<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
MOHAWK INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1604305
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
160 SOUTH INDUSTRIAL BOULEVARD
CALHOUN, GEORGIA 30701
(706) 629-7721
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DAVID L. KOLB
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MOHAWK INDUSTRIES, INC.
160 SOUTH INDUSTRIAL BOULEVARD
CALHOUN, GEORGIA 30701
(706) 629-7721
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
The Commission is requested to send copies of all communications to:
ALEXANDER W. PATTERSON KRIS F. HEINZELMAN
MICHAEL R. MCALEVEY CRAVATH, SWAINE & MOORE
ALSTON & BIRD LLP WORLDWIDE PLAZA
ONE ATLANTIC CENTER 825 EIGHTH AVENUE
1201 WEST PEACHTREE STREET NEW YORK, NEW YORK 10019-7475
ATLANTA, GEORGIA 30309-3424 (212) 474-1000
(404) 881-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [X]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF PROPOSED MAXIMUM
SHARES PROPOSED MAXIMUM AGGREGATE
TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common
Stock,
$.01 par
value per
share... 4,500,000 $24.50 $110,250,000 $32,524
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- -------------------------------------------------------------------------------
</TABLE>
(1) Includes 400,000 shares of Common Stock subject to the underwriters' over-
allotment option.
(2) Calculated pursuant to Rule 457(c) based on the average of the high and
low sale price of the Common Stock on the New York Stock Exchange
Composite Tape on February 4, 1998.
-----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 5, 1998
4,100,000 Shares
LOGO
Common Stock
($.01 par value)
--------
All of the 4,100,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of Mohawk Industries, Inc., a Delaware corporation
("Mohawk" or the "Company"), offered hereby (the "Offering") are being
sold by the Selling Stockholder named herein under "The Selling
Stockholder." The Company will not receive any of the proceeds from
the sale of shares of the Common Stock by the Selling Stockholder,
and the Company will bear certain expenses relating to the
registration and sale of the shares of the Common Stock.
The Common Stock is listed on the New York Stock Exchange (the "NYSE") under
the symbol "MHK." On February 4, 1998, the last reported sale price of the
Common Stock on the NYSE Composite Tape was $24.75 per share. See
"Price Range of Common Stock and Dividend Policy."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO THE SELLING
PUBLIC COMMISSIONS STOCKHOLDER(1)
--------- ------------- ---------------
<S> <C> <C> <C>
Per Share............................... $ $ $
Total(2)................................ $ $ $
</TABLE>
(1) Before deduction of expenses payable by the Selling Stockholder estimated
at $ . The Company will pay expenses relating to the Offering
estimated at $ .
(2) The Selling Stockholder has granted the Underwriters an option, exercisable
for 30 days from the date of this Prospectus, to purchase a maximum of
400,000 additional shares solely to cover over-allotments of shares. If the
option is exercised in full, the total Price to Public will be $ ,
Underwriting Discounts and Commissions will be $ and Proceeds to the
Selling Stockholder will be $ . See "The Selling Stockholder."
The shares of Common Stock are offered by the Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the shares of Common
Stock offered hereby will be ready for delivery on or about February , 1998,
against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON INVEMED ASSOCIATES, INC.
Prospectus dated February , 1998.
<PAGE>
[PICTURES]
[Six pictures containing various residential and commercial products
manufactured and sold by the Company.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (together with
all amendments and exhibits filed or to be filed in connection therewith, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Securities and Exchange Commission (the "Commission").
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in
its entirety by reference to the copy of the applicable document filed with
the Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 and at the Commission's regional offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, at prescribed rates.
The Commission maintains an Internet web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The address of that site is
http://www.sec.gov. The Company's Common Stock is listed on the New York Stock
Exchange, Inc., and reports and other information concerning the Company can
also be inspected at the office of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
(File No. 0-19826) are incorporated in this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1996, as amended by the Company's Form 10-K/A filed on June 23, 1997.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
September 27, 1997, June 28, 1997 and March 29, 1997.
3. The Company's Current Reports on Form 8-K dated October 23, 1997 and
February 5, 1998.
4. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed on January 29, 1992.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this Offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the respective
dates of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified and superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person to whom a Prospectus
is delivered, upon written or oral request of such person, a copy of any and
all of the information that has been incorporated by reference in this
Prospectus (excluding exhibits unless such exhibits are specifically
incorporated by reference into such documents). Please direct such requests to
the Secretary, Mohawk Industries, Inc., P. O. Box 12069, 160 South Industrial
Boulevard, Calhoun, Georgia 30701, (706) 624-2253.
3
<PAGE>
THE COMPANY
Mohawk Industries, Inc. (together with its subsidiaries, "Mohawk" or the
"Company") is the second largest producer of woven and tufted broadloom carpet
and rugs for residential and commercial applications in the world, with 1997
sales of approximately $1.9 billion. The Company designs, manufactures and
markets broadloom carpet and rugs across a broad range of colors, textures and
patterns, targeting all price points and emphasizing quality, style,
performance and service. The Company is widely recognized through its premier
brand names, including Aladdin, Alexander Smith, American Rug Craftsmen,
Bigelow, Galaxy, Harbinger, Helios, Horizon, Karastan, Mohawk, and Mohawk
Commercial. Products are marketed through all distribution channels, including
carpet retailers, home centers, mass merchandisers, department stores,
commercial dealers and commercial end users.
Mohawk has implemented a coordinated marketing, operations and acquisition
strategy designed to increase market share and achieve profitable growth
through a focus on high quality, low cost production offered with superior
service and at competitive prices. The key elements of the Company's strategy
are highlighted below:
Marketing Strategy: The Company's marketing strategy includes initiatives
designed to more fully develop and support Mohawk's independent dealer base
and increase demand for Mohawk's products. Key elements of Mohawk's
marketing strategy are: (i) dedicating separate sales forces to each of its
residential and commercial businesses; (ii) developing marketing programs
with fiber manufacturers and carpet and rug dealers; (iii) using
advertising and marketing programs to leverage the substantial brand equity
of its products; and (iv) offering merchandising programs to retailers on a
national level to support product sales and assist in expanding their
businesses. The Company's goal is to be the one-stop supplier of choice for
each of its residential and commercial customers.
Operations Strategy: Mohawk's operations are vertically integrated from the
extrusion of resin into fiber, to the conversion of fiber into yarn and to
the manufacture and shipment of finished carpet and rugs. The Company's
operating strategy is to be both highly efficient and cost effective in its
manufacturing, marketing, distribution and administrative services. To this
end, management has structured the Company's residential manufacturing
operations (which account for approximately 80% of the Company's total
operations) around a fiber conversion division, a yarn processing division
and a carpet and rug manufacturing division. A new highly advanced
management information system that monitors a transaction from the customer
order through manufacturing to shipment of the finished product has allowed
the Company to operate its separate facilities in a more integrated
fashion, resulting in lower costs and increased operational efficiencies.
In addition, the Company believes it provides superior product selection
and availability and faster delivery through its hub-and-spoke distribution
network consisting of nine regional warehouses and 31 smaller satellite
distribution centers. These distribution centers are supplied and serviced
by the Company's transportation division, which operates approximately 400
trucks and trailers.
Growth and Acquisitions Strategy: The Company continues to explore growth
and acquisition opportunities in both its existing carpet and rug
businesses, as well as into complementary floorcoverings, such as hardwood,
ceramic tile and laminates, where the Company has an opportunity to
leverage its distribution and marketing infrastructure. Since its initial
public offering in 1992 Mohawk has completed six major acquisitions, that
collectively have: (i) broadened price points; (ii) increased vertical
integration efforts; (iii) expanded distribution capabilities; and (iv)
facilitated entry into niche businesses, such as rugs. The acquisitions
have included Horizon Industries, Inc. ("Horizon") in October 1992,
American Rug Craftsmen ("American Rug") in April 1993, the carpet and rug
division of Fieldcrest Cannon, Inc. ("Karastan Bigelow") in July 1993,
Aladdin Mills, Inc. ("Aladdin") in February 1994, Galaxy Carpet Mills, Inc.
("Galaxy") in January 1995 and certain assets of Diamond Rug and Carpet
Mills, Inc. ("Diamond") in July 1997. All of these acquisitions have
contributed to the Company's growth and profitability.
4
<PAGE>
Prior to 1995, Mohawk generally operated its acquired companies as separate
divisions of the Company, not fully capturing all of the achievable
manufacturing, marketing, distribution and administrative synergies. In 1995,
the Company began to more fully integrate its residential divisions into one
consolidated operation, focusing on four key areas: (i) enhanced manufacturing
efficiencies, converting plants from a "brand name" orientation to a "product
line" orientation; (ii) enhanced targeted marketing efforts, reorganizing its
sales force to provide rapid response to changing regional customer needs;
(iii) enhanced distribution efficiencies, converting the Company's
distribution strategy to Aladdin's hub-and-spoke distribution infrastructure;
and (iv) reduced administrative overhead, removing duplicative positions and
expenses at the division level and integrating management information systems.
These efforts were largely responsible for the Company's operating margin
improvement from 5.1% of net sales in 1995 to 7.9% of net sales in 1997,
excluding nonrecurring charges.
During the three-year period ended December 31, 1997, the Company spent
approximately $212.2 million on capital expenditures, including $134.0 million
for acquisitions of property, plant and equipment and $78.2 million for
acquisitions of companies. The capital expenditures were incurred primarily to
modernize and expand manufacturing facilities and equipment, emphasizing the
Company's commitment to highest quality, lowest cost production. The Company
anticipates capital expenditures, excluding potential acquisitions, to range
between $60-$70 million per year in 1998 and 1999. The Company's capital
projects are focused on reducing costs, improving productivity and increasing
sales.
On October 23, 1997, the Board of Directors of the Company declared a 3-for-
2 stock split that was paid as a 50% stock dividend on December 4, 1997, to
holders of record on November 4, 1997. Unless otherwise indicated, all share
information in this Prospectus gives effect to this stock split. On December
16, 1997, the Common Stock began trading on the NYSE under the symbol "MHK."
Prior to December 16, 1997, the Common Stock was traded on the Nasdaq Stock
Market's National Market ("NNM") under the symbol "MOHK."
The Company's principal manufacturing facilities are located in Georgia,
Tennessee, South Carolina and North Carolina. The Company's headquarters are
located at 160 South Industrial Boulevard, Calhoun, Georgia 30701, and its
telephone number is (706) 629-7721.
----------------
This Prospectus contains and incorporates by reference certain forward-
looking statements that are subject to risks and uncertainties. Forward-
looking statements include the information concerning future financial
performance, business prospects and growth and operating strategies and those
preceded by, followed by or that otherwise include the words "believes,"
"expects," "anticipates," "intends," "estimates" or similar expressions. For
those statements, Mohawk claims the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation Reform Act
of 1995. The following important factors, in addition to those discussed
elsewhere in this document and in the documents which are incorporated by
reference, could affect the future results of Mohawk and could cause those
results to differ materially from those expressed in the forward-looking
statements: materially adverse changes in economic conditions generally in the
carpet, rug and floor covering markets served by Mohawk; competition from
other carpet, rug and floorcovering manufacturers; raw material prices; timing
of capital expenditures; the successful integration of acquisitions including
the challenges inherent in diverting Mohawk's management attention and
resources from other strategic matters and from operational matters for an
extended period of time; successful introduction of new products; and the
continued rationalization of existing operations.
5
<PAGE>
RECENT DEVELOPMENTS
The following table sets forth, for the periods indicated, recent financial
information of the Company:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEARS ENDED
ENDED DECEMBER 31, DECEMBER 31,
--------------------- ----------------------
1996 1997 1996 1997
-------- ----------- --------- -----------
(UNAUDITED) (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net sales......................... $461,505 516,118 1,779,389 1,901,352
Operating income--before
nonrecurring items............... $ 33,856 45,352 123,173 149,659
Percentage of net sales.......... 7.3% 8.8% 6.9% 7.9%
Operating income--after
nonrecurring items............... $ 31,446 37,252 119,413 141,559
Percentage of net sales.......... 6.8% 7.2% 6.7% 7.5%
Net earnings--before nonrecurring
items............................ $ 13,867 24,224 51,280 72,931
Percentage of net sales.......... 3.0% 4.7% 2.9% 3.8%
Net earnings--after nonrecurring
items............................ $ 12,517 19,323 49,050 68,030
Percentage of net sales.......... 2.7% 3.7% 2.8% 3.6%
Diluted earnings per share--before
nonrecurring items............... $ 0.27 0.46 0.99 1.39
Diluted earnings per share--after
nonrecurring items............... $ 0.24 0.37 0.95 1.30
</TABLE>
Net earnings, before nonrecurring charges, for the fourth quarter of 1997
increased approximately 75% to $24.2 million, or $0.46 diluted earnings per
share, from net earnings, before nonrecurring charges, of $13.9 million, or
$0.27 diluted earnings per share, for the fourth quarter of 1996. After the
nonrecurring charges, net earnings were $19.3 million, or $0.37 diluted
earnings per share, in 1997 as compared to $12.5 million or $0.24 diluted
earnings per share in 1996. This quarter-to-quarter improvement in net
earnings is primarily attributable to higher sales, lower selling, general and
administrative expenses and lower interest expense. Net sales for the fourth
quarter of 1997 increased 12% to $516.1 million from net sales of $461.5
million for the fourth quarter of 1996. The quarter-to-quarter net sales
comparison was favorably affected by strong customer acceptance of new product
introductions, expansion of residential warehousing operations and further
refinement of the sales organization to achieve better regional customer
focus, all of which the Company believes resulted in an overall gain in market
share. Gross profit for the fourth quarter of 1997 increased 10% to $119.4
million, or 23.1% of net sales, from gross profit of $108.1 million, or 23.4%
of net sales, for the fourth quarter of 1996. Selling, general and
administrative expenses were $74.1 million, or 14.4% of net sales, in 1997 as
compared to $74.2 million, or 16.1% of net sales, in 1996. The improvement in
selling, general and administrative expenses is primarily attributable to
lower administrative, bad debt and sample expenses. Interest expense was lower
in 1997 as a result of reduced levels of debt.
Net earnings, before nonrecurring charges, in 1997 increased 42% to $72.9
million, or $1.39 diluted earnings per share, from net earnings, before
nonrecurring charges, of $51.3 million, or $0.99 diluted earnings per share,
in 1996. After nonrecurring charges, net earnings were $68.0 million, or $1.30
diluted earnings per share, in 1997 as compared to $49.1 million or $0.95
diluted earnings per share in 1996. This year-to-year improvement in net
earnings is primarily attributable to higher sales, lower selling, general and
administrative expenses and lower interest expense. Net sales in 1997
increased 7% to $1.9 billion from net sales of $1.8 billion in 1996. The year-
to-year net sales comparison was favorably affected by strong customer
acceptance of new product introductions, expansion of residential warehousing
operations, further refinement of the sales organization to achieve better
regional customer focus and competitive changes in the retail segment of the
industry, all of which the Company believes resulted in an overall gain in
market share. Gross profit in 1997 increased to $436.7 million, or 23.0% of
net sales, from gross profit of $407.4 million, or 22.9% of net sales, in
1996. Selling, general and administrative expenses were $287.0 million, or
15.1% of net sales, in 1997 as compared to $284.2 million, or 16.0% of net
sales, in 1996. The improvement in selling, general and administrative
expenses is primarily attributable to lower administrative, bad debt and
sample expenses. Interest expense was lower in 1997 as a result of reduced
levels of debt.
6
<PAGE>
The nonrecurring charges in 1997 included a charge of $5.5 million related
to a write-down of the carrying value of assets held for sale and a charge of
$2.6 million for income tax reimbursements to certain executives related to
the exercise of stock options pursuant to certain stock option agreements
executed in 1988 and 1989. The nonrecurring charges in 1996 included a charge
of $3.1 million ($1.7 million in the fourth quarter) related to a write-down
of the carrying value of assets held for sale and a fourth quarter charge of
$700,000 for restructuring costs.
THE SELLING STOCKHOLDER
All of the shares of Common Stock offered hereby are being sold by Aladdin
Partners, L.P. ("Aladdin Partners") in order to meet diversification and
estate planning objectives. Aladdin Partners is a Georgia limited partnership
that was formed to hold shares of Common Stock received by certain former
shareholders of Aladdin in connection with the merger of Aladdin with the
Company in 1994 (the "Aladdin Merger"). Mr. Alan Lorberbaum, a director of the
Company since 1994, is a director of and owns 72.3% of ASL Management Corp.,
the majority general partner of Aladdin Partners. As of February 2, 1998
Aladdin Partners owned 27.6% of the Common Stock outstanding. Upon completion
of the Offering, Aladdin Partners will own 10,300,000 shares of Common Stock,
representing approximately 19.7% of the total shares of Common Stock
outstanding. See "Principal and Selling Stockholders." If the Underwriters'
over-allotment option is exercised in full, Aladdin Partners will own
9,900,000 shares of Common Stock, representing approximately 19.0% of the
total shares of Common Stock outstanding.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
On December 16, 1997, the Common Stock began trading on the NYSE under the
symbol "MHK." From the time of the Company's initial public offering in April
1992 until December 15, 1997, the Common Stock was listed on the NNM under the
symbol "MOHK." The table below sets forth, for the fiscal quarters indicated,
the high and low sale prices of the Common Stock as reported on either the NNM
or the NYSE Composite Tape, as applicable.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996
First Quarter................................................ $11.00 8.33
Second Quarter............................................... 12.25 8.83
Third Quarter................................................ 17.42 10.92
Fourth Quarter............................................... 18.58 13.75
1997
First Quarter................................................ $18.67 13.92
Second Quarter............................................... 17.33 12.92
Third Quarter................................................ 18.29 14.58
Fourth Quarter............................................... 22.00 17.75
1998
First Quarter (through February 4, 1998)..................... $24.88 20.50
</TABLE>
On February 4, 1998, the last reported sale price of the Common Stock was
$24.75. As of February 4, 1998, there were approximately 430 holders of record
of the Common Stock.
The Company has not paid or declared any cash dividends on shares of its
Common Stock since completing its initial public offering. The Company's
policy is to retain all net earnings for reinvestment in the development of
its business, and it does not anticipate paying cash dividends on the Common
Stock in the foreseeable future. The payment of future cash dividends will be
at the sole discretion of the Company's Board of Directors and will depend
upon the Company's profitability, financial condition, cash requirements,
future prospects and other factors deemed relevant by the Board of Directors.
The payment of cash dividends is limited by certain covenants in various of
the Company's loan agreements.
7
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale by the Selling
Stockholder of the shares of Common Stock in the Offering.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at September 27, 1997. This presentation should be read in conjunction
with the Consolidated Financial Statements and Notes thereto incorporated by
reference herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 27, 1997
------------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C>
Short-term debt (including current portion of long-term
debt).................................................. $ 21,772
--------
Long-term debt (excluding current portion):
Revolving credit facility.............................. 80,000
8.46% senior notes..................................... 100,000
7.14-7.23% senior notes................................ 66,111
8.48% term loans....................................... 28,572
7.58% senior notes..................................... 7,143
Other debt............................................. 21,090
--------
Total long-term debt.................................. 302,916
--------
Stockholders' equity.................................... 384,946
--------
Total capitalization.................................. $709,634
========
</TABLE>
SELECTED FINANCIAL DATA
The following table sets forth the selected financial data of the Company
for the periods indicated, derived from the consolidated financial statements
of the Company. The Company's consolidated financial statements as of and for
the years ended December 31, 1992, 1993, 1994, 1995 and 1996 have been audited
by KPMG Peat Marwick LLP, independent certified public accountants. The
information as of and for the nine-month periods ended September 28, 1996 and
September 27, 1997 has been derived from the unaudited financial statements
which, in the opinion of management, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair statement of the results
of operations for the unaudited interim periods. The results of operations for
the nine-month periods ended September 28, 1996 and September 27, 1997 are not
necessarily indicative of the results of operations for a full year. On
October 23, 1992, the Company acquired all of the outstanding common stock of
Horizon. The operating results of Horizon are included in the Company's 1992
consolidated statement of earnings from the date of its acquisition. On April
30, 1993, the Company acquired all of the common stock of American Rug. On
July 30, 1993, the Company purchased the net assets of Karastan Bigelow. The
operating results of American Rug and Karastan Bigelow are included in the
Company's 1993 consolidated statement of earnings from their respective
acquisition dates. Each of the acquisitions of Horizon, American Rug and
Karastan Bigelow was recorded using the purchase method of accounting. On
February 25, 1994, the Company exchanged 20,343,336 shares of Common Stock for
all of the outstanding shares of Aladdin common stock in a transaction
recorded using the pooling-of-interests basis of accounting. All financial
data were restated to include the accounts and results of operations of
Aladdin. On January 13, 1995, the Company acquired all of the outstanding
capital stock of Galaxy. The operating results of Galaxy are included in the
Company's 1995 consolidated statement of earnings from the date of its
acquisition. The acquisition of Galaxy was recorded
8
<PAGE>
using the purchase method of accounting. On July 23, 1997, the Company
acquired certain assets of Diamond and other assets owned by Diamond's
principal shareholders. The results of Diamond are included in the Company's
1997 consolidated statement of earnings from the date of its acquisition. The
acquisition was accounted for under the purchase method of accounting. The
selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and notes thereto included
elsewhere or incorporated by reference herein.
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
-------------------
AT OR FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------- SEPT. 28, SEPT. 27,
1992 1993 1994 1995 1996 1996 1997
-------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Net sales............... $760,954 1,188,186 1,437,540 1,648,517 1,779,389 1,317,884 1,385,234
Cost of sales (a)....... 585,698 917,824 1,107,890 1,281,887 1,372,022 1,018,590 1,067,999
-------- --------- --------- --------- --------- --------- ---------
Gross profit........... 175,256 270,362 329,650 366,630 407,367 299,294 317,235
Selling, general and
administrative
expenses............... 114,102 185,135 231,184 282,451 284,194 209,977 212,928
Restructuring costs (b). -- 2,363 -- 8,439 700 -- --
Carrying value reduction
of property, plant and
equipment (c).......... -- -- -- 23,711 3,060 1,350 --
Compensation expense for
stock option
exercises (d).......... -- -- -- 4,000 -- -- --
-------- --------- --------- --------- --------- --------- ---------
Operating income....... 61,154 82,864 98,466 48,029 119,413 87,967 104,307
-------- --------- --------- --------- --------- --------- ---------
Interest expense........ 9,222 18,029 27,112 34,998 31,486 25,126 21,543
Acquisition costs--
Aladdin pooling (e).... -- -- 10,201 -- -- -- --
Other expense, net...... 1,242 2,659 2,987 2,570 5,202 2,464 2,256
Gain on insurance claim
(a).................... -- (4,746) -- -- -- -- --
-------- --------- --------- --------- --------- --------- ---------
10,464 15,942 40,300 37,568 36,688 27,590 23,799
-------- --------- --------- --------- --------- --------- ---------
Earnings before income
taxes and
extraordinary charge.. 50,690 66,922 58,166 10,461 82,725 60,377 80,508
Income taxes (f)........ 20,312 27,399 25,159 4,049 33,675 23,844 31,801
-------- --------- --------- --------- --------- --------- ---------
Earnings before
extraordinary charge.. 30,378 39,523 33,007 6,412 49,050 36,533 48,707
Extraordinary charge
(g).................... 3,568 -- -- -- -- -- --
-------- --------- --------- --------- --------- --------- ---------
Net earnings........... 26,810 39,523 33,007 6,412 49,050 36,533 48,707
Preferred stock
dividends.............. 132 -- -- -- -- -- --
-------- --------- --------- --------- --------- --------- ---------
Net earnings after
preferred stock
dividends............. $ 26,678 39,523 33,007 6,412 49,050 36,533 48,707
======== ========= ========= ========= ========= ========= =========
Earnings per common and
common equivalent share
before extraordinary
charge (h) (i)......... $ 0.70 0.80 0.66 0.13 0.95 0.71 0.93
======== ========= ========= ========= ========= ========= =========
Net earnings per common
and common equivalent
share (h) (i).......... $ 0.62 0.80 0.66 0.13 0.95 0.71 0.93
======== ========= ========= ========= ========= ========= =========
Weighted average common
and common equivalent
shares outstanding (h)
(i).................... 42,911 49,664 50,061 50,435 51,849 51,719 52,316
======== ========= ========= ========= ========= ========= =========
BALANCE SHEET DATA:
Working capital......... $143,831 198,735 292,163 244,800 311,698 340,634 319,067
Total assets............ 477,669 776,424 854,779 903,152 954,349 1,024,893 992,764
Short-term note payable. -- -- -- 50,000 21,200 21,200 --
Long-term debt
(including current
portion)............... 175,347 328,469 399,377 353,037 366,380 421,533 324,688
Stockholders' equity.... 147,938 229,992 264,018 274,903 333,199 319,867 384,946
</TABLE>
- --------
Notes on following page
9
<PAGE>
(a) Certain of the Company's facilities suffered damage during a March 1993
blizzard, and the Company finalized settlement of the insurance claim
during the first quarter of 1994. The Company recorded reductions of $6.0
million in cost of sales in each of 1993 and 1994 for reimbursements of
business interruption costs and $4.7 million in other income in 1993
related to gains on fixed asset replacements.
(b) During 1995 and 1996, the Company recorded pre-tax restructuring costs of
$8.4 million and $0.7 million, respectively, related to closings of
certain mills which had their operations consolidated into other Mohawk
facilities. During 1993, the Company recorded pre-tax restructuring costs
of $2.4 million related to the closing of a woven carpet manufacturing
operation and the relocation and consolidation of this operation with a
facility acquired in the purchase of Karastan Bigelow.
(c) During 1995, the Company adopted FAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," as of January 1, 1995. A charge of $23.7 million was recorded for the
reduction of the carrying value of property, plant and equipment at
certain mills. During 1996, the Company recorded a charge of $3.1 million
($1.4 million in the third quarter) arising from the write-down of
property, plant and equipment to be disposed of related to the closing of
a manufacturing facility in 1996 and a revision in the estimate of fair
value of certain property, plant and equipment based on current market
conditions related to mill closings in 1995.
(d) The Company recorded a charge of $4.0 million for income tax
reimbursements to be made to certain executives related to the exercise of
stock options granted in 1988 and 1989 in connection with the Company's
1988 leveraged buy-out.
(e) The Company recorded a charge of $10.2 million in 1994 for transaction
expenses related to the Aladdin Merger that were incurred during the first
quarter of 1994.
(f) During 1994, the Company reduced income tax expense by $2.0 million to
reflect a reduction in its effective tax rate and certain other changes in
the Company's federal and state income tax status.
(g) The extraordinary charge in 1992 relates to (i) redemption premiums and
prepayment penalties on certain indebtedness that was redeemed or repaid
with the proceeds from the Company's initial public offering and (ii) the
write-off of deferred loan costs associated with the former credit
agreement, which was replaced with a new credit agreement after the
initial public offering.
(h) The Board of Directors declared a 3-for-2 stock split on October 23, 1997,
that was paid as a 50% stock dividend on December 4, 1997 to holders of
record on November 4, 1997. Earnings per common share and weighted average
common share data have been restated to reflect the stock split.
(i) The Company adopted FAS No. 128, "Earnings per Share" in the fourth
quarter of 1997. The statement requires the Company to present basic
earnings per share and diluted earnings per share in its financial
statements and to restate prior periods to conform to the new
presentation. The periods presented in the Selected Financial Data have
not been restated to conform to FAS No. 128
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
During the three-year period ended December 31, 1996 and the nine-month
period ended September 27, 1997, the Company continued to experience
significant growth both internally and through acquisitions. In February 1994,
the Company exchanged approximately 20.4 million shares of Common Stock,
valued at $386.5 million (based upon the closing price of the Common Stock at
December 3, 1993, the date the agreement was entered into by Mohawk, Aladdin
and the shareholders of Aladdin), for all of the outstanding shares of Aladdin
common stock in a merger accounted for using the pooling-of-interests basis of
accounting. All financial data included in the Company's historical
consolidated financial statements were restated to include the accounts and
results of operations of Aladdin. In January 1995, the Company acquired all of
the issued and outstanding capital stock of Galaxy for $42.2 million in cash
in a business combination accounted for using the purchase method of
accounting.
On July 23, 1997, the Company acquired certain assets of Diamond and other
assets owned by Diamond's principal shareholders for approximately $36.0
million, which consisted of $19.6 million in cash at closing, $7.0 million in
cash over the six-month period following closing and a $9.4 million note
payable in seven annual installments of principal plus interest at 6%. The
acquisition was accomplished through a plan of reorganization filed by Diamond
under Chapter 11 of the United States Bankruptcy Code and was financed
primarily through existing credit facilities.
These acquisitions have created other opportunities to enhance Mohawk's
operations by: (i) broadening price points; (ii) increasing vertical
integration efforts; (iii) expanding distribution capabilities; and
(iv) facilitating entry into niche businesses, such as rugs.
On October 23, 1997, the Board of Directors of the Company declared a 3-for-
2 stock split that was paid as a 50% stock dividend on December 4, 1997 to
holders of record on November 4, 1997. Unless otherwise indicated, all share
information included in this Prospectus gives effect to this stock split.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net sales of certain items in the Company's consolidated statements of
earnings:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 NINE MONTHS ENDED
------------------------- -------------------
SEPT. 28, SEPT. 27,
1994 1995 1996 1996 1997
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................... 77.1 77.8 77.1 77.3 77.1
------- ------- ------- ----- -----
Gross profit.................. 22.9 22.2 22.9 22.7 22.9
Selling, general and administra-
tive expenses.................. 16.1 17.1 15.9 15.9 15.4
Restructuring costs............. -- 0.5 0.1 -- --
Carrying value reduction of
property, plant & equipment.... -- 1.4 0.2 0.1 --
Compensation expense for stock
option exercises............... -- 0.3 -- -- --
------- ------- ------- ----- -----
Operating income.............. 6.8 2.9 6.7 6.7 7.5
Interest expense................ 1.9 2.1 1.8 1.9 1.5
Acquisition costs-Aladdin pool-
ing............................ 0.7 -- -- -- --
Other expense, net.............. 0.2 0.2 0.3 0.2 0.2
------- ------- ------- ----- -----
Earnings before income taxes.. 4.0 0.6 4.6 4.6 5.8
Income taxes.................... 1.7 0.2 1.8 1.8 2.3
------- ------- ------- ----- -----
Net earnings.................. 2.3% 0.4% 2.8% 2.8% 3.5%
======= ======= ======= ===== =====
</TABLE>
11
<PAGE>
NINE MONTHS ENDED SEPTEMBER 27, 1997 AS COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 28, 1996
Net sales for the first nine months ended September 27, 1997 were $1,385.2
million, which represented an increase of 5% from the $1,317.9 million
reported for the first nine months of 1996. This sales increase resulted from
incremental sales from the acquisition of certain assets of Diamond and a gain
in market share which the Company believes resulted from continued strong
support of its independent dealer base and strong overall acceptance of Mohawk
products.
Gross profit for the first nine months of 1997 was $317.2 million (22.9% of
net sales). In the first nine months of 1996, gross profit was $299.3 million
(22.7% of net sales).
Selling, general and administrative expenses for the first nine months of
1997 were $212.9 million (15.4% of net sales) compared to $210.0 million
(15.9% of net sales) for the first nine months of 1996. The percentage
decrease was primarily due to lower sample and bad debt expense in the first
nine months of 1997.
Interest expense for the first nine months of 1997 was $21.5 million
compared to $25.1 million in the first nine months of 1996. The primary factor
for the decrease was a reduction in debt levels in the first nine months of
1997 as compared to the first nine months of 1996.
In the first nine months of 1997, income tax expense was $31.8 million,
compared to $23.8 million in the first nine months of 1996, or 39.5% of
earnings before income taxes for both periods.
YEAR ENDED DECEMBER 31, 1996 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Net sales for the year ended December 31, 1996 were $1,779.4 million,
reflecting an increase of $130.9 million, or 8%, over the $1,648.5 million
reported in the year ended December 31, 1995. This sales increase was
attributable to an improvement in the Company's market share which the Company
believes primarily resulted from competitive changes in the distribution
segment of the industry, Mohawk's realignment of its residential sales forces
under a regional structure, and Mohawk's strong product lines. The Company
experienced a significant increase in unit shipments as a result of these
factors with average net selling prices remaining flat as compared to 1995.
Quarterly net sales and the percentage changes in net sales by quarter for
1995 versus 1996 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996 CHANGE
---------- --------- ------
<S> <C> <C> <C>
First Quarter....................................... $ 378,761 380,478 0.5%
Second Quarter...................................... 429,241 470,867 9.7
Third Quarter....................................... 425,594 466,539 9.6
Fourth Quarter...................................... 414,921 461,505 11.2
---------- --------- ----
Total Year.......................................... $1,648,517 1,779,389 8.0%
========== ========= ====
</TABLE>
Gross profit for 1996 was $407.4 million (22.9% of net sales) and
represented an increase over the gross profit of $366.6 million (22.2% of net
sales) for 1995. Gross profit dollars for 1996 were impacted favorably by
manufacturing improvements from restructuring and consolidating the
residential operations, higher production levels resulting in better
absorption of fixed costs, a reduction in certain raw material prices and
manufacturing improvements in other divisions. The manufacturing
consolidations include the closing of five residential manufacturing
facilities during 1995 as well as the realignment of the remaining residential
mills to better use the strengths of each mill. The Company's integration of
its manufacturing, distribution and information systems areas progressed as
planned and contributed to the margin improvement.
Selling, general and administrative expenses for 1996 were $284.2 million
(16.0% of net sales) compared to $282.5 million (17.1% of net sales) for 1995.
Selling, general and administrative expenses as a percentage of net sales
decreased primarily due to better control of discretionary spending and better
leveraging of costs on strong sales growth.
12
<PAGE>
During 1996, the Company recorded nonrecurring charges of (i) $3.1 million
which included $0.9 million primarily to reduce the carrying value of certain
assets related to the decision to close a spinning mill in Belton, South
Carolina and $2.2 million primarily arising from a revision in the estimate of
the fair value of certain land and buildings that were sold in 1996 and (ii)
$0.7 million related to restructuring costs for the Belton spinning mill
closing.
The Company recorded restructuring costs of $8.4 million during 1995 related
to certain mill closings whose operations were consolidated into other Mohawk
facilities. The after-tax effect of these costs was $5.2 million or $0.10 per
share.
During 1995, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of" as of January 1, 1995. An impairment loss of
$23.7 million was recorded for the write-down of property, plant and equipment
at certain mills. The after-tax effect of the impairment loss was $14.5
million or $0.29 per share.
A one-time charge of $4.0 million was recorded during 1995 for income tax
reimbursements to be made to certain executives for the exercise of stock
options. The income tax reimbursements were recorded in connection with stock
options granted in 1988 and 1989 related to the Company's 1988 leveraged
buyout. The agreements allow the Company to receive an income tax benefit on
its tax return for the tax effect of the taxable compensation provided to the
individuals upon exercise of these options. Such income tax benefit resulted
in a direct increase in stockholders' equity.
Interest expense for 1996 was $31.5 million compared to $35.0 million in
1995. The primary factors contributing to the decrease were a reduction in
debt levels and lower interest rates on the Company's revolving credit
agreement.
In 1996, income tax expense was $33.7 million, or 40.7% of earnings before
income taxes. In 1995, income tax expense was $4.0 million, representing 38.7%
of earnings before income taxes. The primary reason for the lower effective
tax rate in 1995 was certain nonrecurring deductions that were treated as
permanent differences in 1995.
YEAR ENDED DECEMBER 31, 1995 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net sales for the year ended December 31, 1995 were $1,648.5 million,
reflecting an increase of $211.0 million, or 14.7%, over the $1,437.5 million
reported in the year ended December 31, 1994. This sales increase was
attributable primarily to increased unit shipments of broadloom carpet and
rugs during 1995 as a result of the acquisition of Galaxy as well as internal
growth by Aladdin and American Rug. The sales volume increase was partially
offset by a decrease in average net selling prices resulting from soft market
conditions, related to slow housing starts and resales in 1995, all of which
increased competitive pressures in the industry.
Quarterly net sales and the percentage changes in net sales by quarter for
1994 versus 1995 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1994 1995 CHANGE
---------- --------- ------
<S> <C> <C> <C>
First Quarter....................................... $ 327,025 378,761 15.8%
Second Quarter...................................... 370,749 429,241 15.8
Third Quarter....................................... 377,484 425,594 12.7
Fourth Quarter...................................... 362,282 414,921 14.5
---------- --------- ----
Total Year........................................ $1,437,540 1,648,517 14.7%
========== ========= ====
</TABLE>
Gross profit for 1995 was $366.6 million (22.2% of net sales) and
represented an increase over the gross profit of $329.7 million (22.9% of net
sales) for 1994. Gross profit dollars for 1995 were impacted favorably by the
acquisition of Galaxy and the internal growth of Aladdin and American Rug. The
Company's gross profit
13
<PAGE>
was negatively impacted during 1995 as a result of industry-wide raw material
price increases in polypropylene-based materials. In addition to the cost
pressures, soft market conditions increased competitive pressures in the
industry during 1995. The Company recorded a pre-tax reduction of $6.0 million
in cost of sales in 1994 for the final reimbursement of business interruption
costs related to the insurance claim for property damage suffered in a March
1993 blizzard.
Selling, general and administrative expenses for 1995 were $282.5 million
(17.1% of net sales) compared to $231.2 million (16.1% of net sales) for 1994.
Selling, general and administrative expenses in dollars and as a percentage of
net sales increased primarily due to higher bad debt expense resulting from
the write-off of some large customers that filed for protection under
bankruptcy laws in 1995, and increased sample costs.
The Company recorded restructuring costs of $8.4 million during 1995 related
to certain mill closings whose operations have been consolidated into other
Mohawk facilities. The after-tax effect of these costs was $5.2 million or
$0.10 per share.
During 1995, the Company adopted Financial Accounting Standards No. 121 as
of January 1, 1995. An impairment loss of $23.7 million was recorded for the
write-down of property, plant and equipment at certain mills. The after-tax
effect of the impairment loss was $14.5 million, or $0.29 per share.
The Company recorded a charge of $4.0 million during 1995 for income tax
reimbursements to be made to certain executives for the exercise of stock
options. The income tax reimbursements were recorded in connection with stock
options granted in 1988 and 1989 related to the Company's 1988 leveraged
buyout. The agreements allow the Company to receive an income tax benefit on
its tax return for the tax effect of the taxable compensation provided to the
individuals upon exercise of these options. Such income tax benefit resulted
in a direct increase in stockholders' equity.
Interest expense for 1995 was $35.0 million compared to $27.1 million in
1994. Factors causing the increased interest expense were additional debt
required to finance capital expenditures in 1995 to expand production
capacity, and additional debt that was incurred in January 1995 to finance the
acquisition of Galaxy.
During 1994, the Company recorded a one-time non-operating charge of $10.2
million for transaction expenses related to the acquisition of Aladdin.
In 1995, income tax expense was $4.0 million, or 38.7% of earnings before
income taxes. In 1994, income tax expense was $25.2 million, representing
43.3% of earnings before income taxes. The Company did not record an income
tax benefit for a significant portion of the $10.2 million one-time charge
resulting in a higher effective tax rate during 1994. During 1994, the Company
reduced income tax expense by $2.0 million to reflect a reduction in its
effective tax rate and certain other changes in the Company's federal and
state income tax status.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for working capital, capital
expenditures and acquisitions. The Company's working capital needs are met
through a combination of internally generated funds, bank credit lines and
credit terms from suppliers.
The level of accounts receivable increased from $215.6 million at the
beginning of 1997 to $253.8 million at September 27, 1997. The $38.2 million
increase resulted primarily from seasonally higher sales volume in the third
quarter as compared to the end of 1996. Inventories rose from $302.8 million
at the beginning of 1997 to $316.3 million at September 27, 1997, due to
requirements to meet seasonal customer demand.
Capital expenditures totaled $63.3 million and $55.6 million during the year
ended December 31, 1996 and the nine-month period ended September 27, 1997,
respectively. Capital expenditures for 1996 include $21.2 million of equipment
used primarily for the extrusion of polypropylene yarn acquired from Fiber One
in a noncash transaction in exchange for a promissory note due in April 1997.
The promissory note paid interest at a
14
<PAGE>
variable rate that ranged from 0.25% to 0.875% above LIBOR and was paid in
full in January 1997. Capital expenditures for 1997 include $36.0 million for
the purchase of certain assets from Diamond. The capital expenditures made
during 1996 and 1997 were incurred primarily to modernize and expand
manufacturing facilities and equipment. The Company's capital projects are
primarily focused on increasing capacity, improving productivity and reducing
costs. Capital expenditures for Mohawk, including the $21.2 million of
polypropylene extrusion equipment purchased from Fiber One, have totaled
$180.3 million over the three years ended December 31, 1996. Capital spending
for the remainder of 1997 is expected to range from $10.0 million to $15.0
million, the majority of which will be used to purchase equipment to increase
production capacity and productivity.
On June 6, 1996, the Company amended and restated its revolving credit
agreement to decrease its credit availability from $300 million to $250
million due to decreasing external financing needs. At December 31, 1996, the
Company had $127.2 million of unused credit availability under its revolving
credit line. The credit agreement's interest rate either (i) ranges from 0.25%
to 0.875% above LIBOR, depending upon the Company's performance measured
against specific coverage ratios, or (ii) is the prime rate. The credit
agreement contains customary financial and other covenants and restricts
cumulative dividend payments to $10.0 million as adjusted based on the
Company's performance and dividend payments. The Company must pay an annual
facility fee ranging from .0015 to .0025 of the total credit commitment,
depending upon the Company's performance measured against specific coverage
ratios, under the revolving credit line.
On April 15, 1997, the Company further amended and restated its revolving
credit agreement to provide for an interest rate of either (i) LIBOR plus 0.2%
to 0.5%, depending upon the Company's performance measured against certain
financial ratios, or (ii) the prime rate less 1.0%. Additionally, the
termination date of the credit agreement was extended to May 15, 2002. At
September 27, 1997, the Company had $170.0 million of unused credit
availability under its revolving credit line.
IMPACT OF INFLATION
Inflation affects the Company's manufacturing costs and operating expenses.
The carpet industry has experienced moderate inflation in the prices of raw
materials and outside processing for the last three years. The Company has
generally passed along nylon fiber price increases to its customers.
SEASONALITY
The carpet business is seasonal, with the Company's second, third and fourth
quarters typically producing higher net sales and operating income. By
comparison, results for the first quarter tend to be the weakest. This
seasonality is primarily attributable to consumer residential spending
patterns and higher installation levels during the spring and summer months.
15
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of February 2, 1998, certain information
with respect to the beneficial ownership of the Common Stock prior to the
Offering and after the Offering (assuming no exercise of the Underwriters'
over-allotment option), 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, (iii) each of the Chief
Executive Officer and the Company's four most highly compensated officers
other than the Chief Executive Officer who were serving as executive officers
at the end of the most recently completed fiscal year 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>
SHARES SHARES
BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE BEING OWNED AFTER THE
OFFERING OFFERED OFFERING
------------------ --------- ------------------
NAME NUMBER PERCENT NUMBER PERCENT
---- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Alan S. Lorberbaum(a).......... 18,292,979 35.1% 4,100,000 14,192,979 27.2%
Aladdin Partners(b)............ 14,400,000 27.6 4,100,000 10,300,000 19.7
399 Venture Partners, Inc.(c).. 6,828,787 13.1 -- 6,828,787 13.1
The Equitable Companies Incor-
porated, et al(d)............. 6,447,900 12.4 -- 6,447,900 12.4
David L. Kolb(e)............... 1,135,471 2.2 -- 1,135,471 2.2
Jeffrey S. Lorberbaum(f)....... 647,126 1.2 -- 647,126 1.2
Frank A. Procopio(g)........... 391,462 * -- 391,462 *
Bruce C. Bruckmann(h).......... 270,871 * -- 270,871 *
John D. Swift(i)............... 108,875 * -- 108,875 *
Leo Benatar(j)................. 25,975 * -- 25,975 *
William B. Kilbride(k)......... 18,225 * -- 18,225 *
Larry W. McCurdy(j)............ 19,431 * -- 19,431 *
Robert N. Pokelwaldt(j)........ 19,431 * -- 19,431 *
All directors and executive
officers as a group
(10 persons).................. 20,929,846 40.1 4,100,000 16,829,846 32.3
</TABLE>
- --------
* Less than one percent.
(a) The address of Mr. Alan Lorberbaum is 2001 Antioch Road, Dalton, Georgia
30721. Includes 14,400,000 shares held by Aladdin Partners prior to the
Offering and 10,300,000 shares held by Aladdin Partners after the Offering
with respect to which Mr. Lorberbaum may be deemed to share voting and
investment power. Mr. Lorberbaum is a director and owner of 72.3% of ASL
Management Corp., the majority general partner of Aladdin Partners. Mr.
Lorberbaum disclaims beneficial ownership of the shares held by Aladdin
Partners.
(b) The address of Aladdin Partners is 822 Atkinson Drive, Dalton, Georgia
30720. ASL Management Corp. is the majority general partner of Aladdin
Partners 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 27.7% 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.
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 4,500 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 shares held by Aladdin
Partners.
(c) The address of 399 Venture Partners, Inc. is 399 Park Avenue, New York,
New York 10043.
(d) Based upon an amended Schedule 13G dated May 12, 1997 jointly filed with
the Commission by The Equitable Companies Incorporated; AXA Assurances
I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle,
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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.
(e) Includes 22,500 shares issuable upon the exercise of currently vested
options and 146 shares owned pursuant to the Company's 401(k) plan.
(f) Includes 30,000 shares issuable upon the exercise of currently vested
options. Excludes 14,400,000 shares held by Aladdin Partners prior to the
Offering and 10,300,000 shares held by Aladdin Partners after the
Offering. Mr. Jeffrey Lorberbaum is a minority general partner of Aladdin
Partners. Mr. Lorberbaum disclaims beneficial ownership of the shares held
by Aladdin Partners.
(g) Includes 3,000 shares issuable upon the exercise of currently vested
options.
(h) Includes 15,750 shares issuable upon the exercise of currently vested
options and 1,300 shares held jointly with his spouse.
(i) Includes 8,000 shares owned pursuant to the Company's 401(k) plan.
(j) Includes 15,750 shares issuable upon the exercise of currently vested
options.
(k) Includes 18,000 shares issuable upon the exercise of currently vested
options.
SHARES ELIGIBLE FOR FUTURE SALE
As of February 2, 1998, the Company had outstanding 52,182,907 shares of
Common Stock, and the Offering will not affect the number of outstanding
shares. All of the 4,100,000 shares sold in the Offering (4,500,000 shares if
the Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act,
unless acquired by "affiliates" of the Company.
In addition to the 52,182,907 shares of Common Stock outstanding, 73,500
shares are subject to currently vested options held by certain executives of
the Company. The acquisition of these shares is subject to a registration
statement on Form S-8, and, consequently, these shares may be sold from time
to time, subject to the volume limitation and other requirements of Rule 144
described below. In addition, of the 52,182,907 shares of Common Stock
outstanding, 8,438,199 shares were acquired by existing stockholders without
registration under the Securities Act in reliance upon an exemption from
registration and are "restricted securities" for purposes of the Securities
Act. These shares may not be sold unless they are registered under the
Securities Act or unless an exemption from registration, such as the exemption
provided by Rule 144 under the Securities Act, is available. Pursuant to Rule
144, such shares are eligible for sale, subject to the volume limitation and
other requirements described below.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) including an affiliate who has
beneficially owned "restricted securities" for at least one year, and any
affiliate of the Company who owns shares that are not restricted securities,
is entitled to sell within any three-month period a number of shares that does
not exceed the greater of 1% of the outstanding shares of Common Stock
(521,829 shares both before and after the Offering) or the average weekly
trading volume in the Common Stock on the NYSE during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
provisions regarding the manner of sale, notice requirements and the
availability of current public information about the Company. A stockholder
(or stockholders whose shares are aggregated) who is not an affiliate of the
Company for at least 90 days prior to a proposed transaction and who has
beneficially owned "restricted securities" for at least two years is entitled
to sell such shares under Rule 144 without regard to the limitations described
above.
In connection with the Aladdin Merger, the former shareholders of Aladdin
received 20,343,336 shares of Common Stock and executed a registration rights
agreement (the "1994 Registration Rights Agreement") giving such shareholders
various rights related to the registration of Common Stock owned by them while
the 1994 Registration Rights Agreement is in effect. Pursuant to the 1994
Registration Rights Agreement the Company granted demand registration rights
to the former shareholders of Aladdin. These demand registration rights permit
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<PAGE>
the former shareholders of Aladdin holding securities having a market value of
at least $25 million (or, if less, all remaining registrable securities then
outstanding, so long as the market value of such remaining securities is at
least $5 million) to require Mohawk to effect up to two registered offerings
per year. The Offering will count as one of two underwritten offerings the
former Aladdin shareholders may require Mohawk to effect within the 365-day
period during which the Offering is effected. The Company will bear all the
expenses incurred in this Offering, except that underwriting discounts and
commissions and the fees and disbursements of counsel for the Selling
Stockholder shall be paid by the Selling Stockholder. The 1994 Registration
Rights Agreement also grants incidental or "piggyback" registration rights to
the former shareholders of Aladdin.
Pursuant to a registration rights agreement (the "1992 Registration Rights
Agreement") among the Company, Citicorp Investments, Inc. ("CII") (now known
as 399 Venture Partners, Inc.) and certain members of the Company's
management, CII has been granted certain demand registration rights. In
addition, pursuant to the 1992 Registration Rights Agreement, CII and certain
other members of management have incidental or "piggyback" registration rights
with respect to certain offerings of shares of Common Stock. In connection
with the Aladdin Merger, the 1992 Registration Rights Agreement was amended so
that to the extent that any provision of the 1992 Registration Rights
Agreement is inconsistent with the 1994 Registration Rights Agreement, the
terms of the 1994 Registration Rights Agreement will control. CII and members
of the Company's management have agreed to waive their registration rights in
connection with the Offering.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized by its Restated Certificate of Incorporation, as
amended (the "Certificate of Incorporation"), to issue up to 75,060,000 shares
of capital stock, consisting of (i) 75,000,000 shares of Common Stock and (ii)
60,000 shares of Preferred Stock, $.01 par value per share ("Preferred Stock")
(none of which have been issued). The holders of shares of Common Stock are
entitled to one vote per share on all matters submitted to a vote of the
stockholders, including the election of directors, and the holders of such
shares exclusively possess all voting power. The Certificate of Incorporation
does not provide for cumulative voting for the election of directors. The
holders of shares of Common Stock are entitled to such dividends as may be
declared from time to time by the Board of Directors from funds legally
available therefor, and are entitled to receive pro rata all assets of Mohawk
available for distribution to such holders upon liquidation. No shares of
Common Stock have any preemptive, redemption or conversion rights, or the
benefits of any sinking fund. The Certificate of Incorporation authorizes the
Board of Directors, without further stockholder approval, to issue Preferred
Stock and to fix, with respect to any series of Preferred Stock, the dividend
rights and terms, conversion rights, voting rights, redemption rights and
terms, liquidation preferences, sinking funds and any other rights,
preferences, privileges and restrictions applicable to each series of
Preferred Stock issued.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated February , 1998 (the "Underwriting Agreement"), the
underwriters named below (the "Underwriters") have severally but not jointly
agreed to purchase from the Selling Stockholder the following respective
numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation............................
Invemed Associates, Inc...........................................
---------
Total........................................................... 4,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the shares of Common Stock offered hereby (other
than those shares covered by the over-allotment option described below) if any
are purchased. The Underwriting Agreement provides that, in the event of a
default by an Underwriter, in certain circumstances the purchase commitments
of the non-defaulting Underwriter may be increased or the Underwriting
Agreement may be terminated.
The Selling Stockholder has granted to the Underwriters an option,
exercisable by Credit Suisse First Boston Corporation, expiring at the close
of business on the 30th day after the date of this Prospectus, to purchase up
to 400,000 additional shares at the public offering price less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. Such option may be exercised only to cover over-allotments in
the sale of the shares of Common Stock. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as it was obligated to purchase pursuant to the
Underwriting Agreement.
The Company and the Selling Stockholder have been advised by the
Underwriters that the Underwriters propose to offer the shares of Common Stock
to the public initially at the public offering price set forth on the cover
page of this Prospectus and, through the Underwriters, to certain dealers at
such price less a concession of $ per share, and the Underwriters and such
dealers may allow a discount of $ per share on sales to certain other
dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the Underwriters.
The Company, the Selling Stockholder, certain other major stockholders and
the executive officers and directors of the Company have agreed that they will
not offer, sell, contract to sell, announce an intention to sell, pledge or
otherwise dispose of, directly or indirectly, any shares of Common Stock or
any shares of the Company that are substantially similar to the Common Stock,
including but not limited to any securities convertible into or exchangeable
or exercisable for any shares of the Company or enter into any swap or other
arrangement that transfers any of the economic consequences of ownership of
any shares of Common Stock without the prior written consent of Credit Suisse
First Boston Corporation for a period of 90 days after the date of this
Prospectus, except for the conversion or exchange of convertible or
exchangeable securities outstanding on the date hereof or any Common Stock
sold to the Company.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or contribute to payments which the Underwriters may be
required to make in respect thereof.
Credit Suisse First Boston Corporation, on behalf of the Underwriters, may
engage in over-allotment, stabilizing transactions, syndicate-covering
transactions and penalty bids in accordance with Regulation M under the
Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a
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syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate-covering transactions involve purchases of the Common Stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Underwriter to reclaim a
selling concession from a syndicate member when the shares of Common Stock
originally sold by such syndicate member are purchased in a syndicate-covering
transaction to cover syndicate short positions. Such stabilizing transaction,
syndicate-covering transactions and penalty bids may cause the price of the
Common Stock to be higher than it would be in the absence of such
transactions. These transactions may be effected on the NYSE or otherwise and,
if commenced, may be discontinued at any time.
The Underwriters and certain of their affiliates have provided from time to
time, and may provide in the future, various investment banking services for
the Company and the Selling Stockholder, for which such Underwriters have
received and may receive customary fees and commissions.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the
Selling Stockholder prepare and file a prospectus with the securities
regulatory authorities in each province where trades of Common Stock are
effected. Accordingly, any resale of the Common Stock in Canada must be made
in accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholder and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities
laws to purchase such Common Stock without the benefit of a prospectus
qualified under such securities laws, (ii) where required by law, that such
purchaser is purchasing as principal and not as agent and (iii) such purchaser
has reviewed the text above under "--Resale Restrictions."
RIGHT OF ACTION FOR ONTARIO PURCHASERS
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts and the
Selling Stockholder named herein may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or such persons outside of Canada.
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<PAGE>
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to the Offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Common Stock should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by such purchasers under relevant Canadian
legislation.
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock
applicable to Non-U.S. Holders, as defined below. For purposes of this
discussion, the term "U.S. Holder" means a holder that for United States
federal income tax purposes is an individual or entity that is (i) a citizen
or individual resident of the United States, (ii) a corporation or
partnership, including any entity treated as a corporation or a partnership
for U.S. Federal income tax purposes, created or organized in or under the
laws of the United States or of any political subdivision thereof, (iii) an
estate the income of which is subject to U.S. federal income taxation
regardless of its source or (iv) a trust if both (A) a U.S. court is able to
exercise primary supervision over the administration of the trust and (B) one
or more U.S. persons have the authority to control all substantial decisions
of the trust, or (v) an entity otherwise subject to United States federal
income tax on a net income basis in respect of its worldwide taxable income. A
"Non-U.S. Holder" is any person or entity that is not a "U.S. Holder."
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury regulations promulgated
thereunder and administrative and judicial interpretations as of the date
hereof, all of which are subject to change, possibly with retroactive effect.
This discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to the Holders in light of their particular
circumstances (including tax consequences applicable to financial
institutions, insurance companies, tax-exempt organizations, securities
dealers or pass-through entities) and does not address any tax consequences to
the Holders arising under the laws of any state, local or foreign
jurisdiction. This discussion also does not address any estate tax
consequences to the U.S. Holders arising under any federal, state, local or
foreign laws. Prospective Holders should consult their tax advisors with
respect to the particular tax consequences to them of owning and disposing of
Common Stock, including the consequences under the laws of any state, local or
foreign jurisdiction.
DIVIDENDS
Dividends, if any, paid to a Non-U.S. Holder generally will be subject to
withholding of United States federal income tax at a 30% rate, or such lower
rate as may be provided by an income tax treaty between the United States and
a foreign country if the Non-U.S. Holder is treated as a resident of such
foreign country within the meaning of the applicable treaty, unless (i) the
dividends are effectively connected with the conduct of a trade or business of
the Non-U.S. Holder within the United States and the Non-U.S. Holder provides
the payor with proper documentation or (ii) if an income tax treaty applies,
the dividends are attributable to a United States permanent establishment
maintained by the Non-U.S. Holder. Dividends that are effectively connected
with the conduct of a trade or business within the United States and, if a tax
treaty applies, are attributable to such a United States permanent
establishment, are subject to United States federal income tax on a net income
basis (that is, after allowance for applicable deductions) at applicable
graduated individual or corporate rates. Any such effectively connected
dividends received by a foreign corporation may, under certain circumstances,
be subject to an additional "branch profits tax" at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.
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<PAGE>
Dividends paid before January 1, 1999 to an address outside the United
States will be presumed to be paid to a resident of the country of such
address for purposes of the withholding tax rules discussed above (unless the
payor has knowledge to the contrary) and, under the current interpretation of
United States Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. However, under newly issued Treasury
regulations, in the case of dividends paid after December 31, 1998, a Non-U.S.
Holder generally will be subject to United States back up withholding tax at a
31% rate under the backup withholding rules described below, rather than at a
30% rate or a reduced rate under an income tax treaty, as described above,
unless certain Internal Revenue Service ("IRS") certification procedures (or,
in the case of payments made outside the United States with respect to an
offshore account, certain IRS documentary evidence procedures) are complied
with. Further, in order to claim the benefit of an applicable tax treaty rate
for dividends paid after December 31, 1998, a Non-U.S. Holder must comply with
IRS certification requirements. Certain IRS certification and disclosure
requirements must be complied with in order to be exempt from withholding
under the effectively connected income exemption. The new regulations also
provide special rules for dividend payments made to foreign intermediaries.
U.S. or foreign wholly owned entities that are disregarded for U.S. federal
income tax purposes and entities that are treated as fiscally transparent in
the United States, the applicable income tax treaty jurisdiction, or both.
Prospective investors should consult with their own tax advisers concerning
the effect, if any, of the adoption of these new Treasury regulations on an
investment in the Common Stock.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder will generally not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i) (a) the gain is effectively connected with a trade or
business conducted by the Non-U.S. Holder within the United States, and (b) if
a tax treaty applies, the gain is attributable to a United States permanent
establishment maintained by the Non-U.S. Holder, (ii) in the case of a Non-
U.S. Holder who is a non-resident alien and holds the Common Stock as a
capital asset, such holder is present in the United States for 183 or more
days in the taxable year of the sale or other disposition and certain other
conditions are met, (iii) the Non-U.S. Holder is subject to tax pursuant to
certain provisions of the Code applicable to United States expatriates or (iv)
the Company is or has been a "U.S. real property holding corporation" for
United States federal income tax purposes at any time within the shorter of
the five-year period preceding such disposition or the period such Non-U.S.
Holder held the Common Stock (the "applicable period"), and the Non-U.S.
Holder owns at any time during the applicable period more than the five
percent (5%) of the Common Stock. A corporation is generally treated as a U.S.
real property holding corporation if the fair market value of its United
States real property interests equals or exceeds fifty percent (50%) of the
sum of the fair market value of its worldwide real property interests plus its
other assets used or held for use in a trade or business. The Company is not,
and does not anticipate becoming, a "U.S. real property holding corporation."
Even if the Company were to become a U.S. real property holding corporation,
any gain recognized by a Non-U.S. Holder, on the disposition of the Common
Stock, still would not be subject to U.S. tax if the shares were considered to
be "regularly traded" (as per the meaning of the applicable United States
Treasury regulations) on an established securities market (e.g., New York
Stock Exchange) and the Non-U.S. Holder did not own, actually, constructively,
directly, or indirectly, at any time during the five year period ending on the
date of the disposition, more than five percent (5%) of the Common Stock.
If a Non-U.S. Holder who is an individual falls under clause (i) above, such
individual generally will be taxed on the net gain derived from a sale of
Common Stock under regular graduated United States federal income tax rates.
If an individual Non-U.S. Holder falls under clause (ii) above, such
individual generally will be subject to a flat 30% tax on the gain derived
from a sale, which may be offset by certain United States capital losses
(notwithstanding the fact that such individual is not considered a resident
alien of the United States). Thus, individual Non-U.S. Holders who have spent
(or expect to spend) more than a de minimis period of time in the United
States in the taxable year in which they contemplate a sale of Common Stock
are urged to consult their tax advisers prior to the sale as to the U.S. tax
consequences of such sale.
If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it generally will be taxed on its net gain under regular graduated
United States federal income tax rates and, in addition, will be subject to
the
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branch profits tax equal to 30% of its "effectively connected earnings and
profits," within the meaning of the Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an applicable tax
treaty.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Generally, the Company must report to the IRS the amount of any dividends
paid, the name and address of the recipient, and the amount, if any, of tax
withheld with respect to such payments. A similar report is sent to the
holders of the Common Stock. Pursuant to tax treaties or certain other
agreements, the U.S. Internal Revenue Service may also make its reports
available to tax authorities in the recipient's country of residence.
Dividends paid to U.S. Holders may be subject to backup withholding at the
rate of 31% unless such U.S. Holder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with the applicable
requirements of the backup withholding rules.
Under United States Treasury regulations, the Company must report annually
to the IRS and to each holder the amount of dividends paid on the Common Stock
in each calendar year to such holder and the tax withheld, if any, with
respect to such dividends. These information reporting requirements apply even
if withholding was not required because the dividends were effectively
connected with a trade or business in the United States of the Non-U.S. Holder
or withholding was reduced or eliminated by an applicable income tax treaty.
Copies of the information returns reporting such dividends and withholding may
also be made available to the tax authorities in the country in which the Non-
U.S. Holder is a resident under the provisions of an applicable income tax
treaty or agreement.
United States backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting
requirements) generally will not apply (i) to dividends paid to Non-U.S.
Holders that are subject to the 30% withholding discussed above (or that are
not so subject because a tax treaty applies that reduces or eliminates such
30% withholding) or (ii) before January 1, 1999, to dividends paid to a Non-
U.S. Holder at an address outside of the United States. However, under newly
issued Treasury regulations, in the case of dividends paid after December 31,
1998, a Non-U.S. Holder generally will be subject to backup withholding at a
31% rate, unless certain IRS certification procedures (or, in the case of
payments made outside the United States with respect to an offshore account,
certain IRS documentary evidence procedures) are complied with, directly or
through an intermediary.
Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of Common Stock
to beneficial owners that are not "exempt recipients" and that fail to provide
in the manner required certain identifying information.
Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of
a disposition of Common Stock paid to or through a U.S. office of a broker
unless the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. In general, backup withholding and information
reporting will not apply to a payment of the gross proceeds of a sale of
Common Stock effected at a foreign office of a broker. Before January 1, 1999,
however, if such broker is, for United States federal income tax purposes, a
U.S. person, a controlled foreign corporation or a foreign person, 50% or more
of whose gross income for certain periods is derived from activities that are
effectively connected with the conduct of a trade or business in the United
States, such payments will not be subject to backup withholding but will be
subject to information reporting, unless (i) such broker has documentary
evidence in its records that the beneficial owner is a Non-U.S. Holder and
certain other conditions are met or (ii) the beneficial owner otherwise
establishes an exemption. Further after December 31, 1998, under the newly
issued Treasury regulations referred to above, information reporting and
backup withholding may apply to payments of the gross proceeds from the sale
or redemption of Common Stock effected through foreign offices of brokers
having any of a broader class of connections with the United States unless
certain IRS certification requirements are complied with. Prospective
investors should consult with their own tax advisers regarding these Treasury
regulations, and in particular with respect to whether the use of a particular
broker would subject the investor to these rules.
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Payment by a United States office of a broker of the proceeds of a sale of
Common Stock is subject to both backup withholding and information reporting
unless the beneficial owner certifies under penalties of perjury that it is a
Non-U.S. Holder or otherwise establishes an exemption. Backup withholding is
not an additional tax. Any amounts withheld under the backup withholding rules
will be allowed as a refund or a credit against such holder's United States
federal income tax liability provided the required information is furnished to
the IRS.
FEDERAL ESTATE TAX
An individual Non-U.S. Holder who at the time of death is treated as the
owner of, or has made certain lifetime transfers of, an interest in the Common
Stock will be required to include the value thereof in his gross estate for
U.S. federal estate tax purposes, and may be subject to U.S. federal estate
tax unless an applicable estate tax treaty provides otherwise. Estates of non-
resident aliens are generally allowed a credit that is equivalent to an
exclusion of $60,000 of assets from the estate for United States Federal
estate tax purposes.
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Company by
Alston & Bird LLP, Atlanta, Georgia. Certain legal matters in connection with
the Offering will be passed upon for the Selling Stockholder by King &
Spalding, Atlanta, Georgia, and for the Underwriters by Cravath, Swaine &
Moore, New York, New York.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries as
of December 31, 1996, and 1995, and for each of the years in the three-year
period ended December 31, 1996 and the related consolidated financial
statement schedule have been incorporated by reference in the Registration
Statement of which this Prospectus is a part in reliance upon the reports of
KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as an expert in
accounting and auditing.
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[Picture of Company's logo, surrounded by various Company brand name logos.]
<PAGE>
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NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UN-
LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
The Company............................................................... 4
Recent Developments....................................................... 6
The Selling Stockholder................................................... 7
Price Range of Common Stock and Dividend Policy........................... 7
Use of Proceeds........................................................... 8
Capitalization............................................................ 8
Selected Financial Data................................................... 8
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 11
Principal and Selling Stockholders........................................ 16
Shares Eligible for Future Sale........................................... 17
Description of Capital Stock.............................................. 18
Underwriting.............................................................. 19
Notice to Canadian Residents.............................................. 20
Certain U.S. Federal Tax Considerations For Non-United States Holders..... 21
Legal Matters............................................................. 24
Experts................................................................... 24
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOGO
[Logo of Mohawk Industries, Inc. appears here]
4,100,000 Shares
Common Stock
($.01 par value)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
INVEMED ASSOCIATES, INC.
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities being registered hereby, other
than underwriting discounts and commissions. The Registrant is paying all of
these expenses in connection with the issuance and distribution of the
securities, other than fees and disbursements of counsel for the Selling
Stockholder.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 32,524
NASD filing fee................................................. 11,525
Accountants' fees and expenses.................................. 20,000
Legal fees and expenses......................................... 60,000
Printing, materials and postage................................. 50,000
Blue Sky fees and expenses...................................... 10,000
Transfer agent fee and expenses................................. 5,000
Miscellaneous................................................... 5,000
--------
Total....................................................... $194,049
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XII of the Amended and Restated Bylaws of the Registrant sets forth
the extent to which the Registrant's directors and officers may be indemnified
against liabilities they may incur while serving in such capacities. Such
indemnification will be provided to the fullest extent allowed by the Delaware
General Corporation Law, as amended from time to time. Under these
indemnification provisions, the Registrant is required to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, (other than an action by or in
the right of the Registrant) by reason of the fact that he is or was a
director or officer of the Registrant or, being at the time a director or
Board-elected officer of the Registrant, is or was serving at the request of
the Registrant as a director, trustee, officer, employee or agent of another
corporation, partnership, limited liability company, joint venture, trust, or
other enterprise (all such persons, together with any officer or director,
hereafter referred to as an "Agent"), against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Registrant, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The Registrant is also required to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed judicial action or suit brought by or in the right of the Registrant
to procure a judgment in its favor by reason of the fact that he was an Agent,
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Registrant, except that no
indemnification will be required in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the Registrant
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity of such expenses which the Court of Chancery or other
such court shall deem proper. Notwithstanding the foregoing, to the extent
that an Agent has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to herein or in defense of any claim,
issue or matter therein, such Agent shall be indemnified against all expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith. Subject to certain conditions, the Registrant may also
provide advancement of expenses incurred by an Agent in defending any action,
suit or proceeding upon receipt of an undertaking by or on behalf
II-1
<PAGE>
of such Agent to repay such amount in the event that it is ultimately
determined that such person is not entitled to indemnification under the
Amended and Restated Bylaws of the Registrant.
The Registrant's Restated Certificate of Incorporation, as amended, contains
a provision which limits, to the fullest extent permitted by law, director
liability for monetary damages for breaches of the duty of care or any other
duty as a director.
The Registrant maintains an insurance policy insuring the Registrant and
directors and officers of the Registrant against certain liabilities,
including liabilities under the Securities Act of 1933.
ITEM 16. EXHIBITS.
A. Exhibits (See exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- --- -----------------------
<C> <C> <S>
1* -- Form of Underwriting Agreement among the Registrant, the
Selling Stockholder, and Credit Suisse First Boston Corporation
and Invemed Associates, Inc., as Underwriters.
4.1 -- See Article 4 of the Restated Certificate of Incorporation of
the Registrant. (Incorporated herein by reference to Exhibit
4.1 in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996.)
4.2 -- See Articles 2, 6, and 9 of the Amended and Restated Bylaws of
the Registrant. (Incorporated herein by reference to Exhibit
4.2 in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996.)
5 -- Opinion of Alston & Bird LLP, including consent.
10.1 -- Letter dated as of October 17, 1997 of the Sixth Modification
to the Consolidated, Amended And Restated Note Agreement dated
September 3, 1993 among Mohawk, Aladdin Manufacturing
Corporation (f/k/a Mohawk Manufacturing Corporation and prior
to that k/a Mohawk Carpet Corporation) and The Prudential
Insurance Company of America.
10.2 -- Letter dated as of October 17, 1997 of the Fourth Modification
to the Note Purchase Agreement dated as of September 16, 1994
for $100 million of Senior Notes due September 16, 2004 among
Mohawk, Aladdin Manufacturing Corporation (f/k/a Mohawk
Manufacturing Corporation and prior to that k/a Mohawk Carpet
Corporation), The Prudential Insurance Company of America,
Principal Mutual Life Insurance Company, John Hancock Mutual
Life Insurance Company of America, Massachusetts Mutual Life
Insurance Company, Alexander Hamilton Life Insurance Company of
America and The Franklin Life Insurance Company.
10.3 -- Seventh Amendment Agreement dated as of October 17, 1997 for
$85 million Senior Notes due September 1, 2005 among Mohawk,
Aladdin Manufacturing Corporation (f/n/a Mohawk Manufacturing
Corporation and prior to that k/a Mohawk Carpet Corporation),
Mohawk Marketing, Inc., Mohawk Mills, Inc., Mohawk Carpet
Corporation (f/n/a Mohawk Limited), John Hancock Mutual Life
Insurance Company, John Hancock Variable Life Insurance
Company, John Hancock Life Insurance Company of America,
Principal Mutual Life Insurance Company, The Prudential
Insurance Company of America and The Franklin Life Insurance
Company.
10.4 -- Seventh Amendment Agreement dated as of October 17, 1997 for
9.5% Senior Notes due April 1, 1998 among Mohawk, Aladdin
Manufacturing Corporation (f/n/a Mohawk Manufacturing
Corporation and prior to that k/a Mohawk Carpet Corporation),
Mohawk Marketing, Inc., Mohawk Mills, Inc., Mohawk Carpet
Corporation (f/n/a Mohawk Limited), Alexander Hamilton Life
Insurance Company of America, Massachusetts Mutual Life
Insurance Company, The Franklin Life Insurance Company and
Principal Mutual Life Insurance Company.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- --- -----------------------
<C> <C> <S>
23(a) -- Consent of Alston & Bird LLP (contained in Exhibit 5).
23(b) -- Consent of KPMG Peat Marwick LLP.
24 -- Power of Attorney (included on page II-4 of this Registration
Statement).
</TABLE>
- --------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(i) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Calhoun, and State of Georgia, on February 5, 1998.
MOHAWK INDUSTRIES, INC.
/s/ David L. Kolb
By___________________________________
DAVID L. KOLB
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on February 5, 1998. Each person whose signature appears
below hereby constitutes and appoints David L. Kolb and John D. Swift, or
either of them, as such person's true and lawful attorney-in-fact and agent
with full power of substitution for such person and in such person's name,
place and stead, in any and all capacities, to sign and to file with the
Securities and Exchange Commission, any and all amendments and post-effective
amendments to this Registration Statement, including any Registration
Statement filed pursuant to Rule 462(b) of the Securities Act, as amended,
with exhibits thereto and other documents in connection therewith, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any substitute therefor, may lawfully do or
cause to be done by virtue thereof.
SIGNATURES TITLE
/s/ David L. Kolb Chairman of the Board and Chief
- ------------------------------------- Executive Officer (principal
DAVID L. KOLB executive officer)
/s/ John D. Swift Vice President-Finance and Chief
- ------------------------------------- Financial Officer (principal
JOHN D. SWIFT financial and accounting officer)
/s/ Leo Benatar Director
- -------------------------------------
LEO BENATAR
/s/ Bruce C. Bruckmann Director
- -------------------------------------
BRUCE C. BRUCKMANN
/s/ Alan S. Lorberbaum Director
- -------------------------------------
ALAN S. LORBERBAUM
/s/ Jeffrey S. Lorberbaum Director, President and Chief
- ------------------------------------- Operating Officer
JEFFREY S. LORBERBAUM
Director
- -------------------------------------
LARRY W. MCCURDY
/s/ Robert N. Pokelwaldt Director
- -------------------------------------
ROBERT N. POKELWALDT
II-4
<PAGE>
EXHIBIT 5
[LETTERHEAD OF ALSTON & BIRD LLP APPEARS HERE]
February 5, 1998
Mohawk Industries, Inc.
160 South Industrial Boulevard
Calhoun, Georgia 30701
Re: Registration Statement on Form S-3 covering the Offering of
4,500,000 shares of Mohawk Industries, Inc. Common Stock
Ladies and Gentlemen:
We have acted as counsel to Mohawk Industries, Inc., a Delaware
corporation (the "Company"), in connection with the sale by Aladdin Partners,
L.P. (the "Selling Stockholder") of certain shares of the Company's Common
Stock, par value $.01 per share (the "Common Stock") and the filing of the
above-referenced Registration Statement (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") to register under the
Securities Act of 1933, as amended (the "Act"), 4,500,000 shares of Common Stock
for sale by the Selling Stockholder (the "Shares"). The Selling Stockholder
intends, following the effectiveness of the Registration Statement, to sell the
Shares to the underwriters (the "Underwriters") named in Schedule I to
the Underwriting Agreement (the "Underwriting Agreement") to be entered into by
and among the Company, the Selling Stockholder and the Underwriters.
We have examined the Restated Certificate of Incorporation of the Company,
as amended, the Bylaws of the Company, as amended, records of proceedings of the
Board of Directors, or committees thereof, and the stockholders of the Company
deemed by us to be relevant to this opinion letter, the Registration Statement
and the proposed form of Underwriting Agreement. We also have examined
originals or copies, certified or otherwise identified to our satisfaction, of
such other corporate records of the Company, such other agreements and
instruments, such certificates of public officials, officers of the Company,
officers of the Selling Stockholder and other persons, and such other documents
as we have deemed necessary or appropriate as a basis for the opinions
hereinafter expressed. In such examination, we have assumed the genuineness of
all signatures, the legal capacity of all natural persons, the authenticity and
completeness of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed,
<PAGE>
Mohawk Industries, Inc.
February 5, 1998
Page 2
photostatic or facsimile copies, and the authenticity of the originals of such
copies, and we have assumed all certificates of public officials to have been
properly given and to be accurate.
As to factual matters relevant to this opinion letter, we have relied
upon the representations and warranties contained in certificates and statements
of officers of the Company and certain public officials. Except to the extent
expressly set forth herein, we have made no independent investigations with
regard thereto, and, accordingly, we do not express any opinion as to matters
that might have been disclosed by independent verification.
On the basis of the foregoing, and subject to the limitations set
forth herein, we are of the opinion that the Shares are validly issued, fully
paid and nonassessable by the Company.
Members of this firm are licensed to practice law in the State of
Georgia and before the federal courts having jurisdiction in the State of
Georgia, and we express no opinion with regard to any law other than the laws of
the State of Georgia and the General Corporation Law of the State of Delaware.
We consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus constituting a part thereof. In giving such consent,
we do not thereby admit that we are within the category of persons whose consent
is required under Section 7 of the Act or the rules and regulations of the
Commission thereunder.
This opinion letter is being furnished by us to the Company and the
Commission solely for the benefit of the Company and the Commission in
connection with the Registration Statement and is not to be used, circulated,
quoted or otherwise relied upon by any other person, or by the Company or the
Commission for any other purpose, without our express written consent. The only
opinion rendered by us consists of those matters set forth in the fourth
<PAGE>
Mohawk Industries, Inc.
February 5, 1998
Page 3
paragraph hereof, and no opinion may be implied or inferred beyond those
expressly stated. This opinion letter is rendered as of the date hereof, and we
have no obligation to update this opinion letter.
Sincerely,
ALSTON & BIRD LLP
By: /s/ Michael R. McAlevey
-----------------------------
Partner
<PAGE>
Exhibit 10.1
MOHAWK INDSUTRIES, INC.
ALADDIN MANUFACTURING CORPORATION
160 SOUTH INDUSTRIAL BOULEVARD
CALHOUN, GEORGIA 30701
As of October 17, 1997
The Prudential Insurance Company of America
c/o The Prudential Capital Group
One Gateway Center, 11th Floor
Newark, New Jersey 07102-5311
Re: Sixth Modification to Consolidated Note Agreement
Ladies and Gentlemen:
Each of the undersigned, MOHAWK INDUSTRIES, INC. (together with its
successor and assigns, "INDUSTRIES"), and ALADDIN MANUFACTURING CORPORATION
(f/k/a Mohawk Manufacturing Corporation and f/k/a Mohawk Carpet Corporation,
together with its successor and assigns, "MANUFACTURING" and together with
Industries, the "COMPANIES") and you entered into a Consolidated, Amended and
Restated Note Agreement dated as of September 3, 1993, as modified by letter
agreements dated as of February 24, 1994, September 16, 1994, July 19, 1995,
September 29, 1995 and March 12, 1996 (as modified, the "CONSOLIDATED NOTE
AGREEMENT").
Pursuant to paragraph 11C of the Consolidated Note Agreement and
subject to your written acceptance as hereinafter provided, the undersigned
request your agreement to the following amendment to the Consolidated Note
Agreement. Capitalized terms used herein but not defined herein have the
meanings ascribed to them in the Consolidated Note Agreement, as amended hereby.
The date of effectiveness of this modification is October 17, 1997 (as
used in this Sixth Modification, the "AMENDMENT DATE").
Each of the undersigned, Industries and Manufacturing, hereby agrees
with you as follows:
<PAGE>
A. MODIFICATION OF THE CONSOLIDATED NOTE AGREEMENT. Each of the
undersigned, Manufacturing and Industries, and you agree to hereby amend the
Consolidated Note Agreement as follows:
1. Paragraph 5D. PARAGRAPH 5D SHALL BE AMENDED BY DELETING THE
SECOND SENTENCE THEREOF.
1. Paragraph 6B. PARAGRAPH 6B(IV) SHALL BE DELETED IN ITS ENTIRETY
AND THE FOLLOWING SHALL BE INSERTED IN LIEU THEREOF:
"(iv) enter into any Permitted Affiliate Transaction (other than any
Permitted Affiliate Transaction permitted under paragraph 6C(3)(v) or
6C(5)(ii));"
1. Paragraph 6C(1). PARAGRAPH 6C(1)(V) SHALL BE DELETED IN ITS
ENTIRETY AND THE FOLLOWING SHALL BE INSERTED IN LIEU THEREOF:
"(v) Any common law right of setoff or banker's lien arising in
connection with ordinary course of business deposit arrangements maintained
by any of the Companies or its Subsidiaries with its banks or other
financial institutions so long as any such bank or other financial
institution (A) shall not at any time make loans or otherwise extend credit
pursuant to any credit facility to Industries, Carpet, any other Guarantor
or any other Restricted Subsidiary; (B) does not maintain accounts (for the
deposit of cash or otherwise) for the benefit of any such Company or
Subsidiary other than those which have in the aggregate monthly balances
less than $100,000; (C) shall have delivered to each holder of a Note a
Sharing Agreement substantially in the form of Exhibit I attached hereto or
shall be a party to the Bank Agreement and the Intercreditor Agreement; or
(D) shall have waived in writing such common law right of setoff or
banker's lien;"
1. Paragraph 6C(3). PARAGRAPH 6C(3)(V) SHALL BE DELETED IN ITS
ENTIRETY AND THE FOLLOWING SHALL BE INSERTED IN LIEU THEREOF:
"(v) make loans or advances to its employees in the ordinary course
of business and consistent with the practices of Industries or Carpet, as
the case may be, existing on the Date of Closing; provided, however, that
Industries and/or Carpet may make loans or advances in an aggregate amount
not to exceed $10,000,000 at any time outstanding to its officers, with
such proceeds being used for the purposes of purchasing capital stock of
Industries or Carpet, as the case may be, under any stock option plan
sponsored by Industries and paying any tax liabilities incurred by such
officers in connection with the exercise of their rights pursuant to any
such stock option plan and in which such capital stock the officer has
granted a security interest to Industries or Carpet, as the case may be, to
secure such loan or advance;"
2
<PAGE>
1. Paragraph 6C(8). THE FIRST WORD OF PARAGRAPH 6C(8) SHALL BE
DELETED AND THE FOLLOWING SHALL BE INSERTED IN LIEU THEREOF:
"Except as otherwise provided in Paragraph 6C(3)(v), effect"
1. Paragraph 6D. PARAGRAPH 6D SHALL BE AMENDED BY DELETING THEREFROM
THE WORDS "IF SUCH STOCK IS NOT OTHERWISE PLEDGED PURSUANT TO A SECURITY
AGREEMENT".
1. Paragraph 6I. PARAGRAPH 6I(5) SHALL BE AMENDED BY DELETING
THEREFROM THE WORDS "OR TO RELEASE ANY COLLATERAL FROM THE LIEN OF ANY SECURITY
AGREEMENT".
1. Paragraph 7A. PARAGRAPH 7A(XVI) SHALL BE DELETED IN ITS ENTIRETY
AND THE FOLLOWING SHALL BE INSERTED IN LIEU THEREOF:
"(xvi) [Intentionally Omitted]; or".
1. Paragraph 10B. PARAGRAPH 10B SHALL BE AMENDED BY DELETING
THEREFROM THE DEFINITIONS OF THE TERMS "COLLATERAL", "COLLATERAL AGENT", AND
"SECURITY AGREEMENT".
1. Paragraph 10B. PARAGRAPH 10B SHALL BE AMENDED BY DELETING
THEREFROM THE DEFINITION OF THE TERM "RELATED DOCUMENTS" AND SUBSTITUTING IN ITS
PLACE THE FOLLOWING:
"RELATED DOCUMENTS" shall mean this Agreement (and each Modification
thereof), any Note, each Guaranty Agreement, the Intercreditor Agreement
and any document or instrument executed in connection with any of the
foregoing."
1. Paragraph 10B. PARAGRAPH 10B SHALL BE AMENDED BY DELETING
THEREFROM THE DEFINITION OF THE TERM "TOTAL SUBSIDIARY DEBT" AND SUBSTITUTING IN
ITS PLACE THE FOLLOWING:
"TOTAL SUBSIDIARY DEBT" shall mean, at any time, without duplication,
the aggregate principal amount of all unsecured Indebtedness of any
Restricted Subsidiary (other than, (i) subject to compliance with paragraph
5E hereof, Indebtedness under Guarantees by such Restricted Subsidiary of
Indebtedness of either Company or another Restricted Subsidiary and (ii)
Indebtedness owing by a Restricted Subsidiary to any other Restricted
Subsidiary or either Company) and any Preferred Stock of any Restricted
Subsidiary (other than Preferred Stock issued to Industries, Carpet or a
Restricted Subsidiary)."
3
<PAGE>
a. CONDITIONS PRECEDENT.
Your obligation to enter into, execute and deliver this Sixth
Modification and the effectiveness of paragraph 1 is subject to the
satisfaction, on or before the Amendment Date, of the following conditions, as
determined in your sole judgment:
2. Related Documents. YOU SHALL HAVE RECEIVED THIS SIXTH
MODIFICATION DULY EXECUTED AND DELIVERED BY THE PARTIES THERETO.
2. Representations and Warranties; No Default. THE REPRESENTATIONS
AND WARRANTIES CONTAINED IN PARAGRAPH 8 OF THE CONSOLIDATED NOTE AGREEMENT SHALL
BE TRUE ON AND AS OF THE AMENDMENT DATE, ANY REFERENCE IN SUCH PARAGRAPH 8 TO
THE "DATE OF CLOSING" SHALL FOR PURPOSES HEREOF BE DEEMED TO BE A REFERENCE TO
THE "AMENDMENT DATE" AND ANY REFERENCE TO THE "NOTE AGREEMENT", "THIS AGREEMENT"
OR WORDS OF LIKE IMPORT SHALL MEAN AND BE A REFERENCE TO THE CONSOLIDATED NOTE
AGREEMENT AS AMENDED HEREBY; THERE SHALL EXIST ON THE AMENDMENT DATE NO EVENT OF
DEFAULT OR DEFAULT; AND EACH OF THE COMPANIES SHALL HAVE DELIVERED TO YOU AN
OFFICER'S CERTIFICATE, DATED THE AMENDMENT DATE, REGARDING THE FOREGOING.
2. Proceedings. EACH OF INDUSTRIES, MANUFACTURING AND EACH
GUARANTOR SHALL DELIVER TO YOU CERTIFIED COPIES (CERTIFIED BY ITS SECRETARY OR
ASSISTANT SECRETARY) OF ALL CORPORATE ACTION TAKEN BY IT TO AUTHORIZE THE
EXECUTION, DELIVERY AND PERFORMANCE OF THIS SIXTH MODIFICATION.
2. Amendment of Other Agreements. YOU SHALL RECEIVE AN EXECUTED
COPY OF THE AMENDMENT AND RESTATEMENT OF THE BANK AGREEMENT AND AMENDMENT TO
EACH OF THE 8.46% NOTE AGREEMENT, THE 9.5% NOTE AGREEMENT AND THE SERIES NOTE
AGREEMENT, AMENDING EACH SUCH AGREEMENT IN THE MANNER SUBSTANTIALLY SIMILAR AS
PROVIDED HEREIN, IN FORM AND SUBSTANCE SATISFACTORY TO THE PURCHASERS.
2. Expenses. ALL YOUR FEES AND DISBURSEMENTS (INCLUDING WITHOUT
LIMITATION SPECIAL COUNSEL TO YOU) SHALL HAVE BEEN PAID IN FULL.
2. Other Documents. YOU SHALL HAVE RECEIVED SUCH OTHER
CERTIFICATES, LEGAL OPINIONS AND DOCUMENTS AS YOU OR YOUR SPECIAL COUNSEL MAY
REASONABLY REQUEST, ALL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO YOU.
4
<PAGE>
Notwithstanding the foregoing, the effectiveness of paragraphs 1F
through 1J is subject to receipt by the Collateral Agent of written direction
from all of the Lenders (as defined in the Intercreditor Agreement) to release
the Collateral from the Lien held by the Collateral Agent.
a. MISCELLANEOUS.
3. Successors and Assigns. ALL COVENANTS AND OTHER AGREEMENTS IN
THIS SIXTH MODIFICATION CONTAINED BY OR ON BEHALF OF EITHER OF THE PARTIES
HERETO SHALL BIND AND INURE TO THE BENEFIT OF THE RESPECTIVE SUCCESSORS AND
ASSIGNS OF THE PARTIES HERETO (INCLUDING, WITHOUT LIMITATION, ANY TRANSFEREE)
WHETHER SO EXPRESSED OR NOT.
3. Governing Law. THIS SIXTH MODIFICATION SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAW OF THE STATE OF NEW YORK.
3. Severability. ANY PROVISION OF THIS SIXTH MODIFICATION WHICH IS
PROHIBITED OR UNENFORCEABLE IN ANY JURISDICTION SHALL, AS TO SUCH JURISDICTION,
BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR UNENFORCEABILITY WITHOUT
INVALIDATING THE REMAINING PROVISIONS HEREOF, AND ANY SUCH PROHIBITION OR
UNENFORCEABILITY IN ANY JURISDICTION SHALL NOT INVALIDATE OR RENDER
UNENFORCEABLE SUCH PROVISION IN ANY OTHER JURISDICTION.
3. Descriptive Headings. THE DESCRIPTIVE HEADINGS OF THE SEVERAL
PARAGRAPHS OF THIS SIXTH MODIFICATION ARE INSERTED FOR CONVENIENCE ONLY AND DO
NOT CONSTITUTE A PART OF THIS SIXTH MODIFICATION.
3. Counterparts. THIS SIXTH MODIFICATION MAY BE EXECUTED IN ANY
NUMBER OF COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED AN ORIGINAL, BUT ALL OF
WHICH TOGETHER SHALL CONSTITUTE ONE INSTRUMENT.
5
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Companies, whereupon this letter shall become a binding agreement among the
Companies and you.
Very truly yours,
MOHAWK INDUSTRIES, INC.
By: _______________________________
Title:
ALADDIN MANUFACTURING CORPORATION
(f/k/a Mohawk Manufacturing and
f/k/a Mohawk Carpet Corporation)
By: _____________________________
Title:
The foregoing Sixth Modification
is hereby accepted as of the date
first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: ___________________________
Title:
Agreed and Consented to as Guarantor:
MOHAWK INDUSTRIES, INC.
By: ___________________________
Title:
MOHAWK MARKETING, INC.
By: ___________________________
Title:
6
<PAGE>
MOHAWK CARPET CORPORATION
By: ___________________________
Title:
MOHAWK MILLS, INC.
By: ___________________________
Title:
7
<PAGE>
EXHIBIT 10.2
MOHAWK INDUSTRIES, INC.
ALADDIN MANUFACTURING CORPORATION
160 SOUTH INDUSTRIAL BOULEVARD
CALHOUN, GEORGIA 30701
As of October 17, 1997
The Prudential Insurance Company of America
Each Institution Listed on the signature pages hereto
Re: Fourth Modification to Note Agreement
Ladies and Gentlemen:
Each of the undersigned, MOHAWK INDUSTRIES, INC. (together with its
successor and assigns, "INDUSTRIES"), and ALADDIN MANUFACTURING CORPORATION
(f/k/a Mohawk Manufacturing Corporation and f/k/a Mohawk Carpet Corporation,
together with its successor and assigns, "MANUFACTURING" and together with
Industries, the "COMPANIES") and you entered into a Note Purchase Agreement,
dated as of September 16, 1994, as modified by letter agreements dated as of
July 19, 1995, September 29, 1995 and March 12, 1996 (as modified, the "NOTE
AGREEMENT").
Pursuant to paragraph 11C of the Note Agreement and subject to your
written acceptance as hereinafter provided, the undersigned request your
agreement to the following amendment to the Note Agreement. Capitalized terms
used herein but not defined herein have the meanings ascribed to them in the
Note Agreement, as amended hereby.
The date of effectiveness of this modification is October 17, 1997 (as
used in this Fourth Modification, the "AMENDMENT DATE").
Each of the undersigned, Industries and Manufacturing, hereby agrees
with you as follows:
A. MODIFICATION OF THE NOTE AGREEMENT. Each of the undersigned,
Manufacturing and Industries, and you agree to hereby amend the Note Agreement
as follows:
<PAGE>
1. Paragraph 5D. PARAGRAPH 5D SHALL BE AMENDED BY DELETING THE
SECOND SENTENCE THEREOF.
1. Paragraph 6B. PARAGRAPH 6B(IV) SHALL BE DELETED IN ITS ENTIRETY
AND THE FOLLOWING SHALL BE INSERTED IN LIEU THEREOF:
"(iv) enter into any Permitted Affiliate Transaction (other than any
Permitted Affiliate Transaction permitted under paragraph 6C(3)(v) or
6C(5)(ii));"
1. Paragraph 6C(1). PARAGRAPH 6C(1)(V) SHALL BE DELETED IN IT
ENTIRETY AND THE FOLLOWING SHALL BE INSERTED IN LIEU THEREOF:
"(v) Any common law right of setoff or banker's lien arising in
connection with ordinary course of business deposit arrangements maintained
by any of the Companies or its Subsidiaries with its banks or other
financial institutions so long as any such bank or other financial
institution (A) shall not at any time make loans or otherwise extend credit
pursuant to any credit facility to Industries, Carpet, any other Guarantor
or any other Restricted Subsidiary; (B) does not maintain accounts (for the
deposit of cash or otherwise) for the benefit of any such Company or
Subsidiary other than those which have in the aggregate monthly balances
less than $100,000; (C) shall have delivered to each holder of a Note a
Sharing Agreement substantially in the form of Exhibit I attached hereto or
shall be a party to the Bank Agreement and the Intercreditor Agreement; or
(D) shall have waived in writing such common law right of setoff or
banker's lien;"
1. Paragraph 6C(3). PARAGRAPH 6C(3)(V) SHALL BE DELETED IN ITS
ENTIRETY AND THE FOLLOWING SHALL BE INSERTED IN LIEU THEREOF:
"(v) make loans or advances to its employees in the ordinary course
of business and consistent with the practices of Industries or Carpet, as
the case may be, existing on the Date of Closing; provided, however, that
Industries and/or Carpet may make loans or advances in an aggregate amount
not to exceed $10,000,000 at any time outstanding to its officers, with
such proceeds being used for the purposes of purchasing capital stock of
Industries or Carpet, as the case may be, under any stock option plan
sponsored by Industries and paying any tax liabilities incurred by such
officers in connection with the exercise of their rights pursuant to any
such stock option plan and in which such capital stock the officer has
granted a security interest to Industries or Carpet, as the case may be, to
secure such loan or advance;"
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<PAGE>
1. Paragraph 6C(8). THE FIRST WORD OF PARAGRAPH 6C(8) SHALL BE
DELETED AND THE FOLLOWING SHALL BE INSERTED IN LIEU THEREOF:
"Except as otherwise provided in Paragraph 6C(3)(v), effect"
1. Paragraph 6D. PARAGRAPH 6D SHALL BE AMENDED BY DELETING THEREFROM
THE WORDS "IF SUCH STOCK IS NOT OTHERWISE PLEDGED PURSUANT TO A SECURITY
AGREEMENT".
1. Paragraph 6I. PARAGRAPH 6I(5) SHALL BE AMENDED BY DELETING
THEREFROM THE WORDS OR TO RELEASE ANY COLLATERAL FROM THE LIEN OF ANY SECURITY
AGREEMENT.
1. Paragraph 7A. PARAGRAPH 7A(XVI) SHALL BE DELETED IN ITS ENTIRETY
AND THE FOLLOWING SHALL BE INSERTED IN LIEU THEREOF:
"(xvi) [Intentionally Omitted]; or".
1. Paragraph 10B. PARAGRAPH 10B SHALL BE AMENDED BY DELETING
THEREFROM THE DEFINITIONS OF THE TERMS COLLATERAL, COLLATERAL AGENT, AND
SECURITY AGREEMENT.
1. Paragraph 10B. PARAGRAPH 10B SHALL BE AMENDED BY DELETING
THEREFROM THE DEFINITION OF THE TERM "RELATED DOCUMENTS" AND SUBSTITUTING IN ITS
PLACE THE FOLLOWING:
"RELATED DOCUMENTS" shall mean this Agreement (and each Modification
thereof), any Note, each Guaranty Agreement, the Intercreditor Agreement
and any document or instrument executed in connection with any of the
foregoing."
1. Paragraph 10B. PARAGRAPH 10B SHALL BE AMENDED BY DELETING
THEREFROM THE DEFINITION OF THE TERM "TOTAL SUBSIDIARY DEBT" AND SUBSTITUTING IN
ITS PLACE THE FOLLOWING:
"TOTAL SUBSIDIARY DEBT" shall mean, at any time, without duplication,
the aggregate principal amount of all unsecured Indebtedness of any
Restricted Subsidiary (other than, (i) subject to compliance with paragraph
5E hereof, Indebtedness under Guarantees by such Restricted Subsidiary of
Indebtedness of either Company or another Restricted Subsidiary and (ii)
Indebtedness owing by a Restricted Subsidiary to any other Restricted
Subsidiary or either Company) and any Preferred Stock of any Restricted
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<PAGE>
Subsidiary (other than Preferred Stock issued to Industries, Carpet or a
Restricted Subsidiary)."
a. CONDITIONS PRECEDENT.
Your obligation to enter into, execute and deliver this Fourth
Modification and the effectiveness of paragraph 1 is subject to the
satisfaction, on or before the Amendment Date, of the following conditions, as
determined in your sole judgment:
2. Related Documents. YOU SHALL HAVE RECEIVED THIS FOURTH
MODIFICATION DULY EXECUTED AND DELIVERED BY THE PARTIES THERETO.
2. Representations and Warranties; No Default. THE REPRESENTATIONS
AND WARRANTIES CONTAINED IN PARAGRAPH 8 OF THE NOTE AGREEMENT SHALL BE TRUE ON
AND AS OF THE AMENDMENT DATE, ANY REFERENCE IN SUCH PARAGRAPH 8 TO THE DATE OF
CLOSING SHALL FOR PURPOSES HEREOF BE DEEMED TO BE A REFERENCE TO THE AMENDMENT
DATE AND ANY REFERENCE TO THE NOTE AGREEMENT, THIS AGREEMENT OR WORDS OF LIKE
IMPORT SHALL MEAN AND BE A REFERENCE TO THE NOTE AGREEMENT AS AMENDED HEREBY;
THERE SHALL EXIST ON THE AMENDMENT DATE NO EVENT OF DEFAULT OR DEFAULT; AND EACH
OF THE COMPANIES SHALL HAVE DELIVERED TO YOU AN OFFICER'S CERTIFICATE, DATED THE
AMENDMENT DATE, REGARDING THE FOREGOING.
2. Proceedings. EACH OF INDUSTRIES, MANUFACTURING AND EACH
GUARANTOR SHALL DELIVER TO YOU CERTIFIED COPIES (CERTIFIED BY ITS SECRETARY OR
ASSISTANT SECRETARY) OF ALL CORPORATE ACTION TAKEN BY IT TO AUTHORIZE THE
EXECUTION, DELIVERY AND PERFORMANCE OF THIS FOURTH MODIFICATION.
2. Amendment of Other Agreements. YOU SHALL RECEIVE AN EXECUTED
COPY OF THE AMENDMENT AND RESTATEMENT OF THE BANK AGREEMENT AND AMENDMENT TO
EACH OF THE CONSOLIDATED NOTE AGREEMENT, THE 9.5% NOTE AGREEMENT AND THE SERIES
NOTE AGREEMENT, AMENDING EACH SUCH AGREEMENT IN THE MANNER SUBSTANTIALLY SIMILAR
AS PROVIDED HEREIN, IN FORM AND SUBSTANCE SATISFACTORY TO THE PURCHASERS.
2. Expenses. ALL YOUR FEES AND DISBURSEMENTS (INCLUDING WITHOUT
LIMITATION SPECIAL COUNSEL TO YOU) SHALL HAVE BEEN PAID IN FULL.
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<PAGE>
2. Other Documents. YOU SHALL HAVE RECEIVED SUCH OTHER CERTIFICATES,
LEGAL OPINIONS AND DOCUMENTS AS YOU OR YOUR SPECIAL COUNSEL MAY REASONABLY
REQUEST, ALL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO YOU.
Notwithstanding the foregoing, the effectiveness of paragraphs 1F
through 1J is subject to receipt by the Collateral Agent of written direction
from all of the Lenders (as defined in the Intercreditor Agreement) to release
the Collateral from the Lien held by the Collateral Agent.
A. MISCELLANEOUS.
3. Successors and Assigns. ALL COVENANTS AND OTHER AGREEMENTS IN
THIS FOURTH MODIFICATION CONTAINED BY OR ON BEHALF OF EITHER OF THE PARTIES
HERETO SHALL BIND AND INURE TO THE BENEFIT OF THE RESPECTIVE SUCCESSORS AND
ASSIGNS OF THE PARTIES HERETO (INCLUDING, WITHOUT LIMITATION, ANY TRANSFEREE)
WHETHER SO EXPRESSED OR NOT.
3. Governing Law. THIS FOURTH MODIFICATION SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAW OF THE STATE OF NEW YORK.
3. Severability. ANY PROVISION OF THIS FOURTH MODIFICATION WHICH IS
PROHIBITED OR UNENFORCEABLE IN ANY JURISDICTION SHALL, AS TO SUCH JURISDICTION,
BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR UNENFORCEABILITY WITHOUT
INVALIDATING THE REMAINING PROVISIONS HEREOF, AND ANY SUCH PROHIBITION OR
UNENFORCEABILITY IN ANY JURISDICTION SHALL NOT INVALIDATE OR RENDER
UNENFORCEABLE SUCH PROVISION IN ANY OTHER JURISDICTION.
3. Descriptive Headings. THE DESCRIPTIVE HEADINGS OF THE SEVERAL
PARAGRAPHS OF THIS FOURTH MODIFICATION ARE INSERTED FOR CONVENIENCE ONLY AND DO
NOT CONSTITUTE A PART OF THIS FOURTH MODIFICATION.
3. Counterparts. THIS FOURTH MODIFICATION MAY BE EXECUTED IN ANY
NUMBER OF COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED AN ORIGINAL, BUT ALL OF
WHICH TOGETHER SHALL CONSTITUTE ONE INSTRUMENT.
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If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Companies, whereupon this letter shall become a binding agreement among the
Companies and you.
Very truly yours,
MOHAWK INDUSTRIES, INC.
By:
-------------------------------
Title:
ALADDIN MANUFACTURING CORPORATION
(f/k/a Mohawk
Manufacturing and
f/k/a Mohawk
Carpet Corporation)
By:
-------------------------------
Title:
The foregoing Fourth Modification
is hereby accepted as of the date
first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:
---------------------------
Title:
OTHER PURCHASERS
The foregoing Fourth Modification
is hereby accepted as of the date
first above written.
ALEXANDER HAMILTON LIFE INSURANCE
COMPANY OF AMERICA
By:
---------------------------
Title:
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<PAGE>
MASSACHUSETTS MUTUAL
LIFE INSURANCE COMPANY
By:
---------------------------
Title:
THE FRANKLIN LIFE INSURANCE COMPANY
By:
---------------------------
Title:
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By:
---------------------------
Title:
JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY OF AMERICA
By:
---------------------------
Title:
Agreed and Consented to as Guarantor:
MOHAWK INDUSTRIES, INC.
By:
---------------------------
Title:
MOHAWK MARKETING, INC.
By:
---------------------------
Title:
7
<PAGE>
MOHAWK CARPET CORPORATION
By:
---------------------------
Title:
MOHAWK MILLS, INC.
By:
---------------------------
Title:
8
<PAGE>
EXHIBIT 10.3
SEVENTH AMENDMENT AGREEMENT
SEVENTH AMENDMENT AGREEMENT (this "Agreement"), dated as of October
17, 1997, by and among ALADDIN MANUFACTURING CORPORATION (the "Company"), a
Delaware corporation formerly known as Mohawk Manufacturing Corporation and
prior to that known as Mohawk Carpet Corporation, MOHAWK INDUSTRIES, INC. (the
"Parent"), a Delaware corporation, MOHAWK MARKETING, INC. ("Marketing"), a
Georgia corporation, MOHAWK MILLS, INC. ("Mills"), a Delaware corporation, and
MOHAWK CARPET CORPORATION ("Carpet"), a Delaware corporation formerly known as
Mohawk Limited (each of the foregoing, other than the Company, and each of their
respective successors and assigns, collectively, the "Guarantors") and EACH OF
THE OTHER PERSONS NAMED ON THE SIGNATURE PAGES HEREOF (collectively, the
"Noteholders").
RECITALS:
A. The Company entered into those separate Note Purchase Agreements,
each dated as of August 15, 1993 (collectively, as amended and as in effect
prior to the effectiveness of this Agreement, the "Existing Note Agreement,"
and, as amended by this Agreement, the "Amended Note Agreement"), with the
Noteholders, pursuant to which the Company issued and sold to the Noteholders
(i) an aggregate principal amount of Sixty Million Dollars
($60,000,000) of the Company's 7.23% Series A Senior Notes Due September 1,
2005 (the "Series A Notes"),
(ii) an aggregate principal amount of Ten Million Dollars
($10,000,000) of the Company's 7.17% Series B Senior Notes Due September 1,
2005 (the "Series B Notes"), and
(iii) an aggregate principal amount of Fifteen Million Dollars
($15,000,000) of the Company's 7.14% Series C Senior Notes Due September 1,
2005 (the "Series C Notes;" the Series A Notes, the Series B Notes and the
Series C Notes are referred to herein, collectively, as the "Notes").
B. The obligations of the Company in respect of the Notes and the
Existing Note Agreement have been unconditionally guaranteed by the Guarantors
pursuant to the Existing Note Agreement, that certain Guaranty Agreement, dated
as of November 3, 1993, by Marketing, in favor of the Noteholders, that certain
Guaranty Agreement dated as of May 1, 1995, by Mills, in favor of the
Noteholders and that certain Guaranty Agreement, dated as of July 19, 1995, by
Carpet, in favor of the Noteholders.
<PAGE>
C. The Company and the Guarantors have requested the amendment of
certain provisions of the Existing Note Agreement.
D. Each of the Company, the Guarantors and the Noteholders are
desirous of entering into this Agreement on the terms and conditions hereinafter
set forth.
AGREEMENT:
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINED TERMS.
The terms used herein and not defined herein shall have the meanings
assigned to such terms in the Amended Note Agreement.
SECTION 2. AMENDMENTS TO THE EXISTING NOTE AGREEMENT.
2.1 AMENDMENTS TO EXISTING NOTE AGREEMENT. Each of the Company, the
Parent, the other Guarantors and, subject to the satisfaction of the conditions
set forth in Section 4, the Noteholders, hereby consents and agrees to the
amendments to the Existing Note Agreement set forth in Schedule A to this
Agreement. Such amendments are incorporated herein by reference as if set forth
verbatim in this Agreement.
SECTION 3. WARRANTIES AND REPRESENTATIONS.
To induce the Noteholders to enter into this Agreement, each of the
Company, the Parent and the other Guarantors warrants and represents to the
Noteholders that, as of the Effective Date (as hereinafter defined):
3.1 ORGANIZATION, EXISTENCE AND AUTHORITY. Each of the Company, the
Parent and the other Guarantors is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Each of the Company, the Parent and the other Guarantors has all
requisite power and authority to execute and deliver this Agreement and each of
the Company and the Parent has all requisite power and authority to perform its
respective obligations under the Amended Note Agreement.
3.2 LITIGATION. There are no proceedings pending, or to the
knowledge of the Company, the Parent or the other Guarantors, threatened,
against or affecting the Company, the Parent, any other Guarantor or any of the
other Subsidiaries, or any of their respective Properties, in any court or
before any governmental authority or arbitration board or tribunal which, either
individually or in the aggregate, would conflict with or interfere with the
ability of the Company, the Parent or any other Guarantor to execute and deliver
this Agreement or the ability of the
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Company, the Parent or any other Guarantor to perform any of their respective
obligations under the Amended Note Agreement or any of the other Financing
Documents.
3.3 AUTHORIZATION, EXECUTION AND ENFORCEABILITY. The execution and
delivery by the Company, the Parent and each other Guarantor of this Agreement
and the performance by the Company and the Parent of their respective
obligations under the Amended Note Agreement have been duly authorized by all
necessary action on the part of the Company, the Parent and each other
Guarantor. This Agreement has been duly executed by the Company, the Parent and
each other Guarantor and the Amended Note Agreement constitutes a valid and
binding obligation of the Company, the Parent, and each Guarantor, enforceable
in accordance with its respective terms, except that the enforceability thereof
may be:
(a) limited by bankruptcy, insolvency or other similar laws affecting
the enforceability of creditors' rights generally; and
(b) subject to the availability of equitable remedies.
3.4 NO CONFLICTS OR DEFAULTS. Neither the execution and delivery by
the Company, the Parent and each other Guarantor of this Agreement nor the
performance by the Company or the Parent or any Guarantor of its respective
obligations under the Amended Note Agreement conflicts with, results in any
breach of any of the provisions of, constitutes a default under, violates or,
except for the Liens granted to the Collateral Agent, results in the creation of
any Lien upon any Property of the Company, the Parent or any other Guarantor
under the provisions of:
(a) any charter document, agreement with shareholders or bylaws of the
Company, the Parent or any other Guarantor;
(b) any agreement, instrument or conveyance to which the Company, the
Parent or any other Guarantor or any of their respective Properties may be
bound or affected; or
(c) any statute, rule or regulation or any order, judgment or award of
any court, tribunal or arbitrator by which the Company, the Parent or any
other Guarantor, or any of their respective Properties, may be bound or
affected.
3.5 GOVERNMENTAL CONSENT. Neither the execution and delivery by the
Company, the Parent or the other Guarantors of this Agreement nor the
performance by the Company or the Parent or any Guarantor of their respective
obligations under the Amended Note Agreement is such as to require a consent,
approval or authorization of, or filing, registration or qualification with, any
Governmental Authority on the part of the Company, the Parent or any other
Guarantor as a condition thereto under the circumstances and conditions
contemplated by the Amended Note Agreement.
3.6 DISCLOSURE OF DEFAULTS. No event has occurred and no condition
exists which would constitute a Default or an Event of Default under the Amended
Note Agreement.
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<PAGE>
3.7 COMPLIANCE WITH LAW. Neither the Company, the Parent nor any of
the other Guarantors:
(a) is in violation of any law, ordinance, governmental rule or
regulation to which it is subject; or
(b) has failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of its Property or to
the conduct of its business;
which violation or failure to obtain might, either individually or in the
aggregate, materially adversely affect
(i) the ability of the Company, the Parent or the other Guarantors to
perform their respective obligations under the Amended Note Agreement or
any of the other Financing Documents, or
(ii) the business, prospects, revenues, Properties or condition
(financial or otherwise) of the Company, the Parent, any other Guarantor or
any other Subsidiary.
3.8 DISCLOSURE. The financial statements delivered to the
Noteholders by the Company, the Parent and the other Guarantors pursuant to
Section 7.1 of the Existing Note Agreement do not, nor does this Agreement, or
any other written statement furnished by the Company, the Parent or the other
Guarantors to the Noteholders in connection herewith, contain any untrue
statement of a material fact or omit a material fact necessary to make the
statements contained therein or herein not misleading. There is no fact which
the Company, the Parent or the other Guarantors has not disclosed to the
Noteholders in writing which materially affects adversely or, so far as the
Company, the Parent or the other Guarantors can now foresee, will materially
affect adversely the Properties, business, prospects, profits or condition
(financial or otherwise) of the Company, the Parent, the other Guarantors or the
other Subsidiaries or the ability of the Company, the Parent or the other
Guarantors to perform their respective obligations under the Amended Note
Agreement or any of the other Financing Documents.
SECTION 4. CONDITIONS.
The consent of the Noteholders to the amendments set forth in Section
2 hereof shall not become effective until all of the following conditions shall
have been satisfied (the date of such satisfaction being herein referred to as
the "Effective Date"):
4.1 EXECUTION AND DELIVERY OF THIS AGREEMENT. The Company, the
Parent and each other Guarantor shall have executed and delivered to each of the
Noteholders a counterpart of this Agreement.
4.2 EXECUTION AND DELIVERY OF OTHER CORRESPONDING AMENDMENTS. The
Noteholders, or their legal counsel, shall have received an executed copy of the
amended and
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restated Bank Credit Agreement, and an amendment to each of the Consolidated
Note Agreement, the 9.5% Note Agreement and the 8.46% Note Agreement, amending
each such agreement in a manner substantially similar as provided herein, in
form and substance satisfactory to the Noteholders.
4.3 NO DEFAULT; REPRESENTATIONS AND WARRANTIES TRUE. No Default or
Event of Default under the Amended Note Agreement or any of the other Financing
Documents shall exist and the warranties and representations set forth in
Section 3 hereof shall be true and correct in all material respects as of the
Effective Date.
4.4 EXPENSES. The Company shall have paid all costs and expenses to
the Noteholders relating to this Agreement in accordance with Section 5.5
hereof.
4.5 PROCEEDINGS SATISFACTORY. All proceedings taken in connection
with the Amended Financing Documents shall be satisfactory to the Noteholders
and their special counsel. The Noteholders and their special counsel shall have
received copies of such documents and papers as they may reasonably request in
connection therewith, in form and substance satisfactory to them.
SECTION 5. MISCELLANEOUS.
5.1 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED
AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, INTERNAL NEW YORK LAW.
5.2 DUPLICATE ORIGINALS. Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument. This
Agreement may be executed in one or more counterparts and shall be effective
when at least one counterpart shall have been executed by Noteholders
constituting the Required Holders and each other party hereto, and each set of
counterparts which, collectively, show execution by each such party hereto shall
constitute one duplicate original.
5.3 WAIVERS AND AMENDMENTS. Neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated orally, or by any action
or inaction, but only by an instrument in writing signed by the party against
which enforcement of the change, waiver, discharge or termination is sought.
5.4 SECTION HEADINGS. The titles of the sections hereof appear as a
matter of convenience only, do not constitute a part of this Agreement and shall
not affect the construction hereof.
5.5 COSTS AND EXPENSES. On the Effective Date, the Company shall pay
all costs and expenses of the Noteholders relating to this Agreement, including,
but not limited to, the statement for reasonable fees and disbursements of the
Noteholders' special counsel presented to the Company on the Effective Date. The
Company will also pay upon receipt of any statement thereof, each additional
statement for reasonable fees and disbursements of the Noteholders'
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special counsel rendered after the Effective Date in connection with the Amended
Note Agreement and any of the other Financing Documents.
5.6 SURVIVAL. All warranties, representations, certifications and
covenants made by the Company, the Parent and the other Guarantors in this
Agreement or the Amended Note Agreement or in any certificate or other
instrument delivered pursuant to this Agreement or the Amended Note Agreement
shall be considered to have been relied upon by the Noteholders and shall
survive the execution of this Agreement regardless of any investigation made by
or on behalf of the Noteholders. All statements in any such certificate or
other instrument shall constitute warranties and representations of each of the
Company, the Parent and the other Guarantors hereunder.
5.7 EFFECTIVENESS. Upon the occurrence of the Effective Date, this
Agreement shall be deemed effective and shall be deemed to be a Financing
Document. Notwithstanding the foregoing, the effectiveness of the amendments
provided for in paragraphs 1, 4, 5, 6, 8, 9, 10, 11, 12 and 16 set forth on
Schedule A attached hereto, is subject to receipt by the Collateral Agent of
written direction from all of the Lenders (as defined in the Intercreditor
Agreement) to release the Collateral from the Lien held by the Collateral Agent.
5.8 REFERENCE TO AND EFFECT ON THE FINANCING DOCUMENTS. (a) Upon the
effectiveness of this Agreement, on and after the date thereof, each reference
in the Existing Note Agreement to "this Agreement", "hereunder", "hereof" or
words of like import referring to the Existing Note Agreement and each reference
in the other Financing Documents to "the Existing Note Agreement", "the Series
Note Agreement", "the Note Purchase Agreements", "thereunder", "thereof" or
words of like import referring to the Existing Note Agreement, shall mean and be
a reference to the Existing Note Agreement as amended hereby.
(b) Except as specifically amended above, the Existing Note Agreement
and all other Financing Documents, are and shall continue to be in full force
and effect and are hereby in all respects ratified and confirmed.
(c) The execution, delivery and effectiveness of this Agreement shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Noteholder under any of the Financing Documents, nor
constitute a waiver of any provision of any of the Financing Documents.
[Signatures on Following Pages]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on their behalf by a duly authorized officer or agent thereof, as
the case may be, as of the date first above written.
ALADDIN MANUFACTURING
CORPORATION (F/K/A MOHAWK
MANUFACTURING CORPORATION)
By:
----------------------------------
Name: John D. Swift
Title: Vice President
MOHAWK INDUSTRIES, INC.
By:
----------------------------------
Name: John D. Swift
Title: Vice President-Finance,
Secretary & Treasurer
MOHAWK MARKETING, INC.
By:
----------------------------------
Name: John D. Swift
Title: Vice President
MOHAWK MILLS, INC.
By:
----------------------------------
Name: John D. Swift
Title: Vice President
MOHAWK CARPET CORPORATION
(F/K/A MOHAWK LIMITED)
By:
----------------------------------
Name: John D. Swift
Title: Vice President of Finance
[Signatures Continued on Next Page]
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[Signature Page to Seventh Amendment Agreement]
Agreed and Accepted:
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
JOHN HANCOCK LIFE INSURANCE COMPANY OF AMERICA
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
[Signatures Continued on Next Page]
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THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE FRANKLIN LIFE INSURANCE
COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
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SCHEDULE A
AMENDMENT TO SECTION 1.1(D). Section 1.1(d) of the Existing Note
Agreement is hereby deleted and the following substituted in its place:
"(D) INTERCREDITOR AGREEMENT. The Purchasers shall become parties to
the Intercreditor Agreement and the holders of the Notes shall be entitled
to the benefits thereof and bound by the covenants and agreements contained
therein."
AMENDMENT TO SECTION 6.9(B). Section 6.9(b) of the Existing Note
Agreement is hereby deleted and the following substituted in its place:
"(B) LIMIT ON RESTRICTED PAYMENTS AND PERMITTED AFFILIATE
TRANSACTIONS. The Parent and the Company will not, nor will they permit
any other Restricted Subsidiary to, at any time, declare or make any
Restricted Payment or enter into any Permitted Affiliate Transaction (other
than any Permitted Affiliate Transaction permitted under Section 6.10(b) or
(c)) unless:
(i) immediately after, and after giving effect to, such Restricted
Payment or such Permitted Affiliate Transaction, the aggregate amount
of (x) all Restricted Payments declared or made during the period from
the 8.46% Note Closing Date to and including the date such Restricted
Payment is made, plus (y) the aggregate Affiliate Transaction Amounts
for all Permitted Affiliate Transactions (other than Permitted
Affiliate Transactions permitted under Section 6.10(b) or (c)) entered
into since the 8.46% Note Closing Date would not exceed the sum of
(A) Twenty Million Dollars ($20,000,000), plus
(B) fifty percent (50%) (or minus one hundred percent (100%) in the
case of a deficit) of Consolidated Net Earnings for the period
beginning on the 8.46% Note Closing Date and ending at such
time, plus
(C) the aggregate amount of net cash proceeds received by the Parent
from the sale of any class of common stock of the Parent after
the 8.46% Note Closing Date; and
(ii) at the time of such declaration and immediately before, and after
giving effect to, such Restricted Payment or such Permitted Affiliate
Transaction, no Default or Event of Default exists or would exist."
10
<PAGE>
AMENDMENT TO SECTION 6.10. Section 6.10 of the Existing Note
Agreement is hereby deleted and the following substituted in its place:
"6.10 TRANSACTIONS WITH AFFILIATES.
The Parent and the Company will not, and will not permit any other
Restricted Subsidiary to, enter into any transaction, including, without
limitation, the purchase, sale or exchange of Property or the rendering of
any service, with any Affiliate or other Restricted Subsidiary, except in
the ordinary course of and pursuant to the reasonable requirements of the
business of such Person (including, without limitation, in connection with
any acquisition permitted by Section 6.12 hereof) and upon fair and
reasonable terms no less favorable to such Person than would obtain in a
comparable arm's-length transaction with a Person not an Affiliate or a
Restricted Subsidiary; provided, however, that, notwithstanding the
foregoing, such Persons may enter into such transactions so long as:
(a)(i) the aggregate Affiliate Transaction Amounts in respect of all
such transactions during any calendar year do not exceed One Million
Five Hundred Thousand Dollars ($1,500,000), and (ii) the aggregate
Affiliate Transaction Amounts in respect of all such transactions
after the Closing Date do not exceed Five Million Dollars ($5,000,000)
or
(b) such transaction is otherwise permitted under clause (ii) or (iii)
of Section 6.11(a) or
(c) such transaction is an Investment of the type described in clause
(l) of the definition of the term Restricted Investment."
AMENDMENT TO SECTION 6.11(B). Section 6.11(b) of the Existing Note
Agreement is hereby amended by inserting the word "and" at the end of Section
6.11(b)(iv)(B), deleting Section 6.11(b)(iv)(C) in its entirety and renumbering
Section 6.11(b)(iv)(D) as Section 6.11(b)(iv)(C).
AMENDMENT TO SECTION 6.12(A). Section 6.12(a) of the Existing Note
Agreement is hereby amended by inserting the word "and" at the end of Section
6.12(a)(iii)(A) and deleting Section 6.12(a)(iii)(C) in its entirety.
AMENDMENT TO SECTION 6.12(B). Section 6.12(b) of the Existing Note
Agreement is hereby amended by deleting Section 6.12(b)(iii) in its entirety and
substituting in its place the following:
"(iii) in the case of an acquisition of any Restricted Subsidiary, if
such transaction occurs prior to the Assumption and Release Date, the
Company and
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<PAGE>
the Parent shall have complied with the provisions of Section 6.21 (b) of
this Agreement."
AMENDMENT TO SECTION 6.13(A). Section 6.13(a) of the Existing Note
Agreement is hereby amended by deleting Section 6.13(a)(iv) in its entirety and
substituting the following in its place:
"(iv) any common law right of setoff or banker's lien arising in
connection with ordinary course of business deposit arrangements maintained
by the Parent, the Company or any other Restricted Subsidiary with its
banks or other financial institutions so long as any such bank or other
financial institution (A) shall be a party to the Bank Credit Agreement and
the Intercreditor Agreement, (B) shall not at any time make loans or
otherwise extend credit pursuant to any credit facility to the Parent, the
Company or any other Restricted Subsidiary, (C) does not maintain accounts
(for the deposit of cash or otherwise) for the benefit of the Parent or any
Restricted Subsidiary other than those which have in the aggregate monthly
balances less than $100,000, (D) shall have executed and delivered to each
party to the Intercreditor Agreement a Sharing Agreement substantially in
the form of Exhibit G to this Agreement, or (E) shall have waived in
writing such common law right of setoff or banker's lien;"
AMENDMENT TO SECTION 6.13(A). Section 6.13(a) of the Existing Note
Agreement is hereby further amended by deleting Section 6.13(a)(vi) in its
entirety and substituting the following in its place:
"(vi) [INTENTIONALLY OMITTED]"
AMENDMENT TO SECTION 6.13(D). Section 6.13(d) of the Existing Note
Agreement is hereby deleted in its entirety and the following substituted in its
place:
"(D) [INTENTIONALLY OMITTED]"
AMENDMENT TO SECTION 6.24(E). Section 6.24(e) of the Existing Note
Agreement is hereby amended by deleting the words "or to release any Collateral
from the Lien of any such Financing Document" from the second sentence of such
Section.
AMENDMENT TO SECTION 8.1(N). Section 8.1(n) of the Existing Note
Agreement is hereby deleted in its entirety and the following substituted in its
place:
"(D) [INTENTIONALLY OMITTED]"
AMENDMENT TO DEFINITION OF FINANCING DOCUMENTS. Section 9.1 of the
Existing Note Agreement is hereby further amended by deleting the definition of
Financing Documents and substituting in its place the following:
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<PAGE>
"FINANCING DOCUMENTS - means the Note Purchase Agreements, the Notes,
the Intercreditor Agreement, and the Guaranty Agreements, and in each such
case the other agreements and instruments executed in connection therewith,
as each may be amended, restated or modified from time to time."
AMENDMENT TO DEFINITION OF GUARANTY AGREEMENTS. Section 9.1 of the
Existing Note Agreement is hereby further amended by deleting the definition of
Guaranty Agreements and substituting in its place the following:
"GUARANTY AGREEMENTS -- means, collectively, (i) the Unconditional
Guaranty, (ii) the Guaranty Agreement dated as of November 3, 1993
delivered by Marketing for the benefit of the Noteholders, (iii) the
Guaranty Agreement dated as of May 1, 1995 delivered by Mills for the
benefit of the Noteholders, (iv) the Guaranty Agreement dated as of July
19, 1995 delivered by Limited for the benefit of the Noteholders, and (v)
any other guaranty agreement delivered at any time by a Guarantor pursuant
to the terms of Section 6.21 of this Agreement, as any of the foregoing may
be amended, modified or supplemented from time to time in accordance with
its terms."
AMENDMENT TO DEFINITION OF RESTRICTED INVESTMENT. Section 9.1 of the
Existing Note Agreement is hereby further amended by deleting clause (l) of the
definition of Restricted Investment and substituting in its place the following:
"(l) investments constituting (x) loans and advances to employees
made in the ordinary course of business and consistent with the practices
of the Parent or the Company, as the case may be, existing on the 8.46%
Note Closing Date and (y) other loans or advances made by the Parent and/or
the Company in an aggregate amount not to exceed $10,000,000 at any time
outstanding to its officers so long as the proceeds of such loans or
advances are used for the purposes of purchasing capital stock of the
Parent or the Company, as the case may be, under any stock option plan
sponsored by Industries and paying any tax liabilities incurred by such
officers in connection with the exercise of their rights pursuant to any
such stock option plan and in which such capital stock the officer has
granted a security interest to the Parent or the Company, as the case may
be, to secure such loan or advance."
AMENDMENT TO DEFINITION OF TOTAL RESTRICTED SUBSIDIARY DEBT. Section
9.1 of the Existing Note Agreement is hereby further amended by deleting clause
(a) of the definition of Total Restricted Subsidiary Debt and substituting in
its place the following:
"(a) the aggregate principal amount of all unsecured Indebtedness of
all Restricted Subsidiaries outstanding at such time other than, (i)
subject to compliance with Section 10.1 hereof, Indebtedness under
Guaranties by any Restricted Subsidiary of Indebtedness of the Company, the
Parent or another
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<PAGE>
Restricted Subsidiary and (ii) Indebtedness owing by a Restricted
Subsidiary to any other Restricted Subsidiary, the Company or the Parent,
and"
AMENDMENT TO DEFINED TERMS. Section 9.1 of the Existing Note
Agreement is hereby further amended by deleting therefrom the definitions of
"Collateral", "Collateral Agent", "Company Security Agreement", "Horizon
Security Agreement", "Limited Security Agreement" and "Parent Security
Agreement".
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EXHIBIT 10.4
SEVENTH AMENDMENT AGREEMENT
SEVENTH AMENDMENT AGREEMENT (this "Agreement"), dated as of October
17, 1997, by and among ALADDIN MANUFACTURING CORPORATION (the "Company"), a
Delaware corporation formerly known as Mohawk Manufacturing Corporation and
prior to that known as Mohawk Carpet Corporation, MOHAWK INDUSTRIES, INC. (the
"Parent"), a Delaware corporation, MOHAWK MARKETING, INC. ("Marketing"), a
Georgia corporation, MOHAWK MILLS, INC. ("Mills"), a Delaware corporation, and
MOHAWK CARPET CORPORATION ("Carpet"), a Delaware corporation formerly known as
Mohawk Limited (each of the foregoing, other than the Company, and each of their
respective successors and assigns, collectively, the "Guarantors") and EACH OF
THE OTHER PERSONS NAMED ON THE SIGNATURE PAGES HEREOF (collectively, the
"Noteholders").
RECITALS:
A. The Company entered into those separate Note Purchase Agreements,
each dated as of August 15, 1993 (collectively, as amended and as in effect
prior to the effectiveness of this Agreement, the "Existing Note Agreement,"
and, as amended by this Agreement, the "Amended Note Agreement"), with the
Noteholders, pursuant to which the Company issued and sold to the Noteholders an
aggregate principal amount of Eighteen Million Seven Hundred Fifty Thousand
Dollars ($18,750,000) of the Company's 9.5% Senior Notes Due April 1, 1998 (the
"Notes").
B. The obligations of the Company in respect of the Notes and the
Existing Note Agreement have been unconditionally guaranteed by the Guarantors
pursuant to the Existing Note Agreement, that certain Guaranty Agreement, dated
as of November 3, 1993, by Marketing, in favor of the Noteholders, that certain
Guaranty Agreement dated as of May 1, 1995, by Mills, in favor of the
Noteholders and that certain Guaranty Agreement, dated as of July 19, 1995, by
Carpet, in favor of the Noteholders.
C. The Company and the Guarantors have requested the amendment of
certain provisions of the Existing Note Agreement.
D. Each of the Company, the Guarantors and the Noteholders are
desirous of entering into this Agreement on the terms and conditions hereinafter
set forth.
AGREEMENT:
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
SECTION 1. DEFINED TERMS.
The terms used herein and not defined herein shall have the meanings
assigned to such terms in the Amended Note Agreement.
SECTION 2. AMENDMENTS TO THE EXISTING NOTE AGREEMENT.
2.1 AMENDMENTS TO EXISTING NOTE AGREEMENT. Each of the Company, the
Parent, the other Guarantors and, subject to the satisfaction of the conditions
set forth in Section 4, the Noteholders, hereby consents and agrees to the
amendments to the Existing Note Agreement set forth in Schedule A to this
Agreement. Such amendments are incorporated herein by reference as if set forth
verbatim in this Agreement.
SECTION 3. WARRANTIES AND REPRESENTATIONS.
To induce the Noteholders to enter into this Agreement, each of the
Company, the Parent and the other Guarantors warrants and represents to the
Noteholders that, as of the Effective Date (as hereinafter defined):
3.1 ORGANIZATION, EXISTENCE AND AUTHORITY. Each of the Company, the
Parent and the other Guarantors is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Each of the Company, the Parent and the other Guarantors has all
requisite power and authority to execute and deliver this Agreement and each of
the Company and the Parent has all requisite power and authority to perform its
respective obligations under the Amended Note Agreement.
3.2 LITIGATION. There are no proceedings pending, or to the
knowledge of the Company, the Parent or the other Guarantors, threatened,
against or affecting the Company, the Parent, any other Guarantor or any of the
other Subsidiaries, or any of their respective Properties, in any court or
before any governmental authority or arbitration board or tribunal which, either
individually or in the aggregate, would conflict with or interfere with the
ability of the Company, the Parent or any other Guarantor to execute and deliver
this Agreement or the ability of the Company, the Parent or any other Guarantor
to perform any of their respective obligations under the Amended Note Agreement
or any of the other Financing Documents.
3.3 AUTHORIZATION, EXECUTION AND ENFORCEABILITY. The execution and
delivery by the Company, the Parent and each other Guarantor of this Agreement
and the performance by the Company and the Parent of their respective
obligations under the Amended Note Agreement have been duly authorized by all
necessary action on the part of the Company, the Parent and each other
Guarantor. This Agreement has been duly executed by the Company, the Parent and
each other Guarantor and the Amended Note Agreement constitutes a valid and
binding obligation of the Company, the Parent, and each Guarantor, enforceable
in accordance with its respective terms, except that the enforceability thereof
may be:
2
<PAGE>
(a) limited by bankruptcy, insolvency or other similar laws affecting
the enforceability of creditors' rights generally; and
(b) subject to the availability of equitable remedies.
3.4 NO CONFLICTS OR DEFAULTS. Neither the execution and delivery by
the Company, the Parent and each other Guarantor of this Agreement nor the
performance by the Company or the Parent or any Guarantor of its respective
obligations under the Amended Note Agreement conflicts with, results in any
breach of any of the provisions of, constitutes a default under, violates or,
except for the Liens granted to the Collateral Agent, results in the creation of
any Lien upon any Property of the Company, the Parent or any other Guarantor
under the provisions of:
(a) any charter document, agreement with shareholders or bylaws of the
Company, the Parent or any other Guarantor;
(b) any agreement, instrument or conveyance to which the Company, the
Parent or any other Guarantor or any of their respective Properties may be
bound or affected; or
(c) any statute, rule or regulation or any order, judgment or award of
any court, tribunal or arbitrator by which the Company, the Parent or any
other Guarantor, or any of their respective Properties, may be bound or
affected.
3.5 GOVERNMENTAL CONSENT. Neither the execution and delivery by the
Company, the Parent or the other Guarantors of this Agreement nor the
performance by the Company or the Parent or any Guarantor of their respective
obligations under the Amended Note Agreement is such as to require a consent,
approval or authorization of, or filing, registration or qualification with, any
Governmental Authority on the part of the Company, the Parent or any other
Guarantor as a condition thereto under the circumstances and conditions
contemplated by the Amended Note Agreement.
3.6 DISCLOSURE OF DEFAULTS. No event has occurred and no condition
exists which would constitute a Default or an Event of Default under the Amended
Note Agreement.
3.7 COMPLIANCE WITH LAW. Neither the Company, the Parent nor any of
the other Guarantors:
(a) is in violation of any law, ordinance, governmental rule or
regulation to which it is subject; or
(b) has failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of its Property or to
the conduct of its business;
which violation or failure to obtain might, either individually or in the
aggregate, materially adversely affect
3
<PAGE>
(i) the ability of the Company, the Parent or the other Guarantors to
perform their respective obligations under the Amended Note Agreement or
any of the other Financing Documents, or
(ii) the business, prospects, revenues, Properties or condition
(financial or otherwise) of the Company, the Parent, any other Guarantor or
any other Subsidiary.
3.8 DISCLOSURE. The financial statements delivered to the
Noteholders by the Company, the Parent and the other Guarantors pursuant to
Section 7.1 of the Existing Note Agreement do not, nor does this Agreement, or
any other written statement furnished by the Company, the Parent or the other
Guarantors to the Noteholders in connection herewith, contain any untrue
statement of a material fact or omit a material fact necessary to make the
statements contained therein or herein not misleading. There is no fact which
the Company, the Parent or the other Guarantors has not disclosed to the
Noteholders in writing which materially affects adversely or, so far as the
Company, the Parent or the other Guarantors can now foresee, will materially
affect adversely the Properties, business, prospects, profits or condition
(financial or otherwise) of the Company, the Parent, the other Guarantors or the
other Subsidiaries or the ability of the Company, the Parent or the other
Guarantors to perform their respective obligations under the Amended Note
Agreement or any of the other Financing Documents.
SECTION 4. CONDITIONS.
The consent of the Noteholders to the amendments set forth in Section
2 hereof shall not become effective until all of the following conditions shall
have been satisfied (the date of such satisfaction being herein referred to as
the "Effective Date"):
4.1 EXECUTION AND DELIVERY OF THIS AGREEMENT. The Company, the
Parent and each other Guarantor shall have executed and delivered to each of the
Noteholders a counterpart of this Agreement.
4.2 EXECUTION AND DELIVERY OF OTHER CORRESPONDING AMENDMENTS. The
Noteholders, or their legal counsel, shall have received an executed copy of the
amended and restated Bank Credit Agreement, and an amendment to each of the
Consolidated Note Agreement, the Series Note Agreement and the 8.46% Note
Agreement, amending each such agreement in a manner substantially similar as
provided herein, in form and substance satisfactory to the Noteholders.
4.3 NO DEFAULT; REPRESENTATIONS AND WARRANTIES TRUE. No Default or
Event of Default under the Amended Note Agreement or any of the other Financing
Documents shall exist and the warranties and representations set forth in
Section 3 hereof shall be true and correct in all material respects as of the
Effective Date.
4.4 EXPENSES. The Company shall have paid all costs and expenses to
the Noteholders relating to this Agreement in accordance with Section 5.5
hereof.
4
<PAGE>
4.5 PROCEEDINGS SATISFACTORY. All proceedings taken in connection
with the Amended Financing Documents shall be satisfactory to the Noteholders
and their special counsel. The Noteholders and their special counsel shall have
received copies of such documents and papers as they may reasonably request in
connection therewith, in form and substance satisfactory to them.
SECTION 5. MISCELLANEOUS.
5.1 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED
AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, INTERNAL NEW YORK LAW.
5.2 DUPLICATE ORIGINALS. Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument. This
Agreement may be executed in one or more counterparts and shall be effective
when at least one counterpart shall have been executed by Noteholders
constituting the Required Holders and each other party hereto, and each set of
counterparts which, collectively, show execution by each such party hereto shall
constitute one duplicate original.
5.3 WAIVERS AND AMENDMENTS. Neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated orally, or by any action
or inaction, but only by an instrument in writing signed by the party against
which enforcement of the change, waiver, discharge or termination is sought.
5.4 SECTION HEADINGS. The titles of the sections hereof appear as a
matter of convenience only, do not constitute a part of this Agreement and shall
not affect the construction hereof.
5.5 COSTS AND EXPENSES. On the Effective Date, the Company shall pay
all costs and expenses of the Noteholders relating to this Agreement, including,
but not limited to, the statement for reasonable fees and disbursements of the
Noteholders' special counsel presented to the Company on the Effective Date.
The Company will also pay upon receipt of any statement thereof, each additional
statement for reasonable fees and disbursements of the Noteholders' special
counsel rendered after the Effective Date in connection with the Amended Note
Agreement and any of the other Financing Documents.
5.6 SURVIVAL. All warranties, representations, certifications and
covenants made by the Company, the Parent and the other Guarantors in this
Agreement or the Amended Note Agreement or in any certificate or other
instrument delivered pursuant to this Agreement or the Amended Note Agreement
shall be considered to have been relied upon by the Noteholders and shall
survive the execution of this Agreement regardless of any investigation made by
or on behalf of the Noteholders. All statements in any such certificate or other
instrument shall constitute warranties and representations of each of the
Company, the Parent and the other Guarantors hereunder.
5
<PAGE>
5.7 EFFECTIVENESS. Upon the occurrence of the Effective Date, this
Agreement shall be deemed effective and shall be deemed to be a Financing
Document. Notwithstanding the foregoing, the effectiveness of the amendments
provided for in paragraphs 1, 4, 5, 6, 8, 9, 10, 11, 12 and 16 set forth on
Schedule A attached hereto, is subject to receipt by the Collateral Agent of
written direction from all of the Lenders (as defined in the Intercreditor
Agreement) to release the Collateral from the Lien held by the Collateral Agent.
5.8 REFERENCE TO AND EFFECT ON THE FINANCING DOCUMENTS. (a) Upon the
effectiveness of this Agreement, on and after the date thereof, each reference
in the Existing Note Agreement to "this Agreement", "hereunder", "hereof" or
words of like import referring to the Existing Note Agreement and each reference
in the other Financing Documents to "the Existing Note Agreement", "the 9.5%
Note Agreement", "the Note Purchase Agreements", "thereunder", "thereof" or
words of like import referring to the Existing Note Agreement, shall mean and be
a reference to the Existing Note Agreement as amended hereby.
(b) Except as specifically amended above, the Existing Note Agreement
and all other Financing Documents, are and shall continue to be in full force
and effect and are hereby in all respects ratified and confirmed.
(c) The execution, delivery and effectiveness of this Agreement shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Noteholder under any of the Financing Documents, nor
constitute a waiver of any provision of any of the Financing Documents.
[Signatures on Following Pages]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on their behalf by a duly authorized officer or agent thereof, as
the case may be, as of the date first above written.
ALADDIN MANUFACTURING CORPORATION
(F/K/A MOHAWK MANUFACTURING CORPORATION)
By: /s/ John D. Swift
----------------------------
Name: John D. Swift
Title: Vice President
MOHAWK INDUSTRIES, INC.
By: /s/ John D. Swift
----------------------------
Name: John D. Swift
Title: Vice President-Finance,
Secretary & Treasurer
MOHAWK MARKETING, INC.
By: /s/ John D. Swift
----------------------------
Name: John D. Swift
Title: Vice President
MOHAWK MILLS, INC.
By: /s/ John D. Swift
----------------------------
Name: John D. Swift
Title: Vice President
MOHAWK CARPET CORPORATION
(F/K/A MOHAWK LIMITED)
By: /s/ John D. Swift
----------------------------
Name: John D. Swift
Title: Vice President of Finance
[Signatures Continued on Next Page]
7
<PAGE>
[Signature Page to Seventh Amendment Agreement]
Agreed and Accepted:
ALEXANDER HAMILTON LIFE INSURANCE COMPANY OF AMERICA
By:
Name:
Title:
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By:
Name:
Title:
THE FRANKLIN LIFE INSURANCE COMPANY
By:
Name:
Title:
By:
Name:
Title:
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By:
Name:
Title:
By:
Name:
Title:
8
<PAGE>
SCHEDULE A
AMENDMENT TO SECTION 1.1(C). Section 1.1(c) of the Existing Note
Agreement is hereby deleted and the following substituted in its place:
"(C) INTERCREDITOR AGREEMENT. The Purchasers shall become parties to
the Intercreditor Agreement and the holders of the Notes shall be entitled
to the benefits thereof and bound by the covenants and agreements contained
therein."
AMENDMENT TO SECTION 6.9(B). Section 6.9(b) of the Existing Note
Agreement is hereby deleted and the following substituted in its place:
"(B) LIMIT ON RESTRICTED PAYMENTS AND PERMITTED AFFILIATE
TRANSACTIONS. The Parent and the Company will not, nor will they permit
any other Restricted Subsidiary to, at any time, declare or make any
Restricted Payment or enter into any Permitted Affiliate Transaction (other
than any Permitted Affiliate Transaction permitted under Section 6.10(b) or
(c)) unless:
(i) immediately after, and after giving effect to, such
Restricted Payment or such Permitted Affiliate Transaction, the
aggregate amount of (x) all Restricted Payments declared or made
during the period from the 8.46% Note Closing Date to and including
the date such Restricted Payment is made, plus (y) the aggregate
Affiliate Transaction Amounts for all Permitted Affiliate Transactions
(other than Permitted Affiliate Transactions permitted under Section
6.10(b) or (c)) entered into since the 8.46% Note Closing Date would
not exceed the sum of
(A) Twenty Million Dollars ($20,000,000), plus
(B) fifty percent (50%) (or minus one hundred percent (100%)
in the case of a deficit) of Consolidated Net Earnings for the
period beginning on the 8.46% Note Closing Date and ending at
such time, plus
(C) the aggregate amount of net cash proceeds received by
the Parent from the sale of any class of common stock of the
Parent after the 8.46% Note Closing Date; and
(ii) at the time of such declaration and immediately before, and
after giving effect to, such Restricted Payment or such Permitted
Affiliate Transaction, no Default or Event of Default exists or would
exist."
AMENDMENT TO SECTION 6.10. Section 6.10 of the Existing Note
Agreement is hereby deleted and the following substituted in its place:
<PAGE>
"6.10 TRANSACTIONS WITH AFFILIATES.
The Parent and the Company will not, and will not permit any other
Restricted Subsidiary to, enter into any transaction, including, without
limitation, the purchase, sale or exchange of Property or the rendering of
any service, with any Affiliate or other Restricted Subsidiary, except in
the ordinary course of and pursuant to the reasonable requirements of the
business of such Person (including, without limitation, in connection with
any acquisition permitted by Section 6.12 hereof) and upon fair and
reasonable terms no less favorable to such Person than would obtain in a
comparable arm's-length transaction with a Person not an Affiliate or a
Restricted Subsidiary; provided, however, that, notwithstanding the
foregoing, such Persons may enter into such transactions so long as:
(a)(i) the aggregate Affiliate Transaction Amounts in respect of
all such transactions during any calendar year do not exceed One
Million Five Hundred Thousand Dollars ($1,500,000), and (ii) the
aggregate Affiliate Transaction Amounts in respect of all such
transactions after the Closing Date do not exceed Five Million Dollars
($5,000,000) or
(b) such transaction is otherwise permitted under clause (ii) or
(iii) of Section 6.11(a) or
(c) such transaction is an Investment of the type described in
clause (l) of the definition of the term Restricted Investment."
AMENDMENT TO SECTION 6.11(B). Section 6.11(b) of the Existing Note
Agreement is hereby amended by inserting the word "and" at the end of Section
6.11(b)(iv)(B), deleting Section 6.11(b)(iv)(C) in its entirety and renumbering
Section 6.11(b)(iv)(D) as Section 6.11(b)(iv)(C).
AMENDMENT TO SECTION 6.12(A). Section 6.12(a) of the Existing Note
Agreement is hereby amended by inserting the word "and" at the end of Section
6.12(a)(iii)(A) and deleting Section 6.12(a)(iii)(C) in its entirety.
AMENDMENT TO SECTION 6.12(B). Section 6.12(b) of the Existing Note
Agreement is hereby amended by deleting Section 6.12(b)(iii) in its entirety and
substituting in its place the following:
"(iii) in the case of an acquisition of any Restricted Subsidiary, if
such transaction occurs prior to the Assumption and Release Date, the
Company and the Parent shall have complied with the provisions of Section
6.21 (b) of this Agreement."
2
<PAGE>
AMENDMENT TO SECTION 6.13(A). Section 6.13(a) of the Existing Note
Agreement is hereby amended by deleting Section 6.13(a)(iv) in its entirety and
substituting the following in its place:
"(iv) any common law right of setoff or banker's lien arising in
connection with ordinary course of business deposit arrangements maintained
by the Parent, the Company or any other Restricted Subsidiary with its
banks or other financial institutions so long as any such bank or other
financial institution (A) shall be a party to the Bank Credit Agreement and
the Intercreditor Agreement, (B) shall not at any time make loans or
otherwise extend credit pursuant to any credit facility to the Parent, the
Company or any other Restricted Subsidiary, (C) does not maintain accounts
(for the deposit of cash or otherwise) for the benefit of the Parent or any
Restricted Subsidiary other than those which have in the aggregate monthly
balances less than $100,000, (D) shall have executed and delivered to each
party to the Intercreditor Agreement a Sharing Agreement substantially in
the form of Exhibit G to this Agreement, or (E) shall have waived in
writing such common law right of setoff or banker's lien;"
AMENDMENT TO SECTION 6.13(A). Section 6.13(a) of the Existing Note
Agreement is hereby further amended by deleting Section 6.13(a)(vi) in its
entirety and substituting the following in its place:
"(vi) [INTENTIONALLY OMITTED]"
AMENDMENT TO SECTION 6.13(D). Section 6.13(d) of the Existing Note
Agreement is hereby deleted in its entirety and the following substituted in its
place:
"(D) [INTENTIONALLY OMITTED]"
AMENDMENT TO SECTION 6.24(E). Section 6.24(e) of the Existing Note
Agreement is hereby amended by deleting the words "or to release any Collateral
from the Lien of any such Financing Document" from the second sentence of such
Section.
AMENDMENT TO SECTION 8.1(N). Section 8.1(n) of the Existing Note
Agreement is hereby deleted in its entirety and the following substituted in its
place:
"(D) [INTENTIONALLY OMITTED]"
AMENDMENT TO DEFINITION OF FINANCING DOCUMENTS. Section 9.1 of the
Existing Note Agreement is hereby further amended by deleting the definition of
Financing Documents and substituting in its place the following:
"FINANCING DOCUMENTS - means the Note Purchase Agreements, the Notes,
the Intercreditor Agreement, and the Guaranty Agreements, and in each such
case the other agreements and instruments executed in connection therewith,
as each may be amended, restated or modified from time to time."
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AMENDMENT TO DEFINITION OF GUARANTY AGREEMENTS. Section 9.1 of the
Existing Note Agreement is hereby further amended by deleting the definition of
Guaranty Agreements and substituting in its place the following:
"GUARANTY AGREEMENTS -- means, collectively, (i) the Unconditional
Guaranty, (ii) the Guaranty Agreement dated as of November 3, 1993
delivered by Marketing for the benefit of the Noteholders, (iii) the
Guaranty Agreement dated as of May 1, 1995 delivered by Mills for the
benefit of the Noteholders, (iv) the Guaranty Agreement dated as of July
19, 1995 delivered by Limited for the benefit of the Noteholders, and (v)
any other guaranty agreement delivered at any time by a Guarantor pursuant
to the terms of Section 6.21 of this Agreement, as any of the foregoing may
be amended, modified or supplemented from time to time in accordance with
its terms."
AMENDMENT TO DEFINITION OF RESTRICTED INVESTMENT. Section 9.1 of the
Existing Note Agreement is hereby further amended by deleting clause (l) of the
definition of Restricted Investment and substituting in its place the following:
"(l) investments constituting (x) loans and advances to employees
made in the ordinary course of business and consistent with the practices
of the Parent or the Company, as the case may be, existing on the 8.46%
Note Closing Date and (y) other loans or advances made by the Parent and/or
the Company in an aggregate amount not to exceed $10,000,000 at any time
outstanding to its officers so long as the proceeds of such loans or
advances are used for the purposes of purchasing capital stock of the
Parent or the Company, as the case may be, under any stock option plan
sponsored by Industries and paying any tax liabilities incurred by such
officers in connection with the exercise of their rights pursuant to any
such stock option plan and in which such capital stock the officer has
granted a security interest to the Parent or the Company, as the case may
be, to secure such loan or advance."
AMENDMENT TO DEFINITION OF TOTAL RESTRICTED SUBSIDIARY DEBT. Section
9.1 of the Existing Note Agreement is hereby further amended by deleting clause
(a) of the definition of Total Restricted Subsidiary Debt and substituting in
its place the following:
"(a) the aggregate principal amount of all unsecured Indebtedness of
all Restricted Subsidiaries outstanding at such time other than (i) subject
to compliance with Section 10.1 hereof, Indebtedness under Guaranties by
any Restricted Subsidiary of Indebtedness of the Company, the Parent or
another Restricted Subsidiary and (ii) Indebtedness owing by a Restricted
Subsidiary to any other Restricted Subsidiary, the Company or the Parent,
and"
AMENDMENT TO DEFINED TERMS. Section 9.1 of the Existing Note
Agreement is hereby further amended by deleting therefrom the definitions of
"Collateral", "Collateral Agent",
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"Company Security Agreement", "Horizon Security Agreement", "Limited Security
Agreement" and "Parent Security Agreement".
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EXHIBIT 23(B)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Mohawk Industries, Inc.:
We consent to the use of our report incorporated herein by reference in the Form
S-3 and to the reference to our firm under the headings "Selected Financial
Data" and "Experts" in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 5, 1998
