
     AT LAW OR IN EQUITY, IN NO EVENT SHALL EITHER PARTY BE LIABLE 
     FOR PUNITIVE, SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL 
     DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF 
     BUSINESS PROFITS, BUSINESS INTERRUPTION OR ANY OTHER LOSS) 

Master Agreement - POY Manufacturing Alliance                                 33

<PAGE>
 
     ARISING FROM OR RELATING TO ANY CLAIM MADE UNDER THIS
     AGREEMENT, EVEN IF EITHER OF THEM HAVE BEEN ADVISED OF THE 
     POSSIBILITY OF SUCH DAMAGES.


ARTICLE 36:  MISCELLANEOUS
--------------------------

36.1 U.S. Currency.  All dollar amounts set forth herein are expressed in 
     -------------                                                       
     United States currency.

36.2 Terminology.
     ----------- 

     36.2.1  A word or series of words comprising a defined term hereunder has
             its defined meaning only when used solely and precisely in the form
             defined and not when used as a component of another defined term.

     36.2.2  The use of the terms "including", "include", and "includes"
             followed by one or more examples is intended to be illustrative and
             shall not be deemed or construed to limit the scope of the
             classification or category to the examples listed.

     36.2.3  The singular shall include the plural and vice versa and words
             denoting persons shall include bodies incorporated and
             unincorporated associations of persons and, unless otherwise
             stated, shall include successors or assigns of such persons.

36.3 Brokers.  The Parties represent to each other that they have not engaged
     -------                                                                 
     any broker or finder with respect to the transactions contemplated by this
     Agreement, the Ancillary Agreements or the Asset Transfer Agreement.

Master Agreement - POY Manufacturing Alliance                                 34

<PAGE>
 
     IN WITNESS WHEREOF, the Parties have caused this Master Agreement to be
duly executed in their respective corporate names by their respective officers
each of whom is duly and validly authorized and empowered, all as of the day and
year first above written.


UNIFI, INC.

By: /s/ G. ALLEN MEBANE IV
   ----------------------------

Name: G. Allen Mebane IV
     --------------------------

Title: Chairman of the Board
      -------------------------

Date: June 1, 2000
     --------------------------



E. I. DU PONT DE NEMOURS AND COMPANY

By: /s/ GEORGE F. MACCORMICK
   ----------------------------

Name: George F. Maccormick
     --------------------------

Title: Group Vice-President--
        Chemicals and Polyester
      -------------------------

Date: June 2, 2000
     --------------------------

Master Agreement - POY Manufacturing Alliance                                 35

<PAGE>
 
                          Schedule 1 - Amoco Formula

Master Agreement - POY Manufacturing Alliance                                 36

<PAGE>
 
              Schedule 2 - Asset Transfer Agreement - Agreed Form

Master Agreement - POY Manufacturing Alliance                                 37

<PAGE>
 
                            Schedule 3 - [reserved]

Master Agreement - POY Manufacturing Alliance                                 38

<PAGE>
 
      Schedule 4 - Unifi Base Cash Fixed Costs; Unifi Base Variable Costs

Master Agreement - POY Manufacturing Alliance                                 39

<PAGE>
 
     Schedule 5 - DuPont Base Cash Fixed Costs; DuPont Base Variable Costs

Master Agreement - POY Manufacturing Alliance                                 40

<PAGE>
 
                   Schedule 6 - Definition of Greater Europe

 Greater Europe means all the countries of Europe, the Middle East, Africa and
                                   the CIS.

Master Agreement - POY Manufacturing Alliance                                 41

<PAGE>
 
                Schedule 7 - Kinston Ground Lease - Agreed Form

Master Agreement - POY Manufacturing Alliance                                 42

<PAGE>
 
          Schedule 8 - Kinston Site Services Agreement - Agreed Form

Master Agreement - POY Manufacturing Alliance                                 43

<PAGE>
 
   Schedule 9 - POY Patent, Technology and Trademark Agreement - Agreed Form

Master Agreement - POY Manufacturing Alliance                                 44

<PAGE>
 
           Schedule 10 - Transition Services Agreement - Agreed Form

Master Agreement - POY Manufacturing Alliance                                 45

<PAGE>
 
            Schedule 11 - Treatment of Certain Capital Expenditures
                                        
Master Agreement - POY Manufacturing Alliance                                 46

<PAGE>
 
                                  SCHEDULE 12
                                  -----------

                             Conditions Precedent
                             --------------------

     The obligations of the Parties to consummate the sale of the DuPont's
Business from DuPont to Unifi are subject to satisfaction of the following
conditions:

(1)  All waiting periods and any extensions thereof under the HSR Act applicable
     to the consummation of the Proposed Transactions have been satisfied,
     expired, or been terminated (the "HSR Condition")without imposing any
     conditions on either of the Parties which are deemed by DuPont or Unifi, as
     the case may be, in their reasonable opinion to be unacceptable.

(2)  All waiting periods and any extensions thereof under the applicable
     competition law in other countries have been satisfied, expired, or been
     terminated without imposing any conditions on either of the Parties which
     are deemed by DuPont or Unifi, as the case may be, in their reasonable
     opinion to be unacceptable.

(3)  Unifi shall have obtained the approval by its Shareholders, if necessary
     (following the strong recommendation of Unifi's officers and directors).

(4)  All other governmental consents and approvals, as are required by law, have
     been obtained or all waiting periods (in addition to the HSR Condition)
     (and any extensions thereof) have expired or terminated in any relevant
     jurisdiction for the purposes of implementing the proposed transactions in
     a form reasonably satisfactory to both Parties.

(5)  No order, writ, injunction, or decree has been issued which restrains,
     enjoins, or invalidates, or otherwise has a Material Adverse Effect on the
     proposed transactions and no action, suit, or other proceeding is pending
     or threatened that has a reasonable likelihood of resulting in any such
     order, writ, injunction, or decree being issued.

(6)  All obligations and undertakings of the other Party (the breach of which,
     singly or in the aggregate, would result in a Material Adverse Effect) to
     be performed by the other Party under this Agreement prior to or at the
     Closing Date shall have been performed.

(7)  All warranties and representations made by the other Party in this
     Agreement (the breach of which, singly or in the aggregate, would be
     material) shall be true and correct in all material respects.

(8)  Compliance with all federal, state and local government regulations
     relating to the consummation of the Proposed Transaction and completion of
     any other required government filings and approvals.

(9)  Absence of pending or threatened litigation or government investigation
     resulting, singly or in the aggregate, in a Material Adverse Effect to the
     Parties' Businesses.

(10) Unifi shall have obtained a reasonable amount of financing on commercially
     reasonable terms for the proposed transaction.

Master Agreement - POY Manufacturing Alliance                                 47

<PAGE>
 
          Schedule 13 - Material Supply Agreement - TPA - Agreed Form

Master Agreement - POY Manufacturing Alliance                                 48

<PAGE>
 
          Schedule 14 - Material Supply Agreement - MEG - Agreed Form

Master Agreement - POY Manufacturing Alliance                                 49



<PAGE>
 
                                 (Exhibit 21)

                                  UNIFI, INC.

                                 SUBSIDIARIES


<TABLE>
<CAPTION>
Name                    Address                 Incorporation         Unifi Percentage of
                                                                      Voting Securities Owned
---------------------------------------------------------------------------------------------
<S>                     <C>                     <C>                   <C>
Unifi, FSC Ltd.         Agana, Guam             Guam                    100%                               
                                                                                                          
Unifi Textured Yarns    Letterkenny, Ireland    Ireland                 100%                              
Europe, Ltd.                                                                                              
                                                                                                          
Unifi Dyed Yarns,       Manchester, England     United Kingdom          100%                              
Ltd.                                                                                                      
                                                                                                          
Unifi International     Warwickshire, England   North Carolina          100%                              
Services, Inc.                                                                                            
                                                                                                          
Unifi International     Lyon, France            France                  100%                              
Services Europe                                                                                           
                                                                                                          
Unifi GmbH              Oberkotzau, Germany     Germany                 100%                              
                                                                                                          
Unifi Italia, S.r.l.    Viale Andreis, Italy    Italy                   100%                              
                                                                                                          
Unifi Manufacturing,    Greensboro, NC          North Carolina          100%                              
Inc. ("UMI")                                                                                              
                                                                                                          
Unifi Sales &           Greensboro, NC          North Carolina          100%                              
Distribution, Inc.                                                                                        
("USD")                                                                                                   
                                                                                                          
Unifi Manufacturing     Greensboro, NC          North Carolina           95%                              
Virginia, LLC                                                             5% - UMI                        
                                                                                                          
Unifi Export Sales,     Greensboro, NC          North Carolina           95%                              
LLC                                                                       5% - UMI                        
                                                                                                          
Unifi-SANS              Madison, NC             North Carolina           50% - UMI                        
Technical Fiber, LLC                                                     50% - SANS Fibers, Inc.          
                                                                                                          
Unifi Technical         Mocksville, NC          North Carolina          100%                              
Fabrics, LLC                                                                                              
                                                                                                          
Unifi Technology        Charlotte, NC           North Carolina        88.27%  USD                         
Group, Inc.                                                           11.73%Others                        
</TABLE>
 
 

<PAGE>
 

<TABLE> 
<S>                     <C>                     <C>                   <C>  
Unifi Textured          Greensboro, NC          North Carolina        85.42% - UMI
Polyester, LLC                                                        14.58% - Burlington 
                                                                      Industries, Inc.
                                                                      
Unifi do Brasil, Ltda   San Paulo, Brazil       Brazil                100%
                                                                      
Spanco Industries,      Greensboro,
 NC          North Carolina        100% - UMI
Inc.  ("SI")            
</TABLE>
 
                        
[ SI owns:     100%     Spanco International, Inc., ("SII"), a North Carolina
                        corporation]

[SII owns:      83%     Unifi Latin America, S.A., a Columbian sociedad anonime;
                        the remainder of Spanco Latin America is presently owned
                        by: 
                        1% Unifi designees 
                        16% Spanco - Panama, S.A.]



<PAGE>
 
                                                                      Exhibit 23

                        CONSENT OF INDEPENDENT AUDITORS


We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-23201) pertaining to the Unifi, Inc. 1982 Incentive Stock Option Plan
and the 1987 Non-Qualified Stock Option Plan, and the Registration Statement
(Form S-8 No. 33-53799) pertaining to the Unifi, Inc. 1992 Incentive Stock
Option Plan and Unifi Spun Yarns, Inc. 1992 Employee Stock Option Plan, and the
Registration Statement (Form S-8 No. 333-35001) pertaining to the Unifi, Inc.
1996 Incentive Stock Option Plan and the Unifi, Inc. 1996 Non-Qualified Stock
Option Plan and the Registration Statement (Form S-8 No. 333-43158) pertaining
to the Unifi, Inc. 1999 Long-Term Incentive Plan of our report dated July 18,
2000, with respect to the consolidated financial statements and schedule of
Unifi, Inc. included in this Annual Report (Form 10-K) for the year ended June
25, 2000.



Greensboro, North Carolina                        /s/ ERNST & YOUNG LLP
September 19, 2000





<TABLE> <S> <C>


<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT FOR THE TWELVE MONTH PERIOD ENDED JUNE 25, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          JUN-25-2000
<PERIOD-END>                               JUN-25-2000
<CASH>                                          18,778
<SECURITIES>                                         0
<RECEIVABLES>                                  231,210
<ALLOWANCES>                                    17,209
<INVENTORY>                                    147,640
<CURRENT-ASSETS>                                 2,958
<PP&E>                                       1,250,470
<DEPRECIATION>                                 592,083
<TOTAL-ASSETS>                               1,354,764
<CURRENT-LIABILITIES>                          367,773
<BONDS>                                        261,830
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                         5,516
<OTHER-SE>                                     616,922<F1>
<TOTAL-LIABILITY-AND-EQUITY>                 1,354,764
<SALES>                                      1,280,412
<TOTAL-REVENUES>                             1,280,412
<CGS>                                        1,116,841
<TOTAL-COSTS>                                1,116,841
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                14,866
<INTEREST-EXPENSE>                              30,294
<INCOME-PRETAX>                                 55,708
<INCOME-TAX>                                    17,675
<INCOME-CONTINUING>                             38,033
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    38,033
<EPS-BASIC>                                        .65
<EPS-DILUTED>                                      .65
<FN>
<F1>OTHER STOCKHOLDERS' EQUITY OF $616,922 IS COMPRISED OF RETAINED EARNINGS OF
$649,444, UNEARNED COMPENSATION OF $(1,260) AND ACCUMULATED OTHER COMPREHENSIVE 
LOSS OF $(31,262).
</FN>
        

</TABLE>