<PAGE>
Filed with the Securities and Exchange Commission on April 28, 1999
Registration No. 333-
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- --------------------------------------------------------------------------------
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 of (I.R.S. Employer Identification Number)
incorporation or organization)
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
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
(404) 881-7000
----------------
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
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, please check the following box: [X]
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: [_]
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Shares to be Amount to be Offering Price Offering Registration
Registered Registered Per Share(1) Price(1) Fee
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<S> <C> <C> <C> <C>
Common Stock............ 3,149,999 $31.0938 $97,945,438.91 $27,229
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
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, as amended, 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. The +
+securities may not be sold until the Registration Statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell the securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated April 28, 1999
PROSPECTUS
3,149,999 Shares
Mohawk Industries, Inc.
COMMON STOCK
The stockholders of Mohawk Industries, Inc. listed below are offering and
selling 3,149,999 shares of Mohawk's common stock under this prospectus.
The selling stockholders obtained their shares of Mohawk common stock in
connection with the merger of Durkan Acquisition Corp., a wholly owned
subsidiary of Mohawk, with and into Durkan Patterned Carpets, Inc. and the
merger of Nonpareil Acquisition Corp., a wholly owned subsidiary of Mohawk,
with and into Nonpareil Dyeing & Finishing, Inc. Some or all of the selling
stockholders expect to sell their shares.
The selling stockholders may offer their Mohawk common stock through public or
private transactions, on or off the New York Stock Exchange, at prevailing
market prices, or at privately negotiated prices.
Mohawk stock is listed on the New York Stock Exchange and trades under the
ticker symbol: "MHK." On April 27, 1999, the closing price of one share of
Mohawk common stock on the New York Stock Exchange was $32.25.
Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page 3.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
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The date of this prospectus is , 1999.
<PAGE>
THE COMPANY
Mohawk is the second largest producer of woven and tufted broadloom carpet and
rugs for residential and commercial applications in the world. We design,
manufacture and market broadloom carpet and rugs across a broad range of
colors, textures and patterns, targeting all price points and emphasizing
quality, style, performance and service. We market our products through all
distribution channels, including carpet retailers, home centers, mass
merchandisers, department stores, commercial dealers and some commercial end
users.
Our principal executive offices are located at 160 South Industrial Boulevard,
Calhoun, Georgia 30701 and our telephone number is (706) 629-7721.
Recent Acquisitions.
Durkan Patterned Carpets, Inc.
On March 9, 1999, we acquired Durkan Patterned Carpets, Inc. and Nonpareil
Dyeing & Finishing, Inc. from their respective shareholders, all of whom are
selling stockholders named in this prospectus. After the acquisition, the
operations of Nonpareil were merged into Durkan. Throughout this prospectus,
references to Durkan include references to Nonpareil. Durkan is a leading
supplier of commercial carpet to the hospitality market. As a result of the
acquisition, Durkan has become our wholly owned subsidiary and we have issued
to the selling stockholders Three Million One Hundred Forty-Nine Thousand Nine
Hundred Ninety-Nine (3,149,999) shares of Mohawk common stock, which are the
shares offered hereby. The acquisition has been accounted for as a pooling-of-
interests. As a result, our supplemental consolidated financial statements
included in this prospectus reflect the historical consolidated financial
statements which have been restated to include the accounts and results of
operations of Durkan and Nonpareil.
Image Industries, Inc.
On January 29, 1999, we acquired certain assets and assumed certain liabilities
of Image Industries, Inc. and The Maxim Group, Inc. Image was a leading plastic
recycler and carpet manufacturer, which primarily manufactured polyester
residential carpet. Image had vertically integrated its manufacturing process
into the extrusion of polyester fiber from discarded plastic soda bottles and
other sources of post-consumer plastics. We intend to continue those
operations. The acquisition will be accounted for as a purchase.
2
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS WHEN EVALUATING AN INVESTMENT IN SHARES OF
MOHAWK COMMON STOCK.
Risks Related To Acquisitions.
We intend to pursue acquisitions of complementary businesses as part of our
business and growth strategies. Although we regularly evaluate acquisition
opportunities, we cannot offer assurance that we will be able to:
.successfully identify suitable acquisition candidates
.obtain sufficient financing on acceptable terms to fund acquisitions
.complete acquisitions
.integrate acquired operations into our existing operations, or
.profitably manage acquired businesses.
Acquired operations may not achieve levels of sales, operating income or
productivity comparable to those of our existing operations, or otherwise
perform as expected. Acquisitions may also involve a number of special risks,
some or all of which could have a material adverse effect on our business,
results of operations and financial condition, including, among others:
.possible adverse effects on our operating results
.diversion of our management's attention and our resources, and
.dependence on retaining and training acquired key personnel.
The Carpet Industry is Cyclical.
The carpet industry is cyclical and is influenced by a number of general
economic factors. Prevailing interest rates, consumer confidence in spending
for durable goods and disposable income all have an impact on our growth and
profitability. In addition, sales of our principal products are related to the
construction and renovation of commercial and residential buildings. Any
adverse cycle could lessen the overall demand for our products and could, in
turn, impair our growth and profitability.
The Carpet Business is Seasonal.
We are a calendar year end company and our results for the first quarter tend
to be the weakest. Our second, third and fourth quarters typically produce
higher net sales and operating income. These results are primarily due to
consumer residential spending patterns and more carpet being installed during
the spring and summer months.
Our Business is Competitive.
We operate in a highly competitive industry. We and other manufacturers in the
carpet industry compete on the basis of price, style, quality and service. Some
of our competitors have greater financial resources at their disposal. We have
one competitor whose size could allow it certain
3
<PAGE>
manufacturing cost advantages compared to other industry participants. If our
competitors substantially increase production and marketing of competing
products, then we might be required to lower our prices or spend more on
product development, marketing, and sales, either of which could adversely
affect our profitability.
An Increase in the Costs of Raw Materials Could Negatively Impact Our
Profitability.
The cost of raw materials has a significant impact on the profitability of our
company. In particular, our business requires us to purchase large volumes of
nylon fiber and polypropylene resin, which is used to manufacture fiber. We do
not have any long-term supply contracts for any of these products. While we
generally attempt to match cost increases with price increases, large increases
in the cost of such raw materials could adversely affect our business, results
of operations and financial condition if we are unable to pass these costs
through to our customers.
We May Incur Significant Costs to Make Our Systems "Year 2000" Compliant.
Through our restructuring efforts over the past three years, we have installed
new information technology systems throughout all of our organization, all of
which are Year 2000 compliant. In addition, we have concluded our
identification of all other significant information technology systems that are
not Year 2000 compliant. We have completed our review of our equipment and
software with the respective vendors from whom we purchased the equipment and
software to address any noncompliance issues. We have identified certain Year
2000 issues with respect to our business systems. We have formed a committee of
employees familiar with our information technology systems and they have
assessed and prioritized the need to act, on the basis of each system's
importance to us, to ensure that our business systems will be made Year 2000
compliant. We have also completed a review of all process control systems, both
proprietary and non-proprietary. This review revealed that certain Year 2000
issues exist. Although we can provide no assurances, we estimate that it will
cost no more than approximately $500,000 of incremental costs to make our
business systems Year 2000 compliant. These upgrades have been substantially
completed, and the upgrades that are still in process will be completed in the
second quarter of 1999. Testing of these upgrades is underway and will be
completed in the third quarter of 1999.
We have completed the review of our top suppliers and customers to determine
their progress in becoming Year 2000 compliant. Our review indicated that all
of our major suppliers and customers appear to be in the process of resolving
any of their Year 2000 compliance issues and that they do not foresee any
material problems. We continue to follow-up with all of our suppliers and
customers to insure that all potential problems, including those of our
individual plant locations and local suppliers, are managed correctly.
If we cannot successfully and timely resolve our Year 2000 issues, our
business, results of operations and financial condition could be materially
adversely affected. We have not developed a contingency plan in the event of a
Year 2000 problem, however, based upon the results of our internal review, we
do not believe a contingency plan is necessary. We will, however, continue to
evaluate the need for a contingency plan.
4
<PAGE>
We May Be Responsible for Environmental Cleanup Costs.
Various federal, state and local environmental laws govern the use of our
facilities. Such laws govern:
. Discharges to air and water
. Handling and disposal of solid and hazardous substances and waste, and
. Remediation of contamination from releases of hazardous substances in our
facilities and off-site disposal locations.
Our operations are also governed by laws relating to workplace safety and
worker health which, among other things, establish asbestos and noise standards
and regulate the use of hazardous chemicals in the workplace. We have taken and
will continue to take steps to comply with these laws. Based upon currently
available information, we believe that complying with environmental and safety
and health requirements will not require material capital expenditures in the
foreseeable future. However, we cannot assure you that complying with these
environmental or health and safety laws and requirements will not adversely
affect our business, results of operations and financial condition. Future
laws, ordinances or regulations could give rise to additional compliance or
remediation costs which could have a material adverse affect on our business,
results of operations and financial condition.
USE OF PROCEEDS
All net proceeds from the sale of the shares of our common stock will go to the
selling stockholders who offer and sell their shares. Accordingly, we will not
receive any proceeds from sales of the shares of Mohawk common stock offered by
this prospectus.
5
<PAGE>
SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth the selected financial data of Mohawk for the
periods indicated, derived from Mohawk's consolidated financial statements. On
February 25, 1994, we exchanged 20.3 million shares of common stock for all of
the outstanding shares of Aladdin Mills, Inc. common stock in a transaction
accounted for as a pooling-of-interests. All financial data were restated to
include the accounts and results of operations of Aladdin. On January 13, 1995,
we acquired all of the outstanding capital stock of Galaxy Carpet Mills, Inc.
The operating results of Galaxy are included in the 1995 consolidated statement
of earnings from the date of its acquisition. On July 23, 1997, we acquired
certain assets of Diamond Rug & Carpet Mills, Inc. and other assets owned by
Diamond's principal shareholders. The acquisitions of Galaxy and Diamond were
accounted for as purchases. On November 12, 1998, we acquired all of the
outstanding capital stock of World Carpets, Inc. in exchange for approximately
4.9 million shares of the Company's common stock. On November 12, 1998, the
Securities and Exchange Commission declared effective a shelf registration
statement to register for resale approximately 4.9 million shares of Company
common stock issued in connection with the merger. The historical consolidated
financial statements have been restated to give retroactive effect to the World
merger. The World merger has been accounted for as a pooling-of-interests in
the accompanying consolidated financial statements. On January 29, 1999, we
acquired certain assets and assumed certain liabilities of Image. This
acquisition will be accounted for as a purchase and its results will be
included in our consolidated financial statements from the date of acquisition.
On March 9, 1999, we acquired all of the capital stock of Durkan in exchange
for approximately 3.1 million shares of our common stock. The Durkan merger is
being accounted for as a pooling-of-interests in the accompanying supplemental
consolidated financial statements and the historical consolidated financial
statements have been restated to give retroactive effect to the Durkan merger.
On April 28, 1999 the Company filed a shelf registration statement with the
Securities and Exchange Commission to register for resale approximately 3.1
million shares of Company common stock issued in connection with the Durkan
merger. 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 and incorporated by reference elsewhere herein.
6
<PAGE>
<TABLE>
<CAPTION>
At or for the Years ended December 31,
--------------------------------------------------
1994 1995 1996 1997 1998
---------- --------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of earnings data:
Net sales................... $1,778,068 2,041,865 2,239,471 2,429,085 2,745,000
Cost of sales(a)............ 1,380,689 1,594,050 1,726,765 1,869,221 2,060,816
---------- --------- --------- --------- ---------
Gross profit............... 397,379 447,815 512,706 559,864 684,184
Selling, general and admin-
istrative expenses......... 284,156 348,278 367,251 383,523 435,254
Restructuring costs(b)...... -- 8,439 700 -- --
Carrying value reduction of
property, plant and
equipment and other
assets(c).................. -- 23,711 3,060 5,500 2,900
Compensation expense for
stock option exercises(d).. -- 4,000 -- 2,600 --
---------- --------- --------- --------- ---------
Operating income........... 113,223 63,387 141,695 168,241 246,030
---------- --------- --------- --------- ---------
Interest expense............ 32,798 42,398 39,772 36,474 31,023
Acquisition costs--Aladdin
and World Mergers(e)....... 10,201 -- -- -- 17,700
Other expense, net.......... 697 1,170 4,586 338 2,501
---------- --------- --------- --------- ---------
43,696 43,568 44,358 36,812 51,224
---------- --------- --------- --------- ---------
Earnings before income
taxes...................... 69,527 19,819 97,337 131,429 194,806
Income taxes(f)............. 28,352 8,022 40,395 51,866 79,552
---------- --------- --------- --------- ---------
Net earnings............... $ 41,175 11,797 56,942 79,563 115,254
========== ========= ========= ========= =========
Basic earnings per
share(g)................... $ 0.73 0.21 0.96 1.33 1.91
========== ========= ========= ========= =========
Weighted-average common
shares outstanding(g)...... 56,718 57,235 59,310 59,962 60,393
========== ========= ========= ========= =========
Diluted earnings per
share(g)................... $ 0.71 0.20 0.95 1.32 1.89
========== ========= ========= ========= =========
Weighted-average common and
dilutive potential common
shares outstanding(g)...... 58,111 58,485 59,899 60,453 61,134
========== ========= ========= ========= =========
Balance sheet data:
Working capital............. $ 353,354 305,370 390,889 389,378 422,911
Total assets................ 1,038,947 1,110,438 1,226,959 1,233,361 1,388,942
Short-term note payable..... -- 50,000 21,200 -- --
Long-term debt (including
current portion)........... 473,902 435,940 486,952 402,854 377,089
Stockholders' equity........ 327,426 343,452 409,616 493,841 611,059
</TABLE>
- --------
(a) Certain of Mohawk's facilities suffered damage during a March 1993
blizzard, and we finalized settlement of the insurance claim during the
first quarter of 1994. We recorded a reduction of $6.0 million in cost of
sales in 1994 for reimbursements of business interruption costs.
(b) During 1995 and 1996, we recorded pre-tax restructuring costs of $8.4
million and $0.7 million, respectively, related to certain mill closings
whose operations have been consolidated into other Mohawk facilities.
(c) During 1995, Mohawk 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, we recorded a charge of $3.1 million 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. During 1997, we
recorded a charge of $5.5 million arising from a revision in the estimated
fair value of certain property, plant and equipment held for sale based on
current appraisals and other market information related to a mill closing
in 1995. During 1998, we recorded a charge of $2.9 million for the write-
down of assets to be disposed of relating to the acquisition of World.
(d) Charges of $4.0 million and $2.6 million were recorded in 1995 and 1997,
respectively, 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 Mohawk's 1988 leveraged buyout.
(e) Mohawk recorded a one-time charge of $10.2 million and $17.7 million in
1994 and 1998 for transaction expenses related to the Aladdin and World
mergers, respectively.
(f) During 1994, we reduced income tax expense by $2.0 million to reflect a
reduction in our effective tax rate and certain other changes in our
federal and state income tax status.
(g) Our board of directors declared a 3-for-2 stock split on October 23, 1997,
which was paid on December 4, 1997 to holders of record on November 4,
1997. Earnings per share and weighted-average common share data have been
restated to reflect the split.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SUPPLEMENTAL FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Since January 1, 1996, we continued to experience significant growth both
internally and through acquisitions. On July 23, 1997, we acquired certain
assets of Diamond and other assets owned by Diamond's principal shareholders
for $36.0 million, including acquisition costs, 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 6.0%. The Diamond acquisition was accounted for
as a purchase. On November 12, 1998, the Company acquired all of the
outstanding capital stock of World in exchange for approximately 4.9 million
shares of the Company's common stock. The World merger was accounted for as a
pooling-of-interests in the consolidated financial statements of Mohawk. On
January 29, 1999, we acquired certain assets of Image for approximately $193
million, including acquisition costs and the assumption of $30 million of tax
exempt debt. On March 9, 1999, we acquired all of the outstanding capital stock
of Durkan in exchange for approximately 3.1 million shares of the Company's
common stock. On April 28, 1999 a registration statement was filed with the
Securities and Exchange Commission to register for resale approximately 3.1
million shares of Mohawk common stock issued in connection with the Durkan
merger. The supplemental consolidated financial statements have been restated
to give retroactive effect to the Durkan merger. The Durkan merger is being
accounted for as a pooling-of-interests in the consolidated financial
statements of Mohawk.
These acquisitions have created and will create 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.
Through our restructuring efforts over the past three years, we have installed
new information technology systems throughout all of our organization, all of
which are Year 2000 compliant. In addition, we have concluded our
identification of all other significant information technology systems that are
not Year 2000 compliant. We have completed our review of our equipment and
software with the respective vendors from whom we purchased the equipment and
software to address any noncompliance issues. We have identified certain Year
2000 issues with respect to our business systems. We have formed a committee of
employees familiar with our information technology systems and they have
assessed and prioritized the need to act, on the basis of each system's
importance to us, to ensure that our business systems will be made Year 2000
compliant. We have also completed a review of all process control systems, both
proprietary and non-proprietary. This review revealed that certain Year 2000
issues exist. Although we can provide no assurances, we estimate that it will
cost no more than approximately $500,000 of incremental costs to make our
business systems Year 2000 compliant. These upgrades have been substantially
completed, and the upgrades that are still in process will be completed in the
second quarter of 1999. Testing of these upgrades is underway and will be
completed in the third quarter of 1999.
We have completed the review of our top suppliers and customers to determine
their progress in becoming Year 2000 compliant. Our review indicated that all
of our major suppliers and customers appear to be in the process of resolving
any of their Year 2000 compliance issues and that they do
8
<PAGE>
not foresee any material problems. We continue to follow-up with all of our
suppliers and customers to insure that all potential problems, including those
of our individual plant locations and local suppliers, are managed correctly.
If we cannot successfully and timely resolve our Year 2000 issues, our
business, results of operations and financial condition could be materially
adversely affected. We have not developed a contingency plan in the event of a
Year 2000 problem, however, based upon the results of our internal review, we
do not believe a contingency plan is necessary. We will, however, continue to
evaluate the need for a contingency plan.
Results of Operations
Year Ended December 31, 1998 As Compared With Year Ended December 31, 1997
Net sales for the year ended December 31, 1998 were $2,745.0 million,
reflecting an increase of $315.9 million, or approximately 13.0%, over the
$2,429.1 million reported in the year ended December 31, 1997. All major
product categories achieved sales increases in 1998 as compared to 1997. These
sales increases were impacted by continued favorable industry conditions and a
gain in the Company's market share which the Company believes primarily
resulted from continued emphasis on supporting its dealers and strong customer
acceptance of new product introductions.
Quarterly net sales and the percentage changes in net sales by quarter for
1998 versus 1997 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998 Change
---------- --------- ------
<S> <C> <C> <C>
First Quarter....................................... $ 537,145 589,521 9.8%
Second Quarter...................................... 607,059 689,369 13.6
Third Quarter....................................... 626,751 718,899 14.7
Fourth Quarter...................................... 658,130 747,211 13.5
---------- --------- ----
Total Year........................................ $2,429,085 2,745,000 13.0%
========== ========= ====
</TABLE>
Gross profit for 1998 was $684.2 million (24.9% of net sales) and represented
an increase over the gross profit of $559.9 million (23.0% of net sales) for
1997. Gross profit dollars for the current year were impacted favorably by
better absorption of fixed costs through higher production volume and continued
improvements in manufacturing efficiencies from restructuring efforts.
Selling, general and administrative expenses for 1998 were $435.3 million
(15.9% of net sales) compared to $383.5 million (15.8% of net sales) for 1997.
Selling, general and administrative expenses as a percentage of net sales
increased primarily due to higher sample expenses due to the introduction of
new products in 1998.
During the fourth quarter of 1998, the Company recorded a charge of $2.9
million for the write-down of fixed assets to be disposed of in connection with
the World acquisition. Also, a $17.7 million charge was recorded for non-
recurring costs associated with the World acquisition.
During the fourth quarter of 1997, the Company revised its estimate of the
fair value of certain property, plant and equipment held for sale. The revision
resulted in a $5.5 million write-down to the
9
<PAGE>
carrying value of those assets. The revision was based upon current appraisals
and other market information. In addition, a $2.6 million charge was recorded
for additional 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.
Interest expense for the current year was $31.0 million compared to $36.5
million in 1997. The primary factor contributing to the decrease was a
significant reduction in debt levels.
In the current year, income tax expense was $79.6 million, or 40.8% of
earnings before income taxes. In 1997, income tax expense was $51.9 million,
representing 39.5% of earnings before income taxes. The primary reason for the
increase in the 1998 effective income tax rate is that certain costs included
in the non recurring pre-tax charge of $17.7 million related to the World
acquisition are not deductible for income tax purposes.
Year Ended December 31, 1997 As Compared With Year Ended December 31, 1996
Net sales for the year ended December 31, 1997 were $2,429.1 million,
reflecting an increase of $189.6 million, or approximately 9.0%, over the
$2,239.5 million reported in the year ended December 31, 1996. All major
product categories achieved sales increases in 1997 as compared to 1996. These
sales increases were attributable to an improvement in our market share which
we believe primarily resulted from competitive changes in the retail segment of
the industry, 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.
Quarterly net sales and the percentage changes in net sales by quarter for 1997
versus 1996 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997 Change
---------- --------- ------
<S> <C> <C> <C>
First Quarter.................................... $ 488,549 537,145 9.9%
Second Quarter................................... 577,866 607,059 5.1
Third Quarter.................................... 579,814 626,751 8.1
Fourth Quarter................................... 593,242 658,130 10.9
---------- --------- ----
Total Year..................................... $2,239,471 2,429,085 8.5%
========== ========= ====
</TABLE>
Gross profit for 1997 was $559.9 million (23.0% of net sales) and represented
an increase over the gross profit of $512.7 million (22.9% of net sales) for
1996. Gross profit dollars for 1997 were impacted favorably by manufacturing
improvements from restructuring and consolidating the residential operations,
higher production levels resulting in better absorption of fixed costs and a
reduction in certain raw material prices.
Selling, general and administrative expenses for 1997 were $383.5 million
(15.8% of net sales) compared to $367.3 million (16.4% of net sales) for 1996.
Selling, general and administrative expenses as a percentage of net sales
decreased primarily due to lower administrative, bad debt and sample expenses.
During the fourth quarter of 1997, we revised our estimate of the fair value of
certain property, plant and equipment held for sale. The revision resulted in a
$5.5 million write-down to the carrying value
10
<PAGE>
of those assets. The revision was based upon current appraisals and other
market information. In addition, a $2.6 million charge was recorded for
additional 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 our 1988
leveraged buyout.
During 1996, we 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 recently sold and (ii)
$0.7 million related to restructuring costs for the Belton spinning mill
closing.
Interest expense for 1997 was $36.5 million compared to $39.8 million in 1996.
The primary factor contributing to the decrease was a significant reduction in
debt levels.
In 1997, income tax expense was $51.9 million, or 39.5% of earnings before
income taxes. In 1996, income tax expense was $40.4 million, representing 41.5%
of earnings before income taxes.
Liquidity and Capital Resources
Our primary capital requirements are for working capital, capital expenditures
and acquisitions. Our 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 $299.5 million at the beginning
of 1998 to $331.6 million at the end of 1998. The $32.1 million increase is
attributable to strong sales growth. Inventories increased from $377.9 million
at the beginning of 1998 to $423.8 million at the end of 1998, due primarily to
acquisitions and the need for a higher level of inventory to meet the increased
sales volume.
Capital expenditures totaled $83.2 million during 1998, and the Company spent
an additional $36.6 million related to the acquisitions of Newmark & James Inc.
and American Weavers, LLC. The capital expenditures made during 1998 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 equipment used for the extrusion of
polypropylene yarn that was acquired in a noncash transaction in 1996 and $72.8
million for acquisitions, have totaled $280.5 million over the past three
years. Capital spending during 1999 is expected to range from $145 million to
$155 million, the majority of which will be used to purchase equipment to
increase production capacity and productivity. This amount excludes the $193
million that was paid in January 1999 to purchase Image.
On January 28, 1999, the Company amended and restated its revolving credit
agreement to increase total availability to $450 million, comprised of the
Tranche A commitment of $250 million due on January 28, 2004 and the Tranche B
commitment of $200 million due on January 27, 2000.
Impact of Inflation
Inflation affects our 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. We have generally passed along
nylon fiber price increases to our customers.
11
<PAGE>
Seasonality
The carpet business is seasonal, with our second, third and fourth quarters
typically producing higher net sales and operating income than the first
quarter. This seasonality is primarily attributable to consumer residential
spending patterns and higher installation levels during the spring and summer
months.
Forward-Looking Information
Certain of the matters discussed in the preceding pages, particularly regarding
anticipating future financial performance, business prospects, growth and
operating strategies, proposed acquisitions, new products, Year 2000 compliance
and similar matters, and those preceded by, followed by or that otherwise
include the words "believes," "expects," "anticipates," "intends," "estimates,"
or similar expressions constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended. For those
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve a number of risks and uncertainties. The
following important factors, in addition to those discussed elsewhere in this
document, affect our future results 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
floorcovering markets served by us; failure of our vendors, customers and
suppliers to timely identify and adequately address Year 2000 compliance
issues; competition from other carpet, rug and floorcovering manufacturers, raw
material prices, timing and level of capital expenditures, the successful
integration of acquisitions including the challenges inherent in diverting our
management attention and resources from other strategic matters and from
operational matters for an extended period of time, the successful introduction
of new products, the successful rationalization of existing operations, and
other risks identified from time to time in our SEC reports and public
announcements.
12
<PAGE>
SELLING STOCKHOLDERS
Under an Escrow Agreement among Mohawk and the selling stockholders, which was
executed at the closing of the merger by us and the selling stockholders, a
portion of the shares of Mohawk common stock issued to the selling stockholders
was placed in escrow with an escrow agent. We may use the escrowed shares to
satisfy our indemnification claims if there is a breach of certain
representations and warranties made in the merger agreement.
We agreed to use our reasonable best efforts to register the shares of Mohawk
common stock issued to the selling stockholders in connection with the Durkan
merger and to use our reasonable efforts to keep the registration statement
effective until the second anniversary of the effective time of the merger or
until all the shares are sold under the registration statement or otherwise,
whichever comes first. Our registration of the shares of Mohawk common stock
does not necessarily mean that the selling stockholders will sell all or any of
the shares. However, we expect some or all of the selling stockholders to sell
their shares.
The following list of selling stockholders includes all of the stockholders
that received shares of Mohawk common stock in connection with the Durkan
merger. The shares listed below represent all of the shares that each selling
stockholder currently owns, including the shares held in escrow.
<TABLE>
<CAPTION>
Shares Shares
Owned Prior to Shares Being Owned After
Selling Stockholder the Offering(1) Offered the Offering(1)
- ------------------- --------------- ------------ ---------------
<S> <C> <C> <C>
Durkan Family Partnership Ltd.
L.P. ........................... 1,231,560 1,231,560 0
Durkan Development, L.P.......... 528,439 528,439 0
Patricia Durkan(2)............... 374,621 374,621 0
Thomas R. Durkan, III(2)......... 374,621 374,621 0
Tara Durkan-Simonds.............. 374,621 374,621 0
Thomas R. Durkan, II(2).......... 266,137 266,137 0
</TABLE>
- --------
(1) Assumes that all of the shares of Mohawk common stock held by the selling
stockholders and being offered under this prospectus are sold, and that the
selling stockholders acquire no additional shares of Mohawk common stock
prior to the completion of this offering.
(2) Prior to the Durkan merger, Thomas R. Durkan, II was the Chairman and Chief
Executive Officer of Durkan, Patricia Durkan was a co-President and the
Chief Operating Officer of Durkan and Thomas R. Durkan, III was a co-
President of Durkan. Currently, Thomas R. Durkan, II is the Chief Executive
Officer of Durkan, Patricia Durkan is a President and the Chief Operating
Officer and Thomas R. Durkan, III is the President-International and
Commercial Divisions.
13
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares of Mohawk common stock on behalf of the Selling
Stockholders. For purposes of this discussion regarding the plan of
distribution, "Selling Stockholders" includes donees and pledgees selling
shares received from a named Selling Stockholder after the date of this
prospectus. We will bear all costs, expenses and fees in connection with the
registration of the shares of Mohawk common stock offered hereby. The Selling
Stockholders will bear brokerage commissions and similar selling expenses, if
any, attributable to the sale of shares of Mohawk common stock. The Selling
Stockholders may sell shares of Mohawk common stock from time to time in one or
more types of transactions (which may include block transactions):
.on the NYSE
.in the over-the-counter market
.in negotiated transactions
.through put or call options transactions relating to the shares of Mohawk
common stock, and
.through short sales or a combination of such methods of sale.
Such transactions may be made at market prices prevailing at the time of sale
or at negotiated prices, and may or may not involve brokers or dealers. The
Selling Stockholders have advised Mohawk that they have not entered into any
agreements, understandings or arrangements with any underwriters or broker-
dealers regarding the sale of their securities, nor is there an underwriter or
coordinating broker acting in connection with the proposed sale of shares of
Mohawk common stock by the Selling Stockholders.
The Selling Stockholders may sell shares of Mohawk common stock directly to
purchasers or to or through broker-dealers, which may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Stockholders and/or the
purchasers of shares of Mohawk common stock for whom such broker-dealers may
act as agents or to whom they sell as principal, or both. Any compensation as
to a particular broker-dealer might be in excess of customary commissions.
The Selling Stockholders and any broker-dealers that act in connection with the
sale of shares of Mohawk common stock might be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act. Any commissions
received by such broker-dealers and any profit on the resale of the shares of
Mohawk common stock sold by them while acting as principals might be deemed to
be underwriting discounts or commissions under the Securities Act. We have
agreed to indemnify each Selling Stockholder against certain liabilities,
including liabilities arising under the Securities Act. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares of Mohawk common
stock against certain liabilities, including liabilities arising under the
Securities Act.
Because Selling Stockholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the Selling Stockholders will
be subject to the prospectus delivery requirements of the Securities Act. Those
delivery requirements may include delivery through the facilities of the NYSE
pursuant to Rule 153 under the Securities Act. We have informed the Selling
14
<PAGE>
Stockholders that the anti-manipulative provisions of Regulation M promulgated
under the Exchange Act may apply to their sales in the market.
Selling Stockholders also may resell all or a portion of the shares of Mohawk
common stock in open market transactions in reliance upon Rule 144 under the
Securities Act, providing they meet the criteria and conform to the
requirements of Rule 144.
If we are notified by a Selling Stockholder that any material arrangement has
been entered into with a broker-dealer for the sale of shares of Mohawk common
stock through:
. a block trade,
. a special offering,
. an exchange distribution,
. a secondary distribution or
. a purchase by a broker or dealer,
then a supplement to this prospectus will be filed, if required, pursuant to
Rule 424(b) under the Act, disclosing:
. the name of each such selling stockholder and of the participating
broker-dealer(s),
. the number of shares involved,
. the price at which such shares were sold,
. the commissions paid or discounts or concessions allowed to such broker-
dealer(s), where applicable,
. that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this prospectus,
and
. other facts material to the transaction.
In addition, upon our being notified by a Selling Stockholder that a donee or
pledgee intends to sell more than 500 shares, a supplement to this prospectus
will be filed.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from the SEC's Internet site at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
15
<PAGE>
incorporate by reference the documents listed below and any future filings,
including any filings after the date of initial filing and prior to the
effectiveness of the registration statement of which this prospectus is a part,
we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act:
1. Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31,
1998;
2. Mohawk's Current Reports on Form 8-K filed with the SEC on February 1, 1999,
February 2, 1999, February 4, 1999, February 19, 1999 and April 22, 1999;
and
3. The description of Mohawk's common stock contained in Mohawk's Registration
Statement on Form 8-A filed on January 29, 1992.
You may request a copy of these filings and any future filings incorporated
herein, at no cost, by writing or telephoning Ms. Barbara Lance, Secretary, at
the following address:
Mohawk Industries, Inc.
160 South Industrial Boulevard
Calhoun, Georgia 30701
(706) 629-7721
This prospectus is part of a registration statement we filed with the SEC. You
should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.
LEGAL OPINION
The validity of the shares of Mohawk common stock offered hereby will be passed
upon for the Company by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The supplemental consolidated and consolidated financial statements and
schedules of Mohawk Industries, Inc. and subsidiaries as of December 31, 1998
and 1997, and for each of the years in the three-year period ended December 31,
1998 have been included or incorporated by reference herein and in the
registration statement in reliance upon the reports of KPMG LLP, independent
auditors, appearing elsewhere herein or incorporated by reference, and upon the
authority of said firm as experts in accounting and auditing.
The financial statements of World Carpets, Inc. and Subsidiary as of June 28,
1998 and for the years ended June 28, 1998 and June 29, 1997, not separately
presented in this prospectus, have been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report thereon appears herein. Such financial
statements, to the extent they have been included in the financial statements
of Mohawk Industries, Inc. and subsidiaries, have been so included in reliance
on the report of such independent accountants given on the authority of said
firm as experts in auditing and accounting.
16
<PAGE>
Index to Mohawk Supplemental Consolidated Financial Statements
<TABLE>
<S> <C>
Independent Auditors' Reports............................................. F-1
Consolidated Balance Sheets as of December 31, 1997 and 1998 ............. F-3
Consolidated Statements of Earnings for the Years Ended December 31, 1996,
1997 and 1998 ........................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended Decem-
ber 31, 1996, 1997 and 1998 ............................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998 ..................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
17
<PAGE>
Independent Auditors' Report
The Board of Directors
Mohawk Industries, Inc.:
We have audited the accompanying supplemental consolidated balance sheets of
Mohawk Industries, Inc. and subsidiaries as of December 31, 1997 and 1998, and
the related supplemental consolidated statements of earnings, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998. These supplemental consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these supplemental consolidated financial statements based on our
audits. We did not audit the consolidated financial statements of World
Carpets, Inc. and Subsidiary, a wholly owned subsidiary, as of June 28, 1998
and for each of the years in the two-year period ended June 28, 1998 (not
presented herein), which financial statements have been combined with those of
Mohawk Industries, Inc. and subsidiaries as of December 31, 1997 and for each
of the years in the two-year period ended December 31, 1997, respectively. The
consolidated financial statements of World Carpets, Inc. and Subsidiary reflect
total assets constituting 18 percent as of December 31, 1997 and total net
sales constituting 17 percent and 18 percent for each of the years in the two-
year period ended December 31, 1997, respectively, of the related consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for World Carpets, Inc. and Subsidiary, is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect to
the merger of Mohawk Industries, Inc. and Durkan Patterned Carpets, Inc. which
has been accounted for as a pooling of interests as described in Note 2 to the
supplemental consolidated financial statements. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling-of-interests method in financial statements that
do not include the date of consummation. These financial statements do not
extend through the date of consummation. However, they will become the
historical consolidated financial statements of Mohawk Industries, Inc. and
subsidiaries after financial statements covering the date of consummation of
the business combination are issued.
In our opinion, based on our audits and the report of the other auditors, the
supplemental consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mohawk Industries,
Inc. and subsidiaries as of December 31, 1997 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted
accounting principles applicable after financial statements are issued for a
period which includes the date of consummation of the business combination.
/s/ KPMG LLP
Atlanta, Georgia
April 6, 1999
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Shareholders of
World Carpets, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of changes in shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of World
Carpets, Inc. and its subsidiary (the "Company") at June 28, 1998, and the
results of their operations and their cash flows for the years ended June 28,
1998 and June 29, 1997 (not presented separately herein), in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of the Company for any period
subsequent to June 28, 1998.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
September 21, 1998
F-2
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 220 2,384
Receivables............................................. 299,482 331,574
Inventories............................................. 377,888 423,837
Prepaid expenses........................................ 15,767 21,605
Deferred income taxes................................... 39,082 52,304
---------- ---------
Total current assets.................................. 732,439 831,704
Property, plant and equipment, net........................ 423,024 454,897
Other assets.............................................. 77,898 102,341
---------- ---------
$1,233,361 1,388,942
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and note payable...... $ 43,506 44,424
Accounts payable and accrued expenses................... 299,555 364,369
---------- ---------
Total current liabilities............................. 343,061 408,793
Deferred income taxes..................................... 30,820 31,045
Long-term debt, less current portion...................... 359,348 332,665
Other long-term liabilities............................... 6,291 5,380
---------- ---------
Total liabilities..................................... 739,520 777,883
---------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; 60 shares authorized;
no shares issued....................................... -- --
Common stock, $.01 par value; 150,000 shares authorized;
60,217 and 60,533 shares issued in 1997 and 1998,
respectively........................................... 603 606
Additional paid-in capital.............................. 167,388 172,045
Retained earnings....................................... 325,850 438,408
---------- ---------
Total stockholders' equity............................ 493,841 611,059
Commitments and contingencies (Notes 10 and 13)...........
---------- ---------
$1,233,361 1,388,942
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1996 1997 1998
---------- --------- ---------
<S> <C> <C> <C>
Net sales...................................... $2,239,471 2,429,085 2,745,000
Cost of sales.................................. 1,726,765 1,869,221 2,060,816
---------- --------- ---------
Gross profit................................. 512,706 559,864 684,184
Selling, general and administrative expenses... 367,251 383,523 435,254
Restructuring costs............................ 700 -- --
Carrying value reduction of property, plant and
equipment and other assets.................... 3,060 5,500 2,900
Compensation expense for stock option
exercises..................................... -- 2,600 --
---------- --------- ---------
Operating income............................. 141,695 168,241 246,030
---------- --------- ---------
Other expense:
Interest expense............................. 39,772 36,474 31,023
Acquisition costs--World Merger.............. -- -- 17,700
Other expense, net........................... 4,586 338 2,501
---------- --------- ---------
44,358 36,812 51,224
---------- --------- ---------
Earnings before income taxes................. 97,337 131,429 194,806
Income taxes................................... 40,395 51,866 79,552
---------- --------- ---------
Net earnings................................. $ 56,942 79,563 115,254
========== ========= =========
Basic earnings per share....................... $ 0.96 1.33 1.91
========== ========= =========
Weighted-average common shares outstanding..... 59,310 59,962 60,393
========== ========= =========
Diluted earnings per share..................... $ 0.95 1.32 1.89
========== ========= =========
Weighted-average common and dilutive potential
common shares outstanding..................... 59,899 60,453 61,134
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
Common stock
-------------
Additional Total
paid-in Retained Treasury Stock stockholders'
Shares Amount capital earnings stock options equity
------ ------ ---------- -------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1995................... 56,491 $565 150,646 185,668 (115) (317) 336,447
Pooling of Durkan....... 3,150 32 3,248 3,725 -- -- 7,005
Stock options
exercised.............. 116 1 1,207 -- 115 -- 1,323
Dividends paid.......... -- -- -- (24) -- -- (24)
Tax benefit from
exercise of stock
options................ -- -- 7,606 -- -- -- 7,606
Amortization of deferred
compensation........... -- -- -- -- -- 317 317
Net earnings............ -- -- -- 56,942 -- -- 56,942
------ ---- ------- ------- ---- ---- -------
Balances at December 31,
1996................... 59,757 598 162,707 246,311 -- -- 409,616
Stock options
exercised.............. 460 5 3,631 -- -- -- 3,636
Dividends paid.......... -- -- -- (24) -- -- (24)
Tax benefit from
exercise of stock
options................ -- -- 1,050 -- -- -- 1,050
Net earnings............ -- -- -- 79,563 -- -- 79,563
------ ---- ------- ------- ---- ---- -------
Balances at December 31,
1997................... 60,217 603 167,388 325,850 -- -- 493,841
Stock options
exercised.............. 316 3 4,414 -- -- -- 4,417
Dividends paid.......... -- -- -- (24) -- -- (24)
Tax benefit from
exercise of stock
options................ -- -- 243 -- -- -- 243
Adjustments to conform
fiscal year end of
World.................. -- -- -- (2,672) -- -- (2,672)
Net earnings............ -- -- -- 115,254 -- -- 115,254
------ ---- ------- ------- ---- ---- -------
Balances at December 31,
1998................... 60,533 $606 172,045 438,408 -- -- 611,059
====== ==== ======= ======= ==== ==== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings..................................... $56,942 79,563 115,254
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................... 66,277 72,893 72,591
Deferred income taxes........................... 4,340 (3,109) (13,420)
Provision for doubtful accounts................. 13,070 8,458 13,173
(Gain) loss on sale of property, plant and
equipment...................................... 1,827 (440) 2,121
Carrying value reduction of property, plant and
equipment and other assets..................... 3,060 5,500 2,900
Compensation expense for stock option
exercises...................................... -- 2,600 --
Changes in assets and liabilities, net of
effects of acquisitions:
Receivables.................................... (68,896) (33,720) (36,523)
Inventories.................................... (13,508) 23,610 (31,083)
Accounts payable and accrued expenses.......... 3,291 29,953 57,295
Other assets and prepaid expenses.............. (7,632) 1,479 (8,427)
Other liabilities.............................. 4,868 (2,571) (1,673)
------- -------- --------
Net cash provided by operating activities..... 63,639 184,216 172,208
------- -------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment and other assets...................... 4,192 2,168 --
Additions to property, plant and equipment....... (55,652) (47,625) (83,180)
Acquisitions..................................... (2,122) (34,141) (36,574)
Other............................................ 159 895 --
------- -------- --------
Net cash used in investing activities......... (53,423) (78,703) (119,754)
------- -------- --------
Cash flows from financing activities:
Net change in revolving line of credit........... (26,428) (83,376) 83,658
Payment of note payable.......................... -- (21,200) --
Payments on term loans........................... (16,133) (22,896) (38,554)
Redemption of acquisition indebtedness........... -- -- (102,201)
Proceeds from new loan........................... 24,681 10,661 --
Proceeds from Industrial Revenue Bonds and other,
net of payments................................. (1,000) 11,593 11,329
Change in outstanding checks in excess of cash... (391) (5,841) (6,486)
Dividends paid................................... (24) (24) (24)
Common stock transactions........................ 9,246 4,686 1,988
------- -------- --------
Net cash used in financing activities......... (10,049) (106,397) (50,290)
------- -------- --------
Net change in cash............................ 167 (884) 2,164
Cash, beginning of year........................... 937 1,104 220
------- -------- --------
Cash, end of year................................. $ 1,104 220 2,384
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998
(In thousands, except per share data)
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements include the accounts of Mohawk
Industries, Inc. and its subsidiaries (the "Company" or "Mohawk"). All
significant intercompany balances and transactions have been eliminated in
consolidation. On November 12, 1998, the Company acquired all of the
outstanding capital stock of World Carpets, Inc. ("World") in exchange for
approximately 4,900 shares of the Company's common stock ("World Merger"). On
November 12, 1998, the Securities and Exchange Commission declared effective a
shelf registration statement to register for resale approximately 4,900 shares
of Company common stock issued in connection with the World Merger. The
historical consolidated financial statements have been restated to give
retroactive effect to the World Merger. The World Merger is being accounted for
as a pooling-of-interests in the accompanying consolidated financial
statements. On March 9, 1999, the Company acquired all of the capital stock of
Durkan Patterned Carpets, Inc. ("Durkan") for approximately 3,150 shares of the
Company's common stock ("Durkan Merger"). On April 28, 1999 a shelf
registration statement was filed with the Securities and Exchange Commission to
register for resale approximately 3,150 shares of the Company's common stock in
connection with the Durkan Merger. The historical consolidated financial
statements have been restated to give retroactive effect to the Durkan Merger.
The Durkan Merger is being accounted for as a pooling-of-interests in the
accompanying consolidated financial statements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(b) Accounts Receivable and Revenue Recognition
The Company is a broadloom carpet and rug manufacturer and sells carpet and
rugs throughout the United States for principally residential use. The Company
grants credit to customers, most of whom are retail carpet dealers, under
credit terms that are customary in the industry.
Revenues are recognized when goods are shipped. The Company provides allowances
for expected cash discounts, returns, claims and doubtful accounts based upon
historical bad debt and claims experience and periodic evaluations of the aging
of the accounts receivable.
(c) Inventories
Inventories are stated at the lower of cost or market (net realizable value).
Cost is determined using the last-in, first-out (LIFO) method, which matches
current costs with current revenues, for substantially all inventories and the
first-in, first-out (FIFO) method for the remaining inventories.
F-7
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) Property, Plant and Equipment
Property, plant and equipment is stated at cost, including interest on funds
borrowed to finance the acquisition or construction of major capital additions.
Depreciation is calculated on a straight-line basis over the estimated
remaining useful lives of the respective assets.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(f) Earnings per Share ("EPS")
The Company applies the provisions of Financial Accounting Standards Board
("FASB") FAS No. 128, Earnings per Share, which requires companies to present
basic EPS and diluted EPS. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company.
The Company's weighted-average common and dilutive potential common shares
outstanding have been adjusted for the 3-for-2 stock split approved by the
Board of Directors on October 23, 1997 and paid on December 4, 1997 to holders
of record on November 4, 1997 and the World and Durkan mergers. Dilutive common
stock options are included in the diluted EPS calculation using the treasury
stock method. Common stock options that were not included in the diluted EPS
computation because the options' exercise price was greater than the average
market price of the common shares for the periods presented are immaterial.
(g) Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable, notes payable and long-term debt. The carrying
amount of cash, accounts receivable, accounts payable and notes payable
approximates their fair value because of the short-term maturity of such
instruments. Interest rates that are currently available to the Company for
issuance of long-term debt with similar terms and remaining maturities are used
to estimate the fair value of the Company's long-term debt. The estimated fair
value of the Company's long-term debt at December 31, 1997 and 1998 was
$413,964 and $384,242, compared to a carrying amount of $402,854 and $377,089,
respectively.
F-8
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(h) Fiscal Year
The Company ends its fiscal year on December 31. Each of the first three
quarters in the fiscal year ends on the Saturday nearest the calendar quarter
end.
(i) Goodwill
Goodwill arises in connection with business combinations accounted for as
purchases. Goodwill is amortized primarily on a straight-line basis over 40
years. Amortization charged to earnings was $2,047 in 1996, $2,518 in 1997 and
$2,437 in 1998.
(j) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of
FAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of. Under FAS No. 121, the Company evaluates
impairment of long-lived assets on a business unit basis, rather than on an
aggregate entity basis, whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. If the sum of
the expected future undiscounted cash flows is less than the carrying amount of
the asset, an impairment loss is recognized. Measurement of an impairment loss
for long-lived assets is based on the fair value of the asset.
(k) Effect of Accounting Pronouncement Not Yet Adopted
In 1997, the FASB issued FAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which supersedes FAS No. 14, Financial
Reporting for Segments of a Business Enterprise. This statement, which the
Company was required to adopt in fiscal year 1998, requires public companies to
report certain financial and descriptive information about their reportable
operating segments, including related disclosures about products and services,
geographic areas and major customers. The implementation of FAS No. 131 did not
have a material effect on the Company's consolidated financial statements.
(l) Reclassifications
Certain prior period financial statement balances have been reclassified to
conform with the current period's presentation.
(2) Acquisitions
On July 23, 1997, the Company acquired certain assets of Diamond Rug & Carpet
Mills, Inc. ("Diamond") and other assets owned by Diamond's principal
shareholders for approximately $36,000, including acquisition costs, which
consisted of $19,600 in cash, at closing, $7,000 in cash over the six-month
period following closing and a $9,350 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.
F-9
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company completed its acquisitions of Newmark & James, Inc. and American
Weavers, LLC on June 30, 1998 and August 10, 1998, respectively. Both of these
acquisitions have been accounted for under the purchase method of accounting
and their results are included in the Company's 1998 consolidated statement of
earnings from the respective dates of acquisition.
On November 12, 1998, the Company acquired all of the outstanding capital stock
of World in exchange for approximately 4,900 shares of the Company's common
stock. The acquisition of World has been accounted for under the pooling-of-
interests basis of accounting and, accordingly, the Company's historical
consolidated financial statements have been restated to include the accounts
and results of operations of World. The Company incurred before tax,
nonrecurring charges aggregating $20,600 in 1998 related to the World Merger,
of which $17,700 of the charge is recorded as non-operating expense and $2,900
of the charge is recorded as a writedown of World computer equipment that will
be disposed of.
On March 9, 1999, the Company acquired all of the outstanding capital stock of
Durkan in exchange for approximately 3,150 shares of the Company's common
stock. The acquisition of Durkan has been accounted for under the pooling-of-
interests basis of accounting and, accordingly, the Company's historical
consolidated financial statements have been restated to include the accounts
and results of operations of Durkan.
The results of operations previously reported by the separate enterprises and
the combined amounts presented in the accompanying consolidated financial
statements are presented below:
<TABLE>
<CAPTION>
Years Ended December
31,
--------------------
Nine Months Ended
September 26,
1996 1997 1998
---------- --------- -----------------
(unaudited)
<S> <C> <C> <C> <C>
Net sales:
Mohawk.......................... $1,779,389 1,901,352 1,582,493
World........................... 373,627 425,989 333,694
Durkan.......................... 86,455 101,744 81,602
---------- --------- ---------
Combined...................... $2,239,471 2,429,085 1,997,789
========== ========= =========
Net earnings:
Mohawk.......................... $ 49,050 68,030 77,829
World........................... 4,328 5,394 4,984
Durkan.......................... 3,564 6,139 7,329
---------- --------- ---------
Combined...................... $ 56,942 79,563 90,142
========== ========= =========
</TABLE>
Prior to the combination, World's fiscal year ended on the Sunday closest to
June 30. In recording the pooling-of-interests combination, World's financial
statements for the year ended December 31, 1998 were combined with Mohawk's
consolidated financial statements for the same period. World's financial
statements for the years ended June 29, 1997 and June 28, 1998 were combined
with Mohawk's financial statements for the years ended December 31, 1996 and
1997, respectively. An adjustment has been made to stockholders' equity in the
year ended
F-10
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 to eliminate the effect of including World's results of
operations for the six months ended June 28, 1998 in the Company's consolidated
financial statements for the years ended December 31, 1997 and 1998. There were
no significant intercompany transactions between Mohawk and World prior to the
combination.
Prior to the combination, Durkan's fiscal year ended on the Saturday nearest
February 28. In recording the pooling-of-interests combination, Durkan's
financial statements for the years ended March 1, 1997, February 28, 1998 and
February 27, 1999,were combined with Mohawk's financial statements for the
years ended December 31, 1996, 1997 and 1998, respectively.
On January 29, 1999, the Company acquired certain assets of Image Industries,
Inc. for approximately $193,000, including acquisition costs and the assumption
of $30,000 of tax exempt debt. The acquisition will be accounted for using the
purchase method of accounting.
(3) Receivables
Receivables are as follows:
<TABLE>
<CAPTION>
As of December
31,
----------------
1997 1998
-------- -------
<S> <C> <C>
Customers, trade.......................................... $350,277 385,768
Other..................................................... 1,440 3,687
-------- -------
351,717 389,455
Less allowance for discounts, returns, claims and doubtful
accounts................................................. 52,235 57,881
-------- -------
Net receivables....................................... $299,482 331,574
======== =======
</TABLE>
(4) Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
As of December
31,
----------------
1997 1998
-------- -------
<S> <C> <C>
Finished goods.............................................. $188,328 219,776
Work in process............................................. 56,597 60,266
Raw materials............................................... 132,963 143,795
-------- -------
Total inventories....................................... $377,888 423,837
======== =======
</TABLE>
F-11
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) Property, Plant and Equipment
Following is a summary of property, plant and equipment:
<TABLE>
<CAPTION>
As of December
31,
----------------
1997 1998
-------- -------
<S> <C> <C>
Land........................................................ $ 13,617 14,330
Buildings and improvements.................................. 167,611 177,330
Machinery and equipment..................................... 562,531 610,338
Furniture and fixtures...................................... 20,679 33,667
Leasehold improvements...................................... 4,267 5,040
Construction in progress.................................... 21,282 43,237
-------- -------
789,987 883,942
Less accumulated depreciation and amortization.............. 366,963 429,045
-------- -------
Net property, plant and equipment......................... $423,024 454,897
======== =======
</TABLE>
Property, plant and equipment includes capitalized interest of $1,180, $799 and
$1,661 in 1996, 1997 and 1998, respectively.
During 1998, the Company recorded a charge of $2,900 related to a write-down of
computer equipment acquired in the World acquisition that will be disposed of.
During 1997, the Company recorded a charge of $5,500 arising from a revision in
the estimated fair value of certain property, plant and equipment held for sale
based on current appraisals and other market information related to a mill
closing in 1995.
During 1996, the Company recorded a charge of $3,060 arising from (a) the
write-down of property, plant and equipment to be disposed of related to the
closing of a manufacturing facility in 1996 and (b) 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.
(6) Other Assets
The components of other assets are summarized below:
<TABLE>
<CAPTION>
As of December
31,
---------------
1997 1998
------- -------
<S> <C> <C>
Goodwill, net of accumulated amortization of $8,266 and
$10,363, respectively.................................... $59,823 85,972
Other assets.............................................. 18,075 16,369
------- -------
Total other assets...................................... $77,898 102,341
======= =======
</TABLE>
F-12
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Long-Term Debt
On April 15, 1997, the Company amended and restated its 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 December 31, 1998, the Company had
credit availability of $250,000 under its revolving credit line of which
$121,078 was unused. The credit agreement contains customary financial and
other covenants and restricts cumulative dividend payments to $10,000 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.
The capital stock of each of the Company's subsidiaries has been pledged as
collateral under the credit agreement, the term loans and the senior notes.
On February 7, 1997, World amended the terms of its revolving and term loan
facility. Under the amended terms, World could borrow up to $102,000, based on
eligible accounts receivable and inventory balances. Interest on the revolving
credit facility was payable monthly at a rate equal to the prime rate minus
.25% or LIBOR plus 2% (8.25% at June 28, 1998). Interest on the term loans was
payable monthly at a rate equal to the prime rate plus .25% or LIBOR plus 2.5%
(8.5% at June 28, 1998). The term loans were payable in sixty equal monthly
principal installments of approximately $321, plus interest at the rate stated
above. The loans were secured by substantially all accounts receivable,
inventory and property, plant and equipment of World. Under the terms of the
revolving line of credit agreement, World incurred a fee equal to 3/8% per year
on the unused balance of the revolving line of credit. The revolving and term
loan facility was paid in full in 1998.
On January 28, 1999, the Company amended and restated its credit agreement to
increase the total availability to $450,000, comprised of the Tranche A
commitment of $250,000 due on January 28, 2004 and the Tranche B commitment of
$200,000 due on January 27, 2000.
F-13
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Revolving line of credit, due May 15, 2002................. $ 48,800 128,922
World revolving line of credit, due February 7, 2002....... 58,872 --
World term loans........................................... 21,857 --
Durkan term loans, interest payable at prime or LIBOR plus
1.5% to 3.0%, payable in monthly installments of $207..... 14,228 11,696
Durkan revolving line of credit, interest payable at LIBOR
plus 1.25% to 2.75%, due November 1999.................... 4,967 3,277
Note payable to Durkan officer, interest payable at 8.5%,
due February 2000 5,400 5,400
8.46% senior notes, payable in annual principal
installments beginning in 1998, due September 16, 2004,
interest payable quarterly................................ 100,000 85,714
7.14%-7.23% senior notes, payable in annual principal
installments beginning in 1997, due September 1, 2005,
interest payable semiannually............................. 75,556 66,111
8.48% term loans, payable in annual principal installments
beginning in 1996, due October 26, 2002, interest payable
quarterly................................................. 28,571 22,857
9.5% senior notes, payable in annual principal
installments, due April 1, 1998, interest payable
semiannually.............................................. 3,750 --
7.58% senior notes, payable in annual principal
installments beginning in 1997, due July 30, 2003,
interest payable semiannually............................. 8,571 7,143
6% term note, payable in annual principal and interest
installments beginning in 1998, due July 23, 2004......... 9,350 8,014
Industrial Revenue Bonds and other......................... 22,932 37,955
-------- -------
Total long-term debt..................................... 402,854 377,089
Less current portion....................................... 43,506 44,424
-------- -------
Long-term debt, excluding current portion................ $359,348 332,665
======== =======
</TABLE>
The aggregate maturities of long-term debt as of December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999.............................................................. $ 44,424
2000.............................................................. 44,534
2001.............................................................. 33,396
2002.............................................................. 162,277
2003.............................................................. 27,435
Thereafter........................................................ 65,023
--------
$377,089
========
</TABLE>
F-14
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses are as follows:
<TABLE>
<CAPTION>
As of December 31,
1997 1998
--------- ---------
<S> <C> <C>
Outstanding checks in excess of cash...................... $ 33,655 26,894
Accounts payable, trade................................... 147,131 158,929
Accrued expenses.......................................... 74,867 126,702
Accrued compensation...................................... 43,902 51,844
--------- --------
Total accounts payable and accrued expenses............. $299,555 364,369
========= ========
</TABLE>
(9) Stock Options and Stock Compensation
Under the Company's 1992 and 1993 stock option plans, options may be granted to
directors and key employees through 2002 and 2003 to purchase a maximum of
2,250 and 675 shares of common stock, respectively. During 1998, options to
purchase 165 and 9 shares, respectively, were granted under these plans.
Options granted under each of these plans expire ten years from the date of
grant and become exercisable at such dates and at prices as determined by the
Compensation Committee of the Company's Board of Directors.
During 1996, the Company adopted the 1997 Non-Employee Director Stock
Compensation Plan. The plan provides for awards of common stock of the Company
for non-employee directors to receive in lieu of cash for their annual
retainers. During 1998, a total of 3 shares were awarded to the non-employee
directors under the plan.
During 1997, the Board of Directors adopted the 1997 Long-Term Incentive Plan
whereby the Company reserved 2,550 shares of common stock for issuance in
connection with options and awards. During 1998, a total of 21 shares were
awarded under this plan.
Additional information relating to the Company's stock option plans follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
Options outstanding at beginning of
year............................... 3,839 2,142 1,568
Options granted..................... 621 65 174
Options exercised................... (2,069) (460) (316)
Options canceled.................... (249) (179) (39)
----------- ---------- -----------
Options outstanding at end of year.. 2,142 1,568 1,387
=========== ========== ===========
Options exercisable at end of year.. 655 742 686
=========== ========== ===========
Option prices per share:
Options granted during the year..... $9.94-11.33 5.67-19.38 17.23-32.31
=========== ========== ===========
Options exercised during the year... $ .01-14.50 .02-19.17 5.67-19.38
=========== ========== ===========
Options canceled during the year.... $5.67-19.17 5.67-19.17 5.67-31.94
=========== ========== ===========
Options outstanding at end of year.. $ .03-19.17 5.61-19.38 5.61-32.31
=========== ========== ===========
</TABLE>
F-15
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A charge of $2,600 was recorded in the fourth quarter of 1997, 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 allowed 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 the exercise of these options. Such income tax benefit
resulted in a direct increase in stockholders' equity of $7,606 in 1996
primarily from the exercise of these options.
FAS No. 123, Accounting for Stock-Based Compensation, established a new method
of accounting for stock-based compensation arrangements with an entity's
employees. The new method is a fair value based method rather than the
intrinsic value based method prescribed by APB No. 25, Accounting for Stock
Issued to Employees. FAS No. 123 allows entities to retain the current approach
set forth in APB No. 25 for recognizing stock-based compensation expense in the
basic financial statements. Entities electing to apply the provisions of APB
No. 25 are required to make pro forma disclosures of net earnings and earnings
per share as if the fair value based method had been used. The Company
continues to apply the provisions of APB No. 25 for purposes of measuring
compensation cost in adopting FAS No. 123. The effect of the pro forma
disclosures on the Company's results of operations for the years presented is
immaterial.
(10) Employee Benefit Plans
The Company has a 401(k) retirement savings plan (the "Plan") open to
substantially all of its employees who have completed one year of eligible
service. The Company contributes $0.50 for every $1.00 of employee
contributions up to a maximum of 4% of the employee's salary. Employee and
employer contributions to the Plan were $6,499 and $2,132 in 1996, $9,334 and
$3,075 in 1997 and $12,345 and $4,213 in 1998, respectively.
A portion of the employees who were not eligible to participate in the Plan
participated in a defined contribution profit sharing plan through June 1997.
After June 1997, the employee balances in the profit sharing plan were rolled
over into the 401(k) retirement savings plan. Contributions were discretionary
and the Company expensed $2,130 and $991 for the years ended December 31, 1996
and 1997, respectively.
World maintains the World Carpet Savings Retirement Plan (the "World Plan"), a
defined contribution 401(k) plan covering substantially all World employees.
Employees are eligible to participate upon completion of one year of service.
Under the terms of the World Plan, World may match employee contributions up to
a maximum of 2% of the employee's salary and employees vest in the
contributions based on years of credited service. For the years ended December
31, 1996, 1997 and 1998, World contributed approximately, $629, $698 and $703
to the World Plan, respectively.
Durkan maintains a 401(k) retirement savings plan (the "Durkan Plan") open to
substantially all of Durkan's employees, Durkan contributes $0.50 for every
$1.00 of employee contributions up to a maximum of 6% of eligible wages. For
the years ended December 31, 1996, 1997 and 1998, Durkan contributed
approximately $211, $265 and $328 to the Durkan Plan, respectively.
F-16
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) Restructuring Costs
During the fourth quarter of 1996, the Company decided to close a spinning mill
in Belton, South Carolina, the operations of which are being consolidated into
other Mohawk facilities. For the year ended December 31, 1996, the Company
recorded restructuring costs of $700 related to employee termination benefits,
environmental clean-up and other costs associated with the mill closing. The
after-tax effect of the restructuring costs for the year was $415.
Additionally, in 1996 the Company made payments of $1,125 and reclassed $5,266
to other liability or reserve accounts in connection with mill closings in 1996
and prior years.
(12) Income Taxes
Income tax expense attributable to earnings before income taxes for the years
ended December 31, 1996, 1997 and 1998 consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- ------
<S> <C> <C> <C>
1996:
U.S. federal....................................... $33,139 949 34,088
State and local.................................... 2,912 3,395 6,307
------- ------- ------
$36,051 4,344 40,395
======= ======= ======
1997:
U.S. federal....................................... $45,921 (2,540) 43,381
State and local.................................... 9,077 (592) 8,485
------- ------- ------
$54,998 (3,132) 51,866
======= ======= ======
1998:
U.S. federal....................................... $75,985 (11,485) 64,500
State and local.................................... 17,761 (2,709) 15,052
------- ------- ------
$93,746 (14,194) 79,552
======= ======= ======
</TABLE>
Income tax expense attributable to earnings before income taxes differs from
the amounts computed by applying the statutory U.S. federal income tax rate to
earnings before income taxes as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense...................... $33,979 45,909 68,182
State and local income taxes, net of federal income
tax benefit......................................... 2,377 4,810 9,784
Amortization of goodwill............................. 519 472 746
Other, net........................................... 3,520 675 840
------- ------ ------
$40,395 51,866 79,552
======= ====== ======
</TABLE>
F-17
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1997
and 1998 are presented below:
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable..................................... $ 19,511 16,845
Inventories............................................. 990 6,946
Accrued expenses........................................ 18,674 28,583
Purchased net operating loss carryforwards.............. 6,025 --
Other................................................... 1,386 1,990
-------- -------
Gross deferred tax assets............................. 46,586 54,364
-------- -------
Deferred tax liabilities:
Plant and equipment..................................... (33,824) (33,105)
Other................................................... (4,500) --
-------- -------
Gross deferred tax liabilities........................ (38,324) (33,105)
-------- -------
Net deferred tax asset ............................... $ 8,262 21,259
======== =======
</TABLE>
Based upon the level of historical and projected taxable income over periods
which the deferred tax assets are deductible, the Company's management believes
it is more likely than not the Company will realize the benefits of these
deductible differences at December 31, 1998.
(13) Commitments and Contingencies
The Company is obligated under various operating leases for office and
manufacturing space, machinery and equipment.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) at December 31, 1998
are:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1999.............................................................. $18,517
2000.............................................................. 16,101
2001.............................................................. 12,067
2002.............................................................. 8,251
2003.............................................................. 6,675
Thereafter........................................................ 5,066
-------
Total minimum lease payments...................................... $66,677
=======
</TABLE>
Rental expense under operating leases was $18,172, $20,970 and $27,347 in 1996,
1997 and 1998, respectively.
F-18
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In December 1995, the Company and four other carpet manufacturers were added as
defendants in a purported class action lawsuit, In re Carpet Antitrust
Litigation, pending in the United States District Court for the Northern
District of Georgia, Rome Division. The amended complaint alleges price fixing
regarding polypropylene products in violation of Section One of the Sherman
Act. In September 1997, the Court determined that the plaintiffs met their
burden of establishing the requirements for class certification and granted the
plaintiffs' motion to certify the class. The Company is a party to two
consolidated lawsuits captioned Gaehwiler v. Sunrise Carpet Industries, Inc.
et. al. and Patco Enterprises, Inc. v. Sunrise Carpet Industries, Inc. et. al.;
both of which were filed in the Superior Court of the State of California, City
and County of San Francisco in 1996. Both complaints were brought on behalf of
a purported class of indirect purchasers of carpet in the State of California
and seek damages for alleged violations of California antitrust and unfair
competition laws. The complaints filed do not specify any amount of damages but
do request for any unlawful conduct to be enjoined and treble damages plus
reimbursement for fees and costs. In October 1998, two plaintiffs, on behalf of
an alleged class of purchasers of nylon carpet products, filed a complaint in
the United States District Court for the Northern District of Georgia against
the Company and two of its subsidiaries as well as a competitor and one of its
subsidiaries. The complaint alleges that the Company acted in concert with
other carpet manufacturers to restrain competition in the sale of certain nylon
carpet products. The Company has filed an answer and denied the allegations in
the complaint and set forth its defenses. In February 1999, a similar complaint
was filed in the Superior Court of the State of California, City and County of
San Francisco, on behalf of a purported class based on indirect purchases of
nylon carpet in the State of California and alleges violations of California
antitrust and unfair competition laws. The complaints described above do not
specify any specific amount of damages but do request injunctive relief and
treble damages plus reimbursement for fees and costs. The Company believes it
has meritorious defenses and intends to vigorously defend against these
actions.
(14) Consolidated Statements of Cash Flows Information
Supplemental disclosures of cash flow information are as follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------
1996 1997 1998
------- ------ ------
<S> <C> <C> <C>
Net cash paid during the year for:
Interest................................................ $40,207 37,849 30,852
======= ====== ======
Income taxes............................................ $25,946 55,882 75,640
======= ====== ======
</TABLE>
F-19
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(15) Quarterly Financial Data (Unaudited)
The supplemental quarterly financial data are as follows:
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------
March 29, June 28, Sept. 27, Dec. 31,
1997 1997 1997 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales.............................. $537,145 607,059 626,751 658,130
Gross profit........................... 118,336 140,857 146,270 154,401
Net earnings........................... 9,617 21,514 23,514 24,918
Basic earnings per share............... 0.16 0.36 0.39 0.41
Diluted earnings per share............. 0.16 0.36 0.39 0.41
<CAPTION>
Quarters Ended
-------------------------------------
March 28, June 27, Sept. 26, Dec. 31,
1998 1998 1998 1998
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales.............................. $589,521 689,369 718,899 747,211
Gross profit........................... 136,743 177,933 178,579 190,929
Net earnings........................... 17,135 35,947 37,060 25,112
Basic earnings per share............... 0.28 0.60 0.61 0.42
Diluted earnings per share............. 0.28 0.59 0.61 0.41
</TABLE>
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson, or other person has been authorized to give any
information or to make any representations not contained in this prospectus. If
any such information is given or any such representations are made, they must
not be relied upon as having been authorized by Mohawk or the selling
stockholders. This prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy any of the shares of Mohawk common stock
offered hereby, to any person in any jurisdiction in which such offer or
solicitation is unlawful. 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 subsequent to the date hereof or
that there has been no change in the affairs of Mohawk since such date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Company.............................................................. 2
Risk Factors............................................................. 3
Use of Proceeds.......................................................... 5
Selected Supplemental Consolidated Financial Information................. 6
Management's Discussion and Analysis of Supplemental Financial Condition
and Results of Operations............................................... 8
Selling Stockholders..................................................... 13
Plan of Distribution..................................................... 14
Where You Can Find More Information...................................... 15
Legal Opinion............................................................ 16
Experts.................................................................. 16
Index to Supplemental Consolidated Financial Statements.................. 17
</TABLE>
----------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MOHAWK
INDUSTRIES, INC.
Common Stock
----------------
PROSPECTUS
----------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN 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.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 27,229
Accountants' fees and expenses..................................... 15,000
Legal fees and expenses............................................ 50,000
Printing, materials and postage.................................... 20,000
Blue Sky fees and expenses......................................... 2,500
Transfer agent fees and expenses................................... 2,500
Miscellaneous...................................................... 5,000
--------
Total............................................................ $122,229
========
</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
II-1
<PAGE>
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 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.
See exhibit index immediately preceding the exhibits for the page number where
each exhibit can be found.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger by and among the Registrant, Durkan
Acquisition Corp., Nonpareil Acquisition Corp., Durkan Patterned
Carpets, Inc., Nonpareil Dyeing & Finishing, Inc., the
shareholders of Durkan Patterned Carpets, Inc. and the
shareholder of Nonpariel Dyeing & Finishing, Inc. dated as of
February 26, 1999.
2.2 Asset Purchase Agreement by and among Aladdin Manufacturing
Corporation, Image Industries, Inc. and The Maxim Group, Inc.
dated as of November 12, 1998, as amended and restated on January
29, 1999 (Incorporated herein by reference to Exhibit 2.1 in the
Registrant's Current Report on Form 8-K filed with the Securities
and Exchange Commission on February 1, 1999).
4.1 See Article 4 of the Restated Certificate of Incorporation, as
amended, 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.
23(a) Consent of Alston & Bird LLP (contained in Exhibit 5).
23(b) Consent of KPMG LLP.
23(c) Consent of PricewaterhouseCoopers LLP.
24 Power of Attorney (included on pages II-4 of this Registration
Statement).
</TABLE>
II-2
<PAGE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement (other than as provided in
the proviso and instructions to Item 512(a) of Regulation S-K): (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the
"Securities Act"); (ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") 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.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described in Item 15 above, 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
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 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 of whether or not 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.
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 April 28, 1999.
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 April 28, 1999. 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 that all said attorneys-in-fact and agents, or any
substitute therefor, may lawfully do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/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
Director
______________________________________
Alan S. Lorberbaum
/s/ Jeffrey S. Lorberbaum Director; President and Chief
______________________________________ Operating Officer
Jeffrey S. Lorberbaum
/s/ Larry W. McCurdy Director
______________________________________
Larry W. McCurdy
/s/ Robert N. Pokelwaldt Director
______________________________________
Robert N. Pokelwaldt
</TABLE>
II-4
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MOHAWK INDUSTRIES, INC.,
DURKAN ACQUISITION CORP.,
NONPAREIL ACQUISITION CORP.,
DURKAN PATTERNED CARPETS, INC.,
NONPAREIL DYEING & FINISHING, INC.,
THE SHAREHOLDERS OF DURKAN PATTERNED CARPETS, INC.
AND
THE SHAREHOLDER OF NONPAREIL DYEING & FINISHING, INC.
Dated as of February 26, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PARTIES........................................................................... 1
PREAMBLE.......................................................................... 1
ARTICLE 1 - TRANSACTIONS AND TERMS OF MERGER...................................... 2
1.1 Merger...................................................................... 2
1.2 Time and Place of Closing................................................... 2
1.3 Effective Time.............................................................. 2
ARTICLE 2 - TERMS OF MERGER....................................................... 3
2.1 Charter..................................................................... 3
2.2 Bylaws...................................................................... 3
2.3 Directors and Officers...................................................... 3
2.4 Certain Closing Deliveries.................................................. 3
ARTICLE 3 - MANNER OF CONVERTING SHARES........................................... 4
3.1 Conversion of Shares........................................................ 4
3.2 Anti-Dilution Provisions.................................................... 5
3.3 Shares Held by Company Entities or Acquirors................................ 6
3.4 Dissenting Shareholders..................................................... 6
3.5 Fractional Shares........................................................... 6
ARTICLE 4 - EXCHANGE OF SHARES.................................................... 7
4.1 Exchange Procedures......................................................... 7
4.2 Rights of Former Company and Nonpareil Shareholders......................... 7
4.3 Escrow Agreement............................................................ 7
4.4 Legending of Securities; Pooling Restrictions............................... 7
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF COMPANY, NONPAREIL AND THE
SHAREHOLDERS...................................................................... 8
5.1 Organization, Standing, and Power........................................... 8
5.2 Authority of Company and Nonpareil; No Breach By Agreement.................. 9
5.3 Capital Stock; Notes........................................................ 10
5.4 Company Subsidiaries........................................................ 11
5.5 Financial Statements........................................................ 11
5.6 Absence of Undisclosed Liabilities.......................................... 12
5.7 Absence of Certain Changes or Events........................................ 12
5.8 Tax Matters................................................................. 14
5.9 Assets and Accounts Payable................................................. 16
5.10 Intellectual Property....................................................... 18
5.11 Environmental Matters....................................................... 18
5.12 Compliance with Laws........................................................ 21
5.13 Labor Relations............................................................. 21
5.14 Employee Benefit Plans...................................................... 22
5.15 Material Contracts.......................................................... 24
5.16 Legal Proceedings........................................................... 25
5.17 Reports..................................................................... 25
5.18 Statements True and Correct................................................. 26
5.19 Accounting, Tax and Regulatory Matters...................................... 26
5.20 State Takeover Laws......................................................... 26
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
5.21 Charter Provisions.......................................................... 26
5.22 Board Recommendation........................................................ 26
5.23 Compliance with the Immigration Reform and Control Act...................... 27
5.24 Legal Compliance............................................................ 27
5.25 Year 2000................................................................... 27
ARTICLE 6 - REPRESENTATIONS AND WARRAITES OF SHAREHOLDERS......................... 28
6.1 Ownership of Securities..................................................... 28
6.2 Authority of Shareholders; No Breach By Agreement........................... 28
6.3 Purchase for Investment; Accredited Investor Status......................... 29
6.4 Statements True and Correct................................................. 29
ARTICLE 7 - REPRESENTATIONS AND WARRANTIES OF ACQUIROR............................ 30
7.1 Organization, Standing, and Power........................................... 30
7.2 Authority; No Breach By Agreement........................................... 30
7.3 Capital Stock............................................................... 31
7.4 SEC Filings; Financial Statements........................................... 31
7.5 Absence of Certain Changes or Events........................................ 32
7.6 Legal Proceedings........................................................... 32
7.7 Statements True and Correct................................................. 32
7.8 Authority of Sub............................................................ 32
7.9 Accounting, Tax and Regulatory Matters...................................... 33
ARTICLE 8 - CONDUCT OF BUSINESS PENDING CONSUMMATION.............................. 33
8.1 Affirmative Covenants of Company Entities................................... 33
8.2 Negative Covenants of Company Entities...................................... 34
8.3 Covenants of Acquiror....................................................... 36
8.4 Adverse Changes in Condition................................................ 36
ARTICLE 9 - ADDITIONAL AGREEMENTS................................................. 37
9.1 Disclosure Statement; Shareholder Approval.................................. 37
9.2 Exchange Listing............................................................ 37
9.3 Applications; Antitrust Notification........................................ 37
9.4 Filings with State Offices.................................................. 37
9.5 Agreement as to Efforts to Consummate....................................... 37
9.6 Investigation and Confidentiality........................................... 38
9.7 Press Releases.............................................................. 39
9.8 Certain Actions............................................................. 39
9.9 Accounting and Tax Treatment................................................ 39
9.10 State Takeover Laws......................................................... 40
9.11 Charter Provisions.......................................................... 40
9.12 Agreement of Affiliates..................................................... 40
9.13 Agreement to Vote........................................................... 40
9.14 Supplemental Disclosures.................................................... 41
9.15 Employee Matters............................................................ 41
ARTICLE 10 - CONDITIONS PRECEDENT TO OBLIGATION TO CONSUMMATE..................... 42
10.1 Conditions to Obligations of Each Party..................................... 42
10.2 Conditions to Obligations of Acquiror....................................... 43
10.3 Conditions to Obligations of Company, Nonpareil and the Shareholders........ 45
ARTICLE 11 - INDEMNIFICATION...................................................... 47
11.1 Agreements to Indemnify..................................................... 47
11.2 Procedures for Indemnification.............................................. 49
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
11.3 Third Party Claims.......................................................... 50
11.4 Exclusive Remedy............................................................ 51
11.5 Survival.................................................................... 51
11.6 Time Limitations............................................................ 51
11.7 Limitations as to Amount.................................................... 52
11.8 Tax Effect and Insurance.................................................... 53
11.9 Escrow...................................................................... 53
11.10 Subrogation................................................................. 53
11.11 Appointment of Indemnitor Representative.................................... 53
11.12 Arbitration................................................................. 54
11.13 Contribution Agreement...................................................... 55
ARTICLE 12 - TERMINATION.......................................................... 55
12.1 Termination................................................................. 55
12.2 Effect of Termination....................................................... 56
12.3 Non-Survival of Acquiror Representations and Warranties..................... 56
12.4 Payments Upon Certain Terminations.......................................... 57
ARTICLE 13 - MISCELLANEOUS........................................................ 57
13.1 Definitions................................................................. 57
13.2 Expenses.................................................................... 68
13.3 Transfer Taxes and Recording Fees........................................... 68
13.4 Brokers and Finders......................................................... 68
13.5 Entire Agreement............................................................ 68
13.6 Amendments.................................................................. 69
13.7 Waivers..................................................................... 69
13.8 Assignment.................................................................. 69
13.9 Notices..................................................................... 70
13.10 Governing Law............................................................... 70
13.11 Counterparts................................................................ 70
13.12 Captions; Articles and Sections............................................. 71
13.13 Interpretations............................................................. 71
13.14 Enforcement of Agreement.................................................... 71
13.15 Severability................................................................ 71
13.16 Time of the Essence......................................................... 71
13.17 Facsimile Signatures 71
</TABLE>
-iii-
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit Number Description
- -------------- -----------
1. Form of Escrow Agreement.
2. Form of Stock Restriction and Registration Rights Agreement.
3. Form of Noncompetition Agreement.
4. Form of agreement of affiliates of Company.
5. Form of Release
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of February 26, 1999, by and among Mohawk Industries, Inc.
("Acquiror"), a Delaware corporation; Durkan Acquisition Corp. ("Sub 1"), a
Georgia corporation; Nonpareil Acquisition Corp. ("Sub 2"), a Georgia
corporation; Durkan Patterned Carpets, Inc. ("Company"), a Georgia corporation;
Nonpareil Dyeing & Finishing, Inc. ("Nonpareil"), a Georgia corporation; and the
shareholders of Company and Nonpareil identified in Schedule I hereto (each a
"Shareholder" and collectively, the "Shareholders").
Preamble
--------
The Shareholders and the respective Boards of Directors of Company,
Nonpareil, Sub 1, Sub 2 and Acquiror are of the opinion that the transactions
described herein are in the best interests of the parties to this Agreement and
their respective shareholders. This Agreement provides for the acquisition of
Company and Nonpareil by Acquiror pursuant to the merger of Sub 1 with and into
Company and the merger of Sub 2 with and into Nonpareil. At the effective time
of each such merger, the outstanding shares of the capital stock of Company and
Nonpareil shall be converted into the right to receive shares of the common
stock of Acquiror (except as provided herein). As a result, shareholders of
Company and Nonpareil shall become shareholders of Acquiror and Company and
Nonpareil shall become wholly owned subsidiaries of Acquiror. The transactions
described in this Agreement are subject to the approvals of the shareholders of
Company and Nonpareil, expiration of the required waiting period under the HSR
Act, and the satisfaction of certain other conditions described in this
Agreement. It is the intention of the parties to this Agreement that each of
the Company Merger and the Nonpareil Merger for federal income tax purposes
shall qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code, and that the Merger for accounting purposes shall qualify
for treatment as a pooling of interests.
Certain terms used in this Agreement are defined in Section 13.1 of
this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
parties agree as follows:
<PAGE>
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
--------------------------------
1.1 Merger. Subject to the terms and conditions of this Agreement,
------
at the Effective Time, Sub 1 shall be merged with and into Company (the "Company
Merger") and Sub 2 shall be merged with and into Nonpareil (the "Nonpareil
Merger"), each in accordance with the provisions of Section 14-2-1101 et. seq.
of the GBCC and with the effect provided in Section 14-2-1106 of the GBCC (the
Company Merger and the Nonpareil Merger shall be collectively referred to herein
as the "Merger"). Company shall be the First Surviving Corporation resulting
from the Company Merger and shall become a wholly owned Subsidiary of Acquiror
and shall continue to be governed by the Laws of the State of Georgia.
Nonpareil shall be the Second Surviving Corporation resulting from the Nonpareil
Merger and shall become a wholly owned subsidiary of Acquiror and shall continue
to be governed by the laws of the State of Georgia. The Merger shall be
consummated pursuant to the terms of this Agreement, which has been approved and
adopted by the respective Boards of Directors of Company, Nonpareil, Sub 1, Sub
2 and Acquiror.
1.2 Time and Place of Closing. The closing of the transactions
-------------------------
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
that the Effective Time occurs (or the immediately preceding day if the
Effective Time is earlier than 9:00 A.M.), or at such other time as the Parties,
acting through their authorized officers, may mutually agree. The Closing shall
be held at such location as may be mutually agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions contemplated
--------------
by this Agreement shall become effective on the date and at the time that both
Certificates of Merger reflecting the Company Merger and the Nonpareil Merger
have become effective with the Secretary of State of the State of Georgia (the
"Effective Time"). The Certificates of Merger shall contain the undertaking
required by Section 14-2-1105.1 of the GBCC. Subject to the terms and conditions
hereof, unless otherwise mutually agreed upon in writing by the authorized
officers of each Party, the Parties shall use their reasonable efforts to cause
the Effective Time to occur on the first business day following the last to
occur of (i) the effective date (including expiration of any applicable waiting
period) of the last required Consent of any Regulatory Authority having
authority over and approving or exempting the Merger, (ii) the date on which the
shareholders of Company and the shareholders of Nonpareil have approved this
Agreement to the extent such approval is required by applicable Law, and (iii)
the date on which all conditions precedent to the obligations of the Parties and
the Shareholders stated in Article 10 shall have been satisfied or waived
pursuant to Section 13.7; or such later date within 30 days thereof as may be
mutually agreed to by the Parties.
-2-
<PAGE>
ARTICLE 2
TERMS OF MERGER
---------------
2.1 Charter. The Articles of Incorporation of Company in effect
-------
immediately prior to the Effective Time shall be the Articles of Incorporation
of the First Surviving Corporation until duly amended or repealed. The Articles
of Incorporation of Nonpareil in effect immediately prior to the Effective Time
shall be the Articles of Incorporation of the Second Surviving Corporation until
duly amended or repealed.
2.2 Bylaws. The Bylaws of Company in effect immediately prior to
------
the Effective Time shall be the Bylaws of the First Surviving Corporation until
duly amended or repealed. The Bylaws of Nonpareil in effect immediately prior
to the Effective Time shall be the Bylaws of the Second Surviving Corporation
until duly amended or repealed.
2.3 Directors and Officers. The directors of each of Sub 1 and Sub
----------------------
2 in office immediately prior to the Effective Time, together with such
additional persons as may thereafter be elected, shall serve as the directors of
the First Surviving Corporation and Second Surviving Corporation, respectively,
from and after the Effective Time in accordance with the Bylaws of the First
Surviving Corporation and Second Surviving Corporation, respectively. The
officers of Sub 1 and Sub 2 in office immediately prior to the Effective Time,
together with such additional persons as may thereafter be elected, shall serve
as the officers of the First Surviving Corporation and Second Surviving
Corporation, respectively, from and after the Effective Time in accordance with
the Bylaws of the First Surviving Corporation and Second Surviving Corporation,
respectively.
2.4 Certain Closing Deliveries. In connection with the Closing,
--------------------------
each of Acquiror, Company and the Shareholders agree to execute and deliver to
each other Party the following:
(a) Acquiror and each Shareholder shall have executed and delivered to
the other an Escrow Agreement, which shall be in the form of Exhibit 1 (the
---------
"Escrow Agreement").
(b) Acquiror and each Shareholder shall have executed and delivered to
the other the Stock Restriction and Registration Rights Agreement in the
form of Exhibit 2.
---------
(c) Acquiror, Company and each of Thomas R. Durkan, II, Thomas R.
Durkan, III and Patricia Durkan shall have executed and delivered a
Noncompetition Agreement, which shall be in the form of Exhibit 3.
---------
-3-
<PAGE>
ARTICLE 3
MANNER OF CONVERTING SHARES
---------------------------
3.1 Conversion of Shares. Subject to the provisions of this Article
--------------------
3, at the Effective Time, by virtue of the Merger and without any action on the
part of Acquiror, Company, Nonpareil, Sub 1, Sub 2 or the shareholders of any of
the foregoing, the shares of the constituent corporations shall be converted as
follows:
(a) Each share of capital stock of Acquiror issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(b) Each share of Sub 1 Common Stock issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding and
shall be converted into one share of Company Voting Common Stock.
(c) Each share of Sub 2 Common Stock issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding and
shall be converted into one share of Nonpareil Common Stock.
(d) Each share of Company Capital Stock (excluding in each case in
clauses (i) through (ii) below shares held by any Company Entity or any
Acquiror Entity, and excluding shares held by Shareholders who perfect
their statutory dissenters' rights as provided in Section 3.4) issued and
outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall be converted into and exchanged for:
(i) with respect to each share of Company Nonvoting Common
Stock, the right to receive that number of shares of Acquiror Common
Stock equal to a fraction, the numerator of which shall be
2,636,747.5777 and the denominator of which shall be the number of
shares of Company Nonvoting Common Stock (excluding shares held by a
Company Entity, Acquiror or any of its Subsidiaries) issued and
outstanding immediately prior to the Effective Time (the "Eligible
Company Nonvoting Shares") (the "Nonvoting Common Stock Exchange
Ratio"), and
(ii) with respect to each share of Company Voting Common Stock,
the right to receive that number of shares of Acquiror Common Stock
equal to a fraction, the numerator of which shall be 115,752.4223 and
the denominator of which shall be the number of shares of Company
Voting Common Stock (excluding shares held by a Company Entity,
Acquiror or any of its Subsidiaries) issued and outstanding
immediately prior to the Effective Time (the "Eligible Company Voting
Shares") (the "Voting Common Stock Exchange Ratio").
-4-
<PAGE>
(e) Each share of Nonpareil Common Stock (excluding shares held by any
Company Entity or any Acquiror Entity, and excluding shares held by
Shareholders who perfect their statutory dissenters' rights as provided in
Section 3.4) issued and outstanding immediately prior to the Effective Time
shall cease to be outstanding and shall be converted into and exchanged for
the right to receive that number of shares of Acquiror Common Stock equal
to a fraction, the numerator of which shall be 247,500 and the denominator
of which shall be the number of shares of Nonpareil Common Stock (excluding
shares held by a Company Entity, Acquiror or any of its Subsidiaries)
issued and outstanding immediately prior to the Effective Time (the
"Eligible Nonpareil Common Shares") (the "Nonpareil Common Stock Exchange
Ratio").
(f) All of the Company Notes and the Nonpareil Notes outstanding
immediately prior to the Effective Time shall be canceled and shall cease
to be outstanding and Durkan Development, L.P. shall be entitled to receive
therefor 150,000 shares of Acquiror Common Stock (the "Notes Exchange
Ratio") (the Nonvoting Common Stock Exchange Ratio, the Voting Common Stock
Exchange Ratio, the Nonpareil Common Stock Exchange Ratio and the Notes
Exchange Ratio are sometimes referred to hereinafter as the "Exchange
Ratio").
(g) A total of 315,000 shares of the Acquiror Common Stock to be
issued to the Shareholders pursuant to this Section 3.1 (the "Escrow
Shares") shall be deposited in escrow with, and held pursuant to the terms
of the Escrow Agreement by, the Escrow Agent. The Escrow Shares shall be
comprised of ten percent (10%) of the shares of Acquiror Common Stock
issued pursuant to Sections 3.1(d)(i), 3.1(d)(ii), 3.1(e) and 3.1(f).
(h) A number of shares of Acquiror Common Stock equal to the excess of
(A) the sum of payments in connection with the transactions contemplated
hereby to third parties, including Fred A. Mayfield & Company, Baker &
McKenzie and Minor, Bell & Neal over (B) $325,000 divided by the Closing
Price shall be deducted from the total number of shares to be granted
pursuant to Sections 3.1(d)(i), 3(d)(ii), 3.1(e) and 3.1(f). The deduction
made pursuant to the foregoing sentence shall be deducted pro rata from the
shares of Acquiror Common Stock to be granted pursuant to Sections
3.1(d)(i), 3.1(d)(ii), 3.1(e) and 3.1(f).
3.2 Anti-Dilution Provisions. In the event Acquiror changes the
------------------------
number of shares of Acquiror Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, or similar
recapitalization, reclassification or combination with respect to such stock
and the record date therefor (in the case of a stock dividend) or the effective
date thereof (in the case of a stock split or similar recapitalization,
reclassification or combination for which a record date is not established)
shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted.
-5-
<PAGE>
3.3 Shares Held by Company Entities or Acquiror. Each of the shares
-------------------------------------------
of Company Capital Stock or Nonpareil Common Stock held by any Company Entity or
by any Acquiror Entity shall be canceled and retired at the Effective Time and
no consideration shall be issued in exchange therefor.
3.4 Dissenting Shareholders. Any holder of shares of Company
-----------------------
Capital Stock or Nonpareil Common Stock who perfects his dissenters' rights in
accordance with and as contemplated by Section 14-2-1301 et. seq. of the GBCC
shall be entitled to receive the value of such shares in cash as determined
pursuant to such provision of Law; provided, that no such payment shall be made
to any dissenting shareholder unless and until such dissenting shareholder has
complied with the applicable provisions of the GBCC and surrendered to Company
or Nonpareil, as appropriate, the certificate or certificates representing the
shares for which payment is being made. In the event that after the Effective
Time a dissenting shareholder of Company or Nonpareil fails to perfect, or
effectively withdraws or loses, his right to appraisal and of payment for his
shares, Acquiror shall issue and deliver the consideration to which such holder
of shares of Company Capital Stock or Nonpareil Common Stock is entitled under
this Article 3 (without interest) upon surrender by such holder of the
certificate or certificates representing shares of Company Capital Stock or
Nonpareil Common Stock held by him. If and to the extent required by applicable
Law, Company or Nonpareil will establish (or cause to be established) an escrow
account with an amount sufficient to satisfy the maximum aggregate payment that
may be required to be paid to dissenting shareholders. Upon satisfaction of all
claims of dissenting shareholders, the remaining escrowed amount, reduced by
payment of the fees and expenses of the escrow agent, will be returned to the
First Surviving Corporation or the Second Surviving Corporation, as appropriate.
Each of the Shareholders agrees that it will not seek to assert dissenters'
rights to which such Shareholder otherwise would be entitled.
3.5 Fractional Shares. Notwithstanding any other provision of this
-----------------
Agreement, each Shareholder who would otherwise have been entitled to receive a
fraction of a share of Acquiror Common Stock (after taking into account all
certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
Acquiror Common Stock multiplied by the Closing Price of one share of Acquiror
Common Stock. The Closing Price shall be deemed to be the closing price for the
shares of Acquiror Common Stock on the trading day immediately preceding the
Closing Date. No such Shareholder will be entitled to dividends, voting rights,
or any other rights as a shareholder in respect of any fractional shares.
-6-
<PAGE>
ARTICLE 4
EXCHANGE OF SHARES
------------------
4.1 Exchange Procedures. At the Closing, each holder of shares of
-------------------
Company Capital Stock or Nonpareil Common Stock (other than shares to be
canceled pursuant to Section 3.3 or as to which statutory dissenters' rights
have been perfected as provided in Section 3.4) issued and outstanding at the
Effective Time shall surrender the certificate or certificates representing such
shares to the Acquiror and shall promptly upon surrender thereof receive in
exchange therefor the consideration provided in Section 3.1. To the extent
required by Section 3.5, each Shareholder also shall receive, upon surrender of
the certificate or certificates, cash in lieu of any fractional share of
Acquiror Common Stock to which such Shareholder may be otherwise entitled
(without interest). Acquiror shall not be obligated to deliver the consideration
to which any former holder of Company Capital Stock or Nonpareil Common Stock is
entitled as a result of the Merger until such holder surrenders such holder's
certificate or certificates for exchange as provided in this Section 4.1. The
certificate or certificates representing Company Capital Stock or Nonpareil
Common Stock so surrendered shall be duly endorsed as Acquiror may reasonably
require and be accompanied by such other evidence of ownership as Acquiror may
reasonably require.
4.2 Rights of Former Company and Nonpareil Shareholders. At the
---------------------------------------------------
Effective Time, the stock transfer books of Company and Nonpareil shall be
closed as to holders of Company Capital Stock and Nonpareil Common Stock,
respectively, immediately prior to the Effective Time and no transfer of Company
Capital Stock or Nonpareil Common Stock by any such holder shall thereafter be
made or recognized. Until surrendered for exchange in accordance with the
provisions of Section 4.1, each certificate theretofore representing shares of
Company Capital Stock or Nonpareil Common Stock (other than shares to be
canceled pursuant to Sections 3.3 and 3.4) shall from and after the Effective
Time represent for all purposes only the right to receive the consideration
provided in Sections 3.1 and 3.5 in exchange therefor. However, upon surrender
of each such Company Capital Stock or Nonpareil Common Stock certificate, both
the Acquiror Common Stock certificate (together with all such undelivered
dividends or other distributions without interest) and any undelivered dividends
and cash payments payable hereunder (without interest) shall be delivered and
paid with respect to each share represented by such certificate.
4.3 Escrow Agreement. In connection with the Closing, Acquiror and
----------------
the Indemnitor Representative shall have executed and delivered to the other an
escrow agreement (the "Escrow Agreement"), which shall be in the form of Exhibit
-------
1. The Escrow Shares shall be held by Escrow Agent, as escrow agent pursuant to
- -
the terms of the Escrow Agreement.
4.4 Legending of Securities; Pooling Restrictions. The Merger will
---------------------------------------------
be accounted for using the pooling-of-interests method of accounting, and
accordingly each Shareholder agrees that such Shareholder will not transfer or
otherwise reduce such
-7-
<PAGE>
Shareholder's risks relative to the shares of Acquiror Common Stock to be
received by each Shareholder upon consummation of the Merger until the date
which is one business day after publication by Acquiror of its post-Closing
operations for the period which includes at least thirty (30) days of post-
Closing combined operations of Acquiror, Company and Nonpareil. Acquiror agrees
that it will use its best efforts to publish such results within 60 days after
the end of the first fiscal month containing the required 30-day period of post-
Closing combined operations, unless the end of such month is also the end of a
fiscal quarter of the Acquiror, in which event, Acquiror will use its best
efforts to publish such results within 45 days after the end of such month, and
that it will notify the undersigned promptly following such publication. Each
certificate for Acquiror Common Stock to be issued to the Shareholders as part
of the consideration provided in Section 3.1 shall bear the following legend:
"The shares represented by this certificate were issued pursuant
to a business combination which is accounted for as a "pooling
of interests" and may not be sold, nor may the owner thereof
reduce his risks relative thereto in any way, until such time as
Mohawk Industries, Inc. ("Mohawk") has published the financial
results covering at least 30 days of combined operations after
the effective date of the merger through which the business
combination was effected. In addition, the shares represented
by this certificate may not be sold, transferred or otherwise
disposed of except or unless (1) covered by an effective
registration statement under the Securities Act of 1933, as
amended, (2) in accordance with (i) Rule 145(d) (in the case of
shares issued to an individual who is not an affiliate of Mohawk)
or (ii) Rule 144 (in the case of shares issued to an individual
who is an affiliate of Mohawk) of the Rules and Regulations of
such Act, or (3) in accordance with a legal opinion reasonably
satisfactory to counsel for Mohawk that such sale or transfer
is otherwise exempt from the registration requirements of such
Act."
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF COMPANY,
------------------------------------------
NONPAREIL AND THE SHAREHOLDERS
------------------------------
The Shareholders, Company and Nonpareil, jointly and severally, hereby
represent and warrant to Acquiror as follows:
5.1 Organization, Standing, and Power. Company is a corporation
---------------------------------
duly organized, validly existing, and in good standing under the Laws of the
State of Georgia, and has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its Assets. Nonpareil
is a corporation duly organized, validly existing, and in good standing under
the Laws of the State of Georgia, and has the corporate power and authority to
carry on its business as now conducted and to own, lease and operate its Assets.
Each of Company and Nonpareil is duly qualified or
-8-
<PAGE>
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect. The minute book and other
organizational documents for Company and Nonpareil have been made available to
Acquiror for its review and, except as disclosed in Section 5.1 of the Company
and Shareholder Disclosure Memorandum, are true and complete in all Material
respects as in effect as of the date of this Agreement and accurately reflect in
all Material respects all amendments thereto and all proceedings of the Board of
Directors and shareholders thereof.
5.2 Authority of Company and Nonpareil; No Breach By Agreement.
-----------------------------------------------------------
(a) Each of Company and Nonpareil has the corporate power and
authority necessary to execute, deliver, and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery, and performance of this Agreement and the consummation of
the transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of Company and Nonpareil, subject to the approval of this Agreement by the
holders of a majority of the outstanding shares of Company Capital Stock and
Nonpareil Common Stock, which are the only shareholder votes required for
approval of this Agreement and consummation of the Merger by Company and
Nonpareil. Subject to such requisite shareholder approvals, this Agreement
represents a legal, valid, and binding obligation of Company and Nonpareil,
enforceable against Company and Nonpareil in accordance with its terms (except
in all cases as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, conservatorship, moratorium, or
similar Laws affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by
Company, Nonpareil or the Shareholders, nor the consummation by Company,
Nonpareil or the Shareholders of the transactions contemplated hereby, nor
compliance by Company, Nonpareil or the Shareholders with any of the provisions
hereof, will (i) conflict with or result in a breach of any provision of
Company's Articles of Incorporation or Bylaws, Nonpareil's Articles of
Incorporation or Bylaws or the certificate or articles of incorporation or
bylaws of any Company Entity or any resolution adopted by the board of directors
or the shareholders of any Company Entity, or (ii) except as disclosed in
Section 5.2 of the Company and Shareholder Disclosure Memorandum, constitute or
result in a Default under, or require any Consent pursuant to, or result in the
creation of any Lien on any Asset of any Company Entity under, any Contract or
Permit of any Company Entity or, (iii) subject to receipt of the requisite
Consents referred to in Section
-9-
<PAGE>
10.1(b), constitute or result in a Default under, or require any Consent
pursuant to, any Law or Order applicable to any Company Entity or any of their
respective Assets (including any Acquiror Entity or any Company Entity becoming
subject to or liable for the payment of any Tax or any of the Assets owned by
any Acquiror Entity or any Company Entity being reassessed or revalued by any
Tax authority).
(c) Other than in connection or compliance with the provisions of
the Securities Laws, applicable state corporate and securities Laws, and other
than Consents required from Regulatory Authorities, and other than notices to or
filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, or under the HSR Act, no
notice to, filing with, or Consent of, any public body or authority is necessary
for the consummation by Company of the Merger and the other transactions
contemplated in this Agreement.
5.3 Capital Stock; Notes.
--------------------
(a) The authorized capital stock of Company consists of (i)
200,000 shares of Company Voting Common Stock, no par value per share, of which
10,000 shares are issued and outstanding and (ii) 800,000 shares of Company
Nonvoting Common Stock, no par value per share, of which 227,792 shares are
issued and outstanding. The authorized capital stock of Nonpareil consists of
100,000 shares of Nonpareil Common Stock, par value $1.00 per share, of which
1,000 shares are issued and outstanding. No shares of Company Capital Stock or
Nonpareil Common Stock are held in treasury. All of the issued and outstanding
shares of capital stock of Company and Nonpareil are duly and validly issued and
outstanding and are fully paid and nonassessable under the GBCC. None of the
outstanding shares of capital stock of Company or Nonpareil has been issued in
violation of any preemptive rights of the current or past shareholders of
Company or Nonpareil. There are no bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which the Shareholders
may vote.
(b) Except as set forth in Section 5.3(a) or as disclosed in
Section 5.3(b) of the Company and Shareholder Disclosure Memorandum, there are
no shares of capital stock or other equity securities of Company or Nonpareil
outstanding and no outstanding Equity Rights relating to the capital stock of
Company or Nonpareil. Each of the Shareholders is the owner of all right, title
and interest (legal and beneficial) in and to that number or amount of Shares
set forth next to such Shareholder's name in Section 5.3(a) of the Company and
Shareholder Disclosure Memorandum, free and clear of all Liens. Collectively,
the Shareholders own all right, title and interest (legal and beneficial) in and
to all of the issued and outstanding shares of Company Capital Stock and
Nonpareil Common Stock. Except as specifically contemplated by this Agreement,
no Person has any Contract or any right or privilege (whether pre-emptive or
contractual) capable of becoming a Contract for the purchase from the
Shareholders of any of the Shares, or any Contract or Equity Right for the
purchase, subscription or issuance of any securities of Company or Nonpareil.
-10-
<PAGE>
5.4 Company Subsidiaries. Each of Company and Nonpareil has
--------------------
disclosed in Section 5.4 of the Company and Shareholder Disclosure Memorandum
all of the Company Subsidiaries that are corporations (identifying its
jurisdiction of incorporation, each jurisdiction in which it is qualified and/or
licensed to transact business, and the number of shares owned and percentage
ownership interest represented by such share ownership) and all of the Company
Subsidiaries that are general or limited partnerships, limited liability
companies, or other non-corporate entities (identifying the Law under which such
entity is organized, each jurisdiction in which it is qualified and/or licensed
to transact business, and the amount and nature of the ownership interest
therein). Except as disclosed in Section 5.4 of the Company and Shareholder
Disclosure Memorandum, Company, Nonpareil or one of their respective wholly-
owned Subsidiaries owns all of the issued and outstanding shares of capital
stock (or other equity interests) of each Company Subsidiary. No capital stock
(or other equity interest) of any Company Subsidiary is or may become required
to be issued (other than to another Company Entity) by reason of any Equity
Rights, and there are no Contracts by which any Company Subsidiary is bound to
issue (other than to another Company Entity) additional shares of its capital
stock (or other equity interests) or Equity Rights or by which any Company
Entity is or may be bound to transfer any shares of the capital stock (or other
equity interests) of any Company Subsidiary (other than to another Company
Entity). There are no Contracts relating to the rights of any Company Entity to
vote or to dispose of any shares of the capital stock (or other equity
interests) of any Company Subsidiary. All of the shares of capital stock (or
other equity interests) of each Company Subsidiary held by a Company Entity are
fully paid and nonassessable under the applicable corporation Law of the
jurisdiction in which such Subsidiary is incorporated or organized and are owned
by the Company Entity free and clear of any Lien other than under the Securities
Laws and applicable state securities Laws. Except as disclosed in Section 5.4
of the Company and Shareholder Disclosure Memorandum, each Company Subsidiary is
a corporation, and each such Subsidiary is duly organized and validly existing,
and (as to corporations) in good standing under the Laws of the jurisdiction in
which it is incorporated or organized, and has the corporate power and authority
necessary for it to own, lease, and operate its Assets and to carry on its
business as now conducted. Each Company Subsidiary is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect. The minute book and other
organizational documents for each Company Subsidiary have been made available to
Acquiror for its review, and, except as disclosed in Section 5.4 of the Company
and Shareholder Disclosure Memorandum, are true and complete in all Material
respects as in effect as of the date of this Agreement and accurately reflect in
all Material respects all amendments thereto and all Material proceedings of the
Board of Directors and shareholders thereof.
5.5 Financial Statements. Each of the Company Financial Statements
--------------------
(including, in each case, any related notes) was prepared in accordance with
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<PAGE>
GAAP applied on a consistent basis throughout the periods involved, and fairly
present in all Material respects the financial position of Company and its
Subsidiaries or Nonpareil and its Subsidiaries, as appropriate, as at the
respective dates and the results of operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to (i) normal and recurring year-end adjustments which were not or are
not expected to be Material in amount or effect and (ii) the absence of notes
that, if presented, would not differ Materially from those included in the most
recent audited Company Financial Statements.
5.6 Absence of Undisclosed Liabilities. Except as set forth in
----------------------------------
Section 5.6 of the Company and Shareholder Disclosure Memorandum, no Company
Entity has any Liabilities that are reasonably likely to have, individually or
in the aggregate, a Company Material Adverse Effect, except Liabilities which
are accrued or reserved against in the consolidated balance sheets of Company as
of December 31, 1998, included in the Company Financial Statements delivered
prior to the date of this Agreement or reflected in the notes thereto. Except as
set forth in Section 5.6 of the Company and Shareholder Disclosure Memorandum,
no Company Entity has incurred or paid any Liability since December 31, 1998,
except for such Liabilities incurred or paid (i) in the ordinary course of
business consistent with past business practice and which are not reasonably
likely to have, individually or in the aggregate, a Company Material Adverse
Effect or (ii) in connection with the transactions contemplated by this
Agreement. Except as disclosed in Section 5.6 of the Company and Shareholder
Disclosure Memorandum, no Company Entity is directly or indirectly liable, by
guarantee, indemnity, or otherwise, upon or with respect to, or obligated, by
discount or repurchase agreement or in any other way, to provide funds in
respect to, or obligated to guarantee or assume any Liability of any Person for
any amount in excess of $25,000.
5.7 Absence of Certain Changes or Events. Since December 31, 1998,
------------------------------------
except as disclosed in the Company Financial Statements delivered prior to the
date of this Agreement or as disclosed in Section 5.7 of the Company and
Shareholder Disclosure Memorandum: (i) except as a result of changes in Laws of
general applicability or changes in the national economy, to Company's
Knowledge, there have been no events, changes, or occurrences which have had, or
are reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect, (ii) the Company Entities have not taken any action, or
failed to take any action, prior to the date of this Agreement, which action or
failure, if taken after the date of this Agreement, would represent or result in
a Material breach or violation of any of the covenants and agreements of Company
or Nonpareil provided in Article 8 and (iii) each of the Company and Nonpareil
has not:
(a) incurred any additional debt or other obligation for borrowed
money; or
(b) repurchased, redeemed, or otherwise acquired or exchanged,
directly or indirectly, any shares, or any securities convertible into any
shares, of
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<PAGE>
the capital stock of any Company Entity, or declared or paid any dividend
or made any other distribution in respect of the capital stock of any
Company Entity; or
(c) except pursuant to this Agreement, issued, sold, pledged,
encumbered, authorized the issuance of, entered into any Contract to issue,
sell, pledge, encumber, or authorize the issuance of, or otherwise
permitted to become outstanding, any additional shares of Company Capital
Stock, Nonpareil Common Stock, or any other capital stock of any Company
Entity, or any stock appreciation rights, or any option, warrant, or other
Equity Right with respect to any capital stock of any Company Entity; or
(d) sold, leased, mortgaged or otherwise disposed of or otherwise
encumbered any Asset other than in the ordinary course of business for
reasonable and adequate consideration; or
(e) granted any increase in compensation or benefits to the employees
or officers of any Company Entity, except as required by Law or pursuant to
the express terms of Contracts or policies which are described in Section
8.2(g) of the Company and Shareholder Disclosure Memorandum and other than
ordinary and customary increases in employee salaries in connection with
periodic employee evaluations; paid any severance or termination pay or any
bonus other than pursuant to written policies or written Contracts in
effect on the date of this Agreement and disclosed in Section 8.2(g) of the
Company and Shareholder Disclosure Memorandum; or entered into or amended
any severance agreements with officers of any Company Entity, granted any
increase in fees or other increases in compensation or other benefits to
directors of any Company Entity; or
(f) entered into any employment Contract between Company and any
Person that Company does not have the unconditional right to terminate
without Liability (other than Liability for services already rendered), at
any time on or after the Effective Time; or
(g) adopted any new employee benefit plan of any Company Entity or
terminated or withdrawn from, or made any Material change in or to, any
existing employee benefit plans of any Company Entity other than any such
change that was required by Law or that, in the opinion of counsel to the
Company, was necessary or advisable to maintain the tax qualified status of
any such plan, or made any distributions from such employee benefit plans,
except as required by Law, the terms of such plans or consistent with past
practice; or
(h) made any change in any Tax or accounting methods or systems of
internal accounting controls; or
(i) commenced any Litigation other than in accordance with past
practice, settled any Litigation involving any Liability of any Company
Entity for
-13-
<PAGE>
Material money damages or Material restrictions upon the operations of any
Company Entity; or
(j) entered into, modified, amended or terminated any Material
Contract (including any loan Contract) or waived, released, compromised or
assigned any Material rights or claims.
5.8 Tax Matters.
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(a) Except as set forth in Section 5.8 of the Company and
Shareholder Disclosure Memorandum, all Tax Returns required to be filed (for any
period for which any statute of limitations is open or for any period or portion
thereof after December 31, 1989) by or on behalf of any of the Company Entities
have been filed (and, with respect to federal and state income tax returns, have
been timely filed), or requests for extensions have been filed (and, extensions
with respect to federal and state income tax returns, have been timely filed),
granted, and have not expired for periods ended on or before the date of the
most recent fiscal year end immediately preceding the Effective Time, and,
except as set forth in Section 5.8 of the Company and Shareholder Disclosure
Memorandum, all such Tax Returns are complete and accurate. Except as set forth
in Section 5.8 of the Company and Shareholder Disclosure Memorandum, all Taxes
of the Company Entities (for any period for which any statute of limitations is
open or for any period or portion thereof after December 31, 1989) whether or
not shown on filed Tax Returns have been paid, other than Taxes incurred in the
ordinary course of business since January 1, 1998 which are not due or payable.
There is no audit or examination currently pending to the Knowledge of any
Company Entity (and there is no deficiency, refund or other Litigation currently
pending) with respect to any Taxes of any of the Company Entities, except: (i)
as disclosed and reserved against in the Company Financial Statements delivered
prior to the date of this Agreement or (ii) as disclosed in Section 5.8 of the
Company and Shareholder Disclosure Memorandum. Neither Company nor Nonpareil has
received written notice of any audit or examination from the IRS for any taxable
period ending after January 1, 1987. Except for Permitted Liens, there are no
Liens with respect to Taxes upon any of the Assets of any of the Company
Entities.
(b) Except as set forth in Section 5.8 of the Company and
Shareholder Disclosure Memorandum, none of the Company Entities has executed an
extension or waiver of any statute of limitations on the assessment or
collection of any Tax due (excluding such statutes that relate to years
currently under examination by the Internal Revenue Service or other applicable
taxing authorities) that is currently in effect .
(c) Except as set forth in Section 5.8 of the Company and
Shareholder Disclosure Memorandum, the current provision for any Taxes due or to
become due for any of the Company Entities for the period or periods through and
including the date of the respective Company Financial Statements that has been
made and is reflected on such Company Financial Statements is sufficient to
cover all such Taxes and has been recorded in accordance with GAAP.
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(d) Except as set forth in Section 5.8 of the Company and
Shareholder Disclosure Memorandum, deferred Taxes of the Company Entities on the
Company Financial Statements have been provided for in accordance with GAAP.
(e) None of the Company Entities is a party to any Tax allocation
or sharing agreement and none of the Company Entities has been a member of an
affiliated group filing a consolidated federal income Tax Return or has any
Liability for Taxes of any Person under Treasury Regulation Section 1.1502-6 (or
any similar provision of state, local or foreign Law) as a transferee or
successor or by Contract or otherwise.
(f) Each of the Company Entities is in Material compliance with,
and its records contain all information and documents (including properly
completed IRS Forms W-9) necessary to comply in all Material respects with, all
applicable information reporting and Tax withholding requirements under federal,
state, and local Tax Laws, and such records identify with specificity all
accounts subject to backup withholding under Section 3406 of the Internal
Revenue Code.
(g) Except as disclosed in Section 5.8 of the Company and
Shareholder Disclosure Memorandum, none of the Company Entities has made any
payments, is obligated to make any payments, or is a party to any Contract that
could obligate it to make (or deem it to make) any payments that would be
disallowed as a deduction under Section 280G or 162(m) of the Internal Revenue
Code.
(h) There has not been an ownership change, as defined in
Internal Revenue Code Section 382(g), with respect to any of the Company
Entities that occurred during or after any taxable period in which any of the
Company Entities incurred a net operating loss that carries over to any taxable
period ending after February 28, 1998.
(i) Since January 1, 1992, except as set forth in Section 5.8 of
the Company and Shareholder Disclosure Memorandum, no Company Entity has or has
had in any foreign country a permanent establishment, as defined in any
applicable tax treaty or convention between the United States and such foreign
country.
(j) Except as disclosed in Section 5.8 of the Company and
Shareholder Disclosure Memorandum, all sales and use Taxes with respect to the
Company Entities have been paid to the proper taxing authorities or accrued in
the ordinary course of business or all necessary certificates of exemption have
been received and retained with respect thereto.
(k) Except as disclosed in Section 5.8 of the Company and
Shareholder Disclosure Memorandum, with respect to all samples sold or given
away by any of the Company Entities, sales and use Taxes have been properly
calculated and submitted to the applicable taxing authorities or accrued in the
ordinary course of business.
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(l) Except as disclosed in Section 5.8 of the Company and
Shareholder Disclosure Memorandum, none of the Company Entities have received
any currently pending notice of assessment or currently pending proposed
assessment in connection with any Tax Returns.
(m) Except as disclosed in Section 5.8 of the Company and
Shareholder Disclosure Memorandum, none of the Company Entities has agreed to
make (and, therefore, is obligated to make), nor is any of the Company Entities
required to make, any adjustment under Section 481(a) of the Internal Revenue
Code (or a similar provision under any state, local or foreign Law) by reason of
a change in method of accounting or otherwise.
(n) None of the transactions described in this Agreement will
cause any of the Company Entities to recognize any gain under Section 355(c) or
Section 361(c) of the Internal Revenue Code as a result of Section 355(e)
applying.
5.9 Assets and Accounts Payable.
----------------------------
(a) Except as disclosed in Section 5.9 of the Company and
Shareholder Disclosure Memorandum or as disclosed or reserved against in the
Company Financial Statements delivered prior to the date of this Agreement, the
Company Entities have good title, free and clear of all Liens, to all of their
respective Assets, except for any Permitted Liens. All tangible properties used
in the businesses of the Company Entities are in good condition, reasonable wear
and tear excepted, and are usable in the ordinary course of business consistent
with the past practices of Company and Nonpareil.
(b) All items of inventory of the Company Entities reflected on
the most recent balance sheet included in the Company Financial Statements
delivered prior to the date of this Agreement and prior to the Effective Time
consisted and will consist, as applicable, of items of a quality and quantity
usable and salable in the ordinary course of business, conform to generally
accepted standards in the industry in which the Company Entities are a part and,
except for surplus or obsolete items or items of below standard quality which
have been written off, written down or reserved against to net realizable value,
are valued in accordance with GAAP. All items of inventory of the Company
Entities reflected on the most recent balance sheet included in the Company
Financial Statements delivered prior to the Effective Time consisted and will
consist, as applicable, of items of a quality and quantity usable and salable in
the ordinary course of business, conform to generally accepted standards in the
industry in which the Company Entities are a part and are valued in accordance
with GAAP. The Company Entities currently have no items of the Hospitality
inventory included in inventory on the balance sheets in the Company Financial
Statements in excess of 360 days from production, other than inventory that has
been revalued on the Company Financial Statements to $3.00 per square yard. The
Company Entities currently have no items of the Commercial inventory included in
inventory on the balance sheets in the Company Financial Statements in excess
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of 590 days from production, other than inventory that has been revalued on the
Company Financial Statements to $3.00 per square yard. The Company Entities
currently have no short rolls (38 feet in length or less) included in inventory
on the balance sheets in the Company Financial Statements other than short rolls
that have been revalued to $1.99 per square yard. The Company Entities currently
have no drops or seconds included in inventory reflected on the balance sheets
in the Company Financial Statements other than drops and seconds which have been
revalued at $3.00 per square yard. The Company Entities currently have no
"reboxed" yarn, creel out yarn or aged yarn in excess of 12 months from its last
use in production included in inventory on the balance sheets in the Company
Financial Statements, other than yarn which has been revalued on the Company
Financial Statements to $.65 per pound or less.
(c) The accounts receivable of the Company Entities as set forth
on the most recent balance sheet included in the Company Financial Statements
delivered prior to the date of this Agreement or arising since the date thereof
are valid and genuine and are valued in accordance with GAAP; have arisen solely
out of bona fide sales and deliveries of goods, performance of services and
other business transactions in the ordinary course of business consistent with
past practice; are not subject to valid defenses, set-offs or counterclaims; and
are collectible within 90 days after billing at the full recorded amount thereof
less, in the case of accounts receivable appearing on the most recent balance
sheet included in the Company Financial Statements delivered prior to the date
of this Agreement, the recorded allowance for collection losses and applicable
reserves on such balance sheet. The allowance for collection losses on such
balance sheet has been determined in accordance with GAAP.
(d) All Assets which are Material to Company's business on a
consolidated basis, held under leases or subleases by any of the Company
Entities, are held under valid Contracts enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought), and
each such Contract is in full force and effect.
(e) The Company Entities currently maintain insurance
substantially similar in amounts, scope, and coverage to that maintained by
other peer organizations. Except as set forth in Section 5.9(e) of the Company
and Shareholder Disclosure Memorandum, none of the Company Entities has received
notice from any insurance carrier that (i) any policy of insurance will be
canceled or that coverage thereunder will be Materially reduced or eliminated,
or (ii) premium costs with respect to such policies of insurance will be
substantially increased. There are presently no claims pending under such
policies of insurance.
(f) The Assets of the Company Entities include all Assets
required to operate the business of the Company Entities as presently conducted,
except
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with respect to products and services which Company outsources in the ordinary
course of Company's business and with respect to supplies, raw materials,
components, inventory and other similar items which Company purchases from third
parties in the ordinary course of Company's business.
(g) Except as set forth in Section 5.9(g) of the Company and
Shareholder Disclosure Memorandum, the accounts payable shown on the Company
Financial Statements, and all accounts payable created since December 31, 1998
through the Effective Time, (i) represent and will represent valid obligations
owing by Company or Nonpareil, as appropriate, (ii) have been incurred by
Company or Nonpareil, as appropriate, in the ordinary course of business, and
(iii) have been and will be paid in accordance with the terms thereof, which are
substantially similar to terms available generally in Company's industry.
5.10 Intellectual Property. Each Company Entity owns or has a
---------------------
license or right to use all of the Intellectual Property used by such Company
Entity in the course of its business. Each Company Entity is the owner of or has
a license to any Intellectual Property sold or licensed to a third party by such
Company Entity in connection with such Company Entity's business operations, and
such Company Entity has the right to convey by sale or license any Intellectual
Property so conveyed. No Company Entity is in Default under any of its
Intellectual Property licenses. No proceedings have been instituted, or are
pending or, to the Knowledge of Company, threatened, which challenge the rights
of any Company Entity with respect to Intellectual Property used, sold or
licensed by such Company Entity in the course of its business, nor has any
person claimed or alleged any rights to such Intellectual Property. The conduct
of the business of the Company Entities does not infringe any Intellectual
Property of any other person. Except as disclosed in Section 5.10 of the
Company and Shareholder Disclosure Memorandum, no Company Entity is obligated to
pay any recurring royalties to any Person with respect to any such Intellectual
Property. To the Knowledge of Company, no officer, director or employee is
party to any Contract with any Person other than a Company Entity which requires
such officer, director or employee to assign any interest in any Intellectual
Property to any Person other than a Company Entity or to keep confidential any
trade secrets, proprietary data, customer information, or other business
information of any Person other than a Company Entity. Except as disclosed in
Section 5.10 of the Company and Shareholder Disclosure Memorandum, to the
Knowledge of Company, no officer, director or employee of any Company Entity is
party to any Contract which restricts or prohibits such officer, director or
employee from engaging in activities competitive with any Person, including any
Company Entity. Each item of Material Intellectual Property is set forth in
Section 5.10A of the Company and Shareholder Disclosure Memorandum.
5.11 Environmental Matters.
---------------------
(a) Each Company Entity, its Participation Facilities, and its
Operating Properties are, and have been, in compliance with all Environmental
Laws,
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except for violations which are not reasonably likely to have, individually or
in the aggregate, a Company Material Adverse Effect.
(b) There is no Litigation (or, to Company's Knowledge, any
litigation against any person whose liability, or any portion thereof, any
Company Entity has retained or assumed contractually or by operation of law)
pending or, to the Knowledge of the Company, threatened before any court,
governmental agency, or authority or other forum in which any Company Entity or
any of its Operating Properties or Participation Facilities has been or, with
respect to threatened Litigation, may be named as a defendant (i) for
noncompliance or alleged noncompliance (including by any predecessor) with any
Environmental Law, (ii) relating to the emission, release or threatened release,
discharge, spillage, or disposal into the environment of any Hazardous Material,
whether or not occurring from, at, on, under, adjacent to, or affecting any
Company Entity or at any of its Operating Properties or Participation
Facilities, (iii) relating to the transportation, treatment, storage, recycling
or other handling of any Hazardous Material, (iv) relating to the placement of
structures or materials into waters of the United States, or (v) relating to the
presence of any Hazardous Material, including, but not limited to, asbestos, in
any building, structure or workplace of any Company Entity or at any of its
Operating Properties or Participation Facilities, nor, to the Knowledge of the
Company, are there any past or present actions, activities, circumstances,
conditions, events, or incidents that could reasonably be expected to give rise
to any Litigation of a type described in this sentence.
(c) Except as not reasonably likely to have a Company Material
Adverse Effect and except as allowed by Environmental Laws in effect as of the
date hereof, no surface or subsurface soil, surface water, ground water, or
subsurface strata in, under or, to Company's Knowledge, adjacent to any Company
Entity's Operating Properties or Participation Facilities has been contaminated
by any Hazardous Material to such an extent that is required to be reported to
any Regulatory Authority or investigated, removed, remediated or cleaned up
under any Environmental Law, and which has not been reported, investigated,
removed, remediated or cleaned up as so required.
(d) Without limiting the generality of any of the foregoing,
during the period of (i) any Company Entity's ownership or operation of any of
their respective Operating Properties or Participation Facilities, (ii) any
Company Entity's participation in the management of any Participation Facility,
or (iii) any Company Entity's holding of a security interest in an Operating
Property, there have been no emissions, releases, discharges, spillages, or
disposals of Hazardous Material from, in, on, under, or, to Company's Knowledge,
adjacent to, or affecting such properties, except such as are in full compliance
with Environmental Laws in effect as of the date hereof and are not reasonably
likely to have, individually or in the aggregate, a Company Material Adverse
Effect. To the Knowledge of the Company, prior to the period of (i) any Company
Entity's ownership or operation of any of their respective current properties,
(ii) any Company Entity's participation in the management of any Participation
Facility, or (iii) any Company Entity's holding of a security interest in an
Operating Property, there were no
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emissions, releases, discharges, spillages, or disposals of Hazardous Material
from, in, on, under, or affecting any such property, Participation Facility or
Operating Property, except such as are in full compliance with Environmental
Laws in effect as of the date hereof and are not reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect. Each
Company Entity has complied in all Material respects with all reporting
requirements under Environmental Laws concerning the emission, release,
discharge, spillage, or disposal of Hazardous Materials concerning any site
owned, leased, or operated by any Company Entity or any of its Operating
Properties or Participation Facilities or concerning operations or activities at
such properties.
(e) All waste containing any Hazardous Materials generated, used,
handled, stored, treated or disposed of (directly or indirectly) by any Company
Entity or at any Company Entity's Operating Properties or Participation
Facilities has been stored or disposed of in Material compliance with all
applicable Environmental Laws in effect as of the date hereof, except as not
reasonably likely to have a Company Material Adverse Effect. All such wastes
have been removed from all such properties. Without limiting the generality of
any of the foregoing, all onsite and offsite locations where any Company Entity
has stored, disposed of or arranged for the disposal of Hazardous Materials are
identified in Section 5.11 of the Company and Shareholder Disclosure Memorandum.
(f) All underground tanks and other underground storage
facilities located at any Company Entity's Operating Properties or Participation
Facilities are listed together with the capacity and contents of each such tank
or facility set forth in Section 5.11(f) of the Company and Shareholder
Disclosure Memorandum. None of such underground tanks or facilities is leaking
or has leaked, except as not reasonably likely to have a Company Material
Adverse Effect.
(g) None of the Operating Properties or Participation Facilities
of any Company Entity contains any friable asbestos-containing materials and no
polychlorinated biphenyls (PCB's) are used or stored on or in any such
properties, except as not reasonably likely to have a Company Material Adverse
Effect.
(h) Section 5.11 of the Company and Shareholder Disclosure
Memorandum contains a correct and complete list of all environmental site
assessments and other environmental studies, including, without limitation, any
environmental sampling and laboratory analytical data, obtained by or in the
possession of any or all Company Entities relating to any Company Entity's
Operating Properties or Participation Facilities, and the Company has previously
delivered to Acquiror a correct and complete copy of each such assessment and
study and any such data.
Notwithstanding any other provision of this Agreement, Sections 5.11
and 5.12 contain the sole and exclusive representations and warranties of the
Company related to environmental matters, including, without limitation,
anything arising under Environmental Laws.
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5.12 Compliance with Laws. Each Company Entity has in effect all
--------------------
Permits necessary for it to own, lease, or operate its Material Assets and to
carry on its business as now conducted, except for those Permits the absence of
which are not reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect, and there has occurred and is continuing no
Default under any such Permit, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a Company Material Adverse
Effect. Except as disclosed in Section 5.12 of the Company and Shareholder
Disclosure Memorandum, none of the Company Entities:
(a) is in Default under any of the provisions of its Articles of
Incorporation or Bylaws (or other governing instruments);
(b) is in Default under any Laws, Orders, or Permits applicable to its
business or employees conducting its business except for Defaults which are
not reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect; or
(c) since January 1, 1997, has received any notification or
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i) asserting
that any Company Entity is not in compliance with any of the Laws or Orders
which such governmental authority or Regulatory Authority enforces, or (ii)
requiring any Company Entity to enter into or consent to the issuance of a
cease and desist order, formal agreement, directive, commitment, or
memorandum of understanding, or to adopt any Board resolution or similar
undertaking.
Copies of all Material reports, correspondence, notices and other documents
relating to any inspection, audit, monitoring or other form of review or
enforcement action by a Regulatory Authority have been made available to
Acquiror.
5.13 Labor Relations.
---------------
(a) No Company Entity is the subject of any currently pending
Litigation asserting that it or any other Company Entity has committed an unfair
labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other Company Entity to
bargain with any labor organization as to wages or conditions of employment, nor
is any Company Entity party to any collective bargaining agreement, nor is there
any strike or other labor dispute involving any Company Entity pending or, to
the Knowledge of the Company, threatened, nor to the Knowledge of Company, is
there any activity involving any Company Entity's employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
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(b) Except as disclosed in Section 5.13 of the Company and
Shareholder Disclosure Memorandum, neither the Company nor Nonpareil has
received any notice that any of the officers, employees, consultants, agents, or
other persons currently performing services for any Company Entity, will
terminate or has stated an intention to terminate his or her employment
currently or at any time before or within 60 days after the Closing Date or will
otherwise not be available to Acquiror, or not agree to employment with
Acquiror, on substantially equivalent terms and conditions as his or her current
employment by such Company Entity.
(c) Since 1989, none of the Company Entities has effectuated (i)
a "plant closing", as defined in the Worker Adjustment and Retraining
Notification Act (the "WARN Act"), affecting any site of employment or one or
more facilities or operating units within any site of employment or facility of
the Company; or (ii) a "mass layoff" (as defined in the WARN Act) affecting any
site of employment or facility of the Company; nor has the Company been affected
by any transaction or engaged in layoffs or employment terminations sufficient
in number to trigger application of any similar state or local law. Except as
disclosed in Section 5.13 of the Company and Shareholder Disclosure Memorandum,
none of the Company's employees has suffered an "employment loss" (as defined in
the WARN Act) since six (6) months prior to the date hereof
5.14 Employee Benefit Plans.
----------------------
(a) Company has disclosed in Section 5.14 of the Company and
Shareholder Disclosure Memorandum, and has delivered or made available to
Acquiror prior to the execution of this Agreement copies in each case of, all
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plan, all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans, and
all other employee benefit plans or fringe benefit plans, including "employee
benefit plans" as that term is defined in Section 3(3) of ERISA, currently
adopted, maintained by, sponsored in whole or in part by, or contributed to by
any Company Entity or any entity which is considered one employer with Company
under Section 4001 of ERISA or Section 414 of the Internal Revenue Code or
Section 302 of ERISA (whether or not waived) (an "ERISA Affiliate") thereof for
the benefit of employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
are eligible to participate (collectively, the "Company Benefit Plans"). Any of
the Company Benefit Plans which is an "employee pension benefit plan," as that
term is defined in Section 3(2) of ERISA, is referred to herein as a "Company
ERISA Plan." No Company Entity nor an ERISA Affiliate thereof has ever
maintained, sponsored or contributed to a "defined benefit plan" (as defined in
Section 414(j)) of the Internal Revenue Code) or a multiemployer plan within the
meaning of Section 3(37) of ERISA.
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(b) Company has delivered or made available to Acquiror prior to
the execution of this Agreement correct and complete copies of the following
documents: (i) all trust agreements or other funding arrangements for such
Company Benefit Plans (including insurance contracts), and all amendments
thereto; (ii) with respect to any such Company Benefit Plans or amendments
thereto, all determination letters, rulings, opinion letters, information
letters, or advisory opinions issued by the Internal Revenue Service, the United
States Department of Labor, or the Pension Benefit Guaranty Corporation; (iii)
annual reports or returns, audited or unaudited financial statements, actuarial
valuations and reports, and summary annual reports prepared for any Company
Benefit Plan with respect to the most recent plan year; (iv) the most recent
summary plan descriptions and any modifications thereto; and (v) copies of any
filings with the Internal Revenue Service under Rev. Proc. 94-64 or its
successor revenue procedures (VCR Program), closing agreements involving an
Employee Benefit Plan, filings under Rev. Proc. 94-16 or its successor revenue
procedures (Walk in CAP) or documentation required under the field directive
issued 1/7/97 or its successor authority discussing the IRS Administrative
Policy Regarding Self-Correction where such procedure has been used in
connection with an Employee Benefit Plan.
(c) All Company Benefit Plans are in Material compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other applicable
Laws the breach or violation of which are reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect. Each
Company ERISA Plan which is intended to be qualified under Section 401(a) of the
Internal Revenue Code has received a favorable determination letter or opinion
letter from the Internal Revenue Service, and Company has no Knowledge of any
circumstances likely to result in revocation of any such favorable determination
letter or opinion letter. No Company Entity has engaged in a transaction with
respect to any Company Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject any Company Entity to a
Tax imposed by either Section 4975 of the Internal Revenue Code or Section
502(i) of ERISA in amounts which are reasonably likely to have, individually or
in the aggregate, a Company Material Adverse Effect. None of the Company
Entities nor, to the Knowledge of Company, any administrator or fiduciary of any
Company Benefit Plan (or any agent of any of the foregoing) has engaged in any
transaction, or acted or failed to act in any manner which could subject any
Company Entity to any direct or indirect liability (by indemnity or otherwise)
for breach of any fiduciary, co-fiduciary, or other duty under ERISA, where such
liability, individually or in the aggregate, is reasonably likely to have a
Company Material Adverse Effect. No oral or written representation or
communication with respect to any aspect of the Company Benefit Plans has been
made to employees of any Company Entity or ERISA Affiliate which is not in
accordance with the written or otherwise preexisting terms and provisions of
such plans, where any liability, individually or in the aggregate, with respect
to such representation or disclosure is reasonably likely to have a Company
Material Adverse Effect. There are no unresolved claims or disputes under the
terms of, or in connection with, any Company Benefit Plan other than claims for
benefits which are payable in the ordinary course of business and no action,
proceeding,
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prosecution, inquiry, hearing or investigation has been commenced with respect
to any Company Benefit Plan.
(d) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV of ERISA has been or is expected to
be incurred by any Company Entity with respect to any ongoing, frozen, or
terminated single-employer plan or the single-employer plan of any ERISA
Affiliate. No Company Entity has incurred any withdrawal Liability with respect
to a multiemployer plan under Subtitle B of Title IV of ERISA (regardless of
whether based on contributions of an ERISA Affiliate). No notice of a
"reportable event," within the meaning of Section 4043 of ERISA for which the
30-day reporting requirement has not been waived, has been required to be filed
for any Company ERISA Plan or by any ERISA Affiliate within the 12-month period
ending on the date hereof.
(e) Except as disclosed in Section 5.14 of the Company and
Shareholder Disclosure Memorandum and except as required by the Consolidated
Omnibus Reconciliation Act of 1984, as amended, no Company Entity has any
Liability for retiree health and life benefits under any of the Company Benefit
Plans and there are no restrictions on the rights of such Company Entity to
amend or terminate any such retiree health or benefit Plan without incurring any
Liability thereunder.
(f) Except as disclosed in Section 5.14 of the Company and
Shareholder Disclosure Memorandum, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (i)
result in any payment (including severance, unemployment compensation, golden
parachute, or otherwise) becoming due to any director or any employee of any
Company Entity from any Company Entity under any Company Benefit Plan or
otherwise, (ii) increase any benefits otherwise payable under any Company
Benefit Plan, or (iii) result in any acceleration of the time of payment or
vesting of any such benefit.
(g) The actuarial present values of all accrued deferred
compensation entitlements (including entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of any Company Entity and their respective beneficiaries, other
than entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the Company Financial Statements to the extent
required by and in accordance with GAAP.
5.15 Material Contracts. Except as disclosed in Section 5.15 of the
------------------
Company and Shareholder Disclosure Memorandum or otherwise reflected in the
Company Financial Statements, none of the Company Entities, nor any of their
respective Assets, businesses or operations, is a party to, or is bound by, or
receives benefits under, (i) any employment, severance, termination, consulting,
or retirement Contract providing for aggregate payments to any Person in any
calendar year in excess of $50,000; (ii) any Contract relating to the borrowing
of money by any Company Entity or the guarantee by
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any Company Entity of any such obligation (other than Contracts evidencing trade
payables and Contracts relating to borrowings or guarantees made in the ordinary
course of business); (iii) any Contract which prohibits or restricts any Company
Entity from engaging in any business activities in any geographic area, line of
business or otherwise in competition with any other Person; (iv) any Contract
with, between or among Company Entities, or any Affiliate thereof; (v) any
Contract involving Intellectual Property used by any Company Entity in the
course of its business (other than Contracts entered into in the ordinary course
with customers and "shrink-wrap" software licenses); (vi) any Contract relating
to the provision of data processing, network communication, or other technical
services to or by any Company Entity requiring payments by any Company Entity in
excess of $50,000 in any calendar year; (vii) any written Contract relating to
the purchase or sale of any goods or services (other than Contracts entered into
in the ordinary course of business and involving annual payments under any
individual Contract not in excess of $100,000); and (viii) any oral Contract
relating to the purchase or sale of any goods or services (other than Contracts
entered into in the ordinary course of business and involving annual payments
under any individual Contract not in excess of $50,000) (together with all
Contracts referred to in Sections 5.9 and 5.14(a), the "Company Contracts").
With respect to each Company Contract and except as disclosed in Section 5.15 of
the Company and Shareholder Disclosure Memorandum: (i) the Contract is in full
force and effect; (ii) no Company Entity is in Material Default thereunder;
(iii) no Company Entity has repudiated or waived any Material provision of any
such Contract; and (iv) no other party to any such Contract is, to the Knowledge
of Company, in Default in any Material respect or has repudiated or waived any
Material provision thereunder. All of the indebtedness of any Company Entity for
money borrowed is prepayable at any time by such Company Entity without penalty
or premium.
5.16 Legal Proceedings. Except as set forth in Section 5.16 of the
-----------------
Company and Shareholder Disclosure Memorandum, there is no Litigation instituted
or pending, or, to the Knowledge of Company, threatened against any Company
Entity, or against any director, employee or employee benefit plan of any
Company Entity, or against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a Company Material
Adverse Effect, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any Company Entity.
Section 5.16 of the Company and Shareholder Disclosure Memorandum contains a
summary of all pending Litigation as of the date of this Agreement to which any
Company Entity is a party and which names a Company Entity as a defendant or
cross-defendant.
5.17 Reports. Since January 1, 1994, or the date of organization if
-------
later, each Company Entity has filed all reports and statements, together with
any amendments required to be made with respect thereto, that it was required to
file with Regulatory Authorities, except those reports for which the failure to
file would not be reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect. As of their respective dates, each of such
reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all Material respects with
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all applicable Laws. As of its respective date, each such report and document
did not, in all Material respects, contain any untrue statement of a Material
fact or omit to state a Material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading.
5.18 Statements True and Correct. No statement, certificate,
---------------------------
instrument, or other writing furnished by any Company Entity or any Affiliate
thereof to Acquiror pursuant to this Agreement contains any untrue statement of
Material fact or omits to state a Material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All documents that any Company Entity or any Affiliate thereof is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all Material respects
with the provisions of applicable Law.
5.19 Accounting, Tax and Regulatory Matters. To Company's Knowledge,
--------------------------------------
no Company Entity or any Shareholder or any Affiliate thereof has taken or
agreed to take any action or has any Knowledge of any fact or circumstance that
is reasonably likely to (i) prevent either of the Company Merger or the
Nonpareil Merger from qualifying for pooling-of-interests accounting treatment
or as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code, or (ii) Materially impede or delay receipt of any Consents of
Regulatory Authorities referred to in Section 10.1(a) or result in the
imposition of a condition or restriction of the type referred to in the last
sentence of such Section.
5.20 State Takeover Laws. Each Company Entity and each Shareholder
-------------------
has taken all necessary action to exempt the transactions contemplated by this
Agreement from, or if necessary to challenge the validity or applicability of,
any applicable "moratorium," "fair price," "business combination," "control
share," or other anti-takeover Laws (collectively, "Takeover Laws"), including,
but not limited to, Section 14-2-1111 of the GBCC.
5.21 Charter Provisions. Each Company Entity and each Shareholder
------------------
has taken all action so that the entering into of this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement do not and will not result in the grant of any rights to any Person
under the Articles of Incorporation, Bylaws or other governing instruments of
any Company Entity or restrict or impair the ability of Acquiror or any of its
Subsidiaries to vote, or otherwise to exercise the rights of a shareholder with
respect to, shares of any Company Entity that may be directly or indirectly
acquired or controlled by them.
5.22 Board Recommendation. Each of the Boards of Directors of
--------------------
Company and Nonpareil, at a meeting duly called and held, has by unanimous vote
of those directors present (who constituted all of the directors then in office)
(i) determined that this Agreement and the transactions contemplated hereby,
including the Merger and the transactions contemplated thereby, taken together,
are fair to and in the best interests
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of the Shareholders and (ii) resolved to recommend that the Shareholders approve
this Agreement.
5.23 Compliance with the Immigration Reform and Control Act. To the
------------------------------------------------------
Knowledge of Company, each Company Entity is in Material compliance with the
terms and provisions of the Immigration Reform and Control Act of 1986, and all
related regulations promulgated thereunder (the "Immigration Laws"). With
respect to each employee (as defined in Section 274a.1(f) of Title 8, Code of
Federal Regulations) of each Company Entity for whom compliance with the
Immigration Laws by an employer (as defined in Section 274a.1(g) of Title 8,
Code of Federal Regulations) is required, Company, upon request of Acquiror,
will make available to Acquiror prior to the Closing Date, such employee's Form
I-9 (Employment Eligibility Verification Form) and all other records, documents
or other papers which are retained with the Form I-9 by the employer pursuant to
the Immigration Laws. Except as set forth in Section 5.23 of the Company and
Shareholder Disclosure Memorandum, none of the Company Entities has ever been
the subject of any inspection or investigation relating to its compliance with
or violation of the Immigration Laws, nor has any of such Company Entities been
warned, fined or otherwise penalized by reason of any failure to comply with the
Immigration Laws, nor is any such proceeding pending or, to Company's Knowledge,
threatened.
5.24 Legal Compliance. To the Knowledge of the Company, none of the
----------------
Company Entities nor any director, officer, agent, employee or other person
associated with or acting on behalf of any Company Entity has, directly or
indirectly, used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, illegal rebate, payoff, influence payment, kickback or other
unlawful payment, using corporate funds.
5.25 Year 2000. Company has developed a plan and timeline for
---------
addressing the inability of some computer hardware, software and systems or
equipment with embedded microchips to process accurately data involving dates
before, during and after January 1, 2000 (the "Y2K Plan"). Company has taken
steps to implement the Y2K Plan and, if Acquiror and Company continue the
implementation of the Y2K Plan in accordance with the timeline set forth
therein, except as set forth in Section 5.25 of the Company and Shareholder
Disclosure Memorandum and except to the extent not reasonably likely to have a
Company Material Adverse Effect: (i) the hardware and software systems and
manufacturing equipment of each Company Entity include design, performance and
functionality so that Company does not reasonably expect to experience invalid
or incorrect results or abnormal hardware, software or manufacturing equipment
operation related to calendar year 2000 and (ii) the hardware and software
systems of each Company Entity include or will include calendar year 2000 date
conversion and compatibility capabilities, including, but not limited to, date
data century recognition, same
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century and multiple century formula and date value calculations, and user
interface date data values that reflect the century.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
----------------------------------------------
Each of the Shareholders severally represents and warrants to Acquiror as
follows:
6.1 Ownership of Securities. Except as set forth in Section 6.1 of the
-----------------------
Company and Shareholder Disclosure Memorandum, such Shareholder is the owner of
all right, title and interest (legal and beneficial) in and to that number of
shares of Company Capital Stock and Nonpareil Common Stock and that principal
value of Company Notes and Nonpareil Notes listed opposite the name of such
Shareholder in Schedule I, free and clear of any and all Liens of any nature
whatsoever. Except as specifically contemplated by this Agreement, no person or
entity has any Contract or Right (whether preemptive or contractual) capable of
becoming a Contract or Right for the purchase of any shares of Company Capital
Stock and Nonpareil Common Stock from such Shareholder.
6.2 Authority of Shareholders; No Breach By Agreement.
-------------------------------------------------
(a) Each of the Shareholders has the absolute and unrestricted right,
power, authority, and capacity to execute and deliver this Agreement and the
Shareholders' Closing Documents and to perform its obligations under this
Agreement and the Shareholders' Closing Documents. This Agreement represents a
legal, valid, and binding obligation of each Shareholder, enforceable against
each Shareholder in accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought). Upon the execution and delivery by the Shareholders of the
Shareholders' Closing Documents, the Shareholders' Closing Documents will
constitute the legal, valid, and binding obligations of each Shareholder,
enforceable against each Shareholder in accordance with their respective terms
(except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium, or similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by any
Shareholder, nor the consummation by any Shareholder of the transactions
contemplated hereby, nor compliance by any Shareholder with any of the
provisions hereof, will (i)
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conflict with or result in a breach of any provision of the governing
instruments of any Shareholder that is not a natural person, or (ii) except as
disclosed in Section 6.2 of the Company and Shareholder Disclosure Memorandum,
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any such Shareholder under,
any Contract or Permit of any such Shareholder, where such Default or Lien, or
any failure to obtain such Consent, is reasonably likely to have, individually
or in the aggregate, a Company Material Adverse Effect, or, (iii) subject to
receipt of the requisite Consents referred to in Section 10.1(b), violate any
Law or Order applicable to any Shareholder or to any Company Entity or any of
their respective Material Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and other than
Consents required from Regulatory Authorities, and other than notices to or
filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, or under the HSR Act, no
notice to, filing with, or Consent of, any public body or authority is necessary
for the consummation by the Shareholders of the transactions contemplated in
this Agreement.
6.3 Purchase for Investment; Accredited Investor Status. Such Shareholder
---------------------------------------------------
is acquiring shares of Acquiror Common Stock for investment and not with a
present view toward, or for sale in connection with, any distribution thereof,
nor with any present intention of distributing or selling the shares of Acquiror
Common Stock so acquired, other than in accordance with the terms and conditions
of the Stock Restriction and Registration Rights Agreement. Such Shareholder is
an "accredited investor" as defined in Rule 501(a) of the rules promulgated
under the Securities Act of 1933, as amended, and has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of such Shareholder's investment in the Acquiror Common Stock;
such Shareholder has the ability to bear the economic risks of such investment;
such Shareholder has the capacity to protect such Shareholder's own interests in
connection with the transactions contemplated by this Agreement; and such
Shareholder has had an opportunity to obtain such financial and other
information from the Company as such Shareholder deems necessary or appropriate
in connection with evaluating the merits of the investment in the Acquiror
Common Stock.
6.4 Statements True and Correct. No statement, certificate, instrument,
---------------------------
or other writing furnished by any Shareholder to Acquiror pursuant to this
Agreement or any other document, agreement, or instrument referred to herein
contains any untrue statement of Material fact or omits to state a Material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. All documents that any Shareholder is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all Material respects
with the provisions of applicable Law.
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ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
------------------------------------------
Acquiror hereby represents and warrants to Company, Nonpareil and the
Shareholders as follows:
7.1 Organization, Standing, and Power. Acquiror is a corporation duly
---------------------------------
organized, validly existing, and in good standing under the Laws of the State of
Delaware, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its Material Assets.
7.2 Authority; No Breach By Agreement.
---------------------------------
(a) Acquiror has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of Acquiror.
This Agreement represents a legal, valid, and binding obligation of Acquiror,
enforceable against Acquiror in accordance with its terms (except in all cases
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought). Upon execution and delivery by Acquiror of the Acquiror Closing
Documents, such Acquiror Closing Documents will constitute the legal, valid and
binding obligations of Acquiror, enforceable against Acquiror in accordance with
their respective terms (except in all cases as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Except as set forth in Section 7.2(b) of the Acquiror Disclosure
Memorandum, neither the execution and delivery of this Agreement by Acquiror,
nor the consummation by Acquiror of the transactions contemplated hereby, nor
compliance by Acquiror with any of the provisions hereof, will (i) conflict with
or result in a breach of any provision of Acquiror's Certificate of
Incorporation or Bylaws, or (ii) constitute or result in a Default under, or
require any Consent pursuant to, or result in the creation of any Lien on any
Asset of any Acquiror Entity under, any Contract or Permit of any Acquiror
Entity, where such Default or Lien, or any failure to obtain such Consent, is
reasonably likely to have, individually or in the aggregate, an Acquiror
Material Adverse Effect, or, (iii) subject to receipt of the requisite Consents
referred to in Section 10.1(b),
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<PAGE>
constitute or result in a Default under, or require any Consent pursuant to, any
Law or Order applicable to any Acquiror Entity or any of their respective
Material Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NYSE, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
or under the HSR Act, and other than Consents, filings, or notifications which,
if not obtained or made, are not reasonably likely to have, individually or in
the aggregate, an Acquiror Material Adverse Effect, no notice to, filing with,
or Consent of, any public body or authority is necessary for the consummation by
Acquiror of the Merger and the other transactions contemplated in this
Agreement.
7.3 Capital Stock.
-------------
(a) The authorized capital stock of Acquiror consists of (i)
150,000,000 shares of Acquiror Common Stock, of which 57,427,743 shares are
issued and outstanding as of February 24, 1999, and (ii) 60,000 shares of
Acquiror Preferred Stock, none of which are issued and outstanding as of the
date of this Agreement. All of the issued and outstanding shares of Acquiror
Capital Stock are, and all of the shares of Acquiror Common Stock to be issued
in exchange for shares of Company Capital Stock and Nonpareil Common Stock upon
consummation of the Merger, when issued in accordance with the terms of this
Agreement, will be, duly and validly issued and outstanding and fully paid and
nonassessable under the DGCL. None of the outstanding shares of Acquiror
Capital Stock has been, and none of the shares of Acquiror Common Stock to be
issued in exchange for shares of Company Common Stock upon consummation of the
Merger will be, issued in violation of any preemptive rights of the current or
past shareholders of Acquiror. At the Effective Time, each Shareholder will own
the Acquiror Common Stock to be issued in the Merger in exchange for shares of
Company Capital Stock upon consummation of the Merger free and clear of all
Liens other than Liens imposed by the Securities Laws and applicable state
securities Laws (other than the shares of Acquiror Common Stock subject to the
terms of the Escrow Agreement).
7.4 SEC Filings; Financial Statements.
---------------------------------
(a) Acquiror has timely filed and made available to Company all SEC
Documents required to be filed by Acquiror since December 31, 1995 (the
"Acquiror SEC Reports"). The Acquiror SEC Reports (i) at the time filed,
complied in all Material respects with the applicable requirements of the
Securities Laws and other applicable Laws and (ii) did not, at the time they
were filed (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
Material fact or omit to state a Material fact required to be stated in such
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<PAGE>
Acquiror SEC Reports or necessary in order to make the statements in such
Acquiror SEC Reports, in light of the circumstances under which they were made,
not misleading.
(b) Each of the Acquiror Financial Statements (including, in each
case, any related notes) contained in the Acquiror SEC Reports, including any
Acquiror SEC Reports filed after the date of this Agreement until the Effective
Time, complied as to form in all Material respects with the applicable published
rules and regulations of the SEC with respect thereto, was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited interim statements, as permitted by Form 10-Q of
the SEC), and fairly presented in all Material respects the consolidated
financial position of Acquiror and its Subsidiaries as at the respective dates
and the consolidated results of operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring yearend adjustments which were not or are not
expected to be Material in amount or effect.
7.5 Absence of Certain Changes or Events. Since December 31, 1997,
------------------------------------
except as disclosed in the Acquiror Financial Statements delivered prior to the
date of this Agreement or as disclosed in Section 7.5 of the Acquiror Disclosure
Memorandum, there have been no events, changes or occurrences which have had, or
are reasonably likely to have, individually or in the aggregate, an Acquiror
Material Adverse Effect.
7.6 Legal Proceedings. There is no Litigation instituted or pending, or,
-----------------
to the Knowledge of Acquiror, threatened (or unasserted but considered probable
of assertion and which if asserted would have at least a reasonable probability
of an unfavorable outcome) against any Acquiror Entity, or against any director,
employee or employee benefit plan of any Acquiror Entity, or against any Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, an Acquiror Material Adverse Effect, nor are
there any Orders of any Regulatory Authorities, other governmental authorities,
or arbitrators outstanding against any Acquiror Entity.
7.7 Statements True and Correct. No statement, certificate, instrument
---------------------------
or other writing furnished by any Acquiror Entity or any Affiliate thereof to
Company pursuant to this Agreement or any other document, agreement or
instrument referred to herein contains any untrue statement of Material fact or
omits to state a Material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. All
documents that any Acquiror Entity or any Affiliate thereof is responsible for
filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all Material respects with the
provisions of applicable Law.
7.8 Authority of Sub. Each of Sub 1 and Sub 2 is a corporation duly
----------------
organized, validly existing and in good standing under the Laws of the State of
Georgia as a wholly owned Subsidiary of Acquiror. The authorized capital stock
of Sub 1 shall
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consist of 1,000 shares of Sub 1 Common Stock, 100 of which are validly issued
and outstanding, fully paid and nonassessable and are owned by Acquiror free and
clear of any Lien. The authorized capital stock of Sub 2 shall consist of 1,000
shares of Sub 2 Common Stock, 100 of which are validly issued and outstanding,
fully paid and nonassessable and are owned by Acquiror free and clear of any
Lien. Each of Sub 1 and Sub 2 has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of each of Sub
1 and Sub 2. This Agreement represents a legal, valid, and binding obligation of
each of Sub 1 and Sub 2, enforceable against each of Sub 1 and Sub 2 in
accordance with its terms (except in all cases as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar Laws affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought). Acquiror, as the sole shareholder of each of Sub 1
and Sub 2, has voted prior to the Effective Time the shares of Sub 1 Common
Stock and Sub 2 Common Stock in favor of approval of this Agreement, as and to
the extent required by applicable Law.
7.9 Accounting, Tax and Regulatory Matters. To Acquiror's Knowledge, no
--------------------------------------
Acquiror Entity or any Affiliate thereof has taken or agreed to take any action
or has any Knowledge of any fact or circumstance that is reasonably likely to
(i) prevent either of the Company Merger or the Nonpareil Merger from qualifying
for pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (ii) Materially
impede or delay receipt of any Consents of Regulatory Authorities referred to in
Section 10.1(a) or result in the imposition of a condition or restriction of the
type referred to in the last sentence of such Section.
ARTICLE 8
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
8.1 Affirmative Covenants of Company Entities. From the date of this
-----------------------------------------
Agreement until the earlier of the Effective Time or the termination of this
Agreement, unless the prior written consent of Acquiror shall have been
obtained, which shall not be unreasonably withheld or delayed, and except as
otherwise expressly contemplated herein, each of Company and Nonpareil shall and
shall cause each of the Company Entities to (a) operate its business only in the
usual, regular, and ordinary course, (b) preserve intact its business
organization and Assets and maintain its rights and franchises, and (c) take no
action which would (i) Materially adversely affect the ability of any Party to
obtain any Consents required for the transactions contemplated hereby without
imposition of a condition or restriction of the type referred to in the last
sentences of Section 10.1(a) or
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10.1(b), or (ii) Materially adversely affect the ability of any Party to perform
its covenants and agreements under this Agreement.
8.2 Negative Covenants of Company Entities. From the date of this
--------------------------------------
Agreement until the earlier of the Effective Time or the termination of this
Agreement, unless the prior written consent of Acquiror shall have been
obtained, which shall not be unreasonably withheld or delayed, and except as
otherwise expressly contemplated herein, each of Company and Nonpareil covenants
and agrees that it will not do or agree or commit to do, or permit any of its
Subsidiaries to do or agree or commit to do, any of the following:
(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of any Company Entity; or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than (i) indebtedness of a Company Entity to another
Company Entity, (ii) fluctuations under Durkan's revolving credit facility
with NationsBank in the ordinary course of the business of the Company
Entities consistent with past practices and (iii) indebtedness, not
including indebtedness described in clause (ii) of this subsection, under
the Company Entities' existing credit facilities up to $300,000 more than
the indebtedness currently outstanding under such facilities as of the date
hereof (for the Company Entities on a consolidated basis)) or, except in
the ordinary course of the business of the Company Entities consistent with
past practices, impose, or suffer the imposition, on any Asset of any
Company Entity of any Lien or permit any such Lien to exist (other than in
connection with Liens that are incurred in connection with the Company
Entities' existing credit facilities or that are disclosed in Section
8.2(b) of the Company and Shareholder Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of
the capital stock of any Company Entity, or declare or pay any dividend or
make any other distribution in respect of the capital stock of any Company
Entity; or
(d) except pursuant to this Agreement, or pursuant to the exercise of
stock options outstanding as of the date hereof and pursuant to the terms
thereof in existence on the date hereof, issue, sell, pledge, encumber,
authorize the issuance of, enter into any Contract to issue, sell, pledge,
encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of Company Capital Stock, Nonpareil
Common Stock or any other capital stock of any Company Entity, or any stock
appreciation rights, or any option, warrant, or other Equity Right with
respect to any capital stock of any Company Entity; or
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(e) adjust, split, combine or reclassify any capital stock of any
Company Entity or issue or authorize the issuance of any other securities
in respect of or in substitution for shares of capital stock of any Company
Entity, or sell, lease, mortgage or otherwise dispose of or otherwise
encumber any shares of capital stock of any Company Entity; or
(f) except for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of three
years or less, purchase any securities or make any Material investment,
either by purchase of securities, contributions to capital, Asset
transfers, or purchase of any Assets, in any Person other than a wholly
owned Company Subsidiary, or otherwise acquire direct or indirect control
over any Person, other than in connection with (i) foreclosures in the
ordinary course of business, or (ii) the creation of new wholly owned
Subsidiaries organized to conduct or continue activities otherwise
permitted by this Agreement; or
(g) grant any increase in compensation or benefits to the employees,
officers or directors of any Company Entity, except in accordance with past
practice disclosed in Section 8.2(g) of the Company and Shareholder
Disclosure Memorandum or as required by Law; pay any severance or
termination pay or any bonus other than pursuant to written policies or
written Contracts in effect on the date of this Agreement and disclosed in
Section 8.2(g) of the Company and Shareholder Disclosure Memorandum, or
enter into or amend any severance agreements with officers of any Company
Entity, grant any Material increase in fees or other increases in
compensation or other benefits to directors of any Company Entity except in
accordance with past practice disclosed in Section 8.2(g) of the Company
and Shareholder Disclosure Memorandum; or voluntarily accelerate the
vesting of any stock options or other stock-based compensation or employee
benefits or other Equity Rights; or
(h) enter into or amend any employment Contract between any Company
Entity and any Person (unless such amendment is required by Law) that the
Company Entity does not have the unconditional right to terminate without
Liability (other than Liability for services already rendered), at any time
on or after the Effective Time; or
(i) adopt any new employee benefit plan of any Company Entity or
terminate or withdraw from, or make any Material change in or to, any
existing employee benefit plans of any Company Entity other than any such
change that is required by Law or that, in the opinion of counsel for the
Company, is necessary or advisable to maintain the tax qualified status of
any such plan, or make any distributions from such employee benefit plans,
except as required by Law, the terms of such plans or consistent with past
practice; or
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(j) make any significant change in any Tax or accounting methods or
systems of internal accounting controls; or
(k) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of any Company
Entity for Material money damages or restrictions upon the operations of
any Company Entity; or
(l) except in the ordinary course of business, enter into, modify,
amend or terminate any Material Contract (including any loan Contract with
an unpaid balance exceeding $25,000) or waive, release, compromise or
assign any Material rights or claims; or
(m) fail to pay any accounts payable shown on the Company Financial
Statements or any accounts payable created since December 31, 1998 other
than in accordance with the terms thereof.
8.3 Covenants of Acquiror. From the date of this Agreement until the
---------------------
earlier of the Effective Time or the termination of this Agreement, unless the
prior written consent of Company shall have been obtained, and except as
otherwise expressly contemplated herein, Acquiror covenants and agrees that it
shall and shall cause its Subsidiaries to: (a) continue to conduct its business
and the business of its Subsidiaries in a manner designed in its reasonable
judgment, to enhance the long-term value of the Acquiror Common Stock and the
business prospects of the Acquiror Entities and to the extent consistent
therewith use all reasonable efforts to preserve intact the Acquiror Entities'
core businesses, and (b) take no action which would (i) Materially adversely
affect the ability of any Party to obtain any Consents required for the
transactions contemplated hereby without imposition of a condition or
restriction of the type referred to in the last sentences of Section 10.1(a) or
10.1(b), or (ii) Materially adversely affect the ability of any Party to perform
its covenants and agreements under this Agreement; provided, that the foregoing
shall not prevent any Acquiror Entity from acquiring any Assets or other
businesses or from discontinuing or disposing of any of its Assets or business
if such action is, in the reasonable judgment of Acquiror, desirable in the
conduct of the business of Acquiror and its Subsidiaries.
8.4 Adverse Changes in Condition. Each Party agrees to give written
----------------------------
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect or an Acquiror Material Adverse
Effect, as applicable, or (ii) would cause or constitute a Material breach of
any of its representations, warranties, or covenants contained herein, and to
use its reasonable efforts to prevent or promptly to remedy the same.
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ARTICLE 9
ADDITIONAL AGREEMENTS
---------------------
9.1 Disclosure Statement; Shareholder Approval. Each of Company and
------------------------------------------
Nonpareil shall call a Shareholders' Meeting, to be held as soon as reasonably
practicable for the purpose of voting upon approval of this Agreement and such
other related matters as it deems appropriate. In connection with the
Shareholders' Meeting, (i) each of Company and Nonpareil shall prepare a
Disclosure Statement and mail such Disclosure Statement to its shareholders,
(ii) the Parties shall furnish to each other all information concerning them
that they may reasonably request in connection with such Disclosure Statement,
(iii) each of the Boards of Directors of Company and Nonpareil shall recommend
to its shareholders the approval of the matters submitted for approval, and (iv)
the Boards of Directors and officers of each of Company and Nonpareil shall use
their reasonable efforts to obtain such shareholders' approval.
9.2 Exchange Listing. Prior to the effectiveness of any Registration
----------------
Statement filed pursuant to the Stock Restriction and Registration Rights
Agreement, Acquiror shall use its reasonable best efforts to list on the NYSE,
subject to official notice of issuance, the shares of Acquiror Common Stock to
be issued to the Shareholders pursuant to the Merger and subject to such
Registration Statement, and Acquiror shall give all notices and make all filings
with the NYSE required in connection with the transactions contemplated herein.
9.3 Applications; Antitrust Notification. Acquiror shall promptly
------------------------------------
prepare and file, and Company, Nonpareil and the Shareholders shall cooperate in
the preparation and, where appropriate, filing of, applications with all
Regulatory Authorities having jurisdiction over the transactions contemplated by
this Agreement seeking the requisite Consents necessary to consummate the
transactions contemplated by this Agreement. To the extent required by the HSR
Act, each of the Parties will promptly file with the United States Federal Trade
Commission and the United States Department of Justice the notification and
report form required for the transactions contemplated hereby and any
supplemental or additional information which may reasonably be requested in
connection therewith pursuant to the HSR Act. The Parties shall deliver to each
other copies of all filings, correspondence and orders to and from all
Regulatory Authorities in connection with the transactions contemplated hereby.
9.4 Filings with State Offices. Upon the terms and subject to the
--------------------------
conditions of this Agreement, each of Company and Nonpareil shall execute and
file the Certificates of Merger with the Secretary of State of the State of
Georgia in connection with the Closing.
9.5 Agreement as to Efforts to Consummate. Subject to the terms and
-------------------------------------
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to
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consummate and make effective, as soon as reasonably practicable after the date
of this Agreement, the transactions contemplated by this Agreement, including
using its reasonable efforts to lift or rescind any Order adversely affecting
its ability to consummate the transactions contemplated herein and to cause to
be satisfied the conditions referred to in Article 10; provided, that nothing
herein shall preclude either Party from exercising its rights under this
Agreement. Each Party shall use, and shall cause each of its Subsidiaries to
use, its reasonable efforts to obtain all Consents necessary or desirable for
the consummation of the transactions contemplated by this Agreement.
9.6 Investigation and Confidentiality.
---------------------------------
(a) Prior to the Effective Time or the earlier termination of this
Agreement, each Party shall keep the other Party advised of all Material
developments relevant to its business and to consummation of the Merger and
shall permit the other Party to make or cause to be made such investigation of
the business and properties of it and its Subsidiaries and of their respective
financial and legal conditions as the other Party reasonably requests, provided
that such investigation shall be reasonably related to the transactions
contemplated hereby and shall not interfere unnecessarily with normal
operations. No investigation by a Party shall affect the representations and
warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all confidential information furnished to it by
the other Party concerning its and its Subsidiaries' businesses, operations, and
financial positions and shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement. If this
Agreement is terminated prior to the Effective Time, each Party shall promptly
return or certify the destruction of all documents and copies thereof, and all
work papers containing confidential information received from the other Party.
(c) Each of Company and Nonpareil shall use its reasonable efforts to
exercise its rights under confidentiality agreements entered into with Persons
which were considering an Acquisition Proposal with respect to either of Company
or Nonpareil to preserve the confidentiality of the information relating to the
Company Entities provided to such Persons and their Affiliates and
Representatives.
(d) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence relating to
the other Party which it has discovered through the course of its investigation
and which represents, or is reasonably likely to represent, either a Material
breach of any representation, warranty, covenant or agreement of the other Party
or which has had or is reasonably likely to have a Company Material Adverse
Effect or an Acquiror Material Adverse Effect, as applicable.
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9.7 Press Releases. Prior to the Effective Time, Company and
--------------
Acquiror shall consult with each other as to the form and substance of any press
release or other public disclosure Materially related to this Agreement or any
other transaction contemplated hereby; provided, that nothing in this Section
9.7 shall be deemed to prohibit any Party from making any disclosure which its
counsel reasonably deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law (however, the disclosing Party must
promptly notify the other Party that such disclosure is being made, and promptly
provide a copy of the press release for review).
9.8 Certain Actions.
---------------
(a) Until the termination of this Agreement in accordance with its
terms, except with respect to this Agreement and the transactions contemplated
hereby, no Company Entity nor any Shareholder nor any Affiliate thereof nor any
Representatives thereof retained by any Company Entity shall directly or
indirectly solicit any Acquisition Proposal by any Person. No Company Entity,
any Shareholder or any Affiliate or Representative thereof shall furnish any
non-public information, negotiate with respect to, or enter into any Contract
with respect to, any Acquisition Proposal. Each Shareholder and Company shall
promptly advise Acquiror following the receipt of any Acquisition Proposal and
the details thereof, and advise Acquiror of any developments with respect to
such Acquisition Proposal promptly upon the occurrence thereof. Each
Shareholder, Company and Nonpareil shall (i) immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any Persons
conducted heretofore with respect to any of the foregoing, and (ii) direct and
use its reasonable efforts to cause all of its Affiliates and Representatives
not to engage in any of the foregoing.
(b) Acquiror agrees that, from the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement in accordance
with the terms hereof, neither Acquiror nor any of its Subsidiaries or
Affiliates will solicit to employ or employ any of the persons listed in Section
9.8(b) of the Company and Shareholder Disclosure Memorandum, without obtaining
the prior written consent of the Chief Executive Officer of the Company.
Company and Nonpareil agree that, from the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement in accordance
with the terms hereof, neither Company, Nonpareil nor any of their respective
Subsidiaries or Affiliates will solicit to employ or employ any of the persons
listed in Section 9.8(b) of the Acquiror Disclosure Memorandum, without
obtaining the prior written consent of the Chief Executive Officer of Acquiror.
9.9 Accounting and Tax Treatment. Each of the Parties undertakes
----------------------------
and agrees to use its reasonable best efforts to cause the Merger, and to take
no action which would cause either the Company Merger or the Nonpareil Merger
not, to qualify for treatment as a pooling of interests for accounting purposes
or as a "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code for federal income tax purposes. No Party has any Knowledge of any
fact or circumstance that is reasonably
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<PAGE>
likely to prevent either of the Company Merger or the Nonpareil Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code.
9.10 State Takeover Laws. Each Company Entity and each Shareholder shall
-------------------
take all necessary steps to exempt the transactions contemplated by this
Agreement from, or if necessary to challenge the validity or applicability of,
any applicable Takeover Law, including, but not limited to, Section 14-2-1111 of
the GBCC.
9.11 Charter Provisions. Each Company Entity shall take all necessary
------------------
action to ensure that the entering into of this Agreement and the consummation
of the Merger and the other transactions contemplated hereby do not and will not
result in the grant of any rights to any Person under the Articles of
Incorporation, Bylaws or other governing instruments of any Company Entity or
restrict or impair the ability of Acquiror or any of its Subsidiaries to vote,
or otherwise to exercise the rights of a shareholder with respect to, shares of
any Company Entity that may be directly or indirectly acquired or controlled by
them.
9.12 Agreement of Affiliates. Company has disclosed in Section 9.12 of the
-----------------------
Company and Shareholder Disclosure Memorandum all Persons whom it reasonably
believes is an "affiliate" of Company or Nonpareil for purposes of Rule 145
under the 1933 Act. Each of Company and Nonpareil shall use its reasonable
efforts to cause each such Person to deliver to Acquiror not later than 5 days
after the date of this Agreement, a written agreement, substantially in the form
of Exhibit 4, providing that such Person will not sell, pledge, transfer, or
---------
otherwise dispose of the shares of Company Capital Stock or Nonpareil Common
Stock held by such Person except as contemplated by such agreement or by this
Agreement and will not sell, pledge, transfer, or otherwise dispose of the
shares of Acquiror Common Stock to be received by such Person upon consummation
of the Merger except in compliance with applicable provisions of the 1933 Act
and the rules and regulations thereunder and, since the Merger will be accounted
for by the pooling-of-interests method of accounting, until such time as
financial results covering at least 30 days of combined operations of Acquiror,
Company and Nonpareil have been published within the meaning of Section 201.01
of the SEC's Codification of Financial Reporting Policies. Since the Merger will
be accounted for using the pooling-of-interests method of accounting, shares of
Acquiror Common Stock issued to such affiliates of Company in exchange for
shares of Company Capital Stock and Nonpareil Common Stock shall not be
transferable until such time as financial results covering at least 30 days of
combined operations of Acquiror, Company and Nonpareil have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies, regardless of whether each such affiliate has provided the
written agreement referred to in this Section 9.12 (and Acquiror shall be
entitled to place restrictive legends upon certificates for shares of Acquiror
Common Stock issued to affiliates of Company and Nonpareil pursuant to this
Agreement to enforce the provisions of this Section 9.12).
9.13 Agreement to Vote. (a) Each Shareholder hereby agrees to attend
-----------------
the Shareholders' Meeting, in person or by proxy, and to vote (or cause to be
voted) all
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shares of Company Capital Stock and Nonpareil Common Stock that such Shareholder
owns or has the right to vote, for approval and adoption of this Agreement and
the Merger, such agreement to vote to apply also to any adjournment or
adjournments of the Shareholders' Meeting.
(b) Each Shareholder hereby agrees that at all times prior to the
Effective Time, the Shareholders shall collectively continue to own a number and
kind of shares of Company Capital Stock and Nonpareil Common Stock having the
right to cast a majority of the votes of the outstanding capital stock of each
of the Company and Nonpareil entitled to vote on this Agreement and the Merger
and any other proposals.
(c) To the extent inconsistent with the foregoing provisions of this
Section 9.13, each Shareholder hereby revokes any and all previous proxies with
respect to such Shareholder's shares of Company Capital Stock and Nonpareil
Common Stock.
9.14 Supplemental Disclosures.
------------------------
(a) Company, Nonpareil and the Shareholders shall have the continuing
right and obligation up to and including the Closing or the earlier termination
of this Agreement to supplement promptly or amend the Company and Shareholder
Disclosure Memorandum with respect to any matter hereafter arising or discovered
by or otherwise coming to the attention of the Shareholders or the Company
which, if existing or known by the Shareholders or the Company at the date of
this Agreement, would have been required to be set forth or listed in the
Company and Shareholder Disclosure Memorandum, provided however, that Acquiror
----------------
may unilaterally extend the Closing Date if necessary to allow Acquiror five (5)
business days to review such supplements prior to the Closing Date.
(b) Acquiror shall have the continuing right and obligation up to and
including the Closing or the earlier termination of this Agreement to supplement
promptly or amend the Acquiror Disclosure Memorandum with respect to any matter
hereafter arising or discovered by or otherwise coming to the attention of
Acquiror which, if existing or known by Acquiror at the date of this Agreement,
would have been required to be set forth or listed in the Acquiror Disclosure
Memorandum, provided however, that Company and the Shareholders may unilaterally
----------------
extend the Closing Date if necessary to allow Company and the Shareholders five
(5) business days to review such supplements prior to the Closing Date.
9.15 Employee Matters. With respect to severance and employee welfare
----------------
benefits and seniority, Acquiror shall recognize for purposes of participation,
eligibility, vesting and benefit accruals (to the extent applicable under the
employee severance plans of Acquiror) the service of any employee of Company or
Nonpareil prior to the Closing Date with any Company Entity or any of their
respective predecessors, if such service is recognized for such purposes by such
Company Entity. Each employee of
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Company shall be entitled to receive severance benefits pursuant to employee
severance plans of Acquiror if, and only if, such employee is not also entitled
to receive severance benefits pursuant to an existing employment contract
between Company or Nonpareil and such employee.
ARTICLE 10
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
-------------------------------------------------
10.1 Conditions to Obligations of Each Party. The respective
---------------------------------------
obligations of each Party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the satisfaction
of the following conditions, unless waived by all Parties pursuant to Section
13.7:
(a) Regulatory Approvals. All Consents of, filings and registrations
--------------------
with, and notifications to, all Regulatory Authorities required for
consummation of the Merger shall have been obtained or made and shall be in
full force and effect and all waiting periods required by Law shall have
expired. No Consent obtained from any Regulatory Authority which is
necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner (including requirements relating to
the raising of additional capital or the disposition of Assets) which in
the reasonable judgment of the Board of Directors of either Party would so
Materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement that, had such condition or
requirement been known, such Party would not, in its reasonable judgment,
have entered into this Agreement.
(b) Consents and Approvals. Each Party shall have obtained any and
----------------------
all Consents required for consummation of the Merger (other than those
referred to in Section 10.1(a)) or for the preventing of any Default under
any Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect or an Acquiror Material Adverse Effect, as
applicable. No Consent so obtained which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a
manner which in the reasonable judgment of the Board of Directors of either
Party would so Materially adversely impact the economic or business
benefits of the transactions contemplated by this Agreement that, had such
condition or requirement been known, such Party would not, in its
reasonable judgment, have entered into this Agreement.
(c) Legal Proceedings. No court or Regulatory Authority of competent
-----------------
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any Law or Order (whether temporary, preliminary or permanent) or taken any
other action which prohibits, restricts or makes illegal consummation of
the transactions contemplated by this Agreement.
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<PAGE>
(d) Pooling Letters. Each of the Parties shall have received letters,
---------------
dated as of the Effective Time, addressed to Acquiror, in form and
substance reasonably acceptable to each Party, from KPMG LLP to the effect
that the Merger will qualify for pooling-of-interests accounting treatment.
Each of the Parties also shall have received letters, dated as of the
Effective Time, addressed to Company, in form and substance reasonably
acceptable to each Party, from Fred A. Mayfield & Company to the effect
that such firm is not aware of any matters relating to the Company Entities
which would preclude the Merger from qualifying for pooling-of-interests
accounting treatment.
(e) Tax Matters. Each of Company, Nonpareil and Acquiror shall have
-----------
received a written opinion of counsel from Alston & Bird LLP, which shall
state that the Shareholders may rely thereon, in form reasonably
satisfactory to such Parties (the "Tax Opinion"), to the effect that (i)
each of the Company Merger and the Nonpareil Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, and (ii) the exchange in each of the Company Merger and the Nonpareil
Merger of the Company Capital Stock or Nonpareil Common Stock, as
applicable, for Acquiror Common Stock will not give rise to gain or loss to
the Company Shareholders or Nonpareil Shareholder, as applicable (except to
the extent of any cash received). In rendering such Tax Opinion, such
counsel shall be entitled to rely upon factual representations of the
Shareholders and of officers of Company, Nonpareil and Acquiror reasonably
satisfactory in form and substance to such counsel.
(f) Registration Rights. Acquiror and each of the Shareholders shall
-------------------
have executed and delivered the Stock Restriction and Registration Rights
Agreement, in the form attached hereto as Exhibit 2.
---------
10.2 Conditions to Obligations of Acquiror. The obligations of
-------------------------------------
Acquiror to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Acquiror pursuant to Section 13.7(a):
(a) Representations and Warranties. For purposes of this Section
------------------------------
10.2(a), the accuracy of the representations and warranties of Company,
Nonpareil and the Shareholders set forth in this Agreement shall be
assessed as of the date of this Agreement and as of the Effective Time with
the same effect as though all such representations and warranties had been
made on and as of the Effective Time (provided that representations and
warranties which are confined to a specified date shall speak only as of
such date). The representations and warranties set forth in Section 5.3
shall be true and correct. The representations and warranties set forth in
Sections 5.19, 5.20, and 5.21 shall be true and correct in all Material
respects. There shall not exist inaccuracies in the representations and
warranties of Company, Nonpareil and the Shareholders set forth in this
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Agreement (including the representations and warranties set forth in
Sections 5.3, 5.19, 5.20, and 5.21) such that the aggregate effect of such
inaccuracies, together with any supplemental disclosures made pursuant to
Section 9.14(a), has, or is reasonably likely to have, a Company Material
Adverse Effect; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by references to
"Company Material Adverse Effect" shall be deemed not to include such
qualification.
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of Company, Nonpareil and the Shareholders to be
performed and complied with pursuant to this Agreement and the other
agreements contemplated hereby prior to the Effective Time shall have been
duly performed and complied with in all Material respects.
(c) Certificates. Each of the Shareholders (as to matters described
------------
below involving Shareholders), Company (as to matters described below
involving Company) and Nonpareil (as to matters described below involving
Nonpareil) shall have delivered to Acquiror (i) a certificate, dated as of
the Effective Time and signed by each Shareholder and on behalf of each of
the Company and Nonpareil by its chief executive officer and its chief
financial officer, to the effect that the conditions set forth in Section
10.1 as relates to each of Company and Nonpareil and in Section 10.2(a) and
10.2(b) have been satisfied, and (ii) certified copies of resolutions duly
adopted by each of Company's and Nonpareil's Board of Directors and
shareholders evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this Agreement, and
the consummation of the transactions contemplated hereby, all in such
reasonable detail as Acquiror and its counsel shall reasonably request.
(d) Affiliates Agreements. Acquiror shall have received from each
---------------------
affiliate of Company and Nonpareil the letter referred to in Section 9.12,
to the extent necessary to assure in the reasonable judgment of Acquiror
that the transactions contemplated hereby will qualify for pooling-of-
interests accounting treatment.
(e) Shareholders' Equity. Company's shareholders' equity as of the
--------------------
Closing shall not be less than Company's shareholders' equity as of
December 31, 1998.
(f) Noncompetition Agreements. Each of Thomas R. Durkan, II, Thomas R.
-------------------------
Durkan, III and Patricia Durkan shall have executed and delivered to
Acquiror a Noncompetition agreement in substantially the form of Exhibit 3
---------
(collectively, the "Noncompetition Agreements").
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(g) Escrow Agreement. Each of the Shareholders and Escrow Agent shall
----------------
have executed and delivered to Acquiror the Escrow Agreement, in the form
attached hereto as Exhibit 1.
---------
(h) Releases. Each of the Shareholders shall have executed and
--------
delivered to Acquiror a Release, in the form attached hereto as Exhibit 5.
---------
(i) Notes. Each of the Company Notes and the Nonpareil Notes shall
-----
have been delivered to Acquiror at the Effective Time.
(j) Delivery of Financial Statements. Acquiror shall have received
--------------------------------
financial statements for Company and Nonpareil prepared in accordance with
GAAP as of and for the year ended February 28, 1998, with an unqualified
audit opinion by independent accountants, and interim unaudited financial
statements with limited review papers by Fred A. Mayfield & Company or
other independent accountants acceptable to Mohawk for the subsequent
interim period from March 1, 1998 through January 2, 1999. Such interim
financial statements shall not reflect any Material adverse change in the
financial position, results of operations or shareholders' equity of either
of Company or Nonpareil from the financial statements of Company as of and
for the period ended February 28, 1998 or the financial statements of
Nonpareil as of and for the period ended January 2, 1999.
(k) Satisfaction Letters. Acquiror shall have received, from each of
--------------------
Fred A. Mayfield & Company, Baker & McKenzie and Minor, Bell & Neal letters
confirming payment in full of all amounts owing to each such party by
Company or Nonpareil in connection with the transactions contemplated by
this Agreement and releasing Acquiror, Company and Nonpareil from any and
all obligations to pay any such party any amount after the Effective Time
for services rendered on or prior to the Closing Date in connection with
the transactions contemplated by this Agreement.
(l) Certain Certificates. Acquiror shall have received, from each of
--------------------
the Shareholders, a duly executed certificate stating that such Shareholder
is not a "foreign person" for United States income tax purposes, in
accordance with Section 1445 and Section 897 of the Internal Revenue Code
of 1986, as amended.
10.3 Conditions to Obligations of Company, Nonpareil and the
-------------------------------------------------------
Shareholders. The obligations of Company, Nonpareil and the Shareholders to
- ------------
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Company pursuant to Section 13.7(b):
(a) Representations and Warranties. For purposes of this Section
------------------------------
10.3(a), the accuracy of the representations and warranties of Acquiror set
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forth in this Agreement shall be assessed as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective
Time (provided that representations and warranties which are confined to a
specified date shall speak only as of such date). The representations and
warranties of Acquiror set forth in Section 7.3 shall be true and correct.
The representations and warranties of Acquiror set forth in Section 7.9
shall be true and correct in all Material respects. There shall not exist
inaccuracies in the representations and warranties of Acquiror set forth in
this Agreement (including the representations and warranties set forth in
Sections 7.3 and 7.9) such that the aggregate effect of such inaccuracies,
together with any supplemental disclosures made pursuant to Section
9.14(b), has, or is reasonably likely to have, an Acquiror Material Adverse
Effect; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by references to
"Acquiror Material Adverse Effect" shall be deemed not to include such
qualification.
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of Acquiror to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all Material respects.
(c) Certificates. Acquiror shall have delivered to Company (i) a
------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that
the conditions set forth in Section 10.1 as relates to Acquiror and in
Section 10.3(a) and 10.3(b) have been satisfied, and (ii) certified copies
of resolutions duly adopted by each of Acquiror's Board of Directors, Sub
1's Board of Directors, Sub 2's Board of Directors and the sole
shareholder of Sub 1 and Sub 2 evidencing the taking of all corporate
action necessary to authorize the execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated
hereby, all in such reasonable detail as Company and its counsel shall
request.
(d) Escrow Agreement. Acquiror and Escrow Agent shall have executed
----------------
and delivered to the Shareholders the Escrow Agreement, in the form
attached hereto as Exhibit 1.
---------
(e) Noncompetition Agreements. The Acquiror shall have executed and
-------------------------
delivered to each of Thomas R. Durkan, II, Thomas R. Durkan, III and
Patricia Durkan the Noncompetition Agreements.
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ARTICLE 11
INDEMNIFICATION
---------------
11.1 Agreements to Indemnify.
-----------------------
(a) Agreement of Shareholder Indemnitors to Indemnify. Subject to the
-------------------------------------------------
terms and conditions of this Article 11 and the Escrow Agreement, Shareholder
Indemnitors jointly and severally (except with respect to (i) the
representations and warranties of the Shareholder Indemnitors contained in
Article 6, (ii) the covenants or agreements of the Shareholder Indemnitors made
in or pursuant to this Agreement and (iii) the representations, warranties and
covenants of the Shareholder Indemnitors made in or pursuant to the
Shareholders' Closing Documents, in each of which cases such obligation shall be
several as to each Shareholder Indemnitor's individual representations,
warranties, covenants and agreements) agree to indemnify, defend, and hold
harmless Acquiror Indemnitees, and each of them, from, against, for and in
respect of any and all Losses asserted against, or paid, suffered or incurred
by, an Acquiror Indemnitee and resulting from, based upon, or arising out of:
(A) the inaccuracy, untruth, incompleteness or breach of any
representation or warranty of any Shareholder, Nonpareil or Company
contained in or made pursuant to this Agreement or any Shareholders'
Closing Documents;
(B) a breach of or failure to perform any covenant or agreement
of any Shareholder, Nonpareil or Company made in this Agreement or any
Shareholders' Closing Documents;
(C) any agreement between the Company and Terry Wayne Langley
("Langley"), including but not limited to, that certain Employment
Agreement, effective January 1, 1998, by and between Company and Langley
(the "Employment Agreement") and that certain Deferred Bonus Agreement
between the Company and Langley referred to in such Employment Agreement,
and any amendment, termination or other action taken by the Company with
respect to any such agreements, and the termination of Langley's employment
with the Company, provided, however, that payments by the Company to
-------- -------
Langley in the monthly amount of $15,000 for not more than 24 months or
other amounts paid to Langley or otherwise incurred by the Company or
Acquiror, all of which payments by the Company or Acquiror shall in no
event exceed $360,000, shall not be indemnifiable Losses hereunder so long
as and solely to the extent that Langley complies with the covenants set
forth in Sections 6, 7 and 8 of the Employment Agreement or otherwise
complies with substantially similar covenants (to the reasonable
satisfaction of Company and Acquiror); or
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(D) any of the following matters which are in existence on the
Closing Date:
(1) The debris and waste pile areas on (a) the northern
portion of the Nonpareil Dyeing and Finishing Plant, which Plant is
located at 121 Goodwill Drive, Dalton, Georgia (the "Nonpareil
Plant"), and (b) the northeastern portion of the Virgil Facility
located at 405 Virgil Drive, Dalton Georgia (the "Virgil Facility"),
including, but not limited to, all costs and expenses of Remedial
Activities and Penalties;
(2) Operations conducted at the Nonpareil Plant and the
Virgil Facility pursuant to the expired Industrial Discharge Permit
No. 1032G issued by the City of Dalton, including, but not limited to,
any Penalties and costs of compliance;
(3) Failure to obtain (a) Georgia Air Quality Control and
federal Prevention of Significant Deterioration permits for
construction and operation of emission sources and facilities at the
Virgil Facility pursuant to the Georgia Air Quality Act ( O.C.G.A.
(S)(S)13-9-1 et seq.) (the "Georgia Air Act") and the federal Clean
Air Act (42 U.S.C. (S)(S) 7401 et seq.) (the "Clean Air Act") and (b)
Georgia Air Quality permits for construction and operation of
emission sources and facilities at the spinning mill, which mill is
located at 4148 Cleveland Highway, Whitfield County, Georgia (the
"Spinning Mill") pursuant to the Georgia Air Act, (c) failure to
submit an adequate 1998 Title V Annual Compliance Certification for
the Virgil Facility pursuant to the Georgia Air Act and the Clean Air
Act, including, but not limited to, any Penalties and costs of
compliance;
(4) Failure to obtain Georgia Department of Labor
Certificates of Boiler or Pressure Vessel Inspection for operations at
the Spinning Mill, including, but not limited to, any Penalties and
costs of compliance; or
(5) Failure of the Nonpareil Plant, the Virgil Facility, and
the Spinning Mill to comply with the requirements of Section 312 of
the Emergency Planning and Community Right to Know Act (42 U.S.C.
(S)(S)11001 et seq.), as amended, including, but not limited to, any
Penalties and costs of compliance.
(b) Agreement of Acquiror Indemnitor to Indemnify. Subject to the
----------------------------------------------
terms and conditions of this Article 11, Acquiror Indemnitor agrees to
indemnify, defend, and hold harmless Shareholder Indemnitees, and each of them,
from, against, for and in respect of any and all Losses asserted against, or
paid, suffered or incurred by, a Shareholder Indemnitee and resulting from,
based upon, or arising out of a
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breach of or failure to perform any covenant or
agreement of Acquiror Indemnitor made in this Agreement or any Acquiror Closing
Document.
11.2 Procedures for Indemnification.
------------------------------
(a) An Indemnification Claim shall be made by an Indemnitee by
delivery of a written notice to the Acquiror or the Indemnitor Representative,
as appropriate, requesting indemnification and specifying in reasonable detail
the basis on which indemnification is sought and the amount of asserted Losses
and, in the case of a Third Party Claim, containing (by attachment or otherwise)
such other information as such Indemnitee shall have concerning such Third Party
Claim.
(b) If the Indemnification Claim involves a Third Party Claim, the
procedures set forth in Section 11.3 shall be observed by the Indemnitee and the
Acquiror or the Indemnitor Representative, as appropriate.
(c) If the Indemnification Claim involves a matter other than a Third
Party Claim, the Acquiror or the Indemnitor Representative, as appropriate,
shall have 30 days after actual receipt by him or it of the written notice
described in Section 11.2(a) to object to such Indemnification Claim by delivery
of a written notice of such objection to the Indemnitee specifying in reasonable
detail the basis for such objection. Failure to timely so object shall
constitute a final and binding acceptance of the Indemnification Claim by the
Acquiror, or the Indemnitor Representative on behalf of all Shareholder
Indemnitors, as appropriate, and the Indemnification Claim shall be paid in
accordance with subsection (d) hereof. If an objection is timely interposed by
the Acquiror or the Indemnitor Representative, as appropriate, and the dispute
is not resolved by the Indemnitee and the Acquiror or the Indemnitor
Representative, as appropriate, within 15 days after the date the Indemnitee
receives such objection, such dispute shall be resolved by arbitration as
provided in Section 11.12.
(d) Upon determination of the amount of an Indemnification Claim,
whether by agreement between the Acquiror or the Indemnitor Representative, as
appropriate, and the Indemnitee or by an arbitration award or by any other final
adjudication, the Indemnitors shall pay the amount of such Indemnification Claim
within thirty days after the date such amount is determined. Subject to the
terms of the Escrow Agreement, such payment shall be made by delivering to the
Indemnitee certificates, duly endorsed for transfer, representing that number of
shares of Acquiror Common Stock having a value (based on the Closing Price),
rounded to the nearest share, equal to the amount due such Indemnitee hereunder,
in each case subject to Sections 11.6 and 11.7. Indemnification Claims made
pursuant to Sections 11.1(a)(D)(2), (3), (4) or (5) shall not be satisfied from
the Escrow, but shall be satisfied directly by the Shareholder Indemnitors as
provided in this Section 11.2(d). If an Indemnification Claim is made and paid
after all Escrow Shares and Cash Proceeds therefrom, if any, have been
distributed to the Shareholders or canceled, as appropriate, then such
Indemnification Claim shall be
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satisfied in any manner permitted in order for the Merger to qualify for
"pooling of interests" accounting treatment.
11.3 Third Party Claims. The obligations and liabilities of the
------------------
parties hereunder with respect to a Third Party Claim shall be subject to the
following terms and conditions:
(a) The Indemnitee shall give the Acquiror or the Indemnitor
Representative, as appropriate, written notice of a Third Party Claim promptly
after receipt by the Indemnitee of notice thereof, and the Acquiror, or the
Indemnitor Representative on behalf of the Shareholder Indemnitors, as
appropriate, may undertake the defense, compromise and settlement thereof by
representatives of its own choosing reasonably acceptable to the Indemnitee.
The failure of the Indemnitee to notify the Acquiror or the Indemnitor
Representative, as appropriate, of such Third Party Claim shall not relieve any
Indemnitor of any liability that any Indemnitor may have with respect to such
Third Party Claim except to the extent the defense of such Third Party Claim is
prejudiced by such failure. If the Indemnitee desires to participate in, but
not control, any such defense, compromise and settlement, it may do so at its
sole cost and expense. If, however, the Acquiror or the Indemnitor
Representative, as appropriate, fails or refuses to undertake the defense of
such Third Party Claim within fifteen (15) days after notice of such claim has
been actually received by the Acquiror or the Indemnitor Representative, as
appropriate, the Indemnitee shall have the right to undertake the defense,
compromise and settlement of such claim with counsel of its own choosing
reasonably acceptable to the Acquiror or the Indemnitor Representative, as
appropriate. In the circumstances described in the preceding sentence, the
Indemnitee shall, promptly upon its assumption of the defense of such claim,
make an Indemnification Claim as specified in Section 11.2 which shall be deemed
an Indemnification Claim that is not a Third Party Claim for the purposes of the
procedures set forth herein.
(b) No compromise or settlement of a Third Party Claim involving the
asserted liability of the Indemnitors under this Article shall be made without
the prior written consent by or on behalf of the Acquiror or the Indemnitor
Representative, as appropriate, which consent shall not be unreasonably withheld
or delayed. Consent shall be presumed in the case of settlements of $100,000 or
less where the Acquiror or the Indemnitor Representative, as appropriate, has
not responded within ten business days after actually receiving from the
Indemnitee notice of a proposed settlement. If the Acquiror or the Indemnitor
Representative, as appropriate, assumes the defense of such a Third Party Claim,
(a) no compromise or settlement thereof may be effected by the Acquiror or the
Indemnitor Representative, as appropriate, without the Indemnitee's consent,
which consent shall not be unreasonably withheld or delayed, unless (i) there is
no finding or admission of any violation of law or any violation of the rights
of any person and no effect on any other claim that may be made against the
Indemnitee, (ii) the sole relief provided is monetary damages that are paid in
full by the Indemnitors, and (iii) the compromise or settlement includes, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
Indemnitee of a release, in form and substance
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reasonably satisfactory to the Indemnitee, from all liability in respect of such
Third Party Claim, and (b) the Indemnitee shall have no liability with respect
to any compromise or settlement thereof effected without its consent (if such
consent was not unreasonably withheld or delayed).
(c) In connection with the defense, compromise or settlement of any
Third Party Claim, the parties to this Agreement shall execute such powers of
attorney as may reasonably be necessary or appropriate to permit participation
of counsel selected by any party hereto and, as may reasonably be related to any
such claim or action, shall provide access to the counsel, accountants and other
representatives of each party during normal business hours to all properties,
personnel, books, tax records, contracts, commitments and all other business
records of such other party and will furnish to such other party copies of all
such documents as may reasonably be requested (certified, if requested).
11.4 Exclusive Remedy. The Parties and the Shareholders acknowledge
----------------
and agree that, except as provided in Section 13.14 of this Agreement, the
indemnification provisions in this Article 11 shall provide the exclusive remedy
of the Parties hereto and the Shareholders with respect to this Agreement.
11.5 Survival. All representations, warranties and agreements of the
--------
Company, the Shareholders and Acquiror contained in this Agreement or in any
Shareholder Closing Documents or any Acquiror Closing Documents shall survive
the consummation of the transactions provided for herein and therein for such
period of time as an Indemnification Claim for breach thereof may be made as
provided in Section 11.6 hereof, notwithstanding any investigation conducted
with respect thereto or any knowledge acquired as to the accuracy or inaccuracy
of any such representation or warranty.
11.6 Time Limitations.
----------------
(a) The Shareholder Indemnitors will have no Liability to the Acquiror
Indemnitees under Article 11 of this Agreement in connection with this Agreement
or the transactions contemplated hereby, including any breach of any of the
representations, warranties, covenants or agreements made or to be performed by
the Company or the Shareholders contained in this Agreement and/or the
Shareholder Closing documents or the Acquiror Closing Documents contemplated
hereby, unless notice asserting a bona fide Indemnification Claim based thereon
is given to the Indemnitor Representative prior to (i) with respect to any
Indemnification Claim asserted under clause (C) of Section 11.1(a), thirty (30)
days after the date the final payment required to be made for any Loss described
in Section 11.1(a)(C) is actually paid; (ii) with respect to any Indemnification
Claim asserted under clause (A) of Section 11.1(a) based upon the inaccuracy,
untruth, incompleteness or breach of any representation or warranty of any
Shareholder, Nonpareil or the Company contained in Sections 5.1, 5.2, 5.8 except
for subsections (c) and (d), 5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17,
5.20, 5.21, 5.23,
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5.25, 6.1, 6.2, 6.3 or 6.4, one (1) year from the Effective Time; (iii) with
respect to any Indemnification Claim asserted under Clause (D) of Section
11.1(a), three years from the Effective Time; and (iv) with respect to all other
Indemnification Claims not covered by (i), (ii) or (iii), the earlier of (i) one
(1) year from the Effective Time, or (ii) the date of issuance of the first
independent accountants report on the consolidated financial statements of
Acquiror which reflect the combined results of Acquiror, Company and Nonpareil
subsequent to the Effective Time (but in no event shall any such time period be
longer than the maximum period permitted in order for the Merger to qualify for
"pooling of interests" accounting treatment).
(b) The Acquiror Indemnitor will have no Liability to the Shareholder
Indemnitees under Article 11 of this Agreement in connection with this Agreement
or the transactions contemplated hereby, including any breach of any of the
representations, warranties, covenants or agreements made or to be performed by
the Acquiror contained in this Agreement and/or the Shareholder Closing
Documents or the Acquiror Closing Documents contemplated hereby, unless notice
asserting a bona fide Indemnification Claim based thereon is given to the
Acquiror prior to the earlier of (i) one (1) year from the Effective Time, or
(ii) the date of issuance of the first independent accountants report on the
consolidated financial statements of Acquiror which reflect the combined results
of Acquiror and Company subsequent to the Effective Time (but in no event shall
such time period be longer than the maximum period permitted in order for the
Merger to qualify for "pooling of interests" accounting treatment).
11.7 Limitations as to Amount.
------------------------
(a) Shareholder Indemnitors shall have no Liability with respect to
the matters described in clauses (A) or (B) of Section 11.1(a) until the total
of all Losses described in Section 11.1(a)(A) and (B) with respect thereto
exceeds $1,500,000 and then only for the amount by which such Losses described
in Section 11.1(A) and (B) exceed $1,500,000. Shareholder Indemnitors shall be
liable for all Losses with respect to the matters described in clause (C) of
Section 11.1(a). Shareholder Indemnitors shall have no Liability with respect
to the matters described in clause (D) of Section 11.1(a) until the total of all
Losses described in Section 11.1(a)(D) with respect thereto exceeds $100,000 and
then only for the amount by which such Losses described in Section 11.1(a)(D)
exceed $100,000. The limitations set forth in this Section 11.7(a) shall not
apply to: (i) any intentional misrepresentation or breach of warranty of any
Indemnitor (other than with respect to certain failures to disclose information
on the Company and Shareholder Disclosure Memorandum which have otherwise been
disclosed to the Chief Financial Officer of Acquiror) or any intentional failure
to perform or comply with any covenant or agreement of any Indemnitor or (ii)
any breach of the representations and warranties contained in Section 5.14, and
the Indemnitors shall be liable for all Losses with respect thereto.
(b) In no event shall the aggregate liability of the Shareholder
Indemnitors under this Article 11, this Agreement, the Shareholder Closing
Documents
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<PAGE>
and the Acquiror Closing Documents entered into in connection with the
consummation of the transactions contemplated hereby, exceed the lesser of
$10,000,000 or the amount which is ten percent (10%) of the total number of
shares of Acquiror Common Stock issued in the Merger multiplied by the Closing
Price (but in any event such aggregate liability shall not be greater than the
maximum amount permitted in order for the Merger to qualify for "pooling of
interests" accounting treatment).
11.8 Tax Effect and Insurance. The liability of the Indemnitors with
------------------------
respect to any Indemnification Claim shall be reduced by the tax benefit
actually received and any insurance proceeds actually received by the
Indemnitees as a result of any Losses upon which such Indemnification Claim is
based, and shall include any tax detriment actually suffered by the Indemnitees
as a result of such Losses or Indemnification payment. Following the payment of
the Indemnification Claim (to the extent such payment has not already been
adjusted under this Section 11.8), payment of any such tax benefits or detriment
shall be made between Indemnitors and Indemnitees as the tax benefits are
received or tax detriment is suffered. In determining such tax benefit or
detriment, the Indemnitee shall make available to the Indemnitor calculations
(in reasonable detail) setting forth the tax benefit or detriment and such
calculations shall be based on information contained or to be contained in
applicable Tax Returns. This Section 11.8 shall be interpreted so that the
payment by the Indemnitors of the Indemnification Claim, as adjusted hereunder,
will make the Indemnitee as economically whole as is reasonably practical with
respect to the Losses upon which the Indemnification Claim is based. Any
dispute as to the amount of such tax benefit or detriment shall be resolved by
arbitration as provided in Section 11.12 of this Agreement.
11.9 Escrow. Upon notice to the Indemnitor Representative specifying
------
in reasonable detail the basis therefor, an Acquiror Indemnitee may give notice
of a Claim to any amount to which it may be entitled under this Article 11 under
the Escrow Agreement. To the extent shares of Acquiror Common Stock remain
available to Acquiror under the Escrow Agreement, Acquiror shall satisfy any
Indemnification Claim in accordance with the provisions of the Escrow Agreement
before pursuing other remedies for an Indemnification Claim against the
Shareholder Indemnitors.
11.10 Subrogation. Upon payment in full of any Indemnification
-----------
Claim the Indemnitors shall be subrogated to the extent of such payment to the
rights of the Indemnitee against any person or entity with respect to the
subject matter of such Indemnification Claim or Third Party Claim.
11.11 Appointment of Indemnitor Representative. Each Shareholder
----------------------------------------
Indemnitor constitutes and appoints the Indemnitor Representative as his or her
true and lawful attorney-in-fact to act for and on behalf of such Shareholder
Indemnitor in all matters relating to or arising out of this Article 11 and the
Liability or asserted Liability of such Shareholder Indemnitor hereunder,
including specifically, but without limitation, accepting and agreeing to the
Liability of such Shareholder Indemnitor with respect to any Indemnification
Claim, objecting to any Indemnification Claim, disputing the Liability of
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such Shareholder Indemnitor, or the amount of such Liability, with respect to
any Indemnification Claim and prosecuting and resolving such dispute as herein
provided, accepting the defense, compromise and settlement of any Third Party
Claim on behalf of such Shareholder Indemnitor or refusing to accept the same,
settling and compromising the Liability of such Shareholder Indemnitor
hereunder, instituting and prosecuting such actions (including arbitration
proceedings) as the Indemnitor Representative shall deem appropriate in
connection with any of the foregoing, retaining counsel, accountants, appraisers
and other advisers in connection with any of the foregoing, all for the account
of the Shareholder Indemnitor, such Shareholder Indemnitor agreeing to be fully
bound by the acts, decisions and agreements of the Indemnitor Representative
taken and done pursuant to the authority herein granted. Each Shareholder
Indemnitor hereby agrees to indemnify and to save and hold harmless the
Indemnitor Representative from any Liability incurred by the Indemnitor
Representative based upon or arising out of any act, whether of omission or
commission, of the Indemnitor Representative pursuant to the authority herein
granted, other than acts, whether of omission or commission, of the Indemnitor
Representative that constitute gross negligence or willful misconduct in the
exercise by the Indemnitor Representative of the authority herein granted. The
Indemnitor Representative, or any successor hereafter appointed, may resign and
shall be discharged of his duties hereunder upon the appointment of a successor
Indemnitor Representative, as hereinafter provided. In case of such resignation,
or in the event of the death or inability to act as the Indemnitor
Representative, a successor shall be named from among the Shareholders by a
majority of the Shareholders. Each such successor Indemnitor Representative
shall have all the power, authority, rights and privileges hereby conferred upon
the original Indemnitor Representative, and the term "Indemnitor Representative"
as used herein shall be deemed to include such successor Indemnitor
Representative.
11.12 Arbitration. Any dispute, claim or controversy relating in
-----------
any way to this Agreement or to any of the Other Shareholder Agreements or any
of the Other Acquiror Agreements, or the transactions contemplated hereby or
thereby, whether in contract, in tort or otherwise, except a request for
equitable, injunctive or restraining relief (as described in Section 13.14) or
to enforce an arbitration award, shall be resolved by arbitration in Atlanta,
Georgia, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), subject to the limitations of this Section
11.12. Discovery proceedings shall be permitted and conducted in the manner
provided by the Federal Rules of Civil Procedure, specifically excluding the
mandatory disclosure provisions of Rule 26 thereof. This agreement to arbitrate
will be specifically enforceable under the prevailing law of any court having
jurisdiction. Notice of a demand for arbitration will be filed in writing with
the applicable other signatory hereto and with AAA. The demand for arbitration
shall be made in accordance with the specific terms of Article 11 of this
Agreement, if applicable, and otherwise within a reasonable time after the
claim, dispute or other matter in question has arisen, and in no event shall any
such demand be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable statute of limitations. The signatories hereto agree
that three (3) arbitrators experienced in the matters at issue shall arbitrate
all disputes. The arbitrators shall be selected by the joint
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agreement of the signatories hereto, but if they do not so agree within twenty
(20) days after the date of the notice of a demand for arbitration referred to
above, the selection shall be made pursuant to the Commercial Arbitration Rules
of AAA from the panels of arbitrators maintained by AAA. The award rendered by
the arbitrators will be final, judgment may be entered upon it in any court
having jurisdiction thereof, and the award will not be subject to vacation,
modification or appeal, except to the extent permitted by Sections 10 and 11 of
the Federal Arbitration Act, the terms of which Sections the signatories hereto
agree shall apply. Each participant in the arbitration shall pay its own
expenses of arbitration, and the expenses of the arbitrators shall be equally
shared; provided, however, that if in the opinion of the arbitrators any claim,
or any defense or objection thereto, was unreasonable, the arbitrators may
assess, as part of their award, all or any part of the arbitration expenses
against the participant(s) raising such unreasonable claim, defense or
objection.
11.13 Contribution Agreement. Notwithstanding any joint and
----------------------
several liability of the Shareholder Indemnitors under certain provisions of
this Agreement, the Shareholder Indemnitors hereby agree among themselves that
each Shareholder Indemnitor's respective liability and obligation under any of
said provisions shall be pro rata (based on each Shareholder Indemnitor's share
of the 3,150,000 shares received pursuant to Section 3.1 hereof) among all the
Shareholder Indemnitors for any liability or obligation under such provision.
If any liability or obligation under this Agreement is paid or otherwise
satisfied by any Shareholder Indemnitor in excess of his, her or its
proportionate share, such Shareholder Indemnitor shall have an immediate right
of contribution from the other Shareholder Indemnitors for such excess.
ARTICLE 12
TERMINATION
-----------
12.1 Termination. Notwithstanding any other provision of this
-----------
Agreement, and notwithstanding the approval of this Agreement by the
Shareholders, this Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time:
(a) By mutual written consent of Acquiror and Company; or
(b) By the Acquiror or Company (provided that the terminating
Party is not then in Material breach of any representation, warranty, covenant,
or other agreement contained in this Agreement) in the event of an inaccuracy or
inaccuracies in the representations and warranties of, in the case of Acquiror,
Company, Nonpareil or any Shareholder and, in the case of Company, of Acquiror
contained in this Agreement, which cannot be or has not been cured within 30
days after the giving of notice to the breaching Party, or breaching
Shareholder, of such breach, which notice includes a reasonably detailed
description of such inaccuracy or inaccuracies; but only if the existence of
such inaccuracy or inaccuracies would give the terminating Party the right to
refuse to perform
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this Agreement and consummate the Merger under Section 10.2 or Section 10.3, as
applicable; or
(c) By Acquiror or Company (provided that the terminating Party
is not then in Material breach of any representation, warranty, covenant, or
other agreement contained in this Agreement) in the event of a breach of any
covenant or agreement contained in this Agreement, in the case of Acquiror, by
Company, Nonpareil or any Shareholder of any covenant or agreement of such Party
or Shareholder contained in this Agreement and, in the case of Company, by
Acquiror of any covenant or agreement of Acquiror contained in this Agreement,
which cannot be or has not been cured within 30 days after the giving of notice
to the breaching Party or breaching Shareholder of such breach, which notice
includes a reasonably detailed description of such breach; but only if the
existence of any such breach would give the terminating Party the right to
refuse to perform this Agreement and consummate the Merger under Section 10.2 or
10.3, as applicable; or
(d) By Acquiror or Company (provided that the terminating Party
is not then in Material breach of any representation, warranty, covenant, or
other agreement contained in this Agreement) in the event any Consent of any
Regulatory Authority required for consummation of the Merger and the other
transactions contemplated hereby shall have been denied by final nonappealable
action of such authority or if any action taken by such authority is not
appealed within the time limit for appeal; but only if the failure to obtain any
such Consent would give the terminating Party the right to refuse to perform
this Agreement and consummate the Merger under Section 10.1; or
(e) By either Party in the event that the Merger shall not have
been consummated by March 31, 1999, if the failure to consummate the
transactions contemplated hereby on or before such date is not caused by any
breach of this Agreement by the Party electing to terminate pursuant to this
Section 12.1(e).
12.2 Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 12.1, this Agreement shall
become void and have no effect, except that (i) the provisions of this Section
12.2 and Article 13 and Section 9.6(b) shall survive any such termination and
abandonment, and (ii) a termination pursuant to Sections 12.1(b) and 12.1(c)
shall not relieve the breaching Party or Shareholder from Liability for an
uncured willful breach of a representation, warranty, covenant, or agreement
giving rise to such termination.
12.3 Non-Survival of Acquiror Representations and Warranties. The
-------------------------------------------------------
representations and warranties of Acquiror in this Agreement shall not survive
the Effective Time.
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12.4 Payments Upon Certain Terminations.
----------------------------------
(a) Each of Company and Acquiror agrees that, in the event the
transactions contemplated hereby are not consummated, each will experience
significant damage and incur significant expenses. In recognition thereof and
because the amount of damages which might otherwise accrue would be difficult or
impossible to ascertain, each of Company and Acquiror agrees that, if either of
Acquiror or Company shall terminate this Agreement (other than pursuant to
Section 12.1 hereof), then such terminating Party shall pay to the other Party
promptly on demand therefor the sum of $5,000,000, as liquidated damages and not
as a penalty.
(b) If, after March 31, 1999, Acquiror has failed to obtain those
Consents required pursuant to the document disclosed on Section 7.2 of the
Acquiror Disclosure Memorandum and Acquiror chooses to exercise its rights
pursuant to Section 12.1(e), then Acquiror shall pay to Company the sum of
$325,000, as liquidated damages and not as a penalty. If, after April 30, 1999,
Acquiror has failed to obtain such Consents and Company chooses to exercise its
rights pursuant to Section 12.1(e), then Acquiror shall pay to Company the sum
of $325,000, as liquidated damages and not as a penalty.
ARTICLE 13
MISCELLANEOUS
-------------
13.1 Definitions.
-----------
(a) Except as otherwise provided herein, the capitalized terms
set forth below shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Acquiror Capital Stock" shall mean, collectively, the Acquiror Common
Stock, the Acquiror Preferred Stock and any other class or series of capital
stock of Acquiror.
"Acquiror Closing Documents" shall mean the Escrow Agreement, Stock
Restriction and Registration Rights Agreement and the Noncompetition Agreements.
"Acquiror Common Stock" shall mean the $0.01 par value common stock of
Acquiror.
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"Acquiror Disclosure Memorandum" shall mean the written information
entitled "Acquiror Disclosure Memorandum" delivered to Company simultaneously
with Acquiror's execution of this Agreement, as supplemented in accordance with
Section 9.14(b) describing in reasonable detail the matters contained therein
and, with respect to each disclosure made therein, specifically referencing each
Section of this Agreement under which such disclosure is being made. Information
disclosed with respect to one Section shall not be deemed to be disclosed for
purposes of any other Section not specifically referenced with respect thereto.
"Acquiror Entities" shall mean, collectively, Acquiror and all
Acquiror Subsidiaries.
"Acquiror Financial Statements" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of Acquiror as of
September 26, 1998, and as of December 31, 1997 and 1996, and the related
statements of income, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) for the nine months ended September 26,
1998, and for each of the three fiscal years ended December 31, 1997, 1996 and
1995, as filed by Acquiror in SEC Documents, and (ii) the consolidated balance
sheets of Acquiror (including related notes and schedules, if any) and related
statements of income, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) included in SEC Documents filed with
respect to periods ended subsequent to September 26, 1998.
"Acquiror Indemnitees" shall mean Acquiror, Company, Nonpareil and
their respective officers, directors, shareholders, controlling persons,
Affiliates and Representatives.
"Acquiror Indemnitor" shall mean the Acquiror.
"Acquiror Material Adverse Effect" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a Material adverse impact on (i) the financial position,
business, or results of operations of Acquiror and its Subsidiaries, taken as a
whole, or (ii) the ability of Acquiror to perform its obligations under this
Agreement or to consummate the Merger or the other transactions contemplated by
this Agreement, provided that "Acquiror Material Adverse Effect" shall not be
deemed to include the impact of (a) actions and omissions of Acquiror (or any of
its Subsidiaries) taken with the prior informed written Consent of Company in
contemplation of the transactions contemplated hereby and (b) the direct effects
of compliance with this Agreement on the operating performance of Acquiror,
including expenses incurred by Acquiror in consummating the transactions
contemplated by this Agreement.
"Acquiror Preferred Stock" shall mean the $0.01 par value preferred
stock of Acquiror.
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"Acquiror Subsidiaries" shall mean the Subsidiaries of Acquiror and
any corporation or other organization acquired as a Subsidiary of Acquiror in
the future and held as a Subsidiary by Acquiror at the Effective Time,
"Acquisition Proposal" shall mean any tender offer or exchange offer
or any proposal for a merger, acquisition of all of the stock or assets of, or
other business combination involving the acquisition of any Company Entity or
the acquisition of a substantial equity interest in, or a substantial portion of
the assets of, any Company Entity.
"Affiliate" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person; or (iii) any other Person for which a Person
described in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger, including
the Exhibits delivered pursuant hereto and incorporated herein by reference.
"Assets" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible, accrued or
contingent, or otherwise relating to or utilized in such Person's business,
directly or indirectly, in whole or in part, whether or not carried on the books
and records of such Person, and whether or not owned in the name of such Person
or any Affiliate of such Person and wherever located.
"Certificate of Merger" shall mean either of the Certificates of
Merger to be executed by Company or Nonpareil, as appropriate, and filed with
the Secretary of State of the State of Georgia relating to the Merger as
contemplated by Section 1.1.
"Closing Date" shall mean the date on which the Closing occurs.
"Company and Shareholder Disclosure Memorandum" shall mean the written
information entitled "Company and Shareholder Disclosure Memorandum" delivered
simultaneously with the execution by Company, Nonpareil and the Shareholders of
this Agreement, as supplemented in accordance with Section 9.14(a) describing in
reasonable detail the matters contained therein and, with respect to each
disclosure made therein, specifically referencing each Section of this Agreement
under which such disclosure is being made. Information disclosed with respect to
one Section shall not be deemed to be disclosed for purposes of any other
Section not specifically referenced with respect thereto.
"Company Capital Stock" shall mean the Company Nonvoting Common Stock
and the Company Voting Common Stock.
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"Company Entities" shall mean, collectively, Company, Nonpareil, all
Company Subsidiaries and all Nonpareil Subsidiaries.
"Company Financial Statements" shall mean (i) (A) the balance sheets
(including related notes and schedules, if any) of Company as of February 28,
1998, March 1, 1997, March 2, 1996, February 25, 1995 and February 26, 1994, and
the related statements of income, changes in shareholders' equity, and cash
flows (including related notes and schedules, if any) for each of the five
fiscal years ended February 28, 1998, March 1, 1997, March 2, 1996, February 25,
1995 and February 26, 1994, and (B) the balance sheets of Company (including
related notes and schedules, if any) and related statements of income, changes
in shareholders' equity, and cash flows (including related notes and schedules,
if any) with respect to periods ended subsequent to February 28, 1998 and (ii)
(A) the balance sheets (including related notes and schedules, if any) of
Nonpareil as of January 3, 1998, December 28, 1996, December 30, 1995, December
31, 1994 and January 1, 1994 and the related statements of income, changes in
shareholders' equity, and cash flows (including related notes and schedules, if
any) for each of the five fiscal years ended January 3, 1998, December 28, 1996,
December 30, 1995, December 31, 1994 and January 1, 1994 and (B) the
consolidated balance sheets of Nonpareil (including related notes and schedules,
if any) and related statements of income, if any) with respect to periods ended
subsequent to January 3, 1998.
"Company Material Adverse Effect" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a Material adverse impact on (i) the financial position,
business, or results of operations of the Company Entities, taken as a whole, or
(ii) the ability of Company and Nonpareil to perform their respective
obligations under this Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement, provided that "Material Adverse
Effect" shall not be deemed to include the impact of (a) actions and omissions
of the Company Entities taken with the prior informed written Consent of
Acquiror in contemplation of the transactions contemplated hereby and (b) the
direct effects of compliance with this Agreement on the operating performance of
Company and Nonpareil, including expenses incurred by Company and Nonpareil in
consummating the transactions contemplated by this Agreement.
"Company Nonvoting Common Stock" shall mean the no par value nonvoting
common stock of Company.
"Company Notes" shall mean that certain 8 1/2% promissory note in the
original principal amount of $1,000,000 dated February 26, 1997, as modified on
March 1, 1998, and that certain 8 1/2% promissory note in the original principal
amount of $6,400,000 dated June 30, 1994, as modified on March 1, 1998.
"Company Subsidiaries" shall mean the Subsidiaries of Company or
Nonpareil, which shall include the Company Subsidiaries described in Section 5.4
and any
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corporation or other organization acquired as a Subsidiary of Company or
Nonpareil in the future and held as a Subsidiary by Company or Nonpareil at the
Effective Time.
"Company Voting Common Stock" shall mean the no par value voting
common stock of Company.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease, obligation,
plan, practice, restriction, understanding, or undertaking of any kind or
character, or other document to which any Person is a party or that is binding
on any Person or its capital stock, Assets or business.
"Default" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, (ii)
any occurrence of any event that with the passage of time or the giving of
notice or both would constitute a breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, or
(iii) any occurrence of any event that with or without the passage of time or
the giving of notice would give rise to a right of any Person to exercise any
remedy or obtain any relief under, terminate or revoke, suspend, cancel, or
modify or change the current terms of, or renegotiate, or to accelerate the
maturity or performance of, or to increase or impose any Liability under, any
Contract, Law, Order, or Permit.
"DGCL" shall mean the Delaware General Corporation Law.
"Disclosure Statement" shall mean the disclosure statement used by
Company or Nonpareil to solicit the approval of its shareholders of the
transactions contemplated by this Agreement.
"Environmental Laws" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface, or subsurface strata), including, without
limitation (i) the Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. (S)(S)9601 et seq. ("CERCLA"); (ii) the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. (S)(S)6901 et seq., ("RCRA"); (iii) the Emergency Planning
and Community Right to Know Act (42 U.S.C. (S)(S)11001 et seq.); (iv) the Clean
Air Act (42 U.S.C. (S)(S)7401 et seq.); (v) the Clean Water Act (33 U.S.C.
(S)(S)1251 et seq.); (vi) the Toxic Substances Control Act (15 U.S.C. (S)(S)2601
et seq.); (vii) the Hazardous Materials Transportation Act (49 U.S.C. (S)(S)5101
et seq.); (viii) the Federal Insecticide, Fungicide and Rodenticide Act (7
U.S.C. (S)(S)136 et seq.); (ix) the Safe Drinking Water Act (41 U.S.C.
(S)(S)300f et seq.); (x) any state, county,
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municipal or local statutes, laws or ordinances similar or analogous to the
federal statutes listed in parts (i) -(ix) of this subparagraph, including, but
not limited to, the Georgia Solid Waste Management Act, O.C.G.A. (S)(S)13-8-20
et seq., the Georgia Hazardous Waste Management Act, O.C.G.A. (S)(S)12-8-60 et
seq., and the Georgia Hazardous Sites Response Act, O.C.G.A. (S)(S)12-8-90 et
seq. ("HSRA"); (xi) any amendments to the statutes, laws or ordinances listed in
parts (i) -(x) of this subparagraph, regardless of whether in existence on the
date hereof; (xii) any rules, regulations, guidelines, directives, orders or the
like adopted pursuant to or implementing the statutes, laws, ordinances and
amendments listed in parts (i) - (xi) of this subparagraph; and (xiii) any other
law, statute, ordinance, amendment, rule, regulation, guideline, directive,
order or the like in effect now or in the future relating to environmental,
health or safety matters.
"Equity Rights" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings, warrants, or
other binding obligations of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, shares of the capital stock of a
Person or by which a Person is or may be bound to issue additional shares of its
capital stock or other Equity Rights.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exhibits" 1 through 5, inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be referred to
in this Agreement and any other related instrument or document without being
attached hereto.
"First Surviving Corporation" shall mean Company as the surviving
corporation resulting from the Company Merger.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
"Hazardous Material" shall mean any chemical, substance, waste,
material, pollutant, contaminant, equipment or fixture defined as or deemed
hazardous or toxic or otherwise regulated under any Environmental Law,
including, without limitation, RCRA hazardous wastes, CERCLA hazardous
substances, and HSRA regulated substances, pesticides and other agricultural
chemicals, oil and petroleum products or byproducts and any constituents
thereof, asbestos, and polychlorinated biphenyls (PCBs).
"HSR Act" shall mean Section 7A of the Clayton Act, as added by Title
II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder.
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"Indemnification Claim" shall mean a claim for indemnification under
Article 11.
"Indemnitees" shall mean the Acquiror Indemnitees or the Shareholder
Indemnitees, as appropriate.
"Indemnitor Representative" shall mean Thomas R. Durkan, III.
"Indemnitors" shall mean the Shareholder Indemnitors or the Acquiror
Indemnitor, as appropriate.
"Intellectual Property" shall mean copyrights, patents, trademarks,
service marks, service names, trade names, applications therefor, technology
rights and licenses, computer software (including any source or object codes
therefor or documentation relating thereto), trade secrets, franchises, know-how
and inventions.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a Person (including references to
such Person being aware of a particular matter) shall mean those facts that are
known or should reasonably have been known after due inquiry by: (i) such
Person, (ii) with respect to Company, Thomas R. Durkan, II, Thomas R. Durkan,
III, Patricia Durkan and Dave Johnson, and (iii) with respect to Acquiror, the
chairman, president, chief financial officer, chief accounting officer, chief
operating officer, or controller of Acquiror.
"Law" shall mean any code, law (including, without limitation, common
law), ordinance, regulation, reporting or licensing requirement, rule, or
statute applicable to a Person or its Assets, Liabilities, or business,
including, without limitation, those promulgated, interpreted or enforced by any
Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including costs
of investigation, collection and defense), claim, deficiency, guaranty or
endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course of
business) of any type, whether accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge, or
claim of any nature whatsoever of, on, or with respect to any property or
property interest other than Permitted Liens.
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"Litigation" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, governmental or other examination or
investigation, hearing, administrative or other proceeding relating to or
affecting a Party, its business, its Assets (including Contracts related to it),
or the transactions contemplated by this Agreement.
"Losses" shall mean any and all payments, obligations, actions or
causes of action, assessments, losses, diminution in value, damages (including
special and consequential damages), liabilities, costs, and expenses, including
interest, penalties, cost of investigation and defense, and reasonable
attorneys' and other professional fees and expenses.
"Material" or "Materially" for purposes of this Agreement shall be
determined in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement shall
determine materiality in that instance.
"Nonpareil Common Stock" shall mean the $1.00 par value common stock
of Nonpareil.
"Nonpareil Notes" shall mean that certain 8 1/2% promissory note in
the original principal amount of $500,000 dated June 30, 1994, as modified on
March 1, 1998.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Operating Property" shall mean any property owned, leased, or
operated by the Party in question or by any of its Subsidiaries or in which such
Party or Subsidiary holds a security interest or other interest (including an
interest in a fiduciary capacity), and, where required by the context, includes
the owner or operator of such property, but only with respect to such property.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency, or Regulatory Authority.
"Participation Facility" shall mean any facility or property in which
the Party in question or any of its Subsidiaries participates in the management
and, where required by the context, said term means the owner or operator of
such facility or property, but only with respect to such facility or property.
"Party" shall mean any of Company, Nonpareil, Sub 1, Sub 2 or
Acquiror, and "Parties" shall mean all of Company, Nonpareil, Sub 1, Sub 2 and
Acquiror.
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"Permit" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing, franchise,
license, notice or permit to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its securities, Assets, or
business.
"Permitted Liens" shall mean (i) liens for current real property or ad
valorem Taxes not yet due and payable; (ii) such minor imperfections of title
not otherwise waived by Acquiror as set forth in the final title binders
delivered at Closing related to the Real Property and such encumbrances, if any,
that, in the aggregate, do not Materially and adversely detract from the value,
or Materially and adversely interfere with the present use of any of the Assets
of the Company Entities, including the Real Property or Leased Real Property;
and (iii) other nonmonetary liens, claims, and nonmonetary encumbrances relating
to the Assets of the Company Entities that (A) secure the Liabilities of the
Company Entities and (B) have been properly disclosed to Purchaser on an
appropriate Schedule to this Agreement.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in a
representative capacity.
"Regulatory Authorities" shall mean, collectively, the SEC, the NYSE,
the Federal Trade Commission, the United States Department of Justice, the U.S
Environmental Protection Agency, the Georgia Department of Natural Resources,
the Georgia Environmental Protection Division, and all other federal, state,
county, local or other governmental or regulatory agencies, authorities
(including self-regulatory authorities), instrumentalities, commissions, boards
or bodies having jurisdiction over the Parties and their respective Subsidiaries
or any Shareholder or over any site owned, leased, or operated by any Company
Entity or any of its Operating Properties or Participation Facilities.
"Representative" shall mean any investment banker, financial advisor,
attorney, accountant, consultant, or other representative engaged by a Person.
"SEC Documents" shall mean all forms, proxy statements, registration
statements, reports, schedules, and other documents filed, or required to be
filed, by a Party or any of its Subsidiaries with any Regulatory Authority
pursuant to the Securities Laws.
"Second Surviving Corporation" shall mean Nonpareil as the surviving
corporation resulting from the Nonpareil Merger.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of 1940,
as amended,
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the Trust Indenture Act of 1939, as amended, and the rules and regulations of
any Regulatory Authority promulgated thereunder.
"Shareholder Indemnitees" shall mean the Shareholders and their
respective trustees, if any, and Representatives.
"Shareholder Indemnitors" shall mean the Shareholders and their
respective successors and assigns.
"Shareholders' Closing Documents" shall mean the Escrow Agreement,
Stock Restriction and Registration Rights Agreement, and the Noncompetition
Agreements.
"Shareholders' Meeting" shall mean either of the meetings of the
shareholders of Company or Nonpareil, as appropriate, to be held pursuant to
Section 9.1, including any adjournment or adjournments thereof.
"Shares" shall mean, collectively, the shares of Company Capital Stock
and Nonpareil Common Stock.
"Sub 1 Common Stock" shall mean the $0.01 par value common stock of
Sub 1.
"Sub 2 Common Stock" shall mean the $0.01 par value common stock of
Sub 2.
"Subsidiaries" shall mean all those corporations, associations, or
other business entities of which the entity in question either (i) owns or
controls 50% or more of the outstanding equity securities either directly or
through an unbroken chain of entities as to each of which 50% or more of the
outstanding equity securities is owned directly or indirectly by its parent
(provided, there shall not be included any such entity the equity securities of
which are owned or controlled in a fiduciary capacity), (ii) in the case of
partnerships, serves as a general partner, (iii) in the case of a limited
liability company, serves as a managing member, or (iv) otherwise has the
ability to elect a majority of the directors, trustees or managing members
thereof.
"Tax" or "Taxes" shall mean any federal, state, county, local, or
foreign taxes, charges, fees, levies, imposts, duties, or other assessments,
including income, gross receipts, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
environmental, federal highway use, commercial rent, customs duties, capital
stock, paid-up capital, profits, withholding, Social Security, single business
and unemployment, disability, real property, personal property, registration, ad
valorem, value added, taxes and fees related to unclaimed property, alternative
or add-on minimum, estimated, or other tax or governmental fee of any kind
whatsoever, imposed or required to be withheld by the United States or any
state, county, local or foreign
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government or subdivision or agency thereof, including any interest, penalties,
and additions imposed thereon or with respect thereto.
"Tax Return" shall mean any report, return, information return, or
other information required or permitted to be supplied to a taxing authority in
connection with Taxes, including any return of an affiliated or combined or
unitary group that includes a Party or its Subsidiaries.
"Third Party Claim" shall mean any Litigation that is instituted
against an Indemnitee by a person or entity other than an Indemnitor and which,
if prosecuted successfully, would result in a Loss for which such Indemnitee is
entitled to indemnification under Article 11.
(b) The terms set forth below shall have the meanings ascribed
thereto in the referenced sections:
<TABLE>
<CAPTION>
<S> <C>
Acquiror SEC Reports Section 7.4(a)
Company Benefit Plans Section 5.14
Company Contracts Section 5.15
Company ERISA Plan Section 5.14
Company Options Section 3.6
Closing Section 1.2
Closing Price Section 3.5
Effective Time Section 1.3
Eligible Company Nonvoting Shares Section 3.1(d)
Eligible Company Voting Shares Section 3.1(d)
Eligible Nonpareil Common Shares Section 3.1(e)
Employment Agreement Section 11.1(a)
ERISA Affiliate Section 5.14(b)
Escrow Agreement Section 4.3
Escrow Shares Section 3.1(g)
Exchange Ratio Section 3.1(f)
Immigration Laws Section 5.23
Merger Section 1.1
Noncompetition Agreements Section 10.2(k)
Nonpareil Common Stock Exchange Ratio Section 3.1(e)
Nonvoting Common Stock Exchange Ratio Section 3.1(d)
Notes Exchange Ratio Section 3.1(f)
Released Claims Section 9.9
Releases Section 9.9
Takeover Laws Section 5.20
Tax Opinion Section 10.1(g)
Voting Common Stock Exchange Ratio Section 3.1(d)
WARN Act Section 5.13(c)
</TABLE>
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(c) Any singular term in this Agreement shall be deemed to
include the plural, and any plural term the singular. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed followed by the words "without limitation."
13.2 Expenses. Except as otherwise provided in this Agreement, each
--------
of the Parties and the Shareholders shall bear and pay all direct costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including filing, registration and application fees,
printing fees, and fees and expenses of its own financial or other consultants,
investment bankers, accountants, and counsel.
13.3 Transfer Taxes and Recording Fees. All sales, use, transfer and
---------------------------------
all other non-income Taxes, including any Taxes imposed by virtue of the change
in ownership of the Company or Nonpareil, and any fees incurred in connection
with this Agreement and the transactions created hereby (the "Transfer Taxes")
shall be borne equally by the Shareholders, on the one hand, and Acquiror, on
the other hand. At the Shareholders' request, the Company and Nonpareil will
file all necessary tax returns and other documents required to be filed with
respect to all such Transfer Taxes. The Parties and the Shareholders will
cooperate to the extent reasonably necessary to make such filings or returns as
may be required. All Parties shall file returns when and as required to do so.
13.4 Brokers and Finders. Except for Fred A. Mayfield & Company as
-------------------
to Company and Nonpareil, each of the Parties and each of the Shareholders
represents and warrants that neither it nor any of its officers, directors,
employees, or Affiliates has employed any broker or finder or incurred any
Liability for any financial advisory fees, investment bankers' fees, brokerage
fees, commissions, or finders' fees in connection with this Agreement or the
transactions contemplated hereby. In the event of a claim by any broker or
finder based upon his or its representing or being retained by or allegedly
representing or being retained by Company, Nonpareil or any Shareholder or by
Acquiror, each of Company, Nonpareil and the Shareholders, on the one hand, and
Acquiror, on the other hand, as the case may be, agrees to indemnify and hold
the other Party harmless of and from any Liability in respect of any such claim.
13.5 Entire Agreement. Except as otherwise expressly provided
----------------
herein, this Agreement (including the Exhibits, the documents and instruments
referred to herein) constitutes the entire agreement between the Parties and
each of the Shareholders with respect to the transactions contemplated hereunder
and supersedes all prior arrangements or understandings with respect thereto,
written or oral. Nothing in this Agreement expressed or implied, is intended to
confer upon any Person, other than the Parties or the Shareholders or their
respective successors, permitted assigns, heirs, beneficiaries and legal
representatives, any rights, remedies, obligations, or liabilities under or by
reason of this Agreement.
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13.6 Amendments. To the extent permitted by Law, this Agreement may
----------
be amended by a subsequent writing signed by each of the Parties and each of the
Shareholders upon the approval of each of the Parties and the Shareholders,
whether before or after shareholder approval of this Agreement has been
obtained; provided, that after any such approval by the Shareholders, there
shall be made no amendment that pursuant to Section 14-2-1101 et. seq. of the
GBCC requires further approval by such Shareholders without the further approval
of such Shareholders.
13.7 Waivers.
-------
(a) Prior to or at the Effective Time, Acquiror, acting through
its Board of Directors, chief executive officer or other authorized officer,
shall have the right to waive any Default in the performance of any term of this
Agreement by Company, Nonpareil or the Shareholders, to waive or extend the time
for the compliance or fulfillment by Company, Nonpareil or the Shareholders of
any and all of their respective obligations under this Agreement, and to waive
any or all of the conditions precedent to the obligations of Acquiror under this
Agreement, except any condition which, if not satisfied, would result in the
violation of any Law. No such waiver shall be effective unless in writing signed
by a duly authorized officer of Acquiror.
(b) Prior to or at the Effective Time, either of Company or
Nonpareil, acting through its respective Board of Directors, chief executive
officer or other authorized officer, shall have the right to waive any Default
in the performance of any term of this Agreement by Acquiror, to waive or extend
the time for the compliance or fulfillment by Acquiror of any and all of its
obligations under this Agreement, and to waive any or all of the conditions
precedent to the obligations of Company, Nonpareil and the Shareholders under
this Agreement, except any condition which, if not satisfied, would result in
the violation of any Law. No such waiver shall be effective unless in writing
signed by a duly authorized officer of Company or Nonpareil, as appropriate.
(c) The failure of any Party or Shareholder at any time or times
to require performance of any provision hereof shall in no manner affect the
right of such Party or Shareholder at a later time to enforce the same or any
other provision of this Agreement. No waiver of any condition or of the breach
of any term contained in this Agreement in one or more instances shall be deemed
to be or construed as a further or continuing waiver of such condition or breach
or a waiver of any other condition or of the breach of any other term of this
Agreement.
13.8 Assignment. Except as expressly contemplated hereby, neither
----------
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any Party or Shareholder hereto (whether by operation of Law or
otherwise) without the prior written consent of all other signatories hereto.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the Parties and the Shareholders and their
respective heirs, beneficiaries, legal representatives and successors and
assigns.
-69-
<PAGE>
13.9 Notices. All notices or other communications which are required
-------
or permitted hereunder shall be in writing and sufficient if delivered by hand,
by facsimile transmission (with confirmation received by the sender), by
registered or certified mail, postage pre-paid, or by courier or overnight
carrier, to the persons at the addresses set forth below (or at such other
address as may be provided hereunder), and shall be deemed to have been
delivered as of the date so delivered:
Company or
any Shareholder: Durkan Patterned Carpets, Inc.
P.O. Box 1006
Dalton, Georgia 30722
Telephone: (706) 278-7037
Facsimile: (706) 275-9964
Attention: President
Copy to Counsel: Baker & McKenzie
1200 Brickell Avenue, 19/th/ Floor
Miami, Florida 33131
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
Attention: Keith Wasserstrom, Esq.
Acquiror: Mohawk Industries, Inc.
160 South Industrial Boulevard
Calhoun, Georgia 30701
Telephone: (706) 629-7721
Facsimile: (706) 602-0278
Attention: David L. Kolb
Copy to Counsel: Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telephone: (404) 881-7000
Facsimile: (404) 881-4777
Attention: Alexander W. Patterson, Esq.
13.10 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the Laws of the State of Georgia, without regard to
any applicable conflicts of Laws.
13.11 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
-70-
<PAGE>
13.12 Captions; Articles and Sections. The captions contained in
-------------------------------
this Agreement are for reference purposes only and are not part of this
Agreement. Unless otherwise indicated, all references to particular Articles or
Sections shall mean and refer to the referenced Articles and Sections of this
Agreement.
13.13 Interpretations. Neither this Agreement nor any
---------------
uncertainty or ambiguity herein shall be construed or resolved against any
party, whether under any rule of construction or otherwise. No party to this
Agreement shall be considered the draftsman. The parties acknowledge and agree
that this Agreement has been reviewed, negotiated, and accepted by all parties
and their attorneys and shall be construed and interpreted according to the
ordinary meaning of the words used so as fairly to accomplish the purposes and
intentions of all parties hereto.
13.14 Enforcement of Agreement. The Parties hereto and the
------------------------
Shareholders agree that irreparable damage would occur in the event that any of
the provisions of this Agreement was not performed in accordance with its
specific terms or was otherwise breached. It is accordingly agreed that the
Parties and the Shareholders shall be entitled to an injunction or injunctions
to prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to the remedies set forth in Article 11
hereof.
13.15 Severability. Any term or provision of this Agreement
------------
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
13.16 Time of the Essence. Time is of the essence of this
-------------------
Agreement.
13.17 Facsimile Signatures. Execution and delivery of this
--------------------
Agreement, or any other agreements to be entered into in connection with this
Agreement, by exchange of facsimile copies bearing the facsimile signature of a
signatory hereto or thereto, as applicable, shall constitute a valid and binding
execution and delivery of this Agreement, or such other agreements, as
applicable, by such signatory. Such facsimile copies shall constitute
enforceable original documents.
-71-
<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to
be executed on its behalf by its duly authorized officers and each of the
Shareholders has executed this Agreement as of the day and year first above
written.
ACQUIROR
By: /s/ David L. Kolb
------------------------
Chairman and Chief Executive
Officer
DURKAN ACQUISITION CORP.
By: /s/ David L. Kolb
--------------------
President
---------
NONPAREIL ACQUISITION CORP.
By: /s/ David L. Kolb
-----------------------
President
---------
COMPANY
By: /s/ Patricia Durkan
-------------------
President, COO
--------------
THE SHAREHOLDERS:
Durkan Family Partnership
By: TRD, Inc., General Partner
By: /s/ Thomas R. Durkan II
-----------------------
/s/ Thomas R. Durkan II
-----------------------------(SEAL)
Thomas R. Durkan, II
-72-
<PAGE>
/s/ Patricia Durkan
---------------------------(SEAL)
Patricia Durkan
/s/ Thomas R. Durkan, III
---------------------------(SEAL)
Thomas R. Durkan, III
/s/ Tara Durkan Simonds
---------------------------(SEAL)
Tara Durkan Simonds
Durkan Development, L.P.
(Voting)
By: TRD, Inc., General
Partner
By: /s/ Thomas R. Durkan, II
------------------------
Durkan Development, L.P.
(Non-voting)
By: TRD, Inc., General
Partner
By: /s/ Thomas R. Durkan, II
------------------------
NONPAREIL
By: /s/ Thomas R. Durkan, II
------------------------
________________
-73-
<PAGE>
SCHEDULE I
DURKAN SHAREHOLDERS
<TABLE>
<CAPTION>
Shareholder Shares Owned Type
- ----------- ------------ ----
<S> <C> <C>
Durkan Family Partnership* 106,396 Non-voting
Thomas R. Durkan, II 22,992 Non-voting
Patricia Durkan 32,364 Non-voting
Thomas R. Durkan, III 32,364 Non-voting
Tara Durkan Simonds 32,364 Non-voting
Durkan Development, L.P.* 10,000 Voting
Durkan Development, L.P.* 1,312 Non-voting
Total Shares 237,792
=======
Total Voting Shares 10,000
=======
Total Non-Voting Shares 227,792
=======
</TABLE>
NONPAREIL SHAREHOLDERS
Shareholder Shares Owned Type
- ----------- ------------ ----
Durkan Development, L.P. 1,000 Voting
______________
* Family limited partnerships; the general partner is TRD, Inc., a Subchapter S
Corporation wholly-owned by Thomas R. Durkan, II.
-74-
<PAGE>
DURKAN NOTEHOLDERS
Holder Principal Value
- ------ ---------------
Durkan Development, L.P. $5,400,000
NONPAREIL NOTES
Holder Principal Value
- ------ ---------------
Durkan Development, L.P. $292,000
-75-
<PAGE>
EXHIBIT 1
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
March __, 1999, by and among Mohawk Industries, Inc., a Delaware corporation
("Acquiror"), the shareholders (each a "Shareholder" and collectively the
"Shareholders") of Durkan Patterned Carpets, Inc. ("Durkan") and Nonpareil
Dyeing & Finishing, Inc. ("Nonpareil") (Durkan and Nonpareil are referred to
herein, collectively, as the "Companies"), and SunTrust Bank, Atlanta, a Georgia
banking corporation ("Escrow Agent").
W I T N E S S E T H
- - - - - - - - - -
Each of Durkan Acquisition Corp., a Georgia corporation ("Sub1"), and
Nonpareil Acquisition Corp., a Georgia corporation ("Sub2"), is a wholly owned
subsidiary of Acquiror, and each of Acquiror, Sub1 and Sub2 is a party to an
Agreement and Plan of Merger (the "Merger Agreement") with the Companies and the
shareholders, dated as of February 26, 1999, pursuant to which (i) Sub1 has on
this date merged (the "Durkan Merger") with and into Durkan, with Durkan
surviving the Durkan Merger and becoming a wholly owned subsidiary of Acquiror
and (ii) Sub2 has on this date merged (the "Nonpareil Merger") with and into
Nonpareil, with Nonpareil surviving the Nonpareil Merger and becoming a wholly
owned subsidiary of Acquiror (the Durkan Merger and the Nonpareil Merger are
referred to herein, collectively, as the "Merger"). Pursuant to Section 3.1 of
the Merger Agreement, the Shareholders received the Escrow Shares and have
agreed to deposit the Escrow Shares in escrow with the Escrow Agent pursuant to
the terms hereof.
Pursuant to the terms of the Merger Agreement, the Escrow Shares have been
issued and will be held by the Escrow Agent pursuant to the terms of this
Agreement until delivered or canceled pursuant to the terms of this Agreement or
until termination of this Agreement as provided herein.
The Shareholders have agreed to indemnify Acquiror pursuant to Article 11
of the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE 1
ESTABLISHMENT OF ESCROW
1.1 Escrow Shares. On this date, Acquiror has executed one or more stock
-------------
certificates in negotiable form representing the Escrow Shares, and naming
Thomas R. Durkan, III (the "Indemnitor Representative"), as representative of
the pro rata interests of the Shareholders, as the registered holder. The
Escrow Agent acknowledges receipt of the Escrow
<PAGE>
Shares and agrees to hold and disburse the Escrow Shares for the benefit of
Acquiror and the Shareholders, as the case may be, in accordance with the
provisions of this Agreement, with the same force and effect as if the Escrow
Shares had been delivered by Acquiror to each Shareholder and subsequently
delivered by such Shareholder to the Escrow Agent.
1.2 Shareholder Percentage Interests. Attached as Schedule I hereto is a
--------------------------------
schedule showing for each Shareholder (i) the respective percentage interest
(the "Percentage Interest") of each such Shareholder in the Escrow Shares and
(ii) the corresponding aggregate maximum number of shares of Acquiror Common
Stock issuable to each Shareholder, subject to the adjustments provided herein.
ARTICLE 2
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Closing Date" shall mean the date of this Agreement.
"Closing Price" shall mean the closing price for the shares of Acquiror
Common Stock on the trading day immediately preceding the Closing Date, written
notice of which shall be given to Escrow Agent upon request.
"Distribution Date" shall mean either of the General Distribution Date or
the Langley Distribution Date.
"Final Distribution Date" shall mean the date that is the latest to occur
of (i) the General Distribution Date and (ii) the Langley Distribution Date.
"General Distribution Date" shall mean the date that is one year from the
date of the Closing Date.
"Initial Escrow Value" shall mean 315,000 multiplied by the Closing Price.
"Langley Distribution Date" shall mean the date which is thirty (30) days
after the date the final payment required to be made for any Loss described in
Section 11.1(a)(C) of the Merger Agreement is made, but in no event later than
the date which is three (3) years from the date of the Closing Date; provided,
--------- --------
however, that Acquiror and the Indemnitor Representative shall, beginning on the
- -------
date which is eleven (11) months after the Closing Date, evaluate in good faith
the risks associated with those matters set forth in Section 11.1(a)(C) of the
Merger Agreement and negotiate in good faith to determine if any Escrow Shares
held in escrow to satisfy such Losses may be released prior to such time;
provided, further, however, that nothing herein shall be construed to require
- -------- ------- -------
Acquiror to agree to the early release of any such Escrow Shares.
Any other capitalized term used herein but not defined herein shall have
the same meaning as provided in the Merger Agreement.
-2-
<PAGE>
ARTICLE 3
TERM; DISTRIBUTION OF ESCROW SHARES; LIMITS
3.1 Term. The term of this Agreement shall commence at the Closing Date
----
and shall terminate at such time as all Escrow Shares shall have been
distributed to the Shareholders or canceled pursuant to the terms of this
Agreement.
3.2 Adjustment of Escrow Shares. The number of Escrow Shares subject to
---------------------------
this Agreement shall be adjusted from time to time, as follows: If, between the
date of this Agreement and the Final Distribution Date, Acquiror shall be
entitled to be indemnified pursuant to an Indemnification Claim under Article 11
of the Merger Agreement, then Acquiror shall deliver to the Indemnitor
Representative a notice thereof (a "Notice of Indemnification Obligation"), and
Acquiror and the Indemnitor Representative shall agree in writing on the dollar
amount owed by the Shareholders pursuant to such Indemnification Claim (the
"Indemnification Amount"); or upon determination by an arbitration award or by
any other final adjudication, then upon execution by the parties of the
agreement or upon determination by an arbitration award or by any other final
adjudication setting forth the Indemnification Amount, Acquiror shall (A) issue
(or cause to be issued) new stock certificates (the "Replacement Certificates")
in the respective names of the Shareholders representing, in each case, the
number of shares of Acquiror Common Stock equal to the product of (i) the
difference between (x) the number of Escrow Shares (the "Claim Shares") in
escrow immediately prior to such Notice of Indemnification Obligation minus (y)
the quotient (rounded to the next highest whole number) obtained by dividing the
Indemnification Amount by the Closing Price, and (ii) each such Shareholder's
Percentage Interest; (B) cancel the Acquiror Common Stock certificates
representing the Claim Shares held in escrow immediately prior to delivery of
the Notice of Indemnification Obligation (such certificates, the "Old
Certificates"), and (C) deliver the Replacement Certificates to the Escrow Agent
to hold in escrow pursuant to this Agreement. Upon the issuance of any
Replacement Certificates, the shares represented by such Replacement
Certificates shall be deemed to be "Escrow Shares" for all purposes of this
Agreement.
3.3 Distribution of Escrow Shares.
-----------------------------
(a) On the General Distribution Date, the Escrow Agent shall deliver to
Acquiror for cancellation certificates representing 283,500 of the Escrow Shares
then held in escrow as of the General Distribution Date. If an Indemnification
Claim pursuant to Section 11.1(a)(A) or 11.1(a)(B) (a "General Indemnification
Claim") is not pending as of the General Distribution Date, Acquiror shall
promptly issue and deliver to the Shareholders (in accordance with their
respective Percentage Interests) new certificates representing such number of
the Escrow Shares. If there are General Indemnification Claims pending as of
the General Distribution Date, Acquiror and the Indemnitor Representative shall
use their reasonable efforts to agree in writing on the Indemnification Amount
with respect to any such pending General Indemnification Claims; provided, that
if Acquiror and the Indemnitor Representative are not able to agree on the
Indemnification Amount with respect to such General Indemnification Claims by
the General Distribution Date, the amount of the Indemnification Amount solely
for purposes of the calculations in the following sentence of this Section
3.3(a) shall be the amount
-3-
<PAGE>
claimed by Acquiror in its notice of Indemnification Claim in connection with
such General Indemnification Claim. Upon determination of the Indemnification
Amount in accordance with the preceding sentence, Acquiror shall promptly:
(i) issue and deliver to the Shareholders (in accordance with their
respective Percentage Interests) new certificates representing the number of
shares of Acquiror Common Stock (the "General Distribution Shares") equal to the
quotient obtained by dividing (A) the difference between ninety percent (90%) of
the Initial Escrow Value and the aggregate Indemnification Amount with respect
to such pending General Indemnification Claims by (B) the Closing Price, and
subtracting from such quotient that number of shares of Acquiror Common Stock
previously cancelled in connection with previously resolved General
Indemnification Claims (the "Undisputed General Escrow Shares"), and such
certificates shall be denominated in the names of the respective Shareholders in
amounts equal to the product of the Undisputed General Escrow Shares and each
Shareholder's Percentage Interest, and
(ii) issue and deliver to the Escrow Agent for retention in escrow pending
final determination of the Indemnification Amount, new certificates representing
the number of shares of Acquiror Common Stock equal to the quotient obtained by
dividing (A) the aggregate Indemnification Amount with respect to such pending
General Indemnification Claims by (B) the Closing Price ("Disputed General
Escrow Shares").
Any delivery of Acquiror Common Stock to Shareholders pursuant to this
Section 3.3(a) shall be of full shares, and any fractional portions shall be
rounded to the nearest whole number by the Escrow Agent so that the number of
shares remaining in escrow to be delivered will be fully allocated among such
Shareholders. Upon the final resolution of all Indemnification Claims for which
Disputed General Escrow Shares are retained in escrow after the General
Distribution Date, the Escrow Agent shall promptly deliver to Acquiror for
cancellation the Disputed General Escrow Shares and Acquiror shall promptly
deliver to the Shareholders (in accordance with their respective Percentage
Interests) new certificates representing the number of shares of Acquiror Common
Stock equal to the result obtained by subtracting (A) the quotient obtained by
dividing the finally resolved Indemnification Amount with respect to such
General Indemnification Claim by the Closing Price from (B) the Disputed General
Escrow Shares.
(b) On the Langley Distribution Date, the Escrow Agent shall deliver to
Acquiror for cancellation certificates representing 31,500 of the Escrow Shares
then held in escrow as of the Langley Distribution Date. If an Indemnification
Claim pursuant to Section 11.1(a)(C) of the Merger Agreement (a "Langley
Indemnification Claim") is not pending as of the Langley Distribution Date,
Acquiror shall promptly issue and deliver to the Shareholders (in accordance
with their respective Percentage Interests) new certificates representing such
number of the Escrow Shares. If there are Langley Indemnification Claims
pending as of the Langley Distribution Date, Acquiror and the Indemnitor
Representative shall use their reasonable efforts to agree in writing on the
Indemnification Amount with respect to any such pending Langley Indemnification
Claims; provided, that if Acquiror and the Indemnitor Representative are not
able to agree on the Indemnification Amount with respect to such Langley
Indemnification Claims by the Langley Distribution Date, the amount of the
Indemnification Amount solely for purposes of the calculations in the following
sentence of this Section 3.3(b) shall be the amount
-4-
<PAGE>
claimed by Acquiror in its notice of Indemnification Claim in connection with
such Langley Indemnification Claim. Upon determination of the Indemnification
Amount in accordance with the preceding sentence, Acquiror shall promptly:
(i) issue and deliver to the Shareholders (in accordance with their
respective Percentage Interests) new certificates representing the number of
shares of Acquiror Common Stock (the "Langley Distribution Shares") equal to the
quotient obtained by dividing (A) the difference between ten percent (10%) of
the Initial Escrow Value and the aggregate Indemnification Amount with respect
to such pending Langley Indemnification Claims by (B) the Closing Price and
--
subtracting from such quotient that number of shares of Acquiror Common Stock
previously canceled in connection with previously resolved Langley
Indemnification Claims (the "Undisputed Langley Escrow Shares") and such
certificates shall be denominated in the names of the respective Shareholders in
amounts equal to the product of the Undisputed Langley Escrow Shares and such
Shareholder's Percentage Interest, and
(ii) issue and deliver to the Escrow Agent for retention in escrow pending
final determination of the Indemnification Amount, new certificates representing
the number of shares of Acquiror Common Stock equal to the quotient obtained by
dividing (A) the aggregate Indemnification Amount with respect to such pending
Langley Indemnification Claims by (B) the Closing Price ("Disputed Langley
Escrow Shares").
Any delivery of Acquiror Common Stock to Shareholders pursuant to this
Section 3.3(b) shall be of full shares, and any fractional portions shall be
rounded to the nearest whole number by the Escrow Agent so that the number of
shares remaining in escrow to be delivered will be fully allocated among such
Shareholders. Upon the final resolution of all Indemnification Claims for which
Disputed Langley Escrow Shares are retained in escrow after the Langley
Distribution Date, the Escrow Agent shall promptly deliver to Acquiror for
cancellation the Disputed Langley Escrow Shares and Acquiror shall promptly
deliver to the Shareholders (in accordance with their respective Percentage
Interests) new certificates representing the number of shares of Acquiror Common
Stock equal to the result obtained by subtracting (A) the quotient obtained by
dividing the finally resolved Indemnification Amount with respect to such
Langley Indemnification Claim by the Closing Price from (B) the Disputed Escrow
Shares.
(c) Notwithstanding anything to the contrary contained herein, the
Indemnitor Representative may, at any time after the Acquiror has published the
financial results covering at least 30 days of combined operations of Acquiror
and the Companies after the Effective Time, direct the Escrow Agent, in writing,
to sell for cash any Escrow Shares then held by the Escrow Agent pursuant to
this Agreement. The cash proceeds of any such sale (collectively, the "Cash
Proceeds") shall be retained by the Escrow Agent and shall be subject to the
escrow covered by this Agreement. Notwithstanding anything to the contrary
contained herein, if any distribution is made pursuant to this Section 3.3 at
such time as Cash Proceeds, in addition to Escrow Shares, are held in escrow,
then the Escrow Agent shall distribute a number of Escrow Shares equal to the
number of Escrow Shares remaining in escrow times a fraction, the numerator of
which is (i) the Indemnification Amount for which the distribution is being made
or (ii) the value of the shares to be distributed on the Distribution Date for
which the calculation is being performed, and the denominator of which is (i)
the Initial Escrow Value less (ii) the sum of all
-5-
<PAGE>
Indemnification Amounts theretofore paid with Cash Proceeds out of escrow (if
any) and the value of all Escrow Shares theretofore distributed on any
Distribution Date (such fraction being hereinafter referred to as the
"Fraction"), and shall distribute Cash Proceeds equal to the Cash Proceeds
remaining in escrow times the Fraction. As used in this Section 3.3(d), the
phrase "value of shares to be distributed on any Distribution Date" shall mean
the number of Escrow Shares to be distributed on such date as set forth in this
Section 3.3 multiplied by the Closing Price. If any distribution is made
pursuant to this Section 3.3 at such time as only Cash Proceeds are held in
escrow, then the Escrow Agent shall distribute Cash Proceeds equal to the Cash
Proceeds remaining in escrow times the Fraction. Interest on any Cash Proceeds
shall accrue for the benefit of the Shareholders. Cash Proceeds and interest
thereon may be invested at the direction of the Indemnitor Representative in
interest-bearing investments reasonably acceptable to Acquiror.
(d) In no event shall Escrow Shares to be released pursuant to Section
3.3(a) be used to satisfy Langley Indemnification Claims hereunder. In no event
shall Escrow Shares to be released pursuant to Section 3.3(b) be used to satisfy
General Indemnification Claims hereunder.
3.4 Effect of Final Delivery. This Agreement shall continue in full force
------------------------
and effect until the Escrow Agent has delivered or canceled all of the Escrow
Shares pursuant to the terms hereof. After all of such shares have been so
delivered or canceled, all rights, duties and obligations of the respective
parties hereunder shall terminate; provided, however, the provisions of Section
6.1 hereof shall survive the term of this Agreement.
ARTICLE 4
ESCROW STOCK CERTIFICATES
The Escrow Agent may, with the prior written consent of the Indemnitor
Representative, at any time request Acquiror to issue new certificates
representing the Escrow Shares in such denominations as may be necessary or
appropriate in carrying out the Escrow Agent's obligations under this Agreement.
ARTICLE 5
DIVIDENDS; VOTING RIGHTS
5.1 Cash Dividends; Voting Rights. The Shareholders shall be entitled to
-----------------------------
receive currently any and all cash dividends or other cash income with respect
to the Escrow Shares. Each Shareholder shall have the right to direct the
Escrow Agent in writing as to the exercise of voting rights with respect to such
Escrow Shares held by the Escrow Agent on behalf of such Shareholder, and the
Escrow Agent shall comply with any such directions if received in a timely
manner. In the absence of such directions, the Escrow Agent shall not vote any
such Escrow Shares.
5.2 Stock Splits; Stock Dividends. In the event of any stock split or
-----------------------------
stock dividend with respect to Acquiror Common Stock that becomes effective
during the term of this Agreement, the additional shares so issued with respect
to the Escrow Shares shall be added to
-6-
<PAGE>
the Escrow Shares and subject to the escrow covered by this Agreement and any
other references herein to a specific number of shares of Acquiror Common Stock
or references herein to Closing Price shall be adjusted accordingly.
ARTICLE 6
THE ESCROW AGENT
6.1 Liability. The Escrow Agent, in its capacity as such, or any
---------
successor escrow agent, shall be liable only to hold the Escrow Shares and to
deliver the same to the persons named herein in accordance with the provisions
of this Agreement. By acceptance of this Agreement, the Escrow Agent, in its
capacity as such, or any successor escrow agent, is acting in the capacity of a
depository only, and shall not be liable or responsible for any damages, losses
or expenses unless such damages, losses or expenses shall be caused by its own
gross negligence or willful misconduct. Neither the Escrow Agent, in its
capacity as such, nor any successor Escrow Agent, shall incur any liability with
respect to (i) any action taken or omitted in good faith upon the advice of its
counsel with respect to any questions relating to the duties and
responsibilities of the Escrow Agent under this Agreement; or (ii) any action
taken or omitted in reliance upon any instrument, including the written
instructions provided for herein, not only as to the due execution of such
instrument, or the identity or authority of any person executing such
instrument, or the validity and effectiveness of such instrument, but also as to
the truth and accuracy of any information contained therein, provided that the
Escrow Agent shall in good faith believe such instrument to be genuine, to have
been signed by a proper person or persons, and to conform to the provisions of
this Agreement. In the event of any disagreement or the presentation of adverse
claims or demands in connection with or for any item affected hereby, the Escrow
Agent shall, at its option, be entitled to refuse to comply with any such claims
or demands during the continuance of such disagreement and may refrain from
delivering any item affected hereby, and in so doing the Escrow Agent shall not
become liable to the parties, or to any other person, due to its failure to
comply with any such adverse claim or demand. The Escrow Agent shall be
entitled to continue, without liability, to refrain and refuse to act until all
of the rights of the adverse claimants have been either fully resolved among
themselves, arbitrated to a final award, or finally adjudicated by a court
having jurisdiction over the dispute with written notice thereof delivered to
Escrow Agent. The Escrow Agent shall be held harmless and jointly and severally
indemnified by the other parties hereto in connection with any claims against it
in connection with its service as escrow agent hereunder, except to the extent
such claims arise out of the gross negligence or willful misconduct of the
Escrow Agent. Any action requested to be taken by the Escrow Agent hereunder
and not otherwise specifically set forth herein shall require the agreement in
writing of the Indemnitor Representative, Escrow Agent and Acquiror.
6.2 Resignation of Escrow Agent, Successor. Escrow Agent may resign at
---------------------------- ---------
any time, upon 30 days prior written notice to Acquiror and Indemnitor
Representative and shall deposit the Escrow Shares and any Cash Proceeds with a
successor escrow agent to be jointly designated in writing by Acquiror and
Indemnitor Representative. Any such successor escrow agent must agree to be,
and shall be, bound by, and shall have all the rights, duties and
responsibilities of the Escrow Agent, under this Agreement. If, upon the
effective date of such resignation, no successor escrow agent shall have been
designated, Escrow Agent shall have the
-7-
<PAGE>
right to tender into the registry or custody of any court of competent
jurisdiction any part or all of the Escrow Shares and any Cash Proceeds and
shall be relieved of any further obligations under this Agreement. Such
resignation shall not deprive Escrow Agent of its compensation earned prior
thereto, and the provisions of Section 6.1 hereof shall survive any resignation
by the Escrow Agent.
6.3 Expenses. Compensation for the normal services of the Escrow Agent
--------
shall be borne by Acquiror. The Escrow Agent shall be reimbursed for any
reasonable expenses, including the actual out-of-pocket cost of outside legal
services should the Escrow Agent deem it necessary in its reasonable discretion
to retain an outside attorney, and Acquiror and the Shareholders shall share
equally the reimbursement of such expenses of the Escrow Agent, except as
otherwise provided in Section 8.10 hereof. Notwithstanding the above, the
unsuccessful party in any Litigation arising out of this Agreement shall pay the
fees and expenses of the Escrow Agent with respect thereto.
ARTICLE 7
INDEMNITOR REPRESENTATIVE
7.1 Power and Authority. The Indemnitor Representative shall have full
-------------------
power and authority to represent the Shareholders and their successors with
respect to all matters arising under this Agreement, and all action taken by the
Indemnitor Representative hereunder shall be binding upon such Shareholders and
their successors as if expressly ratified and confirmed in writing by each of
them. Without limiting the generality of the foregoing, the Indemnitor
Representative shall have full power and authority, on behalf of all the
Shareholders and their successors, to interpret all the terms and provisions of
this Agreement, to dispute or fail to dispute any Indemnification Claim against
the Escrow Shares made by an Indemnitee, to negotiate and compromise any dispute
which may arise under this Agreement, to sign any releases or other documents
with respect to any such dispute, and to authorize payments to be made with
respect thereto. Each Shareholder hereby agrees to indemnify and to save and
hold harmless the Indemnitor Representative from any Liability incurred by the
Indemnitor Representative based upon or rising out of any act, whether of
omission or commission, of the Indemnitor Representative pursuant to the
authority herein granted, other than acts, whether of omission or commission, of
the Indemnitor Representative that constitute gross negligence or willful
misconduct in the exercise by the Indemnitor Representative of the authority
herein granted.
7.2 Resignation; Successors. The Indemnitor Representative, or any
-----------------------
successor hereafter appointed, may resign and shall be discharged of his duties
hereunder upon the appointment of a successor Indemnitor Representative as
hereinafter provided. In case of such resignation, or in the event of the death
or inability to act of the Indemnitor Representative, a successor shall be named
from among the Shareholders by a majority of the Shareholders. Each such
successor Indemnitor Representative shall have all the power, authority, rights
and privileges hereby conferred upon the original Indemnitor Representative, and
the term "Indemnitor Representative" as used herein shall be deemed to include
such successor Indemnitor Representative.
-8-
<PAGE>
ARTICLE 8
MISCELLANEOUS
8.1 Transferability. Except as otherwise permitted in Section 3.3(c), a
---------------
Shareholder may not transfer any interest in the Escrow Shares or any other
right under this Agreement to any other party, except that upon written notice
from the legal representative of the estate of a deceased Shareholder to the
Escrow Agent and the Acquiror, the rights of such Shareholder under this
Agreement shall be transferred to the estate of such Shareholder, and
subsequently to any beneficiary thereof, in the event of the Shareholder's
death; provided, however, that any such beneficiary or the legal representative
of any such estate shall be bound by the provisions of this Agreement without
taking any further action. The Escrow Agent or Acquiror, as the case may be,
shall be entitled to treat the legal representative of the estate of such
Shareholder, and subsequently any beneficiary thereof, as the absolute owner of
the rights of such Shareholder under this Agreement in all respects and shall
incur no liability for distributions made in good faith to the legal
representatives of such Shareholder or such beneficiary in accordance with the
terms of this Agreement.
8.2 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission (with confirmation received by the sender), by registered
or certified mail, postage pre-paid, or by courier or overnight courier, to the
persons at the addresses set forth below (or at such other address as may be
provided hereunder), and shall be deemed to have been delivered as of the date
so delivered:
If to Acquiror:
Mohawk Industries, Inc.
160 South Industrial Boulevard
Calhoun, Georgia 30701
Attn: David L. Kolb
Telephone: (706) 629-7721
Telecopy: (706) 602-0278
with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: Alexander W. Patterson, Esq.
Telephone: (404) 881-7000
Telecopy: (404) 881-4777
-9-
<PAGE>
If to the Shareholders or the Indemnitor Representative:
Thomas R. Durkan III
P.O. Box 1006
Dalton, Georgia 30722
Telephone: (706) 278-7037
Telecopy: (706) 275-9964
with a copy to:
Baker & McKenzie
1200 Brickell Avenue, 19th Floor
Miami, Florida 33131
Attn: Keith Wasserstrom, Esq.
Telephone: (305) 789-8900
Telecopy: (305) 789-8953
If to Escrow Agent:
SunTrust Bank, Atlanta
3495 Piedmont Road
Building 10, Suite 810
Atlanta, Georgia 30305-1727
Attention: Rebecca Fischer
Telephone: (404) 240-1954
Telecopy: (404) 240-2030
or such other person or address as shall be furnished in writing by any of the
parties and any such notice or communication shall be deemed to have been given
as of the date so mailed.
8.3 Construction. This Agreement shall be governed by and construed in
------------
accordance with the laws of the State of Georgia, without regard to any
applicable conflicts of laws.
8.4 Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the respective heirs, executors, administrators, successors and
assigns of the parties hereto.
8.5 Separability. If any provision or section of this Agreement is
------------
determined to be void or otherwise unenforceable, it shall not affect the
validity or enforceability of any other provisions of this Agreement which shall
remain enforceable in accordance with their terms.
8.6 Headings. The headings and subheadings contained in this Agreement
--------
are for reference only and for the benefit of the parties and shall not be
considered in the interpretation or construction of this Agreement.
-10-
<PAGE>
8.7 Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
8.8 Amendments. This Agreement may be amended from time to time but only
----------
by written agreement signed by all of the parties hereto.
8.9 Third Party Beneficiaries. Each Subsidiary of Acquiror and each of
-------------------------
the directors, officers and employees of Acquiror and each of its Subsidiaries
are expressly intended to be third party beneficiaries of the indemnities and
obligations of the Shareholders as if they were parties to this Agreement.
8.10 Arbitration. Any dispute, claim or controversy relating in any way to
-----------
this Agreement or the transactions contemplated hereby or thereby, whether in
contract, in tort or otherwise, except a request for equitable, injunctive or
restraining relief, shall be resolved by arbitration in Atlanta, Georgia, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), subject to the limitations of this Section 8.10. This
agreement to arbitrate will be specifically enforceable under the prevailing law
of any court having jurisdiction. Notice of a demand for arbitration will be
filed in writing with the applicable other signatory hereto and with AAA. The
demand for arbitration shall be made within a reasonable time after the claim,
dispute or other matter in question has arisen, and in no event shall any such
demand be made after the date when institution of legal or equitable proceedings
based on such claim, dispute or other matter in question would be barred by the
applicable statute of limitations. The signatories hereto agree that three (3)
arbitrators experienced in the matters at issue shall arbitrate all disputes.
The arbitrators shall be selected by the joint agreement of Acquiror and the
Indemnitor Representative, but if they do not so agree within twenty (20) days
after the date of the notice of a demand for arbitration referred to above, the
selection shall be made pursuant to the Commercial Arbitration Rules of AAA from
the panels of arbitrators maintained by AAA. The award rendered by the
arbitrators will be final, judgment may be entered upon it in any court having
jurisdiction thereof, and the award will not be subject to vacation,
modification or appeal, except to the extent permitted by Sections 10 and 11 of
the Federal Arbitration Act, the terms of which Sections the signatories hereto
agree shall apply. Each participant in the arbitration shall pay its own
expenses of arbitration, and the expenses of the arbitrators shall be equally
shared; provided, however, that if in the opinion of the arbitrators any claim,
or any defense or objection thereto, was unreasonable, the arbitrators may
assess, as part of their award, all or any part of the arbitration expenses
against the participant(s) raising such unreasonable claim, defense or
objection.
[Signatures on next page.]
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ACQUIROR:
MOHAWK INDUSTRIES, INC.
BY:____________________________________
NAME:__________________________________
TITLE:_________________________________
SHAREHOLDERS:DURKAN FAMILY PARTNERSHIP
BY: TRD, Inc., General Partner
BY:
________________________________(SEAL)
THOMAS R. DURKAN, II
________________________________(SEAL)
PATRICIA DURKAN
________________________________(SEAL)
THOMAS R. DURKAN, III
________________________________(SEAL)
TARA DURKAN SIMONDS
-12-
<PAGE>
Durkan Development, L.P. (Voting)
BY: TRD, INC., GENERAL PARTNER
BY:_______________________________
Durkan Development, L.P. (Non-voting)
BY: TRD, INC., GENERAL PARTNER
BY:_______________________________
ESCROW AGENT:
SUNTRUST BANK, ATLANTA
BY:____________________________________
NAME:__________________________________
TITLE:_________________________________
-13-
<PAGE>
SCHEDULE I
To Escrow Agreement
SHAREHOLDERS
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Percentage
Name Owned Interest
- ---- ----- --------
<S> <C> <C>
Thomas R. Durkan, II 26,613.79693 8.44%
Durkan Family Partnership 123,155.94720 39.10%
Patricia Durkan 37,462.11395 11.89%
Thomas R. Durkan, III 37,462.11395 11.89%
Tara Durkan-Simonds 37,462.11395 11.89%
Durkan Development, L.P. 52,843.91401 16.78%
------------- ------
315,000.00000 100.00%
============= ======
</TABLE>
<PAGE>
SCHEDULE OF FEES
Mohawk Industries, Inc.
Escrow Services
The annual fee of $2,500.00 for administering this Escrow Agreement is payable
in advance at the time of closing and, if applicable, will be invoiced each year
to the appropriate party(ies) on the anniversary date of the closing of the
Escrow Agreement.
Out of pocket expenses such as, but not limited to, postage, courier, overnight
mail, insurance, money wire transfer, long distance telephone charges,
facsimile, stationery, travel legal or accounting, etc., will be billed at cost.
These fees do not include extraordinary services which will be priced according
to time and scope of duties. The fees shall be deemed earned in full upon
receipt by the Escrow Agent, and no portion shall be refundable for any reason,
including, without limitation, termination of the Escrow Agreement.
It is acknowledged that the schedule of fees shown above are acceptable for the
services mutually agreed upon and the undersigned authorizes SunTrust Bank,
Atlanta to perform said services.
<PAGE>
EXHIBIT 2
STOCK RESTRICTION AND REGISTRATION RIGHTS AGREEMENT
---------------------------------------------------
THIS STOCK RESTRICTION AND REGISTRATION RIGHTS AGREEMENT (this "Agreement")
is made and entered into as of March __, 1999, by and among MOHAWK INDUSTRIES,
INC., a Delaware corporation ("Acquiror"), and the shareholders of DURKAN
PATTERNED CARPETS, INC. ("Durkan"), and NONPAREIL DYEING & FINISHING, INC.
("Nonpareil") each a Georgia corporation (collectively, the "Companies"),
appearing as signatories hereto (each, a "Shareholder" and collectively, the
"Shareholders").
Preamble:
---------
WHEREAS, pursuant to the terms of an Agreement and Plan of Merger, dated as
of February 26, 1999 (the "Merger Agreement"), by and among Acquiror, Durkan
Acquisition Corp., a Georgia corporation ("Sub 1"), Nonpareil Acquisition Corp.,
a Georgia corporation ("Sub 2"), the Companies and the Shareholders, Sub 1 shall
be merged with and into Durkan and Sub 2 shall be merged with and into Nonpareil
(collectively, the "Mergers"), with the result that each of the outstanding
shares of capital stock of the Companies and certain notes held by a shareholder
of the Companies will be converted into the right to receive shares of the $.01
par value common stock of Acquiror (the "Common Stock"); and
WHEREAS, Acquiror has agreed, as a condition precedent to the Companies
obligations under the Merger Agreement, to grant the Shareholders certain
registration rights; and
WHEREAS, Acquiror and the Shareholders desire to define such registration
rights on the terms and subject to the conditions herein set forth.
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the parties hereby agree as follows:
1. DEFINITIONS
-----------
As used in this Agreement, the following terms have the respective meanings
set forth below:
"Commission" shall mean the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
"Escrow Shares" shall mean the 315,000 shares of Common Stock to be issued
-------------
pursuant to Section 3.1 of the Merger Agreement and subject to the terms and
provisions of the Escrow Agreement.
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
------------
"Holder" shall mean any holder of Registrable Securities.
------
"Person" shall mean an individual, partnership, joint stock company,
------
corporation, trust or unincorporated organization, and a government or agency or
political subdivision thereof.
"Register", "registered" and "registration" shall mean a registration
-------- ---------- ------------
effected by preparing and filing a registration statement in compliance with the
Securities Act (and any post-effective amendments filed or required to be filed)
and the declaration or ordering of effectiveness of such registration statement.
"Registrable Securities" shall mean (A) the aggregate number of shares of
----------------------
Common Stock issued to the Shareholders pursuant to the Merger Agreement
(including any Escrow Shares until such time, if ever, as such shares are
returned to Acquiror pursuant to the terms of the Escrow Agreement), and (B) any
securities of Acquiror issued as a dividend or other distribution with respect
to, or in exchange for or in replacement of, the shares of Common Stock referred
to in clause (A); provided, that Registrable Securities shall not include (i)
Securities with respect to which a registration statement with respect to the
sale of such Securities has become effective under the Securities Act and all
such Securities have been disposed of in accordance with such registration
statement, (ii) such Securities as are actually sold pursuant to Rule 144 (or
any successor provision thereto) under the Securities Act ("Rule 144"), or (iii)
such securities as are acquired by Acquiror or any of its subsidiaries.
"Registration Expenses" shall mean all expenses incurred by Acquiror in
---------------------
complying with its obligations under Section 3(a) hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for Acquiror, fees and expenses of one counsel for all
the Holders, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of Acquiror, which shall be paid in any event by Acquiror).
"Security, Securities" shall have the meaning set forth in Section 2(l) of
--------------------
the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Selling Expenses" shall mean all selling commissions and discounts
----------------
applicable to the sale of Registrable Securities and all fees and disbursements
of counsel for each of the Holders other than fees and expenses of one counsel
for all the Holders.
-2-
<PAGE>
Capitalized terms not otherwise defined herein shall have the meanings set
forth in the Merger Agreement.
2. RESTRICTIONS ON TRANSFER
------------------------
(a) Prior to any proposed transfer of any Registrable Securities (other
than under the circumstances described in Section 3 hereof), the Holder thereof
shall give written notice to Acquiror of its intention to effect such transfer.
Each such notice shall describe the manner of the proposed transfer and, if
requested by Acquiror, shall be accompanied by an opinion of counsel reasonably
satisfactory to Acquiror to the effect that the proposed transfer may be
effected without registration under the Securities Act, whereupon such Holder
shall be entitled to transfer the Registrable Securities in accordance with the
terms of its notice. Each certificate or instrument transferred as above
provided shall bear the legend set forth in Section 2(b), except that such
certificate or instrument shall not bear such legend if (i) such transfer is in
accordance with the provisions of Rule 144 (or any other rule permitting public
sale without registration under the Securities Act) or (ii) the opinion of
counsel referred to above is to the further effect that the transferee and any
subsequent transferee would be entitled to transfer such Registrable Securities
in a public sale without registration under the Securities Act.
(b) Each certificate evidencing Registrable Securities issued to any Holder
in connection with the Merger ("Restricted Shares") shall bear a legend in
substantially the following form:
"The shares represented by this certificate were issued pursuant to a
business combination which is accounted for as a "pooling of interests" and
may not be sold, nor may the owner thereof reduce his risks relative
thereto in any way, until such time as Mohawk Industries, Inc. ("Mohawk")
has published the financial results covering at least 30 days of combined
operations after the effective date of the merger through which the
business combination was effected. In addition, the shares represented by
this certificate may not be sold, transferred or otherwise disposed of
except or unless (1) covered by an effective registration statement under
the Securities Act of 1933, as amended, (2) in accordance with (i) Rule
145(d) (in the case of shares issued to an individual who is not an
---
affiliate of Mohawk) or (ii) Rule 144 (in the case of shares issued to an
individual who is an affiliate of Mohawk) of the Rules and Regulations of
such Act, or (3) in accordance with a legal opinion satisfactory to counsel
for Mohawk that such sale or transfer is otherwise exempt from the
registration requirements of such Act."
(c) In the event that any Restricted Shares shall cease to be subject to
the restrictions on transfer set forth in this Agreement, Acquiror shall, upon
the written request of the Holder thereof, issue to such Holder a new
certificate evidencing such
-3-
<PAGE>
Restricted Shares without the legend or legends, as applicable, required by
Section 2(b) hereof endorsed thereon.
3. SHELF REGISTRATION RIGHTS
-------------------------
(a) Shelf Registration.
------------------
(i) Acquiror shall use its reasonable best efforts to file a "shelf"
registration statement pursuant to Rule 415 under the Securities Act (the "Shelf
Registration") with respect to all of the Registrable Securities as soon as
possible after the Closing Date and in no event later than sixty (60) days
following the Closing Date. Acquiror shall, subject to Section 3(f) hereof, use
its reasonable best efforts to cause the Shelf Registration to become effective
as soon as practicable after the filing thereof and shall use its reasonable
best efforts to keep the Shelf Registration continuously effective from the date
the Shelf Registration is effective until the earlier of (A) the date on which
all Registrable Securities may be sold pursuant to Rule 144(k) or (B) the second
anniversary of the Effective Time, in order to permit the prospectus forming a
part thereof to be usable by the Holders during such period; provided, however,
that until after the date of issuance of the consolidated financial statements
of Acquiror which reflect at least 30 days of combined results of Acquiror and
the Companies subsequent to the Effective Time, Acquiror shall not be required
to cause the Shelf Registration to become effective, but shall be required to
use reasonable best efforts to cause such Shelf Registration to become effective
promptly after such date. The Shelf Registration shall provide for the offering
and sale of the Registrable Securities to or through brokers or dealers, acting
as principal or agent, in transactions (which may involve block transactions) on
the New York Stock Exchange, in ordinary brokerage transactions, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices or
otherwise (including without limitation sales in transactions that comply with
the provisions of Rule 144 or Rule 145, as applicable), or directly or
indirectly through brokers or agents in private sales at negotiated prices, or
through a combination of any such methods of sale, including, but not limited
to, a bulk sale to a brokerage firm, but not pursuant to an underwritten public
offering (whether on a firm commitment or best efforts basis or otherwise).
(ii) Acquiror shall supplement or amend the Shelf Registration, (A)
as required by the registration form utilized by Acquiror or by the instructions
applicable to such registration form or by the Securities Act or the rules and
regulations promulgated thereunder, and (B) to include in the Shelf Registration
any additional unregistered securities that become Registrable Securities by
operation of the definition thereof and which are issued in respect to, or in
exchange for or in replacement of, the Registrable Securities included in the
Shelf Registration, unless such securities are otherwise registered under the
Securities Act or (C) if and to the extent reasonably requested by the Holders
of the Registrable Securities; provided, however, that such request and any
required supplement or amendment shall relate only to material information about
such Holder and included in or omitted from the Shelf Registration. Acquiror
shall furnish to
-4-
<PAGE>
the Holders of the Registrable Securities to which the Shelf Registration
relates copies of any such supplement or amendment sufficiently in advance (but
in no event less than three business days in advance) of its use and/or filing
with the Commission to allow the Holders a meaningful opportunity to comment
thereon.
(iii) The Shelf Registration may include other Securities of Acquiror
which are held by Persons who, by virtue of agreements with Acquiror, are
entitled to include their Securities in the Shelf Registration.
(b) Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Section 3 (including all Registration Expenses incurred in connection with the
Shelf Registration and any supplements or amendments thereto, whether or not it
becomes effective, and whether all, none or some of the Registrable Securities
are sold pursuant to the Shelf Registration) shall be borne by Acquiror, and all
Selling Expenses shall be borne by the Holders of the securities so registered
pro rata on the basis of the number of their shares so registered.
(c) Other Registration Procedures. At its expense, Acquiror will:
-----------------------------
(i) use its reasonable best efforts (x) to register or qualify all
Registrable Securities and other Securities covered by the Shelf Registration
under such other securities or blue sky laws of such States of the United States
of America where an exemption is not available and as the Holders of Registrable
Securities covered by the Shelf Registration shall reasonably request, (y) to
keep each such registration or qualification in effect for so long as the Shelf
Registration remains in effect, and (z) to take any other action which may be
reasonably necessary or advisable to enable such Holders to consummate the
disposition in such jurisdictions of the Registrable Securities to be sold by
such Holders, except that Acquiror shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
where it is not so qualified, or to subject itself to taxation in any such
jurisdiction, or to execute a general consent to service of process in effecting
such registration, qualification or compliance, unless Acquiror is already
subject to service in such jurisdiction and except as may be required by the
Securities Act or applicable rules or regulations thereunder;
(ii) use its reasonable best efforts to cause all Registrable
Securities covered by the Shelf Registration to be registered with or approved
by such other federal or state governmental agencies or authorities as may be
necessary in the reasonable opinion of counsel to Acquiror and counsel to the
Holders of Registrable Securities to enable the Holders thereof to consummate
the disposition of such Registrable Securities;
(iii) promptly notify each Holder of Registrable Securities covered by
the Shelf Registration (A) upon discovery that, or upon the happening of any
event as a result of which, the prospectus forming a part of the Shelf
Registration, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the
-5-
<PAGE>
circumstances under which they were made, not misleading, (B) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Shelf or the initiation of proceedings for that purpose, (C) of any
request by the Commission for (1) amendments to the Shelf Registration or any
document incorporated or deemed to be incorporated by reference in the Shelf
Registration, (2) supplements to the prospectus forming a part of the Shelf
Registration or (3) additional information, or (D) of the receipt by Acquiror of
any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation of any proceeding for such purpose, and at
the request of any such Holder promptly prepare and furnish to it a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary;
(iv) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of the Shelf Registration, or the lifting of
any suspension of the qualification (or exemption from qualification) of any of
the Registrable Securities for sale in any jurisdiction;
(v) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least 12 months, but not more than 18 months,
beginning with the first full calendar month after the effective date of the
Shelf Registration, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 promulgated thereunder;
(vi) provide promptly to the Holders upon request any document filed
by Acquiror with the Commission pursuant to the requirements of Section 13 or
Section 15 of the Exchange Act;
(vii) use its reasonable best efforts to cause all Registrable
Securities included in the Shelf Registration to be listed on the New York Stock
Exchange, or if not then listed on the New York Stock Exchange, on any other
securities exchange on which Securities of the same class are then listed, or,
if not then listed on any securities exchange, to be eligible for trading in any
over-the-counter market or trading system in which Securities of the same class
are then traded; and
(viii) promptly after the Shelf Registration, or any amendment thereto,
if applicable, is declared effective by the Commission, deliver to the Holders
as many copies of the prospectus forming part of the Shelf Registration, and any
amendment or supplement thereto, as the Holders may reasonably request.
(d) Indemnification; Contribution.
(i) Acquiror shall indemnify, to the fullest extent permitted by
law, each Holder of Registrable Securities, and if applicable, its officers,
directors, employees and agents, and if applicable, each Person who controls
such Holder (within the meaning
-6-
<PAGE>
of the Securities Act), against all losses, claims, damages, liabilities and
expenses (including reasonable costs of investigation and legal expenses)
arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in the Shelf Registration, any related prospectus, or,
any amendment or supplement thereto, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in the case of a prospectus or prospectus supplement, in
light of the circumstances under which they were made) not misleading, except in
each case insofar as the same arises out of or is based upon an untrue statement
or alleged untrue statement of a material fact or an omission or alleged
omission to state a material fact in the Shelf Registration, prospectus,
amendment or supplement, as the case may be, made or omitted, as the case may
be, in reliance upon and in conformity with written information furnished to
Acquiror by such Holder expressly for use therein.
(ii) In connection with the Shelf Registration, each Holder shall
furnish to Acquiror in writing such information and affidavits with respect to
such Holder as Acquiror reasonably requests for use in connection with the Shelf
Registration, any related prospectus, or any amendment or supplement thereto,
and shall indemnify, to the fullest extent permitted by law, Acquiror,
Acquiror's directors, officers, employees and agents and each Person who
controls Acquiror (within the meaning of the Securities Act), against all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation and legal expenses) arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in the Shelf Registration,
any related prospectus, or any amendment or supplement thereto, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of a prospectus
or prospectus supplement, in light of the circumstances under which they were
made) not misleading, in each case to the extent, but only to the extent, that
the same arises out of or is based upon an untrue statement or alleged untrue
statement of a material fact or an omission or alleged omission to state a
material fact in such registration statement or in such related prospectus,
amendment or supplement, as the case may be, made or omitted, as the case may
be, in reliance upon and in conformity with written information furnished to
Acquiror by such Holder expressly for use in the Shelf Registration.
(iii) Any Person entitled to indemnification under this Section 3(d)
agrees to give prompt written notice to the indemnifying party after the receipt
by such Person of any written notice of the commencement of any action, suit,
proceeding or investigation or threat thereof made in writing for which such
Person will claim indemnification or contribution pursuant to this Agreement
and, unless in the reasonable judgment of such indemnified party a conflict of
interest may exist between such indemnified party and the indemnifying party
with respect to such claim, permit the indemnifying party to assume the defense
of such claim with counsel selected by the indemnifying party and reasonably
satisfactory to such indemnified party. If the indemnifying party is not
entitled to, or elects not to, assume the defense of a claim, it shall not be
obligated to pay the reasonable fees and expenses of more than one counsel with
respect to such claim, unless in the reasonable judgment of counsel to such
indemnified
-7-
<PAGE>
party, expressed in a writing delivered to the indemnifying party, a
conflict of interest may exist between such indemnified party and any other
indemnified party with respect to such claim, in which event the indemnifying
party shall be obligated to pay the reasonable fees and expenses of such
additional counsel or counsels (which shall be limited to one counsel per
indemnified party). The indemnifying party shall not be subject to any liability
for any settlement made without its consent, which consent shall not be
unreasonably withheld.
(iv) Contribution.
-------------
(A) If the indemnification provided for in this Section 3(d) from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions that resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
by the indemnified parties, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section 3(d)(iii) hereof, any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
(B) The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 3(d)(iv) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(C) If indemnification is available under this Section 3(d), the
indemnifying parties shall indemnify each indemnified party to the fullest
extent provided in Sections 3(d)(i) and 3(d)(ii) hereof without regard to the
relative fault of said indemnifying party or indemnified party or any other
equitable consideration provided for in this Section 3(d)(iv).
(e) Information by the Holders. Each of the Holders holding Registrable
--------------------------
Securities included in the Shelf Registration shall furnish to Acquiror such
information regarding such Holder and the distribution proposed by such Holder
as Acquiror may
-8-
<PAGE>
reasonably request and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Section 3.
(f) Holdback Agreement; Postponement. Notwithstanding the provisions of
--------------------------------
Section 3(a), if the Board of Directors of Acquiror determines in good faith
that it is in the best interests of Acquiror (A) not to disclose the existence
of facts surrounding any proposed or pending acquisition, disposition, strategic
alliance or financing transaction involving Acquiror or (B) for any purpose
relating to: (aa) a registration of equity securities of Acquiror, (bb) a
registration of convertible securities of Acquiror (including any underlying
equity securities), (cc) a sale of any securities in a Rule 144A transaction, or
(dd) a registration of any securities relating to a transaction described in
Rule 145(a), to suspend the registration rights set forth herein, Acquiror may,
by notice to the Holders in accordance with Section 6(a), suspend the rights of
the Holders to make sales pursuant to the Shelf Registration for such a period
of time, not to exceed 90 days, as the Board of Directors may reasonably and in
good faith determine, provided, however, that such suspension shall be
terminated by Acquiror as soon as is reasonably practicable.
(g) Assignment. The registration rights set forth in this Section 3 hereof
----------
may be assigned, in whole or in part, to any transferee of Registrable
Securities (who shall be considered thereafter to be a Holder (provided that any
transferee who is not an affiliate of a Shareholder shall be a Holder only with
respect to such Registrable Securities so acquired and any stock of Acquiror
issued as a dividend or other distribution with respect to, or in exchange for
or in replacement of, such Registrable Securities) and shall be bound by all
obligations and limitations of this Agreement).
4. INTERPRETATION OF THIS AGREEMENT
--------------------------------
(a) Directly or Indirectly. Where any provision in this Agreement refers
----------------------
to action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
(b) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Georgia.
(c) Section Headings. The headings of the sections and subsections of this
----------------
Agreement are inserted for convenience only and shall not be deemed to
constitute a part thereof.
5. LIMITATIONS ON SALES OF REGISTRABLE SECURITIES
----------------------------------------------
Each Holder agrees not to effect any sale or transfer or to dispose
otherwise of any Registrable Securities which are not included in any
registration statement filed by Acquiror (other than a registration statement
filed by Acquiror filed on Form S-8, or any successor form thereto, relating
exclusively to employee benefits) during the 10-day
-9-
<PAGE>
period prior to, and during the 90-day period beginning on, the effective date
of such registration statement.
6. MISCELLANEOUS
-------------
(a) Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission (with confirmation received by the sender), by registered
or certified mail, postage pre-paid, or by courier or overnight carrier, to the
persons at the addresses set forth below (or at such other address as may be
provided hereunder), and shall be deemed to have been delivered as of the date
so delivered:
(i) if to Acquiror, to 160 South Industrial Boulevard, Calhoun,
Georgia 30701, 706/602-0278 (telecopy), Attention: Chief Executive Officer; and
(ii) if to the Shareholders, at the addresses listed on Schedule I
hereto.
(b) Third Party Beneficiaries; Successors and Assigns. Each of the
-------------------------------------------------
Shareholders as of the Effective Time is an intended beneficiary of this
Agreement and shall be entitled to the benefits of this Agreement, subject to
compliance with the obligations of this Agreement as applied to Shareholders
hereunder. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties, so long as any such successor or
assignee agrees to be bound by the terms of this Agreement.
(c) Entire Agreement; Amendment and Waiver. This Agreement
--------------------------------------
constitutes the entire understanding of the parties hereto in respect of the
subject matter contained herein and supersedes all prior understanding among
such parties in respect of the subject matter contained herein. This Agreement
may be amended, and the observance of any term of this Agreement may be waived,
with the written consent of Acquiror and the Holders of a majority of the then
outstanding Registrable Securities.
(d) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
(e) Remedies. Each of the Holders and Acquiror, in addition to being
--------
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
Each of the Holders and Acquiror agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
-10-
<PAGE>
(f) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended and understood that all of the rights and privileges
of each of the Holders shall be enforceable to the fullest extent permitted by
law.
(g) Irrevocable Appointment of Agent. By the execution and delivery
--------------------------------
of this Agreement, including counterparts hereof, each of the Shareholders
hereby irrevocably constitutes and appoints Thomas S. Durkan, II as the true and
lawful agent and attorney-in-fact of each such Shareholder in the various
capacities provided for herein (such individual, or such other individual as the
Holders of a majority of the Registrable Securities then outstanding (the
"Requisite Stockholders") shall designate in writing to Acquiror from time to
time, is herein referred to as the "Agent"), and to do or refrain from doing all
such further acts and things, and to execute all such documents, as the Agent
shall deem necessary or appropriate in connection with this Agreement. Unless
there is no existing person who has been designated to act as Agent by the
Requisite Stockholders, all rights of the Holders under this Agreement shall be
exercised by the Holders only through or by the Agent in his or her capacity as
agent of the Holders hereunder, and Acquiror shall not be required to take
directions from any other Holder for so long as such Agent continues to serve
and has not otherwise been removed as Agent pursuant to notice to Acquiror from
the Requisite Stockholders. If at any time no person is serving as Agent,
Acquiror shall not be required to take action except upon the direction of the
Requisite Stockholders.
(h) Other Rights. Nothing in this Agreement shall prohibit Acquiror
------------
from granting registration rights to other parties, regardless of whether such
registration rights are more or less favorable than the ones granted hereunder.
-11-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first set forth above.
MOHAWK INDUSTRIES, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
SHAREHOLDERS:
Durkan Family Partnership, Ltd. L.P.
By: TRD, Inc., General Partner
By: ________________________________
____________________________________(SEAL)
Thomas R. Durkan, II
/s/ Patricia Durkan
____________________________________(SEAL)
Patricia Durkan
____________________________________(SEAL)
Thomas R. Durkan, III
____________________________________(SEAL)
Tara Durkan-Simonds
Durkan Development, L.P.
By: TRD, Inc., General Partner
By: ________________________________
-12-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Name Address
- ----
<S> <C>
Durkan Family Partnership, Ltd. L.P. P.O. Box 2026
Dalton, GA 30722-2026
Thomas R. Durkan, II P.O. Box 1006
Dalton, GA 30722-1006
Patricia Durkan P.O. Box 1006
Dalton, GA 30722-1006
Thomas R. Durkan, III P.O. Box 1006
Dalton, GA 30722-1006
Tara Durkan-Simonds 518 11th Street No. C
Hermosa, CA 90254
Durkan Development, L.P. P.O. Box 2026
Dalton, GA 30722-2026
</TABLE>
<PAGE>
EXHIBIT 3
---------
SHAREHOLDER'S NONCOMPETITION
----------------------------
AND CONFIDENTIALITY AGREEMENT
-----------------------------
THIS SHAREHOLDER'S NONCOMPETITION AND CONFIDENTIALITY AGREEMENT (this
"Agreement") is made as of the ____ day of ________, 1999, among MOHAWK
INDUSTRIES, INC., a Delaware corporation ("Acquiror"), DURKAN PATTERNED CARPETS,
INC., a Georgia corporation ("Company"), and ____________ (the "Shareholder"),
being the owner of issued and outstanding shares of the capital stock of
Company.
W I T N E S S E T H:
WHEREAS, Acquiror, Company and the Shareholder, among others, are parties
to that certain Agreement and Plan of Merger (the "Merger Agreement"), dated as
of ____________, 1999, among Acquiror, Durkan Acquisition Corp., Nonpareil
Acquisition Corp., Company, Nonpareil Dyeing & Finishing, Inc. ("Nonpareil") and
the shareholders of each of Company and Nonpareil, pursuant to which Acquiror
has acquired 100% of the issued and outstanding capital stock (the "Stock") of
Company; and
WHEREAS, the Merger Agreement provides that as a condition precedent to the
transactions contemplated thereby, the Shareholder will enter into a
noncompetition and confidentiality agreement with Acquiror and Company; and
WHEREAS, Acquiror, Company and the Shareholder desire to enter into this
Noncompetition and Confidentiality Agreement to memorialize the terms and
conditions hereinafter set forth; and
WHEREAS, Acquiror would not consummate the transactions contemplated by the
Merger Agreement unless the Shareholder executed and delivered this
Noncompetition and Confidentiality Agreement; and
WHEREAS, Acquiror and Company are engaged in and throughout the Area (as
defined herein) in the Business (as defined herein); and
WHEREAS, the Shareholder has obtained knowledge of the business, affairs,
finances, management, marketing programs and philosophy, clients and methods of
operation of Company; and
WHEREAS, Acquiror and Company would suffer irreparable harm, including the
destruction or substantial diminishment of the value of the Business and
goodwill being acquired by Acquiror if the Shareholder was to use such
knowledge, information and business acumen.
<PAGE>
NOW, THEREFORE, in consideration of Acquiror's acquisition of the Stock,
the above premises and the mutual covenants and agreements hereinafter set
forth, the receipt, adequacy and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. Definitions
-----------
(a) "Affiliate" or "Affiliated," used to indicate a relationship to a
--------- ----------
specified person, firm, corporation, partnership, association or entity, means
any person, firm, corporation, partnership, association or entity that, directly
or indirectly or through one or more intermediaries, controls, is controlled by
or is under common control with such person, firm, corporation, partnership,
association or entity.
(b) "Applicable Period" means the period of five (5) years commencing
-----------------
on the Closing (as defined in the Merger Agreement).
(c) "Area" means Canada, the United States of America, including its
----
territories, and Mexico.
(d) "Business" means the business of manufacturing, printing,
--------
designing, developing or processing of broadloom printed patterned carpet.
(e) "Competing Business" means any person, business organization or
------------------
enterprise in whatever form which is engaged in a business that is the same or
substantially similar to the Business.
(f) "Proprietary Information" means all information with respect to
-----------------------
Company, Nonpareil or the Business which (i) derives economic value, actual or
potential, from not being generally known or readily ascertainable by other
persons (outside Acquiror or Company) who can obtain economic value from its
disclosure or use, and (ii) is the subject of efforts by Company that are
reasonable under the circumstances to maintain its secrecy or confidentiality.
Nothing in the foregoing sentence shall be deemed to require that all documents
of Company be stamped "confidential" or maintained in locked or otherwise
secured files within Company in order to maintain secrecy or confidentiality.
Assuming the foregoing criteria are met, Proprietary Information includes, but
is not limited to, technical or nontechnical data related to the formulas,
patterns, designs, compilations, programs, inventions, methods, techniques,
drawings, processes, finances, actual or potential customers and suppliers,
existing and future products sales and marketing information, and employees of
Company, and all physical embodiments of the foregoing. Proprietary Information
will not include any information which before being divulged by the Shareholder
(i) has become generally known to the public through no wrongful act of the
Shareholder; (ii) has been approved for release and released to the general
public by written authorization of Company; (iii) has been disclosed pursuant to
a requirement of a governmental agency or of law without similar restrictions or
other protections against public disclosure, or has been required to be
disclosed by operation of
-2-
<PAGE>
law; provided, however, that the Shareholder must first have given written
notice of such required disclosure to Company, cooperated in Company's efforts
to obtain a protective order requiring that the Proprietary Information so
disclosed be used only for the purposes for which disclosure is required, and
taken reasonable steps to allow Company to seek to protect the confidentiality
of the information required to be disclosed; or (iv) is furnished to a non-
Affiliated third party by Company without restrictions on the third party's
right to disclose the information. Proprietary Information may include
information disclosed to Company by a third party which Company is obliged to
treat as confidential.
2. Term and Termination.
--------------------
(a) Term. The term of this Agreement shall commence as of the Closing
----
Date (as defined in the Merger Agreement) and shall continue for a period of
five (5) years after such date (the "Term"), unless earlier terminated as
provided herein.
(b) Termination. This Agreement may only be terminated by mutual
-----------
agreement of the Shareholder, Acquiror and Company.
(c) Survival. The covenants of the Shareholder in Sections 3, 4, 5, 6,
--------
7 and 8 shall survive the termination of this Agreement and shall not be
extinguished thereby.
3. Agreement Not to Compete. The Shareholder agrees that commencing on
------------------------
the date hereof and continuing through the Applicable Period he will not (except
on behalf of or with the prior written consent of Acquiror, which consent may be
withheld in Acquiror's sole discretion), within the Area, either directly or
indirectly, on the Shareholder's own behalf, or in the service or on behalf of
others, engage in or provide managerial, supervisory, sales, financial,
administrative or consulting services or assistance to, or own (other than
ownership of less than five percent of the outstanding voting securities of an
entity whose voting securities are traded on a national securities exchange or
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation System) a beneficial interest in any Competing Business. For purposes
of this Section 5, the Shareholder acknowledges and agrees that the Business is
conducted in the Area.
4. Agreement Not to Solicit Customers.
----------------------------------
The Shareholder agrees that commencing on the date hereof and continuing
through the Applicable Period, he will not, without the prior written consent of
Acquiror, which consent may be withheld in Acquiror's sole discretion, within
the Area, either directly or indirectly, on the Shareholder's own behalf or in
the service or on behalf of others, solicit, divert or appropriate, or attempt
to solicit, divert or appropriate, to any Competing Business any customer or
client who was serviced by or under the supervision of the Shareholder.
-3-
<PAGE>
5. Agreement Not to Solicit Employees.
----------------------------------
The Shareholder agrees that commencing on the date hereof and continuing
through the Applicable Period, he will not, either directly or indirectly, on
the Shareholder's own behalf or in the service of or on behalf of others,
solicit, divert or hire, or attempt to solicit, divert or hire, any person
employed by Acquiror or Company, whether or not such employment is pursuant to
written agreement and whether or not such employment is for a determined period
or is at will.
6. Ownership and Protection of Proprietary Information.
---------------------------------------------------
(a) Confidentiality. All Proprietary Information and all physical
---------------
embodiments thereof received or developed by the Shareholder are confidential to
and are and will remain the sole and exclusive property of Company. The
Shareholder will hold such Proprietary Information in trust and strictest
confidence, and will not use, reproduce, distribute, disclose or otherwise
disseminate the Proprietary Information or any physical embodiments thereof,
except pursuant to actions taken by the Shareholder on behalf of Company in the
Shareholder's capacity as an officer and employee of Company, and may in no
event take any action causing, or fail to take the action necessary in order to
prevent, any Proprietary Information disclosed to or developed by the
Shareholder to lose its character or cease to qualify as Proprietary
Information.
(b) Return of Company Property. Upon request by Acquiror, the
--------------------------
Shareholder will promptly deliver to Acquiror or Company, as directed, all
property belonging to Company, including, without limitation, all Proprietary
Information (and all embodiments thereof) then in the Shareholder's custody,
control or possession.
(c) Survival. The covenants of confidentiality set forth herein will
--------
apply on and after the date hereof to any Proprietary Information disclosed by
Acquiror or Company prior to or after the date hereof and will continue and be
maintained by the Shareholder (i) with respect to Proprietary Information which
does not constitute a trade secret under the Georgia Trade Secrets Act, during
the Applicable Period, and (ii) with respect to the Proprietary Information
consisting of trade secrets under the Georgia Trade Secrets Act, including but
not limited to scientific or technical data, at any and all times following the
termination of this Agreement so long as such Proprietary Information remains a
trade secret.
7. Severability, Etc.
------------------
The Shareholder agrees that the covenants and agreements contained in
Sections 3, 4, 5, 6, 7 and 8 of this Agreement, and the subsections of those
Sections, are of the essence of this Agreement; that each of such covenants is
reasonable and necessary to protect and preserve the interests and properties of
Acquiror, Company and the Business; that Acquiror and Company are engaged in and
throughout the Area in the Business; that irreparable loss and damage will be
suffered by Acquiror and Company should the
-4-
<PAGE>
Shareholder breach any of such covenants and agreements; that each of such
covenants and agreements is separate, distinct and severable not only from the
other of such covenants and agreements but also from the other and remaining
provisions of this Agreement; that the unenforceability of any such covenant or
agreement shall not affect the validity or enforceability of any other such
covenant or agreement or any other provision or provisions of this Agreement;
and that, in addition to other remedies available to it, Acquiror and Company
shall be entitled to specific performance of this Agreement and to both
temporary and permanent injunctions to prevent a breach or contemplated breach
by the Shareholder of any of such covenants or agreements.
8. No Set-Off.
----------
The existence of any claim, demand, action or cause of action by the
Shareholder against Acquiror or Company or any Affiliate of Acquiror or Company,
other than one predicated upon a material breach of this Agreement by Acquiror
or Company, shall not constitute a defense to the enforcement by Acquiror or
Company of any of its rights hereunder.
9. Notice.
------
All notices, requests, demands and other communications required hereunder
shall be in writing and shall be deemed to have been duly given if delivered, in
person or by facsimile, or if mailed, by United States certified or registered
mail, prepaid to the party to which the same is directed at the following
addresses (or at such addresses as shall be given, in writing by the parties to
one another):
If to Acquiror or Company: Mohawk Industries, Inc.
160 South Industrial Boulevard
Calhoun, Georgia 30701
Attn: David L. Kolb
Telephone: (706) 629-7721
Telecopy: (706) 602-0278
With a copy to: Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: Alexander W. Patterson, Esq.
Telephone: (404) 881-7000
Telecopy: (404) 881-4777
If to the Shareholder:
---------------------------------------
---------------------------------------
---------------------------------------
-5-
<PAGE>
With a copy to:
---------------------------------------
---------------------------------------
---------------------------------------
Notices delivered in person or by facsimile shall be effective on the date of
delivery. Notices delivered by mail as aforesaid shall be effective upon the
third calendar day subsequent to the postmark date thereof.
10. Miscellaneous.
-------------
(a) Assignment. This Agreement may be assigned by Acquiror and
----------
Company and shall inure to the benefit of and may be binding upon the successors
and assigns of Acquiror and Company. In the event of any such assignment,
Acquiror, Company or their permitted successors or assigns, shall remain liable
for the performance of its obligations hereunder unless such assignment is to an
individual or entity of comparable creditworthiness and comparable net worth to
that of Acquiror or Company, or its permitted successors or assigns, on the date
of such assignment. For purposes of this Agreement, an assignment shall not
include any merger, consolidation, sale of substantially all of Acquiror or
Company's assets or any other acquisition to which Acquiror or Company is a
party. This Agreement may not be assigned by the Shareholder (or the
Shareholder's legal representative, if applicable), nor may the Shareholder in
any way delegate the performance of the Shareholder's covenants and obligations
hereunder.
(b) Waiver. Acquiror or Company's waiver of any breach of this
------
Company and by the Shareholder shall not be effective unless in writing, and no
such waiver shall constitute the waiver of the same or another breach on a
subsequent occasion.
(c) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of Georgia.
(d) Entire Agreement. This Agreement, together with the Merger
----------------
Company and and the other documents and agreements referred to therein, embodies
the entire agreement of the parties hereto relating to the subject matter hereof
and supersedes all oral agreements, and to the extent inconsistent with the
terms hereof, all other written agreements.
(e) Amendment. This Agreement may not be modified, amended,
---------
supplemented or terminated except by a written instrument executed by the
parties hereto.
-6-
<PAGE>
11. Captions and Section Headings. Except as set forth in Section 1
-----------------------------
hereof, captions and section headings used herein are for convenience only and
are not a part of this Agreement and shall not be used in construing it.
ACQUIROR:
MOHAWK INDUSTRIES, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
[CORPORATE SEAL]
COMPANY:
DURKAN PATTERNED CARPETS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
SHAREHOLDER:
____________________________(SEAL)
-7-
<PAGE>
EXHIBIT 4
---------
AFFILIATE AGREEMENT
-------------------
Mohawk Industries, Inc.
160 South Industrial Boulevard
Calhoun, Georgia 30701
Ladies and Gentlemen:
The undersigned is a shareholder of Durkan Patterned Carpets, Inc.
("Durkan") or Nonpareil Dyeing & Finishing, Inc. ("Nonpareil"), each of which is
a corporation organized and existing under the laws of the State of Georgia
(collectively, the "Companies"), and will become a stockholder of Mohawk
Industries, Inc. ("Acquiror"), a corporation organized and existing under the
laws of the State of Delaware, pursuant to the transactions described in the
Agreement and Plan of Merger, dated as of February __, 1999 (the "Agreement"),
by and among Acquiror, Durkan Acquisition Corp. ("Sub 1"), Nonpareil Acquisition
Corp. ("Sub 2"), the Companies and the shareholders of each of the Companies.
Under the terms of the Agreement, Sub 1 will be merged with and into Durkan and
Sub 2 will be merged with and into Nonpareil (the "Mergers"), and the shares of
capital stock of each of the Companies and certain notes held by a shareholder
of the Companies (collectively, "Company Securities") will be converted into and
exchanged for shares of the $0.01 par value common stock of Acquiror ("Acquiror
Common Stock"). This Affiliate Agreement represents an agreement between the
undersigned and Acquiror regarding certain rights and obligations of the
undersigned in connection with the shares of Acquiror Common Stock to be
received by the undersigned as a result of the Mergers.
In consideration of the Mergers and the mutual covenants contained herein,
the undersigned and Acquiror hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to
----------------
one or both of the Companies the undersigned is an "affiliate" under Rule 145(c)
as defined in Rule 405 of the Rules and Regulations of the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933, as amended ("1933
Act"), and the undersigned anticipates that the undersigned will be such an
"affiliate" at the time of the Mergers.
2. Initial Restriction on Disposition. The undersigned agrees that the
----------------------------------
undersigned will not sell, transfer, or otherwise dispose of the undersigned's
interests in, or reduce the undersigned's risk relative to, any of the shares of
Acquiror Common Stock into which the Company Securities owned by the undersigned
are converted upon consummation of the Mergers until one business day after
publication by Acquiror of its results of post-Mergers operations for the period
which includes at least 30 days of post-Mergers combined operations of Acquiror
and the Companies. Acquiror agrees that it will use its best efforts to publish
such results within 45 days after the end of the first fiscal quarter of
Acquiror containing the required thirty (30) day period of post-Mergers combined
operations and that it will notify the undersigned promptly
<PAGE>
following such publication of Acquiror containing the required period of post-
Mergers combined operations.
3. Covenants and Warranties of Undersigned. The undersigned represents,
---------------------------------------
warrants and agrees that:
(a) The Acquiror Common Stock received by the undersigned as a result
of the Mergers will be taken for the undersigned's own account and not for
others, directly or indirectly, in whole or in part.
(b) Acquiror has informed the undersigned that the shares of Acquiror
Common Stock received pursuant to the Mergers can only be sold by the
undersigned (1) pursuant to an effective registration statement under the
1933 Act, or (2) in conformity with the volume and other requirements of Rule
145(d) promulgated by the SEC as the same now exist or may hereafter be
amended, or (3) to the extent some other exemption from registration under
the 1933 Act might be available.
(c) The undersigned will, and will cause each of the other parties
whose shares are deemed to be beneficially owned by the undersigned pursuant
to Section 8 hereof to, have all of the Company Securities beneficially owned
by the undersigned registered in the name of the undersigned or such parties,
as applicable, prior to the effective date of the Mergers and not in the name
of any bank, broker-dealer, nominee or clearinghouse.
(d) During the 30 consecutive days immediately preceding the Effective
Time of the Mergers, the undersigned will not sell, transfer, or otherwise
dispose of the undersigned's interests in, or reduce the undersigned's risk
relative to, any of the Company Securities beneficially owned by the
undersigned as of the date the undersigned executed written consents in lieu
of special meetings of the shareholders of each of the Companies to approve
and adopt the Agreement and the Mergers.
4. Restrictions on Transfer. The undersigned understands and agrees that
------------------------
stop transfer instructions with respect to the shares of Acquiror Common Stock
received by the undersigned pursuant to the Mergers will be given to Acquiror's
Transfer Agent and that there will be placed on the certificates for such
shares, or shares issued in substitution thereof, a legend stating in substance:
"The shares represented by this certificate were issued pursuant
to a business combination which is accounted for as a "pooling of
interests" and may not be sold, nor may the owner thereof reduce
his risks relative thereto in any way, until such time as Mohawk
Industries, Inc. ("Mohawk") has published the financial results
covering at least 30 days of combined operations after the
effective date of the merger through which the business combination
was effected. In addition, the shares represented by this
certificate may not be sold, transferred or otherwise disposed
of except or unless (1) covered by an effective registration
statement under the Securities Act of 1933, as amended, (2) in
accordance with (i) Rule 145(d) (in the case of shares issued to
an
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<PAGE>
individual who is not an affiliate of Mohawk) or (ii) Rule 144
---
(in the case of shares issued to an individual who is an
affiliate of Mohawk) of the Rules and Regulations of such Act,
or (3) in accordance with a legal opinion satisfactory to counsel
for Acquiror that such sale or transfer is otherwise exempt from
the registration requirements of such Act."
Such legend will also be placed on any certificate representing Acquiror
securities issued subsequent to the original issuance of the Acquiror Common
Stock pursuant to the Mergers as a result of any transfer of such shares or any
stock dividend, stock split, or other recapitalization as long as the Acquiror
Common Stock issued to the undersigned pursuant to the Mergers has not been
transferred in such manner to justify the removal of the legend therefrom. Upon
the request of the undersigned, Acquiror shall cause the certificates
representing the shares of Acquiror Common Stock issued to the undersigned in
connection with the Mergers to be reissued free of any legend relating to
restrictions on transfer by virtue of ASR 130 and 135 as soon as practicable
after the requirements of ASR 130 and 135 have been met. In addition, if the
provisions of Rules 144 and 145 are amended to eliminate restrictions applicable
to the Acquiror Common Stock received by the undersigned pursuant to the
Mergers, or at the expiration of the restrictive period set forth in Rule
145(d), Acquiror, upon the request of the undersigned, will cause the
certificates representing the shares of Acquiror Common Stock issued to the
undersigned in connection with the Mergers to be reissued free of any legend
relating to the restrictions set forth in Rules 144 and 145(d) upon receipt by
Acquiror of an opinion of its counsel to the effect that such legend may be
removed.
5. Understanding of Restrictions on Dispositions. The undersigned has
---------------------------------------------
carefully read the Agreement and this Affiliate Agreement and discussed their
requirements and impact upon the undersigned's ability to sell, transfer, or
otherwise dispose of the shares of Acquiror Common Stock received by the
undersigned to the extent the undersigned believes necessary, with the
undersigned's counsel or counsel for Companies.
6. Filing of Reports by Acquiror. Acquiror agrees, for a period of two
-----------------------------
(2) years after the effective date of the Mergers, to file on a timely basis all
reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, so that the public information provisions of
Rule 145(d) promulgated by the SEC as the same are presently in effect will be
available to the undersigned in the event the undersigned desires to transfer
any shares of Acquiror Common Stock issued to the undersigned pursuant to the
Mergers.
7. Transfer Under Rule 145(d). If the undersigned desires to sell or
--------------------------
otherwise transfer the shares of Acquiror Common Stock received by the
undersigned in connection with the Mergers at any time during the restrictive
period set forth in Rule 145(d), the undersigned will provide the necessary
representation letter to the transfer agent for Acquiror Common Stock together
with such additional information as the transfer agent may reasonably request.
If Acquiror's counsel concludes that such proposed sale or transfer complies
with the requirements of Rule 145(d), Acquiror shall cause such counsel to
provide such opinions as may be necessary to Acquiror's Transfer Agent so that
the undersigned may complete the proposed sale or transfer.
-3-
<PAGE>
8. Acknowledgments. The undersigned recognizes and agrees that the
---------------
foregoing provisions also apply to all shares of the capital stock of each of
the Companies and Acquiror that are deemed to be beneficially owned by the
undersigned pursuant to applicable federal securities laws, which the
undersigned agrees may include, without limitation, shares owned or held in the
name of (i) the undersigned's spouse, (ii) any relative of the undersigned or of
the undersigned's spouse who has the same home as the undersigned, (iii) any
trust or estate in which the undersigned, the undersigned's spouse, and any such
relative collectively own at least a 10% beneficial interest or of which any of
the foregoing serves as trustee, executor, or in any similar capacity, and (iv)
any corporation or other organization in which the undersigned, the
undersigned's spouse and any such relative collectively own at least 10% of any
class of equity securities or of the equity interest. The undersigned further
recognizes that, in the event that the undersigned is a director or officer of
Acquiror or becomes a director or officer of Acquiror upon consummation of the
Mergers, among other things, any sale of Acquiror Common Stock by the
undersigned within a period of less than six months following the effective time
of the Mergers may subject the undersigned to liability pursuant to Section
16(b) of the Securities Exchange Act of 1934, as amended.
9. Miscellaneous. This Affiliate Agreement is the complete agreement
-------------
between Acquiror and the undersigned concerning the subject matter hereof. Any
notice required to be sent to any party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
Affiliate Agreement shall be governed by the laws of the State of Georgia.
-4-
<PAGE>
This Affiliate Agreement is executed as of the ____ day of February, 1999.
Very truly yours,
____________________________ ____________________________
Signature Signature
____________________________ ____________________________
Print Name Print Name
____________________________ ____________________________
____________________________ ____________________________
____________________________ ____________________________
Address Address
[add below the signatures of all
registered owners of shares deemed
beneficially owned by the affiliate]
____________________________
Name:
____________________________
Name:
____________________________
Name:
AGREED TO AND ACCEPTED as of
February __, 1999
MOHAWK INDUSTRIES, INC.
By:_________________________
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<PAGE>
EXHIBIT 5
AGREEMENT FOR RELEASE OF CLAIMS
THIS AGREEMENT FOR RELEASE OF CLAIMS (the "Agreement") is entered into
as of ________ __, 1999 by and among Durkan Patterned Carpets, Inc., a Georgia
corporation ("Durkan"), Nonpareil Dyeing & Finishing, Inc., a Georgia
corporation ("Nonpareil" and together with Durkan, the "Companies"), the
shareholders of Durkan and the shareholders of Nonpareil (collectively
"Shareholder"). Capitalized terms used herein without definition shall have the
meanings provided therefor in the Merger Agreement (as hereinafter defined).
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, on _______ __, 1999, Mohawk Industries, Inc., a Delaware
corporation ("Acquiror"), the Companies, Durkan Acquisition Corp., a Georgia
corporation ("Sub1"), Nonpareil Acquisition Corp., a Georgia corporation
("Sub2"), and the shareholders of each of the Companies entered into an
Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Sub1
will merge with and into Durkan and Sub2 will merge with and into Nonpareil (the
"Merger"), whereby each of the Companies shall survive the Merger as a wholly
owned subsidiary of Acquiror; and
WHEREAS, it is a condition to the obligation of each of Acquiror, Sub1 and
Sub2 to consummate the Closing under the Merger Agreement that, on or prior to
the Closing, each of the shareholders of Company enter into an agreement for the
release of claims; and
WHEREAS, the parties hereto wish to consummate the transactions
contemplated by the Merger Agreement.
NOW, THEREFORE, for and in consideration of the foregoing and the
mutual promises, covenants and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Shareholder Release: Shareholder, for Shareholder and
-------------------
Shareholder's heirs, beneficiaries, successors, assigns, agents, attorneys,
legal representatives and for anyone else claiming by, through or under any of
them (together with Shareholder, collectively "Shareholder Releasors"), does
hereby remise, release and forever discharge each of the Companies and their
respective subsidiaries, affiliates and associates, and all of their respective
successors, assigns, agents, attorneys, legal representatives, officers,
directors and shareholders (collectively, the "Company Releasees"), and each of
them, from all manner of actions, causes of action, suits, debts, dues,
accounts, bonds, covenants, contracts, claims and demands (collectively,
"Claims") whatsoever which as against the said Company Releasees (or any of
them) Shareholder Releasors, or any of
<PAGE>
them, ever had, now has or shall or may have for or by reason of any cause,
matter or thing whatsoever existing up to the present time, including, without
limiting the generality of the foregoing, all Claims arising out of or in any
way connected with the employment of Shareholder by any of the Company Releasees
(including as an officer, director or employee) or the obligations (statutory,
contractual or otherwise) of the Company Releasees to Shareholder Releasors, or
any of them, in respect thereof. Notwithstanding the foregoing or any other
provision of this Agreement, Shareholder Releasors shall not release the Company
Releasees, or any of them, from their respective (a) obligations to Shareholder
Releasors, or any of them, under the Merger Agreement and the Acquiror Closing
Document, (b) obligations to Shareholder Releasors, or any of them, for any
salary, wages or other compensation or reimbursement of expenses arising prior
to the Closing out of any employment or consulting arrangements between
Shareholder and the Company Releasees, or any of them, and (c) obligations to
Shareholder Releasors which are funded by third party insurance.
The Claims released herein specifically include, but are not limited
to, any Claims arising in tort or contract, any Claim based on wrongful
discharge, any Claim based on breach of contract, any Claim arising under
federal, state or local law prohibiting race, sex, religion, national origin,
handicap, disability or other forms of discrimination, or retaliation, including
but not limited to Title VII of the Civil Rights Act of 1964, as amended, 42
U.S.C. (S) 1981, The Americans With Disabilities Act, the Age Discrimination in
Employment Act, and the Employment Retirement Income Security Act, as amended.
Shareholder specifically waives any right to reinstatement or any other remedy
which might be available under these statutes.
Shareholder expressly acknowledges that the consideration referred to
herein shall not in any way constitute an admission of any liability by the
Company Releasees or any one of them with respect to the Claims released by
Shareholder pursuant to this Section 1.
Shareholder agrees not to make any claim or take any proceeding
against any person or corporation who might claim, pursuant to the provisions of
any applicable statute or otherwise, contribution or indemnity from the Company
Releasees or any one of them with respect to the Claims released by Shareholder
pursuant to this Section 1.
2. Shareholder Acknowledgment. Shareholder expressly declares that
--------------------------
he, she or it has been given sufficient time to consider his, her or its actions
and to seek such independent legal or other advice as he, she or it considers
appropriate with respect to this matter and the terms of this document.
Shareholder voluntarily accepts the said terms for the purpose of making full
and final compromise, adjustment and settlement of all claims as aforesaid.
Shareholder acknowledges that no representation of fact or opinion, threat or
inducement has been made or given by the Company Releasees or any of them to
induce the signing of this Agreement.
3. Severability. In the event that any term or provision in this
------------
Agreement is held to be invalid, void, illegal or unenforceable in any respect,
the Agreement shall not
-2-
<PAGE>
fail, but shall be deemed amended to delete the void or unenforceable term or
provision, and the remainder of this Agreement shall be enforced in accordance
with its terms and shall not in any way be affected or impaired thereby. In the
event that any term or provision of this Agreement is held to be overbroad or
otherwise unreasonable, the same shall not fail, but shall be deemed amended
only to the extent necessary to render it reasonable, and the parties agree to
be bound by the same as thus amended.
4. Entire Agreement. This Agreement (including the recitals set
----------------
forth at the beginning), together with the Merger Agreement, the Shareholder
Closing Documents and the Acquiror Closing Documents, sets forth the entire
agreement and understanding of the parties with respect to the subject matter
hereof, and supersedes all prior agreements, arrangements and understandings
(other than those contained in the Merger Agreement, the Shareholder Closing
Documents and the Acquiror Closing Documents) relating to the specific subject
matter of this Agreement.
5. Governing Law. This Agreement has been negotiated, executed and
-------------
delivered in, and shall be governed by, and construed and enforced in accordance
with, the laws of the State of Georgia without respect to the laws related to
choice or conflicts of laws.
6. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of and be enforceable by the parties hereto, and their
respective estates, successors, legal or personal representatives, heirs,
distributees, designees and assigns.
7. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, and all such counterparts
shall constitute one and the same Agreement, binding on all the parties
notwithstanding that all the parties are not signatories to the same
counterpart.
[Signatures on Following Page]
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<PAGE>
IN WITNESS WHEREOF the undersigned have executed this Agreement this ___
day of _______, 1999.
COMPANIES:
DURKAN PATTERNED CARPETS, INC.
Attest:_______________________ By:______________________________
Title:________________________ Title:___________________________
[CORPORATE SEAL]
NONPAREIL DYEING & FINISHING, INC.
Attest:_______________________ By:______________________________
Title:________________________ Title:___________________________
[CORPORATE SEAL]
SHAREHOLDERS:
Durkan Family Partnership, Ltd. L.P.
By: TRD, Inc., General Partner
By:_________________________
___________________________(SEAL)
Thomas R. Durkan, II
[Signatures continue on next page]
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<PAGE>
___________________________(SEAL)
Patricia Durkan
___________________________(SEAL)
Thomas R. Durkan, III
___________________________(SEAL)
Tara Durkan-Simonds
Durkan Development, L.P.
By: TRD, Inc., General Partner
By:________________________
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<PAGE>
EXHIBIT 5
[LETTERHEAD OF ALSTON & BIRD LLP APPEARS HERE]
April 28, 1999
Mohawk Industries, Inc.
160 South Industrial Boulevard
Calhoun, Georgia 30701
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Mohawk Industries, Inc., a Delaware corporation
(the "Company"), in connection with 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"), 3,149,999 shares of the Company's Common Stock,
par value $0.01 per share (the "Common Stock"), for sale by certain stockholders
(the "Selling Stockholders") of the Company (the "Mohawk Shares"). The Selling
Stockholders intend, following the effectiveness of the Registration Statement,
to sell the Mohawk Shares from time to time in the manner set forth in the
Registration Statement. This opinion letter is rendered pursuant to Item 16 of
Form S-3 and Item 601(b)(5) of Regulation S-K.
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, and the Registration
Statement. 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 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,
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.
<PAGE>
Mohawk Industries, Inc.
April 28, 1999
Page 2
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 Mohawk Shares have been validly issued
and are 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
Opinions" 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
opinions rendered by us consist of those matters set forth in the fourth
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/ Alexander W. Patterson
------------------------------
Partner
<PAGE>
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Mohawk Industries, Inc.:
We consent to the use of our reports included herein and incorporated herein by
reference and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG LLP
----------------
Atlanta, Georgia
April 23, 1999
<PAGE>
EXHIBIT 23(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated September 21, 1998
relating to the financial statements of World Carpets, Inc. and Subsidiary as of
June 28, 1998 and for the years ended June 28, 1998 and June 29, 1997 which
appears in such Prospectus. We also consent to the reference to us under the
headings "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
April 23, 1999
