<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
MOHAWK INDUSTRIES, INC.
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No Filing Fee Required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF MOHAWK INDUSTRIES, INC. APPEARS HERE]
To the Stockholders of Mohawk Industries, Inc.:
You are cordially invited to attend the annual meeting of stockholders to be
held on Thursday, May 22, 1997, at 10:00 a.m. local time, at the corporate
headquarters of the Company, 160 South Industrial Boulevard, Calhoun, Georgia
30703.
The principal business of the meeting will be to elect a class of directors
to serve a three-year term beginning in 1997 and to consider and vote upon the
Mohawk Industries, Inc. 1997 Long-Term Incentive Plan. During the meeting, we
also will review the results of the past year and report on significant
aspects of our operations during the first quarter of 1997.
Whether or not you plan to attend the annual meeting, please complete, sign,
date and return the enclosed proxy card in the enclosed, postage-prepaid
envelope at your earliest convenience so that your shares will be represented
at the meeting. If you choose to attend the meeting, you may revoke your proxy
and personally cast your votes. To receive a copy of a map and driving
directions to the corporate headquarters, please call Barbara Lance at (706)
624-2253.
Sincerely yours,
/s/ David L. Kolb
------------------------------
DAVID L. KOLB
Chairman and
Chief Executive Officer
Atlanta, Georgia
April 9, 1997
<PAGE>
MOHAWK INDUSTRIES, INC.
160 SOUTH INDUSTRIAL BOULEVARD
P. O. BOX 12069
CALHOUN, GEORGIA 30703
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 1997
The annual meeting of stockholders of Mohawk Industries, Inc. (the
"Company") will be held on Thursday, May 22, 1997, at 10:00 a.m. local time,
at the corporate headquarters of the Company, 160 South Industrial Boulevard,
Calhoun, Georgia 30703.
The meeting is called for the following purposes:
1. To elect three persons who will serve as the Company's Class II
directors for a three-year term beginning in 1997;
2.To consider and vote upon the Mohawk Industries, Inc. 1997 Long-Term
Incentive Plan; and
3. To consider and act upon such other business as may properly come before
the meeting or any adjournments thereof.
The Board of Directors has fixed March 26, 1997 as the record date for the
determination of stockholders entitled to notice of and to vote at the
meeting.
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY SO THAT
YOUR SHARES WILL BE REPRESENTED. IF YOU CHOOSE TO ATTEND THE
MEETING, YOU MAY REVOKE YOUR PROXY AND
PERSONALLY CAST YOUR VOTES.
By Order of the Board of Directors,
/s/ Barbara B. Lance
-----------------------------------
BARBARA B. LANCE,
Secretary
Atlanta, Georgia
April 9, 1997
<PAGE>
MOHAWK INDUSTRIES, INC.
160 SOUTH INDUSTRIAL BOULEVARD
P. O. BOX 12069
CALHOUN, GEORGIA 30703
-----------------
PROXY STATEMENT
-----------------
This Proxy Statement is furnished by and on behalf of the Board of Directors
of Mohawk Industries, Inc. ("Mohawk" or the "Company") in connection with the
solicitation of proxies for use at the annual meeting of stockholders of the
Company to be held on Thursday, May 22, 1997, and at any and all adjournments
or postponements thereof (the "Annual Meeting"). This Proxy Statement and the
enclosed proxy card will be first mailed on or about April 9, 1997, to the
stockholders of record of the Company (the "Stockholders") on March 26, 1997
(the "Record Date").
Proxies will be voted as specified by Stockholders. Unless contrary
instructions are specified, if the enclosed proxy card is executed and
returned (and not revoked) prior to the Annual Meeting, the shares of the
common stock of the Company (the "Common Stock") represented thereby will be
voted FOR election as directors of the nominees listed in this Proxy Statement
and FOR the approval of the 1997 Mohawk Industries, Inc. Long-Term Incentive
Plan (the "Incentive Plan"). A Stockholder who submits a signed proxy will not
affect his or her right to attend and to vote in person at the Annual Meeting.
Stockholders who execute a proxy may revoke it at any time before it is voted
by filing a written revocation with the Secretary of the Company, by executing
a proxy bearing a later date or by attending and voting in person at the
Annual Meeting.
The presence of a majority of the outstanding shares of Common Stock
entitled to vote at the Annual Meeting, present in person or by proxy, will
constitute a quorum. Shares represented by proxies that are marked "withhold
authority" or "abstain" will be counted as shares present for purposes of
establishing a quorum. Shares represented by proxies, which include broker
nonvotes, will also be counted as shares present for purposes of establishing
a quorum. A broker nonvote occurs when a broker or nominee holding shares for
a beneficial owner votes on one proposal, but does not vote on another
proposal because the broker or nominee does not have discretionary voting
power and has not received instructions from the beneficial owner. Once a
quorum is established, the election of directors will require the affirmative
vote of a plurality of the shares of Common Stock represented and entitled to
vote in the election at the Annual Meeting and the approval of the Incentive
Plan will require the affirmative vote of a majority of the shares of Common
Stock represented and entitled to vote at the Annual Meeting. Neither
withholding authority to vote with respect to one or more nominees nor a
broker nonvote will have an effect on the outcome of the election of
directors. Abstentions will have the same effect as a vote against approval of
the Incentive Plan. Broker nonvotes, however, will have no effect on the
approval of the Incentive Plan.
Pursuant to the Restated Certificate of Incorporation (the "Certificate of
Incorporation") of the Company, holders of Common Stock will be entitled to
one vote for each share of Common Stock held. Pursuant to the provisions of
the Delaware General Corporation Law, March 26, 1997 has been fixed as the
Record Date for determination of Stockholders entitled to notice of and to
vote at the Annual Meeting, and, accordingly, only holders of Common Stock of
record at the close of business on that day will be entitled to notice of and
to vote at the Annual Meeting. On the Record Date, there were 34,532,759
shares of Common Stock issued and outstanding held by approximately 471
Stockholders.
THE BOARD OF DIRECTORS URGES YOU TO SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
<PAGE>
PROPOSAL 1 - ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for the Board of
Directors of the Company to consist of three classes of directors serving
staggered terms of office. Upon the expiration of the term of office for a
class of directors, the nominees for that class will be elected for a term of
three years to serve until the election and qualification of their successors.
The Class II directors, Bruce C. Bruckmann, Alan S. Lorberbaum and Larry W.
McCurdy have been nominated for re-election at the Annual Meeting. The Class
III and Class I directors have one year and two years, respectively, remaining
on their terms of office and will not be voted upon at the Annual Meeting.
The Company's Certificate of Incorporation provides that the Company shall
have at least two and no more than 11 directors, with the Board of Directors
to determine the exact number. In addition, the Certificate of Incorporation
divides the Board of Directors into three classes, with each to consist, as
nearly as possible, of one-third of the total number of directors constituting
the entire Board of Directors. The Board of Directors has by resolution set
the number of directors at seven.
It is the intention of the persons named as proxies to vote the proxies for
each of Mr. Bruckmann's, Mr. Alan Lorberbaum's and Mr. McCurdy's election as a
Class II director of the Company, unless the Stockholders direct otherwise in
their proxies. Each of Mr. Bruckmann, Mr. Alan Lorberbaum and Mr. McCurdy has
consented to continue to serve as a director of the Company if re-elected. In
the unanticipated event that any of Mr. Bruckmann, Mr. Alan Lorberbaum or Mr.
McCurdy refuses or is unable to serve as a director, the persons named as
proxies reserve full discretion to vote for such other person or persons as
may be nominated. The Board of Directors has no reason to believe that Mr.
Bruckmann, Mr. Alan Lorberbaum or Mr. McCurdy will be unable or will decline
to serve as a director.
The affirmative vote of a plurality of the shares represented and entitled
to vote in the election at the Annual Meeting at which a quorum is present is
required for the election of the nominees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE ELECTION OF THE NOMINEES LISTED BELOW
DIRECTOR, DIRECTOR NOMINEE AND EXECUTIVE OFFICER INFORMATION
Based on information supplied by them, set forth below is certain
information concerning the nominees for election as Class II directors and the
directors in Classes III and I whose terms of office will continue after the
Annual Meeting, including the name and age of each, his current principal
occupation (which has continued for five years unless otherwise indicated),
the name and principal business of the organization in which his occupation is
carried on, the year each was elected to the Board of Directors of the
Company, all positions and offices held during 1996 with the Company, and his
directorships in other publicly held companies.
NOMINEES FOR DIRECTOR
Class II Nominees For Director (Current Terms Expiring 1997)
Bruce C. Bruckmann--Mr. Bruckmann (age 43) has been a director of the
Company since October 1992. Mr. Bruckmann has been a Managing Director of
Bruckmann, Rosser, Sherrill & Co., Inc., a venture capital firm, since January
1995. From March 1994 to January 1995, Mr. Bruckmann served as Managing
Director of Citicorp Venture Capital, Ltd. ("CVC, Ltd.") and as an executive
officer of 399 Venture Partners, Inc. (formerly Citicorp Investments, Inc.).
From 1983 until March 1994, Mr. Bruckmann served as Vice President of CVC,
Ltd. Mr. Bruckmann is also a director of AmeriSource Distribution Corporation,
a distributor of pharmaceuticals, Jitney-Jungle Stores of America, Inc., a
grocery retailer, Town Sports International, Inc., a fitness club operator,
Cort Furniture Rental Corp., a lessor of office and residential furniture, and
Chromcraft Revington Corporation, a furniture manufacturer.
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<PAGE>
Alan S. Lorberbaum--Mr. Lorberbaum (age 72) has been a director of the
Company since March 28, 1994. Mr. Lorberbaum founded Aladdin Mills
("Aladdin"), currently a division and formerly a wholly-owned subsidiary of
the Company, in 1958 and served as President, Chief Executive Officer and a
director of Aladdin from its inception until February 25, 1994, the date the
Company acquired Aladdin. Mr. Lorberbaum currently serves as a consultant to
Aladdin. See "Executive Compensation and Other Information--Principal
Stockholders of the Company." For a discussion of certain arrangements with
the Company relating to Mr. Lorberbaum and Mr. Jeffrey Lorberbaum being named
to the Board of Directors, see the discussion below under "Continuing
Directors."
Larry W. McCurdy--Mr. McCurdy (age 61) has been a director of the Company
since the consummation of the Company's initial public offering in April 1992
(the "Initial Public Offering"). Mr. McCurdy was President and Chief Executive
Officer of Moog Automotive, Inc., a privately held manufacturer of automotive
aftermarket products, from November 1985 until April 1994. Moog Automotive,
Inc. was acquired by Cooper Industries, Inc., a manufacturer of electrical and
automotive products, tools and hardware, in October 1992, and Mr. McCurdy
became Executive Vice President, Operations of Cooper Industries, Inc. in
April 1994. Mr. McCurdy held that position until March 7, 1997, when he became
President, Chief Executive Officer and a director of Echlin Inc., a worldwide
manufacturer of motor vehicle parts. Mr. McCurdy also serves on the boards of
directors of Lear Seating Corporation, an international manufacturer for
original equipment vehicles, and Breed Technologies, Inc., an equipment
supplier of air bag sensing devices and air bag components.
CONTINUING DIRECTORS
Class III Directors Continuing In Office (Terms Expire 1998)
Leo Benatar--Mr. Benatar (age 67) has been a director of the Company since
the consummation of the Initial Public Offering. Mr. Benatar has been an
Associated Consultant with A. T. Kearney since May 1996. From June 1995 until
May 1996, Mr. Benatar was Chairman of the Board of Engraph, Inc., a
manufacturer of packaging and product identification materials. Before June
1995, Mr. Benatar served as Chairman of the Board, President and Chief
Executive Officer of Engraph, Inc. for more than five years. Engraph, Inc. was
acquired by Sonoco Products Company, a manufacturer of packaging and product
identification materials, in October 1993, and Mr. Benatar served as Senior
Vice President and a director of Sonoco Products Company from October 1993
until May 1996. Mr. Benatar is also a director of Interstate Bakeries
Corporation, a manufacturer and distributor of food products, Aaron Rents,
Inc., a furniture and appliance retailer, Paxar Corporation, an apparel labels
manufacturer, and Schuller Corporation, an insulation and building products
manufacturer. From January 1, 1994 until December 31, 1995, Mr. Benatar also
served as Chairman of the Federal Reserve Bank of Atlanta.
David L. Kolb--Mr. Kolb (age 58) served as President of Mohawk Carpet
Corporation (now the Company's principal operating subsidiary and renamed
Aladdin Manufacturing Corporation) until Mohawk Carpet Corporation was
acquired by the Company in December 1988, at which time he became Chairman of
the Board of Directors and Chief Executive Officer of the Company. Prior to
joining Mohawk Carpet Corporation, Mr. Kolb served in various executive
positions with Allied-Signal Corporation for 19 years, most recently as Vice
President and General Manager of Home Furnishings. In 1988 and 1989, he served
as Chairman of The Carpet and Rug Institute and is currently a member of its
board of directors. Mr. Kolb is also a director of Chromcraft Revington
Corporation, a furniture manufacturer, First Union National Bank of Georgia,
and Polyfibron Technologies, Inc., a manufacturer of printing plates and
printing blankets.
Class I Directors Continuing In Office (Terms Expire 1999)
Jeffrey S. Lorberbaum--Mr. Lorberbaum (age 42) has been a director of the
Company since March 28, 1994 and has served as President and Chief Operating
Officer of the Company since January 24, 1995. Mr. Lorberbaum joined Aladdin
in 1976 and served as Vice President--Operations from 1986 until February 25,
1994 when he became President and Chief Executive Officer of Aladdin. Mr. Alan
Lorberbaum, a director of the Company, is his father. See "Executive
Compensation and Other Information--Principal Stockholders of the Company."
- 3 -
<PAGE>
Robert N. Pokelwaldt--Mr. Pokelwaldt (age 60) has been a director of the
Company since consummation of the Initial Public Offering. Mr. Pokelwaldt has
served as Chairman and Chief Executive Officer of York International
Corporation, a manufacturer of air conditioning and cooling systems, since
January 1993. He also served York International from June 1991 until January
1993 as President, Chief Executive Officer and a director and, from January
1990 until June 1991, as President and Chief Operating Officer. From September
1988 to January 1990, he served as President of Applied Systems Worldwide, a
division of York International, and from June 1983 to September 1988, he
served as Chairman and Chief Executive Officer of Frick Company, a privately
held refrigeration manufacturer. Mr. Pokelwaldt is also a director of
Polyfibron Technologies, Inc., a manufacturer of printing plates and printing
blankets.
In connection with the merger of Aladdin with a wholly owned subsidiary of
the Company in February 1994 (the "Aladdin Merger"), the Company agreed to
appoint to its Board of Directors up to two persons designated by the former
shareholders of Aladdin, and Messrs. Alan Lorberbaum and Jeffrey Lorberbaum
are such designees. The Company is required to nominate up to two persons
designated by such holders for election or re-election, as the case may be, to
the Board of Directors of the Company and to use its best efforts to cause
such nominees to be elected to the Board of Directors. At such time as the
former shareholders of Aladdin have disposed of 50% or more of the Common
Stock issued to them in the Aladdin Merger, the Company will be required to
nominate only one such person to the Board of Directors, and at such time as
the former shareholders of Aladdin have disposed of 75% or more of the Common
Stock issued to them in the Aladdin Merger, the Company will no longer be
required to nominate any of such persons to the Board of Directors.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
General. During fiscal 1996, the Board of Directors held six meetings. All
members of the Board attended at least 75% of the total number of Board and
Committee meetings that they were eligible to attend.
The Audit Committee consists of Mr. Bruckmann and Mr. McCurdy. The Audit
Committee met two times during 1996. The Audit Committee is responsible for
reviewing and making recommendations regarding the Company's employment of
independent auditors, the annual audit of the Company's financial statements
and the Company's internal accounting practices and policies.
The Compensation Committee consists of Mr. Benatar and Mr. Pokelwaldt. The
Compensation Committee met two times during 1996. The Compensation Committee
is responsible for deciding, recommending and reviewing the compensation,
including benefits, of the executive officers and directors of the Company and
for administering the Company's stock option plans. See also "Executive
Compensation and Other Information--Report of the Compensation Committee of
the Board of Directors of Mohawk Industries, Inc."
The Company has no nominating committee.
Director Compensation. Employees of the Company or its subsidiaries who are
also directors do not receive any fee or remuneration for services as members
of the Board of Directors or any Committee of the Board of Directors. The
Company pays non-employee directors an annual retainer of $20,000 and a fee of
$1,000 for each Board meeting and $800 for each Committee meeting attended.
Committee Chairmen also receive an annual retainer of $2,000. Pursuant to the
Company's 1993 Stock Option Plan and the Incentive Plan, directors who are not
employees of the Company are initially granted a non-qualified stock option to
purchase 7,500 shares of Common Stock as of the date they commence service as
a director. On January 1 of each year, eligible directors who are directors on
such date receive an option to purchase 1,500 shares of Common Stock. The
exercise prices for all such option grants are based on a formula that with
respect to initial grants relates to the closing sale price of the underlying
Common Stock on the business day immediately preceding the date of grant and
with respect to subsequent grants is the average of the closing sale prices of
the underlying Common Stock on the last business day of each of the Company's
four fiscal quarters during the preceding fiscal year. The Company reimburses
all directors for expenses the directors incur in connection with attendance
at meetings of the Board of Directors or Committees.
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<PAGE>
In December 1996, the Board of Directors adopted the Mohawk Industries, Inc.
1997 Non-Employee Director Stock Compensation Plan (the "Director Stock
Compensation Plan") to promote the long-term growth of the Company by
providing a vehicle for its non-employee directors to increase their
proprietary interest in the Company and to attract and retain highly qualified
and capable non-employee directors. Under the Director Stock Compensation
Plan, non-employee directors may elect to receive their annual cash retainer
fees (excluding any meeting fees) in shares of Common Stock of the Company,
based on the fair market value of the Common Stock on the quarterly payment
date. The maximum number of shares of Common Stock which may be granted under
the plan is 25,000 shares, which shares may not be original issue shares. The
Board of Directors may suspend or terminate the Director Stock Compensation
Plan at any time.
EXECUTIVE OFFICERS
The executive officers of the Company serve at the discretion of the Board
of Directors and are comprised of Mr. Kolb and Mr. Jeffrey Lorberbaum (who are
identified above), Frank A. Procopio, John D. Swift and William B. Kilbride.
Frank A. Procopio--Mr. Procopio (age 57) joined Mohawk Carpet Corporation in
January 1982 and presently serves as Senior Vice President of the Company and
President--Commercial Business. Prior to joining Mohawk Carpet Corporation,
Mr. Procopio served as the Vice President of Manufacturing and Staff Services
with Salem Carpet for three years and in various management positions with
Armstrong World Industries for 18 years.
John D. Swift Mr. Swift (age 55) served as Vice President--Finance of Mohawk
Carpet Corporation from September 1984 to December 1988 and since that time
has served as Vice President--Finance and Chief Financial Officer of the
Company. Mr. Swift served as Treasurer of the Company from December 1988 to
February 1994 and served as Secretary of the Company from December 1988 to May
23, 1996. Prior to joining Mohawk Carpet Corporation, he worked for General
Electric Company for 18 years in various positions of accounting, auditing and
financial management.
William B. Kilbride Mr. Kilbride (age 46) joined American Rug Craftsmen
("American Rug Craftsmen"), currently a division and formerly a wholly owned
subsidiary of the Company, as its President and Chief Operating Officer in
June 1992 and has served as its President since that time. Before joining
American Rug Craftsmen, Mr. Kilbride served as First Vice President--Planning
of Dean Witter Discover, which he joined in February 1983.
PROPOSAL 2--APPROVAL OF THE
1997 LONG-TERM INCENTIVE PLAN
On February 13, 1997, the Board of Directors adopted the Mohawk Industries,
Inc. 1997 Long-Term Incentive Plan (the "Incentive Plan"). The Company has
reserved 1,700,000 shares of its Common Stock for issuance in connection with
options and awards under this plan. The Incentive Plan will be effective as of
its adoption by the Board. However, if the Stockholders fail to approve the
Incentive Plan at the Annual Meeting, any incentive stock options previously
granted under the plan will be automatically converted to non-qualified stock
options.
A summary of the Incentive Plan is set forth below. The summary is qualified
in its entirety by reference to the full text of the Incentive Plan, which is
attached to this Proxy Statement as Appendix A.
GENERAL
The purpose of the Incentive Plan is to promote the success, and enhance the
value, of the Company by linking the personal interests of employees, officers
and directors to those of the Stockholders, and by providing such employees,
officers and directors with an incentive for outstanding performance. Subject
to selection as a
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<PAGE>
participant by the Compensation Committee, approximately 12,000 persons were
eligible to participate in the Incentive Plan as of March 26, 1997.
The Incentive Plan authorizes the granting of awards ("Awards") to
employees, officers and directors of the Company or its subsidiaries in the
following forms: (i) options to purchase shares of Common Stock ("Options"),
which may be incentive stock options or non-qualified; (ii) stock appreciation
rights ("SARs"); (iii) performance shares ("Performance Shares"); (iv)
restricted stock ("Restricted Stock"); (v) dividend equivalents ("Dividend
Equivalents"); and (vi) other stock-based awards.
Pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), the Company may not deduct compensation in excess of $1 million
paid to the Chief Executive Officer and the four next most highly compensated
executive officers of the Company. The Incentive Plan is designed to comply
with Code Section 162(m) so that the grant of Options and SARs under the plan,
and other Awards, such as Performance Shares, that are conditioned on the
performance goals described in Section 13.13 of the Incentive Plan, will be
excluded from the calculation of annual compensation for purposes of Code
Section 162(m) and will be fully deductible by the Company. The Board has
approved the Incentive Plan for submission to the Stockholders in order to
permit the grant of Awards thereunder that will constitute deductible
performance-based compensation for purposes of Code Section 162(m).
Subject to adjustment as provided in the Incentive Plan, the aggregate
number of shares of Common Stock reserved and available for Awards or which
may be used to provide a basis of measurement for or to determine the value of
an Award (such as with a SAR or Performance Share) is 1,700,000. The maximum
number of shares of Common Stock with respect to one or more Options and/or
SARs that may be granted during any one calendar year under the Incentive Plan
to any one participant is 100,000. The maximum fair market value of any Awards
(other than Options and SARs) that may be received by a participant (less any
consideration paid by the participant for such Award) during any one calendar
year under the Incentive Plan is $3,000,000.
ADMINISTRATION
The Incentive Plan will be administered by the Compensation Committee of the
Board of Directors of the Company (the "Committee"). The Committee has the
power, authority and discretion to designate participants; determine the type
or types of Awards to be granted to each participant and the terms and
conditions thereof; establish, adopt or revise any rules and regulations as it
may deem necessary or advisable to administer the Incentive Plan; and make all
other decisions and determinations that may be required under, or as the
Committee deems necessary or advisable to administer, the Incentive Plan.
AWARDS
Stock Options. The Committee is authorized to grant Options, which may be
incentive stock options ("ISOs") or nonqualified stock options ("NSOs"), to
participants. All Options will be evidenced by a written Award Agreement
between the Company and the participant, which will include such provisions as
may be specified by the Committee. The terms of any ISO must meet the
requirements of Section 422 of the Code. Stock options intended to satisfy
Code Section 162(m) will have an exercise price that is at least equal to the
fair market value of the Common Stock subject to the stock option as of the
date the stock option is granted.
Stock Appreciation Rights. The Committee may grant SARs to participants.
Upon the exercise of a SAR, the participant has the right to receive the
excess, if any, of the fair market value of one share of Common Stock on the
date of exercise, over the grant price of the SAR as determined by the
Committee, which will not be less than the fair market value of one share of
Common Stock on the date of grant in the case of any SAR related to an ISO.
All awards of SARs will be evidenced by an Award Agreement, reflecting the
terms, methods of exercise, methods of settlement, form of consideration
payable in settlement, and any other terms and conditions of the SAR, as
determined by the Committee at the time of grant.
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<PAGE>
Performance Shares. The Committee may grant Performance Shares to
participants on such terms and conditions as may be selected by the Committee.
The Committee will have the complete discretion to determine the number of
Performance Shares granted to each participant and to set performance goals
and other terms or conditions to payment of the Performance Shares in its
discretion which, depending on the extent to which they are met, will
determine the number and value of Performance Shares that will be paid to the
participant.
Restricted Stock Awards. The Committee may make awards of Restricted Stock
to participants, which will be subject to such restrictions on transferability
and other restrictions as the Committee may impose (including, without
limitation, limitations on the right to vote Restricted Stock or the right to
receive dividends, if any, on the Restricted Stock).
Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to participants subject to such terms and conditions as may be
selected by the Committee. Dividend Equivalents entitle the participant to
receive payments equal to dividends with respect to all or a portion of the
number of shares of Common Stock subject to an Option Award or SAR Award, as
determined by the Committee. The Committee may provide that Dividend
Equivalents be paid or distributed when accrued or be deemed to have been
reinvested in additional shares of Common Stock, or otherwise reinvested.
Formula Grants to Directors. Each person who becomes a non-employee director
of the Company will be granted a non-qualified stock option as of the date he
or she first commences service as a director to acquire 7,500 shares of Common
Stock at an exercise price per share equal to the fair market value of a share
of Common Stock on that date. Each director eligible for a formula option will
also be granted a non-qualified stock option on January 1 of each year to
acquire 1,500 shares of Common Stock at an exercise price per share equal to
the "Fair Market Value on a Quarterly Basis" (as defined in the Incentive
Plan) of a share of Common Stock on that date, provided such individual is a
director of the Company on such date. The Committee may make such formula
options subject to such additional terms as may be selected by the Committee.
Other Stock-Based Awards. The Committee may, subject to limitations under
applicable law, grant to participants such other Awards that are payable in,
valued in whole or in part by reference to, or otherwise based on or related
to shares of Common Stock, as deemed by the Committee to be consistent with
the purposes of the Incentive Plan, including without limitation shares of
Common Stock awarded purely as a "bonus" and not subject to any restrictions
or conditions, convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares of Common Stock, and Awards valued by
reference to book value of shares of Common Stock or the value of securities
of or the performance of specified subsidiaries of the Company. The Committee
will determine the terms and conditions of any such Awards.
Performance Goals. The Committee may determine that any Award will be
determined solely on the basis of (a) the achievement by the Company or a
subsidiary of a specified target return, or target growth in return, on equity
or assets, (b) the Company's or subsidiary's stock price, (c) the achievement
by a business unit of the Company or subsidiary of a specified target, or
target growth in, net income or earnings per share, including, without
limitation, earnings before interest, taxes, depreciation and amortization
(EBITDA), or (d) any combination of the goals set forth in (a) through (c)
above. Furthermore, the Committee reserves the right for any reason to reduce
(but not increase) any Award, notwithstanding the achievement of a specified
goal. If an Award is made on such basis, the Committee must establish goals
prior to the beginning of the period for which such performance goal relates
(or such later date as may be permitted under Code Section 162(m)). Any
payment of an Award granted with performance goals will be conditioned on the
written certification of the Committee in each case that the performance goals
and any other material conditions were satisfied.
Limitations on Transfer; Beneficiaries. No Award will be assignable or
transferable by a participant other than by will or the laws of descent and
distribution or, except in the case of an ISO, pursuant to a qualified
domestic relations order. However, a participant may, in the manner determined
by the Committee, designate a beneficiary to exercise the rights of the
participant and to receive any distribution with respect to any Award upon the
participant's death.
- 7 -
<PAGE>
Acceleration Upon Certain Events. Upon the participant's death or
disability, all outstanding Awards in the nature of rights that may be
exercised shall become fully exercisable and all restrictions on outstanding
Awards will lapse. Any Options or SARs will thereafter continue or lapse in
accordance with the other provisions of the Incentive Plan and the Award
Agreement. In the event of a Change in Control of the Company (as defined in
the Incentive Plan), all outstanding Awards in the nature of rights that may
be exercised will become fully exercisable and all restrictions on all
outstanding Awards will lapse. In the event of the occurrence of any
circumstance, transaction or event not constituting a Change in Control but
which the Board of Directors deems to be, or to be reasonably likely to lead
to, an effective change in control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of the
Securities Exchange Act of 1934, the Committee may in its sole discretion
declare all outstanding Awards in the nature of rights that may be exercised
to become fully exercisable, and/or all restrictions on all outstanding Awards
to lapse, in each case as of such date as the Committee may, in its sole
discretion, declare, which may be on or before the consummation of such
transaction or event.
TERMINATION AND AMENDMENT
The Board of Directors or the Committee may, at any time and from time to
time, terminate, amend or modify the Incentive Plan without Stockholder
approval; provided, however, that the Board of Directors or the Committee may
condition any amendment on the approval of Stockholders of the Company if such
approval is necessary or deemed advisable with respect to tax, securities or
other applicable laws, policies or regulations. No termination, amendment, or
modification of the Incentive Plan may adversely affect any Award previously
granted under the Incentive Plan, without the written consent of the
participant.
CERTAIN FEDERAL INCOME TAX EFFECTS
Nonqualified Stock Options. Under present federal income tax regulations,
there will be no federal income tax consequences to either the Company or the
participant upon the grant of a non-discounted NSO. However, the participant
will realize ordinary income on the exercise of the NSO in an amount equal to
the excess of the fair market value of the Common Stock acquired upon the
exercise of such option over the exercise price, and the Company will receive
a corresponding deduction. The gain, if any, realized upon the subsequent
disposition by the participant of the Common Stock will constitute short- or
long-term capital gain, depending on the participant's holding period.
Incentive Stock Options. Under present federal income tax regulations, there
will be no federal income tax consequences to either the Company or the
participant upon the grant of a non-discounted ISO or the exercise thereof by
the participant. If the participant holds the shares of Common Stock for the
greater of two years after the date the Option was granted or one year after
the acquisition of such shares of Common Stock (the "required holding
period"), the difference between the aggregate option price and the amount
realized upon disposition of the shares of Common Stock will constitute a
long-term capital gain or loss, and the Company will not be entitled to a
federal income tax deduction. If the shares of Common Stock are disposed of in
a sale, exchange or other "disqualifying disposition" during the required
holding period, the participant will realize taxable ordinary income in an
amount equal to the excess of the fair market value of the Common Stock
purchased at the time of exercise over the aggregate option price, and the
Company will be entitled to a federal income tax deduction equal to such
amount.
SARs. Under present federal income tax regulations, a participant receiving
a non-discounted SAR will not recognize income, and the Company will not be
allowed a tax deduction, at the time the Award is granted. When a participant
exercises the SAR, the amount of cash and the fair market value of any shares
of Common Stock received will be ordinary income to the participant and will
be allowed as a deduction for federal income tax purposes to the Company.
Performance Shares. Under present federal income tax regulations, a
participant receiving Performance Shares will not recognize income and the
Company will not be allowed a tax deduction at the time the Award is
- 8 -
<PAGE>
granted. When a participant receives payment of Performance Shares, the amount
of cash and the fair market value of any shares of Common Stock received will
be ordinary income to the participant and will be allowed as a deduction for
federal income tax purposes to the Company.
Restricted Stock. Under present federal income tax regulations, unless the
participant makes an election to accelerate recognition of the income to the
date of grant, a participant receiving a Restricted Stock Award will not
recognize income, and the Company will not be allowed a tax deduction, at the
time the Award is granted. When the restrictions lapse, the participant will
recognize ordinary income equal to the fair market value of the Common Stock,
and the Company will be entitled to a corresponding tax deduction at that
time.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
As of April 4, 1997, no awards had been granted or approved for grant under
the Incentive Plan to any employees, directors or officers of the Company. All
Awards under the Incentive Plan will be made at the discretion of the
Committee.
ADDITIONAL INFORMATION
The closing price of the Common Stock, as reported by the Nasdaq National
Market on March 26, 1997, was $23.
The affirmative vote of the holders of a majority of the shares present or
represented by proxy and entitled to vote at the Annual Meeting on this
proposal will constitute approval of the Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
THE INCENTIVE PLAN
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Decisions and recommendations regarding the compensation of the Company's
executives are made by a two member compensation committee composed entirely
of directors who have never served as officers or employees of the Company.
Following is a report of the Compensation Committee concerning the Company's
executive compensation policies for 1996.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF MOHAWK
INDUSTRIES, INC.
Executive Compensation Philosophy. The Committee believes that a
compensation program that enables the Company to attract and retain
outstanding executives will assist the Company in meeting its long range
objectives, thereby serving the interest of the Company's Stockholders. The
compensation program of the Company is designed to achieve the following
objectives:
1. Provide compensation opportunities that are competitive with those
of companies of a similar size.
2. Create a strong link between the executive's compensation and the
Company's annual and long-term financial performance.
3. Include above average elements of financial risk through
performance-based incentive compensation which offers an opportunity
for above average financial reward to the executives.
The Company's executive compensation program has three components: base
salaries, annual incentives and long-term incentives.
Base Salaries. The Company's executive officers receive base salaries as
compensation for the skills, knowledge and experience that they bring to their
positions. Base salaries paid to the Company's executive
- 9 -
<PAGE>
officers are intended to be maintained at a competitive level with companies
of a similar size. In order to assess competitive rates, the Committee
utilizes compensation surveys, produced by nationally recognized consulting
firms, of executives with similar job functions and responsibilities in public
companies engaged in nondurable goods manufacturing in the same net sales
range. The group of companies included in the surveys used has typically been
broader than the peer group used in the Performance Graph following this
report because the competitive marketplace for executive talent has been
viewed by the Committee as national in scope and not restricted to the carpet
and textile industries. With respect to base salaries, the Committee has
endeavored to achieve competitive rates by targeting the approximate midpoint
of the range of base salaries for comparable positions. Within this overall
policy, the Committee has preserved the flexibility to make exceptions where
performance over several years dictates a higher base salary.
Annual Incentive Bonuses. Annual incentive bonuses under the executive
incentive program are provided in addition to base salaries to create total
annual cash compensation. Using the compensation surveys discussed above, the
Committee has targeted the upper quartile of total annual cash compensation
for similarly situated executives in companies of similar size. By placing a
significant portion of an executive's annual pay "at risk," the Committee
believes that compensation is more directly related to performance and will
more closely link the financial interests of the executives and those of the
Stockholders. Given the Company's aggressive business objectives, the
Committee believes this policy to be appropriate and fair for both the
executives and the Stockholders.
The 1996 Executive Incentive Plan (the "Plan") was designed to provide
incentive bonus opportunities for approximately 40 key executives of the
Company, including the executive officers named in the Summary Compensation
Table. For those executives who were classified as Corporate Participants,
including the Chief Executive Officer ("CEO"), the Chief Operating Officer and
the Chief Financial Officer, to be eligible for any bonus the total
corporation must have attained in 1996 a threshold level of earnings per share
("EPS") established by the Committee. The factors considered in establishing
the threshold in the Plan were the previous year's earnings per share and a
baseline expectation for earnings growth adopted by the Committee. If this
threshold is attained, then the bonus calculation is based solely on the
attainment of increasing levels of percentage improvement of 1996 EPS over the
threshold. The attainment of an EPS level translates for each Corporate
Participant into eligibility for a bonus award determined by a percentage of
1996 compensation payments excluding all bonus, deferred bonus and other
nonsalary payments ("Base Compensation") assigned in the Plan for that level.
The percentages of Base Compensation for which individual participants become
eligible at the various levels vary and were set for the CEO by the Committee
and for the other executives by the CEO (subject to the approval of the
Committee) in order to relate performance goals to a targeted level of total
annual cash compensation.
For those executives who were classified as Commercial Business
Participants, Residential Business Participants, Karastan Participants or
American Rug Craftsmen Participants, to be eligible for any bonus the
Commercial Business, the Residential Business, Karastan or American Rug
Craftsmen, respectively, must have attained in 1996 a level of EPS equal to
the threshold level of EPS contribution by that Business established by the
Committee. If this threshold is attained, then the bonus calculation is
weighted 75% to the EPS level attained and 25% to cash flow targets assigned
to each level in the Plan. The cash flow target levels are based upon
confidential internal budgets and are designed to encourage good management of
working capital and capital expenditures. The attainment of EPS and cash flow
levels set forth in the Plan, after weighting as described, translates for
each Commercial Business, Residential Business, Karastan or American Rug
Craftsmen Participant into eligibility for a bonus award determined by a
percentage of Base Compensation assigned in the Plan. All bonus awards will be
paid over three years beginning in 1997.
The Committee has the authority to interpret the Plan or make changes
therein as it determines appropriate.
Long-Term Incentives. The Company provides long term incentives to its
executives through stock option programs designed to encourage executives to
acquire and hold shares of Common Stock. The stock option plans are designed
to retain executives and motivate them to improve the market value of the
Common Stock over a
- 10 -
<PAGE>
number of years. In 1996, options were granted to Mr. William B. Kilbride
under the 1992 Stock Option Plan, which vest in 20% annual increments
beginning on June 24, 1997. The Committee believes that equity ownership by
executives furthers the Committee's compensation policy objective of aligning
long-term financial interests of executives with those of the Stockholders.
The Committee considers the amount and terms of options previously awarded to
and held by executive officers in determining the size of option grants.
Other Compensation Plans. The Company maintains several broadly-based
employee benefit plans in which the executive officers are permitted to
participate on the same terms as other employees. These include the retirement
savings plan (designed to qualify under section 401(k) of the Internal Revenue
Code), a supplemental executive retirement plan which provides certain
supplemental retirement and other benefits to certain executives who have
completed an aggregate of 60 months employment with the Company, and a
nonqualified deferred compensation plan for highly compensated employees which
permits deferral of income on a portion of the employee's compensation.
To the extent readily determinable and as one of the factors in its
consideration of the various components of executive compensation, the
Committee considers the anticipated tax treatment to the Company and to the
executives of various payments and benefits. Some types of compensation
payments and their deductibility (e.g., the spread on exercise of non-
qualified options) depend upon the timing of an executive's vesting or
exercise of previously granted rights. Further, interpretations of and changes
in the tax laws and other factors beyond the Committee's control also affect
the deductibility of compensation. For these and other reasons, the Committee
will not necessarily and in all circumstances limit executive compensation to
that deductible under Section 162(m) of the Internal Revenue Code. The
Committee will consider various alternatives for preserving the deductibility
of compensation payments and benefits to the extent reasonably practicable and
to the extent consistent with its other compensation objectives.
Chief Executive Officer Compensation. In accordance with the compensation
philosophy and process described above, the Committee set Mr. Kolb's base
salary, effective July 1, 1995, at $440,000, which was below the midpoint for
CEO's of similar sized companies in the surveys utilized by the Committee. Mr.
Kolb's base salary was not increased in 1996. Mr. Kolb's total annual cash
compensation is linked to the Company's performance by his participation in
the 1996 Executive Incentive Plan. Under the Plan, he would earn no bonus
unless 1996 EPS exceeded the threshold level established in the Plan, but he
would earn a bonus of 60% of his Base Compensation if 1996 EPS were at least
115% of the threshold, a bonus of 90% of his Base Compensation if 1996 EPS
were at least 120% of the threshold, and a maximum bonus of 120% of his Base
Compensation if 1996 EPS were at least 125% of the threshold. The bonus
payable for EPS amounts between the levels stated above would be determined by
pro rata interpolation. Mr. Kolb earned the maximum bonus under the Company's
1996 Executive Incentive Plan. Of this amount, 75% has been paid in 1997, and
the remainder will be paid in equal amounts over the following two years.
The Committee's objectives in setting Mr. Kolb's compensation are to be
competitive with other companies in the carpet industry and with other public
companies of a similar size and to provide Mr. Kolb with appropriate
incentives to achieve the Company's short-term and long-term objectives.
COMPENSATION COMMITTEE
Leo Benatar
Robert N. Pokelwaldt
- 11 -
<PAGE>
PERFORMANCE GRAPH
The following is a line graph comparing the yearly percentage change in the
Company's cumulative total stockholder returns to those of the Standard & Poors
500 Index and a group of peer issuers beginning on April 1, 1992 (the date of
the completion of the Company's Initial Public Offering) and ending on December
31, 1996.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
COMPARISON OF TOTAL CUMULATIVE RETURNS AMONG
MOHAWK INDUSTRIES, INC., THE S&P 500 INDEX AND A PEER GROUP
Measurement period Measurement PT -
(Fiscal Year Covered) 04/01/92 FYE 12/31/92 FYE 12\31\93 FYE 12/31/94 FYE 12/31/95 FYE 12/31/96
- --------------------- ---------------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
MOHAWK $100 $141.67 $342.50 $127.50 $156.25 $220.00
S&P 500 $100 $110.41 $121.53 $123.14 $169.41 $208.31
PEER GROUP $100 $112.73 $149.21 $104.57 $114.35 $113.08
</TABLE>
The peer group includes the following companies: Burlington Industries
Equity, Inc., Cone Mills Corporation, Crown Crafts, Inc., Fieldcrest Cannon,
Inc., Guildford Mills, Inc., Interface, Inc., Shaw Industries, Inc., Springs
Industries, Inc. and West Point Stevens, Inc. (prior to December 1993, West
Point Stevens, Inc. did business under the name West Point Pepperell, Inc.).
Total return values were calculated based on cumulative total return, assuming
the value of the investment in the Company's Common Stock and in each index on
April 1, 1992 was $100 and that all dividends were reinvested. The Company is
not included in the peer group because management believes that, by excluding
the Company, investors will have a more accurate view of the Company's
performance relative to certain other carpet and textile companies.
- 12 -
<PAGE>
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table presents certain summary information concerning
compensation paid or accrued by the Company for services rendered in all
capacities during the fiscal years ended December 31, 1994, 1995 and 1996, for
(i) the Chairman and Chief Executive Officer of the Company and (ii) each of
the four other most highly compensated executive officers of the Company
(determined as of December 31, 1996) (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
------------------ ------------
OTHER ANNUAL SECURITIES ALL OTHER
SALARY COMPENSATION UNDERLYING COMPENSATION
NAME AND POSITION YEAR ($) BONUS ($) ($) OPTIONS (#) ($)(5)
----------------- ---- -------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
David L. Kolb........... 1996 $440,000 $528,000 $ 325,297(1) -- $ 9,110
Chairman and Chief 1995 426,000 -- 2,363,004(2) -- 10,500
Executive Officer 1994 412,000 -- -- 25,000(3) 10,708
Jeffrey S. Lorberbaum... 1996 $416,693 $416,693 -- -- $ 5,118
President and Chief 1995 336,134 150,000 -- 50,000(4) 4,849
Operating Officer; 1994 241,275 179,000 -- -- 7,486
President and Chief
Executive Officer-
Aladdin
Frank A. Procopio....... 1996 $241,500 $ -- $ 154,319(1) -- $ 7,162
Senior Vice President; 1995 241,500 -- 1,012,422(2) -- 8,568
President-Commercial 1994 241,500 47,700 -- 10,000(3) 8,898
Business
John D. Swift.......... 1996 $200,000 $170,000 $ 41,395(1) -- $ 5,283
Vice President-Finance, 1995 191,000 -- 247,816(2) -- 7,889
Assistant Secretary and 1994 182,000 -- -- 12,000(3) 7,980
Chief Financial Officer
William B. Kilbride..... 1996 $200,000 $328,334(6) -- 7,500(7) $ 4,059
President-American Rug 1995 175,000 183,750 -- -- 928
Craftsmen 1994 175,000 218,333(6) -- 10,000(3) 968
</TABLE>
- --------
(1) Amounts in 1996 include (i) imputed interest on the outstanding balance of
the interest free loans made by the Company to Messrs. Kolb, Procopio and
Swift upon exercise of certain stock options in the amount of $180,865,
$85,801 and $23,016, respectively, and (ii) $144,432, $68,518 and $18,379
paid by the Company in March 1997 to Messrs. Kolb, Procopio and Swift,
respectively, so that each could pay the 1996 tax liability on imputed
income arising from such interest free loans. See footnote (2) below and
"Executive Compensation and Other Information--Certain Relationships and
Related Transactions."
(2) Amounts in 1995 include amounts accrued by the Company for reimbursements
payable to Messrs. Kolb, Procopio and Swift for tax payments in connection
with stock option exercises in the amounts of $2,363,004, $1,012,422, and
$247,816, respectively. In connection with the leveraged buyout of the
Company in 1988 and in lieu of purchasing shares of the Company's Common
Stock, each of Messrs. Kolb, Procopio and Swift obtained an equity
interest in the Company by entering into a stock option agreement (the
"Option Agreement") with the Company that differed only with respect to
the number and exercise price of the shares subject to the option. This
arrangement allows the Company to receive a tax benefit on its tax return
in the amount of the tax effect of the taxable compensation provided to
the individual under the Option Agreements; however, upon exercise of the
options, the individual is subject to taxation at ordinary income rates.
Pursuant to the Option Agreements, which were amended in 1992, when one of
the individuals exercises an option, receives shares of the Company's
Common Stock which were subject to the option (the "Optioned Stock") and
does not sell the shares of Optioned Stock, he is entitled to borrow from
the Company on an interest free basis an amount necessary to pay his
income tax liability. See "Executive Compensation and Other Information--
Certain Relationships and Related Transactions." When the individual sells
the shares of Optioned Stock, he must repay the loan. At the time of the
sale of the
- 13 -
<PAGE>
shares of Optioned Stock, the individual is reimbursed for the amount of
tax incurred by the individual upon the exercise of the option and the sale
of the Optioned Stock in excess of the amount of tax the individual would
have incurred had the individual held the stock from the option grant until
the sale. In addition, the individual is reimbursed for the tax liability
incurred by reason of the payment described in the previous sentence. The
Company would record a tax benefit in its tax return concurrent with these
payments. Messrs. Kolb, Procopio and Swift have not elected to sell the
Optioned Stock, but the Company, nonetheless, treats the reimbursement
payment payable upon sale of the Optioned Stock as earned at the time the
option is exercised.
(3) Amounts represent options granted in 1994 pursuant to the 1992 Mohawk-
Horizon Stock Option Plan.
(4) Amount represents options granted in 1995 pursuant to the 1992 Mohawk-
Horizon Stock Option Plan.
(5) Represents matching contributions pursuant to the Company's Retirement
Savings Plan and the dollar value of insurance premiums paid by the
Company with respect to term life insurance. The amounts of the matching
contributions in 1996 were as follows: Mr. Kolb, $3,000; Mr. Procopio,
$3,000; Mr. Swift, $3,000; and Mr. Kilbride, $4,059. The value of the
insurance premiums paid in 1996 were as follows: Mr. Kolb, $6,110; Mr.
Procopio, $4,162; and Mr. Swift, $2,283. For Mr. Jeffrey Lorberbaum,
represents contributions pursuant to the Aladdin Profit Sharing Plan.
(6) Includes a special bonus of $158,333 payable in connection with the
purchase of American Rug Craftsmen by the Company in April 1993.
(7) Amount represents options granted in 1996 pursuant to the 1992 Stock
Option Plan.
OPTION GRANTS
The following table sets forth information on options granted to the Named
Executive Officers in fiscal 1996.
OPTION GRANTS IN FISCAL YEAR
ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM (3)
OPTIONS IN THE FISCAL BASE PRICE EXPIRATION --------------------------
NAME GRANTED (1) YEAR (2) ($/SH) DATE 5% 10%
---- ----------- ------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
David L. Kolb -- -- -- -- -- --
Jeffrey S. Lorberbaum -- -- -- -- -- --
Frank A. Procopio -- -- -- -- -- --
John D. Swift -- -- -- -- -- --
William B. Kilbride 7,500 1.8% $17 6/24/06 $ 80,184 $ 203,202
</TABLE>
- --------
(1) These options were granted under the Company's 1992 Stock Option Plan and
vest in 20% annual increments beginning June 24, 1997.
(2) The total number of shares of Common Stock covered by options granted to
employees in the 1996 fiscal year was 414,000.
(3) Potential realizable value is based on the assumption that the Common
Stock price appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the 10 year option term. The
numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission (the "Commission") and are not intended
to predict future performance.
OPTION EXERCISES AND HOLDINGS
The following table sets forth the number of shares covered by both
exercisable and non-exercisable stock options held by the Named Executive
Officers as of December 31, 1996. Also reported are the values for "in-the-
money" options which represent the positive spread between the exercise price
of any such existing stock options and the fiscal year-end price of the
Company's Common Stock (which was $22).
- 14 -
<PAGE>
AGGREGATED DECEMBER 31, 1996
YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
SHARES UNDERLYING UNEXERCISED THE-MONEYOPTIONS AT
ACQUIRED ON VALUE OPTIONSAT FY-END (#) FY-END($)
EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David L. Kolb 800,050 $11,083,093 40,000 22,500 $457,500 $180,000
Jeffrey S. Lorberbaum -- -- 10,000 40,000 $ 63,750 $255,000
Frank A. Procopio 370,475 $ 4,878,271 -- 13,500 -- $132,750
John D. Swift 92,250 $ 1,277,631 27,300 14,700 $328,950 $139,050
William B. Kilbride -- -- 13,000 19,500 $ 21,000 $ 69,000
</TABLE>
PENSION PLANS
The following table shows estimated annual retirement benefits payable to a
Named Executive Officer (other than Mr. Kolb or Mr. Jeffrey Lorberbaum) at age
65 under the Supplemental Executive Retirement Plan (the "SERP") as described
below.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------
REMUNERATION 15 20 25 30 OR MORE
- ------------ -------- -------- -------- ----------
<S> <C> <C> <C> <C>
$ 200,000................................ $ 80,000 $ 80,000 $ 80,000 $ 80,000
300,000................................ 120,000 120,000 120,000 120,000
400,000................................ 160,000 160,000 160,000 160,000
500,000................................ 200,000 200,000 200,000 200,000
600,000................................ 240,000 240,000 240,000 240,000
700,000................................ 280,000 280,000 280,000 280,000
800,000................................ 320,000 320,000 320,000 320,000
900,000................................ 360,000 360,000 360,000 360,000
1,000,000................................ 400,000 400,000 400,000 400,000
1,100,000................................ 440,000 440,000 440,000 440,000
1,200,000................................ 480,000 480,000 480,000 480,000
</TABLE>
The following table shows estimated annual retirement benefits payable to
Mr. Kolb, the Company's Chairman and Chief Executive Officer, at age 65 under
the SERP.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------
REMUNERATION 15 20 25 30 OR MORE
- ------------ -------- -------- -------- ----------
<S> <C> <C> <C> <C>
$ 500,000................................ $250,000 $250,000 $250,000 $250,000
600,000................................ 300,000 300,000 300,000 300,000
700,000................................ 350,000 350,000 350,000 350,000
800,000................................ 400,000 400,000 400,000 400,000
900,000................................ 450,000 450,000 450,000 450,000
1,000,000................................ 500,000 500,000 500,000 500,000
1,100,000................................ 550,000 550,000 550,000 550,000
1,200,000................................ 600,000 600,000 600,000 600,000
</TABLE>
The Company has established a Retirement Savings Plan (the "Retirement
Savings Plan"), which is a combination 401(k)/profit-sharing plan that
provides for employee pre-tax contributions under Section 401(k) of the
Internal Revenue Code, Company matching contributions, and, if profits are
sufficient, a Company profit
- 15 -
<PAGE>
sharing contribution. The Company has also established the SERP, a non-
qualified plan designed to supplement the benefits payable under the
Retirement Savings Plan and certain other plans. The SERP provides such
benefits to certain key employees of the Company and its subsidiaries as
designated by the Board of Directors of the Company.
Benefits under the SERP generally vest after the participant has sixty (60)
months of employment with the Company and generally can begin once the
participant attains age 60. The retirement benefit payable at age 65 to Mr.
Kolb (and prior to reduction as described below) is 50% of Mr. Kolb's average
annual compensation (meaning salary, bonuses, and certain pre-tax deferrals to
Company benefit plans, but does not include reimbursements for tax payments in
connection with stock option exercises) over the final sixty (60) months prior
to termination of employment. The retirement benefit payable at age 65 to
participants other than Mr. Kolb (and prior to reduction as described below),
is 40% of the participant's average annual compensation (as determined in
accordance with the preceding sentence). Benefits under the SERP are reduced
(i) if at retirement the participant has fewer than 15 years of employment
with the Company for participants other than Mr. Kolb or 14 years of
employment with the Company for Mr. Kolb, and (ii) if the participant begins
to receive SERP benefits prior to age 65.
Benefits payable under the SERP as shown in the foregoing tables are reduced
by (i) the annuity value of the contributions (and earnings thereon) made by
the Company to the participant's account in the Retirement Savings Plan; (ii)
one-half of the participant's Social Security benefits; (iii) certain other
Company benefit plans; and (iv) the annuity benefit to the participant from a
subsequent employer's pension plan. Upon retirement, the normal form of SERP
benefit is a life annuity for the life of the participant, but the Board and
the participant may approve payment in an alternate form. There are also
certain death benefits and medical benefits that are payable under the SERP.
As of December 31, 1996, Mr. Kolb had an average five-year compensation of
$643,400 and 16 years of creditable service; Mr. Procopio had an average five-
year compensation of $319,886 and 14 years of creditable service; and Mr.
Swift had an average five year compensation of $266,900 and 12 years of
creditable service. Neither Mr. Jeffrey Lorberbaum nor Mr. Kilbride
participates in these plans.
EMPLOYMENT AND CONSULTING CONTRACTS
The Company entered into employment contracts (each, an "Employment
Contract") on March 4, 1992 with each of Messrs. Kolb, Procopio and Swift and
on April 30, 1993 with Mr. Kilbride. Each Employment Contract had a three-year
term, and each Employment Contract with Messrs. Kolb, Procopio and Swift
provided for automatic one-year extensions unless prior notice to the contrary
was given by the Company or the executive. Each Employment Contract contained
terms relating to salary and bonus compensation, benefits, termination and
termination payments, and provisions relating to the use and disclosure of
confidential and proprietary information and agreements not to compete,
solicit customers or solicit employees. The Company has decided to discontinue
the use of written employment contracts, and pursuant to written notice
delivered by the Company to each of Messrs. Kolb, Procopio and Swift, their
Employment Contracts terminated on March 4, 1996, and Mr. Kilbride's
Employment Contract terminated on April 30, 1996. Each of Messrs. Kolb,
Procopio, Swift and Kilbride is continuing in his current position with the
Company.
On February 25, 1994 and in connection with the Aladdin Merger, the Company
entered into an employment contract with Mr. Jeffrey Lorberbaum and a
consulting agreement with Mr. Alan Lorberbaum. The initial term of Mr. Jeffrey
Lorberbaum's employment contract was five years, and the initial term of Mr.
Alan Lorberbaum's consulting agreement was two years. Effective February 25,
1996, consistent with the Company's discontinuance of the use of written
employment contracts, both Mr. Jeffrey Lorberbaum's employment contract and
Mr. Alan Lorberbaum's consulting agreement were terminated. Mr. Jeffrey
Lorberbaum continues to serve as President and Chief Executive Officer of
Aladdin and Mr. Alan Lorberbaum continues to serve as a consultant to Aladdin.
- 16 -
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Alan Lorberbaum and Jeffrey Lorberbaum and members of their
immediate families are shareholders of, and one of them is a director of, an
entity which transacts business with the Company. The aggregate dollar amount
paid by the Company to this related party in 1996 was $1,441,000. Management
of the Company believes that such transactions were and are on terms no less
favorable to the Company than could have been obtained from unaffiliated third
parties in similar transactions.
In 1996, Mr. Alan Lorberbaum earned approximately $375,000 in base
compensation and $550,000 in bonuses from Aladdin in his capacity as a
consultant to Aladdin based upon the performance of Aladdin in 1996.
In connection with the leveraged buyout of the Company in 1988 and in lieu
of purchasing shares of the Company's Common Stock, certain of the Company's
executive officers obtained an equity interest in the Company by entering into
the Option Agreements with the Company that differed only with respect to the
number and exercise price of the shares subject to the options. This
arrangement allows the Company to receive a tax benefit in the amount of the
taxable compensation provided to the individual under the Option Agreements;
however upon exercise of the options, the individual is subject to taxation at
ordinary income tax rates. Pursuant to these Option Agreements, which were
amended in 1992, when one of the individuals exercises his option and receives
the Optioned Stock, he is entitled to borrow from the Company on an interest
free basis (the "Loan") an amount equal to his income tax liability as a
result of the exercise of the option less the amount of the proceeds from his
sale of any shares of Optioned Stock which are sold prior to the date of the
Loan. The principal amount of the Loan is due when the individual transfers
beneficial ownership of all of the shares of Optioned Stock. The individual
must prepay the Loan with any proceeds of any sale of less than all of the
shares of Optioned Stock and with all dividends paid by the Company with
respect to such shares while the Loan remains outstanding. The shares of the
Optioned Stock are pledged by the individual to the Company and held by the
Company to secure the Loan. See also "Executive Compensation and Other
Information--Summary of Cash and Certain Other Compensation."
Since January 1, 1995, various executive officers of the Company have
exercised their options under the Option Agreements, elected not to resell
their shares of Optioned Stock and borrowed money from the Company pursuant to
the Option Agreements in order to pay their income tax liability. Mr. Kolb has
exercised options to acquire 800,050 shares of Optioned Stock and has received
a Loan from the Company in the original principal amount of $3,928,956. Mr.
Procopio has exercised options to acquire 358,975 shares of Optioned Stock and
has received a Loan from the Company in the original principal amount of
$1,684,987. Mr. Swift has exercised options to acquire 84,750 shares of
Optioned Stock and has received a Loan from the Company in the original
principal amount of $415,929. In March 1997, each of the executives named
above entered into a supplement to the Loan (the "Supplemental Loan") for the
purpose of providing to such executives the difference between the statutory
withholding rate used to determine the original principal amounts of the Loans
and their actual tax rate. Mr. Kolb received a Supplemental Loan in the
original principal amount of $1,152,570. Mr. Procopio received a Supplemental
Loan in the original principal amount of $493,015. Mr. Swift received a
Supplemental Loan in the original principal amount of $120,358. The combined
outstanding principal balance of the Loan and Supplemental Loan for each of
Mr. Kolb, Mr. Procopio and Mr. Swift as of April 4, 1997 was $5,081,526,
$2,178,002 and $536,287, respectively.
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<PAGE>
PRINCIPAL STOCKHOLDERS OF THE COMPANY
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of April 4, 1997, by (i)
each person who is known by the Company beneficially to own more than five
percent of the outstanding shares of the Common Stock, (ii) each of the
Company's directors and nominees, (iii) each of the Named Executive Officers,
and (iv) all of the Company's directors and executive officers as a group.
Unless otherwise indicated, the holders listed below have sole voting and
investment power with respect to all shares of Common Stock beneficially owned
by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT
COMMON STOCK OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- ------------------------ ------------------- -------
<S> <C> <C>
Alan S. Lorberbaum(1).............................. 12,165,319 35.2%
Aladdin Partners, L.P.(2).......................... 9,570,000 27.7%
399 Venture Partners, Inc.(3)...................... 5,230,050 15.1%
The Equitable Companies Incorporated, et al.(4).... 2,242,150 6.5%
Nicholas Applegate Capital Management(5)........... 1,889,452 5.5%
David L. Kolb(6)................................... 847,662 2.5%
Jeffrey S. Lorberbaum(7)........................... 431,417 1.2%
Frank A. Procopio(8)............................... 383,340 1.1%
Bruce C. Bruckmann(9).............................. 176,373 *
John D. Swift(10).................................. 114,354 *
Leo Benatar(11).................................... 14,476 *
William B. Kilbride(12)............................ 13,150 *
Larry W. McCurdy(11)............................... 11,049 *
Robert N. Pokelwaldt(11)........................... 11,049 *
All directors and executive officers as a group (10
persons)........................................... 14,168,189 40.9%
</TABLE>
- --------
* Less than one percent.
(1) The address of Mr. Alan Lorberbaum is 2001 Antioch Road, Dalton, Georgia
30721. Excludes 100 shares owned by Mrs. Shirley Lorberbaum, Mr.
Lorberbaum's wife. Includes 9,570,000 shares held by Aladdin Partners,
L.P., with respect to which Mr. Lorberbaum may be deemed to share voting
and investment power. Mr. Lorberbaum is a director and owner of 71.5% of
ASL Management Corp., the majority general partner of Aladdin Partners,
L.P. Mr. Lorberbaum disclaims beneficial ownership of the 9,570,000 shares
held by Aladdin Partners, L.P.
(2) The address of Aladdin Partners, L.P. is 822 Atkinson Drive, Dalton,
Georgia 30720. ASL Management Corp. is the majority general partner of
Aladdin Partners, L.P. and shares voting and investment power with respect
to these shares. The address of ASL Management Corp. is 822 Atkinson
Drive, Dalton, Georgia 30720. Mrs. Shirley Lorberbaum is a director and
owner of 28.5% of ASL Management Corp. and, as a result of such positions,
may be deemed to share voting and investment power with respect to these
shares. Excludes 100 shares owned of record by Mrs. Lorberbaum in her
individual capacity. Mrs. Lorberbaum is the wife of Mr. Alan Lorberbaum.
The address of Mrs. Lorberbaum is 2001 Antioch Road, Dalton, Georgia
30721. Mr. Barry L. Hoffman is a director of ASL Management Corp. and, as
a result of such position, may be deemed to share voting and investment
power with respect to these shares. Excludes 3,000 shares owned of record
by Mr. Hoffman in his individual capacity. The business address of Mr.
Hoffman is Joseph Decosimo & Company, 1100 Tallman Building, The Union
Square, Chattanooga, Tennessee 37402. Each of ASL Management Corp., Mrs.
Lorberbaum and Mr. Hoffman disclaim beneficial ownership of the 9,570,000
shares held by Aladdin Partners, L.P.
(3) The address of 399 Venture Partners, Inc. is 399 Park Avenue, New York,
New York 10043.
(4) Based upon a Schedule 13G dated February 12, 1997 jointly filed with the
Commission by The Equitable Companies Incorporated; AXA Assurances
I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha Assurances I.A.R.D.
Mutuelle, Alpha Assurances Vie Mutuelle, AXA Courtage Assurance Mutuelle,
as a group (the "Mutuelles AXA"); and AXA. The address of The Equitable
Companies Incorporated is 787 Seventh Avenue, New York, New York 10019.
Each of the Mutuelles AXA, as a group, and AXA disclaim beneficial
ownership of these shares.
- 18 -
<PAGE>
(5) Based upon a Schedule 13G dated February 3, 1997 filed with the
Commission. The address of Nicholas Applegate Capital Management is 600
West Broadway, 29th Floor, San Diego, California 92101.
(6) Includes 47,500 shares issuable upon the exercise of currently vested
options and 112 shares owned pursuant to the Company's 401(k) plan.
(7) Includes 20,000 shares issuable upon the exercise of currently vested
options. Excludes 9,570,000 shares held by Aladdin Partners, L.P., of
which Mr. Jeffrey Lorberbaum is a minority general partner. Mr.
Lorberbaum disclaims beneficial ownership of these 9,570,000 shares held
by Aladdin Partners, L.P.
(8) Includes 7,500 shares issuable upon the exercise of currently vested
options and 16,865 shares owned pursuant to the Company's 401(k) plan.
(9) Includes 7,800 shares issuable upon the exercise of currently vested
options.
(10) Includes 20,000 shares issuable upon the exercise of currently vested
options and 9,604 shares owned pursuant to the Company's 401(k) plan.
(11) Includes 9,300 shares issuable upon the exercise of currently vested
options.
(12) Includes 13,000 shares issuable upon the exercise of currently vested
options.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
Annual Meeting. However, if any other matters are properly brought before the
Annual Meeting or are incidental to the conduct of the Annual Meeting, the
persons appointed in the accompanying proxy intend to vote the shares
represented thereby in accordance with their best judgment.
The Board of Directors has appointed KPMG Peat Marwick LLP as auditors of
the Company for 1997. KPMG Peat Marwick LLP also audited the Company's
financial statements for 1996. Representatives of KPMG Peat Marwick LLP will
be present at the Annual Meeting and will be given an opportunity to make a
statement, if they desire, and to respond to appropriate questions.
The Company will bear the cost of the solicitation of proxies on behalf of
the Company. Directors, officers and other employees of the Company may,
without additional compensation except for reimbursement for actual expenses,
solicit proxies by mail, in person or by telecommunication. The Company has
retained Georgeson & Company Inc. to assist in the solicitation of proxies for
a fee of $3,500 plus expenses. The Company will reimburse brokers,
fiduciaries, custodians and other nominees for out-of-pocket expenses incurred
in sending the Company's proxy materials to, and obtaining instructions
relating to such materials from, beneficial owners.
Any proposal a Stockholder may desire to have included in the Company's
proxy material for presentation at the 1998 Annual Meeting must be received by
the Company at Mohawk Industries, Inc., P.O. Box 12069, 160 South Industrial
Boulevard, Calhoun, Georgia 30703, Attention: Secretary, on or prior to
December 11, 1997.
If your shares are held in the name of a brokerage firm, bank nominee or
other institution, only it can sign a proxy card with respect to your shares.
Accordingly, please contact the person responsible for your account and give
instructions for a proxy card to be signed representing your shares.
A list of Stockholders entitled to be present and vote at the Annual Meeting
will be available at the offices of the Company, P.O. Box 12069, 160 South
Industrial Boulevard, Calhoun, Georgia 30703, for inspection by the
Stockholders during regular business hours from May 9, 1997, to the date of
the Annual Meeting. The list also will be available during the Annual Meeting
for inspection by Stockholders who are present.
If you cannot be present in person, you are requested to complete, sign,
date and return the enclosed proxy promptly. An envelope has been provided for
that purpose. No postage is required if mailed in the United States.
/s/ Barbara B. Lance
---------------------------
BARBARA B. LANCE
Secretary
Atlanta, Georgia
April 9, 1997
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<PAGE>
APPENDIX A
MOHAWK INDUSTRIES, INC.
1997 LONG-TERM INCENTIVE PLAN
ARTICLE I
PURPOSE
1.1 GENERAL. The purpose of the Mohawk Industries, Inc. 1997 Long-Term
Incentive Plan (the "Plan") is to promote the success, and enhance the value,
of Mohawk Industries, Inc. (the "Corporation"), by linking the personal
interests of its employees, officers and directors to those of Corporation
stockholders and by providing its employees, officers and directors with an
incentive for outstanding performance. The Plan is further intended to provide
flexibility to the Corporation in its ability to motivate, attract, and retain
the services of employees, officers and directors upon whose judgment,
interest, and special effort the successful conduct of the Corporation's
operation is largely dependent. Accordingly, the Plan permits the grant of
incentive awards from time to time to selected employees, officers and
directors.
ARTICLE 2
EFFECTIVE DATE
2.1 EFFECTIVE DATE. The Plan shall be effective as of the date upon which it
shall be approved by the Board. However, the Plan shall be submitted to the
stockholders of the Corporation for approval within 12 months of the Board's
approval thereof. No Incentive Stock Options granted under the Plan may be
exercised prior to approval of the Plan by the stockholders and if the
stockholders fail to approve the Plan within 12 months of the Board's approval
thereof, any Incentive Stock Options previously granted hereunder shall be
automatically converted to Non-Qualified Stock Options without any further
act. In the discretion of the Committee, Awards may be made to Covered
Employees which are intended to constitute qualified performance-based
compensation under Code Section 162(m). Any such Awards shall be contingent
upon the stockholders having approved the Plan.
ARTICLE 3
DEFINITIONS
3.1 DEFINITIONS. When a word or phrase appears in this Plan with the initial
letter capitalized, and the word or phrase does not commence a sentence, the
word or phrase shall generally be given the meaning ascribed to it in this
Section or in Section 1.1 unless a clearly different meaning is required by
the context. The following words and phrases shall have the following
meanings:
(a) "Award" means any Option, Stock Appreciation Right, Restricted Stock
Award, Performance Share Award, Dividend Equivalent Award, or Other Stock-
Based Award, or any other right or interest relating to Stock or cash,
granted to a Participant under the Plan.
(b) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Corporation.
(d) "Change in Control" means and includes each of the following:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of 25% or more of the combined voting power of the
then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection
(1), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition by a Person who is on the Effective Date
the beneficial owner of 25% or more of the Outstanding Company Voting
Securities, (ii) any acquisition directly from the Company, (iii) any
acquisition by the Company, (iv) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (v) any acquisition by
any corporation pursuant to a transaction which complies with clauses
(i), (ii) and (iii) of subsection (3) of this definition; or
- 1 -
<PAGE>
(2) Individuals who, as of the Effective Date, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
a director subsequent to the Effective Date whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(3) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following
such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners of the
Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 50% of the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors of
the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in substantially
the same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Voting Securities, and
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 25% or more of the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of
the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(f) "Committee" means the committee of the Board described in Article 4.
(g) "Corporation" means Mohawk Industries, Inc., a Delaware corporation.
(h) "Covered Employee" means a covered employee as defined in Code
Section 162(m)(3).
(i) "Disability" shall mean any illness or other physical or mental
condition of a Participant that renders the Participant incapable of
performing his customary and usual duties for the Corporation, or any
medically determinable illness or other physical or mental condition
resulting from a bodily injury, disease or mental disorder which, in the
judgment of the Committee, is permanent and continuous in nature. The
Committee may require such medical or other evidence as it deems necessary
to judge the nature and permanency of the Participant's condition.
(j) "Dividend Equivalent" means a right granted to a Participant under
Article 11.
(k) "Effective Date" has the meaning assigned such term in Section 2.1.
(l) "Fair Market Value", on any date, means (i) if the Stock is listed on
a securities exchange or is traded over the Nasdaq National Market, the
closing sales price on such exchange or over such system on such date or,
in the absence of reported sales on such date, the closing sales price on
the immediately preceding date on which sales were reported, or (ii) if the
Stock is not listed on a securities exchange or traded over the Nasdaq
National Market, the mean between the bid and offered prices as quoted by
Nasdaq for such date, provided that if it is determined that the fair
market value is not properly reflected by such Nasdaq quotations, Fair
Market Value will be determined by such other method as the Committee
determines in good faith to be reasonable.
(m) "Incentive Stock Option" means an Option that is intended to meet the
requirements of Section 422 of the Code or any successor provision thereto.
- 2 -
<PAGE>
(n) "Non-Qualified Stock Option" means an Option that is not an Incentive
Stock Option.
(o) "Option" means a right granted to a Participant under Article 7 of
the Plan to purchase Stock at a specified price during specified time
periods. An Option may be either an Incentive Stock Option or a Non-
Qualified Stock Option.
(p) "Other Stock-Based Award" means a right, granted to a Participant
under Article 12, that relates to or is valued by reference to Stock or
other Awards relating to Stock.
(r) "Parent" means a corporation which beneficially owns a majority of
the outstanding voting stock or voting power of the Corporation. For
Incentive Stock Options, the term shall have the same meaning as set forth
in Code Section 424(e).
(q) "Participant" means a person who, as an employee, officer or director
of the Corporation or any Parent or Subsidiary, has been granted an Award
under the Plan.
(o) "Performance Share" means a right granted to a Participant under
Article 9, to receive cash, Stock, or other Awards, the payment of which is
contingent upon achieving certain performance goals established by the
Committee.
(p) "Plan" means the Mohawk Industries, Inc. 1997 Long-Term Incentive
Plan, as amended from time to time.
(q) "Restricted Stock Award" means Stock granted to a Participant under
Article 10 that is subject to certain restrictions and to risk of
forfeiture.
(r) "Retirement" means a Participant's termination of employment with the
Corporation, Parent or Subsidiary after attaining any normal or early
retirement age specified in any pension, profit sharing or other retirement
program sponsored by the Corporation, or, in the event of the
inapplicability thereof with respect to the person in question, as
determined by the Committee in its reasonable judgment.
(s) "Stock" means the $.01 par value common stock of the Corporation and
such other securities of the Corporation as may be substituted for Stock
pursuant to Article 14.
(t) "Stock Appreciation Right" or "SAR" means a right granted to a
Participant under Article 8 to receive a payment equal to the difference
between the Fair Market Value of a share of Stock as of the date of
exercise of the SAR over the grant price of the SAR, all as determined
pursuant to Article 8.
(u) "Subsidiary" means any corporation, limited liability company,
partnership or other entity of which a majority of the outstanding voting
stock or voting power is beneficially owned directly or indirectly by the
Corporation. For Incentive Stock Options, the term shall have the meaning
set forth in Code Section 424(f).
(v) "1933 Act" means the Securities Act of 1933, as amended from time to
time.
(w) "1934 Act" means the Securities Exchange Act of 1934, as amended from
time to time.
ARTICLE 4
ADMINISTRATION
4.1 COMMITTEE. The Plan shall be administered by the Compensation Committee
of the Board or, at the discretion of the Board from time to time, by the
Board. The Committee shall consist of two or more members of the Board who are
(i) "outside directors" as that term is used in Section 162(m) of the Code and
the regulations promulgated thereunder, and (ii) "non-employee directors" as
such term is defined in Rule 16b-3 promulgated under Section 16 of the 1934
Act or any successor provision. During any time that the Board is acting as
administrator of the Plan, it shall have all the powers of the Committee
hereunder, and any reference herein to the Committee (other than in this
Section 4.1) shall include the Board.
- 3 -
<PAGE>
4.2 ACTION BY THE COMMITTEE. For purposes of administering the Plan, the
following rules of procedure shall govern the Committee. A majority of the
Committee shall constitute a quorum. The acts of a majority of the members
present at any meeting at which a quorum is present, and acts approved
unanimously in writing by the members of the Committee in lieu of a meeting,
shall be deemed the acts of the Committee. Each member of the Committee is
entitled to, in good faith, rely or act upon any report or other information
furnished to that member by any officer or other employee of the Corporation
or any Parent or Subsidiary, the Corporation's independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Corporation to assist in the administration of the Plan.
4.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive power, authority
and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted to each
Participant;
(c) Determine the number of Awards to be granted and the number of shares
of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted under the
Plan, including but not limited to, the exercise price, grant price, or
purchase price, any restrictions or limitations on the Award, any schedule
for lapse of forfeiture restrictions or restrictions on the exercisability
of an Award, and accelerations or waivers thereof, based in each case on
such considerations as the Committee in its sole discretion determines;
(e) Accelerate the vesting or lapse of restrictions of any outstanding
Award, based in each case on such considerations as the Committee in its
sole discretion determines;
(f) Determine whether, to what extent, and under what circumstances an
Award may be settled in, or the exercise price of an Award may be paid in,
cash, Stock, other Awards, or other property, or an Award may be canceled,
forfeited, or surrendered;
(g) Prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(h) Decide all other matters that must be determined in connection with
an Award;
(i) Establish, adopt or revise any rules and regulations as it may deem
necessary or advisable to administer the Plan;
(j) Make all other decisions and determinations that may be required
under the Plan or as the Committee deems necessary or advisable to
administer the Plan; and
(k) Amend the Plan or any Award Agreement as provided herein.
4.4. DECISIONS BINDING. The Committee's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding,
and conclusive on all parties.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1. NUMBER OF SHARES. Subject to adjustment as provided in Section 14.1,
the aggregate number of shares of Stock reserved and available for Awards or
which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a Stock Appreciation Right or Performance
Share Award) shall be 1,700,000.
5.2. LAPSED AWARDS. To the extent that an Award is canceled, terminates,
expires or lapses for any reason, any shares of Stock subject to the Award
will again be available for the grant of an Award under the Plan and shares
subject to SARs or other Awards settled in cash will be available for the
grant of an Award under the Plan.
- 4 -
<PAGE>
5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4. LIMITATION ON AWARDS. Notwithstanding any provision in the Plan to the
contrary, the maximum number of shares of Stock with respect to one or more
Options and/or SARs that may be granted during any one calendar year under the
Plan to any one Covered Employee shall be 100,000. The maximum fair market
value of any Awards (other than Options and SARs) that may be received by a
Covered Employee (less any consideration paid by the Participant for such
Award) during any one calendar year under the Plan shall be $3,000,000.
ARTICLE 6
ELIGIBILITY
6.1. GENERAL. Awards may be granted only to individuals who are employees,
officers or directors of the Corporation or a Parent or Subsidiary.
ARTICLE 7
STOCK OPTIONS
7.1. GENERAL. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of Stock under an Option
shall be determined by the Committee.
(b) TIME AND CONDITIONS OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part. The
Committee also shall determine the performance or other conditions, if any,
that must be satisfied before all or part of an Option may be exercised.
The Committee may waive any exercise provisions at any time in whole or in
part based upon factors as the Committee may determine in its sole
discretion so that the Option becomes exerciseable at an earlier date.
(c) PAYMENT. The Committee shall determine the methods by which the
exercise price of an Option may be paid, the form of payment, including,
without limitation, cash, shares of Stock, or other property (including
"cashless exercise" arrangements), and the methods by which shares of Stock
shall be delivered or deemed to be delivered to Participants. Without
limiting the power and discretion conferred on the Committee pursuant to
the preceding sentence, the Committee may, in the exercise of its
discretion, but need not, allow a Participant to pay the Option price by
directing the Corporation to withhold from the shares of Stock that would
otherwise be issued upon exercise of the Option that number of shares
having a Fair Market Value on the exercise date equal to the Option price,
all as determined pursuant to rules and procedures established by the
Committee.
(d) EVIDENCE OF GRANT. All Options shall be evidenced by a written Award
Agreement between the Corporation and the Participant. The Award Agreement
shall include such provisions as may be specified by the Committee.
7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:
(a) EXERCISE PRICE. The exercise price per share of Stock shall be set by
the Committee, provided that the exercise price for any Incentive Stock
Option shall not be less than the Fair Market Value as of the date of the
grant.
(b) EXERCISE. In no event may any Incentive Stock Option be exercisable
for more than ten years from the date of its grant.
(c) LAPSE OF OPTION. An Incentive Stock Option shall lapse under the
earliest of the following circumstances; provided, however, that the
Committee may, prior to the lapse of the Incentive Stock Option under the
circumstances described in paragraphs (3), (4) and (5) below, provide in
writing that the Option will extend until a later date, but if the Option
is exercised after the dates specified in paragraphs (3), (4) and (5)
above, it will automatically become a Non-Qualified Stock Option:
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(1) The Incentive Stock Option shall lapse as of the option
expiration date set forth in the Award Agreement.
(2) The Incentive Stock Option shall lapse ten years after it is
granted, unless an earlier time is set in the Award Agreement.
(3) If the Participant terminates employment for any reason other
than as provided in paragraph (4) or (5) below, the Incentive Stock
Option shall lapse, unless it is previously exercised, three months
after the Participant's termination of employment; provided, however,
that if the Participant's employment is terminated by the Company for
cause or by the Participant without the consent of the Company, the
Incentive Stock Option shall (to the extent not previously exercised)
lapse immediately.
(4) If the Participant terminates employment by reason of his
Disability, the Incentive Stock Option shall lapse, unless it is
previously exercised, one year after the Participant's termination of
employment.
(5) If the Participant dies while employed, or during the three-month
period described in paragraph (3) or during the one-year period
described in paragraph (4) and before the Option otherwise lapses, the
Option shall lapse one year after the Participant's death. Upon the
Participant's death, any exercisable Incentive Stock Options may be
exercised by the Participant's beneficiary.
Unless the exercisability of the Incentive Stock Option is accelerated as
provided in Article 13, if a Participant exercises an Option after
termination of employment, the Option may be exercised only with respect to
the shares that were otherwise vested on the Participant's termination of
employment.
(d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market Value
(determined as of the time an Award is made) of all shares of Stock with
respect to which Incentive Stock Options are first exercisable by a
Participant in any calendar year may not exceed $100,000.00.
(e) TEN PERCENT OWNERS. No Incentive Stock Option shall be granted to any
individual who, at the date of grant, owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Corporation or any Parent or Subsidiary unless the exercise price per share
of such Option is at least 110% of the Fair Market Value per share of Stock
at the date of grant and the Option expires no later than five years after
the date of grant.
(f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of an Incentive Stock
Option may be made pursuant to the Plan after the day immediately prior to
the tenth anniversary of the Effective Date.
(g) RIGHT TO EXERCISE. During a Participant's lifetime, an Incentive
Stock Option may be exercised only by the Participant or, in the case of
the Participant's Disability, by the Participant's guardian or legal
representative.
(h) DIRECTORS. The Committee may not grant an Incentive Stock Option to a
non-employee director. The Committee may grant an Incentive Stock Option to
a director who is also an employee of the Corporation or Parent or
Subsidiary, but only in that individual's position as an employee and not
as a director.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1. GRANT OF SARs. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(a) RIGHT TO PAYMENT. Upon the exercise of a Stock Appreciation Right,
the Participant to whom it is granted has the right to receive the excess,
if any, of:
(1) The Fair Market Value of one share of Stock on the date of
exercise; over
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(2) The grant price of the Stock Appreciation Right as determined by
the Committee, which shall not be less than the Fair Market Value of
one share of Stock on the date of grant in the case of any SAR related
to an Incentive Stock Option.
(b) OTHER TERMS. All awards of Stock Appreciation Rights shall be
evidenced by an Award Agreement. The terms, methods of exercise, methods of
settlement, form of consideration payable in settlement, and any other
terms and conditions of any Stock Appreciation Right shall be determined by
the Committee at the time of the grant of the Award and shall be reflected
in the Award Agreement.
ARTICLE 9
PERFORMANCE SHARES
9.1. GRANT OF PERFORMANCE SHARES. The Committee is authorized to grant
Performance Shares to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion to
determine the number of Performance Shares granted to each Participant. All
Awards of Performance Shares shall be evidenced by an Award Agreement.
9.2. RIGHT TO PAYMENT. A grant of Performance Shares gives the Participant
rights, valued as determined by the Committee, and payable to, or exercisable
by, the Participant to whom the Performance Shares are granted, in whole or in
part, as the Committee shall establish at grant or thereafter. The Committee
shall set performance goals and other terms or conditions to payment of the
Performance Shares in its discretion which, depending on the extent to which
they are met, will determine the number and value of Performance Shares that
will be paid to the Participant.
9.3. OTHER TERMS. Performance Shares may be payable in cash, Stock, or other
property, and have such other terms and conditions as determined by the
Committee and reflected in the Award Agreement.
ARTICLE 10
RESTRICTED STOCK AWARDS
10.1. GRANT OF RESTRICTED STOCK. The Committee is authorized to make Awards
of Restricted Stock to Participants in such amounts and subject to such terms
and conditions as may be selected by the Committee. All Awards of Restricted
Stock shall be evidenced by a Restricted Stock Award Agreement.
10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, upon the satisfaction of performance
goals or otherwise, as the Committee determines at the time of the grant of
the Award or thereafter.
10.3. FORFEITURE. Except as otherwise determined by the Committee at the
time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction period or upon failure to satisfy a
performance goal during the applicable restriction period, Restricted Stock
that is at that time subject to restrictions shall be forfeited and reacquired
by the Corporation; provided, however, that the Committee may provide in any
Award Agreement that restrictions or forfeiture conditions relating to
Restricted Stock will be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may in other
cases waive in whole or in part restrictions or forfeiture conditions relating
to Restricted Stock.
10.4. CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the
name of the Participant, certificates must bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such
Restricted Stock.
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ARTICLE 11
DIVIDEND EQUIVALENTS
11.1 GRANT OF DIVIDEND EQUIVALENTS. The Committee is authorized to grant
Dividend Equivalents to Participants subject to such terms and conditions as
may be selected by the Committee. Dividend Equivalents shall entitle the
Participant to receive payments equal to dividends with respect to all or a
portion of the number of shares of Stock subject to an Option Award or SAR
Award, as determined by the Committee. The Committee may provide that Dividend
Equivalents be paid or distributed when accrued or be deemed to have been
reinvested in additional shares of Stock, or otherwise reinvested.
ARTICLE 12
OTHER STOCK-BASED AWARDS
12.1. GRANT OF OTHER STOCK-BASED AWARDS. The Committee is authorized,
subject to limitations under applicable law, to grant to Participants such
other Awards that are payable in, valued in whole or in part by reference to,
or otherwise based on or related to shares of Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including without
limitation shares of Stock awarded purely as a "bonus" and not subject to any
restrictions or conditions, convertible or exchangeable debt securities, other
rights convertible or exchangeable into shares of Stock, and Awards valued by
reference to book value of shares of Stock or the value of securities of or
the performance of specified Parents or Subsidiaries. The Committee shall
determine the terms and conditions of such Awards.
12.2. FORMULA GRANTS TO DIRECTORS. Each person who becomes a non employee
director of the Corporation after April 1, 1992 shall be granted a non-
Qualified Stock Option as of the date he or she first commences service as a
director to acquire 7,500 shares of Stock at an exercise price equal to the
Fair Market Value of a share of the Stock. Each non employee director eligible
to receive an Option pursuant to this Section 12.2 shall also be granted a
Non-Qualified Stock Option on January 1 of each year commencing January 1,
1994, to acquire 1,500 shares of Stock at an exercise price equal to the "Fair
Market Value on a Quarterly Basis" of the Stock, provided such individual is a
director of the Corporation on such date. Options granted under this Section
12.2 shall be subject to such additional terms as set forth in the Award
approved by the Committee. Notwithstanding any other provision of this Plan,
the provisions of this Section 12.2 and of the Award Agreement entered into
pursuant hereto may not be amended more than once every six months, other than
to conform it with changes in the Code, the Employee Retirement Income
Security Act of 1974, or any rules under either of the foregoing. For the
purposes of this Section 12.2, the term "Fair Market Value on a Quarterly
Basis" shall mean the Fair Market Value per share of the Stock on the last
business day of each of the Corporation's four fiscal quarters for the
preceding fiscal year.
ARTICLE 13
PROVISIONS APPLICABLE TO AWARDS
13.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under the
Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for another Award, the
Committee may require the surrender of such other Award in consideration of
the grant of the new Award. Awards granted in addition to or in tandem with
other Awards may be granted either at the same time as or at a different time
from the grant of such other Awards.
13.2. EXCHANGE PROVISIONS. The Committee may at any time offer to exchange
or buy out any previously granted Award for a payment in cash, Stock, or
another Award (subject to Section 14.1), based on the terms and conditions the
Committee determines and communicates to the Participant at the time the offer
is made.
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<PAGE>
13.3. TERM OF AWARD. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with
the Incentive Stock Option exceed a period of ten years from the date of its
grant (or, if Section 7.2(e) applies, five years from the date of its grant).
13.4. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any
applicable law or Award Agreement, payments or transfers to be made by the
Corporation or a Parent or Subsidiary on the grant or exercise of an Award may
be made in such form as the Committee determines at or after the time of
grant, including without limitation, cash, Stock, other Awards, or other
property, or any combination, and may be made in a single payment or transfer,
in installments, or on a deferred basis, in each case determined in accordance
with rules adopted by, and at the discretion of, the Committee.
13.5. LIMITS ON TRANSFER. No right or interest of a Participant in any
unexercised or restricted Award may be pledged, encumbered, or hypothecated to
or in favor of any party other than the Corporation or a Parent or Subsidiary,
or shall be subject to any lien, obligation, or liability of such Participant
to any other party other than the Corporation or a Parent or Subsidiary. No
unexercised or restricted Award shall be assignable or transferable by a
Participant other than by will or the laws of descent and distribution or,
except in the case of an Incentive Stock Option, pursuant to a domestic
relations order that would satisfy Section 414(p)(1)(A) of the Code if such
Section applied to an Award under the Plan; provided, however, that the
Committee may (but need not) permit other transfers where the Committee
concludes that such transferability (i) does not result in accelerated
taxation, (ii) does not cause any Option intended to be an incentive stock
option to fail to be described in Code Section 422(b), and (iii) is otherwise
appropriate and desirable, taking into account any state or federal tax or
securities laws applicable to transferable Awards.
13.6 BENEFICIARIES. Notwithstanding Section 13.5, a Participant may, in the
manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject
to all terms and conditions of the Plan and any Award Agreement applicable to
the Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Committee. If no beneficiary has been designated or survives the
Participant, payment shall be made to the Participant's estate. Subject to the
foregoing, a beneficiary designation may be changed or revoked by a
Participant at any time provided the change or revocation is filed with the
Committee.
13.7. STOCK CERTIFICATES. All Stock certificates delivered under the Plan
are subject to any stop-transfer orders and other restrictions as the
Committee deems necessary or advisable to comply with federal or state
securities laws, rules and regulations and the rules of any national
securities exchange or automated quotation system on which the Stock is
listed, quoted, or traded. The Committee may place legends on any Stock
certificate to reference restrictions applicable to the Stock.
13.8 ACCELERATION UPON DEATH OR DISABILITY. Notwithstanding any other
provision in the Plan or any Participant's Award Agreement to the contrary,
upon the Participant's death or Disability during his employment or service as
a director, all outstanding Options, Stock Appreciation Rights, and other
Awards in the nature of rights that may be exercised shall become fully
exercisable and all restrictions on outstanding Awards shall lapse. Any Option
or Stock Appreciation Rights Awards shall thereafter continue or lapse in
accordance with the other provisions of the Plan and the Award Agreement. To
the extent that this provision causes Incentive Stock Options to exceed the
dollar limitation set forth in Section 7.2(d), the excess Options shall be
deemed to be Non-Qualified Stock Options.
13.9. ACCELERATION UPON A CHANGE IN CONTROL. Except as otherwise provided in
the Award Agreement, upon the occurrence of a Change in Control, all
outstanding Options, Stock Appreciation Rights, and other Awards in the nature
of rights that may be exercised shall become fully exercisable and all
restrictions on outstanding Awards shall lapse; provided, however that such
acceleration will not occur if, in the opinion of
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the Company's accountants, such acceleration would preclude the use of
"pooling of interest" accounting treatment for a Change in Control transaction
that (a) would otherwise qualify for such accounting treatment, and (b) is
contingent upon qualifying for such accounting treatment. To the extent that
this provision causes Incentive Stock Options to exceed the dollar limitation
set forth in Section 7.2(d), the excess Options shall be deemed to be Non-
Qualified Stock Options.
13.10. ACCELERATION UPON CERTAIN EVENTS NOT CONSTITUTING A CHANGE IN
CONTROL. In the event of the occurrence of any circumstance, transaction or
event not constituting a Change in Control (as defined in Section 3.1) but
which the Board of Directors deems to be, or to be reasonably likely to lead
to, an effective change in control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of the 1934
Act, the Committee may in its sole discretion declare all outstanding Options,
Stock Appreciation Rights, and other Awards in the nature of rights that may
be exercised to be fully exercisable, and/or all restrictions on all
outstanding Awards to have lapsed, in each case as of such date as the
Committee may, in its sole discretion, declare, which may be on or before the
consummation of such transaction or event. To the extent that this provision
causes Incentive Stock Options to exceed the dollar limitation set forth in
Section 7.2(d), the excess Options shall be deemed to be Non-Qualified Stock
Options.
13.11. ACCELERATION FOR ANY OTHER REASON. Regardless of whether an event has
occurred as described in Section 13.9 or 13.10 above, the Committee may in its
sole discretion at any time determine that all or a portion of a Participant's
Options, Stock Appreciation Rights, and other Awards in the nature of rights
that may be exercised shall become fully or partially exercisable, and/or that
all or a part of the restrictions on all or a portion of the outstanding
Awards shall lapse, in each case as of such date as the Committee may, in its
sole discretion, declare. The Committee may discriminate among Participants
and among Awards granted to a Participant in exercising its discretion
pursuant to this Section 13.11.
13.12 EFFECT OF ACCELERATION. If an Award is accelerated under Section 13.9
or 13.10, the Committee may, in its sole discretion, provide (i) that the
Award will expire after a designated period of time after such acceleration to
the extent not then exercised, (ii) that the Award will be settled in cash
rather than Stock, (iii) that the Award will be assumed by another party to
the transaction giving rise to the acceleration or otherwise be equitably
converted in connection with such transaction, or (iv) any combination of the
foregoing. The Committee's determination need not be uniform and may be
different for different Participants whether or not such Participants are
similarly situated.
13.13. PERFORMANCE GOALS. The Committee may determine that any Award granted
pursuant to this Plan to a Participant (including, but not limited to,
Participants who are Covered Employees) shall be determined solely on the
basis of (a) the achievement by the Corporation or a Parent or Subsidiary of a
specified target return, or target growth in return, on equity or assets, (b)
the Corporation's, Parent's or Subsidiary's stock price, (c) the achievement
by a business unit of the Corporation, Parent or Subsidiary of a specified
target, or target growth in, net income or earnings per share, or (d) any
combination of the goals set forth in (a) through (c) above. Furthermore, the
Committee reserves the right for any reason to reduce (but not increase) any
Award, notwithstanding the achievement of a specified goal. If an Award is
made on such basis, the Committee shall establish goals prior to the beginning
of the period for which such performance goal relates (or such later date as
may be permitted under Code Section 162(m) or the regulations thereunder). Any
payment of an Award granted with performance goals shall be conditioned on the
written certification of the Committee in each case that the performance goals
and any other material conditions were satisfied.
13.14. TERMINATION OF EMPLOYMENT. Whether military, government or other
service or other leave of absence shall constitute a termination of employment
shall be determined in each case by the Committee at its discretion, and any
determination by the Committee shall be final and conclusive. A termination of
employment shall not occur in a circumstance in which a Participant transfers
from the Corporation to one of its Parents or Subsidiaries, transfers from a
Parent or Subsidiary to the Corporation, or transfers from one Parent or
Subsidiary to another Parent or Subsidiary.
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13.15. LOAN PROVISIONS. With the consent of the Committee, the Corporation
may make, guarantee or arrange for a loan or loans to a Participant with
respect to the exercise of any Option granted under this Plan and/or with
respect to the payment of the purchase price, if any, of any Award granted
hereunder and/or with respect to the payment by the Participant of any or all
federal and/or state income taxes due on account of the granting or exercise
of any Award hereunder. The Committee shall have full authority to decide
whether to make a loan or loans hereunder and to determine the amount, terms
and provisions of any such loan or loans, including the interest rate to be
charged in respect of any such loan or loans, whether the loan or loans are to
be made with or without recourse against the borrower, the terms on which the
loan is to be repaid and the conditions, if any, under which the loan or loans
may be forgiven.
ARTICLE 14
CHANGES IN CAPITAL STRUCTURE
14.1. GENERAL. In the event a stock dividend is declared upon the Stock, the
shares of Stock then subject to each Award shall be increased proportionately
without any change in the aggregate purchase price therefor. In the event the
Stock shall be changed into or exchanged for a different number or class of
shares of stock or securities of the Corporation or of another corporation,
whether through reorganization, recapitalization, stock split-up, combination
of shares, merger or consolidation, there shall be substituted for each such
share of Stock then subject to each Award the number and class of shares into
which each outstanding share of Stock shall be so exchanged, all without any
change in the aggregate purchase price for the shares then subject to each
Award.
ARTICLE 15
AMENDMENT, MODIFICATION AND TERMINATION
15.1. AMENDMENT, MODIFICATION AND TERMINATION. The Board or the Committee
may, at any time and from time to time, amend, modify or terminate the Plan
without stockholder approval; provided, however, that the Board or Committee
may condition any amendment or modification on the approval of stockholders of
the Company if such approval is necessary or deemed advisable with respect to
tax, securities or other applicable laws, policies or regulations.
15.2 AWARDS PREVIOUSLY GRANTED. At any time and from time to time, the
Committee may amend, modify or terminate any outstanding Award without
approval of the Participant; provided, however, that such amendment,
modification or termination shall not, without the Participant's consent,
reduce or diminish the value of such Award determined as if the Award had been
exercised, vested, cashed in or otherwise settled on the date of such
amendment or termination. No termination, amendment, or modification of the
Plan shall adversely affect any Award previously granted under the Plan,
without the written consent of the Participant.
ARTICLE 16
GENERAL PROVISIONS
16.1. NO RIGHTS TO AWARDS. No Participant or employee, officer or director
shall have any claim to be granted any Award under the Plan, and neither the
Corporation nor the Committee is obligated to treat Participants and
employees, officers or directors uniformly.
16.2. NO STOCKHOLDER RIGHTS. No Award gives the Participant any of the
rights of a stockholder of the Corporation unless and until shares of Stock
are in fact issued to such person in connection with such Award.
16.3. WITHHOLDING. The Corporation or any Parent or Subsidiary shall have
the authority and the right to deduct or withhold, or require a Participant to
remit to the Corporation, an amount sufficient to satisfy federal, state, and
local taxes (including the Participant's FICA obligation) required by law to
be withheld with
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respect to any taxable event arising as a result of the Plan. With respect to
withholding required upon any taxable event under the Plan, the Committee may,
at the time the Award is granted or thereafter, require that any such
withholding requirement be satisfied, in whole or in part, by withholding
shares of Stock having a Fair Market Value on the date of withholding equal to
the amount to be withheld for tax purposes, all in accordance with such
procedures as the Committee establishes.
16.4. NO RIGHT TO EMPLOYMENT OR DIRECTORSHIP. Nothing in the Plan or any
Award Agreement shall interfere with or limit in any way the right of the
Corporation or any Parent or Subsidiary to terminate any Participant's
employment or status as a director or consultant at any time, nor confer upon
any Participant any right to continue as an employee, director or consultant
of the Corporation or any Parent or Subsidiary.
l6.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an "unfunded"
plan for incentive and deferred compensation. With respect to any payments not
yet made to a Participant pursuant to an Award, nothing contained in the Plan
or any Award Agreement shall give the Participant any rights that are greater
than those of a general creditor of the Corporation or any Parent or
Subsidiary.
16.6. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or benefit plan of the
Corporation or any Parent or Subsidiary unless provided otherwise in such
other plan.
16.7. EXPENSES. The expenses of administering the Plan shall be borne by the
Corporation and its Parents or Subsidiaries.
16.8. TITLES AND HEADINGS. The titles and headings of the Sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
16.9. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural
shall include the singular and the singular shall include the plural.
16.10. FRACTIONAL SHARES. No fractional shares of Stock shall be issued and
the Committee shall determine, in its discretion, whether cash shall be given
in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
16.11. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Corporation
to make payment of awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Corporation shall be under no obligation to
register under the 1933 Act, any of the shares of Stock paid under the Plan.
If the shares paid under the Plan may in certain circumstances be exempt from
registration under the 1933 Act, the Corporation may restrict the transfer of
such shares in such manner as it deems advisable to ensure the availability of
any such exemption.
16.12. GOVERNING LAW. To the extent not governed by federal law, the Plan
and all Award Agreements shall be construed in accordance with and governed by
the laws of the State of Georgia.
16.13 ADDITIONAL PROVISIONS. Each Award Agreement may contain such other
terms and conditions as the Committee may determine; provided that such other
terms and conditions are not inconsistent with the provisions of this Plan.
The foregoing is hereby acknowledged as being the Mohawk Industries, Inc.
1997 Long-Term Incentive Plan as adopted by the Board of Directors of the
Company on February 13, 1997.
Mohawk Industries, Inc.
By: /s/ David L. Kolb
------------------------------
David L. Kolb
Chairman and Chief Executive
Officer
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PROXY
MOHAWK INDUSTRIES, INC.
CALHOUN, GEORGIA
ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Mohawk Industries, Inc., a Delaware
corporation ("Mohawk"), hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, and hereby appoints David L. Kolb
and John D. Swift, and each of them, proxies, with full power of substitution,
for and in the name of the undersigned, to vote all shares of Mohawk Common
Stock which the undersigned is entitled to vote on all matters which may come
before the 1997 Annual Meeting of Stockholders (the "Annual Meeting") of Mohawk
Industries, Inc. to be held on Thursday, May 22, 1997 at 10:00 a.m. local time,
at 160 South Industrial Boulevard, Calhoun, Georgia, and at any adjournment or
adjournments thereof, unless otherwise specified herein. The proxies, in their
discretion, are further authorized to vote for the election of a person to the
Board of Directors if any nominee named herein becomes unable to serve or for
good cause will not serve, are further authorized to vote on matters which the
Board of Directors does not know a reasonable time before making the proxy
solicitation will be presented at the Annual Meeting, and are further
authorized to vote on other matters which may properly come before the Annual
Meeting and any adjournments thereof. The Board of Directors recommends a vote
for Proposal 1 and Proposal 2.
(1) The election of three Directors, Bruce C. Bruckmann, Alan S. Lorberbaum and
Larry W. McCurdy, for a term of three years and until their successors are
elected and qualified:
[_] FOR [_] WITHHOLD AUTHORITY
For, except vote withheld from the following nominees:
-----------------------------
(2) The approval of the Mohawk Industries, Inc. 1997 Long-Term Incentive Plan:
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED IN
ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS. THE PROXIES
CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS PROXY.
<PAGE>
LOGO
Please sign exactly as your name appears on your stock certificate and date.
Where shares are held jointly, each stockholder should sign. When signing as
executor, administrator, trustee, or guardian, please give full title as such.
If a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
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Signature of Stockholder
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Signature of Stockholder (if held
jointly)
Dated: _____________________, 1997
Month Day
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MOHAWK INDUS-
TRIES, INC. AND MAY BE REVOKED BY THE STOCKHOLDER PRIOR TO ITS EXERCISE.
