As filed with the Securities and Exchange Commission on February 19, 2002
Registration No. 333-74806
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
Amendment No. 3
to
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
-----------------
MOHAWK INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 2273 52-1604305
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
160 S. Industrial Boulevard
Calhoun, Georgia 30703
(706) 629-7721
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Jeffrey S. Lorberbaum
President and Chief Executive Officer
160 S. Industrial Boulevard
Calhoun, Georgia 30703
(706) 629-7721
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
with copies to:
Alexander W. Patterson Mark Early
Bryan E. Davis Vinson & Elkins L.L.P.
Alston & Bird LLP 3700 Trammell Crow Center
One Atlantic Center 2001 Ross Avenue
1201 West Peachtree Street Dallas, Texas 75201
Atlanta, Georgia 30309-3424 (214) 220-7700
(404) 881-7000
-----------------
Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after the merger described in this Registration
Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the offering. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective time until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a),
shall determine.
================================================================================
The information in this joint proxy statement-prospecuts is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
joint proxy statement-prospectus is not an offer to sell securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
Preliminary--Subject to Completion Dated February 19, 2002
[LOGO] MOHAWK
INDUSTRIES, INC.
DAL-TILE INTERNATIONAL INC.
PROPOSED MERGER--YOUR VOTE IS VERY IMPORTANT
Dear Stockholders:
On November 19, 2001, Mohawk Industries, Inc. agreed to acquire Dal-Tile
International Inc. by merging Dal-Tile into a wholly owned subsidiary of
Mohawk. In the merger, each Dal-Tile stockholder, other than those perfecting
appraisal rights, will receive, for each share of Dal-Tile common stock that
the stockholder owns, $11 in cash and between .2213 and .2716 of a share of
Mohawk common stock, depending on the average closing price for Mohawk common
stock over a 20 trading day period ending three trading days prior to the
merger. If we completed the merger on the date of this letter, the average
closing price would be $55.05 and Dal-Tile stockholders would receive .2213 of
a share of Mohawk common stock for each share of Dal-Tile common stock that
they own. Collectively, the Dal-Tile stockholders will receive in the merger
between 12,412,274 and 18,401,198 shares of Mohawk common stock, depending on
the exchange ratio and the number of Dal-Tile options that are exercised prior
to completion of the merger. We intend for the merger to qualify as a tax-free
reorganization in which case Dal-Tile stockholders would generally not
recognize gain or loss for U.S. federal income tax purposes as a result of the
merger, except to the extent of cash received in the merger.
The merger requires the approval of Dal-Tile stockholders. The issuance of
shares of Mohawk common stock in the merger requires the approval of Mohawk
stockholders. Mohawk and Dal-Tile have each scheduled special meetings of their
stockholders on March 20, 2002, to vote on these matters. Regardless of the
number of shares that you own or whether you plan to attend a meeting, it is
important that your shares be represented and voted. Voting instructions are
inside.
Mohawk's board of directors has unanimously approved and adopted the merger
agreement and determined that the merger agreement and the merger are
advisable, fair to and in the best interest of Mohawk and its stockholders.
Accordingly, Mohawk's board of directors recommends that Mohawk stockholders
vote to approve the issuance of Mohawk common stock in the merger.
Similarly, Dal-Tile's board of directors has unanimously approved and
adopted the merger agreement and declared that the merger agreement and the
merger are advisable, fair to and in the best interest of Dal-Tile and its
stockholders. Accordingly, Dal-Tile's board of directors recommends that
Dal-Tile stockholders vote to adopt the merger agreement.
This document provides you with detailed information about the proposed
merger. We encourage you to read the entire document carefully.
Mohawk's common stock is traded on the New York Stock Exchange under the
symbol "MHK."
Dal-Tile's common stock is traded on the New York Stock Exchange under the
symbol "DTL."
See "Risk Factors" beginning on page 13 of this document for a discussion of
some of the risks relevant to the merger.
Jeffrey S. Lorberbaum Jacques R. Sardas
President and Chief President, Chief
Executive Officer Executive Officer and
Mohawk Industries, Inc. Chairman ofthe Board of
Directors
Dal-Tile International
Inc.
Neither the SEC nor any state securities commission has approved or
disapproved of the shares of Mohawk common stock to be issued in the merger
or determined if this joint proxy statement-prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
This document is dated February 19, 2002 and was first mailed to stockholders
on or about February 20, 2002.
How to Obtain Additional Information
This joint proxy statement-prospectus incorporates important business and
financial information about Mohawk and Dal-Tile that is not included in or
delivered with this document. This information is available to you without
charge upon your written or oral request. You can obtain free copies of this
information by requesting it in writing or by telephone from the appropriate
company at the following addresses and telephone numbers:
Mohawk Industries, Inc. Dal-Tile International
Attn: Jerry L. Melton Inc.
160 S. Industrial Attn: Mark A. Solls
Boulevard 7834 Hawn Freeway
Calhoun, Georgia 30703 Dallas, Texas 75217
(706) 629-7721 (214) 398-1411
In order to obtain timely delivery of any documents that you request, you
must request the information by March 13, 2002.
See "Where You Can Find More Information" beginning on page 70.
Mohawk Industries, Inc.
-------------------------------
Notice of Special Meeting of Stockholders
To Be Held March 20, 2002
-------------------------------
To the stockholders of Mohawk:
We will hold a special meeting of stockholders of Mohawk Industries, Inc.
for the following purposes:
. to consider and vote on the issuance of Mohawk common stock in the
merger contemplated by the Agreement and Plan of Merger, dated as of
November 19, 2001, as amended, by and among Mohawk, Maverick Merger Sub,
Inc. and Dal-Tile International Inc., as it may be further amended from
time to time;
. to consider and vote on any motion submitted to a vote of the
stockholders to adjourn or postpone the special meeting to another time
and place for the purpose of soliciting additional proxies; and
. to transact other business as may be incident to the conduct of the
special meeting or any adjournments or postponements thereof.
The special meeting will be held at 9:00 a.m. Eastern Time, on March 20,
2002, at the offices of Alston & Bird LLP, 1201 West Peachtree Street, 46th
Floor, Atlanta, Georgia.
Only stockholders of record at the close of business on February 6, 2002,
are entitled to notice of and to vote at the special meeting and any
adjournments or postponements of the special meeting. Mohawk will keep a list
of stockholders entitled to vote at the special meeting available for
inspection at its offices in Calhoun, Georgia, for any purpose germane to the
special meeting, during ordinary business hours, during the ten day period
before the special meeting. The list of stockholders will also be provided and
kept at the time and place of the special meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
You are urged to read this document carefully. Furthermore, your proxy is
important to assure a quorum at the special meeting. The affirmative vote of a
majority of the votes cast at the special meeting is necessary to approve the
issuance of Mohawk common stock in the merger and to approve any motion to
adjourn or postpone the special meeting for the purpose of soliciting
additional proxies. Whether or not you expect to attend the special meeting,
please vote in any one of the following ways:
. use the toll-free telephone number shown on the voting instructions;
. use the Internet website shown on the voting instructions; or
. mark, sign, date and promptly return the enclosed proxy card in the
postage paid envelope. It requires no postage if mailed in the United
States.
All shares represented by properly executed proxies will be voted in
accordance with the specifications on the proxy card. If no such specifications
are made, proxies will be voted FOR issuance of Mohawk common stock in the
merger and FOR granting discretion for the designated proxies to vote upon any
motion to adjourn or postpone the special meeting to solicit additional proxies.
If you attend the special meeting, you may vote in person if you wish, even
though you have previously returned your proxy or submitted your vote using the
telephone or the Internet. Action may be taken on the share issuance proposal
at the special meeting on the date specified above or on any dates to which the
special meeting may be adjourned or postponed.
By Order of the Board of Directors,
/s/ JERRY L. MELTON
Jerry L. Melton
Secretary
Calhoun, Georgia
February 19, 2002
Dal-Tile International Inc.
-------------------------------
Notice of Special Meeting of Stockholders
to be Held March 20, 2002
-------------------------------
To the stockholders of Dal-Tile:
We will hold a special meeting of stockholders of Dal-Tile International
Inc. for the following purposes:
. to consider and vote upon a proposal to approve the adoption of the
Agreement and Plan of Merger, dated November 19, 2001, as amended, by
and among Mohawk Industries, Inc., a Delaware corporation, Maverick
Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary
of Mohawk, and Dal-Tile, as it may be further amended from time to time,
and approve the transactions contemplated thereby. The merger agreement
is attached to this document as Annex A;
. to consider and vote on any motion submitted to a vote of the
stockholders to adjourn or postpone the special meeting to another time
and place for the purpose of soliciting additional proxies; and
. to transact other business as may be incident to the conduct of the
special meeting or any adjournments or postponements thereof.
The special meeting will be held at 8:00 a.m. Central Time, on March 20,
2002, at the offices of Vinson & Elkins L.L.P., 2001 Ross Avenue, 38th Floor,
Dallas, Texas.
Only stockholders of record at the close of business on February 6, 2002,
are entitled to notice of and to vote at the special meeting and any
adjournments or postponements of the special meeting. Dal-Tile will keep a list
of stockholders entitled to vote at the special meeting available for
inspection at its offices in Dallas, Texas, for any purpose germane to the
special meeting, during ordinary business hours, during the ten day period
before the special meeting. The list of stockholders will also be provided and
kept at the time and place of the special meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Your vote is important. Adoption of the merger agreement will require the
affirmative vote of the holders of a majority of the issued and outstanding
shares of Dal-Tile common stock.
All shares represented by properly executed proxies will be voted in
accordance with the specifications on the proxy card. If no such specifications
are made, proxies will be voted FOR adoption of the merger agreement and FOR
granting discretion for the designated proxies to vote upon any motion to
adjourn or postpone the special meeting to solicit additional proxies.
Under Delaware law, stockholders of Dal-Tile are entitled to appraisal
rights under Section 262 of the General Corporation Law of the State of
Delaware if the conditions set forth in Section 262 are satisfied. In order to
exercise your appraisal rights, you must not vote in favor of adoption of the
merger agreement and you must strictly comply with the procedures established
by Section 262 of the General Corporation Law of the State of Delaware,
otherwise you will lose your appraisal rights. The appraisal rights procedures
are described in this document, and a copy of Section 262 of the Delaware
General Corporation Law is attached as Annex F. See "The Merger--Appraisal
Rights."
You are urged to read this document carefully. It is very important that
your shares be represented at the special meeting. Whether or not you can
attend the special meeting please vote in one of the following ways:
. use the toll-free telephone number shown on the voting instructions;
. use the Internet website shown on the voting instructions; or
. complete, sign, date and mail the enclosed proxy card promptly so that
it will be received no later than March 19, 2002.
If you attend the special meeting, you may vote in person if you wish, even
though you have previously returned your proxy or submitted your vote using the
telephone or the Internet. Action may be taken on the merger proposal at the
special meeting on the date specified above or on any dates to which the
special meeting may be adjourned or postponed.
By Order of the Board of Directors,
/s/ Mark Solls
Mark A. Solls
Secretary
Dallas, Texas
February 19, 2002
TABLE OF CONTENTS
Page
- ----
QUESTIONS AND ANSWERS ABOUT THE MERGER................................ ii
SUMMARY............................................................... 1
RISK FACTORS.......................................................... 13
THE SPECIAL MEETINGS.................................................. 16
THE MERGER............................................................ 20
INFORMATION ABOUT MOHAWK.............................................. 61
INFORMATION ABOUT DAL-TILE............................................ 61
DESCRIPTION OF MOHAWK CAPITAL STOCK................................... 61
EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS........................ 62
COMPARATIVE MARKET PRICES AND DIVIDENDS............................... 69
BOARD OF DIRECTORS FOLLOWING THE MERGER............................... 69
STOCKHOLDER PROPOSALS................................................. 70
EXPERTS............................................................... 70
OPINIONS.............................................................. 70
WHERE YOU CAN FIND MORE INFORMATION................................... 70
FORWARD-LOOKING STATEMENTS............................................ 72
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
INFORMATION......................................................... 73
ANNEX A--AGREEMENT AND PLAN OF MERGER BY AND AMONG MOHAWK INDUSTRIES,
INC., MAVERICK MERGER SUB, INC., AND DAL-TILE INTERNATIONAL INC., AS
AMENDED............................................................. A-1
ANNEX B--FORM OF DAL-TILE INTERNATIONAL INC. VOTING AGREEMENT......... B-1
ANNEX C--VOTING AGREEMENT OF ALADDIN PARTNERS, L.P.................... C-1
ANNEX D--OPINION OF WACHOVIA SECURITIES............................... D-1
ANNEX E--OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION............ E-1
ANNEX F--SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW.......... F-1
i
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are Mohawk and Dal-Tile proposing the merger?
A: Mohawk and Dal-Tile are proposing the merger because they believe it will
create one of the world's leading manufacturers and distributors of all
types of floorcoverings. The merger will combine Mohawk's strong position as
a manufacturer and distributor of all types of carpets and rugs with
Dal-Tile's strong position as a manufacturer and distributor of ceramic tile
and natural stone. By combining these two businesses, Mohawk and Dal-Tile
hope to create stronger operating and financial results than either company
could achieve on its own. The Dal-Tile board of directors also believes that
the merger offers Dal-Tile stockholders an attractive premium for their
shares while enabling them to participate in the future growth potential of
the combined company.
Q: What will Dal-Tile stockholders receive in the merger?
A: Each share of Dal-Tile common stock will be converted into the right to
receive $11 in cash and between .2213 and .2716 of a share of Mohawk common
stock. This "exchange ratio" is based on the average closing price for
Mohawk common stock during a 20 day trading period ending three trading days
before completion of the merger. Collectively, the Dal-Tile stockholders
will receive in the merger between 12,412,274 and 18,401,198 shares of
Mohawk common stock, or between approximately 19% and 26% of the outstanding
Mohawk common stock immediately following the merger, depending on the
exchange ratio and the number of Dal-Tile options that are exercised prior
to completion of the merger.
Q: Is the merger taxable?
A: Mohawk and Dal-Tile intend for the merger to qualify as a tax-free
reorganization under the Internal Revenue Code. If the merger qualifies as a
tax-free reorganization, Dal-Tile stockholders will only recognize gain (but
not loss) for U.S. federal income tax purposes equal to the lesser of (1)
the amount of cash a Dal-Tile stockholder receives in the merger, or (2) an
amount equal to the excess, if any, of (a) the sum of the amount of cash
such stockholder receives in the merger and the fair market value of the
Mohawk common stock received in the merger over (b) the tax basis of such
stockholder's Dal-Tile common stock exchanged therefor.
The completion of the merger is conditioned on receipt of a tax opinion from
each party's respective counsel that the merger qualifies as a tax-free
reorganization under the Internal Revenue Code. The receipt of the tax
opinions is conditioned on, among other things, the value of the Mohawk
common stock to be received by Dal-Tile stockholders in the merger being 40%
or more of the value of the combined merger consideration at the time the
merger is completed. If this condition is not met, then Dal-Tile may or may
not elect to complete the merger as a taxable transaction. Based on various
assumptions set forth in the discussion of the tax consequences of the
merger set forth under "Material Federal Income Tax Consequences of the
Merger" on page 49, if the price per share of Mohawk common stock declines
to $27.00 or less, the value of the Mohawk common stock in the merger will
not be 40% or more of the value of the combined merger consideration.
ii
Q: Am I entitled to appraisal rights?
A: If you are a Dal-Tile stockholder, under Delaware law, you may dissent from
the merger and exercise appraisal rights.
If you are a Mohawk stockholder, you will not have appraisal rights in
connection with the merger.
Q: What do I need to do now?
A: After carefully reading and considering the information contained in this
joint proxy statement-prospectus, please complete, sign and date your proxy
card or voting instructions and return it in the enclosed postage paid
envelope, or, if you are a holder of record, submit your voting instructions
by telephone or through the Internet, at the phone number or Internet
address listed on pages 18 and 19 of this joint proxy statement-prospectus
as soon as possible so that your shares may be represented at your special
meeting. If your shares are held in an account at a brokerage firm or bank,
you will receive instructions on how to vote from your brokerage firm or
bank.
Q: What if I don't vote?
A: If you are a Dal-Tile stockholder and fail to respond or abstain from
voting, it will have the same effect as a vote against the merger. If you
are a Mohawk stockholder and fail to respond or abstain from voting,
assuming a quorum is present at the special meeting, your failure to respond
will have no effect on the approval of the issuance of Mohawk shares in the
merger. If you respond and do not indicate how you want to vote, your proxy
will be counted as a vote in favor of the merger or the issuance of Mohawk
shares.
Q: Can I change my vote after I have delivered my proxy?
A: Yes. You can change your vote at any time before your proxy is voted at your
special meeting. Regardless of the manner in which you vote, you can change
your vote in one of three ways. First, you can revoke your proxy or voting
instructions. Second, you can submit a new proxy or voting instructions. If
you choose either of these two methods, you must submit your notice of
revocation or your new proxy or voting instructions to the secretary of
either Mohawk or Dal-Tile, as appropriate, before your special meeting by
mail or by calling the phone number or accessing the Internet address listed
on pages 18 and 19 of this joint proxy statement-prospectus. Third, if you
are a holder of record, you can attend your special meeting and vote in
person. If your shares are held in an account at a brokerage firm or bank,
you should contact your brokerage firm or bank to change your vote.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger as quickly as possible. We expect to
complete the merger on March 20, 2002.
Q: Is Mohawk's obligation to complete the merger subject to Mohawk receiving
financing?
A: No. Although Mohawk has received a commitment letter from several financial
institutions to provide financing for the merger, Mohawk must complete the
merger regardless of whether it receives financing.
iii
Q: Who can help answer my questions?
A: If you have any questions about the merger or how to submit your proxy, or
if you need additional copies of this joint proxy statement-prospectus or
the enclosed proxy card or voting instructions, you should contact:
If you are a Dal-Tile If you are a Mohawk
stockholder: stockholder:
Dal-Tile International Mohawk Industries, Inc.
Inc. Attn: Jerry L. Melton
Attn: Mark A. Solls 160 S. Industrial
7834 Hawn Freeway Boulevard
Dallas, Texas 75217 Calhoun, Georgia 30703
(214) 398-1411 (706) 629-7721
Stockholders of both companies may also receive information from our proxy
solicitor:
GeorgesonShareholder
17 State Street
10th Floor
New York, New York 10004
Toll-Free: (800) 223-2064
iv
SUMMARY
This summary highlights selected information from this joint proxy
statement-prospectus and may not contain all of the information that is
important to you. You should carefully read this entire document and the other
documents we refer to in this document. These documents will give you a more
complete description of the transaction we are proposing. For more information
about Dal-Tile and Mohawk, see "Where You Can Find More Information" on page
70. We have included page references in this summary to direct you to other
places in this joint proxy statement-prospectus where you can find a more
complete description of the topics we have summarized.
The Companies (See page 61 for Mohawk and page 61 for Dal-Tile)
Mohawk Industries, Inc.
160 S. Industrial Boulevard
Calhoun, Georgia 30703
Telephone: (706) 629-7721
Mohawk is the second largest carpet and rug manufacturer in the United
States, with net sales of approximately $3.3 billion and $3.4 billion in 2000
and 2001, respectively. Mohawk designs, manufactures and markets carpet and
rugs in a broad range of colors, textures and patterns, as well as carpet
padding. In each of 2000 and 2001, over 87% of Mohawk's net sales were from
sales of tufted and woven broadloom carpet and rugs for residential and
commercial applications. Mohawk also distributes hard surface floorcoverings
such as laminate, ceramic tile, vinyl and wood flooring. Mohawk markets its
products primarily through carpet retailers, home centers, mass merchandisers,
department stores, commercial dealers and commercial end users.
Dal-Tile International Inc.
7834 Hawn Freeway
Dallas, Texas 75217
Telephone: (214) 398-1411
Dal-Tile believes it is the leading manufacturer, marketer and distributor
of ceramic tile in the United States and one of the largest in the world.
Dal-Tile produces a broad line of wall, floor, quarry and mosaic tile products
used in the residential and commercial markets for both new construction and
remodeling. Most of Dal-Tile's products are marketed under its daltile(R) and
American Olean(R) brand names.
The Mohawk Special Meeting (See page 16)
Mohawk will hold a special meeting for the purpose of its stockholders
approving the issuance of up to 18,401,198 Mohawk shares in the merger. This
special meeting will be held on March 20, 2002, at 9:00 a.m. Eastern Time, at
the offices of Alston & Bird LLP, 1201 West Peachtree Street, 46th Floor,
Atlanta, Georgia.
Mohawk stockholders will be entitled to vote at the Mohawk special meeting
if they owned shares of Mohawk common stock as of February 6, 2002, the Mohawk
record date. As of February 6, 2002, there were 52,768,656 shares of Mohawk
common stock issued and outstanding. The presence of a quorum and the
affirmative vote of a majority of the votes cast by holders of Mohawk common
stock at the Mohawk special meeting is necessary to approve the issuance of
Mohawk shares in the merger. Directors and executive officers of Mohawk and
their affiliates held, on February 6, 2002, approximately 30.2% of the
outstanding shares of Mohawk common stock entitled to vote at the special
meeting.
The Dal-Tile Special Meeting (See page 16)
Dal-Tile will hold a special meeting for the purpose of its stockholders
considering a proposal to adopt the merger agreement. The Dal-Tile special
meeting will be held on March 20, 2002, at 8:00 a.m. Central Time, at the
offices of Vinson & Elkins L.L.P., 2001 Ross Avenue, 38th Floor, Dallas, Texas.
Dal-Tile stockholders will be entitled to vote at the Dal-Tile special
meeting if they owned shares of Dal-Tile common stock as of February 6, 2002,
the Dal-Tile record date. As of February 6, 2002, there were 58,055,590 shares
of Dal-Tile common stock issued and outstanding. The affirmative vote of a
majority of Dal-Tile common stock issued and outstanding on the Dal-Tile record
date is necessary to adopt the merger agreement. Directors and executive
officers of Dal-Tile and their affiliates held, on February 6, 2002,
approximately 1.5% of the outstanding shares of Dal-Tile common stock entitled
to vote at the special meeting.
1
What Dal-Tile Stockholders Will Receive in the Merger (See page 20)
In the merger, Dal-Tile stockholders will receive $11 in cash and a fraction
of a share of Mohawk common stock for each share of Dal-Tile common stock. The
fractional share of Mohawk common stock will be determined using the exchange
ratio.
The exchange ratio will be determined based on the average closing price of
Mohawk common stock on the New York Stock Exchange for the 20 trading days
ending on the third trading day prior to the merger. The exchange ratio will be
calculated as follows:
If the average closing price of Then the exchange ratio will
Mohawk common stock is: be:
------------------------------- ----------------------------
greater than $54.67 .2213
$50.13-$54.67 $12.10 divided by the
average closing price
$41.00-$50.12 .2414
$36.45-$40.99 $9.90 divided by the
average closing price
less than $36.45 .2716
If the closing date for the merger was February 19, 2002, the date of this
joint proxy statement-prospectus, the average closing price of Mohawk common
stock would be $55.05 and the exchange ratio would be .2213 for each Dal-Tile
share.
The actual average closing price used to determine the exchange ratio, as
well as the exchange ratio itself, may differ from the example above because
the exchange ratio will not be determined until shortly before completion of
the merger. Prior to the stockholder meetings, you may call
GeorgesonShareholder at (800) 223-2064 in order to obtain a more current
calculation of the average closing price and the exchange ratio.
We anticipate that if approved by the stockholders of both Mohawk and
Dal-Tile, the merger will be completed on or about March 20, 2002.
Comparative Market Prices of Common Stock (See page 69)
Mohawk common stock is listed on the New York Stock Exchange under the
symbol "MHK." Dal-Tile common stock is listed on the New York Stock Exchange
under the symbol "DTL." The following table shows the closing prices of Mohawk
and Dal-Tile common stock on November 19, 2001, the last trading day before the
merger agreement was announced and February 15, 2002, the last trading day
prior to the date of this joint proxy statement-prospectus. Equivalent price
per Dal-Tile share represents the closing sale price of a share of Mohawk
common stock on the indicated date multiplied by the exchange ratio as if the
merger were to close on the indicated date plus the cash payment of $11.
Equivalent
Mohawk Dal-Tile Price Per
Common Common Dal-Tile
Stock Stock Share
------ -------- ----------
November 19, 2001 $51.38 17.60 22.37
February 15, 2002 $58.99 23.95 24.05
We urge you to obtain current market quotations for Mohawk common stock and
Dal-Tile common stock before making a decision relating to the merger.
Material Federal Income Tax Consequences of the Merger (See page 49)
If, as of the completion of the merger, the value of Mohawk common stock to
be received by Dal-Tile stockholders in the merger is 40% or more of the value
of the merger consideration, then the exchange by you of all of your shares of
Dal-Tile common stock for shares of Mohawk common stock plus cash in the
forward merger will be a tax-free reorganization, and you will only recognize
gain (but not loss) equal to the lesser of (1) the amount of the cash you
receive in the merger, or (2) an amount equal to the excess, if any, of (a) the
sum of the amount of cash you receive in the merger and the fair market value
of the Mohawk common stock you receive in the merger over (b) the tax basis of
your Dal-Tile common stock exchanged therefor.
If, however, as of the completion of the merger, the aggregate value of the
Mohawk common stock to be received by Dal-Tile stockholders in the merger is
less than 40% of the value of the combined merger consideration, the merger
will not be completed as a
2
forward merger; Dal-Tile may, however, elect to complete the merger as a
taxable reverse merger. If Dal-Tile elects to complete the merger as a taxable
reverse merger, then instead of the tax consequences described in the preceding
paragraph, you will recognize gain or loss in the merger equal to the
difference, if any, between (1) the sum of the amount of cash and the fair
market value of Mohawk common stock you receive in the merger and (2) the tax
basis in your Dal-Tile common stock exchanged therefor.
Since the value of Mohawk common stock to be received by Dal-Tile
stockholders at the completion of the merger will not be known at the time that
you vote on the merger, you will not know whether the merger will qualify as a
tax-free reorganization at the time you vote, and accordingly will not know the
tax consequences of the merger to you at such time.
Alternative Merger Structure (See page 20)
Although Dal-Tile's board of directors would prefer to complete the merger
as a tax-free reorganization, they may elect to complete the merger as a
taxable reverse merger (as discussed above) if they believe the merger is in
the best interest of Dal-Tile stockholders at that time. The forward merger and
the reverse merger materially differ only in their tax consequences to Dal-Tile
stockholders and in whether Merger Sub or Dal-Tile is the surviving corporation
in the merger. Dal-Tile's board of directors does not intend to resolicit
proxies from Dal-Tile stockholders regarding the merger if they decide to
proceed with the taxable reverse merger structure.
Recommendation of the Boards of Directors and Opinions of Financial Advisors
(See page 26)
To Mohawk Stockholders: The Mohawk board of directors believes that the
merger is advisable, fair to and in the best interest of Mohawk and its
stockholders and has unanimously voted to approve the merger agreement. The
Mohawk board of directors recommends that you vote FOR the issuance of Mohawk
shares in the merger.
To Dal-Tile Stockholders: The Dal-Tile board of directors believes that the
merger is fair to, and in the best interest of Dal-Tile and its stockholders
and has unanimously voted to approve, adopt and declare the advisability of the
merger agreement and the merger. The Dal-Tile board of directors recommends
that you vote FOR the proposal to approve and adopt the merger agreement and
approve the merger.
Opinion of Mohawk's Financial Advisor: In deciding to approve the merger
and recommend the issuance of Mohawk shares, the Mohawk board of directors
considered the opinion of its financial advisor, Wachovia Securities, that as
of November 19, 2001, the merger consideration to be paid, together with the
stock option and cash payments to be made to holders of outstanding Dal-Tile
options, by Mohawk in connection with the merger were fair, from a financial
point of view, to Mohawk. Wachovia Securities' opinion is directed to the
Mohawk board of directors and does not constitute a recommendation to any
stockholder as to how to vote on the issuance of Mohawk shares in the merger or
any other matter related thereto. The full text of Wachovia Securities' opinion
is attached as Annex D to this joint proxy statement-prospectus. Mohawk
stockholders are urged to, and should, read Wachovia Securities' opinion
carefully and in its entirety.
Opinion of Dal-Tile's Financial Advisor: In connection with the proposed
merger, Dal-Tile's financial advisor, Credit Suisse First Boston Corporation,
has delivered a written opinion to the Dal-Tile board of directors as to the
fairness to holders of Dal-Tile common stock, from a financial point of view,
of the merger consideration provided for in the merger. The full text of Credit
Suisse First Boston's written opinion, dated November 19, 2001, is attached to
this joint proxy statement-prospectus as Annex E. We encourage you to read this
opinion carefully in its entirety for a description of the procedures followed,
assumptions made, matters considered and limitations on the review undertaken.
Credit Suisse First Boston's opinion is addressed to the Dal-Tile board of
directors and does not constitute a recommendation to any stockholder as to any
matter relating to the merger.
Interests of Certain Persons in the Merger (See page 54)
Some of the directors and executive officers of Dal-Tile have interests in
the merger that are
3
different from or in addition to the interests of Dal-Tile stockholders. These
interests include the potential for positions as directors or executive
officers of Mohawk, acceleration of vesting of options as a result of the
merger, partial cash-out and partial conversion of outstanding options,
payments under employment and change-in-control agreements upon the occurrence
of certain events after the merger and the right to continued indemnification
and insurance coverage by Mohawk after the merger.
Appraisal Rights of Dal-Tile Stockholders (See page 56)
The merger agreement and Delaware law provide that Dal-Tile stockholders may
dissent from the merger and seek to receive fair value for their shares in lieu
of the cash payment and Mohawk common stock to which they would otherwise be
entitled.
In order to exercise appraisal rights, Dal-Tile stockholders are required to
follow the procedures set forth in Section 262 of the Delaware General
Corporation Law, a copy of which is attached as Annex F to this joint proxy
statement-prospectus. Generally, a Dal-Tile stockholder wishing to exercise
appraisal rights must deliver a written demand for appraisal to Dal-Tile, not
vote in favor of adoption of the merger agreement and hold his shares until the
completion of the merger. Stockholders should carefully review Section 262 for
a more complete discussion of the procedures that they must follow in order to
exercise appraisal rights.
Certain Differences in Stockholders' Rights (See page 62)
The rights of Mohawk stockholders are governed by Delaware law and by
Mohawk's certificate of incorporation and bylaws. The rights of Dal-Tile
stockholders are also governed by Delaware law, but are subject to Dal-Tile's
certificate of incorporation and bylaws. Upon completion of the merger, the
rights of both stockholder groups will be governed by Delaware law and Mohawk's
certificate of incorporation and bylaws.
Regulatory Approval and Other Conditions (See page 42)
Pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, the merger cannot be completed until Mohawk and Dal-Tile have given
information and materials to the Federal Trade Commission and the Department of
Justice and the required waiting period has expired or been terminated. Mohawk
and Dal-Tile received notice of the early termination of the statutory waiting
period under the HSR Act on December 14, 2001. In addition, Mohawk is required
to provide information and materials to the Mexican Federal Competition
Commission, but prior approval of the commission is not required for completion
of the merger. Mohawk filed preliminary documentation with the Mexican Federal
Competition Commission on December 17, 2001.
In addition to the required regulatory approvals, the merger will be
completed only if various conditions, including the following, are met or
waived, if waivable:
. Dal-Tile's stockholders approve the adoption of the merger agreement at
the Dal-Tile special meeting;
. Mohawk's stockholders approve the issuance of Mohawk shares at the Mohawk
special meeting;
. Dal-Tile and Mohawk receive an opinion of their respective counsel that
the exchange of Dal-Tile common stock for Mohawk common stock in the merger
will be tax-free to the Dal-Tile stockholders; provided, that Dal-Tile has the
right to waive this requirement for both parties;
. there is no governmental or regulatory action or legislation prohibiting
the merger; and
. there must not have been a material adverse effect, as defined in Section
11.1 of the merger agreement attached as Annex A hereto, on Mohawk or Dal-Tile.
In addition to these conditions, the merger agreement, attached to this
joint proxy statement-prospectus as Annex A, describes other conditions that
must be met before the merger may be completed.
Amendment and Termination (See page 45)
The parties may terminate the merger agreement under several circumstances.
Mohawk and Dal-Tile
4
may agree to terminate the merger agreement and elect not to complete the
merger at any time before the merger is completed, even if Dal-Tile's and
Mohawk's stockholders have already approved the adoption of the merger
agreement and the issuance of Mohawk shares. Each of the parties also can
terminate the merger agreement under other circumstances, including:
. if the merger is not completed by May 31, 2002, subject to extension to
July 31, 2002, if required regulatory approvals have not been received;
. if the parties have failed to receive any consent of any regulatory
authority required to complete the merger, or any law or order permanently
prohibiting the merger has become final and nonappealable;
. if the stockholders of Dal-Tile fail to approve the adoption of the
merger agreement or the stockholders of Mohawk fail to approve the issuance of
Mohawk shares in the merger at their respective special meetings, subject to
specified limitations contained in the merger agreement; or
. if there has been a material adverse effect on the other party as defined
in Section 11.1 of the merger agreement attached as Annex A hereto.
In addition, Mohawk may terminate the merger agreement if the board of
directors of Dal-Tile fails to reaffirm its recommendation of the merger or
withholds, withdraws or modifies in a manner adverse to Mohawk its
recommendation of the merger, or proposes to do so.
Dal-Tile may terminate the merger agreement if the board of directors of
Dal-Tile changes its recommendation in order to accept a superior offer,
provided that Mohawk has not made an offer that is as favorable as the superior
offer within three business days of its receipt of notice that the Dal-Tile
board of directors intends to change its recommendation.
The merger agreement may be amended by the written agreement of Mohawk and
Dal-Tile. The parties can amend the merger agreement without stockholder
approval, even if Dal-Tile stockholders have already approved the merger,
except in the limited circumstances when further stockholder approval is
required by law for the amendment.
Solicitation Prohibitions (See page 48)
The merger agreement prohibits Dal-Tile from soliciting other acquisition
proposals. Dal-Tile has agreed that it and its subsidiaries would immediately
cease any and all existing activities, discussions or negotiations with any
third parties conducted prior to the date of the merger agreement with respect
to any acquisition proposal. If Dal-Tile receives an unsolicited acquisition
proposal, it must promptly notify Mohawk of the terms of such proposal.
Dal-Tile may respond, in accordance with the terms of the merger agreement, to
unsolicited offers that are reasonably likely to result in superior offers.
Termination Fee (See page 53)
Dal-Tile has agreed to pay Mohawk a termination fee of $45 million if the
merger agreement is terminated under specified circumstances and Dal-Tile
enters into an acquisition agreement or closes an acquisition with another
party within twelve months of the termination of the merger agreement or the
Dal-Tile board of directors changes or withdraws its recommendation that
Dal-Tile stockholders vote in favor of the adoption of the merger agreement and
Mohawk or Dal-Tile terminates the merger agreement.
See "The Merger - Expenses and Fees" on page 53 for a more complete
discussion of circumstances under which Dal-Tile would be required to pay the
termination fee to Mohawk.
Voting Agreements (See page 58)
The directors and some of the executive officers of Dal-Tile, including
Dal-Tile's chairman and chief executive officer, Jacques R. Sardas, have
entered into voting agreements with Mohawk where they have agreed to vote those
shares of common stock that they or their affiliates own in favor of the
merger. As of February 6, 2002, the record date for the Dal-Tile special
meeting, these stockholders owned approximately 1.5% of Dal-Tile's outstanding
common stock. Each voting agreement also provides that any shares of Dal-Tile
common stock subsequently acquired by these stockholders will also be subject
to the voting agreement.
5
Aladdin Partners, L.P., an affiliate of Jeffrey S. Lorberbaum, Mohawk's
president and chief executive officer, has entered into a voting agreement with
Dal-Tile where it has agreed to vote those shares of common stock that it owns
in favor of the issuance of Mohawk shares in the merger. As of February 6,
2002, the record date for the Mohawk special meeting, Aladdin Partners owned
approximately 18.8% of Mohawk's outstanding common stock.
Distribution of Mohawk Stock Certificates and Cash Payment (See page 42)
Promptly after the merger is completed, each Dal-Tile stockholder will
receive a letter and instructions on how to surrender Dal-Tile stock
certificates in exchange for Mohawk stock certificates and the cash payment.
Each Dal-Tile stockholder will need to carefully review and complete these
materials and return them as instructed along with stock certificates for
Dal-Tile common stock. If you are a Dal-Tile stockholder, please do not send
Dal-Tile or Dal-Tile's transfer agent any stock certificates until you receive
these instructions. If, as a Dal-Tile stockholder, you elect to exercise your
appraisal rights, you should follow the procedures outlined in "The
Merger--Appraisal Rights" section beginning on page 56.
Effect of the Merger on Dal-Tile Options (See page 48)
In the merger, all outstanding options granted under Dal-Tile's stock option
plan, whether or not currently exercisable, will be converted into the right to
receive cash and Mohawk common stock. If an option holder consents, one-half of
his or her options will be cashed-out following the merger at $22.00 per share,
less the option exercise price, and the remaining one-half of his or her
options will immediately vest and become options to purchase Mohawk common
stock, subject to share and price adjustments based upon two times the exchange
ratio. If an option holder does not consent to the partial cash-out, each of
his or her options will immediately vest and be assumed by Mohawk as options to
receive the merger consideration of $11.00 per share and Mohawk common stock,
subject to share and price adjustments based upon the exchange ratio.
Board of Directors Following the Merger (See page 69)
The merger agreement provides that two individuals designated by Dal-Tile
will serve on the Mohawk board of directors following the completion of the
merger. Dal-Tile has designated John F. Fiedler and W. Christopher Wellborn to
serve on Mohawk's board of directors. After the merger, the Mohawk board of
directors will consist of nine members.
Accounting Treatment (See page 53)
Mohawk will account for the merger under the purchase method of accounting.
6
Selected Historical Consolidated Financial Data--Mohawk
The following table sets forth the selected financial data of Mohawk for the
periods indicated, which information is derived from the historical
consolidated financial statements of Mohawk. On July 23, 1997, Mohawk acquired
certain assets of Diamond Rug and Carpet Mills, Inc. and other assets owned by
Diamond's principal shareholders using the purchase method of accounting. On
November 12, 1998, Mohawk acquired all of the outstanding capital stock of
World Carpets, Inc. in exchange for approximately 4.9 million shares of
Mohawk's common stock in a transaction recorded using the pooling-of-interests
method of accounting. On January 29, 1999, Mohawk acquired certain assets and
assumed certain liabilities of Image Industries, Inc. The acquisition was
recorded using the purchase method of accounting. On March 9, 1999, Mohawk
acquired all of the outstanding capital stock of Durkan Patterned Carpets, Inc.
in exchange for approximately 3.1 million shares of Mohawk's common stock in a
transaction recorded using the pooling-of-interests method of accounting. On
November 14, 2000, Mohawk acquired certain fixed assets and inventory of Crown
Crafts, Inc. The acquisition was accounted for using the purchase method of
accounting. All financial data have been restated to include the accounts and
results of operations of World and Durkan. The selected financial data should
be read in conjunction with Mohawk's "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Mohawk's consolidated
financial statements and notes thereto both of which are incorporated into this
document by reference. Interim financial information at or for the nine months
ended September 30, 2000 and September 29, 2001 is derived from unaudited
historical consolidated financial statements. The financial information at or
for the nine months ended September 29, 2001 may not be representative of the
financial results that can be expected to be achieved for the entire year.
At or for the Years Ended December 31, At or for the Nine Months Ended
-------------------------------------------------- -------------------------------
September 30, September 29,
1996 1997 1998 1999 2000 2000 2001
---------- --------- --------- --------- --------- ------------- -------------
(In thousands, except per share data)
Statement of earnings data:
Net sales............................... $2,239,471 2,429,085 2,744,620 3,083,264 3,255,846 2,456,405 2,441,697
Cost of sales........................... 1,726,765 1,869,221 2,063,333 2,306,405 2,432,997 1,835,740 1,826,309
---------- --------- --------- --------- --------- --------- ---------
Gross profit.......................... 512,706 559,864 681,287 776,859 822,849 620,665 615,388
Selling, general and administrative
expenses............................... 367,251 383,523 432,191 482,062 505,734 378,979 385,814
Restructuring costs (a)................. 700 -- -- -- -- -- --
Carrying value reduction of property,
plant and equipment and other
assets (b)............................. 3,060 5,500 2,900 -- -- -- --
Class action legal settlement (c) . .... -- -- -- -- 7,000 7,000 --
Compensation expense for stock
option exercises (d)................... -- 2,600 -- -- -- -- --
---------- --------- --------- --------- --------- --------- ---------
Operating income...................... 141,695 168,241 246,196 294,797 310,115 234,686 229,574
---------- --------- --------- --------- --------- --------- ---------
Interest expense........................ 39,772 36,474 31,023 32,632 38,044 28,587 24,053
Acquisition costs--World Merger (e)..... -- -- 17,700 -- -- -- --
Other expense, net...................... 4,586 338 2,667 2,266 4,442 2,834 4,094
---------- --------- --------- --------- --------- --------- ---------
44,358 36,812 51,390 34,898 42,486 31,421 28,147
---------- --------- --------- --------- --------- --------- ---------
Earnings before income taxes.......... 97,337 131,429 194,806 259,899 267,629 203,265 201,427
Income taxes............................ 40,395 51,866 79,552 102,660 105,030 79,928 72,028
---------- --------- --------- --------- --------- --------- ---------
Net earnings.......................... $ 56,942 79,563 115,254 157,239 162,599 123,337 129,399
========== ========= ========= ========= ========= ========= =========
Basic earnings per share (f)............ $ 0.96 1.33 1.91 2.63 3.02 2.28 2.47
========== ========= ========= ========= ========= ========= =========
Weighted-average common shares
outstanding (f)........................ 59,310 59,962 60,393 59,730 53,769 54,181 52,347
========== ========= ========= ========= ========= ========= =========
Diluted earnings per share (f) . . . . . $ 0.95 1.32 1.89 2.61 3.00 2.26 2.44
========== ========= ========= ========= ========= ========= =========
Weighted-average common and
dilutive potential common shares
outstanding (f)........................ 59,899 60,453 61,134 60,349 54,255 54,689 53,021
========== ========= ========= ========= ========= ========= =========
7
At or for the
Nine Months
At or for the Years Ended December 31, Ended
-------------------------------------------------- -------------
September 29,
1996 1997 1998 1999 2000 2001
---------- --------- --------- --------- --------- -------------
(In thousands)
Balance sheet data:
Working capital........................... $ 390,889 389,378 438,474 560,057 427,192 438,390
Total assets.............................. 1,226,959 1,233,361 1,405,486 1,682,873 1,795,378 1,834,529
Short-term note payable................... 21,200 -- -- -- -- --
Long-term debt (including current portion) 486,952 402,854 377,089 596,065 589,828 457,786
Stockholders' equity...................... 409,616 493,841 611,059 692,546 754,360 884,054
--------
(a) During 1996, Mohawk recorded pre-tax restructuring costs of $0.7 million,
related to certain mill closings whose operations have been consolidated
into other Mohawk facilities.
(b) During 1996, Mohawk 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,
Mohawk 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, Mohawk recorded a charge of $2.9 million for
the write-down of assets to be disposed of relating to the acquisition of
World.
(c) Mohawk recorded a one-time charge of $7.0 million in 2000, reflecting the
settlement of two class action lawsuits.
(d) A charge of $2.6 million was recorded in 1997, 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 $17.7 million in 1998 for transaction
expenses related to the World merger.
(f) The 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.
8
Selected Historical Consolidated Financial Data--Dal-Tile
The following table sets forth the selected financial data of Dal-Tile for
the periods indicated, which information is derived from the historical
consolidated financial statements of Dal-Tile for these periods. The selected
financial information should be read together with Dal-Tile's "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with Dal-Tile's consolidated financial statements, including the related notes,
previously filed with the Securities and Exchange Commission and incorporated
herein by reference. Interim financial information at or for September 29, 2000
and September 28, 2001 is derived from Dal-Tile's unaudited historical
consolidated financial statements. The financial information for the nine
months ended September 28, 2001 may not be representative of the financial
results that can be expected to be achieved for the entire year.
At or for the Years Ended At or for the Nine Months Ended
---------------------------------------------------------------- -------------------------------
January 3, January 2, January 1, December 31, December 29, September 29, September 28,
1997 1998 1999 1999 2000 2000 2001
---------- ---------- ---------- ------------ ------------ ------------- -------------
(In thousands, except per share data)
Statement of
earnings data:
Net sales............ $720,236 676,637 751,785 850,568 952,156 722,946 777,986
Cost of goods sold... 369,731 404,728 (c) 396,112 440,514 497,933 376,883 410,793
-------- -------- ------- ------- ------- ------- -------
Gross profit...... 350,505 271,909 355,673 410,054 454,223 346,063 367,193
Expenses:
Transportation....... 47,125 58,425 (c) 55,988 57,124 64,549 48,432 51,627
Selling, general
and administrative.. 190,911 277,515 (c) 222,790 232,845 247,099 190,743 200,666
Provisions for
merger integration
charges............. 9,000 (a) -- -- -- -- -- --
Amortization of
goodwill............ 5,605 5,605 5,604 5,607 5,512 4,134 4,134
-------- -------- ------- ------- ------- ------- -------
Operating income
(loss).............. 97,864 (69,636) 71,291 114,478 137,063 102,754 110,766
Interest expense,
net................. 44,653 40,381 44,923 36,999 29,998 23,102 16,996
Other (income)
expense............. (129) (1,220) (1,264) (250) 444 108 1,029
-------- -------- ------- ------- ------- ------- -------
44,524 39,161 43,659 36,749 30,442 23,210 18,025
-------- -------- ------- ------- ------- ------- -------
Earnings (loss)
before income
taxes and
extraordinary item.. 53,340 (108,797) 27,632 77,729 106,621 79,544 92,741
Income taxes......... 18,914 1,439 3,604 3,966 5,864 4,995 35,705
-------- -------- ------- ------- ------- ------- -------
Earnings (loss)
before
extraordinary item.. 34,426 (110,236) 24,028 73,763 100,757 74,549 57,036
Extraordinary
item--loss on
early
retirement of
debt, net of
taxes............ (29,072) -- -- -- -- -- --
-------- -------- ------- ------- ------- ------- -------
Net earnings (loss).. $ 5,354 (110,236) 24,028 73,763 100,757 74,549 57,036
======== ======== ======= ======= ======= ======= =======
Basic earnings
(loss) per share.... $ 0.11 (b) (2.06) 0.45 1.36 1.83 1.36 1.02
======== ======== ======= ======= ======= ======= =======
Weighted-average
common shares
outstanding......... 48,473 53,435 53,487 54,103 54,918 54,869 55,819
======== ======== ======= ======= ======= ======= =======
Diluted earnings
(loss) per share.... $ 0.11 (b) (2.06) 0.45 1.35 1.82 1.35 0.98
======== ======== ======= ======= ======= ======= =======
Weighted-average
common and
dilutive potential
shares outstanding.. 50,053 53,435 53,983 54,539 55,396 55,108 58,162
======== ======== ======= ======= ======= ======= =======
9
At or for the
Nine Months
At or for the Years Ended Ended
---------------------------------------------------------- -------------
January 3, January 2, January 1, December 31, December 29, September 28,
1997 1998 1999 1999 2000 2001
---------- ---------- ---------- ------------ ------------ -------------
(In thousands)
Balance sheet data:
Working capital..... $180,819 154,888 117,615 91,791 116,303 167,696
Total assets........ 688,497 672,069 640,808 638,704 670,520 693,591
Total debt.......... 465,858 557,091 500,432 410,673 331,778 261,697
Long-term debt...... 433,035 537,830 453,923 353,877 276,017 242,500
Stockholders' equity 115,569 3,920 15,459 100,944 212,308 267,512
--------
(a) In the fourth quarter of fiscal 1996, Dal-Tile recorded a pre-tax $9.0
million merger integration charge for closing duplicative sales centers and
distribution centers, closing various manufacturing facilities and paying
severance costs.
(b) Fiscal 1996 earnings per share information is presented after the
extraordinary item of $29.1 million (loss on early retirement of debt, net
of taxes).
(c) Fiscal 1997 includes charges totaling $90.1 million recorded principally
for the write-down of obsolete and slow-moving inventories, uncollectible
trade accounts receivable, other non-productive assets and costs for
restructuring of manufacturing, store operations and corporate
administrative functions. These charges are comprised of $36.5 million in
cost of goods sold, $3.5 million in transportation expenses and $50.1
million in selling, general and administrative expenses.
10
Selected Unaudited Pro Forma Condensed Combined Consolidated Financial
Information
The following table sets forth the selected unaudited pro forma condensed
combined consolidated financial information for Mohawk at or for the year ended
December 31, 2000 and the nine months ended September 29, 2001 which gives
effect to the merger with Dal-Tile using the purchase method of accounting as
if the merger occurred on January 1, 2000 for the statement of earnings data
and as of September 29, 2001 for the balance sheet data. The following table
should be read in conjunction with Mohawk's unaudited pro forma condensed
combined consolidated financial information on page 73 of this joint proxy
statement-prospectus and the historical consolidated financial statements and
the related notes thereto of Mohawk and Dal-Tile included in the documents
described under "Where You Can Find More Information" on page 70.
At or for the Year At or for the Nine Months
Ended December 31, 2000 Ended September 29, 2001
----------------------------- -----------------------------
Mohawk Dal-Tile Pro Forma Mohawk Dal-Tile Pro Forma
---------- -------- --------- ---------- -------- ---------
(In thousands, except per share data)
Statement of earnings data:
Net sales........................................ $3,255,846 952,156 4,367,771 2,441,697 777,986 3,339,572
Cost of sales.................................... 2,432,997 497,933 3,160,848 1,826,309 410,793 2,412,818
---------- ------- --------- ---------- ------- ---------
Gross profit.................................. 822,849 454,223 1,206,923 615,388 367,193 926,754
Selling, general and administrative expenses..... 505,734 317,160 752,833 385,814 256,427 586,480
Class action legal settlement.................... 7,000 -- 7,000 -- -- --
---------- ------- --------- ---------- ------- ---------
Operating income.............................. 310,115 137,063 447,090 229,574 110,766 340,274
---------- ------- --------- ---------- ------- ---------
Interest expense................................. 38,044 29,998 116,752 24,053 16,996 64,626
Other expense, net............................... 4,442 444 4,886 4,094 1,029 5,123
---------- ------- --------- ---------- ------- ---------
Earnings before income taxes.................. 267,629 106,621 325,452 201,427 92,741 270,525
Income taxes..................................... 105,030 5,864 128,024 72,028 35,705 98,985
---------- ------- --------- ---------- ------- ---------
Net earnings.................................. $ 162,599 100,757 197,428 129,399 57,036 171,540
========== ======= ========= ========== ======= =========
Diluted earnings per share....................... $ 3.00 2.96 2.44 2.62
========== ========= ========== =========
Weighted-average common and dilutive potential
common shares outstanding...................... 54,255 66,684 53,021 65,450
========== ========= ========== =========
Balance sheet data:
Working capital (deficit)........................ $ 438,390 167,696 (76,387)
Total assets..................................... 1,834,529 693,591 3,853,340
Long-term debt (including current portion)....... 457,786 261,697 1,426,944
Stockholders' equity............................. 884,054 267,512 1,699,575
11
Historical and Pro Forma Comparative Per Share Data
At or for the
At or for the Nine Months
Year Ended Ended
December 31, September 29,
2000 (a) 2001 (a)
------------- -------------
HISTORICAL MOHAWK:
Basic net earnings per share........................ $ 3.02 2.47
Diluted net earnings per share...................... 3.00 2.44
Book value per share................................ 14.42 16.82
HISTORICAL DAL-TILE:
Basic net earnings per share........................ 1.83 1.02
Diluted net earnings per share...................... 1.82 0.98
Book value per share................................ 3.84 4.79
UNAUDITED PRO FORMA COMBINED--MOHAWK:
Pro forma basic net earnings per share.............. 2.98 2.65
Pro forma diluted net earnings per share............ 2.96 2.62
Pro forma book value per share...................... 26.16
UNAUDITED EQUIVALENT PRO FORMA COMBINED--DAL-TILE(b):
Pro forma basic net earnings per share.............. 0.66 0.59
Pro forma diluted net earnings per share............ 0.66 0.58
Pro forma book value per share...................... 5.79
--------
(a) Amounts for Dal-Tile are at or for the fiscal year ended December 29, 2000
and the nine months ended September 28, 2001.
(b) The Dal-Tile equivalent pro forma per share data are calculated based on
Mohawk pro forma per share data multiplied by an exchange ratio of .2213
shares of Mohawk common stock for each share of Dal-Tile common stock
outstanding. This ratio is based on the current measurement date for the
merger of February 6, 2002, but is subject to change depending on the
average closing price for Mohawk common stock. A change in the exchange
ratio could have an impact on the pro forma per share amounts. See Notes to
the Unaudited Pro Forma Condensed Combined Consolidated Financial
Information--Note 3(n). The pro forma book value per share for Dal-Tile
does not reflect the $11 per share in cash that Dal-Tile stockholders will
receive if the merger is completed.
12
RISK FACTORS
In addition to the other information included in this document, the risk
factors described below should be considered by you in determining how to vote
at the special meeting.
Dal-Tile stockholders will receive shares of Mohawk common stock based on an
exchange ratio that is determined based upon the market value of Mohawk common
stock at a later date.
The number of shares of Mohawk common stock Dal-Tile stockholders will
receive in the merger for each Dal-Tile share will be calculated using an
exchange ratio that may change depending on the market price for Mohawk common
stock. The exchange ratio will be determined using the average closing price of
Mohawk shares for the 20 trading days ending on the third full trading day
prior to the completion of the merger.
The exchange ratio adjusts based on the average closing price of Mohawk
common stock such that Dal-Tile stockholders receive the following:
. .2213 of a Mohawk share for each Dal-Tile share if the average closing
price of the Mohawk shares at the time of the merger is greater than
$54.67;
. that fraction of a Mohawk share for each Dal-Tile share determined by
dividing $12.10 by the average closing price of Mohawk shares at the
time of the merger if the average closing price of Mohawk shares at the
time of the merger is greater than $50.12 per share, but less than or
equal to $54.67;
. .2414 of a Mohawk share for each Dal-Tile share if the average closing
price of the Mohawk shares at the time of the merger is equal to or
greater than $41.00 per share, but less than or equal to $50.12;
. that fraction of a Mohawk share for each Dal-Tile share determined by
dividing $9.90 by the average closing price of Mohawk shares at the time
of the merger if the average closing price of Mohawk shares at the time
of the merger is greater than or equal to $36.45 per share, but less
than $41.00; or
. .2716 of a Mohawk share for each Dal-Tile share if the average closing
price of the Mohawk shares at the time of the merger is less than $36.45.
If the average closing price of Mohawk common stock is less than $36.45 or
more than $54.67, the exchange ratio will not change. As a result, to the
extent the value of Mohawk common stock is outside these limitations, the value
of the fraction of a share of Mohawk common stock represented by the exchange
ratio will vary. Neither Dal-Tile nor Mohawk has the right to terminate the
merger agreement based solely on changes in the average closing price of Mohawk
common stock.
We cannot predict the market prices for the Mohawk common stock and we
encourage you to obtain current market quotations for the Mohawk common stock,
which is listed on the New York Stock Exchange under the symbol "MHK."
The exchange ratio will not be determined until shortly before the completion
of the merger.
Because the exchange ratio will not be determined until the third trading
day before the completion of the merger, if you wish to vote by proxy and have
your vote counted at your special meeting, Dal-Tile stockholders may have to
decide whether or not to vote for adoption of the merger agreement and Mohawk
stockholders may have to decide whether or not to vote for the issuance of
Mohawk shares in the merger before knowing the actual exchange ratio. Changes
in the price of Mohawk common stock between the date of this joint proxy
statement-prospectus and the third trading day before the completion of the
merger may cause the actual exchange ratio to vary significantly. Because the
date the merger is completed may be later than the dates of the special
meetings, Dal-Tile stockholders will not necessarily know the market value of
Mohawk common stock that they will receive in the merger.
13
Dal-Tile stockholders may not know at the time of the Dal-Tile special meeting
whether they will incur gain or loss for U.S. federal income tax purposes in
the merger.
As a Dal-Tile stockholder, you may not know whether, for U.S. federal income
tax purposes, the receipt of Mohawk common stock in the merger will be a
taxable event to you at the time you vote at the Dal-Tile special meeting.
Mohawk and Dal-Tile intend for the merger to qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code. If the
merger qualifies as a reorganization, then the holders of Dal-Tile's common
stock will only recognize gain (but not loss) for U.S. federal income tax
purposes equal to the lesser of (1) the amount of cash a Dal-Tile stockholder
receives as part of the merger consideration, or (2) an amount equal to the
excess, if any, of (a) the sum of the fair market value of the Mohawk common
stock received in the merger and the amount of cash such stockholder receives
in the merger over (b) the tax basis of such stockholder's Dal-Tile common
stock exchanged therefor.
The completion of the merger as a Section 368(a) reorganization is
conditioned on, among other things, the receipt of opinions from counsel for
Dal-Tile and Mohawk that the merger will qualify as a Section 368(a)
reorganization. The opinions are conditioned on, among other things, the value
of the Mohawk common stock issued in the merger being 40% or more of the value
of the combined merger consideration. If such condition is not met, the merger
will not be completed unless Dal-Tile elects to complete the merger in the form
of a taxable reverse merger. In addition to the market value of Mohawk common
stock, various factors affect whether the value of the Mohawk common stock
received by Dal-Tile stockholders in the merger is equal to at least 40% of the
combined value of the merger consideration as of the completion of the merger,
including:
. the amount, if any, to be paid to Dal-Tile stockholders who perfect
their appraisal rights;
. whether prior to and in connection with the merger Dal-Tile (or certain
parties related to Dal-Tile) redeems or acquires Dal-Tile stock or makes
distributions to the Dal-Tile stockholders; and
. whether there will be any repurchases by Mohawk (or certain parties
related to Mohawk) of the Mohawk common stock to be issued in the merger.
Accordingly, it is not possible to state with certainty the minimum trading
price of the Mohawk common stock at which the value of the Mohawk common stock
to be received in the merger will be equal to at least 40% of the value of the
combined merger consideration as of the completion of the merger. Assuming that
the $11.00 per share cash consideration is the only non-Mohawk common stock
consideration received or to be received by the Dal-Tile stockholders in the
merger, and assuming further that there are no stockholders exercising
appraisal rights, no cash to be paid in lieu of fractional share interests, no
distributions or redemptions made by Dal-Tile (or certain parties related to
Dal-Tile) in connection with the merger, and no repurchases or acquisitions by
Mohawk (or certain parties related to Mohawk) of the Mohawk common stock to be
issued in the merger, the minimum trading price of the Mohawk common stock at
which the value of the Mohawk common stock to be received in the merger will be
equal to at least 40% of the value of the combined merger consideration is
approximately $27.00 per share. If these assumptions prove to be inaccurate,
then the minimum trading price may be higher than $27.00 per share.
There can be no assurance that the conditions will occur that are necessary
for the merger to be a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. If the merger does not qualify as a Section 368(a)
reorganization, the issuance of Mohawk common stock to the Dal-Tile
stockholders will be a taxable event for the Dal-Tile stockholders.
The executive officers and directors of Dal-Tile will receive certain benefits
in the merger which other Dal-Tile stockholders will not receive.
The directors and executive officers of Dal-Tile have interests in the
merger that are different from other Dal-Tile stockholders. These benefits
include:
. potential for positions as directors or executive officers of Mohawk
following the merger;
. options to purchase Dal-Tile common stock, including any stock option
held by any executive officer or director of Dal-Tile, will become fully
exercisable and will be cashed-out in part (either upon completion of
the merger or upon exercise) and converted in part into options to
acquire Mohawk common stock;
14
. a number of Dal-Tile employees, including executive officers, have
agreements with Dal-Tile that provide for severance payments (and
continued insurance coverage) that may be triggered upon termination of
their employment after completion of the merger; and
. directors and executive officers of Dal-Tile have customary rights to
indemnification against specified liabilities, and Mohawk has agreed to
maintain directors' and officers' liability insurance for them and has
released them from certain liabilities under the merger agreement.
See "The Merger--Interests of Certain Persons in the Merger" on page 54 and
"The Merger--Effect of the Merger on Dal-Tile Options" on page 48.
The failure to integrate successfully Mohawk and Dal-Tile by managing the
challenges of that integration may result in the combined company not achieving
the anticipated potential benefits of the merger.
Mohawk and Dal-Tile will face challenges in consolidating functions,
integrating their organizations, procedures, operations and product lines in a
timely and efficient manner and retaining key personnel.
These challenges will result principally because the two companies currently:
. maintain executive offices in different locations;
. manufacture and sell different types of products through different
distribution channels;
. conduct their businesses from various locations;
. maintain different operating systems and software on different computer
hardware; and
. have different employment and compensation arrangements for their
employees.
In addition, Dal-Tile has a significant manufacturing operation in Mexico
and Mohawk has not previously operated a manufacturing facility outside of the
United States. As a result, the integration of Mohawk and Dal-Tile will be
complex and will require additional attention from members of management. The
diversion of management attention and any difficulties encountered in the
transition and integration process could have a material adverse effect on the
revenues, level of expenses and operating results of the combined company.
The combined company's debt level may limit its financial flexibility.
As of September 29, 2001, Mohawk had approximately $457.8 million of total
debt and a total debt to total capital ratio of 34.1%. After giving effect to
the acquisition of Dal-Tile, including Mohawk's intended financing of the cash
portion of the merger consideration, cash payments to be made to holders of
outstanding Dal-Tile options, Mohawk's repayment of Dal-Tile's existing
indebtedness and direct costs associated with the acquisition, as of September
29, 2001, the combined company would have had approximately $1.4 billion of
total debt and a total debt to total capital ratio of 45.6% on a pro forma
basis. The combined company may also incur additional debt in the future,
including in connection with other acquisitions. The level of the combined
company's debt could have several important effects on the combined company's
future operations, including, among others:
. an increased portion of the combined company's cash flow from operations
will be dedicated to the payment of principal and interest on the debt
and will not be available for other purposes;
. covenants in Mohawk's existing debt arrangements and anticipated
covenants related to the debt that Mohawk intends to incur in connection
with the merger will require the combined company to meet financial
tests that may affect the combined company's flexibility in planning for
and reacting to changes in its business, including possible acquisition
opportunities;
. the combined company's ability to obtain additional financing for
working capital, capital expenditures, acquisitions, general corporate
and other purposes may be limited;
. the combined company may be at a competitive disadvantage to similar
companies that have less debt; and
. the combined company's vulnerability to adverse economic and industry
conditions may increase.
If the merger does not occur, the companies will not benefit from the expenses
they have incurred in the pursuit of the merger.
The merger may not be completed. If the merger is not completed, Mohawk and
Dal-Tile will have incurred substantial expenses for which no ultimate benefit
will have been received by either Mohawk or Dal-Tile. Additionally, if the
merger agreement is terminated under specified circumstances, Dal-Tile will be
required to pay Mohawk a $45 million termination fee. See "The Merger--Expenses
and Fees" on page 53.
15
THE SPECIAL MEETINGS
General
This joint proxy statement-prospectus is being furnished in connection with
the solicitation of proxies by each of the boards of directors of Mohawk and
Dal-Tile in connection with the proposed merger.
This joint proxy statement-prospectus is first being furnished to
stockholders of Mohawk and Dal-Tile on or about February 20, 2002.
Date, Time and Place of the Special Meetings
The special meetings are scheduled to be held as follows:
For Mohawk stockholders: For Dal-Tile stockholders:
At 9:00 a.m. Eastern At 8:00 a.m. Central
Time, on March 20, 2002 Time, on March 20,
at the offices of Alston 2002 at the offices of
& Bird LLP Vinson & Elkins L.L.P.
1201 West Peachtree 2001 Ross Avenue, 38th
Street, 46th Floor Floor
Atlanta, Georgia Dallas, Texas
Purpose of the Special Meetings
Mohawk. The Mohawk special meeting is being held for Mohawk stockholders to
consider and vote upon the approval of the issuance of Mohawk shares in the
merger, pursuant to which Dal-Tile will merge into a wholly owned subsidiary of
Mohawk or, if Dal-Tile elects in accordance with the terms of the merger
agreement, a wholly owned subsidiary of Mohawk will be merged into Dal-Tile, as
contemplated by the merger agreement between Mohawk, Maverick Merger Sub, Inc.
and Dal-Tile. Collectively, the Dal-Tile stockholders will receive in the
merger between 12,412,274 and 18,401,198 shares of Mohawk common stock, or
between approximately 19% and 26% of the outstanding Mohawk common stock
immediately following the merger, depending on the exchange ratio and the
number of Dal-Tile options that are exercised prior to completion of the
merger. At the Mohawk special meeting, Mohawk stockholders may also consider
and vote on any motion submitted to a vote of the stockholders to adjourn or
postpone the special meeting to another time and place for the purpose of
soliciting additional proxies and the transaction of any other business
incident to the conduct of the Mohawk special meeting.
Dal-Tile. The Dal-Tile special meeting is being held for Dal-Tile
stockholders to consider and vote upon the approval of the adoption of the
merger agreement. Adoption of the merger agreement by the Dal-Tile stockholders
will constitute approval of the merger under either of the alternative
structures provided for in the merger agreement. At the Dal-Tile special
meeting, Dal-Tile stockholders may also consider and vote on any motion
submitted to a vote of the stockholders to adjourn or postpone the special
meeting to another time and place for the purpose of soliciting additional
proxies and the transaction of any other business incident to the conduct of
the Dal-Tile special meeting.
Stockholder Record Date for the Special Meetings
Mohawk. Mohawk's board of directors has fixed the close of business on
February 6, 2002, as the record date for determination of Mohawk stockholders
entitled to notice of and to vote at the special meeting. On the record date,
there were 52,768,656 shares of Mohawk common stock outstanding, held by
approximately 361 holders of record.
Dal-Tile. Dal-Tile's board of directors has fixed the close of business on
February 6, 2002, as the record date for determination of Dal-Tile stockholders
entitled to notice of and to vote at the special meeting. On the record date,
there were 58,055,590 shares of Dal-Tile common stock outstanding, held by
approximately 136 holders of record.
Vote Required
Mohawk. A majority of the outstanding shares of Mohawk common stock must be
represented, either in person or by proxy, to constitute a quorum at the Mohawk
special meeting. The affirmative vote of a majority of
16
the votes cast by holders of Mohawk common stock at the Mohawk special meeting
is required to approve the issuance of Mohawk shares in the merger or any
motion to adjourn or postpone the special meeting for the purpose of soliciting
additional proxies.
As of the record date, Mohawk directors and executive officers and their
affiliates owned approximately 30.2% of the outstanding shares of Mohawk common
stock.
Dal-Tile. A majority of the outstanding shares of Dal-Tile common stock
must be represented either in person or by proxy, to constitute a quorum at the
Dal-Tile special meeting. The affirmative vote of the holders of a majority of
the shares of Dal-Tile common stock issued and outstanding is required to adopt
the merger agreement. The affirmative vote of a majority of the votes cast by
holders of Dal-Tile common stock at the Dal-Tile special meeting is required to
approve any motion to adjourn or postpone the special meeting for the purpose
of soliciting additional proxies.
As of the record date, Dal-Tile directors and executive officers and their
affiliates owned approximately 1.5% of the outstanding shares of Dal-Tile
common stock.
Proxies
All shares of Mohawk common stock represented by properly executed proxies
or voting instructions received before or at the Mohawk special meeting and all
shares of Dal-Tile common stock represented by properly executed proxies or
voting instructions received before or at the Dal-Tile special meeting will,
unless the proxies or voting instructions are revoked, be voted in accordance
with the instructions indicated on those proxies or voting instructions. If no
instructions are indicated on a properly executed proxy card or voting
instruction, the shares will be voted FOR approval of the issuance of Mohawk
shares in the merger or adoption of the merger agreement, as applicable, FOR
granting discretion for the designated proxies to vote upon any motion to
adjourn or postpone the special meeting to another time and place for the
purpose of soliciting additional proxies and to approve those other matters
that may be incident to the conduct of the special meetings at the discretion
of the person named in the proxy. You are urged to mark the box on the proxy
card to indicate how to vote your shares.
If a Mohawk stockholder returns a properly executed proxy card or voting
instruction and the stockholder has abstained from voting on a particular
proposal, the Mohawk common stock represented by the proxy or voting
instruction will be considered present at the special meeting for purposes of
determining a quorum, but will not be considered to have been voted in favor of
such proposal. If a Dal-Tile stockholder returns a properly executed proxy card
or voting instruction and the stockholder has abstained from voting on a
particular proposal, the Dal-Tile common stock represented by the proxy or
voting instruction will be considered present at the special meeting for
purposes of determining a quorum, but will not be considered to have been voted
in favor of such proposal.
If your shares are held in an account at a brokerage firm or bank, you must
instruct them on how to vote your shares with respect to the issuance of Mohawk
shares in the merger or the adoption of the merger agreement. For the Mohawk
special meeting, if an executed proxy card is returned by a broker or bank
holding shares which indicates that the broker or bank does not have
discretionary authority to vote on whether to approve the issuance of Mohawk
shares in the merger or any motion to adjourn or postpone the special meeting
for the purpose of soliciting additional proxies, the shares will be considered
present for purposes of determining the presence of a quorum, but will not be
considered to have been voted in favor of the proposal for which discretionary
authority is lacking. For the Dal-Tile special meeting, if an executed proxy
card is returned by a broker or bank holding shares which indicates that the
broker or bank does not have discretionary authority to vote on adoption of the
merger agreement or any motion to adjourn or postpone the special meeting for
the purpose of soliciting additional proxies, the shares will be considered
present at the meeting for purposes of determining the presence of a quorum,
but will not be considered to have been voted in favor of adoption of the
proposal for which discretionary authority is lacking.
17
Since the issuance of Mohawk shares in the merger and any motion to adjourn
or postpone the Mohawk special meeting to another time or place for the purpose
of soliciting additional votes requires the approval of a majority of the votes
cast by holders of Mohawk common stock at the Mohawk special meeting, assuming
a quorum is present, abstentions and broker non-votes will have no effect on
the approval of the issuance of Mohawk shares in the merger or any motion to
adjourn or postpone the special meeting for the purpose of soliciting
additional proxies. Because adoption of the merger agreement by Dal-Tile
requires the affirmative vote of a majority of the shares of Dal-Tile common
stock outstanding on the record date, abstentions, failures to respond and
broker non-votes by Dal-Tile stockholders will have the same effect as votes
against adoption of the merger agreement. The approval of a motion to adjourn
the Dal-Tile special meeting in order to solicit additional proxies requires
the approval of a majority of the votes cast at the special meeting and,
therefore, abstentions, failures to respond and broker non-votes by Dal-Tile
stockholders will not be counted as votes cast and will have no effect on the
outcome of a motion to adjourn for the purpose of soliciting additional proxies.
The Mohawk special meeting or the Dal-Tile special meeting may be adjourned
or postponed in order to permit further solicitation of proxies. No proxy voted
against the proposal to adopt the merger agreement or against the issuance of
Mohawk shares in the merger will be voted on any proposal to adjourn or
postpone the special meeting that is submitted to the stockholders for a vote,
except in accordance with the instructions indicated, if any, with respect to
any such proposal. Neither Mohawk nor Dal-Tile expects that any matters other
than approval of the issuance of Mohawk shares in the merger or adoption of the
merger agreement will be brought before its special meeting. If, however, other
matters incident to the conduct of the special meetings are considered, the
persons named as proxies will vote in accordance with their judgment with
respect to those matters, unless authority to do so is withheld on the proxy
card.
A stockholder may revoke his or her proxy at any time before it is voted by:
. notifying in writing the Corporate Secretary of Mohawk Industries, Inc.
at 160 S. Industrial Boulevard, Calhoun, Georgia 30703, if you are a
Mohawk stockholder, or the Secretary of Dal-Tile International Inc. at
7834 Hawn Freeway, Dallas, Texas 75217, if you are a Dal-Tile
stockholder;
. granting a subsequently dated proxy; or
. appearing in person and voting at the special meeting if you are a
holder of record.
Attendance at the special meeting will not in and of itself constitute
revocation of a proxy.
Voting Electronically or by Telephone
Because Delaware, the state in which both Mohawk and Dal-Tile are
incorporated, permits electronic submission of proxies through the Internet or
by telephone, instead of submitting proxies by mail on the enclosed proxy card
or voting instructions, all holders of record and many other stockholders will
have the option to submit their proxies or voting instructions electronically
through the Internet or by telephone. Please note that there are separate
arrangements for using the Internet and telephone depending on whether you are
a record holder and your shares are registered in your company's stock records
in your name or your shares are registered in the name of a brokerage firm or
bank. Stockholders should check their proxy card or voting instructions
forwarded by their broker, bank or other holder of record to see which options
are available.
The Internet and telephone procedures described below for submitting your
proxy or voting instructions are designed to authenticate stockholders'
identities, to allow stockholders to have their shares voted and to confirm
that their instructions have been properly recorded. Dal-Tile and Mohawk have
been advised by their respective counsel that the procedures that have been put
in place are consistent with the requirements of Delaware law. Stockholders
submitting proxies or voting instructions via the Internet should understand
that there may be costs associated with electronic access, such as usage
charges from Internet access providers and telephone companies, that would be
borne by the stockholder.
Mohawk holders of record may submit their proxies:
. through the Internet by visiting a website established for that purpose
at https://www.proxyvotenow.com/mhk and following the instructions; or
18
. by telephone by calling the toll-free number 1-888-216-1339 in the
United States, Canada or Puerto Rico on a touch-tone phone and following
the recorded instructions.
Dal-Tile holders of record may submit their proxies:
. through the Internet by visiting a website established for that purpose
at http://www.eproxy.com/dtl and following the instructions; or
. by telephone by calling the toll-free number 1-800-435-6710 in the
United States, Canada or Puerto Rico on a touch-tone phone and following
the recorded instructions.
Solicitation of Proxies
Mohawk and Dal-Tile will equally share the expenses incurred in connection
with the printing and mailing of this joint proxy statement-prospectus. Mohawk
and Dal-Tile have each retained Georgeson Shareholder Communications, Inc.,
each for a fee of $7,500, plus expenses, to assist in the solicitation of
proxies. Mohawk, Dal-Tile and GeorgesonShareholder will also request banks,
brokers and other intermediaries holding shares of Mohawk or Dal-Tile common
stock beneficially owned by others to send this joint proxy
statement-prospectus to, and obtain proxies from, the beneficial owners and
will reimburse the holders for their reasonable expenses in so doing.
Solicitation of proxies by mail may be supplemented by telephone, telegram and
other electronic means, advertisements and personal solicitation by the
directors, officers or employees of Mohawk and Dal-Tile. No additional
compensation will be paid to directors, officers or employees for such
solicitation.
Dal-Tile stockholders should not send in any stock certificates with their
proxy card. A transmittal letter with instructions for the surrender of stock
certificates will be mailed to Dal-Tile stockholders as soon as practicable
after completion of the merger.
19
THE MERGER
The following information describes material aspects of the merger. This
description does not provide a complete description of all the terms and
conditions of the merger agreement. It is qualified in its entirety by the text
of the merger agreement, which is attached as Annex A to this joint proxy
statement-prospectus. The merger agreement, as amended, is incorporated herein
by reference. You are urged to read all of the Annexes in their entirety.
General
The merger agreement provides for the acquisition of Dal-Tile by Mohawk
pursuant to the merger of Dal-Tile by a forward merger with and into Maverick
Merger Sub, Inc., a newly formed, wholly owned subsidiary of Mohawk created for
the purpose of the merger, with Merger Sub as the surviving corporation in the
merger. If it is determined prior to the completion of the merger that the
value of the Mohawk common stock to be received by Dal-Tile stockholders in the
merger is less than 40% of the value of the combined merger consideration,
Dal-Tile has the option to close the merger as a taxable reverse merger. If
Dal-Tile elects to close the merger as a taxable reverse merger, then Merger
Sub will merge with and into Dal-Tile, with Dal-Tile surviving the merger and
becoming a wholly owned subsidiary of Mohawk. The forward merger and the
reverse merger materially differ only in their tax consequences to Dal-Tile
stockholders and in whether Merger Sub or Dal-Tile is the surviving corporation
in the merger. For a discussion of the tax consequences of the merger to
Dal-Tile stockholders, see "--Material Federal Income Tax Consequences of the
Merger" below.
What Dal-Tile Stockholders Will Receive in the Merger
Regardless of the structure of the merger, when we complete the merger, each
outstanding share of Dal-Tile common stock (other than shares held by Mohawk or
Dal-Tile or their respective subsidiaries and shares held by Dal-Tile
stockholders who perfect their statutory appraisal rights) will be converted
into and exchanged for the right to receive a cash payment of $11.00 (less any
required withholding of taxes) and a fraction of a share of Mohawk common stock
determined based on the average closing price of Mohawk common stock for the 20
consecutive full trading days ending three full trading days prior to the
closing of the merger. Collectively, the Dal-Tile stockholders will receive in
the merger between 12,412,274 and 18,401,198 shares of Mohawk common stock, or
between approximately 19% and 26% of the outstanding Mohawk common stock
immediately following the merger, depending on the exchange ratio and the
number of Dal-Tile options that are exercised prior to completion of the
merger. Dal-Tile stockholders who perfect their appraisal rights will be
entitled to receive from the surviving corporation in the merger, the value of
their shares in cash as determined pursuant to Section 262 of the Delaware
General Corporation Law. See "--Appraisal Rights."
The fraction of a share of Mohawk common stock will be determined based on
the "average closing price," which is the average of the daily closing prices
for Mohawk common stock on the New York Stock Exchange during the 20
consecutive full trading days ending on the trading day three full trading days
prior to the closing date of the merger. Specifically, for each share of
Dal-Tile common stock held at the effective time, Dal-Tile stockholders will be
entitled to receive the cash payment of $11.00 and:
. .2213 of a share of Mohawk common stock, if the average closing price is
greater than $54.67 per share;
. that fraction of a share of Mohawk common stock equal to the quotient
obtained by dividing $12.10 by the average closing price, if the average
closing price is greater than $50.12 per share but less than or equal to
$54.67 per share;
. .2414 of a share of Mohawk common stock, if the average closing price is
equal to or greater than $41.00 per share but less than or equal to
$50.12 per share;
. that fraction of a share of Mohawk common stock equal to the quotient
obtained by dividing $9.90 by the average closing price, if the average
closing price is greater than or equal to $36.45 per share but less than
$41.00 per share; or
. .2716 of a share of Mohawk common stock, if the average closing price is
less than $36.45 per share.
20
We refer to the $11.00 cash payment as the "cash payment" and the conversion
rate used at the time of the completion of the merger as the "exchange ratio."
If we completed the merger on the date of this joint proxy
statement-prospectus, the average closing price would be $55.05 and the
exchange ratio would be .2213 of a share of Mohawk common stock for each share
of Dal-Tile common stock.
Mohawk will not issue any fractional shares of common stock in the merger.
Rather, Mohawk will pay cash for any fractional share any Dal-Tile stockholder
otherwise would have received in the merger. The cash paid in lieu of
fractional shares will be in an amount equal to the fraction multiplied by the
average closing price.
If Mohawk effects a stock split, stock dividend, or similar recapitalization
with respect to Mohawk common stock and the record date, in the case of a stock
dividend, or the effective date, in the case of a stock split or similar
recapitalization for which a record date is not established, is prior to the
completion of the merger, the exchange ratio and the average closing price will
be adjusted appropriately.
If, prior to the completion of the merger, Mohawk consummates a merger,
consolidation, share exchange or other reorganization, or any other transaction
with another person pursuant to which the holders of Mohawk common stock
receive or become entitled to receive securities, cash or other assets or any
combination thereof, at the completion of the merger the holders of Dal-Tile
common stock will be entitled to receive the cash payment plus securities, cash
or other assets received by holders of Mohawk common stock in such transaction
adjusted to give effect to the exchange ratio as if the merger had occurred
immediately prior to the other transaction.
Background of the Merger
In December 1999, David L. Kolb, chairman and then chief executive officer
of Mohawk, John D. Swift, chief financial officer of Mohawk, Jacques R. Sardas,
chairman, president and chief executive officer of Dal-Tile, and W. Christopher
Wellborn, chief financial officer of Dal-Tile, attended an investment banking
conference in New York, New York. At the conference, Mohawk and Dal-Tile each
gave presentations about their companies and their respective markets in the
floorcovering industry to potential equity investors. Following the
presentations, the parties introduced themselves and expressed mutual interest
in learning more about their respective companies. At that time, the parties
made no plans for additional meetings or discussions, and no further meetings
or discussions occurred until December 1, 2000.
On December 1, 2000, Mr. Jeffrey S. Lorberbaum, president and current chief
executive officer of Mohawk, Mr. Swift, Mr. Kolb, Mr. Wellborn and Mr. Sardas
met at the Dallas-Fort Worth International Airport to discuss general business
matters, including each company's operations and potential marketing and sales
synergies that could be achieved by a business combination or another strategic
relationship between Mohawk and Dal-Tile. In particular, the parties discussed
potential synergies that could result from selling Dal-Tile's products through
the Mohawk distribution system and using Mohawk's transportation system to
deliver Dal-Tile products. At this meeting, the participants made no plans for
additional meetings or discussions, and no further meetings or discussions were
held until August 15, 2001.
On August 15, 2001, Mr. Swift contacted Mr. Wellborn and suggested that they
meet in Dallas, Texas to discuss the benefits of a potential business
combination. After consultation with Mr. Sardas, Mr. Wellborn arranged to meet
Mr. Swift in Dallas on September 5, 2001. Following their discussions they
agreed to recommend a follow-up meeting. The parties subsequently scheduled a
meeting for September 12, 2001, between Mr. Sardas, Mr. Wellborn, Mr.
Lorberbaum and Mr. Swift in Atlanta, Georgia.
On August 21, 2001, representatives of Credit Suisse First Boston
telephonically reviewed with the management of Dal-Tile a potential business
combination with Mohawk.
Mohawk and Dal-Tile executed a confidentiality agreement on September 11,
2001. In the aftermath of the September 11 attacks, the companies postponed
their meeting scheduled for September 12, 2001 to October 29 and 30, 2001.
On September 17, 2001, at a telephonic meeting of the Dal-Tile board of
directors at which all the directors were present, Mr. Sardas informed the
Dal-Tile board of the discussions with Mohawk regarding a potential business
combination and the confidentiality agreement entered into by the parties. At
the meeting the Dal-Tile board authorized the executive officers of Dal-Tile to
continue discussions with Mohawk regarding a potential business combination and
to consult with a financial advisor on an as-needed basis.
21
On October 18, 2001, the regular quarterly meeting of the Mohawk board of
directors was held at the offices of Mohawk in Calhoun, Georgia. All members of
the board of directors were present. During that meeting, Mr. Lorberbaum
reviewed the previous contacts with Dal-Tile and advised that a meeting among
Mr. Lorberbaum, Mr. Swift, Mr. Sardas and Mr. Wellborn, originally scheduled
for September 12, 2001, had been rescheduled for October 29 and 30, 2001. Mr.
Lorberbaum and Mr. Swift discussed with the board information about Dal-Tile's
business and financial position. The potential business synergies, possible
cost savings and possible areas of integration presented by a possible
combination of the two companies were thoroughly discussed by the board and
management. The Dal-Tile management structure and change of control costs were
also reviewed. Mr. Lorberbaum, Mr. Swift and the board discussed a proposal to
acquire Dal-Tile for consideration comprised of 50% Mohawk common stock and 50%
cash at various price levels for the Dal-Tile common stock. The board
considered Mohawk's pro forma debt to capitalization ratio and diluted earnings
per share as well as the premium to Dal-Tile's stock price resulting from
various price levels. After a thorough discussion, the board authorized
management to continue discussions with Dal-Tile management. Mohawk's legal
counsel from Alston & Bird LLP reviewed with the board the legal obligations
and duties for the directors during the ongoing discussions.
On October 26, 2001, Mr. Lorberbaum and Mr. Swift held separate telephonic
conversations with a majority of the members of the Mohawk board, in which they
discussed specific terms of a proposal for the acquisition of Dal-Tile for
consideration equal to $21.00 per share of Dal-Tile common stock to be
comprised of 50% Mohawk common stock and 50% cash.
Mr. Sardas, Mr. Wellborn, Mr. Lorberbaum and Mr. Swift met in Atlanta for
dinner on October 29, 2001, and again on the morning of October 30, 2001. The
parties initially discussed the operating styles of their respective companies
and whether or not they would be compatible in a business combination. They
also discussed the potential for the combined company to extend each company's
sales into new geographic markets and the possibility of expanding the sales of
Dal-Tile's products through Mohawk's distribution networks. As part of these
initial discussions, Mr. Lorberbaum proposed the acquisition of Dal-Tile by
Mohawk in a merger for consideration equal to $21.00 per share of Dal-Tile
common stock to be comprised of 50% Mohawk common stock and 50% cash. Mr.
Sardas made a counterproposal of $23.00 per share of Dal-Tile common stock to
be comprised of 50% Mohawk common stock and 50% cash. After these discussions,
the parties agreed to present to their respective boards a proposal for the
merger of Dal-Tile with Mohawk for consideration equal to $22.00 per share of
Dal-Tile common stock to be comprised of 50% Mohawk common stock and 50% cash.
Mr. Lorberbaum also proposed that the stock component of the merger
consideration be valued at $45.56 per share of Mohawk common stock, the closing
price of Mohawk common stock on October 29, 2001. No agreement was reached on
this proposal and the parties deferred further discussions pending
presentations to their respective boards and financial advisors. The parties
agreed to a tentative negotiation schedule, assuming both companies decided to
proceed with negotiations, with a proposed signing of a definitive merger
agreement and announcement of a merger prior to the Thanksgiving holiday.
On November 1, 2001, the Dal-Tile board held a telephonic meeting in which
all of the directors participated at which Mr. Sardas and Mr. Wellborn
recounted the discussions with Mohawk. Dal-Tile's legal counsel, Vinson &
Elkins L.L.P., discussed the legal obligations of the directors and other legal
considerations in connection with the proposed merger and the negotiation of
the merger agreement, including the ability to respond to unsolicited offers.
Also at this meeting, representatives of Credit Suisse First Boston, Dal-Tile's
financial advisor, reviewed with the board Mohawk's business and financial
position relative to Dal-Tile's, and representatives of Vinson & Elkins L.L.P.
and Credit Suisse First Boston discussed with the board alternative structures
for the potential merger. The participants at the meeting also discussed the
schedule for completing the merger agreement, due diligence reviews and holding
a board meeting to review the merger agreement and receiving an opinion from
Credit Suisse First Boston regarding the fairness, from a financial point of
view, of the merger consideration to be received by Dal-Tile stockholders in
the proposed merger. During the telephonic meeting, the Dal-Tile board
authorized the senior management to proceed with the negotiation of the terms
of a merger and a definitive merger agreement with Mohawk for consideration by
the board.
22
The management of both companies arranged for mutual due diligence reviews.
On November 5 through November 7, 2001, legal counsel to Mohawk traveled to
Dallas to review Dal-Tile's corporate records and other information. On
November 8 and 9, 2001, Dal-Tile's legal counsel traveled to Atlanta and
Calhoun, Georgia to conduct a similar review of Mohawk. On November 6 and 7,
2001, accounting and tax advisors to Dal-Tile traveled to Atlanta and Calhoun
to read selected portions of Mohawk's independent auditor's working papers.
Also on November 7 and 8, 2001, Mohawk's accounting and tax advisors traveled
to Dallas to read selected portions of Dal-Tile's independent auditor's working
papers. On November 6, 2001, Mohawk retained Mexican legal counsel to begin a
due diligence review of Dal-Tile's Mexican subsidiary and its Mexican joint
venture. Mohawk's Mexican legal counsel conducted due diligence at Dal-Tile's
Mexico operations on November 13, 14 and 15, 2001.
Mohawk submitted a draft merger agreement to Dal-Tile on November 6, 2001,
which proposed merger consideration comprised of a combination of Mohawk common
stock and cash, but did not contain a specific proposal as to the amount of
cash per Dal-Tile share or the exchange ratio to determine the number of shares
of Mohawk common stock per Dal-Tile share. The draft also contained provisions
for (1) reciprocal rights to terminate the merger agreement based on the
average closing price of Mohawk common stock during a period shortly before the
merger was completed, (2) the conversion of existing options to acquire
Dal-Tile common stock into cash and Mohawk stock options equal to the merger
consideration, (3) permitting Dal-Tile to designate an unspecified number of
persons to serve on the Mohawk board, (4) a Mohawk option to acquire shares of
Dal-Tile common stock, (5) voting agreements to support the merger from certain
holders of Dal-Tile common stock, (6) a termination fee, and (7) the
reimbursement of Mohawk's expenses incurred in connection with the merger, if
Dal-Tile's stockholders failed to approve the proposed merger. In a series of
telephone conversations between Mr. Swift and Mr. Wellborn on November 6 and 7,
2001, Mohawk proposed that Dal-Tile stockholders would receive $11 in cash and
.2414 of a share of Mohawk common stock ($11 in value based on the October 29,
2001, closing price of $45.56) for each share of Dal-Tile common stock and that
the parties would have the right to terminate the agreement if the average
closing price of Mohawk common stock was above $53.00 or below $38.00 for a 20
trading day period ending shortly prior to the closing. Mohawk also proposed
that Dal-Tile grant Mohawk an option to acquire 19.9% of the Dal-Tile common
stock and a termination fee of $50 million and that Dal-Tile board members and
senior management enter into voting agreements to support the merger and grant
Mohawk options to acquire their Dal-Tile common stock and options.
On November 7, 2001, the Mohawk board of directors held a special telephonic
meeting with all directors attending. Mr. Lorberbaum discussed the progress of
discussions with Dal-Tile, reviewed the preliminary results of Mohawk's due
diligence review and explained the price structure and other terms for a merger
proposed by Mohawk. The board discussed a proposal for merger consideration
equal to $22.00 per share of Dal-Tile common stock to be comprised of 50%
Mohawk common stock valued at $45.56 per share and 50% cash. Under this
proposal, the Dal-Tile stockholders would receive $11 in cash and .2414 of a
share of Mohawk common stock for each share of Dal-Tile common stock, and the
parties would have a right to terminate the agreement if the average closing
price of Mohawk common stock was above $53.00 or below $38.00 for a 20 trading
day period ending prior to the closing. Other terms of the proposal included
the right by Dal-Tile to designate two persons to serve on the Mohawk board, an
option for Mohawk to acquire 19.9% of the Dal-Tile common stock, voting
agreements and options to support the merger from Dal-Tile senior management
and board members, a termination fee of $50 million and the conversion of
existing options to acquire Dal-Tile common stock into cash and Mohawk stock
options equal to the merger consideration. The board discussed the initial
dilution of Mohawk earnings per share and the opportunities for accretion
through potential synergies. The board and Mr. Swift discussed sources of
financing for the cash portion of the merger consideration, including Mohawk's
current debt facilities, a potential privately placed bridge loan and public
debt. The board discussed Dal-Tile management and a plan for integration of the
businesses. The board authorized the management to proceed with negotiations. A
schedule for negotiating the merger agreement and financing was discussed, and
the board tentatively scheduled a board meeting for November 26, 2001 to review
and consider the merger and the merger agreement.
On November 8, 2001, Mohawk and Dal-Tile held a telephone conference with
their respective legal counsel and financial advisors to address Mohawk's
proposal and Dal-Tile's primary issues. Dal-Tile proposed to
23
Mohawk a fixed exchange ratio for the stock component of the merger
consideration of .2414 of a share of Mohawk common stock if the Mohawk average
closing price was between $41.00 and $50.12, and outside of that range a ratio
that adjusted so that Dal-Tile stockholders would receive a fraction of a share
of Mohawk common stock having a value equal to $9.90 if the average closing
price was below $41.00 and equal to $12.10 if the average closing price was
above $50.12. Additionally, Dal-Tile proposed a termination fee of $30 million
and that voting agreements to support the merger be obtained from Dal-Tile
senior management and board members and from entities controlled by the
Lorberbaum family, the largest stockholders in Mohawk. Dal-Tile also indicated
that it was not willing to grant Mohawk options to acquire any of its common
stock or to require as a part of the transaction that any of its management
team grant Mohawk any rights to acquire shares or options held by such
executives or enter into similar arrangements regarding their equity interests
in Dal-Tile. Mohawk responded by suggesting a termination fee of $60 million.
Dal-Tile also proposed that one-half of Dal-Tile stock options be cashed out
for two times $11 less their respective exercise prices, allocated pro-rata
among grants of options having different exercise prices and that the remaining
one-half be converted into options exercisable solely for Mohawk common stock
at a conversion rate equal to two times the exchange ratio. Finally, Dal-Tile
indicated that it was unwilling to reimburse Mohawk for Mohawk's expenses in
the event that Dal-Tile's stockholders failed to approve the proposed merger.
After discussion of Dal-Tile's proposals, the parties held internal discussions.
In a series of telephone calls on November 8 and 9, 2001, representatives of
Mohawk and Dal-Tile and their respective legal and financial advisors attempted
to resolve these primary outstanding issues in anticipation of the plant visits
and management presentations that were scheduled to begin on Sunday, November
11, 2001. The primary issue discussed was the structure of the exchange ratio,
specifically whether there would be reciprocal termination rights if the
average closing price of Mohawk common stock is greater or less than specified
amounts as proposed by Mohawk in the November 6, 2001, draft of the merger
agreement and in the telephone conversations on November 6 and 7, 2001. Fixing
the exchange ratio if the average closing price of Mohawk common stock is
greater or less than specified amounts was proposed by Mohawk as an alternative
to reciprocal termination rights. Voting agreements, rights of termination
under various circumstances and the amount of the termination fee were also
discussed without reaching agreement. Dal-Tile's proposal as to treatment of
Dal-Tile stock options, how to deal with third party consents and termination
of Dal-Tile's employee stock purchase plan were also discussed.
On November 9, 2001, representatives of Mohawk and Dal-Tile agreed to
Dal-Tile's proposal of a floating exchange ratio outside a range of average
closing prices of Mohawk common stock from $41.00 to $50.12 per share, but with
the exchange ratio becoming fixed again at .2213 of a share of Mohawk common
stock if the average closing price of Mohawk common stock is greater than
$54.67 per share and at .2716 of a share of Mohawk common stock if the average
closing price of Mohawk common stock is less than $36.45 per share. Although
the parties did not reach agreement with respect to voting agreements, rights
of termination under various circumstances and the amount of the termination
fee, it was decided that sufficient progress had been made to justify
proceeding with the plant visits and management presentations as scheduled on
November 11, 2001.
On November 9, 2001, the Dal-Tile board held a telephonic meeting to receive
an update from Dal-Tile senior management and its legal and financial advisors
on the status of the merger agreement negotiations. All of the Dal-Tile
directors except Mr. Danforth participated in the meeting. Dal-Tile's legal
counsel reviewed with the board the results of its due diligence. Also at this
meeting, Dal-Tile's financial advisor reviewed with the board the structure of
the stock components of the merger consideration that Dal-Tile had proposed to
Mohawk.
From November 11 through November 13, 2001, senior management of Mohawk and
Dal-Tile, together with representatives of Credit Suisse First Boston and
Wachovia Securities, traveled together to inspect their respective
manufacturing facilities in Texas, Mexico and Georgia and discuss the
respective companies' operations. At the direction of Dal-Tile, Dal-Tile's
financial advisor met with Mohawk's senior management in Calhoun, Georgia to
obtain additional information about Mohawk's business and financial position.
24
In a series of conference calls between November 9 and November 15, 2001,
the senior management, legal counsel and financial advisors of both companies
continued negotiations of the terms of the merger agreement, the voting
agreements and other ancillary documents.
On November 15, 2001, Dal-Tile's board held a telephonic board meeting at
which all directors were present to receive an update on the progress of the
negotiations with Mohawk. The Dal-Tile senior management reported that the
parties agreed upon a $45 million termination fee. Dal-Tile senior management
also reported that it received a copy of the draft commitment letter Mohawk
received from First Union Investors, Inc. and SunTrust Bank and informed the
board of directors that senior management was working with Mohawk to strengthen
the terms of the commitment letter. Dal-Tile board members indicated to senior
management that they wished to see a strong commitment from Mohawk's lenders
prior to proceeding with the transaction. At the conclusion of the meeting, the
Dal-Tile board agreed to meet in Dallas on November 17, 2001, in order to
entertain a full presentation of the terms of the proposed transaction by
Dal-Tile's senior management, its legal counsel, financial advisor and
accountants. Because Dal-Tile and Mohawk anticipated that the merger agreement
would be ready for execution on November 19, 2001, the Dal-Tile board
tentatively agreed that it would schedule a telephonic board meeting for
November 19, 2001, to review and vote to approve the merger and the merger
agreement.
On November 17, 2001, the Dal-Tile board held a special meeting at
Dallas-Fort Worth International Airport in Texas at which all directors were
present and it discussed in detail with its senior management, legal counsel
and financial advisor the terms of the proposed merger agreement and related
documents and with its accounting and tax advisors, the results of their
procedures. Subsequently, representatives of Credit Suisse First Boston
reviewed with the board its financial analysis of the proposed merger
consideration. Dal-Tile's legal counsel advised the board of its fiduciary
duties and obligations in considering the proposed transaction, updated the
board with respect to the remaining issues to be resolved in connection with
the merger agreement and described proposed resolutions that it recommended to
the Dal-Tile board.
A special telephonic meeting of the board of directors of Mohawk was held at
3:00 p.m. Eastern Standard Time on November 19, 2001. All directors were
present. The meeting began with an explanation by a representative of Alston &
Bird LLP of the fiduciary duties of directors relating to the approval of a
transaction such as the acquisition of Dal-Tile to be considered at the
meeting. Mr. Lorberbaum and Mr. Swift then outlined the proposed acquisition,
including the structure of the merger consideration, and the strategic
opportunities it would present to Mohawk. They reviewed and explained the
principal terms of the proposed transaction, its financial impact on Mohawk and
the terms of commitments for financing the transaction obtained from First
Union Investors, Inc., Goldman Sachs Credit Partners, L.P. and SunTrust Bank.
The terms of the proposed merger agreement were reviewed and discussed. At this
meeting, Wachovia Securities delivered to the board its oral opinion,
subsequently confirmed in writing, dated November 19, 2001, to the effect that
the merger consideration to be paid and stock option and cash payments to be
made to holders of Dal-Tile stock options by Mohawk was fair, from a financial
point of view, to Mohawk. After further deliberation and discussion, the board
unanimously approved the merger and related transactions and agreements and
instructed the management of Mohawk and legal counsel to finalize and execute
the merger agreement and related agreements on behalf of Mohawk. The board also
unanimously voted to recommend that the Mohawk stockholders approve the
issuance of Mohawk shares in the merger. In addition, the board unanimously
approved the financing for the transaction and authorized Mohawk to enter into,
borrow under and perform all obligations under the financing documents.
On November 19, 2001, beginning at 4:30 p.m. Central Standard Time, the
Dal-Tile board held a telephonic meeting at which all directors were present
and during which management and legal counsel updated the board regarding the
resolution of the remaining issues with respect to the merger agreement. Also
at this meeting, Credit Suisse First Boston rendered to the board an oral
opinion which opinion was confirmed by delivery of a written opinion, dated
November 19, 2001, to the effect that, as of the date of the opinion and based
upon and subject to the matters described in the opinion, the merger
consideration was fair, from a financial point of view, to the holders of
Dal-Tile common stock. After further deliberation and discussion, the board
unanimously
25
approved the merger agreement and related transactions and instructed
Dal-Tile's senior management to finalize and execute the merger agreement and
related agreements on behalf of Dal-Tile. Additionally, the board unanimously
voted to recommend that the Dal-Tile common stockholders adopt the merger
agreement with Mohawk.
Subsequent to the Mohawk and Dal-Tile telephonic board meetings, on the
evening of November 19, 2001, Mohawk and Dal-Tile executed the merger agreement
and the various related agreements. The transaction was announced prior to the
commencement of trading on November 20, 2001.
On January 16, 2002, Mr. Sardas telephoned Mr. Lorberbaum to inform him that
pursuant to the merger agreement Mr. Wellborn and John F. Fiedler would be
Dal-Tile's designated nominees to the Mohawk board.
Recommendation of the Mohawk Board and Reasons for the Merger
Mohawk's board of directors voted unanimously to approve and adopt the
merger agreement and determined that the merger agreement and the merger are
advisable, fair to and in the best interest of Mohawk and its stockholders.
ACCORDINGLY, THE MOHAWK BOARD OF DIRECTORS RECOMMENDS THAT MOHAWK STOCKHOLDERS
VOTE TO APPROVE THE ISSUANCE OF MOHAWK SHARES IN THE MERGER.
In reaching its decision to recommend the issuance of shares in the merger,
Mohawk's board concluded that combining Dal-Tile's ceramic tile business with
Mohawk's existing carpet and rug business provides a unique opportunity to help
Mohawk achieve its strategic goal of becoming one of the world's leading
floorcovering manufacturers and distributors. The Mohawk board believes that
because of this, the merger provides an opportunity for achieving enhanced
financial performance and increasing stockholder value.
In concluding that the merger of Mohawk and Dal-Tile is in the best interest
of Mohawk and its stockholders, the Mohawk board consulted with senior members
of Mohawk management regarding the strategic and operational aspects of the
merger and the satisfactory results of due diligence efforts undertaken by
management. In addition, the Mohawk board consulted with Wachovia Securities
about the fairness to Mohawk, from a financial point of view, of the merger
consideration to be paid together with the stock option and cash payments to be
made to holders of outstanding Dal-Tile options by Mohawk in the merger. The
board of directors also consulted with Alston & Bird LLP, legal counsel to
Mohawk, regarding the duties of the members of the board of directors, legal
due diligence matters and the terms of the merger agreement and related
agreements. In concluding that the merger and the issuance of shares is in the
best interest of Mohawk and fair to Mohawk and its stockholders, the Mohawk
board considered, among other things, the following factors that supported its
decision to approve the merger and recommend that Mohawk stockholders vote to
approve the issuance of Mohawk shares in the merger:
. the ability to combine Mohawk's current efforts in the hard-flooring
business with Dal-Tile's larger, more established ceramic tile and
natural stone business;
. the opportunity to use Mohawk and Dal-Tile's existing customer
relationships to increase sales of both carpets and hard floorcoverings;
. the opportunity to further develop Mohawk's various brands and increase
sales by distributing its products through Dal-Tile's distribution
network;
. the potential to reduce overhead and other costs by adding Dal-Tile's
distribution network to Mohawk's logistical and distribution system;
. the potential to reduce manufacturing costs and increase quality by
identifying manufacturing best practices from Dal-Tile's operations and
applying them to Mohawk's manufacturing operations and vice-versa;
. the potential to reduce general administrative, overhead and other
miscellaneous costs by spreading fixed costs over a larger business;
. reports from management and counsel regarding the satisfactory results
of their due diligence investigation of Dal-Tile;
26
. the terms of the merger agreement and the structure of the merger,
including the conditions of each party's obligations to complete the
merger;
. the merger agreement's prohibition against Dal-Tile soliciting another
acquisition, and the agreement by Dal-Tile to pay Mohawk a termination
fee of $45 million under circumstances in which Dal-Tile enters into an
acquisition agreement or closes an acquisition with another party within
twelve months of the termination of the merger agreement or the Dal-Tile
board of directors changes or withdraws its recommendation that the
Dal-Tile stockholders vote in favor of the merger;
. the ability of Mohawk and Dal-Tile to complete the merger, including
their ability to obtain the necessary regulatory approvals and their
obligations to attempt to obtain those approvals;
. the terms of the binding commitment letter received by Mohawk to finance
a portion of the cash merger consideration; and
. Wachovia Securities' financial analyses and presentation to the board,
and the opinion of Wachovia Securities to the board, dated November 19,
2001, as to the fairness to Mohawk, from a financial point of view, of
the merger consideration to be paid, together with the stock option and
cash payments to be made to holders of outstanding Dal-Tile options, by
Mohawk in the merger.
The Mohawk board also considered the potential adverse consequences of other
factors including:
. the increased level of indebtedness that Mohawk would have to incur in
order to finance the merger and repay Dal-Tile's existing indebtedness;
. the risk that benefits sought in the merger would not be obtained;
. the risk that the merger would not be completed;
. the effect of the public announcement of the merger on Mohawk's customer
relations, operating results and ability to retain employees, and the
trading price of Mohawk common stock;
. the substantial management time and effort that will be required to
consummate the merger and integrate the operations of the two companies;
and
. other risks described in this joint proxy statement-prospectus under
"Risk Factors."
In the judgment of the Mohawk board of directors, the potential benefits of the
merger substantially outweighed the risks inherent in the merger.
The foregoing discussion of factors considered by the Mohawk board is not
exhaustive, but Mohawk believes it includes the material factors considered by
the Mohawk board. The Mohawk board did not quantify or otherwise attempt to
assign relative weights to the specific factors the Mohawk board considered in
reaching its determination to recommend the issuance of Mohawk shares in the
merger. Rather, the Mohawk board viewed its position and recommendation as
being based on the total information presented to and considered by the Mohawk
board.
Recommendation of the Dal-Tile Board and Reasons for the Merger
THE DAL-TILE BOARD OF DIRECTORS RECOMMENDS THAT DAL-TILE STOCKHOLDERS VOTE
FOR THE ADOPTION OF THE MERGER AGREEMENT.
The Dal-Tile board believes that the terms of the merger agreement and the
merger are advisable, fair to and in the best interests of Dal-Tile and its
stockholders. Accordingly, the members of the Dal-Tile board have unanimously
approved the merger agreement and the merger, and the Dal-Tile board recommends
that Dal-Tile stockholders approve and adopt the merger agreement and approve
the merger. In reaching its determination to
27
recommend the merger agreement, the board considered a number of factors,
including the following material factors:
. The Dal-Tile board considered the value of the consideration to be
received by Dal-Tile stockholders in the merger. The board considered
the historical market prices and trading information for the common
stock of Dal-Tile and Mohawk, the price per share offered by Mohawk, the
certainty of value provided by the cash portion of the merger
consideration, and the opportunity for Dal-Tile stockholders to
participate, as holders of Mohawk common stock, in a larger, more
diversified floorcovering company, including participating in the value
that may be generated through the combination of the two companies.
. The Dal-Tile board considered that the per share merger consideration
represented a significant premium over the market prices at which
Dal-Tile common stock had previously traded, including the fact that the
targeted merger consideration of $22.00 represented a 31.3% premium over
the closing price on November 19, 2001, the last full trading day before
the announcement of the merger.
. The Dal-Tile board considered information concerning Dal-Tile's
financial performance, financial condition, business operations and
prospects, including Dal-Tile's recent revenue and earnings growth and
its decreasing level of indebtedness. The board considered the
possibility that continuing to operate Dal-Tile as an independent public
company might not in the foreseeable future lead to a trading price for
Dal-Tile common stock having a higher present value than the merger
consideration.
. The Dal-Tile board considered the terms and conditions of the merger and
related agreements, including:
- the amount and form of consideration to be received by Dal-Tile
stockholders;
- the voting agreements;
- the restrictions relating to solicitation of third party proposals
and the board's ability to consider and accept an unsolicited
superior acquisition proposal;
- the termination provisions, including that Dal-Tile has no right to
terminate the merger agreement if the average trading price of Mohawk
common stock decreases to a level at which there is no adjustment to
the exchange ratio; and
- the size, nature and events that would trigger the payment of the $45
million termination fee under the merger agreement, and the impact
that the termination fee provision and the provisions limiting
Dal-Tile from soliciting or encouraging alternative proposals could
have on the likelihood that a third party would make a competing
offer to acquire Dal-Tile.
. The Dal-Tile board considered the financial condition, cash flows and
results of operations of Mohawk, on both a historical and prospective
basis, and the historical market prices and trading information with
respect to Mohawk common stock.
. The Dal-Tile board considered the terms of the binding commitment letter
received by Mohawk to finance a portion of the cash merger consideration.
. The Dal-Tile board considered the consents and approvals required to
consummate the merger, including regulatory clearance under the HSR Act
and foreign competition laws, and the prospects for receiving those
consents and approvals.
. The Dal-Tile board considered that Dal-Tile stockholders would benefit
from the combined company's ability to take advantage of various
synergies to increase revenues and cash flow of the combined company,
including selling Dal-Tile products through the Mohawk distribution
system, using Mohawk's transportation system to deliver Dal-Tile
products, combining warehouses, systems and back room operations, and
leveraging customer relationships across the carpet and ceramic tile
industries.
28
. The Dal-Tile board considered the financial presentation of Credit
Suisse First Boston to the Dal-Tile board, including its opinion as to
the fairness, from a financial point of view, of the merger
consideration to be received by the holders of Dal-Tile common stock, as
described below under the caption "The Merger--Opinion of Dal-Tile's
Financial Advisor."
The Dal-Tile board also considered, among other factors:
. the risk that benefits sought in the merger would not be obtained;
. the risk that the merger would not be completed;
. the nature and extent of the interests of Dal-Tile executive management
and certain stockholders in the transaction that were different from or
in addition to the interests of the stockholders in general;
. the effect of the public announcement of the merger on Dal-Tile's
customer relations, operating results and ability to retain employees,
and the trading price of Dal-Tile common stock;
. the substantial management time and effort that will be required to
consummate the merger and integrate the operations of the two companies;
and
. other risks described in this joint proxy statement-prospectus under
"Risk Factors."
In the judgment of the Dal-Tile board of directors, the potential benefits
of the merger substantially outweighed the risks inherent in the merger.
In its deliberations with respect to the merger and the merger agreement,
the Dal-Tile board consulted with Dal-Tile's management and the financial,
legal and accounting advisors to Dal-Tile. The foregoing discussion of factors
considered by the Dal-Tile board is not exhaustive, but Dal-Tile believes it
includes the material factors considered by the Dal-Tile board. The Dal-Tile
board did not quantify or otherwise attempt to assign relative weights to the
specific factors the Dal-Tile board considered in reaching its determination to
recommend the merger. Rather, the Dal-Tile board viewed its position and
recommendation as being based on the total information presented to and
considered by the Dal-Tile board.
Opinion of Mohawk's Financial Advisor
Mohawk retained First Union Securities, Inc., trading under the name
Wachovia Securities ("Wachovia Securities"), to act as its financial advisor in
connection with the merger. On November 19, 2001, Mohawk's board of directors
held a meeting, in which Wachovia Securities participated, to evaluate the
proposed merger. At that meeting, Wachovia Securities rendered its oral opinion
that, as of that date and based upon and subject to factors and assumptions set
forth in its opinion, the merger consideration to be paid together with the
stock option and cash payments to be made to holders of outstanding Dal-Tile
options by Mohawk pursuant to the merger agreement was fair, from a financial
point of view, to Mohawk. This opinion was subsequently confirmed in writing.
In determining the value of the merger consideration for purposes of its
analysis, Wachovia Securities assumed that each outstanding share of Dal-Tile
common stock (other than certain excluded shares specified in the merger
agreement) would be converted into the right to receive from Mohawk (i) a cash
payment in the amount of $11.00 (less any required withholding of taxes) and
(ii) (A) .2213 of a share of Mohawk common stock if the average closing price
is greater than $54.67 per share; or (B) that fraction of a share of Mohawk
common stock equal to the quotient obtained by dividing $12.10 by the average
closing price, if the average closing price is greater than $50.12 and less
than or equal to $54.67; or (C) .2414 of a share of Mohawk common stock, if the
average closing price is equal to or greater than $41.00 per share and less
than or equal to $50.12 per share; or (D) that fraction of a share of Mohawk
common stock equal to the quotient obtained by dividing $9.90 by the average
closing price, if the average closing price is less than $41.00 and greater
than or equal to $36.45; or (E) .2716 of a share of Mohawk common stock if the
average closing price is less than $36.45 per share.
The full text of Wachovia Securities' opinion, which describes, among other
things, the assumptions made, matters considered, and qualifications and
limitations on the review undertaken by Wachovia Securities, is attached as
Annex D to this joint proxy statement-prospectus and is incorporated in this
joint proxy statement-prospectus by reference. Wachovia Securities' opinion is
directed to the Mohawk board of directors and addresses only the fairness to
Mohawk, from a financial point of view, of the merger consideration to be paid
29
together with the stock option and cash payments to be made to holders of
outstanding Dal-Tile options by Mohawk pursuant to the merger agreement. The
opinion does not address any other aspect of the merger or any related
transaction, nor does it constitute a recommendation to any stockholder as to
how to vote on the issuance of shares in the merger or any other matter related
thereto. Mohawk stockholders are urged to, and should, read Wachovia
Securities' opinion carefully and in its entirety.
In arriving at its opinion, Wachovia Securities, among other things:
. reviewed the merger agreement, including the financial terms of the
merger;
. reviewed certain business, financial and other information regarding
Mohawk and Dal-Tile that was publicly available;
. reviewed certain business, financial and other information regarding
Mohawk and its prospects that was furnished to Wachovia Securities by,
and that Wachovia Securities discussed with, management of Mohawk;
. reviewed certain business, financial and other information regarding
Dal-Tile and its prospects that was furnished to Wachovia Securities by,
and that Wachovia Securities discussed with, management of Dal-Tile;
. reviewed the current and historical market prices of Mohawk common stock
and Dal-Tile common stock;
. compared the publicly available business, financial and other
information regarding Mohawk and Dal-Tile with similar information
regarding certain other publicly traded companies that Wachovia
Securities' deemed to be relevant;
. compared the proposed financial terms of the merger with the financial
terms of certain other business combinations and transactions that
Wachovia Securities deemed to be relevant;
. developed discounted cash flow models of Mohawk and Dal-Tile;
. reviewed the potential pro forma impact of the merger on Mohawk's
financials;
. analyzed the premiums paid for certain other business combinations and
transactions that Wachovia Securities deemed to be relevant; and
. considered other information such as financial studies, analyses and
investigations, as well as financial, economic and market criteria that
Wachovia Securities deemed to be relevant.
In rendering its opinion, Wachovia Securities assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to, or otherwise
reviewed or discussed with, it. With respect to financial forecasts, Wachovia
Securities relied on publicly available forecasts and estimates prepared by
Wachovia Securities and other investment banking firms and discussed such
forecasts and estimates, as well as the assumptions upon which they are based,
with management of Mohawk or Dal-Tile, as the case may be. Wachovia Securities
assumed that the estimates and judgments expressed by management of Mohawk or
Dal-Tile in such discussions had been reasonably formulated and that they were
the best available estimates and judgments of management of Mohawk or Dal-Tile
at that time regarding such publicly available forecasts and estimates.
Wachovia Securities assumes no responsibility for and expressed no view as to
any such publicly available forecasts or estimates or the assumptions upon
which they were based. In arriving at its opinion, Wachovia Securities did not
incorporate any conclusions resulting from its limited inspection of certain
Dal-Tile facilities and did not make and was not provided with any evaluations
or appraisals of the assets or liabilities of Mohawk or Dal-Tile.
For purposes of rendering its opinion, Wachovia Securities assumed that the
merger will be consummated on the terms described in the merger agreement,
without waiver of any material terms or conditions, and that in the course of
obtaining any necessary legal, regulatory or third party consents and/or
approvals, no restrictions will be imposed that will have a material adverse
effect on the merger or other actions contemplated by the merger agreement.
Wachovia Securities' opinion was based upon economic, market, financial and
other conditions and the information made available to Wachovia Securities as
of the date of its opinion. Although developments subsequent to the date of
Wachovia Securities' opinion may affect its opinion, Wachovia Securities does
not have any obligation to update, revise or reaffirm its opinion.
30
Wachovia Securities' opinion does not address the merits of the underlying
decision by Mohawk to enter into the merger agreement nor does it address the
relative merits of the merger compared with other business strategies that may
have been considered by Mohawk's management and/or board of directors. Wachovia
Securities did not consider, nor did it express any opinion with respect to,
the prices at which Mohawk common stock or Dal-Tile common stock will trade
following the announcement of the merger or the price at which Mohawk common
stock will trade following the consummation of the merger.
The consideration to be received by the Dal-Tile stockholders in the merger
was determined by arms-length negotiations between Dal-Tile and Mohawk.
Wachovia Securities did not participate in those negotiations.
Analyses of Wachovia Securities
In performing its analyses, Wachovia Securities made numerous assumptions
with respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Wachovia Securities, Mohawk and Dal-Tile. Any estimates contained in the
analyses performed by Wachovia Securities are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by these analyses. Additionally, estimates of the
value of businesses or securities do not purport to be appraisals or to reflect
the prices at which those businesses or securities might actually be sold.
Accordingly, these analyses and estimates are inherently subject to substantial
uncertainty. The Wachovia Securities opinion was among several factors taken
into consideration by Mohawk's board of directors in making its determination
to enter into the merger agreement. In addition, Mohawk's board of directors
did not rely on any single analysis in making its determination. Consequently,
the analyses described below should not be viewed as determinative of the
decision of Mohawk's board or management with respect to the merger or the
merger consideration.
The summary that follows is not a complete description of the analyses
underlying the Wachovia Securities opinion or the presentation made by Wachovia
Securities to Mohawk's board of directors but summarizes the material analyses
performed and presented in connection with its opinion. The preparation of a
fairness opinion is a complex analytic process involving various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances. Therefore, a
fairness opinion is not readily susceptible to partial analysis or summary
description.
In arriving at its opinion, Wachovia Securities did not attribute any
particular weight to any analysis or factor that it considered, but rather made
qualitative judgements as to the significance and relevance of each analysis
and factor. The financial analyses summarized below include information
presented in tabular format. Accordingly, Wachovia Securities believes that its
analyses and the summary of its analyses must be considered as a whole and that
selecting portions of its analyses and factors or focusing on the information
presented below in tabular format, without considering all analyses and factors
or the full narrative description of the financial analysis, including the
methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the process underlying its analyses and
opinion. The tables alone do not constitute a complete description of the
financial analyses.
Comparable Companies Trading Multiples Comparison. Wachovia Securities
compared financial, operating and stock market data of Mohawk, Dal-Tile and the
following five publicly traded companies in the home furnishings industry:
The Dixie Group, Inc.
Furniture Brands International, Inc.
Interface, Inc.
La-Z-Boy, Inc.
Masco Corporation
For each of the comparable companies, Wachovia Securities calculated, among
other things, the multiples, based on closing stock prices on November 16,
2001, of:
Adjusted market value to revenue for the company's most recently reported
preceding 12 months ("LTM");
Adjusted market value to LTM earnings before interest, taxes, depreciation
and amortization ("EBITDA");
Adjusted market value to LTM earnings before interest and taxes ("EBIT"); and
Equity market value to LTM net income.
31
The multiples for the median multiples for the selected comparable companies
were as follows:
Median
Valuation Metric Multiple
---------------- --------
Adjusted market value to revenue. 0.7x
Adjusted market value to EBITDA.. 9.5x
Adjusted market value to EBIT.... 11.7x
Equity market value to net income 24.6x
Based on the foregoing median multiples, Wachovia Securities determined a
reference range for an implied value per Mohawk common share of $31.78 to
$77.12 with a median of $57.86, and an implied value per Dal-Tile common share
of $6.83 to $33.89 with a median of $23.15. To calculate the trading multiples
utilized in the analysis of selected comparable publicly traded companies,
Wachovia Securities used publicly available information concerning the
historical financial performance of Mohawk, Dal-Tile and the comparable
companies.
With regard to the comparable public company analysis summarized above,
Wachovia Securities selected comparable public companies on the basis of
various factors, including the size of the public company and the similarity of
the lines of business. No public company used as a comparison, however, is
identical to Mohawk or Dal-Tile. Accordingly, these analyses are not purely
mathematical, but also involve complex considerations and judgments concerning
the differences in financial and operating characteristics of the comparable
companies and other factors. These considerations and judgments include, but
are not limited to, analyses of relative revenue size, gross margins, EBITDA
margins, EBIT margins, historical growth rates, leverage ratios, book values,
product offerings, distribution channels and equity research coverage. These
factors could affect the public trading value of the comparable companies to
which Mohawk and Dal-Tile are being compared.
Comparable Transactions Analysis. Using publicly available information,
Wachovia Securities considered selected transactions in the home furnishings
industry that Wachovia Securities deemed to be relevant. Using publicly
available information, Wachovia Securities considered selected transactions in
the home furnishings industry. The criteria for selecting these transactions
were based on length of time since the closing date, the product offerings of
the target companies, size of the transaction, and the ability to obtain
complete financial information. Specifically, Wachovia Securities reviewed the
following transactions that it deemed to be comparable:
Acquiror Target
-------- ------
Berkshire Hathaway, Inc. Shaw Industries, Inc.
The Dixie Group, Inc. Fabrica International, Inc.
La-Z-Boy Furniture, Inc. LADD Furniture, Inc.
Illinois Tool Works, Inc. Premark International, Inc.
Warburg Pincus & Co., LLC Knoll, Inc.
Collins & Aikman Floorcoverings Monterey Carpets
Mohawk Industries, Inc. World Carpets, Inc.
Shaw Industries, Inc. Queen Carpet Corporation
Armstrong World Industries, Inc. Triangle Pacific Corporation
Using publicly available information concerning each of the target
companies, Wachovia Securities calculated, based on historical financial
information for the latest reported twelve months immediately preceding the
announcement of each of the respective transactions, the following median
multiples.
Median
Valuation Metric Multiple
---------------- --------
Adjusted market value to revenue. 0.9x
Adjusted market value to EBITDA.. 7.0x
Adjusted market value to EBIT.... 9.7x
Equity market value to net income 13.3x
Based on the foregoing, Wachovia Securities determined a reference range for
an implied value per Mohawk common share of $41.14 to $48.07 with a median of
$43.46, and an implied value per Dal-Tile common share of $11.33 to $18.67 with
a median of $16.94. No company utilized in the selected comparable
32
transaction analysis is identical to Mohawk or Dal-Tile, nor is any transaction
identical to the contemplated merger. Therefore, a purely quantitative
comparable transaction analysis would not be dispositive in the context of this
merger and an appropriate use of such analysis involves qualitative judgments
concerning the differences between the characteristics of these transactions
and the merger of Mohawk and Dal-Tile that would affect the value of the target
companies and of Mohawk and Dal-Tile. Such qualitative judgments are reflected
in the Wachovia Securities opinion.
Discounted Cash Flow Analysis. Wachovia Securities performed a discounted
cash flow analysis to estimate a range of present values per share of Mohawk
common stock and Dal-Tile common stock, respectively, assuming each such
company continued to operate as a stand-alone entity. Wachovia Securities
determined the range of present values of each company by calculating the sum
of (i) the present value of projected free cash flows of each company over the
five year period 2002 through 2006, and (ii) the present value of the estimated
terminal value of each company in year 2006. In calculating a terminal value
for each company, Wachovia Securities applied multiples of that company's
projected 2006 EBITDA ranging from 7.5x to 9.5x. This range of multiples
represented the current public market values of Mohawk, Dal-Tile, and the
selected comparable public companies. The projected free cash flows and EBITDA
of Mohawk and Dal-Tile used by Wachovia Securities in its analysis was derived
from publicly available forecasts and estimates prepared by Wachovia Securities
and other investment banking firms and discussions of such forecasts and
estimates, as well as the assumptions upon which they were based, with
management of Mohawk or Dal-Tile, as the case may be. The free cash flows and
terminal value for each company were discounted to present value using discount
rates ranging from 9.88% to 11.88%. Wachovia Securities viewed this range of
discount rates as appropriate for companies with the risk characteristics of
Mohawk and Dal-Tile.
Based on the foregoing, Wachovia Securities determined a reference range for
an implied value per Mohawk common share of $44.74 to $60.40, and an implied
value per Dal-Tile common share of $19.56 to $27.02. The discounted cash flow
analyses of Mohawk and Dal-Tile do not necessarily indicate actual values or
actual future results and do not purport to reflect the prices at which any
securities may trade at the present or at any time in the future. The range of
discount rates applied to Mohawk and Dal-Tile referred to in the above
paragraphs were based on several factors, including Wachovia Securities'
knowledge of each of Mohawk and Dal-Tile and the industry in which they
operate, the business risk of each company, and the overall interest rate
environment as of November 19, 2001. Discounted cash flow analysis is a widely
used valuation methodology, but the results of this methodology are highly
dependent on the numerous assumptions that must be made, including earnings
growth rates, terminal values, and discount rates.
Leveraged Buyout Analysis. Using the same financial projections employed in
its discounted cash flow analyses described above, Wachovia Securities
performed leveraged buyout analyses for Mohawk and Dal-Tile, respectively. In
both such analyses, Wachovia Securities assumed that a financial sponsor
investing in Mohawk or Dal-Tile would expect a 25% annual internal rate of
return for five years on its invested equity and that a subordinated debt
holder would expect a 10% annual internal rate of return for five years on its
investment. Wachovia Securities also assumed that the leveraged buyout of
Mohawk or Dal-Tile could be financed with senior debt (at a 7% interest rate)
and subordinated debt of 2.5x and 1.5x the LTM EBITDA of each such company,
respectively.
Based on the foregoing, Wachovia Securities determined an implied value per
Mohawk common share of $31.27 (a plus-or-minus 15% reference range of $35.96 to
$26.58), and an implied value per Dal-Tile common share of $19.00 (a
plus-or-minus 15% reference range of $21.85 to $16.15). The leveraged buyout
analyses of Mohawk and Dal-Tile do not necessarily indicate actual values or
actual future results and do not purport to reflect the prices at which any
securities may trade at the present or at any time in the future. The expected
annual internal rates of return and leverage ratios referred to in the above
paragraph were based on several factors, including Wachovia Securities'
knowledge of each of Mohawk and Dal-Tile and the industry in which they
operate, the business risk of each company, and the overall lending and private
equity markets as of November 19, 2001. The results of this methodology are
highly dependent on the numerous assumptions that must be made, including
earnings growth rates, expected internal rates of return, and leverage ratios.
Premiums Paid Analysis. Wachovia Securities prepared its premiums paid
analysis by multiplying Dal-Tile's historical closing stock price by the median
premium paid in all 109 transactions involving U.S.
33
targets announced between January 1, 2000 and November 16, 2001 with enterprise
values between $1 billion and $5 billion. For Dal-Tile and each of the 109 U.S.
targets, Wachovia Securities determined the premium paid by comparing the
merger consideration offered to Dal-Tile and each of the 109 U.S. targets with
the closing stock price of each such company one day, one week, and four weeks
prior to the announcement date of each transaction, respectively. For purposes
of its premiums paid analysis, Wachovia Securities assumed that the merger
would be announced on November 19, 2001.
Premium to: Median
----------- ------
One Day Prior to Announcement... 27.1%
One Week Prior to Announcement.. 31.7%
Four Weeks Prior to Announcement 41.3%
Based on the foregoing, Wachovia Securities determined a reference range for
an implied value per Dal-Tile common share of $21.48 to $22.70. No target
company utilized in the premiums paid analysis is identical to Dal-Tile, nor is
any transaction identical to the contemplated merger. Therefore, a purely
quantitative premiums paid analysis would not be dispositive in the context of
this merger and an appropriate use of such analysis involves qualitative
judgments concerning the differences between the characteristics of these
transactions and the merger of Mohawk and Dal-Tile that would affect the value
of the target companies and of Mohawk and Dal-Tile. Such qualitative judgments
are reflected in the Wachovia Securities opinion.
Pro Forma Financial Impact. Based on the exchange ratio proposed as part of
the merger consideration, Wachovia Securities analyzed the pro forma financial
impact of the merger on Mohawk's GAAP earnings per share. For purposes of this
analysis, Wachovia Securities assumed the effectiveness of certain anticipated
modifications to GAAP that are expected to take effect at the end of 2001. The
anticipated modifications to GAAP assume that all new and existing goodwill
will cease being amortized and instead be reviewed for impairment when an event
or series of events occur indicating that goodwill might be impaired. Wachovia
Securities also analyzed the pro forma financial impact of the merger on EBITDA
per share, cash earnings per share, EBIT to interest expense coverage ratios,
and net debt to total capitalization ratios.
This analysis was based on the projected financial performance of Mohawk and
Dal-Tile for 2001 and 2002 and was derived from publicly available forecasts
and estimates prepared by Wachovia Securities and other investment banking
firms and discussions of such forecasts and estimates, as well as the
assumptions upon which they were based, with management of Mohawk or Dal-Tile,
as the case may be. Wachovia Securities also based its analysis on discussions
with management of Mohawk and Dal-Tile regarding their assumptions relating to
the estimated fair market value purchase accounting adjustments to the tangible
and intangible assets of Dal-Tile and the goodwill they expected to result from
the merger. While Wachovia Securities assumed the merger would not result in
any synergies, Wachovia Securities also prepared an analysis of the pro forma
financial impact of the merger on Mohawk's GAAP earnings per share assuming the
full possible range of exchange ratios set forth in the proposed merger
consideration and assuming estimated synergies ranging from $0 to $50 million
per year. Based on the foregoing, Wachovia Securities determined that the
merger would be accretive to Mohawk's pro forma projected 2001 and 2002
financial results under each of the contemplated scenarios.
Miscellaneous
Mohawk retained Wachovia Securities based upon its experience and expertise.
Wachovia Securities is a nationally recognized investment banking and advisory
firm. As part of its investment banking business, Wachovia Securities is
regularly engaged in the valuation of businesses and securities in connection
with mergers, acquisitions, tender offers, divestitures, leveraged buyouts,
negotiated underwritings, secondary distributions of listed and unlisted
securities, and private placements.
Wachovia Securities is a trade name of First Union Securities, Inc., an
investment banking subsidiary and affiliate of Wachovia Corporation. In the
ordinary course of its business, Wachovia Securities or one of its affiliates
may actively trade or hold the securities of Mohawk or Dal-Tile for its own
account and/or the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities. Wachovia Securities does not
hold any of these shares as principal, which means that the voting and
disposition power generally is held by the retail owner of the shares. In
addition, Wachovia Securities and its affiliates (including
34
Wachovia Corporation and its affiliates) currently have certain relationships
with Mohawk and Dal-Tile, including a $75 million commitment as a lender under
and Co-Documentation Agent for Dal-Tile's $400 million syndicated credit
facility. An affiliate of Wachovia Securities, together with two other
financial institutions, has entered into a commitment letter with Mohawk with
respect to financing the merger. These financial institutions have agreed, on
the terms and subject to conditions in the commitment letter, to provide to
Mohawk a 364-day term loan facility of up to $700 million. See "--Financing."
Pursuant to a letter agreement between Mohawk and Wachovia Securities dated
November 16, 2001, Mohawk agreed to pay, and subsequently did pay, Wachovia
Securities customary fees for its financial advisory services in rendering its
opinion. Mohawk also agreed, among other things, to reimburse Wachovia
Securities for certain expenses incurred in connection with the services
provided by Wachovia Securities, and to indemnify Wachovia Securities and its
affiliates from and against certain liabilities and expenses, which may include
certain liabilities under the federal securities laws, in connection with its
engagement. During the past two years, Wachovia Securities and its affiliates
have received total fees of $3.5 million from Mohawk related to the following
services, including rendering the fairness opinion on the merger: capital
management, securitization programs, treasury services, trust services, M&A
advisory services and bridge financing.
Opinion of Dal-Tile's Financial Advisor
Credit Suisse First Boston has acted as Dal-Tile's exclusive financial
advisor in connection with the merger. Dal-Tile selected Credit Suisse First
Boston based on Credit Suisse First Boston's experience, expertise and
reputation, and its familiarity with Dal-Tile and its business. Credit Suisse
First Boston is an internationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
In connection with Credit Suisse First Boston's engagement, Dal-Tile
requested that Credit Suisse First Boston evaluate the fairness, from a
financial point of view, to the holders of Dal-Tile common stock of the merger
consideration provided for in the merger. On November 19, 2001, at a meeting of
the Dal-Tile board of directors held to evaluate the merger, Credit Suisse
First Boston rendered to the Dal-Tile board of directors an oral opinion, which
opinion was confirmed by delivery of a written opinion dated November 19, 2001,
to the effect that, as of that date and based on and subject to the matters
described in its opinion, the merger consideration was fair, from a financial
point of view, to the holders of Dal-Tile common stock.
The full text of Credit Suisse First Boston's written opinion, dated
November 19, 2001, to the Dal-Tile board of directors, which sets forth the
procedures followed, assumptions made, matters considered and limitations on
the review undertaken, is attached as Annex E and is incorporated into this
joint proxy statement-prospectus by reference. Holders of Dal-Tile common stock
are encouraged to read this opinion carefully and in its entirety. Credit
Suisse First Boston's opinion is addressed to the Dal-Tile board of directors
and relates only to the fairness, from a financial point of view, of the merger
consideration, does not address any other aspect of the proposed merger or any
related transaction and does not constitute a recommendation to any stockholder
as to any matter relating to the merger. The summary of Credit Suisse First
Boston's opinion in this joint proxy statement-prospectus is qualified in its
entirety by reference to the full text of the opinion.
In arriving at its opinion, Credit Suisse First Boston reviewed the merger
agreement and related documents, as well as publicly available business and
financial information relating to Dal-Tile and Mohawk. Credit Suisse First
Boston also reviewed other information relating to Dal-Tile and Mohawk provided
to or discussed with Credit Suisse First Boston by Dal-Tile and Mohawk,
including publicly available financial forecasts relating to Dal-Tile and
Mohawk, and met with the managements of Dal-Tile and Mohawk to discuss the
businesses and prospects of Dal-Tile and Mohawk. Credit Suisse First Boston
considered financial and stock market data of
35
Dal-Tile and Mohawk, and compared those data with similar data for other
publicly held companies in businesses similar to Dal-Tile and Mohawk, and
considered, to the extent publicly available, the financial terms of other
business combinations and other transactions announced or effected. Credit
Suisse First Boston also considered other information, financial studies,
analyses and investigations and financial, economic and market criteria that it
deemed relevant.
In connection with its review, Credit Suisse First Boston did not assume any
responsibility for independent verification of any of the information that it
reviewed or considered and relied on that information being complete and
accurate in all material respects. With respect to the publicly available
financial forecasts relating to Dal-Tile and Mohawk, Credit Suisse First Boston
reviewed and discussed the forecasts with the managements of Dal-Tile and
Mohawk, including adjustments to the forecasts, and was advised, and assumed,
that the forecasts, including the adjustments, represented reasonable estimates
and judgments as to the future financial performance of Dal-Tile and Mohawk. In
addition, Credit Suisse First Boston assumed, with Dal-Tile's consent, that in
the course of obtaining the necessary regulatory and third party approvals and
consents for the proposed merger, no modification, condition, restriction,
limitation or delay would be imposed that would have a material adverse effect
on Dal-Tile or Mohawk or the contemplated benefits of the proposed merger.
Credit Suisse First Boston was not requested to, and did not, make an
independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of Dal-Tile or Mohawk, and Credit Suisse First Boston was not
furnished with any evaluations or appraisals.
Credit Suisse First Boston's opinion was necessarily based on information
available to it, and financial, economic, market and other conditions as they
existed and could be evaluated, on the date of Credit Suisse First Boston's
opinion. Credit Suisse First Boston did not express any opinion as to what the
value of Mohawk common stock actually would be when issued in the merger or the
prices at which Mohawk common stock would trade at any time after the merger.
Although Credit Suisse First Boston evaluated the merger consideration from a
financial point of view, Credit Suisse First Boston was not requested to, and
did not, recommend the specific consideration payable in the merger, which
consideration was determined between Dal-Tile and Mohawk. In connection with
its engagement, Credit Suisse First Boston was not requested to, and did not,
solicit third party indications of interest in the possible acquisition of all
or a part of Dal-Tile. Credit Suisse First Boston's opinion did not address the
relative merits of the merger as compared to other business strategies that
might have been available to Dal-Tile, and also did not address the underlying
business decision of Dal-Tile to proceed with the merger. Except as described
above, Dal-Tile imposed no other limitations on Credit Suisse First Boston with
respect to the investigations made or procedures followed in rendering its
opinion.
In preparing its opinion to the Dal-Tile board of directors, Credit Suisse
First Boston performed a variety of financial and comparative analyses,
including those described below. The summary of Credit Suisse First Boston's
analyses described below is not a complete description of the analyses
underlying its opinion. The preparation of a fairness opinion is a complex
process involving various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances and, therefore, a fairness opinion is not readily
susceptible to partial analysis or summary description. In arriving at its
opinion, Credit Suisse First Boston made qualitative judgments as to the
significance and relevance of each analysis and factor that it considered.
Accordingly, Credit Suisse First Boston believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors
or focusing on information presented in tabular format, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying its analyses and
opinion.
In its analyses, Credit Suisse First Boston considered industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of Dal-Tile and Mohawk. No company,
transaction or business used in Credit Suisse First Boston's analyses as a
comparison is identical to Dal-Tile, Mohawk or the proposed merger, and an
evaluation of the results of those analyses is not entirely mathematical.
Rather, the analyses involve complex considerations and judgments concerning
financial
36
and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, business segments
or transactions analyzed. The estimates contained in Credit Suisse First
Boston's analyses and the ranges of valuations resulting from any particular
analysis are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable
than those suggested by the analyses. In addition, analyses relating to the
value of businesses or securities do not purport to be appraisals or to reflect
the prices at which businesses or securities actually may be sold. Accordingly,
Credit Suisse First Boston's analyses and estimates are inherently subject to
substantial uncertainty.
Credit Suisse First Boston's opinion and financial analyses were only one of
many factors considered by the Dal-Tile board of directors in its evaluation of
the proposed merger and should not be viewed as determinative of the views of
the Dal-Tile board of directors or management with respect to the merger or the
merger consideration.
The following is a summary of the material financial analyses underlying
Credit Suisse First Boston's opinion dated November 19, 2001 delivered to the
Dal-Tile board of directors in connection with the merger. The financial
analyses summarized below include information presented in tabular format. In
order to fully understand Credit Suisse First Boston's financial analyses, the
tables must be read together with the text of each summary. The tables alone do
not constitute a complete description of the financial analyses. Considering
the data in the tables below without considering the full narrative description
of the financial analyses, including the methodologies and assumptions
underlying the analyses, could create a misleading or incomplete view of Credit
Suisse First Boston's financial analyses.
Introduction
Credit Suisse First Boston performed a "Discounted Cash Flow Analysis,"
"Comparable Companies Analysis" and "Comparable Acquisitions Analysis" for
Dal-Tile and a "Discounted Cash Flow Analysis," and "Comparable Companies
Analysis" for Mohawk as described below. Based on the valuation methodologies
for Dal-Tile, Credit Suisse First Boston derived the following aggregate
implied per share equity reference ranges for Dal-Tile common stock, as
compared to the merger consideration, assuming $11.00 in cash consideration and
stock consideration resulting from the exchange ratio of 0.2372 based on the
closing price of Mohawk common stock on November 16, 2001 of $51.02:
Aggregate Implied Implied Merger
Per Share Equity Consideration as of
Reference Range November 16, 2001
----------------- -------------------
Dal-Tile Common Stock. $18.25 - $24.75 $23.10
Based on the valuation methodologies for Mohawk, Credit Suisse First Boston
also derived the following aggregate implied per share equity reference range
for Mohawk common stock, as compared to the closing price of Mohawk common
stock on November 16, 2001:
Mohawk Closing
Aggregate Implied Stock Price on
Per Share Equity November 16,
Reference Range 2001
----------------- --------------
Mohawk Common Stock. $45.50 - $56.50 $51.02
Dal-Tile
Discounted Cash Flow Analysis. Credit Suisse First Boston estimated the
present value of the stand-alone, unlevered, after-tax free cash flows that
Dal-Tile could generate for the fiscal years 2002 to 2006. Credit Suisse First
Boston performed this analysis based on three scenarios, Dal-Tile base case,
Dal-Tile alternate case I and Dal-Tile alternate case II. Dal-Tile base case
was based on publicly available research analysts' estimates, as
37
adjusted by the management of Dal-Tile. Dal-Tile alternate case I included
adjustments by Credit Suisse First Boston derived from Dal-Tile base case to
reflect, among other things, the potential for increased revenue and
profitability for Dal-Tile. Dal-Tile alternate case II included adjustments by
the management of Dal-Tile to Dal-Tile base case to reflect, among other
things, the potential for decreased revenue and profitability for Dal-Tile.
Credit Suisse First Boston calculated a range of estimated terminal values
for Dal-Tile by applying selected EBITDA multiples ranging from 7.5x to 8.5x to
Dal-Tile's estimated calendar year 2006 earnings before interest, taxes,
depreciation and amortization, commonly referred to as EBITDA. The estimated
free cash flows and terminal values were then discounted to present value using
selected discount rates ranging from 10.0% to 11.0%.
This analysis indicated an aggregate implied equity reference range for
Dal-Tile of approximately $1,239 million to $1,489 million, based on Dal-Tile
base case, approximately $1,389 million to $1,639 million, based on Dal-Tile
alternate case I, and approximately $1,039 million to $1,289 million, based on
Dal-Tile alternate case II. Using these aggregate equity reference ranges,
Credit Suisse First Boston then derived implied per share equity
reference ranges for Dal-Tile common stock under the Dal-Tile base case,
Dal-Tile alternate case I and Dal-Tile alternate case II. This analysis
indicated the following implied per share equity reference range:
Implied Per Share Implied Per Share Equity Implied Per Share Equity
Equity Reference Range Reference Range Reference Range
Dal-Tile Base Case Dal-Tile Alternate Case I Dal-Tile Alternate Case II
---------------------- ------------------------- --------------------------
Dal-Tile Common Stock $20.00 - $24.00 $22.25 - $26.25 $16.75 - $20.75
Comparable Companies Analysis. Credit Suisse First Boston compared
financial, operating and stock market data of Dal-Tile to corresponding data
for the following 12 publicly traded companies, excluding Dal-Tile, in the
flooring products and other building products industries, which operate in
markets and have businesses and product offerings similar to those of Dal-Tile:
Flooring Products Companies Other Building Products Companies
--------------------------- ----------------------------------
. Dal-Tile . Black & Decker Corporation
. Mohawk . Elcor Corporation
. The Dixie Group, Inc. . Ethan Allen Interiors Inc.
. Interface, Inc. . Fortune Brands, Inc.
. Masco Corporation
. Royal Group Technologies Limited
. Sherwin-Williams Company
. The Stanley Works
Credit Suisse First Boston reviewed enterprise values, calculated as equity
value plus net debt, as multiples of the latest 12 months and estimated
calendar year 2001 revenue, EBITDA and earnings before interest and taxes,
commonly known as EBIT. Credit Suisse First Boston also reviewed equity values
as multiples of estimated calendar years 2001 and 2002 net income. Credit
Suisse First Boston then applied multiples derived from the selected companies
of estimated calendar year 2001 revenue ranging from 0.88x to 1.25x, EBITDA
ranging from 8.0x to 9.0x, EBIT ranging from 9.5x to 11.5x and net income
ranging from 15.0x to 18.0x and estimated calendar year 2002 net income ranging
from 14.0x to 16.0x to corresponding financial data of Dal-Tile. All multiples
were based on closing stock prices on November 16, 2001. Estimated financial
data for Dal-Tile were based on publicly available research analysts'
estimates, as adjusted by the management of Dal-Tile, and estimated financial
data for the selected companies were based on publicly available research
analysts' estimates. This analysis indicated an aggregate implied equity
reference range for Dal-Tile of approximately $1,039 million to $1,239 million.
Using this aggregate equity reference range, Credit Suisse First Boston then
derived implied per share equity reference ranges for Dal-Tile common stock.
This analysis indicated the following implied per share equity reference range:
Implied Per
Share Equity
Reference Range
---------------
Dal-Tile Common Stock $17.25 - $20.75
38
Comparable Acquisitions Analysis. Credit Suisse First Boston reviewed the
implied transaction multiples in the following 28 selected comparable merger
and acquisition transactions in the flooring products and other building
products industries since February 17, 1998, which transactions involved
companies with businesses and product offerings similar to those of Dal-Tile:
Acquiror Target
-------- ------
. Masco Corporation . Milgard Manufacturing, Inc.
. BC Partners Limited . Sanitec Corporation
. Berkshire Hathaway Inc. . Johns Manville Corporation
. Berkshire Hathaway Inc. . Benjamin Moore & Co.
. HSBC Private Equity Limited . Caradon plc, Plumbing Division
. Berkshire Hathaway Inc. . Shaw Industries, Inc.
. Centex Construction Products, Inc. . Republic Group Incorporated
. Berkshire Hathaway Inc. . Justin Industries, Inc.
. Masco Corporation . Masterchem Industries, Inc.
. Odyssey Investment Partners, LLC . Dayton Superior Corporation
. Tomkins PLC and FBP Acquisition Corporation, Inc. . Falcon Building Products, Inc.
. Bruckmann, Rosser, Sherrill & Co., L.P. . O'Sullivan Industries Holdings, Inc.
. Investcorp S.A. . Synthetic Industries, Inc.
. Carlyle Industries, Inc. . Panolam Industries Holdings, Inc.
. La-Z-Boy, Incorporated . LADD Furniture, Inc.
. Masco Corporation . Arrow Fastener Company, Inc., Inrecon, L.L.C.,
Superia Radiatoren, N.V., Behr Process
Corporation, Mill's Pride, L.L.P.
. BC Partners Limited . Friedrich Grohe AG
. Glynwed International plc . Ipex Inc.
. Hancock Park Associates II, L.P. . WinsLoew Furniture, Inc.
. Warburg, Pincus Ventures, L.P. . Knoll, Inc.
. American Standards Companies Inc. . Blue Circle Industries PLC--Bathroom
Division
. Etex Group SA . Marley PLC
. Mohawk Industries, Inc. . World Carpets, Inc.
. Shaw Industries, Inc. . Queen Carpet Corporation
. Armstrong World Industries, Inc. . Triangle Pacific Corp.
. Armstrong World Industries, Inc. . DLW Aktiengesellschaft
. DLJ Merchant Banking Partners II, L.P., CVC . Formica Corporation
European Equity Partners, L.P., CVC European
Equity Partners (New Jersey), L.P.
. U.S. Industries, Inc. . Zurn Industries, Inc.
Credit Suisse First Boston compared enterprise values in the selected
transactions as multiples of latest 12 months revenue, EBITDA and EBIT. Credit
Suisse First Boston also compared equity values in the selected transactions as
multiples of latest 12 months net income and book value. Credit Suisse First
Boston then applied multiples derived from the selected transactions of latest
12 months revenue ranging from 0.9x to 1.3x, EBITDA ranging from 8.0x to 10.0x,
EBIT ranging from 10.5x to 12.5x and net income ranging from 16.0x to 20.0x to
corresponding financial data of Dal-Tile. All multiples for the selected
transactions were based on publicly available information at the time of
announcement of the relevant transaction. Historical financial data for
Dal-Tile were based on publicly available filings of Dal-Tile. This analysis
indicated an aggregate implied equity reference range for Dal-Tile of
approximately $1,139 million to $1,539 million. Using this aggregate equity
39
reference range, Credit Suisse First Boston then derived implied per share
equity reference ranges for Dal-Tile common stock. This analysis indicated the
following implied per share equity reference range:
Implied Per
Share Equity
Reference Range
---------------
Dal-Tile Common Stock $18.25 - $24.75
Mohawk
Discounted Cash Flow Analysis. Credit Suisse First Boston estimated the
present value of the stand-alone, unlevered, after-tax free cash flows that
Mohawk could generate for the fiscal years 2002 to 2006. Credit Suisse First
Boston performed this analysis based on two scenarios, Mohawk base case and
Mohawk alternate case. Mohawk base case was based on publicly available
research analysts' estimates provided to or discussed with Mohawk's management.
Mohawk alternate case included adjustments to Mohawk base case to reflect,
among other things, the potential for decreased revenue and profitability for
Mohawk.
Credit Suisse First Boston calculated a range of estimated terminal values
for Mohawk by applying selected EBITDA multiples ranging from 7.0x to 8.0x to
Mohawk's estimated calendar year 2006 EBITDA. The estimated free cash flows and
terminal values were then discounted to present value using selected discount
rates ranging from 10.0% to 11.0%.
This analysis indicated an aggregate implied equity reference range for
Mohawk of approximately $2,742 million to $3,242 million, based on Mohawk base
case, and approximately $2,142 million to $2,542 million, based on Mohawk
alternate case. Using these aggregate equity reference ranges, Credit Suisse
First Boston then derived implied per share equity reference ranges for Mohawk
common stock under both Mohawk base case and the Mohawk alternate case. This
analysis indicated the following implied per share equity reference range:
Implied Per Share Equity Implied Per Share Equity
Reference Range Reference Range
Mohawk Base Case Mohawk Alternate Case
---------------- ---------------------
Mohawk Common Stock........ $51.00 - $60.25 $39.75 - $47.25
Comparable Companies Analysis. Credit Suisse First Boston compared
financial, operating and stock market data of Mohawk to corresponding data for
the 12 publicly traded companies, excluding Mohawk, described above under the
caption "Dal-Tile--Comparable Companies Analysis," which operate in markets and
have businesses and product offerings similar to those of Mohawk. Credit Suisse
First Boston reviewed enterprise values as multiples of the latest 12 months
and estimated calendar year 2001 revenue, EBITDA and EBIT. Credit Suisse First
Boston also reviewed equity values as multiples of estimated calendar years
2001 and 2002 net income. Credit Suisse First Boston then applied a range of
selected multiples derived from the selected companies' estimated calendar year
2001 revenue, EBITDA, EBIT and net income and estimated calendar year 2002 net
income to corresponding financial data of Mohawk. All multiples were based on
closing stock prices on November 16, 2001. Estimated financial data for Mohawk
and the selected companies were based on publicly available research analysts'
estimates. This analysis indicated an aggregate implied equity reference range
for Mohawk of approximately $2,342 million to $2,842 million. Using this
aggregate equity reference range, Credit Suisse First Boston then derived
implied per share equity reference ranges for Mohawk common stock. This
analysis indicated the following implied per share equity reference range:
Implied Per Share Equity
Reference Range
---------------
Mohawk Common Stock........ $44.00 - $53.25
40
Other Factors. In the course of preparing its opinion, Credit Suisse First
Boston also reviewed and considered other information and data, including:
. the pro forma effect of the merger on Mohawk's estimated earnings per
share, assuming no synergies or one-time charges relating to the
merger or amortization of goodwill, for calendar years 2001 and 2002;
. the credit ratings and selected credit statistics for Dal-Tile and
Mohawk as compared to the corresponding data for selected investment
grade and high yield comparable companies in the flooring products and
other building products industries; and
. historical price performance and trading characteristics of Mohawk
common stock.
Miscellaneous. Dal-Tile has agreed to pay Credit Suisse First Boston for
its financial advisory services, upon completion of the merger, an aggregate
fee equal to 0.45% of the total consideration, including the assumption of
outstanding debt, payable in connection with the merger. Dal-Tile also has
agreed to reimburse Credit Suisse First Boston for its reasonable out-of-pocket
expenses, including reasonable fees and expenses of legal counsel and any other
advisor retained by Credit Suisse First Boston, and to indemnify Credit Suisse
First Boston and related parties against liabilities, including liabilities
under the federal securities laws, arising out of its engagement.
Credit Suisse First Boston acted as lead manager in connection with
Dal-Tile's secondary equity offering in May 2001, for which it received
underwriting fees of approximately $4.3 million and also participated in, and
is currently participating in, a bank credit facility to Dal-Tile, for which
Credit Suisse First Boston has received aggregate fees of approximately
$545,000 since December 1999. Credit Suisse First Boston and its affiliates in
the past have provided financial services to Mohawk unrelated to the proposed
merger, for which services Credit Suisse First Boston and its affiliates have
received compensation. In the ordinary course of business, Credit Suisse First
Boston and its affiliates may actively trade the securities of Dal-Tile and
Mohawk for their own accounts and for the accounts of customers and,
accordingly, may at any time hold long or short positions in those securities.
Completion of the Merger
Subject to the conditions to the obligations of the parties to effect the
merger, the merger will be completed on the date and at the time specified in
the certificate of merger to be filed with the Secretary of State of the State
of Delaware. Unless Mohawk and Dal-Tile agree otherwise, they will use
reasonable efforts to complete the merger on the first business day after the
last to occur of:
. the effective date of the last required consent of any regulatory
authority having authority over the merger; and
. the date or dates on which both the stockholders of Dal-Tile and Mohawk
approve the merger agreement.
Mohawk and Dal-Tile anticipate that the merger will become effective on or
about March 20, 2002. However, delays could occur. Mohawk and Dal-Tile cannot
assure you that they will be able to obtain necessary stockholder and
regulatory approvals for the merger or that they will be able to satisfy other
conditions to completion of the merger. Either Dal-Tile or Mohawk may terminate
the merger agreement if the merger is not completed by May 31, 2002, unless the
merger has not been completed because of the breach of the merger agreement by
the party seeking termination. This date will be extended to July 31, 2002, if
the merger has not been consummated as a result of the failure of the parties
to have received a material required consent of any regulatory authority, or if
a court or governmental or other regulatory authority has enacted legislation
or taken or threatened to take any other action which prohibits or would
prohibit the consummation of the merger. See "--Conditions to Completion of the
Merger" and "--Waiver, Amendment, and Termination."
41
Distribution of Mohawk Stock Certificates and Cash Payment
Promptly after the merger is completed, each Dal-Tile stockholder at the
time of completion of the merger will be mailed a letter of transmittal and
instructions for the exchange of the certificates representing shares of
Dal-Tile common stock for certificates representing shares of Mohawk common
stock and the cash payment.
You should not send in your certificates until you receive a letter of
transmittal and instructions.
After you surrender to the exchange agent your certificates for Dal-Tile
common stock with a properly completed letter of transmittal, the exchange
agent will mail you a certificate or certificates representing the number of
shares of Mohawk common stock to which you are entitled and a check for the
cash payment and the cash amount to be paid in lieu of any fractional share, if
any, without interest, together with all undelivered dividends or distributions
in respect of the shares of Mohawk common stock, if any, without interest.
Mohawk will not be obligated to deliver the merger consideration to you, as a
former Dal-Tile stockholder, until you have surrendered your Dal-Tile common
stock certificates.
Whenever a dividend or other distribution is declared by Mohawk on Mohawk
common stock with a record date after the date on which the merger is
completed, the declaration will include dividends or other distributions on all
shares of Mohawk common stock that may be issued in the merger. However, Mohawk
will not pay any dividend or other distribution that is payable after the
completion of the merger to any former Dal-Tile stockholder who has not
surrendered his or her Dal-Tile stock certificates until the holder surrenders
the certificates. If any Dal-Tile stockholder's stock certificate has been
lost, stolen, mislaid or destroyed, the exchange agent will issue the shares of
Mohawk common stock, the cash payment and any cash in lieu of fractional shares
upon the stockholder's submission of an affidavit claiming the certificate to
be lost, stolen, mislaid or destroyed, the posting of a bond in such amount as
Mohawk and the exchange agent may reasonably require as indemnity against any
claim that may be made against Mohawk with respect to the certificate, and
submission of any other documents necessary to effect the exchange of the
shares represented by the certificate.
At the time the merger is completed, the stock transfer books of Dal-Tile
will be closed to Dal-Tile stockholders and no transfer of shares of Dal-Tile
common stock by any stockholder will thereafter be made or recognized. If
certificates for shares of Dal-Tile common stock are presented for transfer
after the merger is completed, they will be canceled and exchanged for shares
of Mohawk common stock, a check for the cash payment, the cash amount due in
lieu of fractional shares, if any, and any undelivered dividends on the Mohawk
common stock, if any.
Conditions to Completion of the Merger
Mohawk and Dal-Tile are required to complete the merger only after the
satisfaction of various conditions. These conditions include:
. the holders of a majority of the outstanding shares of Dal-Tile common
stock must have approved the adoption of the merger agreement;
. a majority of the votes cast by holders of Mohawk common stock at the
Mohawk special meeting and entitled to vote must have approved the
issuance of the shares of Mohawk common stock in the merger;
. the waiting period under the HSR Act must have expired or been
terminated and the parties must have received all other material
required consents of any regulatory authority, and these consents must
not be conditioned or restricted in a manner which Mohawk determines to
be material to Mohawk or to the benefits of the merger;
. there must not be any legislation enacted by a court or governmental or
other regulatory authority or any other action taken or threatened to be
taken by a court or governmental or other regulatory authority which
prohibits the completion of the merger;
42
. the registration statement, of which this joint proxy
statement-prospectus is a part, must continue to be effective under the
Securities Act, and all necessary approvals under state or federal
securities laws must have been obtained;
. the shares of Mohawk common stock to be issued in the merger and the
shares of Mohawk common stock to be issued upon the exercise of Dal-Tile
options being rolled over into Mohawk options in the merger must be
approved for listing on the New York Stock Exchange, subject to official
notice of issuance;
. Mohawk and Dal-Tile must receive written opinions of their respective
counsel as to the tax-free nature of the exchange of Dal-Tile common
stock for shares of Mohawk common stock in the merger;
. as of the date the merger is completed there must not be inaccuracies in
the representations and warranties with respect to the capitalization of
Dal-Tile and Mohawk contained in the merger agreement; there must not be
material inaccuracies in other specified representations and warranties
of Dal-Tile and Mohawk; and there must not be inaccuracies in the other
representations and warranties of Dal-Tile and Mohawk contained in the
merger agreement such that the aggregate effect of such inaccuracies
(without regard to materiality or material adverse effect qualifiers)
has, or is reasonably likely to have, a material adverse effect on such
party;
. Dal-Tile and Mohawk must have performed all agreements and complied with
all covenants set forth in the merger agreement in all material respects;
. there must not have been a material adverse effect, as defined in
Section 11.1 of the merger agreement attached as Annex A hereto, on
Mohawk or Dal-Tile that has occurred from the date of the merger
agreement to the date the merger is completed and is continuing; and
. other conditions must be satisfied, including the receipt of various
certificates from the officers of Dal-Tile and Mohawk.
We cannot assure you as to when or if all of the conditions to the merger
can or will be satisfied or waived by the party permitted to do so. If the
merger is not effected on or before May 31, 2002, either Dal-Tile or Mohawk may
terminate the merger agreement and abandon the merger, unless the merger has
not been completed because of the breach of the merger agreement by the party
seeking termination. This date will be extended to July 31, 2002, if the merger
has not been consummated as a result of the failure of the parties to have
received a material required consent of any regulatory authority or if a court
or governmental or other regulatory authority has enacted legislation or taken
or threatened to take any other action which prohibits the consummation of the
merger. See "--Waiver, Amendment, and Termination."
Regulatory Approval
Dal-Tile and Mohawk are not aware of any material governmental approvals or
actions that are required to complete the merger, except as described below.
Should any other approval or action be required, Mohawk and Dal-Tile have
agreed that they will seek such approval or action.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the related rules, the merger may not be completed until notifications have
been given and certain information has been furnished to the Federal Trade
Commission and the Antitrust Division of the Department of Justice and the
applicable waiting period has expired or been terminated. Mohawk and Dal-Tile
filed notification and report forms under the HSR Act with the FTC and the
Antitrust Division on December 4, 2001. Mohawk and Dal-Tile received notice of
the early termination of the statutory waiting period under the HSR Act on
December 14, 2001. At any time before or after completion of the merger, the
Antitrust Division or the FTC could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking to
enjoin the completion of the merger or seeking divestiture of substantial
assets of Mohawk or Dal-Tile. At any time before or after the
43
completion of the merger, and even after the expiration or termination of the
waiting period under the HSR Act, any state could take such action under the
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the completion of the merger or seeking
divestiture of substantial assets of Mohawk or Dal-Tile. Private parties may
also seek to take legal action under the antitrust laws under certain
circumstances.
Mohawk is also required to make a filing relating to the merger under the
Mexican Federal Law of Economic Competition. Mohawk filed preliminary
documentation with the Mexican Federal Competition Commission on December 17,
2001. There is no statutory waiting period, but the clearance procedure will
take between 30 and 200 days. The merger may be completed at any time after
filing, but the Mexican Federal Competition Commission could take action under
these laws to order divestiture or otherwise enjoin the completion of the
transaction prior to clearance.
Mohawk and Dal-Tile believe that the merger can be effected in compliance
with the federal, state and foreign antitrust laws; however, there can be no
assurance that a challenge to the completion of the merger on antitrust grounds
will not be made or that, if such a challenge were made, Mohawk and Dal-Tile
would prevail or would not be required to accept certain adverse conditions in
order to complete the merger. Pursuant to the merger agreement, Mohawk is not
required to divest any of its businesses, product lines or assets, or to take
or agree to take any other action or agree to any limitation, that Mohawk
reasonably determines to be material to it or to the benefits of the merger as
a result of any governmental or regulatory approval.
Representations and Warranties
Mohawk and Dal-Tile have made customary representations and warranties
relating to their businesses and the merger in the merger agreement, including
representations and warranties relating to the following:
. the proper organization of their companies and their subsidiaries and
similar corporate matters;
. the proper authorization, execution, delivery and performance of the
merger agreement by the companies and the absence of conflicts with
their organizational documents, other material agreements or laws due to
executing the merger agreement;
. their capital structure;
. the accuracy of information in Securities and Exchange Commission
filings made by each company and the accuracy of the financial
statements of each company and their compliance with generally accepted
accounting principles;
. the absence of undisclosed liabilities;
. the absence of occurrences which have had material adverse effects, as
defined in Section 11.1 of the merger agreement, on the companies;
. the filing of required tax returns and payment of taxes by the companies;
. the companies' intellectual property rights;
. environmental matters affecting the companies;
. compliance with laws by the companies;
. Dal-Tile's relations with its employees;
. Dal-Tile's employee benefit plans;
. material contracts;
. the absence of involvement in material litigation by the companies;
. the accuracy of information provided by the companies for inclusion in
this joint proxy statement-prospectus;
44
. state takeover laws and board approval;
. the identification of each company's financial advisor and the receipt
of the financial advisor's opinion; and
. recommendations of the boards of directors of the companies concerning
the merger.
The merger agreement is attached as Annex A to this joint proxy
statement-prospectus.
Conduct of Business Pending the Merger
Mohawk has agreed to use its reasonable efforts to take all actions
necessary to consummate the merger as soon as reasonably practicable and not to
take any action that would materially adversely affect any party's ability to
obtain any consents required for the merger or materially adversely affect any
party's ability to perform its covenants and agreements under the merger
agreement. The merger agreement also obligates Mohawk to continue to conduct
its business in a manner designed in its reasonable judgment to enhance the
long-term value of Mohawk common stock and the business prospects of Mohawk
before the merger is completed and imposes certain limitations on the
operations of Mohawk and its subsidiaries. These items are contained in Article
7 of the merger agreement that is attached as Annex A to this joint proxy
statement-prospectus.
Dal-Tile has agreed to use its reasonable efforts to take all actions
necessary to consummate the merger as soon as reasonably practicable after the
date of the merger agreement and not to take any action that would adversely
affect any party's ability to obtain any consents required for the merger or
adversely affect any party's ability to perform their covenants and agreements
under the merger agreement. The merger agreement also obligates Dal-Tile to
conduct its business only in the usual, regular, and ordinary course before the
merger is completed and imposes certain limitations on the operations of
Dal-Tile and its subsidiaries. These items are contained in Article 7 of the
merger agreement that is attached as Annex A to this joint proxy
statement-prospectus.
Waiver, Amendment, and Termination
To the extent permitted by law, Mohawk and Dal-Tile may agree in writing to
amend the merger agreement, whether before or after the stockholders of
Dal-Tile and Mohawk have approved it, provided that after any such stockholder
approval, the parties will make no amendment that pursuant to applicable law
requires further approval by their respective stockholders without the further
approval of their respective stockholders. In addition, before or at the time
the merger is completed, either Dal-Tile or Mohawk, or both, may waive any
default in the performance of any term of the merger agreement by the other
party or may waive or extend the time for the compliance or fulfillment by the
other party of any and all of its obligations under the merger agreement. In
addition, either Mohawk or Dal-Tile may waive any of the conditions precedent
to its obligations under the merger agreement, unless a violation of any law or
governmental regulation would result. To be effective, a waiver must be in
writing and signed by an authorized officer of Dal-Tile or Mohawk, as the case
may be.
At any time before the completion of the merger, the boards of directors of
Mohawk and Dal-Tile may agree by mutual written consent to terminate the merger
agreement. In addition, either Mohawk or Dal-Tile may terminate the merger
agreement by written notice of termination to the other party specifying the
reason for termination in the following circumstances:
. if the merger is not completed by May 31, 2002 (which date will be
extended to July 31, 2002, if the merger has not been completed as a
result of the failure of the parties to have received a material
required consent of any regulatory authority, or if a court or
governmental or other regulatory authority has enacted legislation or
taken or threatened to take any other action which prohibits the
completion of the merger), unless the merger has not been completed
because of the breach of the merger agreement by the party seeking
termination (we refer to this date as the "end date");
45
. if a breach by the other party of any representation, warranty, covenant
or agreement contained in the merger agreement would permit that party
to refuse to complete the merger pursuant to the conditions discussed in
"--Conditions to Completion of the Merger"; provided that if a breach in
the representations, warranties, covenants or agreements is curable
prior to the end date by the exercise of reasonable efforts and the
breaching party exercises reasonable efforts to cure the breach, then
the non-breaching party may not terminate the merger agreement prior to
30 days following the receipt by the breaching party of written notice
of such breach; further provided that the terminating party is not then
in material breach of any covenant or other agreement contained in the
merger agreement and has not willfully breached any of such party's
representations and warranties contained in the merger agreement;
. if any consent of any regulatory authority required to complete the
merger has been denied by final nonappealable action, or if any action
taken by such authority is not appealed within the time limit for
appeal, or any law or order permanently restraining, enjoining or
otherwise prohibiting the consummation of the merger has become final
and nonappealable;
. if the stockholders of Dal-Tile fail to adopt and approve the merger
agreement and the merger or the stockholders of Mohawk fail to approve
the issuance of Mohawk common stock in the merger at their respective
special meetings; provided that the failure to obtain stockholder
approval of the terminating party has not been caused by the action or
failure to act by that party where the action or failure to act
constitutes a material breach by the party of the merger agreement; and
. if there has been a material adverse effect on the other party as
defined in Section 11.1 of the merger agreement attached as Annex A
hereto.
In addition, Mohawk may also terminate the merger agreement by written
notice of termination to Dal-Tile, if:
. the board of directors of Dal-Tile fails to reaffirm publicly its
approval of the merger and the transactions contemplated by the merger
agreement, as soon as reasonably practicable, and in no event later than
two business days after Mohawk's request for such reaffirmation, or if
the Dal-Tile board of directors resolve not to reaffirm the merger;
. the board of directors of Dal-Tile withholds, withdraws, amends or
modifies, or proposes publicly to withdraw, qualify or modify, in a
manner adverse to Mohawk, its recommendation to Dal-Tile's stockholders
that they approve and adopt the merger agreement and approve the merger;
or
. the board of directors of Dal-Tile makes a change of recommendation
adverse to the merger (as discussed in "--Solicitation Prohibitions" or,
within ten business days after commencement of any tender or exchange
offer for any shares of Dal-Tile common stock, the board of directors of
Dal-Tile fails to recommend against acceptance of the tender or exchange
offer by its stockholders or takes no position with respect to the
acceptance of the tender or exchange offer by its stockholders.
We refer to a termination by Mohawk as a result of any of the immediately
foregoing as a "Dal-Tile withdrawal termination."
In addition, Dal-Tile may also terminate the merger agreement by written
notice of termination to Mohawk, provided that Dal-Tile is not then in material
breach of any covenant or other agreement contained in the merger agreement and
has not willfully breached any of its representations and warranties contained
in the merger agreement, if the board of directors of Dal-Tile has made a
change of recommendation adverse to the merger (as discussed in "--Solicitation
Prohibitions") in order to approve and permit Dal-Tile to accept a superior
offer (as discussed in "--Solicitation Prohibitions"); provided that
. Mohawk does not make, within three business days after receipt of
Dal-Tile's written notice of a superior offer, an offer that the board
of directors of Dal-Tile concludes in good faith (following consultation
with its financial advisor and outside legal counsel) is as favorable,
from a financial point of view, to the Dal-Tile's stockholders as the
superior offer; and
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. Dal-Tile shall have paid Mohawk $45 million concurrently with delivery
of notice of termination.
We refer to a termination by Dal-Tile as a result of the immediately foregoing
as a "Dal-Tile superior offer termination."
If the merger is terminated, the merger agreement will become void and have
no effect, except that certain provisions of the merger agreement, including
those relating to the obligations to share certain expenses and maintain the
confidentiality of certain information obtained, will survive. Termination of
the merger agreement will not relieve any breaching party from liability for
any willful breach of a representation, warranty, covenant or agreement
contained in the merger agreement.
Board Recommendation
The boards of directors of Mohawk and Dal-Tile have unanimously approved the
merger agreement and unanimously agreed to recommend and, subject to the
conditions discussed below, not to withdraw, amend or modify in a manner
adverse to the other party, the recommendation that their respective
stockholders vote to adopt the merger agreement, in the case of the Dal-Tile
stockholders, and vote to approve the issuance of Mohawk shares in the Merger,
in the case of the Mohawk stockholders.
However, in response to the receipt of a "superior offer" the board of
directors of Dal-Tile may withhold, withdraw, amend or modify, or propose or
resolve to withdraw, amend or modify, its recommendation in favor of the
merger, and, in the case of a superior offer that is a tender or exchange offer
made directly to its stockholders, may recommend that its stockholders accept
the tender or exchange offer (we refer to any of the foregoing actions, whether
by a board of directors or a committee thereof, as a "change of
recommendation"). However, the Dal-Tile board of directors may effect a change
in recommendation only if all of the following conditions are met:
. a superior offer has been made and has not been withdrawn;
. Dal-Tile's special meeting has not occurred;
. Dal-Tile must have
- provided to Mohawk written notice stating expressly (a) that it has
received a superior offer, (b) the material terms and conditions of
the superior offer and the identity of the person or group making the
superior offer and (c) that it intends to effect a change of
recommendation and the manner in which it intends to do so;
- provided to Mohawk a copy of all written materials delivered to the
person or group making the superior offer in connection with such
superior offer;
- made available to Mohawk all materials and information made available
to the person or group making the superior offer in connection with
such superior offer; and
- Dal-Tile must have complied in all material respects with the terms
of the covenant requiring the calling and conducting of a special
meeting of its stockholders and the recommendation of its board of
directors and the covenant prohibiting the solicitation of
acquisition proposals described below in "--Solicitation
Prohibitions."
A "superior offer" is defined in the merger agreement to mean:
. an unsolicited, bona fide written offer made by a third party to
acquire, directly or indirectly, pursuant to a tender offer, exchange
offer, merger, consolidation or other business combination, all or
substantially all of the assets of Dal-Tile or substantially all of the
total outstanding voting securities of Dal-Tile; and
. an offer on terms that the board of directors of Dal-Tile has in good
faith concluded (following the receipt of advice of its outside legal
counsel and its financial adviser), taking into account, among other
things, all legal, financial, regulatory and other aspects of the offer
and the person making the offer, to be more favorable, from a financial
point of view, to Dal-Tile's stockholders (in their capacities as
stockholders) than the terms of the merger and is reasonably capable of
being completed.
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The obligation of Dal-Tile to call, give notice of, convene and hold its
stockholders' meeting is not affected by the commencement, disclosure,
announcement or submission to Dal-Tile of any acquisition proposal with respect
to it, or by any change of recommendation. Dal-Tile has agreed not to submit or
prepare to submit to the vote of its stockholders any acquisition proposal
unless the board of directors of Dal-Tile has made a change of recommendation
and consequently has terminated the merger agreement as discussed under
"--Waiver, Amendment, and Termination."
Solicitation Prohibitions
The merger agreement restricts Dal-Tile's ability to solicit other
acquisition proposals. Dal-Tile has agreed that it and its subsidiaries will
immediately cease any and all existing activities, discussions or negotiations
with any third parties conducted prior to the date of the merger agreement with
respect to any "acquisition proposal," which is defined in the merger agreement
to mean any offer or proposal relating to any transaction or series of related
transactions involving:
. any purchase from Dal-Tile, or acquisition by any person or group, of
more than a 15% interest in the total outstanding voting securities of
Dal-Tile or any of its subsidiaries;
. any tender offer or exchange offer that if consummated would result in
any person or group beneficially owning 15% or more of the total
outstanding voting securities of Dal-Tile or any of its subsidiaries;
. any merger, consolidation, business combination or similar transaction
involving Dal-Tile or any of its subsidiaries;
. any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 15% of the assets of
Dal-Tile and its subsidiaries, taken as a whole; or
. any liquidation or dissolution of Dal-Tile or any of its subsidiaries.
The merger agreement also provides that neither Dal-Tile nor any of its
affiliates or representatives will solicit any competing acquisition proposal.
If Dal-Tile receives an acquisition proposal it must promptly notify Mohawk of
the terms of such proposal. Dal-Tile may provide third parties with
confidential information, have discussions and negotiations with, or otherwise
facilitate an effort or attempt by a third party to make or implement an
acquisition proposal not solicited in violation of the merger agreement if:
. Dal-Tile's board of directors determines in good faith (following the
receipt of advice from its legal and financial advisors) that the
acquisition proposal could result in a superior offer that is likely to
be consummated;
. prior to providing any information, its board of directors notifies
Mohawk of its intent to provide such information and Dal-Tile receives
from such third party an executed confidentiality agreement with
provisions at least as stringent as those contained in the
confidentiality agreement between Mohawk and Dal-Tile;
. contemporaneously with providing such information to the third party,
Dal-Tile provides such information to Mohawk; and
. Dal-Tile notifies Mohawk of its intent to engage in negotiations with
the third party.
Effect of the Merger on Dal-Tile Options
Mohawk will ask each holder of options granted under Dal-Tile's stock option
plan to consent to a partial cash-out of their options upon completion of the
merger. If an option holder consents in a timely fashion, one-half of his or
her options, whether or not currently exercisable, will be cancelled, and he or
she will receive a
48
cash payment for each cancelled option equal to the difference between $22.00
and the exercise price for the option. The remaining one-half of his or her
options will immediately vest and become options to purchase Mohawk common
stock. Mohawk will assume each such option in accordance with the terms of
Dal-Tile's stock option plan and the stock option agreement that evidences the
option and will deliver Mohawk common stock upon the exercise of each assumed
option. After the merger is completed:
. Mohawk and its compensation committee will be substituted for Dal-Tile
and the committee of Dal-Tile's board of directors administering
Dal-Tile's plan;
. each option assumed by Mohawk may be exercised only for shares of Mohawk
common stock;
. the number of shares of Mohawk common stock subject to the assumed
option will be equal to the number of shares of Dal-Tile common stock
subject to the option immediately before the merger is completed
multiplied by two times the exchange ratio; and
. the per share exercise price of each assumed option will be adjusted by
dividing it by two times the exchange ratio and rounding up to the
nearest cent.
In determining which options will be cashed out and which options will be
assumed by Mohawk, each particular grant of Dal-Tile options to an option
holder having different exercise prices and terms will be split evenly (with
any remaining odd option being cashed out).
If an option holder does not timely consent to the partial cash-out of their
Dal-Tile options, all of his or her options, whether or not currently
exercisable, will immediately vest and be assumed by Mohawk as options to
receive the merger consideration. Options of Dal-Tile option holders who do not
consent will be adjusted as described above, except that the per share exercise
price of each option will be adjusted by dividing it by the exchange ratio and
rounding up to the nearest cent, and upon exercise of these options, the option
holder will receive, for each option:
. a cash payment equal to the number of shares of Dal-Tile common stock
subject to the option immediately before the merger is completed
multiplied by $11.00; and
. a number of shares of Mohawk common stock equal to the number of shares
of Dal-Tile common stock subject to the option immediately before the
merger is completed multiplied by the exchange ratio.
Mohawk will not issue any fractional shares of common stock upon exercise of
an option. Rather, Mohawk will pay cash for any fractional share based upon the
last sale price per share of Mohawk common stock on the trading day immediately
preceding the date of exercise.
Mohawk has agreed to file a registration statement on Form S-8 within five
business days of the completion of the merger to register the issuance of the
shares of Mohawk common stock upon the exercise of the assumed Dal-Tile options.
For information with respect to stock options held by Dal-Tile's directors
and executive officers, see "--Interests of Certain Persons in the Merger."
Material Federal Income Tax Consequences of the Merger
The following summary of the material U.S. federal income tax consequences
of the merger applicable to a person that exchanges shares of Dal-Tile common
stock for shares of Mohawk common stock and cash pursuant to the merger
constitutes the opinion of Vinson & Elkins L.L.P., counsel to Dal-Tile. This
discussion is based upon the Internal Revenue Code, Treasury Regulations,
judicial authorities, published positions of the IRS and other applicable
authorities, all as in effect on the date of this joint proxy
statement-prospectus and all of which are subject to change or differing
interpretations (possibly with retroactive effect). This discussion is limited
to U.S. persons that hold their shares of Dal-Tile common stock as capital
assets for U.S. federal income tax
49
purposes and does not address the tax treatment to stockholders who hold their
shares through a partnership or other pass-through entity. This discussion does
not address all aspects of United States federal income taxation that may be
relevant to Dal-Tile stockholders in light of their particular circumstances or
Dal-Tile stockholders subject to special treatment under United States federal
income tax laws. Furthermore, this summary does not address any aspect of
state, local or foreign taxation. No assurance can be given that the IRS would
not assert, or that a court would not sustain, a position contrary to any of
the tax aspects set forth below. Holders of shares of Dal-Tile common stock are
encouraged to consult their own tax advisors as to the U.S. federal income tax
consequences of the merger, as well as the effects of state, local and foreign
tax laws.
The U.S. federal income tax consequences resulting from the merger will
differ depending on whether a forward merger structure or a reverse merger
structure is used. See "--General" above for a description of the forward
merger and reverse merger structures.
. If the forward merger structure is used, and assuming certain conditions
described below are satisfied, then Dal-Tile will receive an opinion
from its counsel, Vinson & Elkins L.L.P. and Mohawk will receive an
opinion from its counsel, Alston & Bird LLP, substantially to the effect
that the merger will qualify as a reorganization under Section 368(a) of
the Internal Revenue Code.
. If the reverse merger structure is used, the merger will not constitute
a reorganization under Section 368(a) of the Internal Revenue Code.
Instead, it will be treated as a sale of Dal-Tile common stock, fully
taxable to the Dal-Tile stockholders.
We may not know until the closing of the merger whether the transaction will
be completed as a forward merger or a reverse merger. As a result, Dal-Tile
stockholders will not know the tax consequences to them of the merger at the
time they vote on it.
One of the requirements that must be satisfied in order for the forward
merger to qualify as a reorganization under Section 368(a) is the continuity of
interest requirement. This requirement will be satisfied if the Dal-Tile
stockholders exchange a substantial portion of their proprietary interest in
Dal-Tile for proprietary interests in Mohawk. The IRS takes the position for
advance ruling purposes that the continuity of interest requirement is
satisfied in a reorganization if the value of the acquiring corporation's stock
received in the reorganization by the acquired corporation's stockholders
equals or exceeds 50% of the total consideration paid for the stock of the
acquired corporation in a tax-free reorganization. In the opinion of Vinson &
Elkins L.L.P. and of Alston & Bird LLP, the continuity of interest requirement
will be satisfied under applicable case law if, as of the effective time of the
merger, the value of the Mohawk common stock received in connection with the
merger by the Dal-Tile stockholders equals or exceeds 40% of the total
consideration paid or deemed paid for the Dal-Tile common stock in the
reorganization. An opinion of counsel represents counsel's best legal judgment
and is not binding on the IRS, and there can be no assurance that following the
merger the IRS will not challenge the qualification of the merger as a
reorganization within the meaning of Section 368(a) of the Code.
Various factors affect whether the value of the Mohawk common stock received
by Dal-Tile stockholders in the merger is equal to at least 40% of the combined
value of the merger consideration as of the completion of the merger, including:
. the amount, if any, to be paid to Dal-Tile stockholders who perfect
their appraisal rights;
. whether prior to and in connection with the merger Dal-Tile (or certain
parties related to Dal-Tile) redeems or acquires Dal-Tile stock or makes
distributions to the Dal-Tile stockholders; and
. whether there will be any repurchases by Mohawk (or certain parties
related to Mohawk) of the Mohawk common stock to be issued in the merger.
Accordingly, it is not possible to state with any certainty the minimum trading
price of the Mohawk common stock at which the value of the Mohawk common stock
to be received in the merger will be equal to at least 40% of the value of the
combined merger consideration as of the completion of the merger. Assuming that
the $11.00
50
per share cash consideration is the only non-Mohawk common stock consideration
received or to be received by the Dal-Tile stockholders in the merger, and
assuming further that there are no stockholders exercising appraisal rights, no
cash to be paid in lieu of fractional share interests, no distributions or
redemptions made by Dal-Tile (or certain parties related to Dal-Tile) in
connection with the merger, and no repurchases or acquisitions by Mohawk (or
certain parties related to Mohawk) of the Mohawk common stock to be issued in
the merger, the minimum trading price of the Mohawk common stock at which the
value of the Mohawk common stock to be received in the merger will be equal to
at least 40% of the value of the combined merger consideration is approximately
$27.00 per share. If such assumptions prove to be inaccurate, then such minimum
trading price may be higher than $27.00 per share.
The purpose of using the reverse merger structure is to avoid the
substantial corporate level tax that would result if the merger were to be
structured as a forward merger and were to fail to satisfy the requirements of
a tax-free reorganization under Section 368(a) of the Code. There should not be
a corporate level tax resulting from the failure of a reverse merger to qualify
as a tax-free reorganization under Section 368(a) of the Code.
Tax Consequences of the Forward Merger Structure. If the merger is
effected as a forward merger, then the forward merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code, and the U.S. federal income tax consequences will generally be as follows:
. Exchange of Dal-Tile Common Stock for Mohawk Common Stock and Cash. A
stockholder of Dal-Tile who exchanges his, her or its shares of Dal-Tile
common stock for shares of Mohawk common stock and cash in the forward
merger will recognize gain (but not loss) in an amount equal to the
lesser of (1) the amount of cash received pursuant to the forward
merger, and (2) an amount equal to the excess, if any, of (a) the sum of
the fair market value of the Mohawk common stock received in the forward
merger and the amount of cash received pursuant to the forward merger
over (b) the stockholder's adjusted tax basis in its shares of Dal-Tile
common stock. The gain recognized will be capital gain unless the
receipt of cash by the stockholder has the effect of a distribution of a
dividend, in which case the gain will be treated as ordinary dividend
income to the extent of the stockholder's ratable share of Dal-Tile's
accumulated earnings and profits as calculated for U.S. federal income
tax purposes. For purposes of determining whether the receipt of cash by
the stockholder has the effect of a distribution of a dividend, a
stockholder will be treated as if the stockholder first exchanged all of
its shares of Dal-Tile common stock solely for shares of Mohawk common
stock and then Mohawk immediately redeemed a portion of the common stock
for cash that the stockholder actually received pursuant to the forward
merger. The IRS has indicated in rulings that any reduction in the
interest of a minority stockholder that exercises no control over
corporate affairs would receive capital gains (as opposed to dividend)
treatment. In determining whether the receipt of cash has the effect of
a distribution of a dividend, certain constructive ownership rules must
be taken into account. Any recognized capital gain will be long-term
capital gain if your holding period with respect to your Dal-Tile common
stock exceeds one year, and if you are a natural person, will be subject
to a maximum tax rate of 20%.
. Tax Basis for Mohawk Common Stock. As a Dal-Tile stockholder, you will
have an aggregate tax basis in the shares of Mohawk common stock you
receive pursuant to the forward merger equal to your aggregate adjusted
tax basis in your shares of Dal-Tile common stock surrendered pursuant
to the forward merger, (1) reduced by (a) the portion of your adjusted
tax basis in your shares of Dal-Tile common stock surrendered in the
merger that is allocable to a fractional share of Mohawk common stock
for which cash is received and (b) the amount of cash received by you
pursuant to the forward merger, and (2) increased by the amount of gain
(including the portion of such gain that is treated as a dividend as
described above) recognized by the stockholder (but not by gain
recognized upon the receipt of cash in lieu of a fractional share of
Mohawk common stock pursuant to the forward merger).
. Holding Period for Mohawk Common Stock. The holding period for shares of
Mohawk common stock received by a stockholder of Dal-Tile pursuant to
the forward merger will include the holding period for the shares of
Dal-Tile common stock surrendered.
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. Cash Received in Lieu of a Fractional Share of Mohawk Common Stock. If,
as a Dal-Tile stockholder, you receive cash in lieu of a fractional
share of Mohawk common stock in the forward merger, then you will
generally recognize capital gain or loss equal to the difference between
the amount of cash received in lieu of the fractional share and the
portion of your adjusted tax basis in your shares of Dal-Tile common
stock that is allocable to the fractional share. The capital gain or
loss will be long-term capital gain or loss if your holding period for
the portion of the shares deemed exchanged for the fractional share is
more than one year.
. Treatment of the Entities. No gain or loss will be recognized by Mohawk,
Merger Sub or Dal-Tile as a result of the forward merger.
. Reporting Requirements. Dal-Tile stockholders receiving Mohawk common
stock in the merger should file a statement with their United States
federal income tax returns setting forth their adjusted tax basis in the
Dal-Tile common stock exchanged in the forward merger and the fair
market value of the Mohawk common stock and the amount of cash received
in the forward merger. In addition, Dal-Tile stockholders will be
required to retain permanent records of these facts relating to the
forward merger.
Under the merger agreement, each of Mohawk and Dal-Tile have agreed to use
their reasonable best efforts to cause the forward merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code, and Dal-Tile
has agreed to obtain an opinion from its counsel, Vinson & Elkins L.L.P., and
Mohawk has agreed to obtain an opinion from its counsel, Alston & Bird LLP, at
the closing of the merger that, based upon, among other things, the facts
described herein and customary representations and assumptions, the forward
merger will be treated as a "reorganization" within the meaning of Section
368(a) of the Code. The obligation of each of Vinson & Elkins L.L.P. and Alston
& Bird LLP to deliver closing tax opinions is conditioned upon:
. the receipt by each of Vinson & Elkins L.L.P. and Alston & Bird LLP of
certain representation letters from each of Mohawk and Dal-Tile relating
to the facts surrounding the forward merger; and
. the receipt by the Dal-Tile stockholders in the forward merger, in the
aggregate, of Mohawk common stock with a value as of the effective time
equal to at least 40% of the combined value of all merger consideration,
taking into account the amount of cash paid or deemed paid to Dal-Tile
stockholders in connection with the merger (including cash paid to
Dal-Tile stockholders who perfect their dissenters rights, redemptions
or acquisitions of Dal-Tile common stock by Dal-Tile or certain parties
related to Dal-Tile in connection with the forward merger, extraordinary
distributions made by Dal-Tile or parties related to Dal-Tile prior to
and in connection with the forward merger, and certain repurchases or
acquisitions of Mohawk common stock issued in the merger by Mohawk or
certain parties related to Mohawk).
If Dal-Tile and Mohawk are not able to obtain the closing tax opinions, then
the merger will not close as a forward merger, and Dal-Tile will have the
option to change the merger in form from a forward merger to a reverse merger,
which as summarized below, will be fully taxable transaction for all the
stockholders of Dal-Tile, but not for Mohawk, Merger Sub or Dal-Tile.
Tax Consequences of the Reverse Merger Structure. In the event a reverse
merger takes place, the tax consequences to stockholders of Dal-Tile common
stock will differ materially from those summarized above. In general, as a
stockholder of Dal-Tile, you will recognize capital gain or loss in an amount
equal to (1) the sum of the fair market value of the Mohawk common stock you
receive in the reverse merger, and the amount of the cash you receive in the
reverse merger minus (2) your adjusted tax basis in your shares of Dal-Tile
common stock surrendered in the reverse merger. The capital gain will be long
term capital gain or loss if you have held your shares for more than one year
(and in the case of stockholders who are natural persons, the long term capital
gain will be subject to a maximum tax rate of 20% at the effective time of the
merger).
Depending on the value of the Mohawk common stock as of the effective time
of the merger, it is possible that Dal-Tile and Mohawk will not be able to
obtain the closing tax opinions. Thus, no assurance can be given that the
structure of the merger will be effected, and if effected will take the form of
a forward merger as opposed to a reverse merger.
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The foregoing discussion is intended only as a summary and does not purport
to be a complete analysis or listing of all potential federal income tax
consequences of the merger. Dal-Tile stockholders are urged to consult their
tax advisors concerning the United States federal, state, local and foreign tax
consequences of the merger to them.
Accounting Treatment
Mohawk will account for the merger under the purchase method of accounting
for business combinations. See "Unaudited Pro Forma Condensed Combined
Consolidated Financial Information."
Stock Exchange Listing
The shares of Mohawk common stock to be issued in the merger have been
approved for listing on the New York Stock Exchange, subject to approval of
their issuance by Mohawk stockholders.
Expenses and Fees
Except as discussed below, each of Mohawk and Dal-Tile will pay all expenses
incurred by it or on its behalf in connection with the merger. Mohawk and
Dal-Tile have agreed, however, to share equally the expenses incurred in
relation to the printing and filing of the registration statement and this
joint proxy statement-prospectus and the filing fee for the filing under the
HSR Act.
In addition, Dal-Tile has agreed to pay Mohawk a termination fee of $45
million, in the following circumstances:
. either Mohawk or Dal-Tile terminates the merger agreement because
Dal-Tile's stockholders fail to adopt the merger agreement and approve
the merger and prior to the termination of the merger agreement there
has been publicly announced an acquisition proposal (other than the
merger) and within twelve months of such termination Dal-Tile shall
either (a) complete a transaction involving an acquisition proposal
relating to 50% of its or one of its subsidiaries' capital stock or
assets or (b) enter into an agreement with respect to such transaction,
whether or not the transaction is subsequently completed;
. Dal-Tile terminates the merger agreement as a result of the failure to
complete the merger by the end date and prior to the termination of the
merger agreement there has been publicly announced an acquisition
proposal (other than the merger) and within twelve months of the
termination Dal-Tile shall either (a) complete a transaction involving
an acquisition proposal relating to 50% of its or one of its
subsidiaries' capital stock or assets or (b) enter into an agreement
with respect to the transaction, whether or not the transaction is
subsequently completed;
. Mohawk terminates the merger agreement because Dal-Tile has failed to
perform and comply in all material respects with any of its obligations,
agreements or covenants required by the merger agreement and prior to
the termination of the merger agreement there has been publicly
announced an acquisition proposal (other than the merger) and within
twelve months of the termination Dal-Tile shall either (a) complete a
transaction involving an acquisition proposal relating to 50% of its or
one of its subsidiaries' capital stock or assets or (b) enter into an
agreement with respect to such transaction, whether or not the
transaction is subsequently completed;
. Mohawk terminates the merger agreement pursuant to a Dal-Tile withdrawal
termination discussed above under "--Waiver, Amendment, and
Termination;" or
. Dal-Tile terminates the merger agreement pursuant to a Dal-Tile superior
offer termination discussed above under "--Waiver, Amendment, and
Termination."
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If the termination fee is payable as a result of one of the first three
reasons above, the termination fee must be paid at or prior to the earlier of
the date of completion of the acquisition transaction or the date of execution
of an agreement with respect to the acquisition transaction. If the termination
fee is payable as a result of the fourth reason above, the termination fee must
be paid no later than two business days from the date of termination of the
merger agreement. If the termination fee is payable as a result of the final
reason above, the termination fee must be paid concurrently with the delivery
of the notice of termination of the merger agreement.
In the event the termination fee is paid to Mohawk pursuant to the terms of
the merger agreement, Mohawk has agreed pursuant to the terms of the
commitments for the proposed financing for the merger to pay the committed
financial institutions 10% of any such termination fee.
The parties have agreed that the payment of the fees and expenses discussed
above are not to be deemed liquidated damages for the willful breach by
Dal-Tile of the terms of the merger agreement and do not otherwise limit the
rights of Mohawk, except that, if Mohawk is entitled to receive a termination
fee as a result of the third reason above, Mohawk must elect to either (i)
receive the termination fee and, upon receipt of the termination fee, dismiss
with prejudice any pending litigation against Dal-Tile, or release Dal-Tile
from any liability, relating to a breach by Dal-Tile of its covenants and
agreements under the merger agreement or (ii) waive its right to receive the
termination fee.
Interests of Certain Persons in the Merger
In considering the recommendation of the Dal-Tile board to vote for approval
of the merger and the recommendation of the Mohawk board to vote in favor of
the issuance of Mohawk common stock in the merger, you should be aware that
members of Dal-Tile's executive management and its directors have interests in
the merger that are different from, and in addition to, the interests of other
Mohawk and Dal-Tile stockholders.
Change in Control Agreements--Chief Executive Officer and Chief Financial
Officer. Dal-Tile has entered into change in control agreements with Mr.
Sardas and Mr. Wellborn. Each of the agreements has a term that runs until
December 31, 2005, and will automatically be extended by one year beginning on
January 1, 2004 (and each following year) unless the employer provides six
months' prior notice of non-renewal. Under the agreements, following a change
in control of Dal-Tile, the executive's base salary and target bonus cannot be
reduced and will continue through the term of the agreement, and benefits will
continue in substantially the same form and amount. Both agreements provide for
severance payments following a change in control if (i) they are terminated
within two years after such change in control, or (ii) with respect to Mr.
Sardas, he elects to terminate his employment between 90 and 365 days, after
such change in control, and with respect to Mr. Wellborn, he elects to
terminate his employment between 180 and 365 days, after such change in
control. The payments to each executive are to be made in a lump sum amount
equal to three times his annual salary plus bonus (calculated as the higher of
his target bonus for the termination year or his average bonus over the prior
two years). Additionally, each is entitled to a lump sum pro rata payment of
his target bonus for the year of termination, continuation of medical and
dental benefits for three years from termination, an excise tax gross-up if he
is impacted by Section 280G of the Internal Revenue Code (unless the applicable
amounts exceed the cap limit by less than $50,000), tax preparation services
provided and paid for by Dal-Tile for tax years affected by the change in
control, and payment of legal fees and expenses associated with the termination
or enforcement of the agreement. The merger will constitute a change in control
under the agreements.
Change in Control Agreements--Vice Presidents. Dal-Tile has also entered
into change in control agreements with its 13 vice presidents. The agreements
generally have the same terms as the Sardas and Wellborn agreements, except
that severance is calculated as 21/2 times salary and bonus (rather than 3
times salary and bonus), and benefit continuation lasts for 30 months following
termination (rather than 36 months). In addition, severance following a change
in control is only triggered upon termination by the employer without cause (as
defined in the agreement) or by the executive for "good reason" (as described
below). Unlike the Sardas and Wellborn agreements, severance is not paid upon
death or disability, and the executives cannot collect
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severance for voluntary termination unless it is for good reason. Under the
vice president agreements, "good reason" includes the following:
. Failure by the employer to maintain salary, target bonus opportunities,
and benefits;
. Any purported termination of employment that does not comply with the
applicable notice provisions;
. Failure to elect or maintain the employee in the same (or a
substantially equivalent) office or position; or removal as a director
if employee was a director prior to the change in control;
. A significant adverse change in the nature or scope of the executive's
authorities, responsibilities, or duties that is not remedied within 10
days of employee's written notice;
. A relocation of the company's principal offices, or requiring employee
to have his principal location of work changed, in excess of 50 miles,
or to travel away from his office significantly more (in terms of either
consecutive days or aggregate days in any calendar year) than was
required of him before the change in control, in either case without his
prior written consent; or
. The cessation of the company's status as a corporation the stock of
which is publicly traded on a national securities exchange.
The merger will constitute a change in control under the agreements.
Stock Options. All unvested options to purchase Dal-Tile common stock
granted under Dal-Tile's stock plans will become fully exercisable upon
completion of the merger. At the time of the merger, each unexercised option
will be cashed out in part and converted in part (either upon completion of the
merger or upon exercise) into options to acquire shares of Mohawk common stock.
See "The Merger--Effect of the Merger on Dal-Tile Options" for a more detailed
discussion of the treatment of Dal-Tile's options under the merger agreement.
Directors' and Officers' Liability. Mohawk and Dal-Tile have agreed that
the officers, directors and other affiliates of each of the companies shall not
be liable for breaches of the merger agreement or the transactions contemplated
by the merger agreement, except for (a) instances of actual, intentional
misrepresentation of facts by Dal-Tile to its independent auditors or of any
item reflected in Dal-Tile's reports to the Securities and Exchange Commission
since January 1, 1998, to the extent any such misrepresentations have caused
such filings to materially misstate Dal-Tile's financial position, and (b)
actions taken by such affiliates of Dal-Tile that would violate the
non-solicitation provisions of Section 8.3 of the merger agreement to the
extent Mohawk elects to specifically enforce such provision.
Indemnification and Release. Mohawk and Dal-Tile have agreed that all
rights to indemnification and limitations on liability under the Dal-Tile
charter documents and indemnification agreements will survive the merger.
Subject to limitations, directors' and officers' liability insurance coverage
substantially equivalent to levels of coverage currently in effect under
Dal-Tile's existing directors' and officers' liability insurance will be
maintained for six years. Mohawk has agreed to release directors, officers and
affiliates of Dal-Tile from any liability or obligation in connection with or
under the merger agreement or voting agreements except to the extent that any
person is an express signatory party and except for claims for specific
intentional misrepresentations and violations of the non-solicitation
provisions described above.
New Directors and Executive Officers of Mohawk Following the Merger. In
accordance with the merger agreement, W. Christopher Wellborn and John F.
Fiedler have each been selected by Dal-Tile to serve as directors of Mohawk
after the completion of the merger. In addition, after completion of the
merger, Mr. Wellborn will become an executive officer of Mohawk and serve as
President of the Dal-Tile division.
Employee Benefits and Contracts
The merger agreement requires Mohawk to provide Dal-Tile employees with
employee benefits under the Dal-Tile benefit plans (other than benefits under
the stock option plan) which when taken as a whole are substantially similar to
those provided by Dal-Tile prior to the effective time of the merger. However,
the merger
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agreement also allows Mohawk, at its option, to provide Dal-Tile employees with
employee benefits under the Mohawk benefit plans (other than benefits under the
stock option plan) which when taken as a whole are substantially similar to
those currently provided by Mohawk to its similarly situated employees.
If Mohawk chooses to provide benefits under its own benefit plans, then, for
purposes of participation, vesting and, except with respect to Mohawk
retirement plans, benefit accrual, credit under such plans will be given for
past service with Dal-Tile. Additionally, Mohawk has agreed to waive any
waiting periods and restrictions on pre-existing conditions for Dal-Tile
employees to be covered by Mohawk welfare benefit plans. Mohawk has also agreed
to cause any deductible made by such Dal-Tile employees under Dal-Tile welfare
benefit plans to be credited to such employees under the Mohawk welfare benefit
plans. All employment and severance, consulting or other compensation
agreements disclosed to Mohawk will be expressly assumed by Mohawk.
Resales of Mohawk Common Stock
The shares of Mohawk common stock to be issued in the merger will be
registered under the Securities Act of 1933 and will be freely transferable
under the Securities Act, except for shares of Mohawk stock issued to any
person who is deemed to be an "affiliate" of either Mohawk or Dal-Tile at the
time of the special meetings. Persons who may be deemed to be affiliates
include individuals or entities that control, are controlled by, or are under
the common control of either Mohawk or Dal-Tile and may include our respective
executive officers and directors, as well as our significant stockholders.
Affiliates may not sell their shares of Mohawk common stock acquired in
connection with the merger except pursuant to:
. an effective registration statement under the Securities Act covering
the resale of those shares;
. an exemption under paragraph (d) of Rule 145 under the Securities Act; or
. any other applicable exemption under the Securities Act.
Mohawk's registration statement on Form S-4, of which this joint proxy
statement-prospectus forms a part, does not cover the resale of shares of
Mohawk common stock to be received by affiliates of Dal-Tile in the merger.
Appraisal Rights
Delaware law entitles the holders of record of shares of Dal-Tile common
stock who follow the procedures specified in Section 262 of the Delaware
General Corporation Law to have their shares appraised by the Delaware Court of
Chancery and to receive the "fair value" of those shares as of the completion
of the merger as determined by the court in place of the merger consideration.
In order to exercise these rights, a stockholder must demand and perfect the
rights in accordance with Section 262. The following is a summary of the
material provisions of Section 262 and is qualified in its entirety by
reference to Section 262, a copy of which is attached as Annex F to this joint
proxy statement-prospectus. Dal-Tile stockholders should carefully review
Section 262 as well as the information discussed below.
If a stockholder of Dal-Tile elects to exercise the right to an appraisal
under Section 262, that stockholder must do all of the following:
. deliver to Dal-Tile at its main office in Dallas, Texas, a written
demand for appraisal of shares of Dal-Tile common stock held, which
demand must reasonably inform Dal-Tile of the identity of the
stockholder and that the demanding stockholder is demanding appraisal,
before the vote is taken on the merger agreement at the Dal-Tile special
meeting; this written demand for appraisal must be in addition to and
separate from any proxy or vote against the merger agreement; neither
voting against, abstaining from voting nor failing to vote on the merger
agreement will constitute a demand for appraisal within the meaning of
Section 262;
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. not vote in favor of the merger agreement; a failure to vote or
abstaining from voting will satisfy this requirement, but a vote in
favor of the merger agreement, by proxy or in person, or the return of a
signed proxy that does not specify an abstention or a vote against
adoption of the merger agreement, will constitute a vote in favor of the
merger agreement, a waiver of the stockholder's right of appraisal and
will nullify any previously filed written demand for appraisal; and
. continuously hold the shares of record until the completion of the
merger.
All written demands for appraisal should be addressed to Dal-Tile
International Inc., 7834 Hawn Freeway, Dallas, Texas 75217, Attention: Mark A.
Solls, before the vote is taken on the merger agreement at the Dal-Tile special
meeting. The demand must reasonably inform Dal-Tile of the identity of the
stockholder and that the stockholder is demanding appraisal of his, her or its
shares of Dal-Tile common stock.
The written demand for appraisal must be executed by or for the record
holder of shares of Dal-Tile common stock, fully and correctly, as the holder's
name appears on the certificate(s) for their shares. If the shares of Dal-Tile
common stock are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand must be made in that capacity,
and if the shares are owned of record by more than one person, such as in a
joint tenancy or tenancy in common, the demand must be executed by or for all
joint owners. An authorized agent, including one of two or more joint owners,
may execute the demand for appraisal for a holder of record; however, the agent
must identify the record owner(s) and expressly disclose the fact that, in
executing the demand, the agent is acting as agent for the record owner(s).
A beneficial owner of shares of Dal-Tile common stock held in "street name"
who desires appraisal should take actions as may be necessary to ensure that a
timely and proper demand for appraisal is made by the record holder of the
shares. Shares of Dal-Tile common stock held through brokerage firms, banks and
other financial institutions are frequently deposited with and held of record
in the name of a nominee of a central security depository, such as Cede & Co.
and others. Any beneficial owner desiring appraisal who holds shares of
Dal-Tile common stock through a brokerage firm, bank or other financial
institution is responsible for ensuring that the demand for appraisal is made
by the record holder. The beneficial holder of the shares should instruct the
firm, bank or institution that the demand for appraisal should be made by the
record holder of the shares, which may be the nominee of a central security
depository if the shares have been so deposited. As required by Section 262, a
demand for appraisal must reasonably inform Dal-Tile of the identity of the
holder(s) of record, which may be a nominee as described above, and of the
holder's intention to seek appraisal of the shares of Dal-Tile common stock.
A record holder, such as a broker, fiduciary, depository or other nominee,
who holds shares of Dal-Tile common stock as a nominee for others, may exercise
appraisal rights with respect to the shares held for all or less than all
beneficial owners of the shares as to which the person is the record owner. In
that case, the written demand must set forth the number of shares of Dal-Tile
common stock covered by the demand. Where the number of shares is not expressly
stated, the demand will be presumed to cover all shares of Dal-Tile common
stock outstanding in the name of the record owner.
Within ten days after the completion of the merger, the surviving
corporation of the merger will give written notice of the date of the
completion of the merger to each stockholder of Dal-Tile who has properly
demanded appraisal and satisfied the requirements of Section 262, referred to
in this document as a dissenting stockholder. Within 120 days after the
completion of the merger, the surviving corporation or any dissenting
stockholder may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the shares of Dal-Tile common stock that are
held by all dissenting stockholders. The surviving corporation is under no
obligation to and has no present intention to file such a petition.
Accordingly, it is the obligation of former stockholders of Dal-Tile seeking
appraisal rights to initiate all necessary actions to perfect appraisal rights
within the time prescribed by Section 262.
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If a petition for appraisal is timely filed, the court will determine which
stockholders are entitled to appraisal rights and will determine the fair value
of the shares of Dal-Tile common stock held by dissenting stockholders,
exclusive of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, if any, to be
paid on the amount determined to be fair value. In determining fair value, the
court shall take into account all relevant factors. The Delaware Supreme Court
has stated, among other things, that "proof of value by any techniques or
methods which are generally acceptable in the financial community and otherwise
admissible in court'' should be considered in an appraisal proceeding. In
addition, Delaware courts have decided that the statutory appraisal remedy may
or may not be, depending on the factual circumstances, the stockholder's
exclusive remedy in connection with transactions such as the merger. The court
may determine fair value to be more than, less than or equal to the
consideration that the dissenting stockholder would otherwise be entitled to
receive pursuant to the merger agreement. If a petition for appraisal is not
timely filed, then the right to an appraisal shall cease. The costs of the
appraisal proceeding shall be determined by the court and taxed against the
parties as the court determines to be equitable under the circumstances. Upon
application of a stockholder, the court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including reasonable attorneys' fees and the fees and expenses of
experts, to be charged pro rata against the value of all shares of Dal-Tile
common stock entitled to appraisal.
From and after the completion of the merger, no dissenting stockholder shall
have any rights of a Dal-Tile stockholder with respect to that holder's shares
for any purpose, except to receive payment of fair value and to receive payment
of dividends or other distributions on the holder's shares of Dal-Tile common
stock, if any, payable to Dal-Tile stockholders of record as of a date prior to
the completion of the merger. If a dissenting stockholder delivers to the
surviving corporation a written withdrawal of the demand for an appraisal
within 60 days after the completion of the merger or subsequently with the
written approval of the surviving corporation, or, if no petition for appraisal
is filed within 120 days after the completion of the merger, then the right of
that dissenting stockholder to an appraisal will cease and the dissenting
stockholder will be entitled to receive only the merger consideration. Once a
petition for appraisal is filed with the Delaware court, the appraisal
proceeding may not be dismissed as to any stockholder without the approval of
the court.
If you wish to exercise your appraisal rights, you must not vote in favor of
the merger agreement and must strictly comply with the procedures set forth in
Section 262 of the Delaware General Corporation Law.
If you fail to take any required step in connection with the exercise of
appraisal rights, it will result in the termination or waiver of these rights.
Voting Agreements
The following summary of the Dal-Tile voting agreements and the Mohawk
voting agreement is qualified in its entirety by reference to the text of each
voting agreement, each of which are incorporated by reference. The form of
voting agreement executed by Dal-Tile stockholders is attached as Annex B and
the voting agreement executed by Aladdin Partners, L.P. is attached as Annex C
to this joint proxy statement-prospectus.
In connection with the execution and delivery of the merger agreement, all
of the members of the Dal-Tile board of directors and several Dal-Tile
executive officers entered into a voting agreement with Mohawk under which
these stockholders agreed to vote all their shares of Dal-Tile common stock in
favor of the adoption of the merger agreement. These stockholders also agreed
to vote all their shares of Dal-Tile common stock against the approval of any
transaction made in opposition to or in competition with the merger. As of
February 6, 2002, the record date for the Dal-Tile special meeting, these
stockholders owned shares of Dal-Tile common stock representing approximately
1.5% of the total voting power of the outstanding shares of Dal-Tile common
stock.
The voting agreement executed by the Dal-Tile stockholders prohibits,
subject to limited exceptions, any stockholder from transferring or making an
arrangement to transfer any shares, except to a person who agrees to be bound
by the terms of the voting agreement. Each voting agreement executed by the
Dal-Tile stockholders also provides that any shares of Dal-Tile stock that are
subsequently acquired will also be subject to the voting agreement.
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Also in connection with the execution and delivery of the merger agreement,
Aladdin Partners, L.P., a partnership controlled by Jeffrey S. Lorberbaum,
president and chief executive officer of Mohawk, entered into a voting
agreement with Dal-Tile under which Aladdin Partners agreed to vote all of its
shares of Mohawk common stock in favor of the issuance of Mohawk shares in the
merger. Aladdin Partners also agreed to vote all of its shares of Mohawk common
stock against any other action that could impede or otherwise adversely affect
the consummation of the merger. As of February 6, 2002, the record date for the
Mohawk special meeting, Aladdin Partners owned shares of Mohawk common stock
representing approximately 18.8% of the total voting power of the outstanding
shares of Mohawk common stock.
Under the voting agreement, Aladdin Partners may transfer 1,900,000, or
approximately 3.6% of the total voting power of the outstanding shares, of
Mohawk common stock without restriction. Otherwise, the voting agreement
prohibits Aladdin Partners from transferring or making an arrangement to
transfer any shares, except to a person who agrees to be bound by the terms of
the voting agreement.
All voting agreements terminate upon the earlier to occur of the completion
of the merger or the termination of the merger agreement in accordance with its
terms.
Financing
General. The total amount of cash and borrowings required to complete the
merger, including payment of the cash merger consideration, payments in respect
of the cash-out of one-half of the Dal-Tile options, refinancing of the
existing indebtedness of Dal-Tile and transaction fees and expenses is
estimated to be approximately $969.2 million based on the pro forma combined
balance sheet of Mohawk and Dal-Tile at September 29, 2001. Mohawk has entered
into a commitment letter with First Union Investors, Inc. (and one of its
affiliates), Goldman Sachs Credit Partners L.P. and SunTrust Bank with respect
to financing the merger. These financial institutions have severally agreed, on
the terms and subject to the conditions in the commitment letter, to provide a
364-day term loan facility of up to $700 million. At the option of these
financial institutions, but without limiting their several commitments to
provide the entire facility, portions of the term loan facility may be provided
by other financial institutions. In addition, Mohawk intends to borrow up to
$169.2 million under its existing revolving credit facility and to replace
Dal-Tile's existing $75 million receivables securitization facility with a new
$100 million receivables securitization facility through a multi-selling
conduit for which SunTrust Bank is expected to serve as an agent. Mohawk may
also finance a portion of the merger related costs through alternative sources,
including additional borrowings under Mohawk's existing receivables
securitization facility and borrowings under a short-term commercial paper
facility. If the commitment letter is terminated or if the funding under the
commitment letter is reasonably likely to be unavailable at closing, Mohawk
will use its best efforts to obtain financing from other sources. Mohawk is
obligated to complete the merger regardless of whether it obtains the financing
contemplated by the commitment letter or alternative financing.
The commitment is conditioned on, among other things:
. there being no adverse conditions in the financial, banking or capital
markets (including the loan syndication and bond markets) that would
impair or prevent the syndication of the term loan facility or the
placement or issuance of securities which are to replace the term loan
facility as determined by any of the financial institutions in their
sole discretion;
. Mohawk not entering into alternate financing arrangements;
. the completion of definitive documentation relating to the term loan
facility (and satisfaction of any conditions in those documents) and the
merger;
. there being no material omissions from or inaccuracies in information
Mohawk provided to the financial institutions; and
. compliance with all applicable laws and regulations.
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The commitment expires on March 31, 2002 if the merger has not been completed
by that time. The commitment will also terminate on the occurrence of any event
or the awareness of any fact or condition not previously disclosed to any of
these financial institutions that has, or could reasonably be expected to have,
a material adverse effect on the business, properties, prospects, operations or
condition (financial or otherwise) of Mohawk and its subsidiaries taken as a
whole, or Dal-Tile and its subsidiaries taken as a whole.
Term Loan Facility. Mohawk's obligations under the term loan facility will
not be secured by Mohawk's assets but, if the rating on Mohawk's senior,
unsecured debt falls below investment grade, the lenders will have the right to
require Mohawk to provide security. The term loan facility will mature 364 days
from the funding date. Mohawk may prepay amounts borrowed under the facility at
any time, without premium or penalty (other than customary yield maintenance
payments).
The interest rate applicable to the term loan facility will be, at Mohawk's
option, the London interbank offered rate, or LIBOR, plus a margin or the
alternate base rate, or ABR, plus a margin. The ABR is the higher of the First
Union prime rate or the federal funds rate plus .5%.
The applicable margin will also vary depending on the rating on Mohawk's
senior, unsecured debt. Also, in the case of either LIBOR loans or ABR loans,
the applicable margin will increase by .25% as of the end of each 90-day period
after the funding date that amounts under the applicable loan remain
outstanding.
Further, the commitment requires Mohawk to pay the financial institutions
10% of any termination fee that Dal-Tile pays to Mohawk pursuant to the terms
of the merger agreement. See "--Expenses and Fees."
The credit documents evidencing the term loan facility will contain, among
other things, customary:
. representations and warranties;
. affirmative, negative, and financial covenants; and
. events of default.
These terms have not yet been agreed upon. In addition, Mohawk will indemnify
the lenders for costs, expenses and liabilities, including fees and expenses of
counsel, relating to the term loan facility and the transactions contemplated
by the credit documents.
Mohawk intends to refinance the term loan as soon as practicable after
completion of the merger through the private placement of senior, unsecured
notes or other available means. If Mohawk is unable to refinance the term loan
within 12 business days after completion of the merger, Mohawk will be required
to pay up to $3.5 million to the financial institutions in additional fees.
Stockholder Lawsuit Challenging the Merger
On or about November 27, 2001, Frank Steinle, an individual stockholder of
Dal-Tile, purporting to represent a class of holders of Dal-Tile common stock,
filed a putative Class Action Complaint against Dal-Tile International Inc.,
Martin C. Murrer, John F. Fiedler, Norman E. Wells, Jr., Jacques R. Sardas,
Charles J. Pilliod, Jr., Douglas D. Danforth and Vincent A. Mai in the 162/nd
Judicial District Court, Dallas County, Texas, Cause No. 01-10231. The
complaint alleges that the defendants breached their fiduciary duties by
agreeing to the merger. The complaint seeks injunctive relief and costs and
disbursements of the action, including attorneys' and experts' fees. On
February 18, 2002, Dal-Tile and the other defendants reached an agreement in
principle to settle this action. The agreement in principle is subject to,
among other things, confirmatory discovery, definitive settlement
documentation, including a full and unconditional release of the claims against
the defendants, and court approval.
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INFORMATION ABOUT MOHAWK
Mohawk is the second largest carpet and rug manufacturer in the United
States, with net sales of approximately $3.3 billion and $3.4 billion in 2000
and 2001, respectively. In each of 2000 and 2001, over 87% of Mohawk's net
sales were from sales of tufted and woven broadloom carpet and rugs for
residential and commercial applications.
Mohawk designs, manufactures and markets hundreds of styles of carpet, rugs
and mats in a broad range of colors, textures and patterns, as well as carpet
padding. In addition, Mohawk sells hard surface floorcovering products, which
include tile, laminate, vinyl and wood products. Mohawk positions its products
in all price ranges and emphasizes quality, style, performance and service.
Mohawk is widely recognized through its premier brand names, "Mohawk,"
"Aladdin," "American Rug Craftsmen," "American Weavers," "Mohawk Home,"
"Bigelow," "Bigelow Commercial," "Crown Crafts," "Custom Weave," "Durkan,"
"Galaxy," "Harbinger," "Helios," "Horizon," "Image," "Karastan," "Karastan
Contract," "Mohawk Commercial," "Newmark Rug," "World" and "WundaWeve" and
markets its products primarily through carpet retailers, home centers, mass
merchandisers, department stores, commercial dealers, and commercial end users.
Some products are also marketed through private labeling programs.
Mohawk's manufacturing operations are vertically integrated and include the
extrusion of resin and post-consumer plastics into other materials used in the
manufacturing process like polypropylene, polyester and nylon fiber, yarn
processing, tufting, weaving, dyeing, coating and finishing.
Mohawk is a Delaware corporation located at 160 S. Industrial Boulevard,
Calhoun, Georgia 30703, and its telephone number is (706) 629-7721.
INFORMATION ABOUT DAL-TILE
Dal-Tile believes it is the leading manufacturer, marketer and distributor
of ceramic tile and natural stone in the United States and one of the largest
in the world. Dal-Tile produces a broad line of wall, floor, quarry and mosaic
tile products used in the residential and commercial markets for both new
construction and remodeling. Most of Dal-Tile's products are marketed under its
daltile and American Olean brand names.
Dal-Tile is organized into three strategic business units: company-operated
sales and service centers, independent distributors and home center retailers.
Dal-Tile's company-operated sales center unit maintains over 200 sales and
service centers in the United States, Canada and Puerto Rico. Dal-Tile's
independent distributor unit distributes the American Olean brand through
approximately 200 independent distributor locations and five company-operated
sales and service centers serving a variety of residential and commercial
customers. Dal-Tile's home center retailer unit supplies products to more than
1,600 home center retail outlets operating in the do-it-yourself and
buy-it-yourself markets. Each business unit has a dedicated sales force
supporting that unit.
Dal-Tile has three regional distribution centers located in California,
Maryland and Texas. Additionally, Dal-Tile has showroom and design centers in
Atlanta, Georgia and Dallas, Texas, where customers of local builders,
remodelers, architects, designers and contractors may view and select ceramic
tile and natural stone for their building projects.
Dal-Tile is a Delaware corporation located at 7834 Hawn Freeway, Dallas,
Texas 75217, and its telephone number is (214) 398-1411.
DESCRIPTION OF MOHAWK CAPITAL STOCK
Mohawk is authorized by its certificate of incorporation to issue up to
150,060,000 shares of capital stock, consisting of (a) 150,000,000 shares of
common stock, $.01 par value per share and (b) 60,000 shares of preferred
stock, $.01 par value per share (none of which have been issued). The holders
of shares of Mohawk common stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders, including the election of
directors, and the holders of such shares exclusively possess all voting power.
The Mohawk certificate of incorporation provides for a classified board of
directors and does not provide for cumulative voting
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for the election of directors. The holders of shares of Mohawk common stock are
entitled to such dividends as may be declared from time to time by the board of
directors from funds legally available therefor, and are entitled to receive
pro rata all assets of Mohawk available for distribution to those holders upon
liquidation. No shares of Mohawk common stock have any preemptive, redemption
or conversion rights, or the benefits of any sinking fund. The Mohawk
certificate of incorporation authorizes the board of directors, without further
stockholder approval, to issue preferred stock and to fix, with respect to any
series of preferred stock, the dividend rights and terms, conversion rights,
voting rights, redemption rights and terms, liquidation preferences, sinking
funds and any other rights, preferences, privileges and restrictions applicable
to each series of preferred stock issued. See "Effect of the Merger on Rights
of Stockholders."
EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS
Mohawk and Dal-Tile are both organized under the laws of the State of
Delaware. Any differences, therefore, in the rights of holders of Mohawk
capital stock and Dal-Tile capital stock arise primarily from differences in
their respective certificates of incorporation and bylaws. Upon completion of
the merger, holders of Dal-Tile common stock will become holders of Mohawk
common stock and their rights will be governed by Delaware law, the Mohawk
certificate of incorporation and the Mohawk bylaws. The rights of Mohawk
stockholders after completion of the merger will not differ from their rights
as they previously existed.
This section of the joint proxy statement-prospectus describes the material
differences between the rights of Mohawk stockholders and Dal-Tile
stockholders. All Mohawk stockholders and Dal-Tile stockholders are urged to
read carefully the relevant provisions of Delaware law, as well as the
certificates of incorporation and bylaws of each of Mohawk and Dal-Tile. Copies
of the certificates of incorporation and bylaws of Mohawk and Dal-Tile will be
sent to Mohawk stockholders and Dal-Tile stockholders, as applicable, upon
request. See "Where You Can Find More Information" on page 70.
Capitalization
Mohawk. The authorized capital stock of Mohawk consists of:
. 150,000,000 shares of Mohawk common stock; and
. 60,000 shares of Mohawk preferred stock.
Dal-Tile. The authorized capital stock of Dal-Tile consists of:
. 200,000,000 shares of Dal-Tile common stock; and
. 11,100,000 shares of Dal-Tile preferred stock.
Voting Rights
Mohawk. Each holder of Mohawk common stock has the right to cast one vote
for each share of Mohawk common stock held of record on all matters submitted
to a vote of stockholders of Mohawk, including the election of directors.
Holders of Mohawk common stock do not have cumulative voting rights.
Dal-Tile. Each holder of Dal-Tile common stock has the right to cast one
vote for each share of Dal-Tile common stock held of record on matters
submitted to a vote of stockholders of Dal-Tile, including the election of
directors. Holders of Dal-Tile common stock do not have cumulative voting
rights.
Number and Election of Directors
Mohawk. The board of directors of Mohawk currently has seven members. The
Mohawk certificate of incorporation provides that the number of directors of
Mohawk will not be less than two or more than 11, with the exact number of
directors to be fixed from time to time by the Mohawk board of directors by a
resolution approved by a majority of the directors.
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The Mohawk board of directors is divided into three classes, as nearly equal
in size as possible, with one class being elected each year. Members of the
Mohawk board of directors are elected to serve a term of three years, and until
their successors are elected and qualified.
The Mohawk bylaws provide for directors to be elected by a plurality of the
votes cast by Mohawk stockholders entitled to vote in the election of directors
at a meeting at which a quorum is present.
Dal-Tile. The Dal-Tile bylaws provide that the Dal-Tile board of directors
will consist of five directors. The number of directors may be changed only by
amendment of the bylaws.
Neither the Dal-Tile certificate of incorporation nor the Dal-Tile bylaws
provides for a staggered board of directors.
The Dal-Tile bylaws provide for directors to be elected by a plurality of
the votes cast by Dal-Tile stockholders entitled to vote in the election of
directors at a meeting at which a quorum is present.
Removal of Directors and Vacancies on the Board of Directors
General. Delaware law provides that, except in the case of a classified
board of directors or where cumulative voting applies, a director, or the
entire board of directors, of a corporation may be removed, with or without
cause, by the affirmative vote of a majority of the shares of the corporation
entitled to vote at an election of directors.
Delaware law also provides that if, at the time of the filling of any
vacancy or newly created directorship, the directors then in office constitute
less than a majority of the authorized number of directors, the Delaware Court
of Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the outstanding stock of the corporation having the right to vote
for such directors, order an election to be held to fill the vacancy or replace
the directors selected by the directors then in office.
Mohawk. Because Mohawk has a classified board and the certificate of
incorporation and bylaws do not provide otherwise, Mohawk's directors may only
be removed for cause and only by the affirmative vote of the holders of at
least a majority of the shares then entitled to vote generally in the election
of directors.
Vacancies on the board of directors of Mohawk, including vacancies resulting
from an increase in the authorized number of directors or from the death,
resignation or removal of a director, may be filled only by a majority vote of
the directors then in office, although less than a quorum, or by the sole
remaining director. Pursuant to Delaware law, directors elected to fill any
vacancy shall serve for the remainder of the term of directors of their class
and until their successors are elected and qualified.
Dal-Tile. Pursuant to the Dal-Tile bylaws, and Delaware law, Dal-Tile's
stockholders may, at a special meeting, remove any member of the board of
director with or without cause by the affirmative vote of a majority of the
shares of Dal-Tile common stock entitled to vote at an election of directors.
The stockholders also have the right to fill the vacancy created by such
removal at such special meeting. If the stockholders do not fill the vacancy at
the special meeting, the majority of the directors then in office, although
less than a quorum, may fill the vacancy. Additionally the majority of the
directors then in office, although less than a quorum, may fill any vacancies
created by the death or resignation of any director or for any other reason or
by an increase in the size of the board. Directors elected to fill vacancies
shall serve until their successors are elected and qualified or until their
earlier resignation or removal.
Amendments to the Certificate of Incorporation
General. Under Delaware law, an amendment to the certificate of
incorporation of a corporation requires the approval of the corporation's board
of directors and the approval of holders of a majority of the outstanding stock
entitled to vote upon the proposed amendment, unless a higher vote is required
by the corporation's certificate of incorporation.
63
Mohawk. Mohawk's certificate of incorporation requires that the affirmative
vote of the holders of at least 80% of the votes entitled to be cast by the
holders of all then outstanding shares of capital stock, voting together as a
single class, in order to make, alter, amend, change, add to or repeal any
provision of the certificate relating to the number of members of the board of
directors, board classification, vacancies and removal of directors or to amend
any other provision of the certificate of incorporation in a manner
inconsistent with these provisions. Other amendments to the certificate of
incorporation are governed by Delaware law and, therefore, require the approval
of the holders of a majority of the outstanding stock entitled to vote upon the
proposed amendment.
Dal-Tile. Dal-Tile's certificate of incorporation does not impose a higher
vote requirement than the requirement imposed by Delaware law to amend any
provision of the certificate.
Amendments to the Bylaws
General. Under Delaware law, stockholders entitled to vote have the power
to adopt, amend or repeal bylaws. In addition, a corporation may, in its
certificate of incorporation, confer this power on the board of directors. The
stockholders always have the power to adopt, amend or repeal the bylaws, even
though the board may also be delegated the power.
Mohawk. Mohawk's certificate of incorporation authorizes the Mohawk board
of directors to adopt, alter, amend or repeal any provision of Mohawk's bylaws
except as otherwise provided in the bylaws. Mohawk's bylaws provide that they
may be amended or repealed by the affirmative vote of a majority of directors
then in office. Mohawk's bylaws further provide that any provision of Mohawk's
bylaws may be amended or repealed by a vote of the holders of a majority of the
shares of capital stock entitled to vote.
Dal-Tile. Dal-Tile's certificate of incorporation authorizes the Dal-Tile
board of directors to make, alter, amend or repeal Dal-Tile's bylaws.
Dal-Tile's bylaws provide that they may be altered, amended or repealed or new
bylaws adopted if approved by a majority of all of the members of the board of
directors or by the holders of a majority of the total outstanding shares of
Dal-Tile voting stock entitled to vote at any meeting of stockholders.
Action by Written Consent
General. Delaware law provides that, unless otherwise stated in the
certificate of incorporation, any action which may be taken at an annual
meeting or special meeting of stockholders may be taken without a meeting, if a
consent in writing is signed by the holders of the outstanding stock having the
minimum number of votes necessary to authorize the action at a meeting of
stockholders.
Mohawk. The Mohawk certificate of incorporation limits the ability of its
stockholders to act by written consent by requiring any action by written
consent to be unanimous.
Dal-Tile. The Dal-Tile bylaws authorize stockholder action without a
meeting if a consent in writing is signed by the holders of outstanding stock
having the minimum number of votes necessary to authorize or take the action at
a meeting at which all shares entitled to vote are present and voted.
Ability to Call Special Stockholder Meetings
Mohawk. Special meetings of Mohawk stockholders may be called by Mohawk's
board of directors or by the chairman of the board. Stockholders do not have
the right to call a special meeting or to propose any business to be conducted
at a special meeting.
Dal-Tile. Special meetings of Dal-Tile stockholders may be called by
Dal-Tile's board of directors, the chairman of the board, or the president.
Additionally, a special meeting will be called if requested in writing by the
stockholders holding together at least 50% of the number of shares of stock
entitled to vote at the meeting. Stockholders do not have the right to propose
any business to be conducted at a special meeting.
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Notice of Stockholder Action
Mohawk. Under the Mohawk bylaws, in order for a stockholder to nominate
candidates for election to Mohawk's board of directors at any annual meeting of
stockholders or any special stockholder meeting at which directors will be
elected, timely written notice must be given to the Secretary of Mohawk before
the annual or special meeting. Similarly, in order for a stockholder to propose
business to be brought before any annual stockholder meeting, timely written
notice must be given to the Secretary of Mohawk before the annual meeting.
Under Mohawk's bylaws, to be timely, notice of stockholder nominations or
proposals to be made at an annual meeting must be made in accordance with rules
of the SEC regarding stockholder proposals then in effect. The SEC's rules
provide that notice must be received at the offices of Mohawk no less than 120
days before the date of Mohawk's proxy statement for the preceding year's
annual meeting. If Mohawk did not hold an annual meeting in the preceding year
or if the date of the annual meeting is more than 30 days before or after the
anniversary of the preceding year's annual meeting, notice will also be timely
if delivered a reasonable time before Mohawk begins to print and mail its proxy
materials for the annual meeting. In the case of a special meeting, notice of a
stockholder nomination must be received no later than the earlier of the 30/th
day following public announcement that a matter will be submitted to
stockholders for a vote at a special meeting or the 15th day following the date
on which notice of the special meeting is given. /
A stockholder's notice to Mohawk must set forth the stockholder's name and
business address, the stockholder's name and address as they appear in Mohawk's
records and the number of shares of Mohawk common stock which are beneficially
owned by the stockholder. If any other persons are acting together with the
stockholder, this information must be provided with respect to those persons as
well.
Notices relating to stockholder proposals must also include a brief
description of the business the stockholder proposes to bring before the
meeting, any material information relating to the proposal and any other
information the Mohawk board of directors reasonably determines is necessary
for the board and the stockholders to consider the proposal.
Notices relating to stockholder nominations to the board of directors must
include the following information:
. the name, date of birth, business address and residence address of the
person to be nominated;
. the business experience during the past five years of the nominee,
including the nominee's principal occupation and employment during that
period, the name and principal business of any organization in which
such employment was carried on and other information about the nominee's
responsibilities and level of professional competence to enable an
assessment of the nominee's prior business experience;
. whether the nominee is or has ever been at any time a director, officer
or owner of five percent or more of any class of equity security in any
corporation or other entity;
. any directorships held by the nominee in any company with a class of
securities registered under Section 12 of the Securities Exchange Act of
1934, as amended, or subject to the requirements of Section 15(d) of
that act or any company registered as an investment company under the
Investment Company Act of 1940;
. whether, in the last five years, the nominee has been convicted in a
criminal proceeding or has been subject to a judgment, order, finding or
decree of any governmental entity concerning any violation of any law or
any proceeding in bankruptcy, which may be material to an evaluation of
the ability or integrity of the nominee; and
. the consent of each nominee to serve as a director of Mohawk if so
elected.
The presiding officer at any Mohawk stockholder meeting has the power to
determine whether the nomination or proposal was made by the stockholder in
accordance with the advance notice procedures set forth in Mohawk's
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bylaws and Delaware law. If the presiding officer determines that the
nomination or proposal is not in compliance, the presiding officer may declare
that the defective proposal or nomination will be disregarded.
Dal-Tile. Under the Dal-Tile bylaws, in order for a stockholder to nominate
persons for election to the board of directors at an annual meeting of
stockholders or at a special meeting called for the purpose of electing
directors or to propose any business to be conducted at an annual meeting, the
stockholder must be a holder of record at the time of giving notice in
accordance with the provisions of the Dal-Tile bylaws and at the time of the
record date for determination of stockholders entitled to vote at the meeting
and must otherwise comply with the procedures set forth in the Dal-Tile bylaws.
For business to be properly brought before an annual meeting by a
stockholder, including the nomination of candidates for election to Dal-Tile's
board of directors, the stockholder must give written notice to the Secretary
of Dal-Tile not less than 60 days nor more than 90 days prior to the
anniversary date of the annual meeting. However, if less than 70 days notice or
prior public disclosure of the date of the annual meeting is given or made to
stockholders, notice by a stockholder, in order to be timely, must be received
by Dal-Tile not later than the 10th day following the date on which the earlier
of notice is first given or public disclosure of the meeting is first made. In
order for a stockholder to make timely notice of a nomination for an election
to the board of directors to be held at a special meeting, notice must be
received by Dal-Tile not later than the 10th day following the earlier of the
date on which notice of the meeting is first given or public disclosure of the
meeting is first made.
Stockholder notices relating to business to be transacted at an annual
meeting or relating to the nomination of candidates for election to the board
of directors must include:
. the stockholder's name and address as they appear on Dal-Tile's books;
. the class or series and number of shares of Dal-Tile stock which are
owned beneficially or of record by the stockholder;
. a description of all arrangements or understandings between the
stockholder and any other persons, including nominees for directors,
relating to a nomination or business proposal by the stockholder, and
any material interest the stockholder has in the business desired to be
brought before the meeting; and
. a representation that the stockholder intends to appear in person or by
proxy at the meeting to nominate the persons or bring the business
specified in the notice before the meeting.
In the case of a notice relating to a stockholder proposal, the notice must
also set forth a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting.
In the case of a notice of nomination of candidates for election to
Dal-Tile's board of directors, the notice must also set forth:
. the name, age, business address and residence of the person to be
nominated;
. the principal occupation or employment of the nominee;
. the class or series and number of shares of capital stock of Dal-Tile
owned beneficially or of record by the nominee;
. any other information about the nominee or the stockholder nominating
the nominee required to be disclosed in a proxy statement or other
filing for the solicitation of proxies related to the election of
directors pursuant to Section 14 of the Securities Exchange Act of 1934;
and
. the consent of each nominee to serve as a director of Dal-Tile if so
elected.
The chairman of any annual meeting of Dal-Tile's stockholders may refuse to
permit any business to be brought before the meeting that fails to comply with
the advance notice procedures set forth in Dal-Tile's bylaws.
66
If the chairman determines that the nomination or proposal is not in compliance
with Dal-Tile's advance notice procedures, the chairman may declare that the
defective proposal or nomination will be disregarded.
Indemnification of Directors and Officers
General. Under Delaware law, a corporation generally may indemnify
directors and officers:
. for actions taken in good faith and in a manner they reasonably believed
to be in, or not opposed to, the best interests of the corporation; and
. with respect to any criminal proceeding, if the directors and officers
had no reasonable cause to believe that their conduct was unlawful.
In addition, Delaware law provides that a corporation may advance to a
director or officer expenses incurred in defending any action upon receipt of
an undertaking by the director or officer to repay the amount advanced if it is
ultimately determined that he or she is not entitled to indemnification.
Mohawk. The Mohawk bylaws provide that any person who was or is a party or
is threatened to be a party to, or is involved in any action, suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, because that person is or was a director or officer, or is or
was serving at the request of Mohawk as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, will be indemnified and held harmless by Mohawk to the fullest
extent permitted by Delaware law. The indemnification rights conferred by
Mohawk are not exclusive of any other right which persons seeking
indemnification may be entitled under any statute, Mohawk's certificate of
incorporation or bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise. Mohawk is authorized to purchase and maintain insurance
on behalf of its directors and officers.
In addition, Mohawk may pay expenses incurred by its directors and officers
in defending a civil or criminal action, suit or proceeding because they are
directors or officers in advance of the final disposition of the action, suit
or proceeding. The payment of expenses will be made only if Mohawk receives an
undertaking by or on behalf of a director or officer to repay all amounts
advanced if it is ultimately determined that the director or officer is not
entitled to be indemnified by Mohawk, as authorized by Mohawk's certificate of
incorporation and bylaws.
Dal-Tile. The Dal-Tile bylaws provide for indemnification, to the fullest
extent permitted by Delaware law, of any person who is or was a director or
officer of Dal-Tile and who is or was involved in any manner, or who is
threatened to be made involved in any manner, in any pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing or other proceeding by reason of the fact
that he or she is or was a director, officer, employee or agent of Dal-Tile, or
is or was serving at the request of Dal-Tile as a director, officer, employee
or agent of another corporation, or of a partnership, joint venture, trust or
other enterprise, although no indemnification is available to a director or
officer with respect to a proceeding that was commenced by the director or
officer unless the proceeding was authorized by the board of directors. The
indemnification rights conferred by Dal-Tile are not exclusive of any other
right which persons seeking indemnification may be entitled under any statute,
Dal-Tile's certificate of incorporation or bylaws, any agreement, vote of
stockholders or disinterested directors or otherwise.
Dal-Tile is authorized to purchase and maintain insurance on behalf of its
directors, officers, employees and agents.
In addition, the Dal-Tile bylaws provide that all reasonable expenses
incurred by or on behalf of a director or officer in connection with any
investigation, claim, action, suit or proceeding will be advanced to the
director or officer by Dal-Tile upon the request of the director or officer
which request will include an undertaking by or on behalf of the director or
officer to repay the amounts advanced if ultimately it is determined that the
director or officer was not entitled to be indemnified against the expenses.
Dal-Tile has also entered into agreements to provide indemnification for its
directors in addition to the indemnification provided for in its bylaws. These
agreements, among other things, indemnify the directors, to the
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fullest extent provided by Delaware law, for certain expenses (including
attorney's fees), losses, claims, liabilities, judgments, fines and settlement
amounts incurred by the person seeking indemnification in any action or
proceeding, including any action by or in the right of Dal-Tile, on account of
services as a director or officer of any of Dal-Tile's affiliates, or as a
director or officer of any other company or enterprise that the person seeking
indemnification provides services to at Dal-Tile's request.
State Anti-Takeover Statutes
General. Under the business combination statute of Delaware law, a
corporation is prohibited, for a three year period following the time a
stockholder becomes an interested stockholder, from engaging in any business
combination with an interested stockholder who, together with its affiliates or
associates, owns, or who is an affiliate or associate of the corporation and
within a three-year period did own, 15% or more of the corporation's voting
stock, unless:
. prior to the time the stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
. the interested stockholder owned at least 85% of the voting stock of the
corporation, excluding specified shares, upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder; or
. at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized by the affirmative vote, at
an annual or special meeting and not by written consent, of at least
66 2/3% of the outstanding voting shares of the corporation, excluding
shares held by that interested stockholder.
A business combination generally includes:
. mergers, consolidations and sales or other dispositions of 10% or more
of the assets of a corporation to or with an interested stockholder;
. specified transactions resulting in the issuance or transfer to an
interested stockholder of any capital stock of the corporation or its
subsidiaries; and
. other transactions resulting in a disproportionate financial benefit to
an interested stockholder.
The provisions of the Delaware business combination statute do not apply to
a corporation if, subject to certain requirements, the certificate of
incorporation or bylaws of the corporation contain a provision expressly
electing not to be governed by the provisions of the statute or the corporation
does not have voting stock listed on a national securities exchange, authorized
for quotation on the NASDAQ Stock Market or held of record by more than 2,000
stockholders.
Mohawk. Because Mohawk has not adopted any provision in its certificate of
incorporation to "opt-out" of the Delaware business combination statute, the
statute is applicable to business combinations involving Mohawk. In addition,
the following provisions contained in Mohawk's certificate of incorporation and
bylaws may discourage or delay attempts to gain control of Mohawk. Mohawk's
certificate of incorporation includes provisions (a) classifying the board of
directors into three classes, (b) authorizing directors to fill vacancies on
the board of directors occurring between annual stockholders meetings, (c)
requiring the affirmative vote of at least 80% of the outstanding shares to
alter, amend or otherwise modify any provision of the certificate relating to
the number of members of the board of directors, board classification,
vacancies and removal of directors or to amend any other provision of the
certificate in a manner inconsistent with these provisions and (d) requiring
that special meetings may be called only by the board of directors or the
chairman of the board. Mohawk's bylaws include provisions governing the conduct
of business at stockholder meetings and the nominations of persons for election
as Mohawk directors.
Dal-Tile. Because Dal-Tile has not adopted any provision in its certificate
of incorporation to "opt-out" of the Delaware business combination statute, the
statute is applicable to business combinations involving Dal-Tile.
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COMPARATIVE MARKET PRICES AND DIVIDENDS
Mohawk common stock is traded on the New York Stock Exchange under the
symbol "MHK." Dal-Tile common stock is traded on the New York Stock Exchange
under the symbol "DTL". The following table sets forth, for the indicated
periods, the high and low sale prices for the Mohawk and Dal-Tile common stock
as reported by the New York Stock Exchange. Neither Mohawk nor Dal-Tile has
paid any cash dividends on their common stock during the periods indicated. The
stock prices do not include retail mark-ups, mark-downs or commissions.
Mohawk Dal-Tile
Common Stock Common Stock
------------ ------------
High Low High Low
------ ----- ----- -----
(Dollars per Share)
2000
First Quarter............................ 26.00 18.94 10.13 6.13
Second Quarter........................... 26.25 20.50 10.50 8.00
Third Quarter............................ 27.81 21.13 12.81 7.00
Fourth Quarter........................... 29.13 19.06 14.31 11.00
2001
First Quarter............................ 32.60 25.50 17.25 12.18
Second Quarter........................... 35.85 27.91 18.55 13.69
Third Quarter............................ 47.13 29.85 19.49 11.31
Fourth Quarter........................... 55.55 35.90 23.39 13.80
2002
First Quarter (through February 15, 2002) 60.59 50.50 24.40 22.37
On November 19, 2001, the last trading day prior to public announcement of
the merger, the last sale price of Mohawk common stock as reported on the New
York Stock Exchange was $51.38 per share and the last sale price of Dal-Tile
common stock as reported on the New York Stock Exchange was $17.60 per share.
Mohawk has not paid or declared any cash dividends on shares of its common
stock since 1992. Mohawk's policy is to retain all net earnings for the
development of its business, and it does not anticipate paying cash dividends
on the Mohawk common stock in the foreseeable future. The payment of future
cash dividends will be at the sole discretion of the board of directors and
will depend upon Mohawk's profitability, financial condition, cash
requirements, future prospects and other factors deemed relevant by the board
of directors. The payment of cash dividends is limited by certain covenants
within various of Mohawk's loan agreements.
BOARD OF DIRECTORS FOLLOWING THE MERGER
Upon completion of the merger, the board of directors of Mohawk will consist
of nine individuals. Under the merger agreement, Dal-Tile will designate two
members to serve on the Mohawk board of directors. Dal-Tile has designated John
F. Fiedler and W. Christopher Wellborn to serve on the Mohawk board of
directors. Mr. Fiedler will serve as a Class I director, with a term expiring
in 2002, and Mr. Wellborn will serve as a Class III director, with a term
expiring in 2004.
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STOCKHOLDER PROPOSALS
Whether or not the merger is completed as expected, Mohawk will hold an
annual stockholders' meeting in 2002. If the merger is not completed, Dal-Tile
will hold an annual stockholders' meeting in 2002. Subject to the requirements
of Rule 14a-8 under the Exchange Act, stockholders of each company may present
proposals for inclusion in a company's proxy statement and for consideration at
the next annual meeting of its stockholders by submitting their proposals to
the company in a timely manner.
Mohawk 2002 Annual Meeting. The deadline for submission of a stockholder
proposal in connection with the 2002 annual meeting of Mohawk stockholders has
already passed. If, however, Mohawk schedules an annual meeting of stockholders
to be held on a date after June 17, 2002, stockholders may present a proposal
for inclusion in Mohawk's proxy statement and presentation at the annual
meeting a reasonable time before Mohawk begins to print and mail its proxy
materials. Under Mohawk's bylaws, the deadline for a stockholder to present a
proposal for consideration at the special meeting was December 19, 2001.
Dal-Tile 2002 Annual Meeting. The deadline for submission of a stockholder
proposal in connection with the 2002 annual meeting of Dal-Tile stockholders
was December 15, 2001. If, however, Dal-Tile schedules an annual meeting of
stockholders to be held on a date after May 27, 2002, stockholders may present
a proposal for inclusion in Dal-Tile's proxy statement and presentation at the
annual meeting a reasonable time before Dal-Tile begins to print and mail its
proxy materials.
EXPERTS
The consolidated financial statements and schedules of Mohawk Industries,
Inc. and subsidiaries as of December 31, 2000 and 1999, and for each of the
years in the three-year period ended December 31, 2000, have been incorporated
herein by reference and in the joint proxy statement-prospectus in reliance
upon the report of KPMG LLP, independent auditors, and upon the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements and schedule of Dal-Tile International
Inc. and its subsidiaries, at December 29, 2000 and December 31, 1999, and for
each of the three years in the period ended December 29, 2000 included in the
Annual Report on Form 10-K of Dal-Tile International Inc., which has been
incorporated herein by reference and which is referred to and made a part of
this joint proxy statement-prospectus and registration statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon and incorporated herein by reference in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
OPINIONS
The legality of the shares of Mohawk common stock to be issued in the merger
will be passed upon by Alston & Bird LLP, Atlanta, Georgia.
Certain tax consequences of the transaction will be passed upon for Mohawk
by Alston & Bird LLP, Atlanta, Georgia, and for Dal-Tile by Vinson & Elkins
L.L.P., Dallas, Texas.
WHERE YOU CAN FIND MORE INFORMATION
Mohawk and Dal-Tile file annual, quarterly and current reports, proxy and
information statements, and other information with the SEC under the Securities
Exchange Act of 1934. You may read and copy this information at the Public
Reference Section at the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.
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The SEC maintains an Internet site that contains reports, proxy and
information statements, and other information about issuers that file
electronically with the SEC. The address of that site is http://www.sec.gov. In
addition, you can read and copy this information at the regional offices of the
SEC at Woolworth Building, 233 Broadway, New York, New York 10279 and at 175 W.
Jackson Boulevard, Suite 900, Chicago, Illinois 60604. You can also inspect
reports, proxy and information statements, and other information about Mohawk
and Dal-Tile at the offices of the New York Stock Exchange, 20 Broad Street,
New York, New York 10005.
Mohawk filed a registration statement on Form S-4 with the SEC under the
Securities Act of 1933, as amended, relating to the Mohawk common stock offered
to the Dal-Tile stockholders. The registration statement contains additional
information about Mohawk, Dal-Tile and the Mohawk common stock. The SEC allows
Mohawk and Dal-Tile to omit certain information included in the registration
statement from this joint proxy statement-prospectus. The registration
statement may be inspected and copied at the SEC's public reference facilities
described above.
This joint proxy statement-prospectus incorporates important business and
financial information about Mohawk and Dal-Tile that is not included in or
delivered with this joint proxy statement-prospectus. The following documents
filed with the SEC by Mohawk (SEC File No. 001-19826) are incorporated by
reference in the joint proxy statement-prospectus:
(1) Mohawk's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, including Amendment No. 1 to that report;
(2) Mohawk's Quarterly Reports on Form 10-Q for the three months
ended March 31, 2001, June 30, 2001, and September 29, 2001; and
(3) Mohawk's Current Reports on Form 8-K dated February 8, 2001,
April 16, 2001, July 16, 2001, October 15, 2001, November 19, 2001,
December 7, 2001, February 7, 2002 and February 8, 2002.
The following documents filed with the SEC by Dal-Tile (SEC File No.
33-64140) are incorporated by reference in this joint proxy
statement-prospectus:
(1) Dal-Tile's Annual Report on Form 10-K for the fiscal year ended
December 29, 2000;
(2) Dal-Tile's Quarterly Reports on Form 10-Q for the three months
ended March 30, 2001, June 29, 2001, and September 28, 2001; and
(3) Dal-Tile's Current Reports on Form 8-K dated October 29, 2001,
November 19, 2001, December 7, 2001 and January 21, 2002.
Mohawk and Dal-Tile also incorporate by reference additional documents filed
by them pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this joint proxy statement-prospectus and prior to final
adjournment of the special meetings. Any statement contained in this joint
proxy statement-prospectus or in a document incorporated or deemed to be
incorporated by reference in this joint proxy statement-prospectus shall be
deemed to be modified or superseded to the extent that a statement contained
herein or in any subsequently filed document which also is, or is deemed to be,
incorporated by reference herein modifies or supersedes such statement.
You may obtain copies of the information incorporated by reference in this
joint proxy statement-prospectus upon written or oral request. The inside front
cover of this joint proxy statement-prospectus contains information about how
such requests should be made. Any request for documents should be made by March
13, 2002 to ensure timely delivery of the documents.
All information contained in this joint proxy statement-prospectus or
incorporated herein by reference with respect to Mohawk was supplied by Mohawk,
and all information contained in this joint proxy statement-prospectus or
incorporated herein by reference with respect to Dal-Tile was supplied by
Dal-Tile.
71
FORWARD-LOOKING STATEMENTS
This joint proxy statement-prospectus contains "forward-looking statements''
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended,
particularly those statements regarding the effects of the Dal-Tile
acquisition, and those preceded by, followed by or that otherwise include the
words "believes," "expects," "anticipates," "intends," "estimates," or similar
expressions. For those statements, Mohawk and Dal-Tile claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements relating
to expectations about future results or events are based upon information
available to Mohawk and Dal-Tile as of today's date, and neither Mohawk nor
Dal-Tile assumes any obligation to update any of these statements. The
forward-looking statements are not guarantees of the future performance of
Mohawk or the combined company and actual results may vary materially from the
results and expectations discussed. Although Mohawk and Dal-Tile have entered
into the merger agreement, there is no assurance that the parties will complete
the merger. In the event Mohawk and Dal-Tile do not receive necessary
government or stockholder approvals or fail to satisfy conditions to closing,
the transaction will terminate. Additional risks and uncertainties related to
the merger include, but are not limited to the following:
. conditions in the financial markets relevant to the proposed merger;
. the successful integration of Dal-Tile into Mohawk's business;
. each company's ability to compete in the highly competitive flooring
industry;
. changes in economic conditions generally in the carpet, rug and flooring
markets served by Mohawk and the combined company;
. increased competition from other carpet, rug, ceramic tile and flooring
manufacturers;
. increased raw material prices;
. the timing and level of capital expenditures;
. the successful integration of acquisitions including the challenges
inherent in diverting Mohawk's management attention and resources from
other strategic matters and from operational matters for an extended
period of time;
. the successful introduction of new products; and
. the successful rationalization of existing operations.
For additional information that could cause actual results to differ
materially from those described in the forward-looking statements, you should
refer to the Annual Report on Form 10-K for Mohawk for the year ended December
31, 2000 and the Current Report on Form 8-K for Dal-Tile dated December 7,
2001, including any amendments.
72
UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined consolidated balance
sheet as of September 29, 2001 and the unaudited pro forma condensed combined
consolidated statements of earnings for the nine months ended September 29,
2001 and the year ended December 31, 2000 give effect to the proposed merger,
accounted for as a purchase transaction. The unaudited pro forma condensed
combined consolidated financial information is based on the historical
consolidated financial statements of Mohawk and Dal-Tile using the assumptions
and adjustments set forth in the accompanying notes. The primary reasons for
the merger, which were taken into consideration during the purchase price
negotiations, include:
. the ability to combine Mohawk's current efforts in the hard-flooring
business with Dal-Tile's larger, more established ceramic tile and
natural stone business;
. the opportunity to use Mohawk and Dal-Tile's existing customer
relationships to increase sales of both carpets and hard floorcoverings;
. the opportunity to further develop Mohawk's various brands and increase
sales by distributing its products through Dal-Tile's distribution
network;
. the potential to reduce overhead and other costs by adding Dal-Tile's
distribution network to Mohawk's logistical and distribution system;
. the potential to reduce manufacturing costs and increase quality by
identifying manufacturing best practices from Dal-Tile's operations and
applying them to Mohawk's manufacturing operations and vice-versa; and
. the potential to reduce general, administrative, overhead and other
miscellaneous costs by spreading fixed costs over a larger business.
Mohawk considered whether identifiable intangible assets, such as customer
relationships, patents, covenants not to compete, software, production backlog,
marketing agreements, unpatented technology and trade secrets, might exist and
none were identified other than trademarks, during the purchase price
negotiations. Accordingly, the valuation resulted in the recognition of
goodwill.
The unaudited pro forma condensed combined consolidated balance sheet gives
effect to the merger as if the merger had been consummated at September 29,
2001. The unaudited pro forma condensed combined consolidated statements of
earnings give effect to the merger as if the merger had been consummated at
January 1, 2000. While Mohawk believes that synergies and cost savings may
result from the merger, the unaudited pro forma condensed combined consolidated
financial information does not give effect to the anticipated synergies or cost
savings in connection with the merger.
The unaudited pro forma condensed combined consolidated financial
information should be read in conjunction with Mohawk's consolidated historical
financial statements and those of Dal-Tile, including the respective notes to
those statements. The pro forma information is not necessarily indicative of
the combined financial position and results of operations in the future, or of
the combined financial position and the results of operations, which would have
resulted, had the merger been consummated during the periods or as of the dates
for which the pro forma information is presented.
73
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
September 29, 2001
(In thousands)
Historical
-------------------- Pro Forma Pro Forma
Mohawk Dal-Tile Adjustments Combined
---------- -------- ----------- ---------
ASSETS
Current assets:
Cash................................. $ -- 899 899
Receivables.......................... 432,651 125,784 24,460 (a) 582,895
Inventories.......................... 576,218 158,688 (6,933) (b) 727,973
Prepaid expenses..................... 13,337 20,508 33,845
Deferred income taxes................ 66,474 -- 66,474
---------- -------- --------- ---------
Total current assets............. 1,088,680 305,879 17,527 1,412,086
Property, plant and
equipment, net........................ 630,049 225,876 56,000 (c) 911,925
Goodwill, net........................... 109,969 134,674 1,119,182 (d) 1,363,825
Other intangible assets, net............ -- 16,757 132,511 (d) 149,268
Other assets............................ 5,831 10,405 16,236
---------- -------- --------- ---------
$1,834,529 693,591 1,325,220 3,853,340
========== ======== ========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.... $ 238,215 19,197 700,000 (e) 957,412
Accounts payable and
accrued expenses................... 412,075 118,986 531,061
---------- -------- --------- ---------
Total current liabilities........ 650,290 138,183 700,000 1,488,473
Deferred income taxes................... 75,808 26,078 69,750 (f) 171,636
Long-term debt, less
current portion....................... 219,571 242,500 7,461 (e) 469,532
Other long-term liabilities............. 4,806 19,318 24,124
---------- -------- --------- ---------
Total liabilities................ 950,475 426,079 777,211 2,153,765
---------- -------- --------- ---------
Stockholders' equity:
Preferred stock...................... -- -- --
Common stock......................... 613 559 (435) (g) 737
Additional paid-in capital........... 193,722 459,004 356,393 (g) 1,009,119
Retained earnings (deficit).......... 887,930 (115,302) 115,302 (g) 887,930
Accumulated other comprehensive loss. (4,617) (76,749) 76,749 (g) (4,617)
---------- -------- --------- ---------
1,077,648 267,512 548,009 1,893,169
Less treasury stock.................. 193,594 -- 193,594
---------- -------- --------- ---------
Total stockholders' equity....... 884,054 267,512 548,009 1,699,575
---------- -------- --------- ---------
$1,834,529 693,591 1,325,220 3,853,340
========== ======== ========= =========
See accompanying notes to the Unaudited Pro Forma Condensed Combined
Consolidated Financial Information.
74
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2001
(In thousands, except per share data)
Historical
------------------- Pro Forma Pro Forma
Mohawk Dal-Tile Adjustments Combined
---------- -------- ----------- ---------
Net sales............................................ $2,441,697 777,986 110,938 (h) 3,339,572
8,951 (i)
Cost of sales........................................ 1,826,309 410,793 110,938 (h) 2,412,818
60,578 (i)
4,200 (j)
---------- ------- ------- ---------
Gross profit.................................. 615,388 367,193 (55,827) 926,754
Selling, general and administrative expenses......... 385,814 256,427 (4,134)(k) 586,480
(51,627)(i)
---------- ------- ------- ---------
Operating income.............................. 229,574 110,766 (66) 340,274
---------- ------- ------- ---------
Other expense:
Interest expense, net............................. 24,053 16,996 23,577 (l) 64,626
Other expense, net................................ 4,094 1,029 5,123
---------- ------- ------- ---------
28,147 18,025 23,577 69,749
---------- ------- ------- ---------
Earnings before income taxes.................. 201,427 92,741 (23,643) 270,525
Income taxes......................................... 72,028 35,705 (8,748)(m) 98,985
---------- ------- ------- ---------
Net earnings.................................. $ 129,399 57,036 (14,895) 171,540
========== ======= ======= =========
Basic earnings per share............................. $ 2.47 2.65
========== =========
Weighted-average common shares outstanding........... 52,347 12,412 (n) 64,759
========== ======= =========
Diluted earnings per share........................... $ 2.44 2.62
========== =========
Weighted-average common and dilutive potential common
shares outstanding................................. 53,021 12,429 (n) 65,450
========== ======= =========
See accompanying notes to the Unaudited Pro Forma Condensed Combined
Consolidated Financial Information.
75
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2000
(In thousands, except per share data)
Historical
------------------- Pro Forma Pro Forma
Mohawk Dal-Tile Adjustments Combined
---------- -------- ----------- ---------
Net sales............................................ $3,255,846 952,156 148,188 (h) 4,367,771
11,581 (i)
Cost of sales........................................ 2,432,997 497,933 148,188 (h) 3,160,848
76,130 (i)
5,600 (j)
---------- ------- ------- ---------
Gross profit.................................. 822,849 454,223 (70,149) 1,206,923
Selling, general and administrative expenses......... 505,734 317,160 (5,512)(k) 752,833
(64,549)(i)
Class action legal settlement........................ 7,000 7,000
---------- ------- ------- ---------
Operating income.............................. 310,115 137,063 (88) 447,090
---------- ------- ------- ---------
Other expense:
Interest expense, net............................. 38,044 29,998 48,710 (l) 116,752
Other expense, net................................ 4,442 444 4,886
---------- ------- ------- ---------
42,486 30,442 48,710 121,638
---------- ------- ------- ---------
Earnings before income taxes ................. 267,629 106,621 (48,798) 325,452
Income taxes......................................... 105,030 5,864 17,130 (m) 128,024
---------- ------- ------- ---------
Net earnings.................................. $ 162,599 100,757 (65,928) 197,428
========== ======= ======= =========
Basic earnings per share............................. $ 3.02 2.98
========== =========
Weighted-average common shares outstanding........... 53,769 12,412 (n) 66,181
========== ======= =========
Diluted earnings per share........................... $ 3.00 2.96
========== =========
Weighted-average common and dilutive potential common
shares outstanding................................. 54,255 12,429 (n) 66,684
========== ======= =========
See accompanying notes to the Unaudited Pro Forma Condensed Combined
Consolidated Financial Information.
76
Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial
Information
This section sets forth (i) an unaudited pro forma condensed combined
consolidated balance sheet as of September 29, 2001, (ii) unaudited pro forma
condensed combined consolidated statements of earnings for the nine months
ended September 29, 2001 and for the year ended December 31, 2000, and (iii)
the related notes thereto. The unaudited pro forma condensed combined
consolidated financial information should be read in conjunction with the
historical consolidated financial statements and the related notes thereto of
Mohawk and of Dal-Tile included in the documents described under "Where You Can
Find More Information."
The unaudited pro forma condensed combined consolidated balance sheet
combines the unaudited historical consolidated balance sheets of Mohawk and
Dal-Tile, as of September 29, 2001 and September 28, 2001, respectively, as if
the merger had been completed on September 29, 2001. The unaudited pro forma
condensed combined consolidated statements of earnings combine the historical
consolidated statements of earnings of Mohawk and Dal-Tile for the nine months
ended September 29, 2001 and September 28, 2001 and for the years ended
December 31, 2000 and December 29, 2000, respectively as if the merger had been
completed on January 1, 2000. The merger will be accounted for as a purchase
for financial accounting purposes as required by SFAS No. 141, Business
Combinations, in accordance with accounting principles generally accepted in
the United States. For purposes of preparing Mohawk's consolidated financial
statements, Mohawk will establish a new basis for Dal-Tile's assets and
liabilities based upon their fair values, the merger consideration and the cost
of the merger. Mohawk believes that any excess cost over fair value of the net
assets of Dal-Tile will be recorded as goodwill and other intangible assets. A
final determination of the intangible asset values and required purchase
accounting adjustments, including the allocation of the purchase price to the
assets acquired and liabilities assumed based on their respective fair values,
has not yet been made. Mohawk will determine the fair value of Dal-Tile's
assets and liabilities and will make appropriate purchase accounting
adjustments upon completion of such determination. However, for purposes of
disclosing pro forma information in this joint proxy statement-prospectus,
Mohawk has made a preliminary determination of the purchase price allocation
based upon current estimates and assumptions, which is subject to revision upon
completion the merger.
The key events that need to occur before Mohawk can finalize its purchase
price allocation include consummation of the merger, final determination of the
exchange ratio and measurement date and completion of the valuation of Dal-Tile
being performed. Mohawk has not identified any preacquisition contingencies at
this time and does not anticipate any material changes to the purchase price
allocation included in the unaudited pro forma condensed combined consolidated
financial information. However, factors such as the final exchange ratio and
Mohawk stock price used to value the transaction, the final balance sheet of
Dal-Tile prior to closing and the results of the final valuation of Dal-Tile
all will have an impact on the final purchase price allocation. Mohawk expects
to complete the allocation within one year from the closing date.
The unaudited pro forma condensed combined consolidated financial
information is intended for informational purposes only and is not necessarily
indicative of the future financial position or future results of operations of
the combined company, or of the financial position or results of operations of
the combined company that would have actually occurred had the merger been in
effect as of the date or for the periods presented. For purposes of the
unaudited pro forma condensed combined consolidated financial information,
certain reclassifications have been made to Dal-Tile's historical amounts to
conform to Mohawk classifications.
Note 1. Purchase Price
The merger agreement provides that, each share of Dal-Tile common stock
outstanding at the completion of the merger (subject to certain limitations
described below), will be converted into and become the right to receive a
fraction of a share of Mohawk common stock (as described in Note 3(n)) and
$11.00 in cash. The Dal-Tile stock option holders have the alternatives of (1)
exercising their options prior to the effective time and converting the
Dal-Tile stock resulting from the exercise to the combination of cash and
Mohawk stock, (2) electing to receive (a) cash (at $22.00 per option less the
exercise price of Dal-Tile stock) for one half of their options and (b) options
to acquire Mohawk stock (equal to two times the exchange ratio multiplied by
the number of options)
77
Notes to the Unaudited Pro Forma Condensed Combined Consolidated
Financial Information, Continued
for one-half of their options at an exercise price equal to the Dal-Tile
exercise price divided by two times the exchange ratio or (3) continuing to
hold their Dal-Tile stock options which shall become exercisable for the amount
of cash and the number of shares of Mohawk common stock such holder would have
received had such holder exercised their options immediately prior to the
completion of the merger. It has been assumed that all Dal-Tile stock option
holders will elect alternative (2).
The total purchase price, based upon the number of shares of Dal-Tile common
stock and options outstanding at September 28, 2001, would be as follows:
(In thousands)
--------------
Total market value of Mohawk stock to be issued $ 674,855 (1)
Cash consideration............................. 682,461 (2)
Estimated fair value of stock options exchanged 140,666 (3)
Direct merger costs............................ 25,000 (4)
----------
Total purchase price.................... $1,522,982
==========
--------
(1) Assumes a Mohawk stock price of $54.37 per share. See Note 3(n).
(2) Represents the cash paid for outstanding Dal-Tile stock and for Dal-Tile
options cashed out.
(3) Represents the fair value of Dal-Tile options exchanged for Mohawk options.
The fair value of the Dal-Tile options was determined based upon the Mohawk
stock price of $54.37 and an exchange ratio of .4426 using the
Black-Scholes option valuation model assuming a risk-free rate of 3.5%, a
volatility rate of 43.81% and an expected term of the vested options of 2.5
years.
(4) Estimated direct merger costs include:
(In thousands)
--------------
Change in control payments to Dal-Tile management $11,200
Investment banking fees.......................... 8,150
Legal fees....................................... 2,500
Accounting fees.................................. 1,200
Other costs...................................... 1,950
-------
Total transaction costs................... $25,000
=======
Note 2. Allocation of Purchase Price
(In thousands)
--------------
Total purchase price............................................................................ $1,522,982
----------
Net assets of Dal-Tile based on historical carrying amounts as of September 28, 2001............ 267,512
Income tax receivable for Dal-Tile options cashed-out........................................... 24,460
Increase (decrease) in net assets to reflect estimated fair value adjustments under the purchase
method of accounting:
Inventory adjustment............................................................................ (6,933)
Property, plant and equipment................................................................... 56,000
Trademarks...................................................................................... 132,511
Deferred tax liability.......................................................................... (69,750)
----------
Fair value of net assets acquired............................................................ 403,800
----------
Goodwill..................................................................................... $1,119,182
==========
78
Notes to the Unaudited Pro Forma Condensed Combined Consolidated
Financial Information, Continued
Note 3. Pro Forma Adjustments
The following are descriptions of the pro forma purchase accounting and
other merger-related adjustments, labeled (a) through (n), which have been
reflected in the accompanying pro forma condensed combined consolidated balance
sheet and pro forma condensed combined consolidated statements of earnings:
(a) Represents income tax receivable on options exercised.
(b) This adjustment reflects the amounts necessary to state Dal-Tile
inventories on a first-in, first-out (FIFO) basis versus the historical
last-in, first-out (LIFO) basis.
(c) Adjustment to reflect the estimated fair market value of property, plant
and equipment.
(d) The adjustments of $1,119.2 million and $132.5 million represent the
estimated increase to Dal-Tile's existing goodwill and other intangible assets,
respectively, related to the merger. In accordance with SFAS No. 142, the
goodwill recorded in the merger will not be amortized. Additionally, the
trademarks intangible assets have indefinite lives.
The following table summarizes the goodwill and other intangible assets
(amounts in thousands):
Historical
-----------------
Pro Forma Pro Forma
Mohawk Dal-Tile Adjustments Combined
-------- -------- ----------- ---------
Goodwill, net......................... $109,969 134,674 1,119,182 1,363,825
======== ======= ========= =========
Trademarks............................ $ -- 14,089 132,511 146,600
Other intangible assets............... -- 2,668 -- 2,668
-------- ------- --------- ---------
Total other intangible assets, net. $ -- 16,757 132,511 149,268
======== ======= ========= =========
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS No. 142 will require
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS No. 142.
Mohawk is required to adopt the provisions of SFAS No. 141 immediately, and
SFAS No. 142 effective January 1, 2002. Furthermore, any Mohawk goodwill that
was acquired in a purchase business combination completed after June 30, 2001
will not be amortized. Goodwill acquired by Mohawk in business combinations
completed before July 1, 2001 will discontinue being amortized after
December 31, 2001.
Mohawk has evaluated its existing goodwill that was acquired in prior
purchase business combinations for impairment and has concluded that no
adjustment to the Mohawk historical consolidated financial statements is
required.
As of the date of adoption, Mohawk expects to have unamortized goodwill in
the amount of $109.2 million. Amortization expense related to goodwill was $3.2
million and $2.4 million for the year ended December 31, 2000 and the nine
months ended September 29, 2001, respectively.
No adjustments for Mohawk's goodwill amortization have been included in the
pro forma financial information for Mohawk's acquisitions prior to July 1, 2001.
(e) Represents an increase in Mohawk borrowings of $969.2 million to fund the
cash portion of the purchase price ($682.5 million cash consideration plus
$25.0 million direct merger costs) and to refinance Dal-Tile's existing
indebtedness ($19.2 million current portion of long-term debt plus $242.5
million long-term debt). Initially, Mohawk will finance the purchase price with
a combination of the bridge loan, its existing revolving credit facility and a
receivables securitization. The bridge loan is expected to be replaced by
permanent
79
Notes to the Unaudited Pro Forma Condensed Combined Consolidated
Financial Information, Continued
financing. The revolving credit line, which provides total credit availability
of $450.0 million, is due January 28, 2004, and has been classified in
long-term liabilities. See "The Merger--Financing."
(f) Adjustment to record deferred taxes for temporary differences between the
fair value and the tax bases of certain acquired assets based upon the
assumption the merger will be completed as a tax-free reorganization.
(g) Represents (i) the elimination of Dal-Tile's historical stockholders'
equity, (ii) the issuance by Mohawk of 12.4 million common shares as the stock
portion of the merger consideration, at a total market value of $674.9 million
based on the Mohawk stock price of $54.37 with an exchange ratio of 0.2213 and
(iii) an adjustment of $140.7 million to record the fair value of Dal-Tile
options that will be exchanged for Mohawk options. See Note 1 of the Unaudited
Pro Forma Condensed Combined Consolidated Financial Information.
(h) In accordance with the Emerging Issues Task Force ("EITF") 00-10,
"Accounting for Shipping and Handling Fees and Costs", Mohawk has reclassified
freight expense from net sales to cost of sales.
(i) For purposes of the unaudited pro forma condensed combined consolidated
financial information, Dal-Tile's shipping and handling revenue and costs have
been reclassified to net sales and cost of sales, respectively, so Dal-Tile's
historical amounts conform to Mohawk classifications.
(j) Represents the estimated adjustment in depreciation expense as a result of
adjusting certain property, plant and equipment to fair value and changing
Dal-Tile fixed asset useful lives to conform to Mohawk. The estimated
adjustments were calculated based on the historical net book value of
Dal-Tile's property, plant and equipment plus the estimated step-up to fair
value for the property, plant and equipment. It was assumed in calculating the
adjustment that the useful life of each asset would start over for purposes of
depreciation. The useful life of Dal-Tile's buildings was changed from 30 to 35
years and furniture and fixtures was changed from an average of approximately
7 1/2 years to five years. The useful life of buildings was extended because
Mohawk's practice is to utilize its buildings for at least their estimated
useful lives, making the necessary repairs and performing the required
maintenance to realize the longer useful life.
(k) Represents the reversal of goodwill and other intangible amortization
included in Dal-Tile's historical financial statements. Amounts reversed in
2000 are $4.7 million and $.8 million and in 2001 $3.6 million and $.5 million
for goodwill and tradenames, respectively.
(l) Includes an increase in interest expense as a result of the planned
borrowing to fund the cash portion of the purchase price. The refinancing of
the existing Dal-Tile debt and the cash portion of the purchase price will
initially be made through Mohawk's existing variable-rate debt and the $700
million bridge loan which also carries a variable interest rate. Mohawk's
existing variable-rate debt and the bridge loan each incur annual interest at
LIBOR plus 1.37% and LIBOR plus .37%, respectively. The average LIBOR rate was
4.32% and 6.53% for the periods ended September 29, 2001 and December 31, 2000,
respectively. A change of 1/8% in the interest rate would change interest
expense by approximately $.9 million and $1.3 million for the periods ended
September 29, 2001 and December 31, 2000, respectively. Mohawk plans to obtain
permanent long-term financing. If successful, interest rates are expected to
increase over those rates reflected in these unaudited pro forma condensed
combined consolidated statements of earnings.
(m) Represents the income tax effect of the pro forma adjustments at an
estimated rate of 37.0%. Additionally, the historical income tax expense of
Dal-Tile included a U.S. federal income tax benefit due to the reversal of a
valuation allowance originally recorded in connection with Dal-Tile's net
operating loss carry forward. This benefit reduced Dal-Tile's effective tax
rate from an estimated 38.5% to 5.5% in 2000. However, had the merger been
completed on January 1, 2000, the valuation allowance would have been reversed
as of that date. Accordingly, the historical income tax expense for Dal-Tile
has been increased to an estimated rate of 38.5%.
(n) Under the terms of the merger agreement, Dal-Tile stockholders will
receive for each Dal-Tile share $11.00 in cash and a fraction of a share of
Mohawk common stock calculated as follows: (i) .2213 of a share of Mohawk
80
Notes to the Unaudited Pro Forma Condensed Combined Consolidated
Financial Information, Continued
if the average closing price of Mohawk common share is greater than $54.67 per
share; (ii) a fraction of a share of Mohawk common stock equal to the quotient
obtained by dividing $12.10 by the average closing price of Mohawk common
stock, if the average closing price of a Mohawk common share is greater than
$50.12 per share, but less than or equal to $54.67 per share; (iii) .2414 of a
share of Mohawk if the average closing price of Mohawk common stock is equal to
or greater than $41.00 per share, but equal to or less than $50.12 per share;
(iv) a fraction of a share of Mohawk common stock equal to the quotient
obtained by dividing $9.90 by the average closing price, if the average closing
price is greater than or equal to $36.45 per share, but less than $41.00 per
share; or (v) .2716 of a share of Mohawk if the average closing price of Mohawk
common stock is less than $36.45 per share. The average closing price is
defined in the merger agreement as the average of the daily closing prices for
Mohawk common stock on the New York Stock Exchange during the 20 consecutive
full trading days ending on the trading day three full trading days prior to
the completion of the merger. This unaudited pro forma condensed combined
consolidated financial information reflects an exchange rate of .2213. This
exchange ratio is based on the Mohawk stock price at February 6, 2002, which
exceeds the highest Mohawk stock price used in the exchange ratio calculation.
The measurement date, which is used to determine the Mohawk stock price for
valuation of the equity issued in the transaction, is February 6, 2002, for
purposes of this unaudited pro forma financial information and is the latest
date that Mohawk's stock price rose above $54.67 (the highest Mohawk stock
price used in the exchange ratio calculation) without subsequently dropping
below $54.67. The Mohawk stock and options issued were valued at $54.37 which
is the five-day average Mohawk stock price beginning two days before the
measurement date and ending two days after the measurement date. The impact of
a change in the Mohawk stock price at closing on the unaudited pro forma
condensed combined consolidated statements of earnings and balance sheet is
described below (amounts in thousands, except per share amounts):
Effect of Change of Average Mohawk Stock Price on
----------------------------------------------------
Average Mohawk Diluted Earnings Stockholders'
Stock Price Per Share Goodwill Equity
-------------- ---------------- ----------------- -----------------
$31.00 (0.15) (263,707) (263,707)
33.00 (0.15) (224,053) (224,053)
35.00 (0.15) (184,400) (184,400)
36.45 (0.15) (155,652) (155,652)
36.50 (0.14) (155,638) (155,638)
37.00 (0.13) (155,638) (155,638)
38.00 (0.11) (155,638) (155,638)
39.00 (0.09) (155,638) (155,638)
40.00 (0.08) (155,638) (155,638)
41.00-50.12 (0.06) (49,946)-(12,709) (49,946)-(12,709)
51.50 (0.04) 4,960 4,960
52.00 (0.03) 4,960 4,960
53.00 (0.02) 4,960 4,960
54.00 (0.01) 4,960 4,960
54.67 -- 4,849 4,849
56.00 -- 26,334 26,334
58.00 -- 58,644 58,644
60.00 -- 90,953 90,953
Pro forma basic earnings per share was calculated by dividing pro forma net
earnings by the pro forma weighted-average number of shares of Mohawk common
stock outstanding during the period. Pro forma diluted earnings per share was
calculated in a manner similar to that of basic earnings per share except that
the pro forma weighted-average number of common shares outstanding is increased
to include the number of incremental common shares (computed using the treasury
stock method) that would have been outstanding if all potentially
81
Notes to the Unaudited Pro Forma Condensed Combined Consolidated
Financial Information, Continued
dilutive common shares were issued during the period. In making these pro forma
calculations, average outstanding shares include the additional Mohawk common
shares assumed to be issued in connection with the merger, based on the 0.2213
exchange ratio. Additionally, the diluted earnings per share calculation
include the Dal-Tile options converted into Mohawk options based on a 0.4426
exchange ratio, after consideration of the treasury stock method.
82
ANNEX A
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MOHAWK INDUSTRIES, INC.,
MAVERICK MERGER SUB, INC.,
AND
DAL-TILE INTERNATIONAL INC.
Dated as of November 19, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
Article 1 TRANSACTIONS AND TERMS OF MERGER............ A-2
1.1 Merger...................................... A-2
1.2 Time and Place of Closing................... A-2
1.3 Effective Time.............................. A-2
1.4 Restructure of Transaction.................. A-2
Article 2 TERMS OF MERGER............................. A-3
2.1 Charter..................................... A-3
2.2 Bylaws...................................... A-3
2.3 Directors and Officers...................... A-3
Article 3 MANNER OF CONVERTING SHARES................. A-3
3.1 Conversion of Shares........................ A-3
3.2 Anti-Dilution Provisions.................... A-4
3.3 Shares Held by Target or Buyer.............. A-4
3.4 Dissenting Stockholders..................... A-4
3.5 Conversion of Stock Options................. A-4
3.6 Fractional Shares........................... A-6
Article 4 EXCHANGE OF SHARES.......................... A-6
4.1 Exchange Procedures......................... A-6
4.2 Rights of Former Target Stockholders........ A-7
Article 5 REPRESENTATIONS AND WARRANTIES OF TARGET.... A-7
5.1 Organization, Standing, and Power........... A-7
5.2 Authority of Target; No Breach By Agreement. A-8
5.3 Capital Stock............................... A-8
5.4 Target Subsidiaries......................... A-9
5.5 SEC Filings; Financial Statements........... A-9
5.6 Absence of Undisclosed Liabilities.......... A-10
5.7 Absence of Certain Changes or Events........ A-10
5.8 Tax Matters................................. A-10
5.9 Intellectual Property....................... A-11
5.10 Environmental Matters....................... A-12
5.11 Compliance with Laws........................ A-13
5.12 Labor Relations............................. A-14
5.13 Employee Benefit Plans...................... A-15
5.14 Material Contracts.......................... A-17
5.15 Legal Proceedings........................... A-18
5.16 Information Supplied........................ A-18
5.17 Tax and Regulatory Matters.................. A-18
5.18 State Takeover Laws......................... A-19
5.19 Charter Provisions.......................... A-19
5.20 Opinion of Financial Advisor................ A-19
5.21 Board Recommendation........................ A-19
Article 6 REPRESENTATIONS AND WARRANTIES OF BUYER..... A-19
6.1 Organization, Standing, and Power........... A-19
6.2 Authority; No Breach By Agreement........... A-20
6.3 Capital Stock............................... A-20
6.4 SEC Filings; Financial Statements........... A-21
6.5 Compliance with Laws........................ A-21
6.6 Legal Proceedings........................... A-22
6.7 Absence of Certain Changes or Events........ A-22
6.8 Absence of Undisclosed Liabilities.......... A-22
-i-
Page
----
6.9 Tax Matters................................................ A-22
6.10 Employee Benefits Plans; ERISA............................. A-23
6.11 Environmental Matters...................................... A-23
6.12 Information Supplied....................................... A-23
6.13 Authority of Sub........................................... A-23
6.14 Tax and Regulatory Matters................................. A-24
6.15 Opinion of Financial Advisor............................... A-24
6.16 Board Recommendation....................................... A-24
Article 7 CONDUCT OF BUSINESS PENDING CONSUMMATION................... A-24
7.1 Affirmative Covenants of Target............................ A-24
7.2 Negative Covenants of Target............................... A-24
7.3 Covenants of Buyer......................................... A-26
7.4 Adverse Changes in Condition............................... A-26
7.5 Reports.................................................... A-27
Article 8 ADDITIONAL AGREEMENTS...................................... A-27
8.1 Joint Proxy Statement/Prospectus; Registration Statement... A-27
8.2 Meetings of Stockholders; Board Recommendation............. A-27
8.3 Acquisition Proposals...................................... A-28
8.4 Exchange Listing........................................... A-30
8.5 Antitrust Notification; Consents of Regulatory Authorities. A-30
8.6 Filings with State Offices................................. A-31
8.7 Agreement as to Efforts to Consummate...................... A-31
8.8 Investigation and Confidentiality.......................... A-31
8.9 Press Releases............................................. A-32
8.10 Tax Treatment.............................................. A-32
8.11 Agreement of Affiliates.................................... A-32
8.12 Employee Benefits and Contracts............................ A-33
8.13 Indemnification............................................ A-34
8.14 Board of Directors of Buyer................................ A-35
8.15 Section 16(b) Board Approval............................... A-35
Article 9 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE.......... A-35
9.1 Conditions to Obligations of Each Party.................... A-35
9.2 Conditions to Obligations of Buyer......................... A-36
9.3 Conditions to Obligations of Target........................ A-37
Article 10 TERMINATION............................................... A-38
10.1 Termination................................................ A-38
10.2 Effect of Termination...................................... A-39
10.3 Expenses................................................... A-39
Article 11 MISCELLANEOUS............................................. A-41
11.1 Definitions................................................ A-41
11.2 Non-Survival of Representations and Covenants.............. A-47
11.3 Brokers and Finders........................................ A-47
11.4 Entire Agreement........................................... A-47
11.5 Amendments................................................. A-47
11.6 Waivers.................................................... A-47
11.7 Assignment................................................. A-48
11.8 Notices.................................................... A-48
11.9 Governing Law.............................................. A-49
11.10 Counterparts............................................... A-49
11.11 Captions, Articles and Sections............................ A-49
11.12 Interpretations............................................ A-49
11.13 Enforcement of Agreement................................... A-49
11.14 Severability............................................... A-49
11.15 No Affiliate Liability..................................... A-49
11.16 Schedule Definitions....................................... A-50
.
-ii-
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of November 19, 2001 by and among MOHAWK INDUSTRIES, INC. ("Buyer"), a
Delaware corporation; MAVERICK MERGER SUB, INC. ("Sub"), a Delaware
corporation; and DAL-TILE INTERNATIONAL INC. ("Target"), a Delaware corporation.
Preamble
--------
The respective Boards of Directors of Target, Sub and Buyer are of the
opinion that the transactions described herein are advisable and in the best
interests of the parties to this Agreement and their respective stockholders.
This Agreement provides for the acquisition of Target by Buyer pursuant to the
merger of Target with and into Sub. At the effective time of such merger, the
outstanding shares of the capital stock of Target shall be converted into the
right to receive a cash payment from Buyer or the Surviving Corporation and
shares of the common stock of Buyer (except as provided herein). As a result,
Sub shall continue to conduct the business and operations of Target as a wholly
owned subsidiary of Buyer. The transactions described in this Agreement are
subject to the approvals of the stockholders of Target, the stockholders of
Buyer, 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 the Merger for federal income
tax purposes shall qualify as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code.
Concurrently with the execution and delivery of this Agreement, as a
condition and inducement to Buyer's willingness to enter into this Agreement,
certain of the holders of the outstanding shares of Target Common Stock have
executed and delivered to Buyer an agreement in substantially the form of
Exhibit 1 (the "Target Voting Agreements"), pursuant to which they have agreed,
among other things, subject to the terms of such Target Voting Agreement, to
vote the shares of Target Common Stock over which such Persons have voting
power to approve and adopt this Agreement and approve the Merger.
Concurrently with the execution and delivery of this Agreement, as a
condition and inducement to Target's willingness to enter into this Agreement,
a stockholder of Buyer has executed and delivered to Target an agreement in
substantially the form of Exhibit 2 (the "Buyer Voting Agreement"), pursuant to
which such stockholder has agreed, among other things, subject to the terms of
such Buyer Voting Agreement, to vote the shares of Buyer Common Stock over
which such stockholder has voting power to approve the issuance of the shares
of Buyer Common Stock pursuant to the Merger.
Certain capitalized terms used in this Agreement are defined in Section 11.1
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:
A-1
ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER
1.1 Merger.
Subject to the terms and conditions of this Agreement and subject to the
provisions of Section 1.4 of this Agreement, at the Effective Time, Target
shall be merged with and into Sub in accordance with the applicable provisions
of the Delaware General Corporation Law ("DGCL") and with the effect provided
therein (collectively with the Reverse Merger, the "Merger"). Sub shall be the
Surviving Corporation resulting from the Merger and shall remain a wholly owned
Subsidiary of Buyer and shall continue to be governed by the Laws of the State
of Delaware. 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 Target, Sub and Buyer and by Buyer, as the sole stockholder of Sub.
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 the Certificate of Merger
reflecting the Merger shall become effective with the Secretary of State of the
State of Delaware in accordance with Section 251 of the DGCL (the "Effective
Time"). 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, and (ii) the date or dates on which both the stockholders
of Target and the stockholders of Buyer have approved this Agreement.
1.4 Restructure of Transaction.
Notwithstanding anything in this Agreement to the contrary, if, at the close
of trading on the NYSE on the day prior to the scheduled Closing Date, the
holders of the outstanding shares of Target Common Stock immediately prior to
the Effective Time, would not receive in the Merger, in the aggregate, an
amount of Buyer Common Stock with a value as of the Effective Time equal to at
least forty percent (40%) of the total value of all shares of Target Common
Stock outstanding immediately prior to the Effective Time taking into account
the Cash Consideration paid or to be paid to Target stockholders, then Target
may elect by written notice to Buyer prior to the Effective Time to have the
Merger effected pursuant to a merger of Sub with and into Target, with Target
being the Surviving Corporation (the "Reverse Merger"), the conditions
contained in Section 9.1(f) will be deemed to have been waived by each Party,
and any inaccuracy or failure to perform the representations and covenants
contained in Sections 5.17, 6.14 and 8.10 will be deemed to have been waived by
each Party. The Reverse Merger would not be intended to qualify as a
reorganization within the meaning of Section 368(a) of the Code. The
determination of the value of Buyer Common Stock in the first sentence of this
Section 1.4 shall be based upon the Exchange Ratio and the closing sale price
of a share of Buyer Common Stock on the NYSE on the trading day prior to the
Effective Time. "Cash Consideration" shall be defined to mean cash or property
other than Buyer Common Stock in the Merger (including (i) the aggregate Cash
Payments to be paid to Target stockholders pursuant to Section 3.1(b), (ii)
cash to be paid to Target stockholders who perfect their dissenters' rights
(which for purposes of this Agreement will be assumed to be an amount equal to
the product of (A) the number of shares of Target Common Stock for which the
Target stockholders have perfected their dissenters' rights multiplied by (B)
the pro rata value of the Merger Consideration relating to such number of shares
A-2
calculated as of the date of this Agreement), (iii) redemptions or acquisitions
of Target Common Stock by Target or parties related to Target (within the
meaning of Treas. Reg. Sec. 1.368-1(e)(3) without regard to Treas. Reg. Sec.
1.368-1(e)(3)(i)(A)) in connection with the Merger, (iv) extraordinary
distributions made by Target or parties related to Target (within the meaning
of Treas. Reg. Sec. 1.368-1(e)(3) without regard to Treas. Reg.
Sec. 1.368-1(e)(3)(i)(A)) prior to and in connection with the Merger (other
than those made pursuant to Target's historic dividend practice), and (v)
repurchases or acquisitions of Buyer Common Stock issued in connection with the
Merger by Buyer or certain parties related to Buyer (within the meaning of
Treas. Reg. Sec. 1.368-1(e)(3)). The Parties agree to take all reasonable
actions, including amending this Agreement and executing any certificates,
agreements or instruments necessary in order to effect the intended purposes of
this Section 1.4.
ARTICLE 2 TERMS OF MERGER
2.1 Charter.
The Certificate of Incorporation of Sub in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation until duly amended or repealed; provided that such Certificate of
Incorporation shall be amended to reflect a change of the name of the Surviving
Corporation.
2.2 Bylaws.
The Bylaws of Sub in effect immediately prior to the Effective Time shall be
the Bylaws of the Surviving Corporation until duly amended or repealed.
2.3 Directors and Officers.
The directors of Sub 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 Surviving Corporation from and after the Effective Time
in accordance with the Bylaws of the Surviving Corporation. The officers of Sub
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 Surviving Corporation from and after the Effective Time in accordance with
the Bylaws of the Surviving Corporation.
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 Buyer, Target, Sub
or the stockholders of any of the foregoing, the shares of the constituent
corporations shall be converted as follows:
(a) Each share of Sub Common Stock issued and outstanding immediately prior
to the Effective Time shall remain issued and outstanding from and after the
Effective Time.
(b) Each share of Target Common Stock (excluding shares held by any Target
Entity or any Buyer Entity, and excluding shares held by stockholders 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
from Buyer (i) a cash payment in the amount of $11.00 (less any required
withholding of Taxes, the "Cash Payment") and (ii) (A) .2414 of a share of
Buyer Common Stock, if the Average Closing Price (as defined below) is equal to
or greater than $41.00 per share and less than or equal to $50.12 per share, or
(B) that fraction of a share of Buyer Common Stock equal to the quotient
obtained by dividing $9.90 by the Average Closing Price, if the Average Closing
Price is less than
A-3
$41.00 and greater than or equal to $36.45, or (C) that fraction of a share of
Buyer Common Stock equal to the quotient obtained by dividing $12.10 by the
Average Closing Price, if the Average Closing Price is greater than $50.12 and
less than or equal to $54.67, or (D) .2716 of a share of Buyer Common Stock if
the Average Closing Price is less than $36.45 per share, or (E) .2213 of a
share of Buyer Common Stock if the Average Closing Price is greater than $54.67
(such applicable fraction of Buyer Common Stock, the "Exchange Ratio"). The
Buyer Common Stock to be issued pursuant to this Agreement, together with the
Cash Payment and cash to be paid in lieu of fractional shares pursuant to
Section 3.6 are referred to collectively as the "Merger Consideration."
"Average Closing Price" shall be defined to mean the average of the daily
closing prices for the shares of Buyer Common Stock for the twenty consecutive
full trading days on which such shares are actually traded on the NYSE (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by Buyer) ending at the close of the trading day
three full trading days prior to the Closing Date.
3.2 Anti-Dilution Provisions.
(a) In the event that Buyer changes the number of shares of Buyer Common
Stock issued and outstanding prior to the Effective Time as a result of a stock
split, stock dividend, or similar recapitalization 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 for
which a record date is not established) shall be prior to the Effective Time,
the Exchange Ratios and the specified Average Closing Prices identified in
Section 3.1(b) shall all be proportionately adjusted.
(b) In the event that, prior to the Effective Time, Buyer shall consummate
a merger, consolidation, share exchange or other reorganization, or any other
transaction with another Person pursuant to which the holders of Buyer Common
Stock receive or become entitled to receive securities, cash or other assets or
any combination thereof, each holder of Target Common Stock shall be entitled
to receive at the Effective Time for each share of Target Common Stock, the
Cash Payment plus that amount of securities, cash or other assets that such
holder would have received or become entitled to receive had such holder been
the record holder of the number of shares of Buyer Common Stock issuable to
such holder of Target Common Stock pursuant to Section 3.1(b) had the Effective
Time occurred immediately prior to the consummation of such transaction.
3.3 Shares Held by Target or Buyer.
Each of the shares of Target Common Stock held by any Target Entity or by
any Buyer Entity shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.4 Dissenting Stockholders.
Any holder of shares of Target Common Stock who perfects such holder's
dissenters' rights in accordance with and as contemplated by Section 262 of the
DGCL shall be entitled to receive from the Surviving Corporation 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 stockholder unless and
until such dissenting stockholder has complied with the applicable provisions
of the DGCL and surrendered to Target the Certificate or Certificates (as
defined below) representing the shares for which payment is being made. In the
event that after the Effective Time a dissenting stockholder of Target fails to
perfect, or effectively withdraws or loses, such holder's right to appraisal of
and payment for such holder's shares, Buyer or the Surviving Corporation shall
issue and deliver the consideration to which such holder of shares of Target
Common Stock is entitled under this Article 3 (without interest) upon surrender
by such holder of the Certificate or Certificates representing the shares of
Target Common Stock held by such holder.
3.5 Conversion of Stock Options.
(a) To the extent that a particular holder of Target Options consents in
writing to the conversion of all and not less than all of his or her Target
Options pursuant to this Section 3.5(a), and provided that such written
A-4
consent is delivered to Target within two business days prior to the date on
which the Effective Time occurs, such holder's Target Options shall be
converted, at the Effective Time, as follows:
(i) One-half of the Target Options held by each particular holder which
are outstanding at the Effective Time, whether or not exercisable (each a
"Cashout Option"), shall be canceled, and such holder shall be entitled to
receive from Buyer for each such Cashout Option (subject to any applicable
withholding tax) cash equal to the amount by which (i) the product of (x)
the Cash Payment multiplied by (y) two exceeds (ii) the per share exercise
price of such Cashout Option. From and after the Effective Time, each
Cashout Option shall only represent the right to receive the cash payment
provided in this Section 3.5(a); and
(ii) The remaining one-half of the Target Options held by each
particular holder which are outstanding at the Effective Time, whether or
not exercisable (each a "Rollover Option"), shall be converted into and
become rights with respect to Buyer Common Stock, and Buyer shall assume
each Rollover Option, in accordance with the terms of the Target Stock Plan
and stock option agreement by which it is evidenced, except that from and
after the Effective Time, (i) Buyer and its Compensation Committee shall be
substituted for Target and the Committee of Target's Board of Directors
(including, if applicable, the entire Board of Directors of Target)
administering such Target Stock Plan, (ii) each Target Option assumed by
Buyer may be exercised solely for shares of Buyer Common Stock as provided
below, (iii) such Target Options shall be converted into Buyer Options to
purchase that number of shares of Buyer Common Stock equal to the number of
shares of Target Common Stock subject to such Target Options immediately
prior to the Effective Time multiplied by two times the Exchange Ratio, and
(iv) the per share exercise price for each such Buyer Option shall be an
amount equal to the quotient of (x) the per share exercise price under the
applicable Target Option divided by (y) two times the Exchange Ratio and
rounded up to the nearest cent; and
(iii) In determining which Target Options of a particular holder are to
be treated as Cashout Options and Rollover Options, the Cashout Options and
Rollover Options shall be allocated equally to each particular grant of
Target Options to such holder having different exercise prices and terms
and, to the extent any such grant is not divisible evenly, the odd Target
Option shall be treated as a Cashout Option.
(b) To the extent that a particular holder of Target Options does not
consent in writing to the conversion of his or her Target Options pursuant to
Section 3.5(a) hereof, or in the event that such written consent is not
delivered to Target within two business days prior to the date on which the
Effective Time occurs, such holder's Target Options which are outstanding at
the Effective Time, whether or not exercisable (the "Conversion Options"),
shall be converted into and become rights with respect to Buyer Common Stock
and cash, and Buyer shall assume each Conversion Option, in accordance with the
terms of the Target Stock Plan and stock option agreement by which it is
evidenced, except that from and after the Effective Time, (i) Buyer and its
Compensation Committee shall be substituted for Target and the Committee of
Target's Board of Directors (including, if applicable, the entire Board of
Directors of Target) administering such Target Stock Plan, (ii) each Target
Option assumed by Buyer may be exercised solely for shares of Buyer Common
Stock and cash as provided below, (iii) such Conversion Options shall be
converted into Buyer Options to purchase the sum of (a) that number of shares
of Buyer Common Stock equal to the number of shares of Target Common Stock
subject to such Conversion Options immediately prior to the Effective Time
multiplied by the Exchange Ratio, plus (b) the Cash Payment times the number of
shares of Target Common Stock subject to such Conversion Options immediately
prior to the Effective Time, and (iv) the per share exercise price under each
such Conversion Option shall be adjusted by dividing the per share exercise
price under the applicable Conversion Options by the Exchange Ratio and
rounding up to the nearest cent.
(c) In the event that the exercise of any Rollover Option or Conversion
Option would result in the issuance of a fractional share of Buyer Common Stock
such fractional share shall be aggregated with all other fractional shares
attributable to all other Rollover Options then being exercised by such holder
and to the extent that such fractional shares thereafter remain, then such
holder shall be entitled to receive a cash payment for any remaining
A-5
fractional shares based upon the last sale price per share of Buyer Common
Stock on the trading day immediately preceding the date of exercise. From and
after the Effective Time, Buyer and the Surviving Corporation shall comply with
the terms of the Target Stock Plans.
At or prior to the Effective Time, Buyer shall cause to be taken all
corporate action necessary to reserve for issuance a sufficient number of
shares of Buyer Common Stock for delivery upon exercise of Rollover Options in
accordance with this Section 3.5. Promptly following the Effective Time and in
no event later than five business days following the Closing Date, Buyer shall
use its reasonable best efforts to cause the Buyer Common Stock subject to the
Rollover Options to be registered under the Securities Act pursuant to a
registration statement on Form S-8 (or any successor or other appropriate
forms) and shall use its reasonable best efforts to cause the effectiveness of
such registration statement (and current status of the prospectus or
prospectuses contained therein) and to thereafter maintain such effectiveness
for so long as any Rollover Options remain outstanding. Buyer and its
Compensation Committee shall be substituted for Target and the Committee of
Target's Board of Directors (including, if applicable, the entire Board of
Directors of Target) administering such Target Stock Plan.
3.6 Fractional Shares.
No fraction of a share of Buyer Common Stock shall be issued by virtue of
the Merger, but in lieu thereof each holder of shares of Target Common Stock
who would otherwise be entitled to a fraction of a share of Buyer Common Stock
(after aggregating all fractional shares of Buyer Common Stock that otherwise
would be received by such holder) shall, upon surrender of such holder's
Certificate or Certificates, receive from Buyer an amount of cash, without
interest, equal to the product of (i) such fraction, multiplied by (ii) the
Average Closing Price.
ARTICLE 4 EXCHANGE OF SHARES
4.1 Exchange Procedures.
(a) At the Effective Time, Buyer shall make available to Buyer's transfer
agent or another exchange agent selected by Buyer (the "Exchange Agent") for
exchange in accordance with this Section4.1 the aggregate Merger Consideration.
As soon as reasonably practicable after the Effective Time, Buyer and Target
shall cause the Exchange Agent to mail to each holder of record of a
certificate or certificates which represented shares of Target Common Stock
immediately prior to the Effective Time (the "Certificates") appropriate
transmittal materials and instructions (which shall specify that delivery shall
be effected, and risk of loss and title to such Certificates shall pass, only
upon proper delivery of such Certificates to the Exchange Agent). The
Certificate or Certificates of Target Common Stock so delivered shall be duly
endorsed as the Exchange Agent may require. In the event of a transfer of
ownership of shares of Target Common Stock represented by Certificates that is
not registered in the transfer records of Target, the Merger Consideration may
be issued to a transferee if the Certificates representing such shares are
delivered to the Exchange Agent, accompanied by all documents required to
evidence such transfer and by evidence satisfactory to the Exchange Agent that
any applicable stock transfer taxes have been paid. If any Certificate shall
have been lost, stolen, mislaid or destroyed, upon receipt of (i) an affidavit
of that fact from the holder claiming such Certificate to be lost, mislaid,
stolen or destroyed, (ii) such bond, security or indemnity as Buyer and the
Exchange Agent may reasonably require and (iii) any other documents necessary
to evidence and effect the bona fide exchange thereof, the Exchange Agent shall
issue to such holder the consideration into which the shares represented by
such lost, stolen, mislaid or destroyed Certificate shall have been converted.
The Exchange Agent may establish such other reasonable and customary rules and
procedures in connection with its duties as it may deem appropriate.
(b) After the Effective Time, each holder of shares of Target 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 Exchange Agent and shall promptly
upon surrender thereof receive in exchange
A-6
therefor the Merger Consideration (without interest), together with all
undelivered dividends or distributions in respect of such shares (without
interest) pursuant to Section 4.2. Buyer shall not be obligated to deliver the
Merger Consideration to which any former holder of Target 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.
(c) Each of Buyer, the Surviving Corporation and the Exchange Agent shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Target Common Stock such
amounts, if any, as it is required to deduct and withhold with respect to the
making of such payment under the Internal Revenue Code or any provision of
state, local or foreign Tax Law. To the extent that any amounts are so withheld
by Buyer, the Surviving Corporation or the Exchange Agent, as the case may be,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Target Common Stock in respect
of which such deduction and withholding was made by Buyer, the Surviving
Corporation or the Exchange Agent, as the case may be.
(d) Any other provision of this Agreement notwithstanding, none of Buyer,
the Surviving Corporation or the Exchange Agent shall be liable to a holder of
Target Common Stock for any amounts paid or property delivered in good faith to
a public official pursuant to any applicable abandoned property, escheat or
similar Law.
4.2 Rights of Former Target Stockholders.
At the Effective Time, the stock transfer books of Target shall be closed as
to holders of Target Common Stock immediately prior to the Effective Time and
no transfer of Target 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 Target
Common Stock (other than shares to be canceled pursuant to Sections 3.3 or as
to which statutory dissenters' rights have been perfected as provided in
Section 3.4) shall from and after the Effective Time represent for all purposes
only the right to receive the Merger Consideration in exchange therefor,
subject, however, to the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which have been declared or made by Target in respect of such
shares of Target Common Stock in accordance with the terms of this Agreement
and which remain unpaid at the Effective Time. Whenever a dividend or other
distribution is declared by Buyer on the Buyer Common Stock, the record date
for which is at or after the Effective Time, the declaration shall include
dividends or other distributions on all shares of Buyer Common Stock issuable
pursuant to this Agreement, but after the Effective Time no dividend or other
distribution payable to the holders of record of Buyer Common Stock as of any
time subsequent to the Effective Time shall be delivered to the holder of any
Certificate until such holder surrenders such Certificate for exchange as
provided in Section 4.1.
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF TARGET
Target hereby represents and warrants to Buyer and Sub as follows:
5.1 Organization, Standing, and Power.
Target 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. Target 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
Target Material Adverse Effect. Target has delivered to Buyer complete and
correct copies of its Second Amended and Restated Certificate of Incorporation
(the "Target Certificate of Incorporation") and Amended and Restated Bylaws
(the "Target Bylaws"). Correct and complete copies of the minute books of the
Board of Directors (including any committees of the Board of Directors) and
stockholders of Target have been made available to Buyer for its review.
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5.2 Authority of Target; No Breach By Agreement.
(a) Target has the corporate power and authority necessary to execute,
deliver, and, other than with respect to the Merger, perform this Agreement,
and with respect to the Merger, upon the adoption and approval of this
Agreement and the Merger by Target's stockholders in accordance with this
Agreement and Delaware law, to 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
Target, subject to the adoption and approval of this Agreement by the holders
of a majority of the outstanding shares of Target Common Stock as contemplated
by Section 8.2, which is the only stockholder vote required for approval of
this Agreement and consummation of the Merger by Target. Subject to such
requisite stockholder approval, this Agreement represents a legal, valid, and
binding obligation of Target, enforceable against Target in accordance with its
terms; except as (i) such enforcement may be subject to any bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other laws, now
or hereafter in effect, relating to or limiting creditors' rights generally,
and (ii) the remedy of specific performance and injunction and other forms of
equitable relief may be subject to equitable defense, and to the discretion of
the court before which any proceeding therefor may be brought.
(b) Neither the execution and delivery of this Agreement by Target, nor the
consummation by Target of the transactions contemplated hereby, nor compliance
by Target with any of the provisions hereof, will (i) conflict with or result
in a breach of any provision of the Target Certificate of Incorporation or
Target Bylaws or the certificate or articles of incorporation or bylaws of any
Target Subsidiary or any currently effective resolution adopted by the board of
directors or the stockholders of any Target Entity, or (ii) except as disclosed
in Section 5.2(b) of the Target 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 material Asset of any Target Entity under, any material
Contract or Permit of any Target Entity or, (iii) subject to receipt of the
requisite Consents referred to in Section 5.2(c) and Section 5.2(c) of the
Target Disclosure Memorandum, constitute or result in a Default under, or
require any Consent pursuant to, any Law or Order applicable to any Target
Entity or any of their respective material Assets (including any Buyer Entity
or any Target Entity becoming subject to or liable for the payment of any Tax
or any of the Assets owned by any Buyer Entity or any Target Entity being
reassessed or revalued by any Regulatory Authority) or, (iv) result in any
Target stockholder having the right to require Buyer to file a registration
statement under the Securities Act with respect to shares of Buyer Common Stock
or to require Buyer to include shares of Buyer Common Stock in any registration
statement filed by Buyer with respect to any securities of Buyer, except as
provided in Section 3.5 of this Agreement.
(c) Except as set forth in Section 5.2(c) of the Target Disclosure
Memorandum or in connection or compliance with the provisions of the Securities
Laws, applicable state corporate and securities Laws, and the rules of the
NYSE, and other than Consents required from Regulatory Authorities, and other
than notices to or filings with the United States Internal Revenue Service
("IRS") 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 or other Person is necessary for the
consummation by Target of the Merger and the other transactions contemplated in
this Agreement; other than such notices, filings, or consents that,
individually or in the aggregate, would not reasonably be expected to have a
Target Material Adverse Effect.
5.3 Capital Stock.
(a) The authorized capital stock of Target consists of (i) 200,000,000
shares of Target Common Stock, of which 55,923,201 shares are issued and
outstanding as of the date of this Agreement and not more than 67,751,099
shares will be issued and outstanding at the Effective Time, and (ii)
11,100,000 shares of preferred stock, par value $0.01 per share, none of which
are issued and outstanding. All of the issued and outstanding shares of capital
stock of Target are duly and validly issued and outstanding and are fully paid
and nonassessable under the DGCL. None of the outstanding shares of capital
stock of Target has been issued in violation of any preemptive rights of the
current or past stockholders of Target.
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(b) Except as set forth in Section 5.3(a) or as disclosed in Section 5.3(b)
of the Target Disclosure Memorandum, there are no shares of capital stock or
other equity securities of Target outstanding and no outstanding Equity Rights
relating to the capital stock of Target. 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 or Equity Right for
the purchase, subscription or issuance of any securities of Target. Upon
consummation of the Merger, Buyer will not have any obligation under any
agreement granting Target stockholders the right to require Target to file a
registration statement under the Securities Act with respect to the securities
of Target or to require Target to include any securities Target securities in
any registration statement filed by Target with respect to any securities of
Target.
5.4 Target Subsidiaries.
Target has disclosed in Section 5.4 of the Target Disclosure Memorandum each
of the Target Subsidiaries that is a corporation (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 each of the Target
Subsidiaries that is a general or limited partnership, limited liability
company, or other non-corporate entity (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 Target Disclosure
Memorandum, Target or one of its wholly owned Subsidiaries owns all of the
issued and outstanding shares of capital stock (or other equity interests) of
each Target Subsidiary. No capital stock (or other equity interest) of any
Target Subsidiary is or may become required to be issued (other than to another
Target Entity) by reason of any Equity Rights, and there are no Contracts by
which any Target Subsidiary is bound to issue (other than to another Target
Entity) additional shares of its capital stock (or other equity interests) or
Equity Rights or by which any Target Entity is or may be bound to transfer any
shares of the capital stock (or other equity interests) of any Target
Subsidiary (other than to another Target Entity). There are no Contracts
relating to the rights of any Target Entity to vote or to dispose of any shares
of the capital stock (or other equity interests) of any Target Subsidiary.
Except as disclosed in Section 5.4 of the Target Disclosure Memorandum, all of
the shares of capital stock (or other equity interests) of each Target
Subsidiary held by a Target 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 Target Entity free and clear of
any Lien. Each Target Subsidiary is a corporation, limited liability company,
limited partnership or limited liability partnership, and each such Subsidiary
is duly organized, validly existing, and in good standing under the Laws of the
jurisdiction in which it is incorporated or organized, and has the power and
authority necessary for it to own, lease, and operate its Assets and to carry
on its business as now conducted. Each Target Subsidiary is duly qualified or
licensed to transact business as a foreign entity 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 would not reasonably be expected to have, individually
or in the aggregate, a Target Material Adverse Effect. Target has made
available to Buyer complete and accurate copies of the minute books of the
Board of Directors (including any committee of the Board of Directors) and
equityholders of each Target Subsidiary and the organizational documents for
each Target Subsidiary.
5.5 SEC Filings; Financial Statements./ /
(a) Target has timely filed and made available to Buyer all SEC Documents
required to be filed by Target since January 1, 1998 (the "Target SEC
Reports"). The Target 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 or, in the case of registration statements, at the
effective date thereof) contain any untrue statement of a material fact or omit
to state a material fact required to be stated in such Target SEC Reports or
necessary in order to make the statements in such Target SEC Reports, in light
of the circumstances under which they were made, not misleading. No Target
Subsidiary files, or is required to file, any SEC Documents.
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(b) Each of the Target Financial Statements (including, in each case, any
related notes) contained in the Target SEC Reports, including any Target 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 Target 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 year-end adjustments which were not or are not
expected to be material in amount or effect.
5.6 Absence of Undisclosed Liabilities.
Neither the Target nor any of the Target Subsidiaries has any Liabilities of
a type required by GAAP to be reflected on a consolidated balance sheet, other
than (i) Liabilities incurred in the ordinary course of business since
September 28, 2001, (ii) Liabilities reflected in any of the Target SEC
Reports, and (iii) Liabilities which would not in the aggregate reasonably be
expected to have, individually or in the aggregate, a Target Material Adverse
Effect.
5.7 Absence of Certain Changes or Events.
Since September 28, 2001, except as disclosed in the Target Financial
Statements delivered prior to the date of this Agreement or as disclosed in
Section 5.7 of the Target Disclosure Memorandum, (i) there have been no events,
changes, or occurrences which have had, or would be reasonably expected to
have, individually or in the aggregate, a Target Material Adverse Effect, and
(ii) none of the Target Entities has 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 Target provided
in Article 7.
5.8 Tax Matters.
(a) (i) All Target Entities have timely filed with the appropriate Taxing
authorities all material Tax Returns in all jurisdictions in which Tax Returns
are required to be filed or appropriate extensions therefor have been
appropriately obtained and have not expired, and such Tax Returns are correct
and complete in all material respects; (ii) all Taxes of the Target Entities
(whether or not shown on any Tax Return) that have become due have been fully
and timely paid, or extensions for payment have been properly obtained or such
Taxes are being timely and properly contested and, in any case, proper accruals
pursuant to GAAP have been established on the Target's consolidated financial
statements with respect thereto, except to the extent any failure to accrue or
reserve would not, individually or in the aggregate, reasonably be expected to
have a Target Material Adverse Effect; (iii) there are no Liens for any Taxes
(other than a Lien for current real property or ad valorem Taxes not yet due
and payable) on any of the Assets of any of the Target Entities; and (iv) no
claim has ever been made by an authority in a jurisdiction where any Target
Entity does not file a Tax Return that such Target Entity may be subject to
Taxes by that jurisdiction.
(b) Except as disclosed in Section 5.8(b) of the Target Disclosure
Memorandum, (i) none of the Target Entities has received any notice of
assessment or proposed assessment in connection with any Taxes, and there are
no, to the knowledge of Target, threatened or pending disputes, claims, audits
or examinations regarding any Taxes of any Target Entity or the assets of any
Target Entity; and (ii) none of the Target Entities has waived any statute of
limitations in respect of any Taxes or agreed to a Tax assessment or deficiency.
(c) Each Target Entity has complied in all material respects with all
applicable Laws, rules and regulations relating to the withholding of Taxes and
the payment thereof to appropriate authorities, including Taxes required
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to have been withheld and paid in connection with amounts paid or owing to any
employee or independent contractor, and Taxes required to be withheld and paid
pursuant to Sections 1441 and 1442 of the Internal Revenue Code or similar
provisions under foreign Law.
(d) The unpaid Taxes of each Target Entity (i) did not, as of the most
recent fiscal month end, exceed the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the most recent balance sheet
(rather than in any notes thereto) for such Target Entity and (ii) will not
exceed that reserve as adjusted for the passage of time through the Closing
Date in accordance with past custom and practice of the Target Entities in
filing their Tax Returns.
(e) None of the Target Entities is a party to any Tax allocation or sharing
agreement and none of the Target Entities has been a member of an affiliated
group filing a consolidated federal income Tax Return (other than a group the
common parent of which was Target) or has any Tax Liability of any Person under
Treasury Regulation Section 1.1502-6 or any similar provision of state, local
or foreign Law (other than the other members of the consolidated group of which
Target is parent), or as a transferee or successor, by contract or otherwise.
(f) During the five-year period ending on the date hereof, none of the
Target Entities was a distributing corporation or a controlled corporation in a
transaction intended to be governed by Section 355 of the Internal Revenue Code.
(g) Except as set forth in Section 5.8(g) of the Target Disclosure
Memorandum, none of the Target Entities has made any payments, is obligated to
make any payments, or is a party to any contract that could obligate it to make
any payments that could be disallowed as a deduction under Section 280G or
162(m) of the Internal Revenue Code. Target has not been a United States real
property holding corporation within the meaning of Internal Revenue Code
Section 897(c)(1)(A)(ii). Except as set forth in Section 5.8(g) of the Target
Disclosure Memorandum, none of the Target Entities has been or will be required
to include any adjustment in taxable income for any Tax period (or portion
thereof) pursuant to Section 481 of the Internal Revenue Code or any comparable
provision under state or foreign Tax Laws as a result of transactions or events
occurring prior to the Closing. Except as set forth in Section 5.8(g) of the
Target Disclosure Memorandum, the net operating losses of the Target Entities
are not subject to any limitation on their use under the provisions of Sections
382 or 269 of the Internal Revenue Code or any other provisions of the Internal
Revenue Code or the Treasury Regulations dealing with the utilization of net
operating losses other than any such limitations as may arise as a result of
the consummation of the transactions contemplated by this Agreement.
(h) Other than as set forth in Section 5.8(h) of the Target Disclosure
Memorandum, no Target 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.
5.9 Intellectual Property.
Each Target Entity owns or has a license to use all of the material
Intellectual Property used by such Target Entity in the course of its business,
including sufficient rights in each copy possessed by each Target Entity. Each
Target Entity is the owner of or has a license, to any material Intellectual
Property sold or licensed to a third party by such Target Entity in connection
with such Target Entity's business operations, and such Target Entity has the
right to convey by sale or license any Intellectual Property so conveyed. No
Target Entity is in Default under any of its material Intellectual Property
licenses. To the Knowledge of Target, no proceedings have been instituted, or
are pending or to the Knowledge of Target threatened, which challenge the
rights of any Target Entity with respect to Intellectual Property used, sold or
licensed by such Target Entity in the course of its
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business, nor has any person claimed or alleged any rights to such Intellectual
Property. To the Knowledge of Target, and with respect to patents, trademarks,
service marks and trade names only, the conduct of the business of the Target
Entities does not infringe any Intellectual Property of any other Person.
Except as disclosed in Section 5.9 of the Target Disclosure Memorandum, no
Target Entity is obligated to pay any recurring royalties to any Person with
respect to any such Intellectual Property in an amount in excess of $100,000 a
year. Every officer, director, or employee of any Target Entity is a party to a
Contract which requires such officer, director or employee to keep confidential
any trade secrets, proprietary data, customer information, or other business
information of a Target Entity, and, to the Knowledge of Target, no such
officer, director or employee is party to any Contract with any Person other
than a Target Entity which requires such officer, director or employee to
assign any interest in any Intellectual Property to any Person other than a
Target Entity or to keep confidential any trade secrets, proprietary data,
customer information, or other business information of any Person other than a
Target Entity. To the Knowledge of Target, no officer, director or employee of
any Target 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 Target Entity.
5.10 Environmental Matters.
(a) Each Target Entity, its Participation Facilities, and its Operating
Properties are, and have been, in compliance with all Environmental Laws,
except where any failure to so comply would not, individually or in the
aggregate, reasonably be expected to have a Target Material Adverse Effect.
(b) There is no Litigation pending or, to the Knowledge of Target,
threatened before any Regulatory Authority or other forum in which any Target
Entity or any of its Operating Properties or Participation Facilities (or
Target in respect of such Operating Property or Participation Facility) has
been or, with respect to threatened Litigation, may be named as a defendant (i)
for alleged noncompliance (including by any predecessor) with or Liability
under any Environmental Law or (ii) relating to the release, discharge,
spillage, or disposal into the environment of any Hazardous Material, whether
or not occurring at, on, under, adjacent to, or affecting (or potentially
affecting) a site currently or formerly owned, leased, or operated by any
Target Entity or any of its Operating Properties or Participation Facilities,
nor is there any reasonable basis for any Litigation of a type described in
this sentence.
(c) Except as disclosed in Section 5.10(c) of the Target Disclosure
Memorandum, during the period of (i) any Target Entity's ownership or operation
of any of their respective current properties, (ii) any Target Entity's
participation in the management of any Participation Facility, or (iii) any
Target Entity's holding of a security interest in any Operating Property, no
Target Entity has released, discharged, spilled or disposed of Hazardous
Material in, on, under, adjacent to, or affecting such properties where such
release, discharge, spillage or disposal required remediation under
Environmental Laws and was not remediated in compliance with Environmental
Laws, except where any such releases, discharges, spillages or disposals would
not, individually or in the aggregate, reasonably be expected to have a Target
Material Adverse Effect. To the Knowledge of Target, during the period of (i)
any Target Entity's ownership or operation of any of their respective current
properties, (ii) any Target Entity's participation in the management of any
Participation Facility, or (iii) any Target Entity's holding of a security
interest in any Operating Property, no person other than a Target Entity has
released, discharged, spilled or disposed of Hazardous Material in, on, under,
adjacent to, or affecting such properties where such release, discharge,
spillage or disposal required remediation under Environmental Laws and was not
remediated in compliance with Environmental Laws, except where any such
releases, discharges, spillages or disposals would not, individually or in the
aggregate, reasonably be expected to have a Target Material Adverse Effect.
Prior to the period of (i) any Target Entity's ownership or operation of any of
their respective current properties, (ii) any Target Entity's participation in
the management of any Participation Facility, or (iii) any Target Entity's
holding of a security interest in any Operating Property, to the Knowledge of
Target, there were no releases, discharges, spillages, or disposals of
Hazardous Material in, on, under, or affecting any such property, Participation
Facility or Operating Property that required remediation under Environmental
Laws and was not remediated in compliance with Environmental Laws, except where
any such
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releases, discharges, spillages or disposals would not, individually or in the
aggregate, reasonably be expected to have a Target Material Adverse Effect.
(d) Section 5.10(d) of the Target Disclosure Memorandum contains a true,
complete and accurate listing and a true and accurate description of each
facility or location at which any Target Entity has been named as or alleged to
be a responsible party or potentially responsible party under any Environmental
Law in connection with the release, disposal, transportation or arrangement for
the release, disposal or transportation of Hazardous Materials.
(e) Each Target Entity has obtained all permits, licenses, approvals,
consents, orders, and authorizations which are required under any Environmental
Law in connection with the ownership, use, or lease of the Assets
("Environmental Permits"), except where any failure to obtain any such
Environmental Permits would not, individually or in the aggregate, reasonably
be expected to have a Target Material Adverse Effect. Each Target Entity is in
compliance with each such Environmental Permit, and no Environmental Permit
restricts such Target Entity from operating any equipment covered by such
Environmental Permit as currently conducted, except where any failure to comply
with any such Environmental Permits would not, individually or in the
aggregate, reasonably be expected to have a Target Material Adverse Effect.
(f) Target has delivered, or caused to be delivered or made available, to
Buyer true and complete copies of each written Contract and an accurate written
description of each oral Contract under which any of the Target Entities:
retained Liability for environmental matters; agreed to indemnify third parties
with respect to environmental matters; or is indemnified by a third party with
respect to environmental matters, including without limitation the May 20, 1993
Settlement Agreement with Robert M. Brittingham and John G. Brittingham and the
December 21, 1995 American Olean Tile Company, Inc. Acquisition Agreement.
(g) Target has delivered, or caused to be delivered or made available, to
Buyer true and complete copies of material correspondence with or notifications
to or from any federal, state or local Regulatory Authority and any material
reports prepared by or on behalf of or in the possession of any Target Entity
in connection with the Elam, Dallas County, Texas gravel pit; the Pleasant Run
Road, Dallas County, Texas landfill; and the Walton (Kleburg Road), Dallas,
Texas gravel pit.
5.11 Compliance with Laws.
Each Target 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,
and there has occurred no Default under any such Permit. None of the Target
Entities:
(a) is in Default under any of the provisions of its Certificate of
Incorporation or Bylaws (or other governing instruments);
(b) is in Default under any Laws, Orders, or Permits (other than Defaults
under Environmental Laws or Environmental Permits, which Defaults are addressed
in Section 5.10) applicable to its business or employees conducting its
business, except for Defaults which would not reasonably be anticipated to
have, individually or in the aggregate, a Target Material Adverse Effect; or
(c) since January 1, 1998, has received any notification or communication
(other than notices or communications under Environmental Laws or regarding
Environmental Permits, which are addressed in Section 5.10) from any agency or
department of federal, state, or local government or any Regulatory Authority
or the staff thereof (i) asserting that any Target Entity is not, or may not
be, in compliance with any Laws or Orders, where such noncompliance would be
reasonably expected to have, individually or in the aggregate, a Target
Material Adverse Effect, (ii) threatening to revoke any Permits, the revocation
of which would reasonably be expected to have, individually or in the
aggregate, a Target Material Adverse Effect, or (iii) requiring any Target
Entity to enter into or consent to the issuance of a cease and desist order,
injunction, formal agreement,
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directive, commitment, or memorandum of understanding, or to adopt any board
resolution or similar undertaking, which restricts materially the conduct of
its business or in any manner relates to its employment decisions, its
employment or safety policies or practices, its management, or the payment of
dividends; or
(d) except as set forth in Section 5.11(d) of the Target Disclosure
Memorandum, since January 1, 1997, 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 any Target Entity; or (ii) a
"mass layoff" (as defined in the WARN Act) affecting any site of employment or
facility of any Target Entity; and no Target Entity has 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 set
forth in Section 5.11(d) of the Target Disclosure Memorandum, none of any
Target Entity's employees has suffered an "employment loss" (as defined in the
WARN Act) since six months prior to the Closing Date.
Copies of all material reports, correspondence, notices and other documents
relating to any material inspection, audit, monitoring or other form of review
or enforcement action instituted or commenced by a Regulatory Authority since
January 1, 1998 with respect to any Target Entity have been made available to
Buyer.
5.12 Labor Relations.
(a) Except as disclosed in Section 5.12 of the Target Disclosure
Memorandum, no Target Entity is the subject of any Litigation, and to the
Knowledge of Target, no such Litigation has been threatened, asserting that it
or any other Target Entity has committed an unfair labor practice (within the
meaning of the National Labor Relations Act or comparable state Law) or other
violation of state, federal or foreign labor Law or seeking to compel it or any
other Target Entity to bargain with any labor organization or other employee
representative as to wages or conditions of employment, nor is any Target
Entity party to any collective bargaining agreement or subject to any
bargaining order, injunction or other Order relating to Target's relationship
or dealings with its employees, any labor organization or any other employee
representative. There is no strike, slowdown, lockout or other labor dispute
involving any Target Entity pending or threatened and there have been no such
actions or labor disputes since January 1, 1998. To the Knowledge of Target,
since January 1, 1998, there has not been any attempt by any Target Entity
employees or any labor organization or other employee representative to
organize or certify a collective bargaining unit or to engage in any other
union organization activity with respect to the workforce of any Target Entity.
(b) The Target Entities are in material compliance with the Immigration
Reform and Control Act of 1986, as amended, other United States immigration
Laws and the Laws related to the employment of non-United States citizens
applicable in the state in which any Target Entity has employees and all
applicable foreign Laws in the country in which any Target Entity has employees.
(c) Except as disclosed in Section 5.12 of the Target Disclosure
Memorandum, since January 1, 1998, no Target Entity has been the subject of any
inspection or investigation relating to its compliance with or violation of any
immigration laws, nor has it been warned, fined or otherwise penalized by
reason of any failure to comply with the immigration laws, nor is any such
proceeding pending or threatened.
(d) Except as disclosed in Section 5.12 of the Target Disclosure
Memorandum, to the Knowledge of Target, (i) no Equal Employment Opportunity
Commission or state fair employment practice agency charges or other claims of
employment discrimination, harassment or wrongful discharge are pending against
any Target Entity or any of their employees, (ii) no state or federal Wage and
Hour Department investigations and no claims or charges relating to wage and
hour issues are pending or threatened, (iii) no Office of Federal Contract
Compliance Programs compliance review or investigation or other United States
Department of Labor or state department of labor compliance review or
investigation of any Target Entity is pending, and Target has received no
notice of any such compliance review or investigation, (iv) Target is not bound
by any consent decree or settlement agreement relating to employment decisions
or relations with employees, independent contractors or applicants for
employment, and (v) no Occupational Safety and Health Administration
investigations are pending against any Target Entity.
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5.13 Employee Benefit Plans
(a) Target has disclosed in Section 5.13 of the Target Disclosure
Memorandum, and has delivered or made available to Buyer prior to the execution
of this Agreement, (i) copies of each material Employee Benefit Plan currently
adopted, maintained by, sponsored in whole or in part by, or contributed to by
any Target Entity or ERISA Affiliate thereof for the benefit of employees,
former employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries or under which employees, retirees, former
employees, dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "Target Benefit
Plans") and (ii) a list of each material Employee Benefit Plan that is not
identified in (i) above (e.g., former Employee Benefit Plans) but for which the
Target Entity or ERISA Affiliate has or reasonably could have any obligation or
Liability. Any of the Target Benefit Plans which is an "employee pension
benefit plan," as that term is defined in ERISA Section 3(2), is referred to
herein as a "Target ERISA Plan." Each Target ERISA Plan which is also a
"defined benefit plan" (as defined in Internal Revenue Code Section 414(j)) is
referred to herein as a "Target Pension Plan."
(b) Target has made available to Buyer prior to the execution of this
Agreement (i) all trust agreements or other funding arrangements for all
Employee Benefit Plans, (ii) all determination letters, rulings, opinion
letters, information letters or advisory opinions issued by the IRS, the United
States Department of Labor ("DOL") or the Pension Benefit Guaranty Corporation
during this calendar year or any of the preceding three calendar years, (iii)
any filing or documentation (whether or not filed with the IRS) where
corrective action was taken in connection with the IRS EPCRS program set forth
in Revenue Procedure 2001-17 (or its predecessor or successor rulings), (iv)
annual reports or returns, audited or unaudited financial statements, actuarial
reports and valuations prepared for any Employee Benefit Plan for the current
plan year and the three preceding plan years, and (v) the most recent summary
plan descriptions and any material modifications thereto.
(c) Except as previously disclosed to Buyer, each Target Benefit Plan is in
compliance in all material respects with the terms of such Target Benefit Plan
and the applicable requirements of the Internal Revenue Code and ERISA. Each
Target ERISA Plan which is intended to be qualified under Section 401(a) of the
Internal Revenue Code has received a favorable determination letter from the
IRS that is still in effect and applies to the Target ERISA Plan as amended and
as administered or, within the time permitted under Internal Revenue Code
Section 401(b), has timely applied for a favorable determination letter which
when issued will apply retroactively to the Target ERISA Plan as amended and as
administered. Target is not aware of any circumstances likely to result in
revocation of any such favorable determination letter. Except as disclosed in
Section 5.13(c) of the Target Disclosure Memorandum, Target has not received
any communication (written or unwritten) from any government agency questioning
or challenging the compliance of any Target Benefit Plan with applicable Laws.
Except as disclosed in Section 5.13(c) of the Target Disclosure Memorandum, no
Target Benefit Plan is currently being audited by a governmental agency for
compliance with applicable Laws or has been audited with a determination by the
governmental agency that the Employee Benefit Plan failed to comply with
applicable Laws.
(d) There has been no oral or written representation or communication with
respect to any aspect of the Employee Benefit Plans made to employees of any
Target Entity or ERISA Affiliate which is not in accordance with the written or
otherwise preexisting terms and provisions of such plans. No Target Entity,
ERISA Affiliate, administrator or fiduciary of any Target 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 the Target or Buyer to any
direct or indirect material Liability (by indemnity or otherwise) for breach of
any fiduciary, co-fiduciary or other duty under ERISA. There are no unresolved
claims or disputes under the terms of, or in connection with, the Target
Benefit Plans other than claims for benefits which are payable in the ordinary
course of business and no action, proceeding, prosecution, inquiry, hearing or
investigation has been commenced with respect to any Target Benefit Plan.
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(e) All Target Benefit Plan documents and annual reports or returns,
audited or unaudited financial statements, actuarial valuations, summary annual
reports, and summary plan descriptions issued with respect to the Target
Benefit Plans complete and correct in all material respects, have been timely
filed with the IRS, the DOL or distributed to participants of the Target
Benefit Plans (as required by Law), and there have been no material changes in
the information set forth therein.
(f) Except as previously disclosed to Buyer, no "party in interest" (as
defined in ERISA Section 3(14)) or "disqualified person" (as defined in
Internal Revenue Code Section 4975(e)(2)) of any Target Benefit Plan has
engaged in any material nonexempt "prohibited transaction" (described in
Internal Revenue Code Section 4975(c) or ERISA Section 406).
(g) For any Target Pension Plan, the fair market value of such Target
Pension Plan's assets equals or exceeds the present value of all benefits
(whether vested or not) accrued to date by all present or former participants
in such Target Pension Plan. For this purpose the assumptions prescribed by the
Pension Benefit Guaranty Corporation for valuing plan assets or liabilities
upon plan termination shall be applied and the term "benefits" shall include
the value of all benefits, rights and features protected under Internal Revenue
Code Section 411(d)(6) or its successors and any ancillary benefits (including
disability, shutdown, early retirement and welfare benefits) provided under any
such Target Pension Plan and all "benefit liabilities" as defined in ERISA
Section 4001(a)(16). Since the date of the most recent actuarial valuation,
there has been (i) no material change in the financial position of any Target
Pension Plan, (ii) no change in the actuarial assumptions with respect to any
Target Pension Plan, and (iii) no increase in benefits under any Target Pension
Plan as a result of Target Pension Plan amendments or changes in any applicable
Law which is reasonably likely to have, individually or in the aggregate, a
material adverse effect on the funding status of such Target Pension Plan. All
contributions with respect to an Employee Benefit Plan of Target, or any of its
ERISA Affiliates that is subject to Internal Revenue Code Section 412 or ERISA
Section 302 have or will be timely made and, with respect to any such Employee
Benefit Plan, there is no Lien nor is there expected to be a Lien under
Internal Revenue Code Section 412(n) or ERISA Section 302(f) or Tax under
Internal Revenue Code Section 4971. No Target Pension Plan has a "liquidity
shortfall" as defined in Internal Revenue Code Section 412(m)(5). Neither
Target nor any of its ERISA Affiliates is subject to or can reasonably be
expected to become subject to a Lien under Internal Revenue Code Section
401(a)(29). All premiums required to be paid under ERISA Section 4006 have been
timely paid by Target and by its ERISA Affiliates.
(h) No Liability under Title IV of ERISA has been or is expected to be
incurred by Target or its ERISA Affiliates and no event has occurred that could
reasonably result in material Liability under Title IV of ERISA being incurred
by Target or its ERISA Affiliates with respect to any ongoing, frozen, or
terminated single-employer plan of Target or the single-employer plan of any
ERISA Affiliate. There has been no "reportable event," within the meaning of
ERISA Section 4043 for which the 30-day reporting requirement has not been
waived by any ongoing, frozen, or terminated single employer plan of Target or
of an ERISA Affiliate.
(i) Except as disclosed in Section 5.13 of the Target Disclosure
Memorandum, no Target Entity has any material Liability for retiree health and
life benefits under any of the Target Benefit Plans and there are no
restrictions on the rights of such Target Entity to amend or terminate any such
retiree health or benefit Plan without incurring any material Liability
thereunder except to the extent required under Part 6 of Title I of ERISA or
Internal Revenue Code Section 4980B. No Tax under Internal Revenue Code
Sections 4980B or 5000 has been incurred with respect to any Target Benefit
Plan and no circumstance exists which is reasonably likely to give rise to such
Taxes.
(j) Except as disclosed in Section 5.13 of the Target 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, termination indemnity, unemployment compensation,
golden parachute, or otherwise) becoming due to any director, any employee or
any independent contractor of any Target Entity from any Target Entity under
any Target Benefit Plan or otherwise, (ii) increase any benefits otherwise
payable under any Target Benefit Plan or otherwise, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit.
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(k) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of current and former
employees and current and former independent contractors of any Target Entity
and their respective beneficiaries, other than entitlements accrued pursuant to
funded retirement plans subject to the provisions of Internal Revenue Code
Section 412 or ERISA Section 302, have been fully reflected on the Target
Financial Statements to the extent required by and in accordance with GAAP.
(l) All individuals who render services to any Target Entity and who are
authorized to participate in a Target Benefit Plan pursuant to the terms of
such Target Benefit Plan are in fact eligible to and authorized to participate
in such Target Benefit Plan. All individuals participating in (or eligible to
participate in) any Target Benefit Plan are common-law employees of a Target
Entity, except where the terms of such plans allow participation by persons who
are not common law employees and as provided in Section 5.13(l) of the Target
Disclosure Memorandum.
(m) On or after September 26, 1980, neither the Target nor any of its ERISA
Affiliates has had an "obligation to contribute" (as defined in ERISA Section
4212) to a "multiemployer plan" (as defined in ERISA Sections 4001(a)(3) and
3(37)(A)).
(n) Without limiting the foregoing provisions of Section 5.13, except as
disclosed in Section 5.13 of the Target Disclosure Memorandum, with respect to
each Employee Benefit Plan maintained outside the United States which is
mandated by a government other than that of the United States or subject to
foreign Law (collectively, the "Target Foreign Benefit Plans"), (i) the terms
of each Target Foreign Benefit Plan and the manner in which it is and has been
administered in operation are in material compliance with all applicable Laws
of the jurisdiction in which such Target Foreign Benefit Plan is maintained,
(ii) each Target Foreign Benefit Plan which is required to be registered with
or submitted to a foreign Regulatory Authority for tax qualification or other
approval has been so registered or submitted and each such plan has received
such approval, and Target is not aware of any circumstances likely to result in
revocation of any such registration or approval, (iii) all contributions to
each Target Foreign Benefit Plan required to be made through the Effective Time
or required to be made with respect to a period prior to the Effective Time
have been or shall be made by a Target Entity or, if applicable, shall be
accrued in accordance with applicable international accounting practices, and
(iv) for any Target Foreign Benefit Plan which, under the Laws of the
applicable foreign jurisdiction, is required to be funded, the fair market
value of such Target Foreign Benefit Plan's assets equals or exceeds the
present value of all benefits (whether vested or not) accrued to date by all
present and former participants in such Target Foreign Benefit Plan or such
Target Foreign Benefit Plan is fully insured, in each case based upon generally
accepted local accounting and actuarial practice and procedure.
5.14 Material Contracts.
Except as disclosed in Section 5.14 of the Target Disclosure Memorandum,
none of the Target Entities, nor any of their respective Assets, businesses, or
operations, is a party to, or is bound or affected 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 $200,000, (ii) any Contract relating to the borrowing of money by any
Target Entity, including obligations under synthetic leases or other
off-balance sheet arrangements, or the guarantee by any Target 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 Target 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 between or
among Target Entities, (v) any Contract involving Intellectual Property (other
than Contracts entered into in the ordinary course with customers and
"shrink-wrap" software licenses), (vi) any 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 payments under any individual
Contract not in excess of $200,000 and Contracts that may be cancelled
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or terminated by a Target Entity without penalty and with 60 days or less
notice), and (vii) any other Contract or amendment thereto that would be
required to be filed as an exhibit to a Form 10-K filed by Target with the SEC
as of the date of this Agreement (each such Contract identified above, a
"Material Contract," and together with all Contracts referred to in Sections
5.9, 5.10 and 5.13(a), the "Target Contracts"). Except as disclosed in Section
5.14 of the Target Disclosure Memorandum, with respect to each Target Contract:
(A) the Contract is in full force and effect; (B) to the Knowledge of Target,
no Target Entity is in Default thereunder; (C) no Target Entity has repudiated
or waived any material provision of any such Contract; and (D) no other party
to any such Contract is, to the Knowledge of Target, in Default in any respect
or has repudiated or waived any material provision thereunder.
5.15 Legal Proceedings.
There is no Litigation instituted or pending, or, to the Knowledge of
Target, threatened (or unasserted but considered probable of assertion and
which if asserted would have at least a reasonable possibility of an
unfavorable outcome) against any Target Entity, or against any director,
officer or employee in their capacities as such or Employee Benefit Plan of any
Target Entity, or against any Asset, interest, or right of any of them, that is
reasonably likely, individually or in the aggregate, to have a Target Material
Adverse Effect, nor are there any Orders outstanding against any Target Entity,
that are reasonably likely, individually or in the aggregate, to have a Target
Material Adverse Effect. Section 5.15(a) of the Target Disclosure Memorandum
contains a summary of all Litigation as of the date of this Agreement to which
any Target Entity is a party and which names a Target Entity as a defendant or
cross-defendant or for which any Target Entity has potential material
Liability. Section 5.15(b) of the Target Disclosure Memorandum contains a
summary of all Orders to which any Target Entity is subject.
5.16 Information Supplied.
(a) None of the information supplied or to be supplied by any Target Entity
or any Affiliate thereof for inclusion in the Registration Statement to be
filed by Buyer with the SEC will, when the Registration Statement becomes
effective, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein not misleading.
(b) None of the information supplied or to be supplied by any Target Entity
or any Affiliate thereof for inclusion in the Joint Proxy Statement/Prospectus
to be mailed to each Party's stockholders in connection with the Stockholders'
Meetings, and any other documents to be filed by a Target Entity or any
Affiliate thereof with the SEC or any other Regulatory Authority in connection
with the transactions contemplated hereby, will, at the respective time such
documents are filed, and with respect to the Joint Proxy Statement/Prospectus,
when first mailed to the stockholders of Target and stockholders of Buyer, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in the case of
the Joint Proxy Statement/Prospectus or any amendment thereof or supplement
thereto, at the time of the Stockholders' Meetings, be false or misleading with
respect to any material fact, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for the Stockholders' Meetings.
(c) All documents that any Target 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.
5.17 Tax and Regulatory Matters.
No Target 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 the Merger from qualifying 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 9.1(b) or result in the imposition of a condition or restriction of
the type referred to in the last sentence of such Section.
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5.18 State Takeover Laws.
Each Target Entity 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, including Section
203 of the DGCL (collectively, "Takeover Laws").
5.19 Charter Provisions.
Each Target Entity 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 Certificate of Incorporation, Bylaws or other
governing instruments of any Target Entity or restrict or impair the ability of
Buyer or any of its Subsidiaries to vote, or otherwise to exercise the rights
of a stockholder with respect to, shares of any Target Entity that may be
directly or indirectly acquired or controlled by them.
5.20 Opinion of Financial Advisor.
The Board of Directors of Target has received the opinion of Credit Suisse
First Boston Corporation, dated the date of this Agreement, to the effect that
the Merger Consideration is fair, from a financial point of view, to the
holders of Target Common Stock. A true, correct and complete copy of the
written opinion delivered by Credit Suisse First Boston Corporation shall be
delivered to Buyer for informational purposes only following the signing of
this Agreement.
5.21 Board Recommendation.
The Board of Directors of Target, at a meeting duly called and held, has by
unanimous vote of the directors present (who constituted all of the directors
then in office) (i) determined that this Agreement and the transactions
contemplated hereby, including the Merger, the Target Voting Agreements, and
the transactions contemplated thereby, taken together, are advisable and fair
to and in the best interests of the Target stockholders and (ii) resolved to
recommend that the holders of the shares of Target Common Stock approve and
adopt this Agreement and approve the Merger.
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer and Sub hereby represent and warrant to Target as follows:
6.1 Organization, Standing, and Power.
Buyer 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. Buyer 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 would not reasonably be expected to have, individually or in the
aggregate, a Buyer Material Adverse Effect. Buyer has delivered to Target
complete and accurate copies of its Restated Certificate of Incorporation (the
"Buyer Certificate of Incorporation") and Amended and Restated Bylaws (the
"Buyer Bylaws").
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6.2 Authority; No Breach By Agreement.
(a) Buyer has the corporate power and authority necessary to execute,
deliver and, other than with respect to the Merger, perform this Agreement, and
with respect to the Merger, upon the adoption and approval of this Agreement
and the Merger by Buyer's stockholders in accordance with this Agreement and
Delaware law, to 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 Buyer, subject to the
approval of the issuance of the shares of Buyer Common Stock pursuant to the
Merger by a majority of the votes cast at the Buyer Stockholders' Meeting
(assuming for such purpose that the votes cast in respect of such proposal
represent a majority of the outstanding shares of Buyer Common Stock as
contemplated by Section 8.2 which is the only stockholder vote required for
approval of this Agreement and consummation of the Merger by Buyer. Subject to
such requisite stockholder approval, this Agreement represents a legal, valid,
and binding obligation of Buyer, enforceable against Buyer in accordance with
its terms; except as (i) such enforcement may be subject to any bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other laws, now
or hereafter in effect, relating to or limiting creditors' rights generally,
and (ii) the remedy of specific performance and injunction and other forms of
equitable relief may be subject to equitable defense, and to the discretion of
the court before which any proceeding therefor may be brought.
(b) Neither the execution and delivery of this Agreement by Buyer, nor the
consummation by Buyer of the transactions contemplated hereby, nor compliance
by Buyer with any of the provisions hereof, will (i) conflict with or result in
a breach of any provision of the Buyer Certificate of Incorporation or Buyer
Bylaws, or (ii) except as disclosed in Section 6.2 of the Buyer 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 material Asset of any
Buyer Entity under, any material Contract or Permit of any Buyer Entity, where
such Default or Lien, or any failure to obtain such Consent, would reasonably
be expected to have, individually or in the aggregate, a Buyer Material Adverse
Effect, or, (iii) constitute or result in a Default under, or require any
Consent pursuant to, any Law or Order applicable to any Buyer Entity or any of
their respective material Assets (including any Buyer Entity or any Target
Entity becoming subject to or liable for the payment of any Tax or any of the
Assets owned by any Buyer Entity or any Target Entity being reassessed or
revalued by any Regulatory Authority).
(c) Except in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and the rules
of the NYSE, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the IRS 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 or other
Person is necessary for the consummation by Buyer of the Merger and the other
transactions contemplated in this Agreement; other than any such notices,
filings or consents that, individually or in the aggregate, would not
reasonably be expected to have a Buyer Material Adverse Effect.
6.3 Capital Stock.
(a) The authorized capital stock of Buyer consists of (i) 150,000,000
shares of Buyer Common Stock, of which 52,612,391 shares are issued and
outstanding as of the date of this Agreement, and (ii) 60,000 shares of Buyer
Preferred Stock, none of which are issued and outstanding. All of the issued
and outstanding shares of Buyer Capital Stock are, and all of the shares of
Buyer Common Stock to be issued in exchange for shares of Target 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 Buyer
Capital Stock has been, and none of the shares of Buyer Common Stock to be
issued in exchange for shares of Target Common Stock upon consummation of the
Merger will be, issued in violation of any preemptive rights of the current or
past stockholders of Buyer.
(b) Except as set forth in Section 6.3(a) or as disclosed in Section 6.3 of
the Buyer Disclosure Memorandum, there are no shares of capital stock or other
equity securities of Buyer outstanding and no outstanding Equity Rights
relating to the capital stock of Buyer.
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6.4 SEC Filings; Financial Statements.
(a) Buyer has timely filed and made available to Target all SEC Documents
required to be filed by Buyer since January 1, 1998 (together with all such SEC
Documents filed, whether or not required to be filed the "Buyer SEC Reports").
The Buyer 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 or, in the case of registration statements, at the effective date
thereof) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such Buyer SEC Reports or necessary in
order to make the statements in such Buyer SEC Reports, in light of the
circumstances under which they were made, not misleading. No Buyer Subsidiary
files, or is required to file, any SEC Documents.
(b) Each of the Buyer Financial Statements (including, in each case, any
related notes) contained in the Buyer SEC Reports, including any Buyer 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 Buyer 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 year-end adjustments which were not or are not
expected to be material in amount or effect.
6.5 Compliance with Laws.
Each Buyer 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,
and there has occurred no Default under any such Permit. None of the Buyer
Entities:
(a) is in Default under its Certificate of Incorporation or Bylaws (or
other governing instruments); or
(b) is in Default under any Laws, Orders or Permits (other than Defaults
under Environmental Laws or Environmental Permits, which Defaults are addressed
in Section 6.11) applicable to its business or employees conducting its
business, except for Defaults which would not reasonably be expected to have,
individually or in the aggregate, a Buyer Material Adverse Effect; or
(c) since January 1, 1998, has received any notification or communication
(other than notices or communications under Environmental Laws or regarding
Environmental Permits, which are addressed in Section 6.11) from any agency or
department of federal, state, or local government or any Regulatory Authority
or the staff thereof (i) asserting that any Buyer Entity is not, or may not be,
in compliance with any Laws or Orders, where such noncompliance would
reasonably be expected to have, individually or in the aggregate, a Buyer
Material Adverse Effect, (ii) threatening to revoke any Permits, the revocation
of which would reasonably be expected to have, individually or in the
aggregate, a Buyer Material Adverse Effect, or (iii) requiring any Buyer Entity
to enter into or consent to the issuance of a cease and desist order,
injunction, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any board resolution or similar undertaking, which
restricts materially the conduct of its business, or in any manner relates to
its employment decisions, its employment or safety policies or practices, its
management, or the payment of dividends.
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Copies of all material reports, correspondence, notices and other documents
relating to any material inspection, audit, monitoring or other form of review
or enforcement action instituted or commenced by a Regulatory Authority since
January 1, 1998 with respect to any Buyer Entity have been made available to
Target.
6.6 Legal Proceedings.
There is no Litigation instituted or pending, or, to the Knowledge of Buyer,
threatened (or unasserted but considered probable of assertion and which if
asserted would have at least a reasonable possibility of an unfavorable
outcome) against any Buyer Entity, or against any director, officer or employee
in their capacity as such or Employee Benefit Plan of any Buyer Entity, or
against any Asset, interest, or right of any of them, that would reasonably be
expected to have, individually or in the aggregate, a Buyer Material Adverse
Effect, nor are there any Orders outstanding against any Buyer Entity, that is
reasonably likely to have, individually or in the aggregate, a Buyer Material
Adverse Effect. Section 6.6 of the Buyer Disclosure Memorandum contains a
summary of all Litigation as of the date of this Agreement to which any Buyer
Entity is a party and which names a Buyer Entity as a defendant or
cross-defendant for which any Buyer Entity has potential material Liability.
Section 6.6. the Buyer Disclosure Memorandum contains a summary of all Orders
to which any Buyer Entity is subject.
6.7 Absence of Certain Changes or Events.
Since September 30, 2001, (i) there have been no events, changes or
occurrences which have had, or would reasonably be expected to have,
individually or in the aggregate, a Buyer Material Adverse Effect, and (ii)
neither Buyer nor any Buyer Subsidiary has 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 Buyer provided in
Article 7.
6.8 Absence of Undisclosed Liabilities.
Neither Buyer nor any of the Buyer Subsidiaries has any material Liabilities
of a type required by GAAP to be reflected on a consolidated balance sheet,
other than (i) Liabilities incurred in the ordinary course of business since
September 30, 2001, (ii) Liabilities reflected in any of the Buyer SEC Reports,
and (iii) Liabilities which would not in the aggregate reasonably be expected
to have a Buyer Material Adverse Effect.
6.9 Tax Matters
All material federal, state, local and foreign Tax Returns required to be
filed by or on behalf of Buyer or any Buyer Entity, and each affiliated,
combined, consolidated or unitary group of which Buyer or any Buyer Entity is
or was a member (a "Buyer Group") have been timely filed or requests for
extensions to file such returns or reports have been timely filed and granted
and have not expired, and all returns filed are complete and accurate except to
the extent any failure to file or any inaccuracies in filed returns would not,
individually or in the aggregate, reasonably be expected to have a Buyer
Material Adverse Effect. All Taxes due and owing by Buyer, any Buyer Entity or
any member of Buyer Group have been paid, or adequately reserved for, except to
the extent any failure to pay or reserve would not, individually or in the
aggregate, reasonably be expected to have a Buyer Material Adverse Effect.
There is no audit examination, deficiency, refund litigation, proposed
adjustment or matter in controversy with respect to any Taxes due and owing by
Buyer, any Buyer Subsidiary or any member of Buyer Group which would,
individually or in the aggregate, have a Buyer Material Adverse Effect. All
assessments for Taxes due and owing by Buyer, any Buyer Entity or any member of
Buyer Group with respect to completed and settled examinations or concluded
litigation have been paid. Buyer has provided or made available to Target
information relating to (i) the taxable years of Buyer for which the statutes
of limitations with respect to federal income Taxes have not expired, and (ii)
with respect to federal income Taxes, those years for which examinations have
been completed, those years for which examinations are presently being
conducted, and those years for which examinations have not yet been initiated.
Buyer and each Buyer Entity has complied in all material respects with all
rules and regulations relating to the withholding of Taxes, except to the
extent any such failure to comply would not, individually or in the aggregate,
reasonably be expected to have a Buyer Material Adverse Effect.
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6.10 Employee Benefits Plans; ERISA
Except as described in any of the Buyer SEC Documents, all Employee Benefit
Plans maintained or contributed to by Buyer or Buyer Subsidiaries are in
material compliance with their terms and all applicable provisions of ERISA,
the Internal Revenue Code and any other applicable legislation, and Buyer and
Buyer Subsidiaries do not have any liabilities or obligations with respect to
any such Employee Benefit Plans, whether or not accrued, contingent or
otherwise, except (a) as described in any of the Buyer SEC Documents and (b)
for instances of noncompliance or liabilities or obligations that would not in
the aggregate reasonably be expected to have a Buyer Material Adverse Effect.
6.11 Environmental Matters
Except as described in any of the Buyer SEC Documents, (i) Buyer and each of
its Subsidiaries is in material compliance with all applicable Environmental
Laws, except for non-compliance which would not in the aggregate reasonably be
expected to have a Buyer Material Adverse Effect, which compliance includes,
but is not limited to, the possession by Buyer and its Subsidiaries of material
Environmental Permits and other governmental authorizations required under
applicable Environmental Laws, and material compliance with the terms and
conditions thereof; (ii) neither Buyer nor any Buyer Subsidiary has received
written notice of, or, to the Knowledge of Buyer, is the subject of, any
environmental Litigation which would in the aggregate reasonably be expected to
have a Buyer Material Adverse Effect; and (iii) to the Knowledge of Buyer,
there are no circumstances that are reasonably likely to prevent or interfere
with such material compliance in the future.
6.12 Information Supplied.
(a) None of the information supplied or to be supplied by any Buyer Entity
or any Affiliate thereof for inclusion in the Registration Statement to be
filed by Buyer with the SEC, will, when the Registration Statement becomes
effective, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein not misleading.
(b) None of the information supplied or to be supplied by any Buyer Entity
or any Affiliate thereof for inclusion in the Joint Proxy Statement/Prospectus
to be mailed to each Party's stockholders in connection with the Stockholders'
Meetings, and any other documents to be filed by any Buyer Entity or any
Affiliate thereof with the SEC or any other Regulatory Authority in connection
with the transactions contemplated hereby, will, at the respective time such
documents are filed, and with respect to the Joint Proxy Statement/Prospectus,
when first mailed to the stockholders of Target and stockholders of Buyer, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in the case of
the Joint Proxy Statement/Prospectus or any amendment thereof or supplement
thereto, at the time of the Stockholders' Meetings, be false or misleading with
respect to any material fact, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for the Stockholders' Meetings.
(c) All documents that any Buyer 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.
6.13 Authority of Sub.
Sub is a corporation duly organized, validly existing and in good standing
under the Laws of the State of Delaware as a wholly owned Subsidiary of Buyer.
The authorized capital stock of Sub shall consist of 1,000 shares of Sub Common
Stock, all of which are validly issued and outstanding, fully paid and
nonassessable and are owned by Buyer free and clear of any Lien. Sub 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
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action in respect thereof on the part of Sub. This Agreement represents a
legal, valid, and binding obligation of Sub, enforceable against Sub in
accordance with its terms. Buyer, as the sole stockholder of Sub, has voted
prior to the Effective Time the shares of Sub Common Stock in favor of adoption
and approval of this Agreement, as and to the extent required by applicable Law.
6.14 Tax and Regulatory Matters.
Buyer has not taken or agreed to take any action and does not have any
Knowledge of any fact or circumstance that is reasonably likely to (i) prevent
the Merger from qualifying 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 9.1(b) or
result in the imposition of a condition or restriction of the type referred to
in the last sentence of such Section.
6.15 Opinion of Financial Advisor.
The Board of Directors of Buyer has received the opinion of First Union
Securities, Inc., trading under the name Wachovia Securities ("Wachovia
Securities"), dated the date of this Agreement, to the effect that the merger
consideration to be paid by Buyer pursuant to this Agreement (which consists of
the Merger Consideration and the consideration to be paid by Buyer to holders
of Target Options pursuant to Section 3.5 of this Agreement) is fair, from a
financial point of view, to Buyer. A true, correct and complete copy of the
written opinion delivered by Wachovia Securities shall be delivered to Target
for informational purposes only following the signing of this Agreement.
6.16 Board Recommendation.
The Board of Directors of Buyer, at a meeting duly called and held, has by
unanimous vote of the directors present resolved to recommend that the holders
of the shares of Buyer Common Stock approve the issuance of the Buyer Common
Stock in the Merger.
ARTICLE 7 CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of Target.
From the date of this Agreement until the earlier of (i) the Effective Time,
or (ii) the termination of this Agreement, unless the prior written consent of
Buyer shall have been obtained, and except as otherwise expressly contemplated
herein, Target shall, and shall cause each of its Subsidiaries to, (A) operate
its business only in the usual, regular, and ordinary course, (B) use all
reasonable efforts to preserve intact its business organization and Assets and
maintain its rights and franchises, and (C) take no action which would (1)
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 sentence of Section 9.1(b), or
(2) adversely affect the ability of any Party to perform its covenants and
agreements under this Agreement.
7.2 Negative Covenants of Target.
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 Buyer
shall have been obtained, and except as otherwise expressly contemplated
herein, Target 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 Certificate of Incorporation, Bylaws or other governing
instruments of any Target Entity, or
(b) incur any additional debt obligation or other obligation for borrowed
money (other than indebtedness of a Target Entity to another Target Entity) in
excess of an aggregate of $15,000,000 (for the Target Entities on a
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consolidated basis) except (i) in the ordinary course of the business of the
Target Entities consistent with past practices, (ii) to pay Taxes, or (iii) to
pay for budgeted capital expenditures set forth in Section 7.2(b) of the Target
Disclosure Memorandum, or impose, or suffer the imposition, on any material
Asset of any Target Entity of any Lien or permit any such Lien to exist (other
than in connection with Liens in effect as of the date hereof that are
disclosed in the Target Disclosure Memorandum), except in the ordinary course
of business consistent with past practice; 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 Target Entity, or declare or pay any dividend or make any
other distribution in respect of Target's capital stock; or
(d) except (i) for this Agreement, (ii) 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, (iii) for shares issued under Target's 1999
Employee Stock Purchase Plan ("ESPP"), or (iv) as disclosed in Section 7.2(d)
of the Target Disclosure Memorandum, 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 Target Common Stock or any other capital stock of any
Target Entity, or any stock appreciation rights, or any option, warrant, or
other Equity Right; or
(e) adjust, split, combine or reclassify any capital stock of any Target
Entity or issue or authorize the issuance of any other securities in respect of
or in substitution for shares of Target Common Stock, or sell, lease, mortgage
or otherwise dispose of or otherwise encumber (i) any shares of capital stock
of any Target Entity (unless any such shares of stock are sold or otherwise
transferred to another Target Entity) or (ii) except as set forth in Section
7.2(e) of the Target Disclosure Memorandum, any material Asset; or
(f) except as set forth in Section 7.2(f) of the Target Disclosure
Memorandum, and 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 stock or securities, contributions to capital, Asset transfers,
or purchase of any Assets, in any Person other than a wholly owned Target
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 or
officers of any Target Entity, except in accordance with past practice, as
disclosed in Section7.2(g) of the Target 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 7.2(g) of the Target Disclosure Memorandum;
and, except as set forth in Section 7.2(g) of the Target Disclosure Memorandum,
enter into or amend any severance agreements with employees or officers of any
Target Entity; grant any material increase in fees or other increases in
compensation or other benefits to directors of any Target Entity except in
accordance with past practice disclosed in Section 7.2(g) of the Target
Disclosure Memorandum; or waive any stock repurchase rights, accelerate, amend
or change the period of exercisability of any Equity Rights or restricted
stock, or reprice Equity Rights granted under the Target Stock Plans or
authorize cash payments in exchange for any Equity Rights; or
(h) except as set forth in Section 7.2(h) of the Target Disclosure
Memorandum, enter into or amend any employment Contract between any Target
Entity and any Person having a salary thereunder in excess of $150,000 per year
(unless such amendment is required by Law) that the Target 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
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(i) except as set forth in Section 7.2(i) of the Target Disclosure
Memorandum, adopt any new Employee Benefit Plan of any Target Entity or
terminate or withdraw from, or make any material change in or to, any existing
Employee Benefit Plans of any Target Entity other than any such change that is
required by Law or that, in the opinion of counsel, 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
(j) commence any offering pursuant to the ESPP (as defined therein); or
(k) make any change in any Tax or accounting methods or systems of internal
accounting controls or make or revoke any Tax election, except as may be
appropriate to conform to changes in Tax Laws or regulatory accounting
requirements or GAAP; or
(l) commence any Litigation other than in accordance with past practice, or
settle any Litigation involving any Liability of any Target Entity for an
amount in excess of $250,000 or restrictions upon the operations of any Target
Entity; or
(m) except as set forth in Section 7.2(m) of the Target Disclosure
Memorandum, enter into, modify, amend or terminate any material Contract or
waive, release, compromise or assign any material rights or claims; or
(n) take any action or actions that would reasonably be expected to have a
Target Material Adverse Effect.
7.3 Covenants of Buyer.
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 Target
shall have been obtained, and except as otherwise expressly contemplated
herein, Buyer covenants and agrees that it shall (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 Buyer Common Stock
and the business prospects of the Buyer Entities and to the extent consistent
therewith use all reasonable efforts to preserve intact the Buyer Entities'
core businesses and goodwill with their respective employees and the
communities they serve, (b) make no material change in any Tax or accounting
methods or systems of internal accounting controls nor make or revoke any Tax
election, except as may be appropriate to conform to changes in Tax Laws or
regulatory accounting requirements or GAAP, (c) not enter into any agreement
with respect to, or consummate, any acquisition by Buyer of any Person or
assets the consummation of which would require the filing of a current report
on Form 8-K pursuant to Item 2 thereof with the SEC, (d) take no action or
actions that would reasonably be expected to cause a Buyer Material Adverse
Effect, and (e) 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 sentence of Section 9.1(b) , or (ii) materially
adversely affect the ability of any Party to perform its covenants and
agreements under this Agreement; provided, that, subject to clauses (c) and (d)
above, the foregoing shall not prevent any Buyer 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 Buyer,
desirable in the conduct of the business of Buyer and its Subsidiaries,
provided that such actions shall not materially delay the Effective Time or
materially hinder consummation of the Merger. Buyer further covenants and
agrees that it will not, without the prior written consent of Target, which
consent shall not be unreasonably withheld, amend the Buyer Certificate of
Incorporation or Buyer Bylaws, in each case, in any manner adverse to the
holders of Target Common Stock as compared to rights of holders of Buyer Common
Stock generally as of the date of this Agreement.
7.4 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) would
reasonably be expected to have, individually or in the aggregate, a Target
Material Adverse Effect or a Buyer 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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7.5 Reports.
Each Party and its Subsidiaries shall file all reports required to be filed
by it with Regulatory Authorities between the date of this Agreement and the
Effective Time and shall deliver to the other Party copies of all such reports
promptly after the same are filed. If financial statements are contained in any
such reports filed with the SEC, such financial statements will fairly present
the consolidated financial position of the entity filing such statements as of
the dates indicated and the consolidated results of operations, changes in
stockholders' equity, and cash flows for the periods then ended in accordance
with GAAP (subject in the case of interim financial statements to normal
recurring year-end adjustments that are not material). As of their respective
dates, such reports filed with the SEC will comply in all material respects
with the Securities Laws and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Any financial
statements contained in any other reports to another Regulatory Authority shall
be prepared in accordance with Laws applicable to such reports.
ARTICLE 8 ADDITIONAL AGREEMENTS
8.1 Joint Proxy Statement/Prospectus; Registration Statement.
As promptly as practicable after the execution of this Agreement, Buyer and
Target shall prepare and file with the SEC the Joint Proxy
Statement/Prospectus, and Buyer shall prepare and file with the SEC the
Registration Statement in which the Joint Proxy Statement/Prospectus is to be
included as a prospectus. Buyer and Target shall provide each other with any
information which may be required in order to effectuate the preparation and
filing of the Joint Proxy Statement/Prospectus and the Registration Statement
pursuant to this Section 8.1. Each of Buyer and Target shall respond to any
comments from the SEC, shall use all reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after such filing and to keep the Registration
Statement effective as long as is necessary to consummate the Merger and the
transactions contemplated hereby. Each of Buyer and Target shall notify the
other promptly upon the receipt of any comments from the SEC or its staff in
connection with the filing of, or amendments or supplements to, the
Registration Statement and/or the Joint Proxy Statement/Prospectus. Whenever
any event occurs which is required to be set forth in an amendment or
supplement to the Joint Proxy Statement/Prospectus or the Registration
Statement, Buyer or Target, as the case may be, shall promptly inform the other
of such occurrence and cooperate in filing with the SEC or its staff, and/or
mailing to stockholders of Buyer and/or Target, such amendment or supplement.
Each of Buyer and Target shall cooperate and provide the other (and its
counsel) with a reasonable opportunity to review and comment on any amendment
or supplement to the Registration Statement and Joint Proxy
Statement/Prospectus prior to filing such with the SEC, and shall provide each
other with a copy of all such filings made with the SEC. Each of Buyer and
Target shall cause the Joint Proxy Statement/Prospectus to be mailed to its
respective stockholders at the earliest practicable time after the Registration
Statement is declared effective by the SEC.
8.2 Meetings of Stockholders; Board Recommendation.
(a) Promptly after the Registration Statement is declared effective under
the Securities Act, each of Buyer and Target shall take all action necessary in
accordance with the DGCL and its respective Certificate of Incorporation and
Bylaws to call, hold and convene a meeting of its respective stockholders to
consider, in the case of Buyer, the issuance of shares of Buyer Common Stock
pursuant to the Merger and such other matters as it deems appropriate, and, in
the case of Target, adoption and approval of this Agreement and approval of the
Merger (each, a "Stockholders' Meeting") to be held as promptly as practicable
(without limitation, within 20 business days, if practicable) after the mailing
of the Joint Proxy Statement/Prospectus to their respective stockholders. Each
of Buyer and Target shall use all reasonable efforts to hold their respective
Stockholders' Meetings on the same date. Subject to Section 8.3(d), each of
Buyer and Target shall use all reasonable efforts to solicit from its
respective stockholders proxies in favor of, in the case of Buyer, the issuance
of shares of Buyer Common Stock pursuant to the Merger, and, in the case of
Target, the adoption and approval of this Agreement and the approval of the
Merger, and shall take all other action necessary or advisable to secure the
vote or consent of their respective stockholders required by the rules of the
NYSE or the DGCL to obtain such approvals.
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Notwithstanding anything to the contrary contained in this Agreement, but
subject to Section 10.1(b), Buyer or Target, as the case may be, may adjourn or
postpone its Stockholders' Meeting to the extent necessary to ensure that any
necessary supplement or amendment to the Joint Proxy Statement/Prospectus is
provided to its respective stockholders in advance of a vote on the issuance of
Buyer Common Stock or the Merger and this Agreement, as applicable, or, if as
of the time for which the Stockholders' Meeting is originally scheduled (as set
forth in the Joint Proxy Statement/Prospectus) there are insufficient shares of
capital stock of Buyer or Target, as the case may be, represented (either in
person or by proxy) to constitute a quorum necessary to conduct the business of
such Stockholders' Meeting. Each of Buyer and Target shall ensure that its
respective Stockholders' Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited by it in connection with the
Stockholders' Meeting are solicited in compliance with the DGCL, its
Certificate of Incorporation and Bylaws, the rules of the NYSE and all other
applicable Laws.
(b) Except to the extent expressly permitted by Section 8.3(d): (i) the
Board of Directors of each of Buyer and Target shall recommend that the
respective stockholders of Buyer and Target vote in favor of, in the case of
Buyer, the issuance of shares of Buyer Common Stock pursuant to the Merger,
and, in the case of Target, adoption and approval of this Agreement and
approval of the Merger, at their respective Stockholders' Meetings, (ii) the
Joint Proxy Statement/Prospectus shall include a statement to the effect that
the Board of Directors of Buyer has recommended that Buyer's stockholders vote
in favor of the issuance of shares of Buyer Common Stock pursuant to the Merger
at Buyer's Stockholders' Meeting and the Board of Directors of Target has
recommended that Target's stockholders vote in favor of adoption and approval
of this Agreement and approval of the Merger at Target's Stockholders' Meeting,
and (iii) neither the Board of Directors of Buyer or Target nor any committee
thereof shall withdraw, amend or modify, or propose or resolve to withdraw,
amend or modify in a manner adverse to the other party, the recommendation of
its respective Board of Directors that the respective stockholders of Buyer and
Target vote in favor of, in the case of Buyer, the issuance of shares of Buyer
Common Stock pursuant to the Merger, and, in the case of Target, adoption and
approval of this Agreement and the Merger.
8.3 Acquisition Proposals.
(a) Target agrees that neither it nor any of its Subsidiaries nor any of
the officers and directors of it or its Subsidiaries shall, and that it shall
use all reasonable efforts to cause its and its Subsidiaries' employees, agents
and Representatives not to (and shall not authorize any of them to) directly or
indirectly: (i) solicit, initiate, encourage, knowingly facilitate or knowingly
induce any inquiry with respect to, or the making, submission or announcement
of, any Acquisition Proposal (as defined in Section 8.3(g)) with respect to
itself, (ii) participate in any discussions or negotiations regarding, or
furnish to any Person any nonpublic information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to, any Acquisition Proposal
with respect to itself, (iii) engage in discussions with any Person with
respect to any Acquisition Proposal with respect to itself, except as to the
existence of these provisions, (iv) approve, endorse or recommend any
Acquisition Proposal with respect to itself (except to the extent specifically
permitted pursuant to Section 8.3(d) and Section 10.1(g)), or (v) enter into
any letter of intent or similar document or any contract agreement or
commitment contemplating or otherwise relating to any Acquisition Proposal or
transaction contemplated thereby with respect to itself (except as permitted
pursuant to Sections 8.3(d) and 10.1(g). Target and its Subsidiaries shall
immediately cease any and all existing activities, discussions or negotiations
with any third parties conducted heretofore with respect to any Acquisition
Proposal with respect to itself.
(b) (i) As promptly as practicable after receipt of any Acquisition
Proposal or any request for nonpublic information or inquiry which it
reasonably believes could lead to an Acquisition Proposal, Target shall provide
Buyer with oral and written notice of the material terms and conditions of such
Acquisition Proposal, request or inquiry, and the identity of the Person or
Group making any such Acquisition Proposal, request or inquiry and a copy of
all written materials provided in connection with such Acquisition Proposal,
request or inquiry. Upon receipt of the Acquisition Proposal, request or
inquiry, Target shall provide Buyer as promptly as practicable oral and written
notice setting forth all such information as is reasonably necessary to keep
Buyer informed in all
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material respects of the status and details (including material amendments or
proposed material amendments) of any such Acquisition Proposal, request or
inquiry and shall promptly provide to Buyer a copy of all written materials
subsequently provided in connection with such Acquisition Proposal, request or
inquiry.
(ii) Target shall provide Buyer with forty-eight (48) hours prior notice
(or such lesser prior notice as is provided to the members of its Board of
Directors) of any meeting of its Board of Directors at which its Board of
Directors is reasonably expected to consider any Acquisition Proposal.
(c) Notwithstanding anything to the contrary contained in Section 8.3(a),
in the event that Target receives an unsolicited, bona fide written Acquisition
Proposal with respect to itself from a third party that its Board of Directors
has in good faith concluded (following the receipt of the advice of its outside
legal counsel and its financial advisor), is, or is reasonably likely to result
in, a Superior Offer (as defined in Section 8.3(g)), it may then take the
following actions: (i) furnish nonpublic information to the third party making
such Acquisition Proposal, provided that (A) (1) concurrently with furnishing
any such nonpublic information to such party, its gives Buyer written notice of
its intention to furnish nonpublic information and (2) it receives from the
third party an executed confidentiality agreement containing customary
limitations on the use and disclosure of all nonpublic written and oral
information furnished to such third party on its behalf, the terms of which are
at least as restrictive as the terms contained in the Confidentiality Agreement
and (B) contemporaneously with furnishing any such nonpublic information to
such third party, it furnishes such nonpublic information to Buyer (to the
extent such nonpublic information has not been previously so furnished); and
(ii) engage in negotiations with the third party with respect to the
Acquisition Proposal, provided that concurrently with entering into
negotiations with such third party, it gives Buyer written notice of the its
intention to enter into negotiations with such third party.
(d) In response to the receipt of a Superior Offer, the Board of Directors
of Target may withhold, withdraw, amend or modify, or propose or resolve to
withdraw, amend or modify its recommendation in favor of the Merger, and, in
the case of a Superior Offer that is a tender or exchange offer made directly
to its stockholders, may recommend that its stockholders accept the tender or
exchange offer (any of the foregoing actions, whether by a Board of Directors
or a committee thereof, a "Change of Recommendation"), if all of the following
conditions in clauses (i) through (iv) are met: (i) a Superior Offer with
respect to it has been made and has not been withdrawn; (ii) its Stockholders'
Meeting has not occurred; (iii) it shall have (A) provided to Buyer written
notice which shall state expressly (1) that it has received a Superior Offer,
(2) the material terms and conditions of the Superior Offer and the identity of
the Person or Group making the Superior Offer, and (3) that it intends to
effect a Change of Recommendation and the manner in which it intends to do so,
(B) provided to Buyer a copy of all written materials delivered to the Person
or Group making the Superior Offer in connection with such Superior Offer, and
(C) made available to Buyer all materials and information made available to the
Person or Group making the Superior Offer in connection with such Superior
Offer; and (iv) it shall not have breached in any material respect any of the
provisions set forth in Section 8.2 or this Section 8.3.
(e) Notwithstanding anything to the contrary contained in this Agreement,
the obligation of Target to call, give notice of, convene and hold its
Stockholders' Meeting shall not be limited or otherwise affected by the
commencement, disclosure, announcement or submission to it of any Acquisition
Proposal with respect to it, or by any Change of Recommendation. Target shall
not submit to the vote of its respective stockholders any Acquisition Proposal,
or propose to do so, subject to Sections 8.3(d) and 10.1(g).
(f) Nothing contained in this Agreement shall prohibit either party or its
respective Board of Directors from taking and disclosing to its stockholders a
position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the
Exchange Act; provided that the content of any such disclosure thereunder shall
be governed by the terms of this Agreement. Without limiting the foregoing
proviso, Target shall not effect a Change of Recommendation unless specifically
permitted pursuant to the terms of Section 8.3(d).
(g) For purposes of this Agreement, the following terms shall have the
following meanings: (i) "Acquisition Proposal," with respect to Target, shall
mean any offer or proposal, relating to any transaction or series of related
transactions involving: (A) any purchase from Target or acquisition by any
Person or "Group" (as defined under Section 13(d) of the Exchange Act and the
rules and regulations thereunder) of more than a
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fifteen percent (15%) interest in the total outstanding voting securities of
any Target Entity or any tender offer or exchange offer that if consummated
would result in any Person or Group beneficially owning fifteen percent (15%)
or more of the total outstanding voting securities of any Target Entity or any
merger, consolidation, business combination or similar transaction involving a
Target Entity, (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than fifteen percent (15%) of the
Assets of the Target Entities, taken as a whole, or (C) any liquidation or
dissolution of a Target Entity; and (ii) "Superior Offer," with respect to
Target, shall mean an unsolicited, bona fide written offer made by a third
party to acquire, directly or indirectly, pursuant to a tender offer, exchange
offer, merger, consolidation or other business combination, all or
substantially all of the Assets of Target or substantially all of the total
outstanding voting securities of Target on terms that the Board of Directors of
Target has in good faith concluded (following the receipt of advice of its
outside legal counsel and its financial adviser), taking into account, among
other things, all legal, financial, regulatory and other aspects of the offer
and the Person making the offer, to be more favorable, from a financial point
of view, to Target's stockholders (in their capacities as stockholders) than
the terms of the Merger and is reasonably capable of being consummated.
8.4 Exchange Listing.
Buyer shall use its reasonable efforts to list, prior to the Effective Time,
on the NYSE, subject to official notice of issuance, the shares of Buyer Common
Stock to be issued to the holders of Target Common Stock pursuant to the Merger
and upon the exercise of the Target Options, and Buyer shall give all notices
and make all filings with the NYSE required in connection with the transactions
contemplated herein.
8.5 Antitrust Notification; Consents of Regulatory Authorities.
(a) To the extent required by the HSR Act, each of the Parties shall,
within a reasonable period of time, file with the United States Federal Trade
Commission ("FTC") and the United States Department of Justice ("DOJ") the
notification and report form required for the transactions contemplated hereby,
shall promptly file any supplemental or additional information which may
reasonably be requested in connection therewith pursuant to the HSR Act, and
shall comply in all material respects with the requirements of the HSR Act.
Each Party shall use its reasonable efforts to resolve objections, if any,
which may be asserted with respect to the Merger under the HSR Act, the Sherman
Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act,
as amended, and any other federal, state or foreign Law or, regulation or
decree designed to prohibit, restrict or regulate actions for the purpose or
effect of monopolization or restraint of trade (collectively "Antitrust Laws").
In the event any Litigation is threatened or instituted challenging the Merger
as violative of Antitrust Laws, each Party shall use its reasonable efforts to
avoid the filing of, or resist or resolve such Litigation. Each Party shall use
its reasonable efforts to take such action as may be required by: (i) the DOJ
and/or the FTC in order to resolve such objections as either of them may have
to the Merger under the Antitrust Laws, or (ii) any federal or state court of
the United States, or similar court of competent jurisdiction in any foreign
jurisdiction, in any suit brought by any Regulatory Authority or any other
Person challenging the Merger as violative of the Antitrust Laws, in order to
avoid the entry of any Order (whether temporary, preliminary or permanent)
which has the effect of preventing the consummation of the Merger and to have
vacated, lifted, reversed or overturned any such Order. Reasonable efforts
shall not include the willingness of Buyer to accept an Order agreeing to the
divestiture, or the holding separate, of any Assets of any Buyer Entity or any
Target Entity which Buyer reasonably determines to be material to Buyer or to
the benefits of the transaction for which it has bargained for hereunder. Buyer
shall be entitled to direct any proceedings or negotiations with any Regulatory
Authority relating to any of the foregoing, provided that it shall afford
Target a reasonable opportunity to participate therein. Notwithstanding
anything to the contrary in this Section, no Buyer Entity shall be required to
divest any of its businesses, product lines or Assets, or to take or agree to
take any other action or agree to any limitation, that Buyer reasonably
determines to be material to Buyer or to the benefits of the transaction for
which it has bargained for hereunder.
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(b) The Parties hereto shall cooperate with each other and use their
reasonable efforts to promptly prepare and file all necessary documentation, to
effect all applications, notices, petitions and filings (which shall include
the filings pursuant to subsection (a) above), and to obtain as promptly as
practicable all Consents of all Regulatory Authorities and other Persons which
are necessary or advisable to consummate the transactions contemplated by this
Agreement (including the Merger). The Parties agree that they shall consult
with each other with respect to the obtaining of all Consents of all Regulatory
Authorities and other Persons necessary or advisable to consummate the
transactions contemplated by this Agreement and each Party shall keep the other
apprised of the status of matters relating to consummation of the transactions
contemplated herein. Each Party also shall promptly advise the other upon
receiving any communication from any Regulatory Authority whose Consent is
required for consummation of the transactions contemplated by this Agreement
which causes such Party to believe that there is a reasonable likelihood that
any requisite Consent shall not be obtained or that the receipt of any such
Consent will be materially delayed.
8.6 Filings with State Offices.
Upon the terms and subject to the conditions of this Agreement, Sub shall
execute and file the Certificate of Merger with the Secretary of State of the
State of Delaware in connection with the Closing.
8.7 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 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 9; provided, that nothing herein shall
preclude either Party from exercising its rights under this Agreement.
8.8 Investigation and Confidentiality.
(a) Prior to the Effective Time, each Party shall keep the other Party
advised of all material developments relevant to its business and to the
consummation of the Merger and shall permit the other Party and its advisors
and agents 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 ability of such Party to rely on the
representations and warranties of the other Party.
(b) In addition to the Parties' respective obligations under the
Confidentiality Agreement, which is hereby reaffirmed and adopted, and
incorporated by reference herein 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 Buyer and Sub, on the one hand, and Target, on the other,
agrees that, except for the representations and warranties made by the other
party that are expressly set forth in Article 5 and Article 6 of this
Agreement, as applicable, neither the other party nor any of its
representatives or Affiliates has made and shall not be deemed to have made to
such party or to any of its representatives or Affiliates any representation or
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warranty of any kind. Without limiting the generality of the foregoing, each
party agrees that neither the other party nor any of its Affiliates makes or
has made any representation or warranty to such party or to any of its
representatives or Affiliates with respect to:
(i) any projections, forecasts, estimates, plans or budgets of future
revenues, expenses or expenditures, future results of operations (or any
component thereof), future cash flows (or any component thereof) or
future financial condition (or any component thereof) of the other party
or any of its Subsidiaries or the future business, operations or affairs
of the other party or any of its Subsidiaries heretofore or hereafter
delivered to or made available to such party or its counsel,
accountants, advisors, lenders, representatives or Affiliates; and
(ii) any other information, statement or documents heretofore or hereafter
delivered to or made available to such party or its counsel,
accountants, advisors, lenders, representatives or Affiliates with
respect to the other party or any of its Subsidiaries or the business,
operations or affairs of the other party or any of its Subsidiaries,
except to the extent and as expressly covered by a representation and
warranty made by the other party and contained in Article 5 or Article 6
of this Agreement, as applicable.
8.9 Press Releases.
Prior to the Effective Time, Target and Buyer 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 8.9 shall be deemed to prohibit
any Party from making any disclosure which its counsel deems necessary or
advisable in order to satisfy such Party's disclosure obligations imposed by
Law.
8.10 Tax Treatment.
(a) This Agreement is a "plan of reorganization" within the meaning of
Section 1.368-2(g) of the Treasury regulations promulgated under the Internal
Revenue Code. From and after the date of this Agreement and until the Effective
Time, except as provided in Section 1.4, each Party hereto shall use its
reasonable best efforts to cause the Merger to qualify as a reorganization
under the provisions of Section 368(a) of the Code. Following the Effective
Time, neither Sub, Buyer nor any of their Affiliates shall knowingly take any
action that could cause the Merger to fail to qualify as a reorganization under
Section 368(a) of the Code.
(b) Target does not know of any reason why Target will not be able to
deliver to each of Alston & Bird LLP and Vinson & Elkins LLP, at the time the
Registration Statement or any amendment thereto is filed with the SEC and on or
about the Closing Date, certificates in the form of Exhibit 4 hereto and
substantially in compliance with IRS published advance ruling guidelines, with
customary exceptions and modifications thereto, to enable such firms to deliver
the opinions contemplated by Section 9.1(f).
(c) Buyer does not know of any reason why Buyer will not be able to deliver
to each of Alston & Bird LLP and Vinson & Elkins LLP, at the time the
Registration Statement or any amendment thereto is filed with the SEC and on or
about the Closing Date, certificates in the form of Exhibit 4 hereto and
substantially in compliance with IRS published advance ruling guidelines, with
customary exceptions and modifications thereto, to enable such firms to deliver
the opinions contemplated by Section 9.1(f).
8.11 Agreement of Affiliates.
Target has disclosed in Section 8.11 of the Target Disclosure Memorandum all
Persons whom it reasonably believes is an "affiliate" of Target for purposes of
Rule 145 under the 1933 Act. Target shall use its reasonable efforts to cause
each such Person to deliver to Buyer prior to the Effective Time, a written
agreement, in substantially the form of Exhibit 3, providing that such Person
shall not sell, pledge, transfer, or otherwise dispose of the shares of Buyer
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. Buyer shall be entitled to place restrictive
legends upon certificates for shares of Buyer Common Stock issued to affiliates
of Target pursuant to this Agreement to enforce the provisions of this Section
8.11. Buyer shall not be required to maintain the effectiveness of the
Registration Statement under the 1933 Act for the purposes of resale of Buyer
Common Stock by such affiliates.
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8.12 Employee Benefits and Contracts.
(a) Following the Effective Time, Buyer shall cause the Surviving
Corporation and its Subsidiaries to continue to provide individuals who were
officers and employees of the Target Entities immediately prior to the
Effective Time (the "Continuing Employees") with benefits under the Target
Benefit Plans (except that Buyer shall have no obligation to provide benefits
under stock option or other plans involving the potential issuance of Buyer
Common Stock or Target Common Stock other than as provided in Section 3.5 of
this Agreement) or similar arrangements, on terms and conditions which when
taken as a whole are substantially similar to those which are provided to such
officers and employees by the Target Entities immediately prior to the
Effective Time (with such changes as Buyer may reasonably determine are
required by law). Notwithstanding the foregoing, Buyer may, at any time
following the Effective Time and in its sole discretion, discontinue providing
benefits under any Target Benefit Plan to Continuing Employees, provided that
such Continuing Employees shall thereafter receive benefits under Buyer's
Employee Benefit Plans (except that Buyer shall have no obligation to provide
benefits under stock option or other plans involving the potential issuance of
Buyer Common Stock other than as provided in Section 3.5 of this Agreement), on
terms and conditions which taken as a whole are substantially similar to those
provided by the Buyer Entities to their similarly situated officers and
employees. In the event the Continuing Employees participate in Buyer's
Employee Benefit Plans at any time after the Effective Time then, (i) for
purposes of participation, vesting and (except in the case of Buyer retirement
plans) benefit accruals under Buyer's Employee Benefit Plans, including the
Termination Benefits Plan of Buyer, the service of the Continuing Employees
with the Target Entities prior to the Effective Time shall be treated as
service with a Buyer Entity participating in such Employee Benefit Plans; and
(ii) except as otherwise provided in the next succeeding sentence, with respect
to health, life, welfare and other group benefits, Buyer's Employee Benefit
Plans shall waive any eligibility periods, evidence of insurability and
pre-existing conditions limitations and shall honor any deductible, co-payment,
co-insurance or out-of-pocket expenses paid or incurred for the current plan
year by such Continuing Employees, including, with respect to their covered
dependents, under the Target Benefit Plans during the period preceding the date
of participation in Buyer's Employee Benefit Plans, as though such amount had
been paid in accordance with the terms and conditions of the Buyer's Employee
Benefit Plans. Notwithstanding the foregoing, Buyer's undertaking set forth in
clause (ii) of the immediately preceding sentence shall only be applicable to
Buyer's Employee Benefit Plans which are fully insured to the extent permitted
under the terms of the applicable insurance policy or to the extent approved by
the applicable insurance carrier. Buyer also shall cause the Surviving
Corporation and its Subsidiaries to honor in accordance with their terms all
employment, severance, consulting and other compensation Contracts disclosed in
Section 8.12 of the Target Disclosure Memorandum to Buyer between any Target
Entity and any current or former director, officer, or employee thereof, and
all provisions for vested benefits or other vested amounts earned or accrued
through the Effective Time under the Target Benefit Plans.
(b) Effective prior to the Effective Time, Target shall terminate all of
Target's severance and termination benefit plans, including without limitation,
the Target Severance Benefit Plan, as amended and restated effective October 1,
2000, and Buyer shall cause the Surviving Corporation and its Subsidiaries to
adopt the Termination Benefits Plan of Buyer and for a period of at least one
year following the Closing shall make such Buyer plan available (and not reduce
the benefits available thereunder) to the Continuing Employees. Notwithstanding
the preceding sentence, Buyer shall cause the Surviving Corporation and its
Subsidiaries to honor the terms of the Change of Control Agreements disclosed
in Section 8.12 of the Target Disclosure Memorandum.
(c) Buyer shall cause the Surviving Corporation and its Subsidiaries to
permit all Continuing Employees to retain and take any paid vacation days
accrued but not taken or lost under the Target's and the Target Entities'
vacation policies prior to the Effective Time, provided that such vacation days
are taken or paid in lieu of being taken within one year after the Effective
Time.
(d) As soon as practicable following the date of this Agreement, Target's
Board of Directors or, if appropriate, any committee thereof administering the
ESPP, shall adopt such resolutions or take such actions as are required to (i)
terminate such ESPP prior to the Effective Time, (ii) provide that the offering
period scheduled
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to end on December 31, 2001 (the "Final Offering Period") shall end on the
earlier of (a) December 31, 2001, or (b) the termination of the ESPP, and (iii)
provide that no new offering periods shall be commenced following the
termination of the Final Offering Period.
8.13 Indemnification.
(a) For a period of six years after the Effective Time, Buyer shall, and
shall cause the Surviving Corporation to, indemnify, defend and hold harmless
the present and former directors, officers, employees and agents of the Target
Entities (each, an "Indemnified Party") against all Liabilities arising out of
actions or omissions arising out of the Indemnified Party's service or services
as directors, officers, employees or agents of Target or, at Target's request,
of another corporation, partnership, joint venture, trust or other enterprise
occurring at or prior to the Effective Time (including the transactions
contemplated by this Agreement) to the fullest extent permitted under Delaware
Law and by the Target Certificate of Incorporation and Target Bylaws and their
existing Indemnification Agreements as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of any
Litigation and whether or not any Buyer Entity is insured against any such
matter. Without limiting the foregoing, in any case in which approval by the
Surviving Corporation is required to effectuate any indemnification, the
Surviving Corporation shall direct, at the election of the Indemnified Party,
that the determination of any such approval shall be made by independent
counsel mutually agreed upon between Buyer and the Indemnified Party.
(b) Buyer shall, or shall cause the Surviving Corporation to, use its
reasonable efforts (and Target shall cooperate prior to the Effective Time in
these efforts) to maintain in effect for a period of six years after the
Effective Time Target's existing directors' and officers' liability insurance
policy (provided that Buyer or the Surviving Corporation may substitute
therefor (i) policies of at least the same coverage and amounts containing
terms and conditions which are substantially no less advantageous or (ii) with
the written consent of Target given prior to the Effective Time, any other
policy) with respect to claims arising from facts or events which occurred
prior to the Effective Time and covering persons who are currently covered by
such insurance; provided, that neither Buyer nor the Surviving Corporation
shall be obligated to make aggregate annual premium payments for such six-year
period in respect of such policy (or coverage replacing such policy) which
exceed, for the portion related to Target's directors and officers, 150% of the
annual premium payments on Target's current policy in effect as of the date of
this Agreement (the "Maximum Amount"). If the amount of the premiums necessary
to maintain or procure such insurance coverage exceeds the Maximum Amount,
Buyer or the Surviving Corporation shall use its reasonable efforts to maintain
the most advantageous policies of directors' and officers' liability insurance
obtainable for a premium equal to the Maximum Amount.
(c) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 8.13, upon learning of any such Liability or Litigation,
shall promptly notify Buyer and the Surviving Corporation thereof. In the event
of any such Litigation (whether arising before or after the Effective Time),
(i) Buyer or the Surviving Corporation shall have the right to assume the
defense thereof and neither Buyer nor the Surviving Corporation shall be liable
to such Indemnified Parties for any legal expenses of other counsel or any
other expenses subsequently incurred by such Indemnified Parties in connection
with the defense thereof, except that if Buyer or the Surviving Corporation
elects not to assume such defense or counsel for the Indemnified Parties
advises that there are substantive issues which raise conflicts of interest
between Buyer or the Surviving Corporation and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and Buyer or the
Surviving Corporation shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received; provided, that Buyer and the Surviving Corporation shall be obligated
pursuant to this paragraph (c) to pay for only one firm of counsel for all
Indemnified Parties in any jurisdiction, (ii) the Indemnified Parties shall
cooperate in the defense of any such Litigation, and (iii) neither Buyer nor
the Surviving Corporation shall be liable for any settlement effected without
its prior written consent; and provided further that neither Buyer nor the
Surviving Corporation shall have any obligation hereunder to any Indemnified
Party when and if a court of competent jurisdiction shall determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
Law.
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(d) If Buyer or the Surviving Corporation or any successors or assigns
shall consolidate with or merge into any other Person and shall not be the
continuing or surviving Person of such consolidation or merger or shall
transfer all or substantially all of its assets to any Person, then and in each
case, proper provision shall be made so that the successors and assigns of
Buyer or the Surviving Corporation shall assume the obligations set forth in
this Section 8.13
(e) The provisions of this Section 8.13(e) are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and their
respective heirs and representatives.
8.14 Board of Directors of Buyer.
The Board of Directors of Buyer shall take all actions necessary such that
effective as of immediately following the Effective Time, two designee(s) of
Target reasonably acceptable to Buyer, one of whom shall be "independent" under
the rules of the NYSE, shall become a member of the Board of Directors of Buyer.
8.15 Section 16(b) Board Approval.
(a) Prior to Closing, the Board of Directors of Buyer shall, by resolution
duly adopted by such Board of Directors or a duly authorized committee of
"non-employee directors" thereof, approve and adopt, for purposes of exemption
from "short-swing" liability under Section 16(b) of the Exchange Act, the
acquisition of Buyer Common Stock at the Effective Time by officers and
directors of Target (including officers or directors of Target who become,
prior to, at, or following the Effective Time of the Merger, officers or
directors of Buyer) as a result of the conversion of shares of Target Common
Stock in the Merger and the assumption of the Target Options by Buyer at the
Effective Time. Such resolution shall set forth the name of the applicable
"insiders" for purposes of Section 16 of the Exchange Act, the number of
securities to be acquired by each individual, that the approval is being
granted to exempt the transaction under Rule 16b-3 under the Exchange Act, and,
for the Target Options to be assumed by Buyer at the Effective Time, the
material terms of the options and warrants to purchase Buyer Common Stock
acquired by such insiders as a result of the assumption by Buyer of such Target
Options.
(b) Prior to Closing, the Board of Directors of Target shall, by resolution
duly adopted by such Board of Directors or a duly authorized committee of
"non-employee directors" thereof, approve and adopt, for purposes of exemption
from "short-swing" liability under Section 16(b) of the Exchange Act, the
conversion at the Effective Time of the shares of Target Common Stock held by
officers and directors of Target into shares of Buyer Common Stock and cash as
a result of the conversion of shares in the Merger, and the assumption and
cashout by Buyer at the Effective Time of the Target Options of the officers
and directors of Target. Such resolution shall set forth the name of the
applicable "insiders" for purposes of Section 16 of the Exchange Act and, for
each "insider," the number of shares of Target Common Stock to be converted
into shares of Buyer Common Stock and cash at the Effective Time, the number
and material terms of the Options to be assumed and cashed out by Buyer at the
Effective Time, and that the approval is being granted to exempt the
transaction under Rule 16b-3 under the Exchange Act.
ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 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 both
Parties pursuant to Section 11.6:
(a) Stockholder Approval. The stockholders of Target shall have adopted
and approved this Agreement, and the consummation of the transactions
contemplated hereby, including the Merger, as and to the extent required by
Law, by the provisions of any governing instruments, or by the rules of the
NYSE. The stockholders
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of Buyer shall have approved the issuance of shares of Buyer Common Stock
pursuant to the Merger, as and to the extent required by Law, by the provisions
of any governing instruments, or by the rules of the NYSE.
(b) 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, except for
Consents, the failure of which to obtain would not, as reasonably determined by
Buyer, be material to Buyer or to the benefits of the transaction for which it
has bargained for hereunder. 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
disposition of Assets) which Buyer reasonably determines to be material to
Buyer or to the benefits of the transaction for which it has bargained for
hereunder.
(c) Legal Proceedings. No court or governmental 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 and no such Law, Order or
action shall be pending or overtly threatened.
(d) Registration Statement. The Registration Statement shall be effective
under the 1933 Act, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of Buyer Common Stock issuable pursuant to the Merger shall have been
received.
(e) Exchange Listing. The shares of Buyer Common Stock issuable pursuant
to the Merger and upon the exercise of the Target Options shall have been
approved for listing on the NYSE, subject to official notice of issuance.
(f) Tax Matters. Target shall have received a written opinion of Vinson &
Elkins LLP, in form and substance reasonably satisfactory to Target, and Buyer
shall have a written opinion of Alston & Bird LLP, in form and substance
reasonably satisfactory to Buyer (the "Tax Opinions"), to the effect that (i)
the Merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code, (ii) the exchange in the Merger by the
stockholders of Target Common Stock for Buyer Common Stock will not give rise
to gain or loss to the stockholders of Target with respect to such exchange
(except to the extent of any cash received), and (iii) none of Target, Sub or
Buyer will recognize gain or loss solely as a consequence of the Merger. The
issuance of such Tax Opinions shall be conditioned upon (A) receipt by each of
Alston & Bird LLP and Vinson & Elkins LLP of representation letters from each
of Buyer and Target substantially in the form of Exhibit 4 hereto and
reasonably satisfactory in form and substance to each of Alston & Bird LLP and
Vinson & Elkins LLP, and each such letter shall be dated on or before the date
of such Tax Opinion and shall not have been withdrawn or modified in any
material respect as of the Effective Time, and (B) the receipt by Target
stockholders in the Merger in the aggregate, an amount of Buyer Common Stock
with a value as of the Effective Time equal to at least forty percent (40%) of
the total value of all shares of Target Common Stock outstanding immediately
prior to the Effective Time taking into account the amount of Cash
Consideration paid or to be paid to Target stockholders.
9.2 Conditions to Obligations of Buyer.
The obligations of Buyer 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 Buyer pursuant to Section 11.6(a):
(a) Representations and Warranties. For purposes of this Section 9.2(a),
the accuracy of the representations and warranties of Target set forth in this
Agreement shall be assessed as of the date of this
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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 (except for inaccuracies that
are de minimus in amount). The representations and warranties set forth in
Sections 5.17, 5.18, 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 Target set forth in this Agreement (including the
representations and warranties set forth in Sections 5.3, 5.17, 5.18, 5.19,
5.20 and 5.21) such that the aggregate effect of such inaccuracies (without
regard to any materiality or Material Adverse Effect qualifier(s) contained in
any and each such representation and warranty) has, or is reasonably likely to
have, a Target Material Adverse Effect.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Target 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. Target shall have delivered to Buyer (i) a certificate,
dated as of the Effective Time and signed on its behalf by Target's chief
executive officer and its chief financial officer, to the effect that the
conditions set forth in Section 9.1 as relates to Target and in Sections
9.2(a), 9.2(b) and 9.2(d) have been satisfied, and (ii) certified copies of
resolutions duly adopted by Target's Board of Directors and stockholders
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 Buyer
and its counsel shall request.
(d) Material Adverse Effect. No Target Material Adverse Effect shall have
occurred since the date hereof and be continuing.
9.3 Conditions to Obligations of Target.
The obligations of Target 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 Target pursuant to
Section 11.6(b):
(a) Representations and Warranties. For purposes of this Section 9.3(a),
the accuracy of the representations and warranties of Buyer 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 of Buyer set
forth in Section 6.3 shall be true and correct (except for inaccuracies that
are de minimus in amount). The representations and warranties set forth in
Sections 6.14, 6.15 and 6.16 shall be true and correct in all material
respects. There shall not exist inaccuracies in the representations and
warranties of Buyer set forth in this Agreement (including the representations
and warranties set forth in Section 6.3, 6.14, 6.15 and 6.16) such that the
aggregate effect of such inaccuracies (without regard to any materiality or
Material Adverse Effect qualifier(s) contained in any and each such
representation and warranty) has, or is reasonably likely to have, a Buyer
Material Adverse Effect.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Buyer 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.
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(c) Certificates. Buyer shall have delivered to the Target (i) a
certificate, dated as of the Effective Time and signed on its behalf by Buyer's
chief executive officer and its chief financial officer, to the effect that the
conditions set forth in Section 9.1 as relates to Buyer and in Sections
9.3(a), 9.3(b) and 9.3(d) have been satisfied, and (ii) certified copies of
resolutions duly adopted by Buyer's Board of Directors and stockholders and
Sub's Board of Directors and sole stockholder 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 Target and its counsel shall request.
(d) Material Adverse Effect. No Buyer Material Adverse Effect shall have
occurred since the date hereof and be continuing.
ARTICLE 10 TERMINATION
10.1 Termination.
Notwithstanding any other provision of this Agreement, and notwithstanding
the approval of this Agreement by the stockholders of Target and the
stockholders of Buyer or both, this Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) By mutual written consent duly authorized by the Boards of Directors of
Buyer and Target; or
(b) By either Buyer or Target in the event that the Merger shall not have
been consummated by May 31, 2002 (which date shall be extended to July 31,
2002, if the Merger shall not have been consummated as a result of the failure
to satisfy the conditions set forth in Section 9.1(b) or (c), as appropriate,
the "End Date"), 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 10.1(b); or
(c) By either Buyer or Target (provided that the terminating Party is not
then in material breach of any covenant or other agreement contained in this
Agreement and has not willfully breached any of such Party's representations
and warranties contained in this Agreement) in the event of a breach by the
other Party of any representation, warranty, covenant or agreement contained in
this Agreement which breach would permit such Party to refuse to consummate the
transactions contemplated by this Agreement pursuant to the standards set forth
in Section 9.2(a) or (b) or 9.3(a) or (b), as applicable; provided that if such
breach in the representations, warranties, covenants or agreements is curable
prior to the End Date through the exercise of reasonable efforts and the
breaching Party exercises reasonable efforts to cure such breach, then the
non-breaching Party may not terminate this Agreement under this Section 10.1(c)
prior to 30 days following the receipt of written notice of such breach; or
(d) By either Buyer or Target in the event (i) any Consent of any
Regulatory Authority required for consummation of the Merger and the other
transactions contemplated hereby pursuant to Section 9.1(b) 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, or (ii) any
Law or Order permanently restraining, enjoining or otherwise prohibiting the
consummation of the Merger shall have become final and nonappealable; or
(e) By either Buyer or Target in the event the stockholders of Target fail
to adopt and approve this Agreement and the Merger or stockholders of Buyer
fail to approve the issuance of Buyer Common Stock pursuant to this Agreement
at the Stockholders' Meetings where such matters were presented to such
stockholders for approval and voted upon; provided, however, that the right to
terminate this Agreement under this Section 10.1(e) shall not be available to a
Party where the failure to obtain stockholder approval of such Party shall have
been caused by the action or failure to act by such Party and such action or
failure to act constitutes a material breach by such Party of this Agreement; or
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(f) By Buyer in the event that (i) the Board of Directors of Target, shall
have failed to reaffirm publicly its approval, as soon as reasonably
practicable, and in no event later than two business days, after Buyer's
request for such reaffirmation, of the Merger and the transactions contemplated
by this Agreement, or shall have resolved not to reaffirm the Merger, or (ii)
the Board of Directors of Target shall have failed to include in the Joint
Proxy Statement/Prospectus its recommendation, without modification or
qualification, that Target stockholders approve and adopt this Agreement and
approve the Merger or shall have withheld, withdrawn, amended or modified, or
proposed publicly to withdraw, qualify or modify, in a manner adverse to Buyer,
the recommendation of such Board of Directors to Target stockholders that they
approve and adopt this Agreement and approve the Merger, or (iii) the Board of
Directors of Target shall have made a Change of Recommendation or, within ten
business days after commencement of any tender or exchange offer for any shares
of Target Common Stock, the Board of Directors of Target shall have failed to
recommend against acceptance of such tender or exchange offer by its
stockholders or takes no position with respect to the acceptance of such tender
or exchange offer by its stockholders; or
(g) By Target, (provided that Target is not then in material breach of any
covenant or other agreement contained in this Agreement and has not willfully
breached any of its representations and warranties contained in this
Agreement), if the Board of Directors of Target has made a Change of
Recommendation in order to approve and permit Target to accept a Superior
Offer; provided, however, that (i) Buyer does not make, within three business
days after receipt of Target's written notice pursuant to Section 8.3(d), an
offer that the Board of Directors of Target shall have concluded in good faith
(following consultation with its financial advisor and outside legal counsel)
is as favorable, from a financial point of view, to the Target stockholders as
such Superior Offer, and (ii) Target shall have tendered to Buyer payment in
full of the amount specified in Section 10.3(b) concurrently with delivery of
notice of termination pursuant to this Section 10.1(g); or
(h) By Buyer, if Target shall have had a Target Material Adverse Effect; or
(i) By Target, if Buyer shall have had a Buyer Material Adverse Effect.
A terminating Party shall provide written notice of termination to the other
Party specifying the reason for such termination.
10.2 Effect of Termination.
In the event of the termination and abandonment of this Agreement pursuant
to Section 10.1, this Agreement shall become void and have no effect, except
that (i) the provisions of Sections 8.8(b), 10.2 and 10.3, and Article 11,
shall survive any such termination and abandonment, and (ii) no such
termination shall relieve the breaching Party from Liability resulting from any
willful breach by that Party of this Agreement. No termination of this
Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations shall survive termination
of this Agreement in accordance with their terms.
10.3 Expenses.
(a) Except as otherwise provided in this Section 10.3, each of the Parties
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; provided, however, that Buyer and Target shall share equally (i) all
fees and expenses, other than attorneys' and accountants' fees and expenses
which fees shall be paid for by the party incurring such expense, incurred in
relation to the printing and filing (with the SEC) of the Joint Proxy
Statement/Prospectus (including any preliminary materials related thereto) and
the Registration Statement (including financial statements and exhibits) and
any amendments or supplements thereto and (ii) the filing fee for the
Notification and Report Forms filed with the FTC and DOJ under the HSR Act.
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(b) Notwithstanding the foregoing, if:
(i) (x) Either Target or Buyer terminates this Agreement pursuant to
Section 10.1(e) (as it relates to the approval of Target
stockholders), (y) Target terminates this Agreement pursuant to
Section 10.1(b), or (z) Target has failed to perform and comply in
all material respects with any of its obligations, agreements or
covenants required by this Agreement and Buyer terminates this
Agreement pursuant to Section 10.1(c); and as to any of clauses (x),
(y) or (z) above, prior to the termination of this Agreement, there
has been publicly announced an Acquisition Proposal (other than the
Merger) and within twelve months of such termination Target shall
either (1) consummate an Acquisition Transaction or (2) enter into an
agreement with respect to an Acquisition Transaction, whether or not
such Acquisition Transaction (but changing, in the case of (1) and
(2), the references to the 15% amounts in the definition of
Acquisition Proposal to 50%) is subsequently consummated; or
(ii) Buyer shall terminate this Agreement pursuant to 10.1(f); or
(iii) Target shall terminate this Agreement pursuant to 10.1(g);
then Target shall pay to Buyer an amount equal to $45,000,000 (the "Buyer
Termination Fee"). Target hereby waives any right to set-off or counterclaim
against such amounts. If the Termination Fee shall be payable pursuant to
subsection (b)(i) of this Section 10.3, the Termination Fee shall be paid in
same-day funds at or prior to the earlier of the date of consummation of such
Acquisition Transaction or the date of execution of an agreement with respect
to such Acquisition Transaction. If the Termination Fee shall be payable
pursuant to subsection (b)(ii) of this Section 10.3, the Termination Fee shall
be paid in same-day funds no later than two business days from the date of
termination of this Agreement. If the Termination Fee shall be payable pursuant
to subsection (b)(iii) of this Section 10.3, the Termination Fee shall be paid
in same-day funds concurrently with the delivery of the notice of termination
of this Agreement pursuant to Section 10.1(g).
(c) The Parties acknowledge that the agreements contained in paragraph (b)
of this Section 10.3 are an integral part of the transactions contemplated by
this Agreement, and that without these agreements, they would not enter into
this Agreement; accordingly, if Target fails to pay promptly any fee payable by
it pursuant to this Section 10.3, then Target shall pay to Buyer, its costs and
expenses (including attorneys' fees) in connection with collecting such fee,
together with interest on the amount of the fee at the prime rate of Citibank,
N.A. (in effect on the date such payment was required to be made) from the date
such payment was due under this Agreement until the date of payment.
(d) Nothing contained in this Section 10.3 shall constitute or shall be
deemed to constitute liquidated damages for the willful breach by Target of the
terms of this Agreement or otherwise limit the rights of Buyer; provided,
however, that in the event that Buyer is entitled to receive a Termination Fee
pursuant to Section 10.3(b)(i)(z) above, Buyer must elect to either (i) receive
such Termination Fee and, upon receipt of such Termination Fee, dismiss with
prejudice any pending litigation against Target, or release Target from any
Liability, relating to a breach by Target of its covenants and agreements under
this Agreement or (ii) waive its right to receive such Termination Fee.
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ARTICLE 11 MISCELLANEOUS
11.1 Definitions.
(a) Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
"Acquisition Transaction" means any transaction or series of related
transactions (other than the transactions contemplated by this Agreement)
contemplated by an Acquisition Proposal.
"Affiliate" of a Person means: (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.
"Assets" of a Person means 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.
"Buyer Capital Stock" means, collectively, the Buyer Common Stock, the
Buyer Preferred Stock and any other class or series of capital stock of
Buyer.
"Buyer Common Stock" means the $0.01 par value common stock of Buyer.
"Buyer Disclosure Memorandum" means the written information entitled
"Buyer Inc. Disclosure Memorandum" delivered prior to the date of this
Agreement to Target 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. Each reference to the Buyer Disclosure Memorandum contained in
this Agreement qualifies the referenced representation, warranty or covenant
to the extent specified therein and such other representations, warranties
and covenants contained herein (regardless of whether or not such
representation or warranty contains a reference to such disclosure
memorandum) to the extent a matter in such disclosure memorandum is
disclosed in a way as to make its relevance to the information called for by
such other representation or warranty readily apparent on its face.
"Buyer Entities" means, collectively, Buyer and all Buyer Subsidiaries.
"Buyer Financial Statements" means the consolidated balance sheets
(including related notes and schedules, if any) of Buyer as of most recent
quarter end, and as of December 31, 1999 and December 31, 2000, and the
related statements of operations, changes in stockholders' equity, and cash
flows (including related notes and schedules, if any) for the nine months
ended, and for each of the three fiscal years ended December 31, 2000, 1999
and 1998, as filed by Buyer in SEC Documents.
"Buyer Material Adverse Effect" means an event, change or occurrence
which, individually or together with any other event, change or occurrence,
has (i) a material long-term adverse impact on the financial position,
business, or results of operations of Buyer and its Subsidiaries, taken as a
whole, or (ii) a material adverse effect on the ability of Buyer to perform
its obligations under this Agreement or to consummate the Merger or the
other transactions contemplated by this Agreement, provided that "Buyer
Material Adverse Effect" shall not be deemed to include the impact of (A)
changes in the market price or trading volume of Buyer Common Stock, (B) any
failure to meet internal projections or forecasts or published revenue or
earnings predictions for any period ending on or after the date hereof, or
(C) any event, change or occurrence relating to or resulting (y) from
out-of-pocket fees and expenses, severance and other benefit or compensation
costs paid or to be paid in connection with the Merger or (z) the
performance of or compliance with any of the terms and conditions of this
Agreement, (D) changes affecting the general economic condition in the
jurisdictions where Buyer operates (which changes do not disproportionately
affect Buyer in any material respect), or (E) changes affecting any of the
industries in which Buyer operates generally (which changes do not
disproportionately affect Buyer in any material respect).
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"Buyer Preferred Stock" means the $0.01 par value preferred stock of
Buyer.
"Buyer Subsidiaries" means the Subsidiaries of Buyer, which shall include
any corporation, limited liability company, limited partnership, limited
liability partnership or other organization acquired as a Subsidiary of
Buyer in the future and held as a Subsidiary by Buyer at the Effective Time.
"Certificate of Merger" means the Certificate of Merger to be executed by
Sub and filed with the Secretary of State of the State of Delaware relating
to the Merger as contemplated by Section 1.1.
"Closing Date" means the date on which the Closing occurs.
"Confidentiality Agreement" means that certain Confidentiality Agreement,
dated September 11, 2001, between Target and Buyer.
"Consent" means any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" means any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease, license,
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" means (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.
"Employee Benefit Plan" means each pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, share
purchase, severance pay, bonus, retention, change in control or other
incentive plan, medical, vision, dental or other health plan, any life
insurance plan, flexible spending account, cafeteria plan, vacation,
holiday, disability or any other employee benefit plan or fringe benefit
plan, including any "employee benefit plan," as that term is defined in
Section 3(3) of ERISA and any other plan, fund, policy, program, practice,
custom understanding or arrangement providing compensation or other
benefits, whether or not such Employee Benefit Plan is or is intended to be
(i) covered or qualified under the Code, ERISA or any other applicable Law,
(ii) written or oral, (iii) funded or unfunded, (iv) actual or contingent or
(v) arrived at through collective bargaining or otherwise.
"Environmental Laws" means all Laws relating to pollution or protection
of human health or the environment (including ambient air, surface water,
groundwater, 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,
municipal, local or foreign statutes, laws or ordinances similar or
analogous to the federal statutes listed in parts (i)-(ix) of this
subparagraph; (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
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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" means 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" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any entity which together with a Target Entity
would be treated as a single employer under Code Section 414.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exhibits" 1 through 4, inclusive, means 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.
"GAAP" means generally accepted accounting principles, consistently
applied during the periods involved.
"Hazardous Material" means 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,
pesticides and other agricultural chemicals, oil and petroleum products or
byproducts and any constituents thereof, asbestos and asbestos-containing
materials, and polychlorinated biphenyls (PCBs).
"HSR Act" means 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.
"Intellectual Property" means copyrights, patents, trademarks, service
marks, service names, trade names, domain names, together with all goodwill
associated therewith, registrations and applications therefor, technology
rights and licenses, computer software (including any source or object codes
therefor or documentation relating thereto), trade secrets, franchises,
know-how, inventions, and other intellectual property rights.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Joint Proxy Statement/Prospectus" means the proxy statement used by
Target and Buyer to solicit the approval of their respective stockholders of
the transactions contemplated by this Agreement, which shall include the
prospectus of Buyer relating to the issuance of the Buyer Common Stock to
holders of Target Common Stock.
"Knowledge" as used with respect to a Person (including references to
such Person being aware of a particular matter) means those facts that are
known or should reasonably have been known after due inquiry by the
chairman, president, chief financial officer, chief accounting officer,
chief operating officer or general counsel.
"Law" means any code, law (including common law), ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to a Person
or its Assets, Liabilities, or business, including those promulgated,
interpreted or enforced by any Regulatory Authority.
"Liability" means 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.
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"Lien" means 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 (i) Liens for current property Taxes not yet
due and payable, (ii) Liens which do not materially impair the use of or
title to the Assets subject to such Lien, (iii) the filing of any financing
statement under the Uniform Commercial Code or its equivalent in any
jurisdiction; and (iv) any agreement by such Person to grant, give or
otherwise convey any of the foregoing.
"Litigation" means any action, arbitration, cause of action, lawsuit,
claim, complaint, criminal prosecution, governmental or other examination or
investigation, audit (other than regular audits of financial statements by
outside auditors), compliance review, inspection, hearing, administrative or
other proceeding relating to or affecting a Party, its business, its
records, its policies, its practices, its compliance with Law, its actions,
its Assets (including Contracts related to it), or the transactions
contemplated by this Agreement.
"Material" or "material" 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.
"NYSE" means the New York Stock Exchange, Inc.
"Operating Property" means 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" means any administrative decision or award, decree, injunction,
judgment, order, quasi-judicial decision or award, ruling, or writ of any
federal, state, local, foreign or other court, arbitrator, mediator,
tribunal, administrative agency, or Regulatory Authority.
"Participation Facility" means 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" means any of Target, Sub or Buyer, and "Parties" means Target,
Sub and Buyer.
"Permit" means any federal, state, local, or foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right 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, excluding any Environmental Permits.
"Person" means 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, limited
liability partnership, trust, business association, group acting in concert,
or any person acting in a representative capacity.
"Registration Statement" means the Registration Statement on Form S-4, or
other appropriate form, including any pre-effective or post-effective
amendments or supplements thereto, filed with the SEC by Buyer under the
1933 Act with respect to the shares of Buyer Common Stock to be issued to
the stockholders of Target in connection with the transactions contemplated
by this Agreement.
"Regulatory Authorities" means, collectively, the SEC, the NYSE, the FTC,
the DOJ, and all other federal, state, county, local, foreign or other
governments or governmental or regulatory agencies, authorities (including
taxing and self-regulatory authorities), instrumentalities, commissions,
boards or bodies, having jurisdiction over the Parties and their respective
Subsidiaries.
"Representative" means any investment banker, financial advisor,
attorney, accountant, consultant, or other representative or agent engaged
by a Person.
"SEC" means the United States Securities and Exchange Commission.
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"SEC Documents" means 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.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Laws" means the Securities Act, the Exchange Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the rules
and regulations of any Regulatory Authority promulgated thereunder.
"Sub Common Stock" means the $0.01 par value common stock of Sub.
"Subsidiaries" means 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.
"Surviving Corporation" means Sub as the surviving corporation resulting
from the Merger.
"Target Common Stock" means the $0.01 par value common stock of Target.
"Target Disclosure Memorandum" means the written information entitled
"Target Inc. Disclosure Memorandum" delivered prior to the date of this
Agreement to Buyer 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. Each reference to the Target Disclosure Memorandum contained in
this Agreement qualifies the referenced representation, warranty or covenant
to the extent specified therein and such other representations, warranties
and covenants contained herein (regardless of whether or not such
representation or warranty contains a reference to such disclosure
memorandum) to the extent a matter in such disclosure memorandum is
disclosed in a way as to make its relevance to the information called for by
such other representation or warranty readily apparent on its face.
"Target Entities" means, collectively, Target and all Target Subsidiaries.
"Target Financial Statements" means (i) the consolidated balance sheets
(including related notes and schedules, if any) of Target as of September
28, 2001, and as of December 29, 2000 and December 31, 1999, and the related
statements of income, changes in stockholders' equity, and cash flows
(including related notes and schedules, if any) for the nine months ended
September 28, 2001, and for each of the three fiscal years ended 2000,1999
and 1998, as filed by Target in SEC Documents.
"Target Material Adverse Effect" means an event, change or occurrence
which, individually or together with any other event, change or occurrence,
has (i) a material long term adverse impact on the financial position,
business, or results of operations of Target and its Subsidiaries, taken as
a whole, or (ii) a material adverse impact on the ability of Target to
perform its obligations under this Agreement or to consummate the Merger or
the other transactions contemplated by this Agreement, provided that "Target
Material Adverse Effect" shall not be deemed to include the impact of (A)
changes in the market price or trading volume of Target Common Stock, (B)
any failure to meet internal projections or forecasts or published revenue
or earnings predictions for any period ending on or after the date hereof,
or (C) any event, change or occurrence relating to or resulting from (y)
out-of-pocket fees and expenses, severance and other benefit or compensation
costs paid or to be paid in connection with the Merger or (z) the
performance of or compliance with any of the terms and conditions of this
Agreement, (D) changes affecting the general economic condition in the
jurisdictions where Target operates (which changes do not disproportionately
affect Target in any material respect), or (E) changes affecting any of the
industries in which Buyer operates generally (which changes do not
disproportionately affect Target in any material respect).
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"Target Options" means all issued and outstanding stock options pursuant
to the Target Stock Plans.
"Target Stock Plans" means the existing stock option and other
stock-based compensation plans of Target designated as follows: the Target
2000 Amended and Restated Stock Option Plan, the Target 1998 Amended and
Restated Stock Option Plan, the Target 1997 Amended and Restated Stock
Option Plan, the Target 1996 Amended and Restated Stock Option Plan, the
Target 1990 Stock Option Plan and the ESPP.
"Target Subsidiaries" means the Subsidiaries of Target, which shall
include the Target Subsidiaries described in Section 5.4 and any
corporation, limited liability company, limited partnership, limited
liability partnership or other organization acquired as a Subsidiary of
Target in the future and held as a Subsidiary by Target at the Effective
Time.
"Tax" or "Taxes" means 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,
recording license, payroll, franchise, severance, documentary, 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,
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 government or subdivision or
agency thereof, including any interest, penalties, and additions imposed
thereon or with respect thereto.
"Tax Return" means any report, return, information return, or other
information required to be supplied to a Regulatory Authority in connection
with Taxes, including any return of an affiliated or combined or unitary
group that includes a Party or its Subsidiaries.
(b) The terms set forth below shall have the meanings ascribed thereto on
the referenced pages of this Agreement:
Term Page
Acquisition Proposal.............. 38
Agreement......................... 1
Antitrust Laws.................... 39
Average Closing Price............. 4
Buyer............................. 1
Buyer Bylaws...................... 25
Buyer Certificate of Incorporation 25
Buyer Group....................... 28
Buyer SEC Reports................. 26
Buyer Termination Fee............. 52
Buyer Voting Agreement............ 1
Cash Consideration................ 3
Cash Payment...................... 4
Certificates...................... 7
Change of Recommendation.......... 38
Closing........................... 2
Continuing Employees.............. 42
DGCL.............................. 2
DOJ............................... 39
DOL............................... 19
Effective Time.................... 2
End Date.......................... 49
Environmental Permits............. 16
ESPP.............................. 32
Exchange Agent.................... 7
Exchange Ratio.................... 4
Term Page
Final Offering Period.............. 44
FTC................................ 39
Group.............................. 38
Indemnified Party.................. 44
IRS................................ 10
Material Contract.................. 22
Maximum Amount..................... 44
Merger............................. 2
Merger Consideration............... 4
Reverse Merger..................... 3
Stockholders' Meeting.............. 35
Sub................................ 1
Superior Offer..................... 38
Takeover Laws...................... 24
Target............................. 1
Target Benefit Plans............... 19
Target Bylaws...................... 9
Target Certificate of Incorporation 9
Target Contracts................... 23
Target ERISA Plan.................. 19
Target Foreign Benefit Plans....... 22
Target Pension Plan................ 19
Target SEC Reports................. 12
Target Voting Agreements........... 1
Tax Opinions....................... 47
WARN Act........................... 17
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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."
11.2 Non-Survival of Representations and Covenants.
The respective representations, warranties, obligations, covenants, and
agreements of the Parties shall not survive the Effective Time except this
Section 11.2, Sections 8.11, 8.12, 8.13 and 8.14, and Article 1, Article 2,
Article 3, Article 4 and Article 11 shall survive the Effective Time.
11.3 Brokers and Finders.
Except for Credit Suisse First Boston Corporation as to Target and except
for Wachovia Securities as to Buyer, each of the Parties 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
such broker's representing or being retained by or allegedly representing or
being retained by Target or by Buyer, each of Target and Buyer, 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.
11.4 Entire Agreement.
Except as otherwise expressly provided herein, this Agreement (including the
documents and instruments referred to herein) constitutes the entire agreement
between the Parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereto,
written or oral (except, as to Section 8.8(b), for the Confidentiality
Agreement). Nothing in this Agreement expressed or implied, is intended to
confer upon any Person, other than the Parties or their respective successors,
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, other than as provided in Section 8.12 and 8.13.
11.5 Amendments.
To the extent permitted by Law, this Agreement may be amended by a
subsequent writing signed by each of the Parties upon the approval of the Board
of Directors of each of the Parties, whether before or after stockholder
approval of this Agreement has been obtained; provided, that after any such
stockholder approval, there shall be made no amendment that pursuant to
applicable law requires further approval by such stockholders without the
further approval of such stockholders. This Agreement may not be amended except
in writing signed by each of Buyer, Target and Sub.
11.6 Waivers.
(a) Prior to or at the Effective Time, Buyer, 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
Target, to waive or extend the time for the compliance or fulfillment by Target
of any and all of its obligations under this Agreement, and to waive any or all
of the conditions precedent to the obligations of Buyer 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 Buyer.
(b) Prior to or at the Effective Time, Target, 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
Buyer or Sub, to waive or extend the time for the compliance or fulfillment by
Buyer or Sub of any and all of its obligations under this Agreement, and to
waive any or all of the conditions precedent to the obligations of Target 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 Target.
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(c) The failure of any Party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such Party 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.
11.7 Assignment.
Except as expressly contemplated hereby, neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any Party
hereto (whether by operation of Law or otherwise) without the prior written
consent of the other Party. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the
Parties and their respective successors and assigns.
11.8 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, 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:
Target:
Dal-Tile International Inc.
7834 C.F. Hawn Freeway
Dallas, Texas 75217
Facsimile Number: (214) 309-4300
Attention: Chief Financial Officer
Copy to Counsel:
Vinson & Elkins LLP
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Facsimile Number: (214) 220-7716
Attention: Mark Early
Buyer or Merger Sub:
Mohawk Industries, Inc.
160 S. Industrial Blvd.
Calhoun, Georgia 30701
Facsimile Number: (706) 625-3851
Attention: Chief Financial Officer
Copy to Counsel:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Facsimile Number: (404) 881-4777
Attention: Alexander W. Patterson
Bryan E. Davis
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11.9 Governing Law.
Regardless of any conflict of law or choice of law principles that might
otherwise apply, the parties agree that this Agreement shall be governed by and
construed in all respects in accordance with the laws of the State of Delaware.
11.10 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.
11.11 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.
11.12 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.
11.13 Enforcement of Agreement.
The Parties hereto 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 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 located in the State of Delaware or in
Delaware state court, this being in addition to any other remedy to which they
are entitled at law or in equity. In addition, each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court
and (c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than
a federal or state court sitting in the State of Delaware.
11.14 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.
11.15 No Affiliate Liability.
Each of the following is herein referred to as a "Party Affiliate": (a) any
Affiliate of a Party or (b) any director, officer, trustee, employee,
representative or agent of (i) any Party or (ii) any Affiliate of a Party.
Unless otherwise expressly liable pursuant to a written agreement, no Party
Affiliate, acting in his or its capacity as an agent of a Party, shall have any
liability or obligation for breaches of this Agreement or the transactions
contemplated hereby, and each Party hereby waives and releases all claims of
any such liability and obligation, except as set forth below. Notwithstanding
the provisions of the preceding sentence, Buyer and Merger Sub
A-49
neither waive nor release, any claims that they may otherwise have against any
Party Affiliate of Target (i) for such Person's actual, intentional
misrepresentation (a) of any fact to Target's independent auditors, or any item
reflected in Target's SEC Reports (including any reports filed after the date
of this Agreement), and (b) to the extent that such misrepresentation has
caused the Target SEC Reports (including any reports filed after the date of
this Agreement) to materially misstate the financial position of Target and its
consolidated Subsidiaries, at such date, or the consolidated results of their
operations and their consolidated cash flow for the period then ended and (ii)
for actions taken by a Party Affiliate of Target in violation of the provisions
of Section 8.3 of this Agreement (but only to the extent that Buyer or Merger
Sub seeks to enforce such provisions against a Party Affiliate by specific
performance, injunctive relief or by any other equitable means available to
Buyer).
11.16 Schedule Definitions.
All capitalized terms in the Target Disclosure Memorandum or Buyer
Disclosure Memorandum shall have the meanings ascribed to them herein, unless
the context otherwise requires or as otherwise defined.
A-50
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its duly authorized officers as of the day and year
first above written.
MOHAWK INDUSTRIES, INC.
By: /s/ Jeff Lorberbaum
-------------------------
President
MAVERICK MERGER SUB, INC.
By: /s/ Jeff Lorberbaum
-------------------------
President
DAL-TILE INTERNATIONAL INC.
By: /s/ Jacques R. Sardas
-------------------------
President
A-51
AMENDMENT NO. 1 TO AGREEMENT
AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (the "Amendment"),
dated as of January 16, 2002, amends that certain Agreement and Plan of Merger
(the "Merger Agreement"), dated as of November 19, 2001, by and among MOHAWK
INDUSTRIES, INC., a Delaware corporation, ("Buyer"), MAVERICK MERGER SUB, INC.
("Sub"), a Delaware corporation and a wholly owned subsidiary of Buyer, and
DAL-TILE INTERNATIONAL INC., a Delaware corporation, ("Target").
Preamble
--------
Each of Buyer, Sub and Target have entered into the Merger Agreement and
each of Buyer, Sub and Target desire to amend the Merger Agreement to correct
certain matters, as set forth herein. The Board of Directors of each of the
Parties has approved this Amendment.
NOW, THEREFORE, in consideration of the above and the agreements set forth
herein, the parties agree as follows:
1. The text of Section 1.1 of the Merger Agreement is hereby deleted and
replaced in its entirety with the following:
"Subject to the terms and conditions of this Agreement and subject to
the provisions of Section 1.4 of this Agreement, at the Effective
Time, Target shall be merged with and into Sub in accordance with the
applicable provisions of the Delaware General Corporation Law
("DGCL") and with the effect provided therein (collectively with the
Reverse Merger, the "Merger"). Sub shall be the Surviving Corporation
resulting from the Merger and shall remain a wholly owned Subsidiary
of Buyer and shall continue to be governed by the Laws of the State
of Delaware. Notwithstanding the foregoing, in the event that Target
elects to effect the Reverse Merger (as defined in Section 1.4) in
accordance with Section 1.4 hereof, at the Effective Time, Sub shall
be merged with and into Target in accordance with the applicable
provisions of the DGCL and with the effect provided therein. In such
case, Target shall be the Surviving Corporation resulting from the
Merger and shall become a wholly owned Subsidiary of Buyer and shall
continue to be governed by the Laws of the State of Delaware. 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 Target, Sub and Buyer and by Buyer, as the sole
stockholder of Sub."
2. The text of Section 2.1 of the Merger Agreement is hereby deleted and
replaced in its entirety with the following:
"At the Effective Time, the Certificate of Incorporation of Sub in
effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until duly
amended or repealed; provided that such Certificate of Incorporation
shall be amended to reflect a change of the name of the Surviving
Corporation to "Dal-Tile International Inc." Notwithstanding the
foregoing, in the event that Target elects to effect the Reverse
Merger in accordance with Section 1.4 hereof, at the Effective Time,
the Certificate of Incorporation of Target in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation
of the Surviving Corporation until duly amended or repealed."
3. The text of Section 3.1(a) of the Merger Agreement is hereby deleted and
replaced in its entirety with the following:
"Each share of Sub Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from
and after the Effective Time; provided, however, that in the event
Target elects to effect the Reverse Merger, each share of Sub Common
Stock issued and outstanding immediately prior to the Effective Time
shall be converted into and become one fully paid and nonassessable
share of common stock of the Surviving Corporation."
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4. The text of Section 8.6 of the Merger Agreement is hereby deleted and
replaced in its entirety with the following:
"Upon the terms and subject to the conditions of this Agreement, Sub,
or in the event Target elects to effect the Reverse Merger, Target,
shall execute and file the Certificate of Merger with the Secretary
of State of the State of Delaware in connection with the Closing."
5. The text of the defined term "Certificate of Merger" contained in
Section 11.1(a) of the Merger Agreement is hereby deleted and replaced
in its entirety with the following:
"Certificate of Merger" means the Certificate of Merger to be
executed by Sub, or in the event Target elects to effect the Reverse
Merger, Target, and filed with the Secretary of State of the State of
Delaware relating to the Merger as contemplated by Section 1.1."
6. The text of the defined term "Surviving Corporation" contained in
Section 11.1(a) of the Merger Agreement is hereby deleted and replaced
in its entirety with the following:
"Surviving Corporation" means Sub as the surviving corporation
resulting from the Merger; provided, however, that in the event
Target elects to effect the Reverse Merger, "Surviving Corporation"
shall mean Target as the surviving corporation resulting from the
Merger."
7. The Amendment may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same instrument. Capitalized terms used, but not defined in
this Amendment shall have the meaning assigned to them in the Merger
Agreement.
8. Regardless of any conflict of law or choice of law principles that might
otherwise apply, the parties agree that this Amendment shall be governed
by and construed in all respects in accordance with the laws of the
State of Delaware.
9. Except as specifically amended hereby, the Merger Agreement shall remain
in full force and effect as is hereby ratified and confirmed.
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be
executed on its behalf by its duly authorized officers as of the day and year
first above written.
MOHAWK INDUSTRIES, INC.
/S/ JEFFREY S. LORBERBAUM
By:________________________________
President
MAVERICK MERGER SUB, INC.
/S/ JEFFREY S. LORBERBAUM
By:________________________________
President
DAL-TILE INTERNATIONAL INC.
/S/ JACQUES R. SARDAS
By:________________________________
President
A-53
ANNEX B
FORM OF
DAL-TILE INTERNATIONAL INC.
VOTING AGREEMENT
THIS DAL-TILE INTERNATIONAL INC. VOTING AGREEMENT (this "Agreement") is made
and entered into as of November 19, 2001 by and among Mohawk Industries, Inc.,
a Delaware corporation ("Maverick"), and the undersigned stockholder
("Stockholder") of Dal-Tile International Inc., a Delaware corporation
("Dallas").
RECITALS
A. Concurrently with the execution and delivery hereof, Maverick, a wholly
owned subsidiary of Maverick ("Maverick Sub"), and Dallas are entering into an
Agreement and Plan of Merger and Reorganization of even date herewith (the
"Merger Agreement"), which provides for the merger (the "Merger") of Dallas
with and into Maverick Sub in accordance with its terms.
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such
number of shares of the outstanding capital stock of Dallas and shares subject
to outstanding options and warrants as is indicated on the signature page of
this Agreement.
C. In consideration of the execution and delivery of the Merger Agreement
by Maverick and Maverick Sub, Stockholder (in his or her capacity as such)
desires to agree to vote the Shares (as defined herein) and other such shares
of capital stock of Dallas over which Stockholder has voting power so as to
facilitate the consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto hereby
agree as follows:
1. Certain Definitions. Capitalized terms used but not otherwise defined
herein shall have the meanings ascribed thereto in the Merger
Agreement. For all purposes of and under this Agreement, the
following terms shall have the following respective meanings:
(a) "Dallas Common Stock" means the common stock, par value $0.01 per
share, of Dallas.
(b) "Expiration Date" means the earlier to occur of (i) such date and
time as the Merger Agreement shall have been validly terminated
pursuant to the terms of Article 10 thereof, or (ii) the Effective
Time.
(c) "Person" means any individual, corporation, limited liability
company, general or limited partnership, unincorporated association,
joint venture, or other business enterprise or entity.
(d) "Shares" means (i) all shares of Dallas Common Stock and other voting
securities of Dallas owned, beneficially or of record, by Stockholder
as of the date hereof, and (ii) all additional shares of Dallas
Common Stock and other voting securities of Dallas acquired by
Stockholder, beneficially or of record, during the period commencing
with the execution and delivery of this Agreement and expiring on the
Expiration Date.
(e) "Transfer" means, with respect to any security, to directly or
indirectly (i) sell, pledge, encumber, grant an option with respect
to, transfer or dispose of such security or any interest in such
security, or (ii) enter into an agreement, commitment or other
arrangement to sell, pledge, encumber, grant an option with respect
to, transfer or dispose of such security or any interest therein.
2. Transfer Restrictions.
(a) Transfer of Shares. At all times during the period commencing with
the execution and delivery of this Agreement and expiring on the
Expiration Date, Stockholder shall not, except in
B-1
connection with the Merger or as the result of the death of the
Stockholder, Transfer any of the Shares, or discuss, negotiate, make
an offer or enter into an agreement, commitment or other arrangement
with respect thereto, unless each Person to which any of such Shares,
or any interest in any of such Shares, is or may be Transferred shall
have: (i) executed a counterpart of this Agreement and the Proxy (as
defined in Section 4 hereof) (with such modifications as Maverick may
reasonably request), and (ii) agreed in writing to hold such Shares
(or interest in such Shares) subject to all of the terms and
provisions of this Agreement.
(b) Transfer of Voting Rights. At all times during the period commencing
with the execution and delivery of this Agreement and expiring on the
Expiration Date, Stockholder shall not deposit (or permit the deposit
of) any Shares in a voting trust or grant any proxy or enter into any
voting agreement or similar agreement in contravention of the
obligations of Stockholder under this Agreement with respect to any
of the Shares.
3. Agreement to Vote Shares. Prior to the Expiration Date, at every
meeting of the stockholders of Dallas called, and at every adjournment
or postponement thereof, and on every action or approval by written
consent of the stockholders of Dallas, Stockholder (in Stockholder's
capacity as such) shall appear at the meeting or otherwise cause the
Shares to be present thereat for purposes of establishing a quorum, and
shall cause the Shares to be voted, to the extent not voted by the
persons appointed as proxies under the Proxy, (i) in favor of the
approval and adoption of the Merger Agreement and in favor of approval
of the Merger, (ii) against the approval or adoption of any proposal
made in opposition to, or in competition with, the Merger Agreement and
consummation of the Merger, and (iii) against any of the following (to
the extent unrelated to the Merger Agreement and the Merger): (A) any
merger, consolidation or business combination involving Dallas; (B) any
sale, lease or transfer of any significant portion of the assets of
Dallas or any of its subsidiaries; (C) any reorganization,
recapitalization, dissolution, liquidation or winding up of Dallas or
any of its subsidiaries; (D) any material change in the capitalization
of Dallas or the corporate structure of Dallas; or (E) any other action
that is intended, or could reasonably be expected to, impede, interfere
with, delay, postpone, discourage or adversely affect the consummation
of the Merger.
4. Irrevocable Proxy. Concurrently with the execution and delivery of this
Agreement, Stockholder shall deliver to Maverick an Irrevocable Proxy in
the form attached hereto as Exhibit A (the "Proxy"), which shall be
irrevocable to the fullest extent permitted by applicable law and
coupled with an interest, with respect to the Shares.
5. Representations and Warranties of the Stockholder. Stockholder hereby
represents and warrants to Maverick as follows: (i) Stockholder is the
beneficial or record owner of the shares of Dallas Common Stock
indicated on the signature page of this Agreement, free and clear of any
Liens, (ii) Stockholder does not beneficially own any securities of
Dallas other than the shares of Dallas Common Stock and options and
warrants to purchase shares of Dallas Common Stock set forth on the
signature page of this Agreement, and (iii) Stockholder has full power
and authority to make, enter into and carry out the terms of this
Agreement and the Proxy.
6. Additional Documents. Stockholder (in Stockholder's capacity as such)
hereby covenants and agrees to execute and deliver any additional
documents necessary or desirable, in the reasonable opinion of Maverick,
to carry out the intent of this Agreement.
7. Termination. This Agreement shall terminate and be of no further force
or effect whatsoever as of the Expiration Date.
8. Severability. If any term or other provision of this Agreement is held
invalid, illegal or incapable of being enforced by any court of
competent jurisdiction, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as
the legal substance of the
B-2
transactions contemplated hereby is not affected in any manner
materially adverse to any party hereto. Upon such determination that any
term or other provision is invalid, illegal or incapable of being
enforced, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely
as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the fullest extent possible.
9. Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, including,
without limitation, upon the death of the Stockholder, his estate,
provided, however, that except as otherwise specifically provided
herein, neither this Agreement nor any of the rights, interests or
obligations of the parties hereto may be assigned by either of the
parties hereto without prior written consent of the other party hereto.
10. Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery
of a written agreement executed by each of the parties hereto; provided
that any provision of this Agreement may be waived, or the time for its
performance may be extended, by the party or parties entitled to the
benefit thereof by a writing signed by such party or an authorized
representative thereof.
11. Specific Performance; Injunctive Relief. The parties hereto acknowledge
that Maverick shall be irreparably harmed and that there shall be no
adequate remedy at law for a violation of any of the covenants or
agreements of Stockholder set forth in this Agreement. Therefore,
Stockholder hereby agrees that, in addition to any other remedies that
may be available to Maverick upon any such violation, Maverick shall
have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to
Maverick at law or in equity.
12. Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained
in a written instrument and shall be deemed given if delivered
personally, telecopied, sent by nationally recognized overnight courier
or mailed by registered or certified mail (return receipt requested),
postage prepaid, to the parties at the following address (or at such
other address for a party as shall be specified by like notice):
If to Maverick: Mohawk Industries, Inc.
P.O. Box 12069
Calhoun, GA 30701
Attention: John D. Swift
Telephone: (800) 241-4494
Facsimile: (706) 625-3851
and to: Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street, N.W.
Atlanta, Georgia 30309-3424
Attention: Alexander W. Patterson
Telephone: (404) 881-7000
Facsimile: (404) 881-4777
If to Stockholder: To the address for notice set forth on the
signature page hereof.
(a) Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without reference to principles of conflicts of
law.
(b) Entire Agreement. This Agreement and the Proxy, together with the
documents expressly referred to herein, contain the entire
understanding of the parties in respect of the subject matter
B-3
hereof, and supersede all prior negotiations and understandings
between the parties with respect to such subject matter.
(c) Officers and Directors. To the extent that Stockholder is or becomes
(during the term hereof) a director or officer of Dallas, he or she
makes no agreement or understanding herein in his or her capacity as
such director or officer, and nothing herein shall limit or affect,
or give rise to any liability to Stockholder by virtue of, any
actions taken by Stockholder in his or her capacity as an officer or
director of Dallas in exercising its rights under the Merger
Agreement.
(d) Effect of Headings. The section headings are for convenience only
and shall not affect the construction or interpretation of this
Agreement.
(e) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
B-4
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed as of the date first above written.
MOHAWK INDUSTRIES, INC.
STOCKHOLDER:
By:
---------------------------
By:
-----------------------------
Name:
-----------------------
Title:
------------------------
Address:
Telephone:
Shares Beneficially Owned:
________ shares of Dallas Common Stock
________ shares of Dallas Common
Stock issuable upon the exercise of
outstanding options or warrants
B-5
EXHIBIT A
IRREVOCABLE PROXY
The undersigned stockholder of Dal-Tile International Inc., a Delaware
corporation ("Dallas"), does hereby irrevocably (to the fullest extent
permitted by law) appoint Jeffrey S. Lorberbaum and John D. Swift and each of
them, as the sole and exclusive attorneys and proxies of the undersigned, with
full power of substitution and resubstitution, to vote and exercise all voting
and related rights (to the full extent that the undersigned is entitled to do
so) with respect to all of the shares of capital stock and any other voting
securities of Dallas that now are or hereafter may be beneficially owned by the
undersigned, and any and all other shares of capital stock or other voting
securities of Dallas issued or issuable in respect thereof on or after the date
hereof (collectively, the "Shares") in accordance with the terms of this
Irrevocable Proxy. The Shares beneficially owned by the undersigned stockholder
of Dallas as of the date of this Irrevocable Proxy are listed on the final page
of this Irrevocable Proxy. Upon the undersigned's execution of this Irrevocable
Proxy, any and all prior proxies given by the undersigned with respect to any
Shares are hereby revoked and the undersigned agrees not to grant any
subsequent proxies with respect to the Shares until after the Expiration Date
(as defined below).
This Irrevocable Proxy is irrevocable (to the fullest extent permitted by
applicable law), is coupled with an interest and is granted pursuant to that
certain Voting Agreement of even date herewith by and among Mohawk Industries
Inc., a Delaware corporation ("Maverick"), and the undersigned stockholder (the
"Voting Agreement"), and is granted in consideration of Dallas entering into
that certain Agreement and Plan of Merger (the "Merger Agreement"), by and
among Maverick, a wholly owned subsidiary of Maverick ("Maverick Sub") and
Dallas. The Merger Agreement provides for the merger (the "Merger") of Dallas
with and into Maverick Sub in accordance with its terms. As used herein, the
term "Expiration Date" shall mean the earlier to occur of (i) such date and
time as the Merger Agreement shall have been validly terminated by either
Maverick or Dallas pursuant to Article 10 thereof, and (ii) such date and time
as the Merger shall become effective in accordance with the terms and
provisions of the Merger Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares, and to exercise all voting, consent and similar rights of the
undersigned with respect to the Shares (including, without limitation, the
power to execute and deliver written consents) at every annual, special,
postponed or adjourned meeting of stockholders of Dallas, and in every written
consent in lieu of such meeting, as and to the extent provided in Section 3 of
the Voting Agreement.
The attorneys and proxies named above may not exercise this Irrevocable
Proxy on any other matter except as provided above. The undersigned stockholder
may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. The undersigned is executing this
Irrevocable Proxy only in its capacity as a stockholder. Such signature in no
way affects its obligations as an officer or director of Dallas.
This Irrevocable Proxy is coupled with an interest and is irrevocable (to
the fullest extent permitted by applicable law). This Irrevocable Proxy shall
terminate, and be of no further force and effect, automatically upon the
Expiration Date.
Dated: November 19, 2001
By:
-----------------------------------
Stockholder
Shares Beneficially Owned:
______ shares of Dallas Common Stock
______ shares of Dallas Common Stock
issuable upon exercise of outstanding
options or warrants
B-6
ANNEX C
VOTING AGREEMENT OF ALADDIN PARTNERS, L.P.
THIS MOHAWK VOTING AGREEMENT (this "Agreement") is made and entered into as
of November 19, 2001 by and among Dal-Tile International Inc., a Delaware
corporation ("Dallas"), and the undersigned stockholder ("Stockholder") of
Mohawk Industries, Inc., a Delaware corporation ("Maverick").
RECITALS
A. Concurrently with the execution and delivery hereof, Maverick, a wholly
owned subsidiary of Maverick ("Maverick Sub") and Dallas are entering into an
Agreement and Plan of Merger of even date herewith (the "Merger Agreement"),
which provides for the merger (the "Merger") of Dallas with and into Maverick
Subsidiary in accordance with its terms.
B. In consideration of the execution and delivery of the Merger Agreement
by Dallas, Stockholder (in its capacity as such) desires to agree to vote the
Shares (as defined herein) so as to facilitate the consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto hereby
agree as follows:
1. Certain Definitions. Capitalized terms used but not otherwise defined
herein shall have the meanings ascribed thereto in the Merger Agreement.
For all purposes of and under this Agreement, the following terms shall
have the following respective meanings:
(a) "Expiration Date" means the earlier to occur of (i) such date and
time as the Merger Agreement shall have been validly terminated
pursuant to the terms of Article 10 thereof, or (ii) the Effective
Time.
(b) "Maverick Common Stock" means the shares of common stock, $0.01 par
value per share, of Maverick.
(c) "Person" means any individual, corporation, limited liability
company, general or limited partnership, unincorporated association,
joint venture, or other business enterprise or entity.
(d) "Shares" means the shares of Maverick Common Stock held by
Stockholder.
(e) "Transfer" means, with respect to any security, to directly or
indirectly (i) sell, pledge, encumber, grant an option with respect
to, transfer or dispose of such security or any interest in such
security, or (ii) enter into an agreement, commitment or other
arrangement to sell, pledge, encumber, grant an option with respect
to, transfer or dispose of such security or any interest therein.
2. Transfer Restrictions.
(a) Transfer of Shares. Subject to the next following sentence, at all
times during the period commencing with the execution and delivery of
this Agreement and expiring on the Expiration Date, Stockholder shall
not Transfer any of the Shares, or discuss, negotiate, make an offer
or enter into an agreement, commitment or other arrangement with
respect thereto, unless each Person to which any of such Shares, or
any interest in any of such Shares, is or may be Transferred shall
have: (i) executed a counterpart of this Agreement (with such
modifications as Dallas may reasonably request), and (ii) agreed in
writing to hold such Shares (or interest in such Shares) subject to
all of the terms and provisions of this Agreement. Notwithstanding
anything to the contrary in this Agreement or any other agreement
relating to the Merger, Stockholder may Transfer up to 1,800,000 of
the Shares without any limitation or restriction whatsoever under or
as a result of this Agreement.
C-1
(b) Transfer of Voting Rights. At all times during the period commencing
with the execution and delivery of this Agreement and expiring on the
Expiration Date, Stockholder shall not deposit (or permit the deposit
of) any Shares in a voting trust or grant any proxy or enter into any
voting agreement or similar agreement in contravention of the
obligations of Stockholder under this Agreement with respect to any
of the Shares. Notwithstanding anything to the contrary contained in
this Agreement, the provisions in this Section 2(b) shall not apply
to any Shares Transferred in accordance with the last sentence of
Section 2(a) above.
3. Agreement to Vote Shares. Prior to the Expiration Date, at every
meeting of the stockholders of Maverick called, and at every adjournment
or postponement thereof, and on every action or approval by written
consent of the stockholders of Maverick, Stockholder (in Stockholder's
capacity as such) shall appear at the meeting or otherwise cause the
Shares over which Stockholder then has voting control to be present
thereat for purposes of establishing a quorum and shall cause the Shares
over which Stockholder then has voting control to be voted, to the
extent not voted by the persons appointed as proxies under the proxy,
(i) in favor of the issuance of shares of Maverick Common Stock in the
Merger, and (ii) against any other action that is intended, or could
reasonably be expected to, impede, interfere with, delay, postpone,
discourage or adversely affect the consummation of the Merger as soon as
practicable following the date hereof.
4. Representations and Warranties of the Stockholder. Stockholder hereby
represents and warrants to Dallas as follows: (i) Stockholder is the
beneficial or record owner, and has sole voting control, of the Shares
of Maverick Common Stock indicated on the signature page of this
Agreement, free and clear of any Liens, (ii) Stockholder does not
beneficially own any securities of Maverick other than the shares of
Maverick Common Stock set forth on the signature page of this Agreement,
and (iii) Stockholder has full power and authority to make, enter into
and carry out the terms of this Agreement.
5. Additional Documents. Stockholder (in Stockholder's capacity as such)
hereby covenants and agrees to execute and deliver any additional
documents necessary or desirable, in the reasonable opinion of Dallas,
to carry out the intent of this Agreement.
6. Termination. This Agreement shall terminate and be of no further force
or effect whatsoever as of the Expiration Date.
7. Severability. If any term or other provision of this Agreement is held
invalid, illegal or incapable of being enforced by any court of
competent jurisdiction, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as
the legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party hereto. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
the transactions contemplated hereby are fulfilled to the fullest extent
possible.
8. Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, provided,
however, that except as otherwise specifically provided herein, neither
this Agreement nor any of the rights, interests or obligations of the
parties hereto may be assigned by either of the parties hereto without
prior written consent of the other party hereto.
9. Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery
of a written agreement executed by each of the parties hereto; provided
that any provision of this Agreement may be waived, or the time for its
performance may be extended, by the party or parties entitled to the
benefit thereof by a writing signed by such party or an authorized
representative thereof.
C-2
10. Specific Performance; Injunctive Relief. The parties hereto acknowledge
that Dallas shall be irreparably harmed and that there shall be no
adequate remedy at law for a violation of any of the covenants or
agreements of Stockholder set forth in this Agreement. Therefore,
Stockholder hereby agrees that, in addition to any other remedies that
may be available to Dallas upon any such violation, Dallas shall have
the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Dallas
at law or in equity.
11. Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained
in a written instrument and shall be deemed given if delivered
personally, telecopied, sent by nationally recognized overnight courier
or mailed by registered or certified mail (return receipt requested),
postage prepaid, to the parties at the following address (or at such
other address for a party as shall be specified by like notice):
If to Dallas: Dal-Tile International
Inc.
7834 Hawn Freeway
Dallas, Texas 75217
Attention: Chief
Financial Officer
Telephone: (214) 398-1411
Facsimile: (214) 309-4300
and to: Vinson & Elkins LLP
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Mark Early
Telephone: (214) 220-7700
Facsimile: (214) 220-7716
If to Stockholder: To the address for notice
set forth on the
signature page hereof.
and to: King & Spalding
191 Peachtree Street
Atlanta, Georgia
30303-1763
Attention: Donald E. Meyer
Telephone: (404) 572-4600
Facsimile: (404) 572-5100
(a) Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without reference to principles of conflicts of
law.
(b) Entire Agreement. This Agreement together with the documents
expressly referred to herein, contain the entire understanding of the
parties in respect of the subject matter hereof, and supersede all
prior negotiations and understandings between the parties with
respect to such subject matter.
(c) Officers and Directors. To the extent that any natural person who is
or becomes an affiliate of Stockholder is or becomes (during the term
hereof) a director or officer of Maverick, he or she makes no
agreement or understanding herein in his or her capacity as such
director or officer, and nothing herein shall limit or affect, or
give rise to any liability to Stockholder or such affiliate of
Stockholder by virtue of, any actions taken by such affiliate of
Stockholder in his or her capacity as an officer or director of
Maverick in exercising its rights under the Merger Agreement.
C-3
(d) Effect of Headings. The section headings are for convenience only
and shall not affect the construction or interpretation of this
Agreement.
(e) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed as of the date first above written.
DAL-TILE INTERNATIONAL INC.
STOCKHOLDER:
ALADDIN PARTNERS, L.P.:
By: ASL Management Corporation, its
General
Partner
By: /S/ MARK SOLLS By: /S/ JEFF LORBERBAUM
---------------------- -------------------------------
(Signature)
Name: MARK SOLLS Name: JEFF LORBERBAUM
---------------------- -------------------------------
(Print Name)
Title: Vice President Title: Chief Executive Officer
---------------------- -------------------------------
(If Signing for Entity)
Address: 2001 Antioch Road
Dalton, Georgia 30721
Telephone: 706-624-2261
Facsimile: 706-602-0278
Shares Beneficially Owned:
9,900,000 shares of Maverick Common
Stock
C-4
ANNEX D
[LETTERHEAD OF WACHOVIA SECURITIES]
November 19, 2001
Board of Directors
Mohawk Industries, Inc.
160 S. Industrial Blvd.
Calhoun, GA 30701
Gentlemen:
You have asked First Union Securities, Inc., trading under the name Wachovia
Securities ("Wachovia Securities"), to advise you with respect to the fairness,
from a financial point of view, to Mohawk Industries, Inc. ("Buyer"), of the
merger consideration to be paid by Buyer pursuant to the Agreement and Plan of
Merger, dated as of November 19, 2001 (the "Agreement"), among Buyer, Maverick
Merger Sub, Inc., a wholly-owned subsidiary of Buyer ("Sub"), and Dal-Tile
International Inc. ("Target"). Capitalized terms in this letter shall have the
meaning ascribed to them in the Agreement unless the context clearly requires
otherwise.
The Agreement provides for the acquisition of Target by Buyer pursuant to the
Merger of Target and Sub. At the Effective Time of the Merger, each outstanding
share of Target Common Stock (other than certain excluded shares specified in
the Agreement) shall be converted into the right to receive from Buyer (i) a
cash payment in the amount of $11.00 (less any required withholding of taxes)
and (ii) (A) .2414 of a share of Buyer Common Stock, if the Average Closing
Price is equal to or greater than $41.00 per share and less than or equal to
$50.12 per share, or (B) that fraction of a share of Buyer Common Stock equal
to the quotient obtained by dividing $9.90 by the Average Closing Price, if the
Average Closing Price is less than $41.00 and greater than or equal to $36.45,
or (C) that fraction of a share of Buyer Common Stock equal to the quotient
obtained by dividing $12.10 by the Average Closing Price, if the Average
Closing Price is greater than $50.12 and less than or equal to $54.67, or (D)
.2716 of a share of Buyer Common Stock if the Average Closing Price is less
than $36.45 per share, or (E) .2213 of a share of Buyer Common Stock if the
Average Closing Price is greater than $54.67 per share.
In arriving at our opinion, we have, among other things:
Reviewed the Agreement, including the financial terms of the Merger.
Reviewed certain business, financial and other information regarding
Buyer and Target that was publicly available.
Reviewed certain business, financial and other information regarding
Buyer and its prospects that was furnished to us by and that we have
discussed with management of Buyer.
Reviewed certain business, financial and other information regarding
Target and its prospects that was furnished to us by and that we have
discussed with management of Target.
Reviewed the current and historical market prices of Buyer Common Stock
and Target Common Stock.
Compared the publicly available business, financial and other
information regarding Buyer and Target with similar information
regarding certain other publicly traded companies that we deemed to be
relevant.
Compared the proposed financial terms of the Merger with the financial
terms of certain other business combinations and transactions that we
deemed to be relevant.
D-1
Developed discounted cash flow models of Buyer and Target.
Reviewed the potential pro forma impact of the Merger on Buyer's
financials.
Analyzed the premiums paid for certain other business combinations and
transactions that we deemed to be relevant.
Considered other information such as financial studies, analyses and
investigations, as well as financial and economic and market criteria
that we deemed to be relevant.
In connection with our review, we have relied upon the accuracy and
completeness of the foregoing financial and other information, and we have not
assumed any responsibility for any independent verification of such
information. With respect to financial forecasts, we have relied on publicly
available forecasts and estimates prepared by Wachovia Securities and other
investment banking firms and discussed such forecasts and estimates, as well as
the assumptions upon which they are based, with management of Buyer or Target,
as the cased may be. We have assumed that the estimates and judgments expressed
by management of Buyer or Target in such discussions have been reasonably
formulated and that they are the best currently available estimates and
judgements of management of Buyer or Target regarding such publicly available
forecasts and estimates. We assume no responsibility for and express no view as
to any such publicly available forecasts or estimates or the assumptions upon
which they are based. In arriving at our opinion, we have not incorporated any
conclusions as a result of our limited physical inspection of certain of the
facilities of Target and have not made or been provided with any evaluations or
appraisals of the assets or liabilities of Buyer or Target.
In rendering our opinion, we have assumed that the Merger will be consummated
on the terms described in the Agreement, without waiver of any material terms
or conditions, and that in the course of obtaining any necessary legal,
regulatory or third party consents and/or approvals, no restrictions will be
imposed that will have a material adverse effect on the Merger or other actions
contemplated by the Agreement. Our opinion is necessarily based on economic,
market, financial and other conditions and the information made available to us
as of the date hereof. Although subsequent developments may affect this
opinion, we do not have any obligation to update, revise or reaffirm this
opinion. Our opinion does not address the relative merits of the Merger
compared with other business strategies that may have been considered by
Buyer's management and/or Board of Directors.
Wachovia Securities is a trade name of First Union Securities, Inc., an
investment banking subsidiary and affiliate of Wachovia Corporation. We have
been engaged to render financial advisory services to the Board of Directors of
Buyer in connection with the Merger and will receive a fee for such services,
which include the delivery of this opinion. In the ordinary course of our
business, we and our affiliates may actively trade or hold the securities of
Buyer or Target for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, Wachovia Securities and its affiliates (including Wachovia
Corporation and its affiliates) currently have certain other relationships with
Buyer and Target, including a $75 million commitment as a lender under and
Co-Documentation Agent for Target's $400 million syndicated credit facility,
and, at your request and with your consent, a proposed commitment as a lender
in the credit facilities necessary to finance the Merger, for which services
Wachovia Securities and/or such affiliates will receive customary compensation.
It is understood that this opinion is for the information and use of the Board
of Directors of Buyer in connection with its consideration of the Merger. Our
opinion does not address the merits of the underlying decision by Buyer to
enter into the Agreement and does not and shall not constitute a recommendation
to any stockholder of Buyer as to how such stockholder should vote on the
Merger or any other matter related thereto. Our opinion may not be summarized,
excerpted from, or otherwise publicly referred to without our prior written
consent, except that this letter may be reproduced in full in any proxy,
registration or solicitation/recommendation statement mailed or provided to the
stockholders of Buyer and Target in connection with the Merger.
We have not considered, nor are we expressing any opinion herein with respect
to, the prices at which Buyer Common Stock or Target Common Stock will trade
following the announcement of the Merger or the price at which Buyer Common
Stock will trade following the consummation of the Merger.
D-2
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above, and other factors we deem to be relevant, we are
of the opinion that, as of the date hereof, the merger consideration to be paid
by Buyer pursuant to the Agreement (which consists of the Merger Consideration
and the consideration to be paid by Buyer to holders of Target Options pursuant
to Section 3.5 of the Agreement) is fair, from a financial point of view, to
Buyer.
Very truly yours,
First Union Securities, Inc.
D-3
ANNEX E
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]
November 19, 2001
Board of Directors
Dal-Tile International Inc.
7834 Hawn Freeway
Dallas, Texas 75217
Members of the Board:
You have asked us to advise you with respect to the fairness, from a financial
point of view, to the holders of the common stock of Dal-Tile International
Inc. ("Dal-Tile") of the Merger Consideration (as defined below) set forth in
the Agreement and Plan of Merger, dated as of November 19, 2001 (the "Merger
Agreement"), by and among Mohawk Industries, Inc. ("Mohawk"), Maverick Merger
Sub, Inc., a wholly owned subsidiary of Mohawk ("Merger Sub"), and Dal-Tile.
The Merger Agreement provides for, among other things, the merger of Dal-Tile
with and into Merger Sub (subject to an alternative transaction structure as
specified in the Merger Agreement) (the "Merger") pursuant to which Merger Sub
will be the surviving corporation and each outstanding share of the common
stock, par value $0.01 per share, of Dal-Tile ("Dal-Tile Common Stock") will be
converted into the right to receive (i) $11.00 in cash (the "Cash
Consideration") and (ii) 0.2414 of a share of the common stock, par value $0.01
per share, of Mohawk ("Mohawk Common Stock") (the "Stock Consideration" and,
together with the Cash Consideration, the "Merger Consideration"); provided,
however, that (A) if the average of the daily closing prices for shares of
Mohawk Common Stock for the 20 consecutive full trading days on which such
shares are actually traded on the New York Stock Exchange ending at the close
of the trading day three full trading days prior to the closing date of the
Merger (the "Average Mohawk Price") is less than $41.00 and greater than or
equal to $36.45, then the Stock Consideration shall be the number of shares of
Mohawk Common Stock equal to the quotient obtained by dividing $9.90 by the
Average Mohawk Price, (B) if the Average Mohawk Price is greater than $50.12
and less than or equal to $54.67, then the Stock Consideration shall be the
number of shares of Mohawk Common Stock equal to the quotient obtained by
dividing $12.10 by the Average Mohawk Price, (C) if the Average Mohawk Price is
less than $36.45, then the Stock Consideration shall be 0.2716 of a share of
Mohawk Common Stock, or (D) if the Average Mohawk Price is greater than $54.67,
then the Stock Consideration shall be 0.2213 of a share of Mohawk Common Stock.
In arriving at our opinion, we have reviewed the Merger Agreement and certain
related documents, as well as certain publicly available business and financial
information relating to Dal-Tile and Mohawk. We also have reviewed certain
other information relating to Dal-Tile and Mohawk provided to or discussed with
us by Dal-Tile and Mohawk, including publicly available financial forecasts for
Dal-Tile and Mohawk, and have met with the managements of Dal-Tile and Mohawk
to discuss the businesses and prospects of Dal-Tile and Mohawk. We also have
considered certain financial and stock market data of Dal-Tile and Mohawk and
we have compared those data with similar data for other publicly held companies
in businesses similar to Dal-Tile and Mohawk, and we have considered, to the
extent publicly available, the financial terms of certain other business
combinations and other transactions which have been announced or effected. We
also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
such information being complete and accurate in all material respects. With
respect to the publicly available financial forecasts for Dal-Tile and Mohawk
referred to above, we have reviewed and discussed such forecasts with the
managements of Dal-Tile and Mohawk (including adjustments thereto) and have
been advised, and have assumed, that such forecasts (and adjustments) represent
reasonable
E-1
Board of Directors
Dal-Tile International Inc.
November 19, 2001
Page 2
estimates and judgments as to the future financial performance of Dal-Tile and
Mohawk. We also have assumed, with your consent, that in the course of
obtaining any necessary regulatory and third party approvals and consents for
the Merger, no modification, condition, restriction, limitation or delay will
be imposed that will have a material adverse effect on Dal-Tile or Mohawk or
the contemplated benefits of the Merger. We have not been requested to make,
and have not made, an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Dal-Tile or Mohawk, nor have we been
furnished with any such evaluations or appraisals. Our opinion is necessarily
based upon information available to us, and financial, economic, market and
other conditions as they exist and can be evaluated, on the date hereof. We are
not expressing any opinion as to what the value of the Mohawk Common Stock
actually will be when issued pursuant to the Merger or the prices at which
Mohawk Common Stock will trade at any time. In connection with our engagement,
we were not requested to, and did not, solicit third party indications of
interest in the possible acquisition of all or a part of Dal-Tile. Our opinion
does not address the relative merits of the Merger as compared to other
business strategies that might be available to Dal-Tile, nor does it address
the underlying business decision of Dal-Tile to proceed with the Merger.
We have acted as financial advisor to Dal-Tile in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Merger. We also will receive a fee upon
delivery of this opinion. We and our affiliates have in the past provided
financial services to Dal-Tile and Mohawk unrelated to the proposed Merger, for
which services we have received compensation. In the ordinary course of
business, we and our affiliates may actively trade the securities of Dal-Tile
and Mohawk for our own and such affiliates' accounts and for the accounts of
customers and, accordingly, may at any time hold long or short positions in
such securities.
It is understood that this letter is for the information of the Board of
Directors of Dal-Tile in connection with its evaluation of the Merger and does
not constitute a recommendation to any stockholder as to how such stockholder
should vote or act on any matter relating to the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Merger Consideration is fair, from a financial point of view, to
the holders of Dal-Tile Common Stock.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
E-2
ANNEX F
DELAWARE GENERAL CORPORATION LAW
Section 262. Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and
to vote at the meeting of stockholders to act upon the agreement of
merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of record by
more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to (S)(S) 251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts
in respect thereof) or depository receipts at the effective date
of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market
system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of
this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c.
of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned
by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
F-1
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior
to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsection (b) or (c)
hereof that appraisal rights are available for any or all of the
shares of the constituent corporations, and shall include in such
notice a copy of this section. Each stockholder electing to demand
the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
stockholder's shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger
or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, then, either a constituent corporation before
the effective date of the merger or consolidation, or the surviving
or resulting corporation within ten days thereafter, shall notify
each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify
such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the effective
date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such
holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need
only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance
with this subsection. An affidavit of the secretary or assistance
secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall,
in the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in
advance, a record date that shall be not more than 10 days prior to
the date the notice is given, provided, that if the notice is given
on or after the
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effective date of the merger or consolidation, the record date shall
be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close
of business on the day next preceding the day on which the notice is
given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
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Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
F-4
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 11 of Mohawk's restated certificate of incorporation, as amended,
contains a provision, permitted by Section 102(b)(7) of the Delaware General
Corporation Law, limiting the personal monetary liability of directors for
breach of fiduciary duty as a director. This provision and Delaware law provide
that the provision does not eliminate or limit liability for:
. for any breach of the director's duty of loyalty to Mohawk or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions, as provided in Section 174 of the Delaware General
Corporation Law; or
. for any transaction from which the director derived an improper benefit.
Section 145 of the Delaware General Corporation Law permits indemnification
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with actions,
suits or proceedings in which a director, officer, employee or agent is a party
by reason of the fact that he or she is or was such a director, officer,
employee or agent, if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. However, in
connection with actions by or in the right of the corporation, such
indemnification is not permitted if such person has been adjudged liable to the
corporation unless the court determines that, under all of the circumstances,
such person is nonetheless fairly and reasonably entitled to indemnity for such
expenses as the court deems proper. Article 12 of Mohawk's restated certificate
of incorporation, as amended, provides for such indemnification.
Section 145 of the Delaware General Corporation Law also permits a
corporation to purchase and maintain insurance on behalf of its directors and
officers against any liability that may be asserted against, or incurred by,
such persons in their capacities as directors or officers of the corporation
whether or not the corporation would have the power to indemnify such persons
against such liabilities under the provisions of such sections. Mohawk has
purchased such insurance.
Section 145 of the Delaware General Corporation Law further provides that
the statutory provision is not exclusive of any other right to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or independent directors, or otherwise,
both as to action in such person's official capacity and as to action in
another capacity while holding such office.
Article XII of Mohawk's amended and restated bylaws contains provisions
regarding indemnification that parallel those described above.
II-1
ITEM 21. EXHIBITS.
Exhibit
No. Description
------- -----------
2.1 Agreement and Plan of Merger, dated as of November 19, 2001, by and between Mohawk Industries,
Inc., Maverick Merger Sub, Inc. and Dal-Tile International Inc. (Included as Annex A to the joint
proxy statement-prospectus included in this Registration Statement)
2.2 Amendment No. 1, dated January 16, 2002, to the Agreement and Plan of Merger by and between
Mohawk Industries, Inc., Maverick Merger Sub, Inc. and Dal-Tile International Inc. (Included as
Annex A to the joint proxy statement-prospectus included in this Registration Statement)
3.1+ Amended and Restated Bylaws of Mohawk, as amended
4.1 See Article 4 of the Restated Certificate of Incorporation of Mohawk, as amended (Incorporated herein
by reference to Exhibit 3.1 in Mohawk's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998)
4.2 See Articles 2, 6 and 9 of the Amended and Restated Bylaws of Mohawk (Incorporated herein by
reference to Exhibit 3.2 in Mohawk's Quarterly Report on Form 10-Q for the fiscal year ended
September 30, 2000)
5.1+ Opinion of Alston & Bird LLP as to the validity of the Mohawk common stock being issued in the
merger
8.1+ Opinion of Alston & Bird LLP as to federal income tax consequences
8.2+ Opinion of Vinson & Elkins L.L.P. as to federal income tax consequences
10.1 Form of Voting Agreement, dated November 19, 2001 between Mohawk Industries, Inc. and certain
stockholders of Dal-Tile International Inc. (Included as Annex B to the joint proxy statement-
prospectus included in this Registration Statement)
23.1 Consent of KPMG LLP
23.2 Consent of Ernst & Young LLP
23.3+ Consent of Alston & Bird LLP (included in Exhibit 5.1 and Exhibit 8.1).
23.4+ Consent of Vinson & Elkins L.L.P. (included in Exhibit 8.2).
24.1+ Power of Attorney
99.1+ Form of Proxy of Dal-Tile International Inc.
99.2+ Form of Proxy of Mohawk Industries, Inc.
99.3+ Consent of First Union Securities, Inc.
99.4+ Consent of Credit Suisse First Boston Corporation
99.5.1+ Consent of John F. Fiedler to be named as a director
99.5.2+ Consent of W. Christopher Wellborn to be named as a director
99.6 Voting Agreement, dated November 19, 2001 between Dal-Tile International Inc. and Aladdin
Partners, L.P. (Included as Annex C to the joint proxy statement-prospectus included in this
Registration Statement)
--------
+ previously filed
II-2
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, an
effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(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 information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective 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 of 1933, 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 of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 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.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the SEC 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 of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(6) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
II-3
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it
became effective.
(8) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(9) That every prospectus: (i) that is filed pursuant to Paragraph (8)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, 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.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Calhoun,
State of Georgia on this the 18th day of February, 2002.
MOHAWK INDUSTRIES, INC.
By: /S/ JEFFREY S. LORBERBAUM
-----------------------------
Jeffrey S. Lorberbaum
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ JEFFREY S. LORBERBAUM President, Chief Executive Officer February 18, 2002
----------------------------- and Director (Principal Executive
Jeffrey S. Lorberbaum Officer)
/S/ JOHN D. SWIFT Vice President and Chief Financial February 18, 2002
----------------------------- Officer (Principal Financial and
John D. Swift Accounting Officer)
* Chairman of the Board of Directors February 18, 2002
-----------------------------
David L. Kolb
* Director February 18, 2002
-----------------------------
Leo Benatar
* Director February 18, 2002
-----------------------------
Bruce C. Bruckmann
* Director February 18, 2002
-----------------------------
Larry W. McCurdy
* Director February 18, 2002
-----------------------------
Robert N. Pokelwaldt
* Director February 18, 2002
-----------------------------
Sylvester H. Sharpe
*By: /S/ JOHN D. SWIFT
-------------------------
Attorney-in-Fact
II-5
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
2.1 Agreement and Plan of Merger, dated as of November 19, 2001, by and between Mohawk Industries,
Inc., Maverick Merger Sub, Inc. and Dal-Tile International Inc. (Included as Annex A to the joint
proxy statement-prospectus included in this Registration Statement)
2.2 Amendment No. 1, dated January 16, 2002, to the Agreement and Plan of Merger by and between
Mohawk Industries, Inc., Maverick Merger Sub, Inc. and Dal-Tile International Inc. (Included as
Annex A to the joint proxy statement-prospectus included in this Registration Statement)
3.1+ Amended and Restated Bylaws of Mohawk, as amended.
4.1 See Article 4 of the Restated Certificate of Incorporation of Mohawk, as amended (Incorporated herein
by reference to Exhibit 3.1 in Mohawk's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998)
4.2 See Articles 2, 6 and 9 of the Amended and Restated Bylaws of Mohawk (Incorporated herein by
reference to Exhibit 3.2 in Mohawk's Quarterly Report on Form 10-Q for the fiscal year ended
September 30, 2000)
5.1+ Opinion of Alston & Bird LLP as to the validity of the Mohawk common stock being issued in the
merger
8.1+ Opinion of Alston & Bird LLP as to federal income tax consequences
8.2+ Opinion of Vinson & Elkins L.L.P. as to federal income tax consequences
10.1 Form of Voting Agreement, dated November 19, 2001 between Mohawk Industries, Inc. and certain
stockholders of Dal-Tile International Inc. (Included as Annex B to the joint proxy statement-
prospectus included in this Registration Statement)
23.1 Consent of KPMG LLP
23.2 Consent of Ernst & Young LLP
23.3+ Consent of Alston & Bird LLP (included in Exhibit 5.1 and Exhibit 8.1).
23.4+ Consent of Vinson & Elkins L.L.P. (included in Exhibit 8.2).
24.1+ Power of Attorney
99.1+ Form of Proxy of Dal-Tile International Inc.
99.2+ Form of Proxy of Mohawk Industries, Inc.
99.3+ Consent of First Union Securities, Inc.
99.4+ Consent of Credit Suisse First Boston Corporation
99.5.1+ Consent of John F. Fiedler to be named as a director
99.5.2+ Consent of W. Christopher Wellborn to be named as a director
99.6 Voting Agreement, dated November 19, 2001 between Dal-Tile International Inc. and Aladdin
Partners, L.P. (Included as Annex C to the joint proxy statement-prospectus included in this
Registration Statement)
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+ previously filed