PROSPECTUS
FILED PURSUANT TO
RULE 424 (B) (3)
REGISTRATION NO: 333-86734
[LOGO] MOHAWK
INDUSTRIES, INC.
Offer to Exchange $300,000,000 of Its 6.50% Notes Due 2007, Series C,
and $400,000,000 of Its 7.20% Notes Due 2012, Series D,
Registered under the Securities Act, for $300,000,000 of Its Outstanding
Unregistered 6.50% Notes Due 2007, Series A and $400,000,000
of Its Outstanding Unregistered 7.20% Notes Due 2012, Series B
This exchange offer will expire at 5:00 p.m.,
New York City time, on June 4, 2002, unless extended.
.. We are offering to exchange $300 million aggregate principal amount of
registered 6.50% notes due April 15, 2007, Series C and $400 million
aggregate principal amount of registered 7.20% notes due April 15, 2012,
Series D, registered under the Securities Act of 1933, which are
collectively referred to in this prospectus as the new notes, for all $300
million aggregate principal amount of outstanding unregistered 6.50% notes
due April 15, 2007, Series A and all $400 million aggregate principal
amount of outstanding unregistered 7.20% notes due April 15, 2012, Series
B, which are collectively referred to in this prospectus as the old notes.
We refer to the new notes and the old notes collectively as the notes.
.. The terms of the new notes will be substantially identical to the old notes
that we issued on April 2, 2002, except that the new notes will be
registered under the Securities Act and will not be subject to transfer
restrictions or registration rights. The old notes were issued in reliance
upon an available exemption from the registration requirements of the
Securities Act.
.. We will pay interest on the new notes on each April 15 and October 15,
beginning October 15, 2002.
.. Subject to the terms of this exchange offer, we will exchange the new notes
for all old notes that are validly tendered and not withdrawn prior to the
expiration of this exchange offer. The exchange offer is not conditioned
upon the exchange of a minimum principal amount of old notes.
.. The exchange of old notes for new notes in this exchange offer should not
be a taxable event for U.S. federal income tax purposes.
.. We will not receive any proceeds from this exchange offer.
.. We do not intend to list the new notes on any securities exchange.
Investing in the new notes involves risks. You should consider carefully the
risk factors beginning on page 8 of this prospectus before tendering your old
notes in this exchange offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the new notes or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Each broker-dealer that receives new notes for its own account pursuant to
this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new notes. The letter of transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of new notes
received in exchange for old notes if the old notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities. We have agreed that, starting on the date we issue the new notes
and ending no later than the close of business on the date which is 180 days
after completion of this exchange offer, we will make this prospectus available
to any broker-dealer for use in connection with any resale. See "Plan of
Distribution."
The date of this prospectus is May 1, 2002
TABLE OF CONTENTS
Page
No.
----
Important Information About This Prospectus.............. i
Where You Can Find More Information...................... ii
Cautionary Statement Regarding Forward-Looking Statements iii
Prospectus Summary....................................... 1
Risk Factors............................................. 8
Use of Proceeds.......................................... 14
This Exchange Offer...................................... 15
Description of the Notes................................. 23
Material United States Federal Income Tax Considerations. 36
Plan of Distribution..................................... 39
Legal Matters............................................ 39
Experts.................................................. 39
IMPORTANT INFORMATION ABOUT THIS PROSPECTUS
You should rely only on the information set forth in this prospectus and
incorporated by reference in this prospectus. We have not authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. You should
assume that the information appearing in this prospectus is accurate only as of
the date on the front cover of this prospectus and that the information
incorporated by reference in this prospectus is accurate only as of its date.
Our business, financial condition, results of operations and prospects may have
changed since the date of any such information.
We are not making this exchange offer to, and we will not accept surrenders
for exchange from, holders of old notes in any jurisdiction in which this
exchange offer or the acceptance of this exchange offer would violate the
securities or other laws of that jurisdiction.
Unless the context otherwise requires, as used in this prospectus:
. the terms "Mohawk," "our," and "we" refer to the combined entities of
Mohawk Industries, Inc. and its subsidiaries;
. the term "old notes" refers to the 6.50% notes due 2007, Series A and the
7.20% notes due 2012, Series B that we issued on April 2, 2002;
. the term "new notes" refers to the 6.50% notes due 2007, Series C and the
7.20% notes due 2012, Series D that we registered under the Securities
Act and that we are offering in exchange for the old notes; and
. the term "notes" refers to the old notes and the new notes, collectively.
i
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended. In accordance with the Exchange Act, we file reports,
proxy statements and other information with the SEC. The reports, proxy
statements and other information can be inspected and copied at the public
reference facilities that the SEC maintains at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the SEC's regional office located at Suite
900, 175 W. Jackson Blvd., Chicago, Illinois 60604. Copies of these materials
can be obtained at prescribed rates from the Public Reference Section of the
SEC at the principal offices of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the SEC, including Mohawk. Our SEC filings are also available at the
office of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
We "incorporate by reference" in this prospectus the information filed by us
with the SEC, which means that we disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus and information that we subsequently file
with the SEC will automatically update and supercede the information in this
prospectus and in our other filings with the SEC. We incorporate by reference
the documents listed below, which we have already filed with the SEC, and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act until the offering of the new notes contemplated by this
prospectus is terminated:
. Mohawk's Annual Report on Form 10-K for the fiscal year ended December
31, 2001; and
. Mohawk's Current Reports on Form 8-K dated February 7, February 8, March
19, March 20, and April 15, 2002.
You may request a copy of these filings, other than an exhibit to a filing,
unless that exhibit is specifically incorporated by reference into the filing,
at no cost, and a copy of the indenture and the exchange and registration
rights agreement by writing or calling us at the following address:
Mohawk Industries, Inc.
Attn: Jerry L. Melton
160 S. Industrial Blvd.
Calhoun, Georgia 30703-7002
(706) 629-7721
We have agreed that, if we are not subject to the informational requirements
of Sections 13 or 15(d) of the Exchange Act at any time while the old notes
constitute "restricted securities" within the meaning of the Securities Act, we
will furnish to holders and beneficial owners of the old notes and to
prospective purchasers designated by such holders the information required to
be delivered pursuant to Rule 144A(d)(4) under the Securities Act to permit
compliance with Rule 144A in connection with resales of the old notes.
If you would like to request documents, please do so no later than May 28,
2002 in order to receive the documents before this exchange offer expires on
June 4, 2002.
ii
Information contained in this prospectus supplements, modifies or
supersedes, as applicable, the information contained in earlier-dated documents
incorporated by reference. Information in documents that we file with the SEC
after the date of this prospectus will automatically update and supersede
information in this prospectus or in earlier-dated documents incorporated by
reference.
If we have referred in this prospectus to any contracts, agreements or other
documents and have incorporated any of those contracts, agreements or documents
in this prospectus or have filed them as exhibits to the registration
statement, you should read the relevant document for a more complete
understanding of the document or matter involved.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference in this
prospectus contain "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, particularly those statements
regarding the effects of the recently completed acquisition of Dal-Tile
International Inc., and those preceded by, followed by, or that otherwise
include, the words "believes," "expects," "anticipates," "intends,"
"estimates," or similar expressions. For those statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
relating to expectations about future results or events are based upon
information available to us as of the date of this prospectus, and we assume no
obligation to update any of these statements. The forward-looking statements
are not guarantees of our future performance and actual results may vary
materially from the results and expectations discussed. Risks and uncertainties
that could cause actual results to vary materially include, but are not limited
to the following:
. conditions in the financial markets;
. the successful integration of Dal-Tile into our business;
. declines in residential or commercial construction activity;
. increased competition from other carpet, rug, ceramic tile and
floorcovering manufacturers;
. our ability to compete in the highly competitive floorcovering industry;
. changes in economic conditions generally in the carpet, rug, ceramic tile
and other floorcovering markets served by us;
. increases in raw material prices;
. the timing and level of capital expenditures;
. the successful integration of acquisitions including the challenges
inherent in diverting management attention and resources from other
strategic matters and from operational matters for an extended period of
time; and
. the successful introduction of new products.
For additional information that could cause actual results to vary
materially from those described in the forward-looking statements, you should
refer to the information contained in "Risk Factors" and the periodic filings
made by Mohawk with the SEC under the Exchange Act. See "Where You Can Find
More Information."
iii
PROSPECTUS SUMMARY
This brief summary highlights selected information from this prospectus. It
may not contain all the information that is important to you. For a more
complete understanding of this exchange offer, our company, and the new notes,
we encourage you to read this entire prospectus carefully, including the risk
factors and the other documents referred to in this prospectus.
Mohawk
We are the leading producer of floorcovering products for residential and
commercial applications in the United States. We are the second largest carpet
and rug manufacturer, and a leading manufacturer, marketer and distributor of
ceramic tile and natural stone, in the United States. On a pro forma basis
after giving effect to our acquisition of Dal-Tile, the related financing
transactions and our issuance of the old notes (collectively, "the
Transactions"), we had annual net sales in 2001 of approximately $4.5 billion.
Through our carpet and rug business, we design, manufacture and market
carpet and rugs in a broad range of colors, textures and patterns and are a
leading producer of woven and tufted broadloom carpet and rugs for principally
residential applications. We position our products in all price ranges and
emphasize quality, style, performance and service. We are widely recognized
through our premier brand names, which include some of the most recognized
names in the industry, such as "Mohawk," "Karastan," "Aladdin," and "Bigelow."
We market and distribute our carpet and rug products through over 30,000
customers, which include independent carpet retailers, home centers, mass
merchandisers, department stores, commercial dealers and commercial end users.
Some products are also marketed through private labeling programs. Our carpet
and rug operations are vertically integrated from the extrusion of resin and
post-consumer plastics into fiber, to the conversion of fiber into yarn and to
the manufacture and shipment of finished carpet and rugs.
We recently acquired a significant portion of our ceramic tile business
through our acquisition of Dal-Tile. Through our ceramic tile business, we
design, manufacture and market 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 our ceramic tile products are marketed
under the "daltile" and "American Olean" brand names. Our ceramic tile business
is organized into three strategic business units: company-operated sales and
service centers, independent distributors and home center retailers. Our
company-operated sales center unit maintains over 200 sales and service centers
in the United States, Canada and Puerto Rico. Our 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. Our home center
retailer unit supplies products to more than 2,000 home center retail outlets.
Each business unit has a dedicated sales force supporting that unit.
Additionally, we have 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.
Our principal executive offices are located at 160 S. Industrial Boulevard,
Calhoun, Georgia 30703-7002. Our telephone number at that address is (706)
629-7721.
1
Summary Selected Financial Data
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 for these periods. On July 23,
1997, Mohawk acquired certain assets of Diamond Rug & 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 together with "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 herein by reference.
At or for the Years Ended December 31,
--------------------------------------------------
1997 1998 1999 2000 2001
---------- --------- --------- --------- ---------
(In thousands, except per share data)
Statement of earnings data:
Net sales.......................................................... $2,521,297 2,848,810 3,211,575 3,404,034 3,445,945
Cost of sales...................................................... 1,961,433 2,167,523 2,434,716 2,581,185 2,613,043
---------- --------- --------- --------- ---------
Gross profit..................................................... 559,864 681,287 776,859 822,849 832,902
Selling, general and administrative expenses....................... 383,523 432,191 482,062 505,734 505,745
Carrying value reduction of property, plant and equipment and other
assets (a)........................................................ 5,500 2,900 -- -- --
Class action legal settlement (b) . ............................... -- -- -- 7,000 --
Compensation expense for stock option exercises (c)................ 2,600 -- -- -- --
---------- --------- --------- --------- ---------
Operating income................................................. 168,241 246,196 294,797 310,115 327,157
---------- --------- --------- --------- ---------
Interest expense................................................... 36,474 31,023 32,632 38,044 29,787
Acquisition costs--World Merger (d)................................ -- 17,700 -- -- --
Other expense, net................................................. 338 2,667 2,266 4,442 5,954
---------- --------- --------- --------- ---------
36,812 51,390 34,898 42,486 35,741
---------- --------- --------- --------- ---------
Earnings before income taxes..................................... 131,429 194,806 259,899 267,629 291,416
Income taxes....................................................... 51,866 79,552 102,660 105,030 102,824
---------- --------- --------- --------- ---------
Net earnings..................................................... $ 79,563 115,254 157,239 162,599 188,592
========== ========= ========= ========= =========
Basic earnings per share (e)....................................... $ 1.33 1.91 2.63 3.02 3.60
========== ========= ========= ========= =========
Weighted-average common shares outstanding (e)..................... 59,962 60,393 59,730 53,769 52,418
========== ========= ========= ========= =========
Diluted earnings per share (e) . . . . ............................ $ 1.32 1.89 2.61 3.00 3.55
========== ========= ========= ========= =========
Weighted-average common and dilutive potential common shares
outstanding (e)................................................... 60,453 61,134 60,349 54,255 53,141
========== ========= ========= ========= =========
2
At or for the Years Ended December 31,
--------------------------------------------------
1997 1998 1999 2000 2001
---------- --------- --------- --------- ---------
(In thousands, except ratio data)
Balance sheet data:
Working capital........................... $ 389,378 438,474 560,057 427,192 449,361
Total assets.............................. 1,233,361 1,405,486 1,682,873 1,795,378 1,768,485
Long-term debt (including current portion) 402,854 377,089 596,065 589,828 308,433
Stockholders' equity...................... 493,841 611,059 692,546 754,360 948,551
Other financial data:
Ratio of earnings to fixed charges (f).... 3.95 5.62 6.66 5.97 7.48
--------
(a) 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.
(b) Mohawk recorded a one-time charge of $7.0 million in 2000, reflecting the
settlement of two class action lawsuits.
(c) 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.
(d) Mohawk recorded a one-time charge of $17.7 million in 1998 for transaction
expenses related to the World merger.
(e) 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.
(f) Earnings are defined as earnings before income taxes plus fixed charges
less capitalized interest. Fixed charges are defined as interest expensed
and capitalized plus interest within rent expense, which is estimated to be
one-third of rent expense.
3
This Exchange Offer
Background.................. We issued the old notes in a private offering on
April 2, 2002 that was exempt from the SEC's
registration requirements. In connection with
that private offering, we entered into an
exchange and registration rights agreement in
which we agreed, among other things, to deliver
this prospectus to you and to complete an
exchange offer for the old notes.
General..................... We are offering to exchange the new notes for a
like principal amount of old notes. Old notes may
be tendered, and new notes will be issued, only
in integral multiples of $1,000 principal amount.
Currently, there are $300 million in principal
amount of 6.50% notes due 2007, Series A
outstanding and $400 million in principal amount
of 7.20% notes due 2012, Series B outstanding.
The terms of the new notes are identical in all
material respects to the terms of the old notes
except that the new notes are registered under
the Securities Act and generally are not subject
to transfer restrictions or registration rights.
Resale of new notes......... We believe that you can resell and transfer your
new notes without registering them under the
Securities Act and delivering a prospectus if:
. you are acquiring the new notes in the
ordinary course of your business for
investment purposes;
. you are not engaged in, do not intend to
engage in and have no arrangement or
understanding with anyone to participate in a
distribution of the new notes (as defined in
the Securities Act); and
. you are not an affiliate of Mohawk as defined
in Rule 405 under the Securities Act.
Our belief is based on interpretations expressed
in some of the SEC's no-action letters to other
issuers in similar exchange offers. However, we
cannot guarantee that the SEC would make a
similar decision about this exchange offer. If
our belief is wrong, or if you cannot truthfully
make the necessary representations, and you
transfer any new note received in this exchange
offer without meeting the registration and
prospectus delivery requirements of the
Securities Act or without an exemption from these
requirements, then you could incur liability
under the Securities Act. We are not indemnifying
you for any liability that you may incur under
the Securities Act.
If you are a broker-dealer that will receive new
notes for your own account in exchange for old
notes that you acquired as a result of your
market-making or other trading activities, you
will be required to acknowledge in the letter of
transmittal that you will deliver a prospectus in
connection with any resale of the new notes. By
so acknowledging and by delivering a prospectus,
a broker-dealer will
4
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. A broker-dealer may use this
prospectus for an offer to resell or otherwise
transfer the new notes. We have agreed that, for
a period of up to 180 days after the completion
of this exchange offer, we will make this
prospectus and any amendment or supplement to
this prospectus available to any broker-dealer
for use in connection with any resale.
Consequences of failure to
exchange.................. Old notes that are not tendered in the exchange
offer or that are not accepted for exchange will
continue to bear legends restricting their
transfer. You will not be able to offer or sell
the old notes unless:
. each offer or sale is made pursuant to an
exemption from the requirements of the
Securities Act; or
. the old notes are registered under the
Securities Act.
After the exchange offer is closed, we will no
longer have an obligation to register the old
notes except in some limited circumstances. See
"Risk Factors--Risks Related to the Notes and the
Exchange Offer--If you fail to properly exchange
your old notes for new notes, you will continue
to hold notes subject to transfer restrictions,
and the liquidity of the trading market for any
untendered old notes may be substantially
limited."
Expiration date............. This exchange offer will expire at 5:00 p.m., New
York City time, on June 4, 2002, unless we extend
it. We do not currently intend to extend the
expiration date.
Withdrawal of tenders....... You may withdraw the surrender of your old notes
at any time prior to the expiration date.
Conditions to this exchange
offer..................... This exchange offer is subject to customary
conditions, which we may assert or waive. See
"This Exchange Offer--Conditions to this Exchange
Offer."
Procedures for tendering.... If you wish to accept this exchange offer and
your old notes are held by a custodial entity
such as a bank, broker, dealer, trust company or
other nominee, you must instruct the custodial
entity to tender your old notes on your behalf
pursuant to the procedures of the custodial
entity. If your old notes are registered in your
name, you must complete, sign and date the
accompanying letter of transmittal, or a
facsimile of the letter of transmittal, according
to the instructions contained in this prospectus
and the letter of transmittal. You then must mail
or otherwise deliver the letter of transmittal,
or a facsimile of the letter of transmittal,
together with the old notes and any other
required documents, to the exchange agent at the
address set forth on the cover page of the letter
of transmittal. The blue letter of transmittal
should be used to tender old notes due 2007 and
the yellow letter of transmittal should be used
to tender old notes due 2012.
Custodial entities that are participants in The
Depository Trust Company, or DTC, must tender old
notes through DTC's Automated
5
Tender Offer Program, or ATOP. ATOP enables a
custodial entity, and the beneficial owner on
whose behalf the custodial entity is acting, to
electronically agree to be bound by the letter of
transmittal. A letter of transmittal need not
accompany tenders effected through ATOP.
By tendering your old notes in either of these
manners, you will make and agree to the
representations that appear under "This Exchange
Offer--Purpose and Effect of this Exchange Offer."
Closing..................... The new notes will be issued in exchange for
corresponding old notes in this exchange offer,
if consummated, on the first business day
following the expiration date of this exchange
offer or as soon as practicable after that date.
Taxation.................... The exchange of old notes for new notes in this
exchange offer should not be a taxable event for
U.S. federal income tax purposes. See "Material
United States Federal Income Tax Considerations."
Exchange agent.............. Wachovia Bank, National Association is the
exchange agent for this exchange offer. The
address and telephone number of the exchange
agent are set forth under the caption "This
Exchange Offer--Exchange Agent."
The New Notes
The new notes have the same financial terms and covenants as the old notes,
which are as follows:
Issuer...................... Mohawk Industries, Inc.
Notes Offered............... $300 million in principal amount of 6.50% notes
due 2007, Series C; $400 million in principal
amount of 7.20% notes due 2012, Series D.
Maturity.................... April 15, 2007 for notes due 2007;
April 15, 2012 for notes due 2012.
Interest.................... Interest on the new notes will accrue at the rate
of 6.50% per annum on the notes due 2007 and
7.20% per annum on the notes due 2012 from the
most recent date to which interest on the old
notes has been paid or, if no interest has been
paid, from the issue date of the old notes. We
will pay interest on the new notes on April 15
and October 15 of each year, beginning on October
15, 2002. Holders whose old notes are accepted
for exchange will be deemed to have waived the
right to receive any interest accrued on the old
notes.
Ranking..................... The new notes will be our senior unsecured
obligations and will rank equally with all of our
other existing and future senior unsecured
indebtedness and senior to our subordinated
indebtedness. The new notes will effectively rank
junior to all secured indebtedness to the extent
of such security and certain other liabilities of
our subsidiaries. See "Description of the Notes."
6
Optional redemption......... We may redeem all or a portion of each series of
the new notes from time to time at a price equal
to the greater of:
. 100% of the principal amount of the new notes
to be redeemed; or
. the sum of the present value of the remaining
principal amount and interest on the new notes
being redeemed, plus a make-whole premium, in
each case plus accrued and unpaid interest to
the redemption date.
See "Description of the Notes--Optional
Redemption."
Restrictive covenants....... The indenture governing the new notes restricts
our ability to create liens, enter into sale and
leaseback transactions and limits our ability to
consolidate, merge or dispose of our assets
substantially as an entirety.
Use of Proceeds............. We will not receive any proceeds from this
exchange offer.
Governing Law............... The new notes and the indenture will be governed
by the laws of the State of New York.
Trustee, Transfer Agent, and
Book-Entry Depository..... Wachovia Bank, National Association
Risk Factors
You should read the section entitled "Risk Factors," as well as the other
cautionary statements throughout this prospectus, to ensure you understand the
risks associated with tendering your old notes in this exchange offer and
receiving new notes.
7
RISK FACTORS
Before you tender your old notes, you should consider the following risk
factors in addition to the other information included or incorporated by
reference in this prospectus. Any of the following risks could harm our
business and financial results and cause the value of the notes to decline,
which in turn could cause you to lose all or part of your investment. The risks
below are not the only ones facing our company. Additional risks not presently
known to us or that we presently deem immaterial also may harm our business and
financial results.
Risks Related to the Notes and the Exchange Offer
If you fail to properly exchange your old notes for new notes, you will
continue to hold notes subject to transfer restrictions, and the liquidity of
the trading market for any untendered old notes may be substantially limited.
We will only issue new notes in exchange for old notes that you timely and
properly tender. You should allow sufficient time to ensure timely delivery of
the old notes, and you should carefully follow the instructions on how to
tender your old notes set forth under "This Exchange Offer--Procedures for
Tendering" and in the letter of transmittal that accompanies this prospectus.
Neither we nor the exchange agent are required to notify you of any defects or
irregularities relating to your tender of old notes.
If you do not exchange your old notes for new notes in this exchange offer,
the old notes you hold will continue to be subject to the existing transfer
restrictions. In general, you may not offer or sell the old notes except under
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. We do not plan to register the old notes
under the Securities Act. If you continue to hold any old notes after this
exchange offer is completed, you may have trouble selling them because of these
restrictions on transfer.
In addition, we anticipate that most holders of old notes will elect to
participate in this exchange offer. Consequently, we expect that the liquidity
of the market for the old notes after completion of this exchange offer may be
substantially limited.
If an active trading market does not develop for the new notes, you may be
unable to sell the new notes or to sell them at a price you deem sufficient.
The new notes will be new securities for which no established trading market
currently exists. We do not intend to list the new notes on any securities
exchange. Securities dealers who were the initial purchasers of the old notes
have advised us that they intend to make a market in the new notes, but they
are not obligated to do so and may discontinue market-making at any time
without notice.
The liquidity of any market for the new notes will depend upon various
factors, including:
. the number of holders of the new notes;
. the interest of securities dealers in making a market for the new notes;
. the overall market for investment grade securities;
. our financial performance and prospects; and
. the prospects for companies in our industry generally.
8
Even if a trading market develops, the new notes may trade at higher or
lower prices than their principal amount or purchase price, depending on many
factors, including:
. prevailing interest rates;
. the number of holders of the new notes;
. the market for similar debt securities; and
. our financial performance.
Finally, if a large number of holders of old notes do not tender old notes
or tender old notes improperly, only a limited amount of new notes would be
outstanding after we complete this exchange offer, which could adversely affect
the development and viability of a market for the new notes.
We are a holding company with no independent operations and, accordingly,
will depend on the cash flow of our subsidiaries to satisfy our obligations
under the notes.
We are a holding company with no independent operations, sources of income
or assets, other than our equity interests in our subsidiaries. Accordingly, we
will depend on payments on intercompany loans to our subsidiaries or other
distributions or payments to us by our subsidiaries to make payments on the
notes. These subsidiaries are separate legal entities that have no obligation
to pay any amounts due pursuant to the notes. Consequently, we cannot assure
you that the amounts we receive from our subsidiaries will be sufficient to
enable us to service our obligations under the notes.
Some holders who exchange old notes may be deemed to be underwriters.
If you exchange old notes in this exchange offer for the purpose of
participating in a distribution of the new notes, you may be deemed to have
received restricted securities. If so, you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
Risks Related to Our Company
Our debt level may limit our financial flexibility.
As of December 31, 2001, on a pro forma basis after giving effect to the
Transactions, we had approximately $1.3 billion of total debt and a total debt
to total capitalization ratio of 41.9%. We may incur additional debt in the
future, including in connection with other acquisitions. The level of our debt
could have several important effects on our future operations, including, among
others:
. an increased portion of our 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 existing debt arrangements and covenants related to any debt
we may incur in the future may require us to meet financial tests and
limit our flexibility in planning for and reacting to changes in our
business, including possible acquisition opportunities;
. our ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate and other purposes may be
limited;
. we may be at a competitive disadvantage to similar companies that have
less debt; and
. our vulnerability to adverse economic and industry conditions may
increase.
The failure to integrate Mohawk and Dal-Tile successfully by managing the
challenges of that integration may result in our not achieving the
anticipated potential benefits of the merger.
We will face challenges in consolidating functions, integrating our
organizations, procedures, operations and product lines in a timely and
efficient manner and retaining key personnel.
9
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, prior to the Transactions, we have not operated a manufacturing facility
outside of the United States. As a result, the integration 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 our revenues, level
of expenses and operating results.
Our industry is cyclical and prolonged declines in residential or commercial
construction activity could have a material adverse effect on our business.
The U.S. floorcovering industry is highly dependent on residential and
commercial construction activity, including new construction as well as
remodeling. New construction activity and remodeling to a lesser degree, are
cyclical in nature and a prolonged decline in residential or commercial
construction activity could have a material adverse effect on our business,
financial condition and results of operations. Construction activity is
significantly affected by numerous factors, all of which are beyond our
control, including:
. national and local economic conditions;
. interest rates;
. housing demand;
. employment levels;
. changes in disposable income;
. financing availability;
. commercial rental vacancy rates;
. federal and state income tax policies; and
. consumer confidence.
The U.S. construction industry has experienced significant downturns in the
past, which have adversely affected suppliers to the industry, including
suppliers of floorcoverings. The industry could experience similar downturns in
the future, which could have a negative impact on our business, financial
condition and results of operations.
We face intense competition in our industry, which could decrease demand for
our products and could have a material adverse effect on our profitability.
The industry is highly competitive. We face competition from a large number
of domestic and foreign manufacturers and independent distributors of
floorcovering products. Some of our existing and potential competitors may be
larger and have greater resources and access to capital than we do. Maintaining
our competitive position may require us to make substantial investments in our
product development efforts, manufacturing facilities, distribution network and
sales and marketing activities. Competitive pressures may also result in
decreased demand for our products and in the loss of market share. In addition,
we face, and will continue to face, pressure on sales prices of our products
from competitors, as well as from large customers. As a result of any of these
factors, there could be a material adverse effect on our sales and
profitability.
10
A failure to identify suitable acquisition candidates, to complete
acquisitions and to integrate successfully the acquired operations could have
a material adverse effect on our business.
As part of our business strategy, we intend to pursue acquisitions of
complementary businesses. Although we regularly evaluate acquisition
opportunities, we may not be able to:
. successfully identify suitable acquisition candidates;
. obtain sufficient financing on acceptable terms to fund acquisitions;
. complete acquisitions; or
. profitably manage acquired businesses.
Acquired operations may not achieve levels of sales, operating income or
productivity comparable to those of our existing operations, or otherwise
perform as expected. Acquisitions may also involve a number of special risks,
some or all of which could have a material adverse effect on our business,
results of operations and financial condition, including, among others:
. our inability to integrate operations, systems and procedures and to
eliminate redundancies and excess costs effectively;
. diversion of management's attention and resources; and
. difficulty retaining and training acquired key personnel.
We may be unable to obtain raw materials on a timely basis, which could have
a material adverse effect on our business.
Our business is dependent upon a continuous supply of raw materials from
third party suppliers. The principal raw materials used in our manufacturing
operations include: nylon fiber and polypropylene resin, which are used
exclusively in our carpet and rug business; talc, clay, impure nepheline
syenite, pure nepheline syenite and various glazes, including frit (ground
glass), zircon and stains, which are used exclusively in our ceramic tile
business; and other materials. We purchase all of our impure nepheline syenite
requirements from Minnesota Mining and Manufacturing Company and all of our
pure nepheline syenite requirements from Unimin Corporation. Unimin is the only
major supplier of pure nepheline syenite in North America. An extended
interruption in the supply of these or other raw materials used in our business
or in the supply of suitable substitute materials would disrupt our operations,
which could have a material adverse effect on our business, financial condition
and results of operations.
We may be unable to pass on to our customers increases in the costs of raw
materials and energy, which could have a material adverse effect on our
profitability.
Significant increases in the costs of raw materials and natural gas used in
the manufacture of our products could have a material adverse effect on our
operating margins and our business, financial condition and results of
operations. We purchase nylon fiber, polypropylene resin, talc, clay, impure
nepheline syenite, pure nepheline syenite, frit, zircon, stains and other
materials from third party suppliers. The cost of some of these materials, like
nylon and polypropylene resin, is related to oil prices. We also purchase
significant amounts of natural gas to supply the energy required in some of our
production processes. The prices of these raw materials and of natural gas vary
with market conditions. Although we generally attempt to pass on increases in
the costs of raw materials and natural gas to our customers, our ability to do
so is, to a large extent, dependent upon the rate and magnitude of any
increase, competitive pressures and market conditions for our products. There
have been in the past, and may be in the future, periods of time during which
increases in these costs cannot be recovered. During such periods of time,
there could be a material adverse effect on our profitability.
11
We have been, and may in the future be, subject to claims and liabilities
under environmental, health and safety laws and regulations, which could be
significant.
Our operations are subject to various federal, state, local and foreign
environmental, health and safety laws and regulations, including those
governing air emissions, wastewater discharges, and the use, storage, treatment
and disposal of hazardous materials. The applicable requirements under these
laws are subject to amendment, to the imposition of new or additional
requirements and to changing interpretations of agencies or courts. New or
additional requirements could be imposed, and we could incur material
expenditures to comply with new or existing regulations.
The nature of our operations and previous operations by others at real
property currently or formerly owned or operated by us and the disposal of
waste at third party sites exposes us to the risk of claims under
environmental, health and safety laws and regulations. We could incur material
costs or liabilities in connection with such claims. We have been, and will
continue to be, subject to these claims.
The discovery of presently unknown environmental conditions, changes in
environmental, health, and safety laws and regulations, enforcement of existing
or new requirements or other unanticipated events could give rise to
expenditures and liabilities, including fines or penalties, that could have a
material adverse effect on our business, operating results or financial
condition.
We rely on our Monterrey, Mexico plant for a significant portion of our
ceramic tile manufacturing capacity and any disruption in the plant's
operations could negatively affect our business.
Our Monterrey, Mexico manufacturing facility represents a significant
portion of our total manufacturing capacity for ceramic tile. This facility
contains five distinct manufacturing plants, three of which produce ceramic
tile, one of which produces frit used in the production of manufactured tile
and one of which produces refractories. Any disruption in the operations of
this facility could result in a material adverse effect on our ceramic tile
business and our operations as a whole.
Changes in international trade laws and in the business, political and
regulatory environment in Mexico could have a material adverse effect on our
business.
Our operations in Mexico include our Monterrey facility. Accordingly, an
event that has a material adverse impact on our Mexican operations could have a
material adverse effect on our operations as a whole. The business, regulatory
and political environments in Mexico differ from those in the United States,
and our Mexican operations are exposed to a number of inherent risks, including:
. changes in international trade laws, such as the North American Free
Trade Agreement, or NAFTA, affecting our import and export activities in
Mexico;
. changes in Mexican labor laws and regulations affecting our ability to
hire and retain employees in Mexico;
. currency exchange restrictions and fluctuations in the value of foreign
currency;
. potentially adverse tax consequences;
. local laws concerning repatriation of profits;
. political conditions in Mexico;
. unexpected changes in the regulatory environment in Mexico; and
. changes in general economic conditions in Mexico.
12
Future exchange rate fluctuations or inflation could have a material adverse
effect on our results of operations.
Our Mexican facility, which is considered an extension of our U.S.
operations, primarily provides ceramic tile to our U.S. distribution network,
and to a more limited extent, sells ceramic tile in Mexico. The facility has
more peso-denominated expenses than revenues. This means that we realize a
benefit when the peso devalues against the U.S. dollar, although this benefit
may be offset by Mexican inflation. Any future increases in the Mexican
inflation rate, which are not offset by devaluation of the peso, may negatively
impact our results of operations. The Mexican peso has been and may in the
future be, subject to significant fluctuations. To the extent that the peso
appreciates against the U.S. dollar, there could be a material adverse effect
on our business, financial condition and results of operations.
We could face increased competition as a result of the General Agreement on
Tariffs and Trade and the North American Free Trade Agreement.
The United States is party to the General Agreement on Tariffs and Trade, or
GATT. Under GATT, the United States currently imposes import duties on ceramic
tile imported from countries outside North America at no more than 13%, to be
reduced ratably to no less than 8.5% by 2004. Accordingly, as these duties
decrease, GATT may stimulate competition from manufacturers from these
countries, which now export, or may seek to export, ceramic tile to the United
States. We are uncertain what effect GATT may have on our operations.
NAFTA was entered into by Canada, Mexico and the United States and over a
transition period will remove most customs duties imposed on goods traded among
the three countries. In addition, NAFTA will remove or limit many investment
restrictions, liberalize trade in services, provide a specialized means for
settlement of, and remedies for, trade disputes arising under its laws and will
result in new laws and regulations to further these goals. Although NAFTA
lowers the tariffs imposed on our ceramic tile manufactured in Mexico and sold
in the United States, it may also stimulate competition in the United States
and Canada from manufacturers located in Mexico, which could negatively affect
our business.
13
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under the
exchange and registration rights agreement we executed when we issued the old
notes. We will not receive any cash proceeds from this exchange offer. In
exchange for old notes that you tender pursuant to this exchange offer, you
will receive new notes in like principal amount. The old notes that are
surrendered in exchange for the new notes will be retired and canceled by us
upon receipt and cannot be reissued. Accordingly, the issuance of the new notes
under this exchange offer will not result in any change in our outstanding debt.
The net proceeds to us from the sale of the old notes on April 2, 2002 were
approximately $691 million. We used approximately $601 million of the net
proceeds to repay all amounts outstanding under our bridge credit facility used
to finance a portion of the cash purchase price of our acquisition of Dal-Tile.
We used approximately $90 million of the net proceeds to repay outstanding
indebtedness under our revolving credit facility. Borrowings under our
revolving credit facility will mature on January 28, 2004 and currently bear
interest at LIBOR plus 0.25%, which was equal to approximately 2.11% on April
30, 2002.
14
THIS EXCHANGE OFFER
Purpose and Effect of this Exchange Offer
The new notes to be issued in this exchange offer will be exchanged for the
old notes that we issued on April 2, 2002. At that time, we issued $300 million
of 6.50% notes due 2007 and $400 million of 7.20% notes due 2012. We issued the
old notes in reliance upon an exemption from the registration requirements of
the Securities Act. Concurrently, the initial purchasers of the old notes
resold the old notes to investors believed to be "qualified institutional
buyers" in reliance upon the exemption from registration provided by Rule 144A
under the Securities Act and to non-U.S. persons in offshore transactions in
reliance upon the exemption provided by Rule 903 or 904 of Regulation S of the
Securities Act.
In connection with the issuance of the old notes, we entered into an
exchange and registration rights agreement with the initial purchasers pursuant
to which we agreed:
. to file with the SEC, on or prior to July 1, 2002, a registration
statement under the Securities Act with respect to the issuance of the
new notes in an exchange offer;
. to use our reasonable best efforts to cause that registration statement
to become effective under the Securities Act not later than September 27,
2002; and
. to issue and exchange the new notes for all old notes validly tendered
and not validly withdrawn prior to the expiration of the exchange offer.
We have filed a copy of the exchange and registration rights agreement as an
exhibit to the registration statement of which this prospectus is a part.
Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to third parties, we believe that the new notes issued pursuant
to this exchange offer may be offered for resale, resold or otherwise
transferred by a holder under United States federal securities laws without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that:
. the holder is acquiring the new notes in the ordinary course of business
for investment purposes;
. the holder is not engaged in, does not intend to engage in and has no
arrangement or understanding with any person to participate in the
distribution of the new notes (within the meaning of the Securities Act);
. the holder is not a broker-dealer who purchased the old notes directly
from us for resale pursuant to Rule 144A or any other available exemption
under the Securities Act; and
. the holder is not an "affiliate" of ours as defined in Rule 405 under the
Securities Act.
If you wish to participate in this exchange offer, you must represent to us
in the letter of transmittal or through the DTC's ATOP that the conditions
above have been met. However, we do not intend to request the SEC to consider,
and the SEC has not considered, this exchange offer in the context of a
no-action letter, and we cannot assure you that the staff of the SEC would make
a similar determination with respect to this exchange offer. Therefore, if you
transfer any new note delivered to you in this exchange offer without
delivering a prospectus meeting the requirements of the Securities Act or
without an exemption from registration of your new notes from such
requirements, you may incur liability under the Securities Act. We do not
assume this liability or indemnify you against this liability, but we do not
believe this liability would exist if the above conditions are met.
15
If any holder is an affiliate of ours, or is engaged in or intends to engage
in or has any arrangement or understanding with respect to the distribution of
the new notes to be acquired pursuant to the exchange offer, that holder:
. may not rely on the applicable interpretations of the staff of the SEC;
and
. must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction.
Each broker-dealer that receives new notes for its own account in exchange
for old notes, where the old notes were acquired by the broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
the new notes. See "Plan of Distribution."
Except as described above, this prospectus may not be used for an offer to
resell, a resale or other transfer of new notes.
This exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or the acceptance of it would not be in compliance with the securities or
blue sky laws of such jurisdiction.
Terms of the Exchange
Upon the terms and subject to the conditions of this exchange offer, we will
accept any and all old notes validly tendered prior to 5:00 p.m., New York
time, on the expiration date. The date of acceptance for exchange of the old
notes, and completion of the exchange offer, is the exchange date, which will
be the first business day following the expiration date (unless extended as
described in this document). We will issue, on or promptly after the exchange
date, an aggregate principal amount of up to $700 million of new notes, $300
million of 6.50% notes due 2007 and $400 million of 7.20% notes due 2012, for a
like principal amount of old notes tendered and accepted in connection with
this exchange offer. The new notes issued in connection with this exchange
offer will be delivered on the earliest practicable date following the exchange
date. Holders may tender some or all of their old notes in connection with this
exchange offer but only in $1,000 increments of principal amount.
The terms of the new notes are identical in all material respects to the
terms of the old notes, except that the new notes have been registered under
the Securities Act and are issued free from any transfer restrictions or any
covenant regarding registration. The new notes will evidence the same debt as
the old notes and will be issued under the same indenture and be entitled to
the same benefits under that indenture as the old notes being exchanged. As of
the date of this prospectus, $300 million in aggregate principal amount of the
old 6.50% notes due 2007 is outstanding and $400 million in aggregate principal
amount of the old 7.20% notes due 2012 is outstanding.
In connection with the issuance of the old notes, we arranged for the old
notes originally purchased by qualified institutional buyers and any old notes
sold in reliance on Regulation S under the Securities Act to be issued and
transferable in book-entry form through the facilities of The Depository Trust
Company, or DTC, acting as depositary. Except as described under "Description
of the Notes--Form, Denominations, Book-Entry Procedures and Transfer," the new
notes will be issued in the form of global notes registered in the name of DTC
or its nominee and each beneficial owner's interest in the global notes will be
transferable in book-entry form through DTC. See "Description of the
Notes--Form, Denominations, Book-Entry Procedures and Transfer."
Holders of old notes do not have any appraisal or dissenters' rights in
connection with this exchange offer. Old notes that are tendered but not
accepted in connection with this exchange offer will remain outstanding and be
entitled to the benefits of the indenture under which they were issued.
However, some registration and other rights under the exchange and registration
rights agreement will terminate, and holders of the old notes generally will
not be entitled to any registration rights under the exchange and registration
rights agreement, subject to limited exceptions.
16
We will be considered to have accepted validly tendered old notes if and
when we have given written notice to the exchange agent. The exchange agent
will act as agent for the tendering holders for the purposes of receiving the
new notes from us.
If any tendered old notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events described in this
prospectus or otherwise, we will return the old notes, without expense, to the
tendering holder as promptly as possible after the expiration date.
Holders who tender old notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes on the exchange of old notes in connection with
this exchange offer. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with this exchange offer. See
"--Fees and Expenses" below.
Expiration Date; Extensions; Amendments
The expiration date for this exchange offer is 5:00 p.m., New York City
time, on June 4, 2002, unless extended by us, in our sole discretion, in which
case the term "expiration date" for the exchange offer related to a particular
series of old notes shall mean the latest date and time to which the exchange
offer for such series is extended.
We reserve the right, in our sole discretion:
. to delay accepting any old notes;
. to extend this exchange offer with respect to either or both series of
old notes;
. to amend the terms of this exchange offer in any manner; and
. to terminate this exchange offer with respect to either or both series of
old notes.
If we amend this exchange offer in a manner that we consider material, we
will disclose the amendment by means of a prospectus supplement, and we will
extend this exchange offer for a period of five to ten business days.
If we determine to make a public announcement of any delay, extension,
amendment or termination of this exchange offer, we will do so by making a
timely release through an appropriate news agency.
Interest on the New Notes
Interest on the new notes will accrue at the rate of 6.50% per annum on the
notes due 2007 and 7.20% per annum on the notes due 2012 from the most recent
date to which interest on the old notes has been paid or, if no interest has
been paid, from the date of the issuance of the old notes. Interest will be
payable semiannually in arrears on April 15 and October 15, commencing on
October 15, 2002. Holders whose old notes are accepted for exchange will be
deemed to have waived the right to receive any interest accrued on the old
notes.
Conditions to this Exchange Offer
Despite any other term of this exchange offer, we will not be required to
exchange any old notes and may terminate this exchange offer as provided in
this prospectus before the acceptance of the old notes, if:
. any action or proceeding is instituted or threatened in any court or by
or before any governmental agency relating to this exchange offer that,
in our reasonable judgment, might materially impair our ability to
proceed with this exchange offer or materially impair the contemplated
benefits of this exchange offer to us, or any material adverse
development has occurred in any existing action or proceeding relating to
us or any of our subsidiaries;
. any change, or any development involving a prospective change, in our
business or financial affairs or those of any of our subsidiaries has
occurred that, in our reasonable judgment, might materially impair
17
our ability to proceed with this exchange offer or materially impair the
contemplated benefits of this exchange offer to us;
. any law, statute, rule or regulation is proposed, adopted or enacted,
that in our reasonable judgment might materially impair our ability to
proceed with this exchange offer or materially impair the contemplated
benefits of this exchange offer to us; or
. any governmental approval has not been obtained, which approval we, in
our reasonable discretion, consider necessary for the completion of this
exchange offer as contemplated by this prospectus.
The conditions listed above are for our sole benefit and may be asserted by
us regardless of the circumstances giving rise to any of these conditions. We
may waive these conditions in our reasonable discretion, in whole or in part,
at any time and from time to time. The failure by us at any time to exercise
any of the above rights shall not be considered a waiver of these rights, and
these rights shall be considered ongoing rights that may be asserted at any
time and from time to time.
If we determine in our reasonable discretion that any of the conditions are
not satisfied with respect to tenders of either series of old notes, we may:
. refuse to accept any old notes and return all tendered old notes to the
tendering holders;
. extend this exchange offer and retain all old notes tendered before the
expiration of this exchange offer, subject, however, to the rights of
holders to withdraw these old notes (See "--Withdrawal of Tenders"
below); or
. waive unsatisfied conditions relating to the exchange offer for a
particular series of old notes and accept all properly tendered old notes
which have not been withdrawn.
Procedures for Tendering
Unless the tender is made in book-entry form, to tender old notes in this
exchange offer, a holder must:
. complete, sign and date the appropriate letter of transmittal, or a
facsimile of it;
. have the signatures guaranteed if required by the relevant letter of
transmittal; and
. mail or otherwise deliver the letter of transmittal or the facsimile, the
old notes and any other required documents to the exchange agent prior to
5:00 p.m., New York City time, on the expiration date.
The blue letter of transmittal must be used to tender old notes due 2007 and
the yellow letter of transmittal must be used to tender old notes due 2012.
Any institution that is a participant in DTC's Book-Entry Transfer Facility
system may make book-entry delivery of the old notes through DTC's Automated
Tender Offer Program, or ATOP. ATOP enables a custodial entity, and the
beneficial owner on whose behalf the custodial entity is acting, to
electronically agree to be bound by the letter of transmittal. A letter of
transmittal need not accompany tenders offered through ATOP.
The tender by a holder of old notes will constitute an agreement between us
and the holder in accordance with the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal.
The method of delivery of old notes and the letter of transmittal and all
other required documents to the exchange agent is at the election and risk of
the holders. Instead of delivery by mail, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. No letter of transmittal or old notes should be sent to us. Holders may
request their brokers, dealers, commercial banks, trust companies or nominees
to effect the tenders for them.
Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender its old notes should contact the registered holder promptly and instruct
the registered holder to tender on behalf of the beneficial owner. If the
beneficial owner wishes to
18
tender on that owner's own behalf, the owner must, prior to completing and
executing the appropriate letter of transmittal and delivery of the owner's old
notes, either make appropriate arrangements to register ownership of the old
notes in the owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take a considerable
period of time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible guarantor institution as defined in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, unless the old notes are
tendered:
. by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
. for the account of an "eligible guarantor institution."
If the letter of transmittal is signed by a person other than the registered
holder of the old notes, the old notes must be endorsed by the registered
holder or accompanied by a properly completed bond power, in each case signed
or endorsed in blank by the registered holder.
If the letter of transmittal or any old notes or bond powers are signed or
endorsed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing and, unless the
requirement is waived by us, submit evidence satisfactory to us of their
authority to act in that capacity with the letter of transmittal.
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance and withdrawal of tendered old notes
in our sole discretion. We reserve the absolute right to reject any and all old
notes not properly tendered or any old notes whose acceptance by us would, in
the opinion of our counsel, be unlawful. We also reserve the right to waive any
defects, irregularities or conditions of tender as to any particular old notes
either before or after the expiration date. Our interpretation of the terms and
conditions of this exchange offer (including the instructions in the letter of
transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of old notes must be cured
within a time period determined by us.
Although we intend to request the exchange agent to notify holders of
defects or irregularities relating to tenders of old notes, none of we, the
exchange agent nor any other person has any duty to give this notice or will
incur any liability for failure to give this notice. Tenders of old notes will
not be considered to have been made until such defects or irregularities have
been cured or waived. Any old notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the exchange agent to the tendering
holders, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
In addition, we reserve the right, as set forth above under the caption "--
Conditions to this Exchange Offer," to terminate the exchange offer with
respect to either or both series of old notes.
By tendering old notes, each holder represents to us, among other things,
that:
. the new notes acquired in the exchange offer are being obtained in the
ordinary course of business for investment purposes of the person
receiving the new notes, whether or not such person is the holder;
. neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of the
new notes; and
. neither the holder nor any other such person is our "affiliate" as
defined in Rule 405 under the Securities Act.
If the holder is a broker-dealer that will receive new notes for its own
account in exchange for old notes, it will acknowledge that it acquired the old
notes as the result of market-making activities or other trading activities and
it will deliver a prospectus in connection with any resale of the new notes.
See "Plan of Distribution."
19
Guaranteed Delivery Procedures
A holder who wishes to tender its old notes and:
. whose old notes are not immediately available;
. who cannot deliver the holder's old notes, the letter of transmittal or
any other required documents to the exchange agent prior to the
expiration date; or
. who cannot complete the procedures for book-entry transfer before the
expiration date may effect a tender if:
. the tender is made through an eligible guarantor institution;
. before the expiration date, the exchange agent receives from the
eligible guarantor institution:
(1) a properly completed and duly executed notice of guaranteed
delivery by facsimile transmission, mail or hand delivery,
(2) the name and address of the holder, and
(3) the certificate number(s) of the old notes and the principal
amount of old notes tendered, stating that the tender is being made
and guaranteeing that, within three New York Stock Exchange trading
days after the expiration date, the appropriate letter of transmittal
and the certificates representing the old notes (or a confirmation of
book-entry transfer), and any other documents required by the letter
of transmittal will be deposited by the eligible guarantor
institution with the exchange agent; and
. the exchange agent receives, within three New York Stock Exchange
trading days after the expiration date, a properly completed and
executed letter of transmittal or facsimile, as well as the
certificate(s) representing all tendered old notes in proper form
for transfer or a confirmation of book-entry transfer, and all
other documents required by the letter of transmittal.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, tenders of old notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date.
To withdraw a tender of old notes, a written or facsimile transmission
notice of withdrawal must be received by the exchange agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the expiration date.
Any notice of withdrawal must:
. specify the name of the person who deposited the old notes to be
withdrawn;
. identify the old notes to be withdrawn, including the certificate number
or numbers and principal amount of the old notes;
. be signed by the depositor in the same manner as the original signature
on the letter of transmittal by which the old notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee register the
transfer of the old notes into the name of the person withdrawing the
tender; and
. specify the name in which any old notes are to be registered, if
different from that of the depositor.
We will determine all questions as to the validity, form and eligibility
(including time of receipt) of withdrawal notices. Any old notes so withdrawn
will be considered not to have been validly tendered for purposes of the
exchange offer, and no new notes will be issued in exchange for these old notes
unless the old notes withdrawn are validly re-tendered. Any old notes that have
been tendered but are not accepted for exchange or are withdrawn will be
returned to the holder without cost to such holder as soon as practicable after
20
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn old notes may be re-tendered by following one of the procedures
described above under the caption "--Procedures for Tendering" at any time
prior to the expiration date.
Exchange Agent
Wachovia Bank, National Association has been appointed as exchange agent in
connection with this exchange offer. Questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal should be directed to the exchange agent, at its offices at 1525 W.
W.T. Harris Boulevard, 3C3, Charlotte, North Carolina 28288, Attention:
Corporate Trust Group. The exchange agent's telephone number is (704) 590-7413
and facsimile number is (704) 590-7628.
Fees and Expenses
We will not make any payment to brokers, dealers or others soliciting
acceptances of this exchange offer. We will pay some other expenses to be
incurred in connection with this exchange offer, including the fees and
expenses of the exchange agent as well as accounting and legal fees.
Holders who tender their old notes for exchange will not be obligated to pay
transfer taxes. If, however:
. new notes are to be delivered to, or issued in the name of, any person
other than the registered holder of the old notes tendered;
. tendered old notes are registered in the name of any person other than
the person signing the letter of transmittal; or
. a transfer tax is imposed for any reason other than the exchange of old
notes in connection with this exchange offer,
then the amount of any transfer taxes, whether imposed on the registered holder
or any other persons, will be payable by the tendering holder. If satisfactory
evidence of payment of these taxes or exemption from them is not submitted with
the letter of transmittal, the amount of these transfer taxes will be billed
directly to the tendering holder.
Accounting Treatment
The new notes will be recorded at the same carrying value as the old notes
as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes
upon the completion of this exchange offer.
Consequences of Failing to Properly Tender Old Notes in the Exchange Offer
Issuance of the new notes in exchange for the old notes under this exchange
offer will be made only after timely receipt by the exchange agent of the old
notes, a properly completed and duly executed letter of transmittal and all
other required documents. Therefore, holders desiring to tender old notes in
exchange for new notes should allow sufficient time to ensure timely delivery.
We are under no duty to give notification of defects or irregularities to
tenders of old notes. Old notes that are not tendered or that are tendered but
not accepted by us will, following completion of this exchange offer, continue
to be subject to the existing restrictions upon transfer under the Securities
Act, and, upon completion of this exchange offer, certain registration rights
under the exchange and registration rights agreement will terminate.
21
In the event the exchange offer is completed, we generally will not be
required to register the remaining old notes, subject to limited exceptions.
Remaining old notes will continue to be subject to the following restrictions
on transfer:
. the remaining old notes may be resold only if registered pursuant to the
Securities Act, if any exemption from registration is available, or if
neither registration nor an exemption is required by law, and
. the remaining old notes will bear a legend restricting transfer in the
absence of registration or an exemption.
We do not currently anticipate that we will register the remaining old notes
under the Securities Act. To the extent that old notes are tendered and
accepted in connection with this exchange offer, any trading market for
remaining old notes could be adversely affected.
22
DESCRIPTION OF THE NOTES
Titles
6.50% Notes due April 15, 2007, Series C (the "new notes due 2007") and
7.20% Notes due April 15, 2012, Series D (the "new notes due 2012" and,
together with the new notes due 2007, the "new notes").
General
Mohawk will issue the new notes as two separate series of debt securities
under an indenture dated as of April 2, 2002, between Mohawk and Wachovia Bank,
National Association, as trustee. The form and terms of the new notes will be
identical in all material respects to the form and terms of the old notes,
except that:
. the new notes will bear a different CUSIP number from the old notes;
. the issuance of the new notes will be registered under the Securities Act
and therefore, the new notes will not bear legends restricting the
transfer thereof; and
. holders of the new notes will not be entitled to certain rights of
holders of old notes under the exchange and registration rights
agreement, including the provisions thereof which provide for an increase
in the interest rate of the old notes in certain circumstances relating
to the timing of this exchange offer, which rights will terminate when
this exchange offer is consummated.
The new notes will evidence the same debt as the old notes. Upon issuance of
the new notes, the indenture will be subject to and governed by the Trust
Indenture Act of 1939, as amended.
The following description of the provisions of the indenture is only a
summary. You should read the entire indenture carefully before investing in the
new notes. You can obtain a copy of the indenture by following the directions
under the caption "Where You Can Find More Information" in this prospectus.
Unless otherwise indicated, capitalized terms used in the following summary
that are defined in the indenture have the meanings used in the indenture. As
used in this "Description of Notes," references to "Mohawk" refer to Mohawk
Industries, Inc. and do not, unless the context otherwise indicates, include
Mohawk's subsidiaries.
Principal, Maturity and Interest
The new notes will be two separate series of unsecured debt securities under
the indenture. The amount of debt securities that Mohawk may issue under the
indenture is unlimited. Mohawk will issue the new notes due 2007 initially in
an aggregate principal amount of $300 million and will issue the new notes due
2012 initially in an aggregate principal amount of $400 million. After
completion of this exchange offering, Mohawk may issue additional notes from
each series of notes offered hereby without your consent and without notifying
you. Any such additional notes will have the same ranking, interest rate,
maturity date, redemption rights and other terms as the applicable series of
notes offered by this prospectus. Any such additional notes, together with the
applicable series of notes offered hereby, will constitute a single series of
debt securities under the indenture. The notes will be issued in principal
amounts of $1,000 and any integral multiple thereof.
The new notes due 2007 will mature on April 15, 2007, and the new notes due
2012 will mature on April 15, 2012. Each series of new notes will bear interest
at the applicable rate set forth on the cover page of this prospectus, payable
semiannually in arrears, on April 15 and October 15 of each year, commencing
October 15, 2002, to the registered holders thereof on the preceding April 1 or
October 1, as the case may be.
The new notes will not have the benefit of a sinking fund.
23
Ranking
The new notes will be Mohawk's senior unsecured obligations. Payment of the
principal and interest on the new notes will rank equally with all of Mohawk's
other unsecured and unsubordinated debt and senior to its subordinated debt.
The new notes effectively will be subordinated to any secured indebtedness of
Mohawk to the extent of any such security. On a pro forma basis after giving
effect to the consummation of the Transactions, as of December 31, 2001, Mohawk
would have had approximately $480 million of indebtedness that would have
ranked equally with the new notes, no indebtedness that would have ranked
junior to the new notes, and approximately $11 million of secured indebtedness
that would have been effectively senior to the new notes to the extent of the
applicable security.
Nearly all of Mohawk's operations are conducted through its subsidiaries.
Accordingly, Mohawk's cash flow and its ability to service debt, including the
new notes, are entirely dependent upon the earnings of Mohawk's subsidiaries
and the distribution of those earnings to, or upon other payments of funds by
those subsidiaries to, Mohawk. The subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts
due on the new notes or to make funds available for such payments, whether by
dividends, loans or other payments. In addition, the payment of dividends and
the making of loans and advances to Mohawk by its subsidiaries may be subject
to statutory or contractual restrictions, are contingent upon the earnings of
those subsidiaries, and are subject to various business considerations.
Any right of Mohawk to receive assets of any of its subsidiaries upon their
liquidation or reorganization, and the resulting right of the holders of the
new notes to participate in those assets, will be effectively subordinated to
the claims of that subsidiary's creditors (including trade creditors), except
to the extent that Mohawk is itself recognized as a creditor of such
subsidiary, in which case Mohawk's claims would be effectively subordinated to
any security interests in the assets of such subsidiary and any indebtedness of
such subsidiary senior to that held by Mohawk. On a pro forma basis after
giving effect to the Transactions, as of December 31, 2001, Mohawk's
subsidiaries would have had outstanding approximately $820 million of
liabilities.
Redemption At Mohawk's Option
Mohawk may, at its option, redeem some or all of any series of notes at any
time and from time to time at a redemption price equal to the greater of the
following amounts, plus, in each case, accrued and unpaid interest to the
redemption date:
. 100% of the principal amount of the notes to be redeemed, or
. as determined by the Independent Investment Banker, the sum of the
present values of the remaining principal amount and scheduled payments
of interest on such notes to be redeemed (not including any portion of
payments of interest accrued as of the redemption date), discounted to
the redemption date in accordance with customary market practice on a
semiannual basis at the Treasury Rate plus 25 basis points.
The redemption price will be calculated assuming a 360-day year consisting
of twelve 30-day months. For purposes of calculating the redemption price, the
following terms will have the meanings set forth below:
"Treasury Rate" means, with respect to any redemption date, the rate per
year equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, calculated on the third business day preceding the redemption
date, assuming a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
that redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable
to the remaining term of the applicable series of notes to be redeemed that
would be used, at the time of selection and in accordance with customary market
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such notes.
24
"Comparable Treasury Price" means, with respect to any redemption date:
. the average of the bid and asked prices for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) on the third business
day preceding the redemption date, as set forth in the daily statistical
release (or any successor release) published by the Federal Reserve Bank
of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or
. if such release (or any successor release) is not published or does not
contain such prices on such business day:
- the average of the Reference Treasury Dealer Quotations for that
redemption date, after excluding the highest and lowest of the
Reference Treasury Dealer Quotations, or
- if the trustee obtains fewer than three Reference Treasury Dealer
Quotations, the average of all Reference Treasury Dealer Quotations so
received.
"Independent Investment Banker" means one of the Reference Treasury Dealers
selected by the trustee after consultation with Mohawk.
"Reference Treasury Dealer" means each of Goldman, Sachs & Co., First Union
Securities, Inc. and SunTrust Capital Markets, Inc. and their respective
successors, unless any of them ceases to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), in which case
Mohawk shall substitute another nationally recognized investment banking firm
that is a Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) quoted in writing to the
trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on
the third business day preceding that redemption date.
Mohawk will mail notice of any redemption at least 30 days but not more than
60 days before the redemption date to each holder of the notes to be redeemed.
If Mohawk redeems less than all of a particular series of notes, the trustee
will select the particular notes to be redeemed by lot or pro rata by series or
by another method the trustee deems fair and appropriate.
Unless Mohawk defaults in the payment of the redemption price, on and after
the redemption date, interest will cease to accrue on the notes or portions of
the notes called for redemption.
Restrictive Covenants
Some of the defined terms used in the following subsections are defined
below under "Definitions for Restrictive Covenants."
Limitations on Liens
If, after the date of the indenture, Mohawk or any Consolidated Subsidiary
issues, incurs, assumes, creates, guarantees or becomes directly or indirectly
liable with respect to (including as a result of an acquisition (by way of
merger, consolidation or otherwise)) any Debt secured by a Lien on any
Principal Property or on any shares of capital stock of any Consolidated
Subsidiary (in each case, whether now owned or hereafter acquired), Mohawk must
secure the notes equally and ratably with (or prior to) such secured Debt,
unless, after giving effect to such transaction, including any simultaneous
permanent repayment of any secured Debt, the aggregate amount of all Debt
secured by a Lien on any Principal Property or on any shares of capital stock
of any Consolidated Subsidiary, together with all Attributable Debt in respect
of Sale and Leaseback Transactions involving Principal Properties, would not
exceed 10% of the Consolidated Net Tangible Assets of Mohawk and the
Consolidated Subsidiaries. The aggregate amount of all secured Debt referred to
in the preceding sentence shall exclude existing secured Debt that has been
secured equally and ratably with the notes. See "Limitations on Sale and
Leaseback Transactions" below.
25
This restriction does not apply to, and there will be excluded from secured
Debt in any computation under such restriction or under the covenant
"--Limitations on Sale and Leaseback Transactions," Debt secured by:
. Liens on any property existing at the time of acquisition thereof
(including by way of merger or consolidation); provided that any such
Lien was in existence prior to the date of such acquisition, was not
incurred in anticipation thereof and does not extend to any other
property, and that the principal amount of Debt secured by each such Lien
does not exceed the cost to Mohawk or such Consolidated Subsidiary of the
property subject to the Lien, as determined in accordance with generally
accepted accounting principles;
. Liens in favor of Mohawk or a Consolidated Subsidiary;
. Liens in favor of governmental bodies to secure progress or advance
payments pursuant to any contract or provision of any statute;
. Liens created or incurred in connection with an industrial revenue bond,
industrial development bond, pollution control bond or similar financing
arrangement between Mohawk or a Consolidated Subsidiary and any federal,
state or municipal government or other governmental body or
quasi-governmental agency;
. Liens on property to secure all or part of the cost of acquiring,
substantially repairing or altering, constructing, developing or
substantially improving the property, or to secure Debt incurred for any
such purpose; provided that any such Lien relates solely to the property
subject to the Lien and that the principal amount of Debt secured by each
such Lien was incurred concurrently with, or within 18 months of, such
acquisition, repair, alteration, construction, development or improvement
and does not exceed the cost to Mohawk or such Consolidated Subsidiary of
the property subject to the Lien, as determined in accordance with
generally accepted accounting principles; and
. any extension, renewal or replacement of any Lien referred to above;
provided, that such extension, renewal or replacement Lien will be
limited to the same property that secured the Lien so extended, renewed
or replaced and will not exceed the principal amount of Debt so secured
at the time of such extension, renewal or replacement and that such
principal amount of Debt so secured shall continue to be included in the
computation in the first paragraph of this covenant and under the
covenant "--Limitations on Sale and Leaseback Transactions" to the extent
so included at the time of such extension, renewal or replacement.
Limitations on Sale and Leaseback Transactions
Neither Mohawk nor any Consolidated Subsidiary may enter into any Sale and
Leaseback Transaction involving any Principal Property unless:
. after giving effect thereto, the aggregate amount of all Attributable
Debt with respect to Sale and Leaseback Transactions plus the aggregate
amount of Debt secured by Liens incurred without equally and ratably
securing the notes pursuant to the covenant "--Limitations on Liens"
above would not exceed 10% of the Consolidated Net Tangible Assets of
Mohawk and the Consolidated Subsidiaries; or
. within 180 days of such Sale and Leaseback Transaction, Mohawk or such
Consolidated Subsidiary applies to (a) the retirement or prepayment, and
in either case, the permanent reduction, of Funded Debt of Mohawk or any
Consolidated Subsidiary (including that in the case of a revolver or
similar arrangement that makes credit available, such commitment is so
permanently reduced by such amount), or (b) the purchase of other
property that will constitute Principal Property, subject to certain
limitations, an amount not less than the greater of:
- the Net Proceeds of the Sale and Leaseback Transaction; or
- the fair market value of the Principal Property so leased at the time
of such transaction.
26
This restriction will not apply to any Sale and Leaseback Transaction, and
there shall be excluded from Attributable Debt in any computation described
herein or above under "--Limitations on Liens" with respect to any such
transaction:
. solely between Mohawk and a Consolidated Subsidiary or solely between
Consolidated Subsidiaries;
. financed through an industrial revenue bond, industrial development bond,
pollution control bond or similar financing arrangement between Mohawk or
a Consolidated Subsidiary and any federal, state or municipal government
or other governmental body or quasi-governmental agency; or
. in which the applicable lease is for a period, including renewal rights,
of three years or less.
Definitions for Restrictive Covenants
"Attributable Debt" means, on the date of any determination, the present
value of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such Sale and Leaseback Transaction,
including any period for which such lease has been extended or may, at the
option of the lessor, be extended. Such present value shall be calculated using
a discount rate equal to the interest rate set forth or implicit in the terms
of such lease or, if not practicable to determine such rate, the weighted
average interest rate per annum borne by the notes, in either case compounded
semiannually. "Net rental payments" means the total amount of rent payable by
the lessee after excluding amounts required to be paid on account of
maintenance and repairs, insurance, taxes, assessments, water rates and similar
charges.
"Consolidated Net Tangible Assets" means, on the date of any determination,
the aggregate amount of assets, less applicable reserves and other properly
deductible items, after deducting from that net amount:
. all current liabilities; and
. goodwill and other intangibles,
in each case as set forth on the most recently available consolidated balance
sheet of Mohawk and the Consolidated Subsidiaries, in accordance with generally
accepted accounting principles.
"Consolidated Subsidiary" means a Subsidiary of Mohawk, except a Subsidiary
of Mohawk that neither transacts any substantial portion of its business nor
regularly maintains any substantial portion of its fixed assets within the
United States, whose financial statements are consolidated with those of Mohawk
in accordance with generally accepted accounting principles.
"Debt" means, at any time, all obligations of Mohawk and each Consolidated
Subsidiary, to the extent such obligations would appear as a liability upon the
consolidated balance sheet of Mohawk and the Consolidated Subsidiaries, in
accordance with generally accepted accounting principles, (1) for borrowed
money, (2) evidenced by bonds, debentures, notes or other similar instruments,
and (3) in respect of any letters of credit supporting any Debt of others, and
all guarantees by Mohawk or any Consolidated Subsidiary of Debt of others.
"Funded Debt" means (1) all Debt for money borrowed having a maturity of
more than 12 months from the date as of which the determination is made or
having a maturity of 12 months or less but by its terms being renewable or
extendible beyond 12 months from such date at the option of the borrower
(excluding any amount thereof included in current liabilities) and (2) all
rental obligations payable more than 12 months from such date under leases that
are capitalized in accordance with generally accepted accounting principles
(such rental obligations to be included as Funded Debt at the amount so
capitalized).
"Lien" means any mortgage, pledge, hypothecation, encumbrance, security
interest, statutory or other lien, or preference, priority or other security or
similar agreement or preferential arrangement of any kind or nature whatsoever,
including any conditional sale or other title retention agreement having
substantially the same economic effect as any of these.
27
"Net Proceeds" means, with respect to a Sale and Leaseback Transaction, the
aggregate amount of cash or cash equivalents received by Mohawk or such
Consolidated Subsidiary, less the sum of all payments, fees, commissions and
expenses incurred in connection with such transaction, and less the amount
(estimated reasonably and in good faith by Mohawk) of income, franchise, sales
and other applicable taxes required to be paid by Mohawk or any Consolidated
Subsidiary in connection with such transaction in the taxable year that such
transaction is consummated or in the immediately succeeding taxable year, the
computation of which shall take into account the reduction in tax liability
resulting from any available operating losses and net operating loss
carryovers, tax credits and tax credit carryforwards, and similar tax
attributes.
"Principal Property" includes any mill, manufacturing plant, warehouse or
other similar facility or any parcel of real estate or group of contiguous
parcels of real estate owned or leased by Mohawk or any Consolidated Subsidiary
on the date of the indenture or is thereafter acquired or leased by Mohawk or
any Consolidated Subsidiary and that is located within the United States and
the gross book value, without deduction of any depreciation reserves, of which
on the date as of which the determination is being made exceeds 1% of
Consolidated Net Tangible Assets.
"Sale and Leaseback Transaction" means any arrangement whereby Mohawk or any
of its Subsidiaries has sold or transferred, or will sell or transfer, property
and has or will take back a lease pursuant to which the rental payments are
calculated to amortize the purchase price of the property substantially over
the useful life of such property.
"Subsidiary" means a corporation, a majority of the outstanding voting stock
of which is owned, directly or indirectly, by Mohawk and/or by one or more of
its other Subsidiaries, a partnership in which Mohawk or a Subsidiary of Mohawk
is, at the time, a general partner, and any other entity in which Mohawk and/or
one of its Subsidiaries, directly or indirectly, has a majority ownership
interest.
Consolidation, Merger, Conveyance, Transfer or Lease
Mohawk may not consolidate or merge with or into, or transfer or lease its
assets substantially as an entirety to, any entity, unless:
. Mohawk is the surviving entity or, if not, the successor entity formed by
such consolidation or into which Mohawk is merged or which acquires or
leases Mohawk's assets is organized and existing under the laws of any
United States jurisdiction and expressly assumes Mohawk's obligations
with respect to the notes and under the indenture; and
. no default or event of default exists or will occur immediately after
giving effect to the transaction.
Events of Default
The following are events of default under the indenture with respect to any
series of notes:
. failure to pay principal of, or premium, if any, on such series of notes
when due;
. failure to pay any installment of interest on such series of notes when
due, continued for 30 days;
. failure to observe or perform any other covenant or agreement in such
series of notes or the indenture, continued for 60 days after receipt by
Mohawk of notice of such failure from the trustee or holders of at least
25% of the principal amount of such notes outstanding; and
. certain events of bankruptcy, insolvency or reorganization of Mohawk.
If an event of default with respect to the outstanding notes of a particular
series occurs and continues, either the trustee or the holders of at least 25%
in aggregate principal amount of such series of outstanding notes may declare
the principal amount of such series of notes to be due and payable immediately;
provided that in the case
28
of certain events of bankruptcy, insolvency or reorganization, such principal
amount, or portion thereof, will automatically become due and payable without
any action by the trustee or any holder. However, at any time after an
acceleration with respect to notes of a particular series has occurred, but
before a judgment or decree based on such acceleration has been obtained, the
holders of a majority in aggregate principal amount of the outstanding notes of
such series may, under certain circumstances, rescind and annul such
acceleration. For information as to waiver of defaults, see "--Modification and
Waiver."
Subject to the duty of the trustee during default to act with the required
standard of care, the trustee will be under no obligation to exercise any of
its rights or powers under the indenture at the request or direction of any of
the holders, unless such holders have offered the trustee reasonable security
or indemnity. Subject to such indemnification and certain other limitations,
the holders of a majority in aggregate principal amount of the outstanding
notes of a particular series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee, with respect to the
notes of such series.
Other than with respect to a lawsuit for the payment of principal, premium,
if any, and interest on any series of notes when due, the indenture provides
that no holder of such series of notes may institute any action against Mohawk
under the indenture without first complying with the conditions set forth in
the indenture.
Mohawk will furnish to the trustee an annual statement as to Mohawk's
performance of certain of its obligations under the indenture and as to any
default in such performance.
Modification and Waiver
Modifications and amendments of the indenture may be made by Mohawk and the
trustee with the consent of holders of a majority in aggregate principal amount
of any series of notes outstanding, except that no such modification or
amendment may, without the consent of the holder of each outstanding note of
the applicable series affected thereby:
. change the stated maturity date of the principal of, or any installment
of interest on, any such note;
. reduce the principal amount of, or premium, if any, or interest on, any
such note;
. reduce the amount of principal payable upon acceleration of the maturity
thereof;
. change the place or currency of payment of principal of, or premium, if
any, or interest on, any such note;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any such note;
. cause such notes to become subordinate in right of payment to any other
Debt; or
. reduce the percentage in aggregate principal amount of such series of
outstanding notes the consent of the holders of which is required for
modification or amendment of the indenture or for waiver of compliance
with certain provisions of the indenture or for waiver of certain
defaults.
Mohawk and the trustee may also modify and amend the indenture without the
consent of any holder of notes in limited circumstances, such as clarifications
and changes that would not adversely affect the holders.
The holders of a majority in aggregate principal amount of any series of
outstanding notes may, on behalf of the holders of all such notes, waive
Mohawk's compliance with certain restrictive provisions of the indenture with
respect to such series of notes. The holders of a majority in aggregate
principal amount of any series of outstanding notes may, on behalf of the
holders of all such notes, waive any past default under the indenture with
respect to such notes, except a default in the payment of the principal of, or
premium, if any, or interest on, such notes or in respect of any provision of
the indenture with respect to such series of notes that cannot be modified or
amended without the consent of the holder of each outstanding note of such
series affected thereby.
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Legal Defeasance and Covenant Defeasance
The indenture provides that Mohawk may, at its option, elect to discharge
its obligations with respect to any series of notes ("Legal Defeasance"). If
Legal Defeasance occurs, Mohawk will be deemed to have paid and discharged all
amounts owed under the applicable series of notes, and the indenture will cease
to be of further effect as to such series of notes, except that:
(1) holders will be entitled to receive timely payments for the principal
of, premium, if any, and interest on, such series of notes, from the funds
deposited for that purpose (as explained below);
(2) Mohawk's obligations will continue with respect to the issuance of
temporary notes, the registration of notes, and the replacement of mutilated,
destroyed, lost or stolen notes of the applicable series;
(3) the trustee will retain its rights, powers, duties, and immunities, and
Mohawk will retain its obligations in connection therewith; and
(4) other Legal Defeasance provisions of the indenture will remain in
effect.
In addition, Mohawk may, at its option and at any time, elect to cause the
release of its obligations with respect to most of the covenants in the
indenture ("Covenant Defeasance") with respect to any series of notes. If
Covenant Defeasance occurs, certain events (not including non-payment events
and bankruptcy, insolvency and reorganization events) relating to Mohawk
described under "Events of Default" will no longer constitute events of default
with respect to such notes. Mohawk may exercise Legal Defeasance regardless of
whether it previously exercised Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance (each, a
"Defeasance") with respect to any series of notes:
(1) Mohawk must irrevocably deposit with the trustee, in trust, for the
benefit of holders of the notes, U.S. legal tender, U.S. government securities
or a combination thereof, in amounts that will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on, the applicable series of notes
on the stated date for payment or any redemption date thereof, and the trustee
must have, for the benefit of holders of such notes, a valid, perfected,
exclusive security interest in the trust;
(2) in the case of Legal Defeasance, Mohawk must deliver to the trustee an
opinion of counsel in the United States reasonably acceptable to the trustee
confirming that:
(A) Mohawk has received from, or there has been published by, the
Internal Revenue Service, a ruling or
(B) since the date of the indenture, there has been a change in the
applicable federal income tax law,
in either case to the effect that holders of such series of notes will not
recognize income, gain or loss for federal income tax purposes as a result of
the Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if the Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Mohawk must deliver to the trustee
an opinion of counsel in the United States reasonably acceptable to the trustee
confirming that holders of such series of notes will not recognize income, gain
or loss for federal income tax purposes as a result of the Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if the Covenant
Defeasance had not occurred;
(4) no default or event of default may have occurred and be continuing
under the indenture on the date of the deposit with respect to such notes; in
addition, no event of default relating to bankruptcy or insolvency may occur at
any time from the date of the deposit to the 91st calendar day thereafter;
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(5) the Defeasance may not result in a breach or violation of, or
constitute a default under the indenture or any other material agreement or
instrument to which Mohawk or any of its Consolidated Subsidiaries is a party
or by which Mohawk or any of its Consolidated Subsidiaries is bound;
(6) Mohawk must deliver to the trustee an officers' certificate stating
that the deposit was not made by Mohawk with the intent to hinder, delay or
defraud any other of its creditors; and
(7) Mohawk must deliver to the trustee an officers' certificate confirming
the satisfaction of conditions in clauses (1) through (6) above, and an opinion
of counsel confirming the satisfaction of the conditions in clauses (1) (with
respect to the validity and perfection of the security interest), (2), (3) and
(5) above.
The Defeasance will be effective on the earlier of (i) the 91st day after
the deposit, and (ii) the day on which all the conditions above have been
satisfied.
If the amount deposited with the trustee to effect a Defeasance is
insufficient to pay the principal of, premium, if any, and interest on, the
applicable series of notes when due, or if any court enters an order directing
the repayment of the deposit to Mohawk or otherwise making the deposit
unavailable to make payments under such series of notes when due, then (so long
as the insufficiency exists or the order remains in effect) Mohawk's
obligations under the indenture and such series of notes will be revived, and
the Defeasance will be deemed not to have occurred.
Form, Denomination, Book-Entry Procedures and Transfer
Mohawk will issue the new notes only in fully registered form, without
interest coupons. The new notes are collectively referred to herein as the
"Global Notes." Each of the Global Notes initially will be deposited with the
trustee, as custodian for the DTC, and registered in the name of DTC or its
nominee. The new notes initially will be issued in minimum denominations of
$1,000 and integral multiples of $1,000 in excess thereof. No service charge
will be made for any registration of transfer or exchange of new notes, but
Mohawk may require payment of a sum sufficient to cover any tax or government
charge payable in connection therewith.
Mohawk will cause to be kept at the office of the registrar a register in
which, subject to such reasonable regulations as it may prescribe, Mohawk will
provide for the registration of the new notes and registration of transfers of
the new notes. Mohawk initially will appoint the trustee at its corporate trust
office as paying agent and registrar for the new notes. Mohawk may vary or
terminate the appointment of any paying agent or registrar, or appoint
additional or other such agents or approve any change in the office through
which any such agent acts; provided that there shall at all times be a paying
agent and a registrar in the Borough of Manhattan, The City of New York, New
York. Mohawk will cause notice of any resignation, termination or appointment
of the trustee or any paying agent or registrar, and of any change in the
office through which any such agent will act, to be provided to holders of the
new notes.
Transfers of beneficial interests in the Global Notes will be subject to the
applicable rules and procedures of DTC and its Direct or Indirect Participants
(each defined below), including, if applicable, those of Euroclear Bank S.A./
N.V., as operator of the Euroclear System ("Euroclear") and Clearstream
Banking, societe anonyme ("Clearstream"), which may change from time to time.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
notes in certificated form, except in the limited circumstances described
below. See "--Transfers of Interests in Global Notes for Certificated Notes."
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Depositary Procedures
The following description of the operations and procedures of DTC, Euroclear
and Clearstream is provided solely as a matter of convenience. These operations
and procedures are solely within the control of the respective settlement
systems and are subject to change by them from time to time. Neither Mohawk nor
the trustee takes any responsibility for these operations and procedures, and
you are urged to contact the applicable system or its participants directly to
discuss these matters.
DTC has advised Mohawk that DTC is a limited-purpose trust company created
to hold securities for its participating organizations (collectively, the
"Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of participants. The Direct Participants include
securities brokers and dealers (including banks, trust companies, clearing
corporations and certain other organizations, including Euroclear and
Clearstream). Access to DTC's system is also available to other entities that
clear through or maintain a direct or indirect custodial relationship with a
Direct Participant (collectively, the "Indirect Participants").
DTC has advised Mohawk that, pursuant to DTC's procedures, (i) DTC will
maintain records of the ownership interests of the Direct Participants in the
Global Notes and the transfer of ownership interests by and between Direct
Participants. DTC will not maintain records of the ownership interests of, or
the transfer of ownership interests by and between, Indirect Participants or
other owners of beneficial interests in the Global Notes. Direct Participants
and Indirect Participants must maintain their own records of the ownership
interests of, and the transfer of ownership interests by and between, Indirect
Participants and other owners of beneficial interests in the Global Notes.
Investors in the Global Notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC. Morgan Guaranty Trust
Company of New York, Brussels office, is the operator and depositary of
Euroclear and Citibank, N.A. is the operator and depositary of Clearstream
(each a "Nominee" of Euroclear and Clearstream, respectively). Therefore, they
will each be recorded on DTC's records as the holders of all ownership
interests held by them on behalf of Euroclear and Clearstream, respectively.
Euroclear and Clearstream must maintain on their own records the ownership
interests of, and transfers of ownership interests by and between, their own
customers' securities accounts. DTC will not maintain such records. All
ownership interests in any Global Notes, including those of customers'
securities accounts held through Euroclear or Clearstream, may be subject to
the procedures and requirements of DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that
they own. This may limit or curtail the ability to transfer beneficial
interests in a Global Note to such persons. Because DTC can act only on behalf
of Direct Participants, which in turn act on behalf of Indirect Participants
and others, the ability of a person having a beneficial interest in a Global
Note to pledge such interest to persons or entities that are not Direct
Participants in DTC, or to otherwise take actions in respect of such interests,
may be affected by the lack of physical certificates evidencing such interests.
For certain other restrictions on the transferability of the notes, see
"--Transfers of Interests in Global Notes for Certificated Notes."
Except as described in "--Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Notes will
not have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders thereof under the indenture for any purpose.
Under the terms of the indenture, Mohawk and the trustee will treat the
persons in whose names the notes are registered (including notes represented by
Global Notes) as the owners thereof for the purpose of receiving payments and
for any and all other purposes whatsoever with respect to the notes. Payments
in respect of the
32
principal, premium, if any, and interest on, Global Notes registered in the
name of DTC or its nominee will be payable by the trustee to DTC or its nominee
as the registered holder under the indenture. Consequently, neither Mohawk, the
trustee nor any of Mohawk's or the trustee's agents has or will have any
responsibility or liability for (i) any aspect of DTC's records or any Direct
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Notes or for
maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any Global Note or (ii) any other matter relating to the
actions and practices of DTC or any of its Direct Participants or Indirect
Participants.
DTC has advised Mohawk that its current payment practice (for payments of
principal, interest and the like) with respect to securities such as the notes
is to credit the accounts of the relevant Direct Participants with such payment
on the payment date in amounts proportionate to such Direct Participant's
respective ownership interests in the Global Notes as shown on DTC's records.
Payments by Direct Participants and Indirect Participants to the beneficial
owners of the notes will be governed by standing instructions and customary
practices between them and will not be the responsibility of DTC, the trustee
or Mohawk. Neither Mohawk nor the trustee will be liable for any delay by DTC
or its Direct Participants or Indirect Participants in identifying the
beneficial owners of the notes, and Mohawk and the trustee may conclusively
rely on and will be protected in relying on instructions from DTC or its
nominee as the registered owner of the notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect
Participants who hold an interest in the notes through Euroclear or
Clearstream) who hold an interest through a Direct Participant will be effected
in accordance with the procedures of such Direct Participant but generally will
settle in immediately available funds. Transfers between and among Indirect
Participants who hold interests in the notes through Euroclear and Clearstream
will be effected in the ordinary way in accordance with their respective rules
and operating procedures.
Cross-market transfers between Direct Participants in DTC, on the one hand,
and Indirect Participants who hold interests in the notes through Euroclear or
Clearstream, on the other hand, will be effected by Euroclear's or
Clearstream's respective Nominee through DTC in accordance with DTC's rules on
behalf of Euroclear or Clearstream; however, delivery of instructions relating
to cross-market transactions must be made directly to Euroclear or Clearstream,
as the case may be, by the counterparty in accordance with the rules and
procedures of Euroclear or Clearstream and within their established deadlines
(Brussels time for Euroclear and UK time for Clearstream). Indirect
Participants who hold interests in the notes through Euroclear and Clearstream
may not deliver instructions directly to Euroclear's or Clearstream's Nominee.
Euroclear or Clearstream will, if the transaction meets its settlement
requirements, deliver instructions to its respective Nominee to deliver or
receive interests on Euroclear's or Clearstream's behalf in the relevant Global
Note in DTC, and make or receive payment in accordance with normal procedures
for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the notes through Euroclear or Clearstream
purchasing an interest in a Global Note from a Direct Participant in DTC will
be credited, and any such crediting will be reported to Euroclear or
Clearstream, during the European business day immediately following the
settlement date of DTC in New York. Although recorded in DTC's accounting
records as of DTC's settlement date in New York, Euroclear and Clearstream
customers will not have access to the cash amount credited to their accounts as
a result of a sale of an interest in a Global Note to a DTC Participant until
the European business day for Euroclear or Clearstream immediately following
DTC's settlement date.
DTC has advised Mohawk that it will take any action permitted to be taken by
a holder of notes only at the direction of one or more Direct Participants to
whose account interests in the Global Notes are credited and only
33
in respect of such portion of the aggregate principal amount of the notes to
which such Direct Participant or Direct Participants has or have given
direction. However, if there is an event of default under the notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended notes in certificated form, and
to distribute such certificated forms of notes to its Direct Participants. See
"--Transfers of Interests in Global Notes for Certificated Notes."
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in Global Notes among Direct
Participants, including Euroclear and Clearstream, they are under no obligation
to perform or to continue to perform such procedures, and such procedures may
be discontinued at any time. Neither Mohawk nor the trustee shall have any
responsibility for the performance by DTC, Euroclear or Clearstream or their
respective Direct and Indirect Participants of their respective obligations
under the rules and procedures governing any of their operations.
The information in this section concerning DTC, Euroclear and Clearstream
and their book-entry systems has been obtained from sources that Mohawk
believes to be reliable, but Mohawk takes no responsibility for the accuracy
thereof.
Transfers of Interests in Global Notes for Certificated Notes
A Global Note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("Certificated Notes") (i) if DTC
(x) notifies Mohawk that it is unwilling or unable to continue as depositary
for the Global Notes and Mohawk thereupon fails to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) if Mohawk, at its option, notifies the trustee in
writing that Mohawk elects to cause the issuance of Certificated Notes or (iii)
upon the request of the trustee or holders of a majority of the aggregate
principal amount of outstanding notes if there shall have occurred and be
continuing a default or an event of default with respect to the notes. In any
such case, Mohawk will notify the trustee in writing that, upon surrender by
the Direct and Indirect Participants of their interests in such Global Note,
Certificated Notes will be issued to each person that such Direct and Indirect
Participants and the DTC identify as being the beneficial owner of the related
notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by
such Direct Participant (for itself or on behalf of an Indirect Participant),
to the trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
Neither Mohawk nor the trustee will be liable for any delay by the holder of
any Global Note or DTC in identifying the beneficial owners of notes, and
Mohawk and the trustee may conclusively rely on, and will be protected in
relying on, instructions from the holder of the Global Note or DTC for all
purposes.
Same Day Settlement and Payment
The indenture requires that payments in respect of the notes represented by
the Global Notes (including principal, premium, if any, and interest on the
notes) be made by wire transfer of immediately available same day funds to the
accounts specified by the holder of interests in such Global Note. With respect
to Certificated Notes, Mohawk will make all payments of principal, premium, if
any, and interest by wire transfer of immediately available same day funds to
the accounts specified by the holders thereof or, if no such account is
specified, by mailing a check to each such holder's registered address. Mohawk
expects that secondary trading in the Certificated Notes will also be settled
in immediately available funds.
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The Trustee
Wachovia Bank, National Association is the trustee under the indenture. All
payments of principal of, premium, if any, and interest on, and all
registration, transfer, exchange, authentication and delivery of, the notes
will be effected by the trustee at an office designated by the trustee in New
York, New York.
The indenture provides that, except during the continuance of an event of
default, the trustee will perform only such duties as are specifically set
forth in the indenture. During the existence of an event of default under the
indenture with respect to any series of notes, the trustee will exercise such
rights and powers vested in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs. Subject to
these provisions, the trustee will be under no obligation to exercise any of
its rights or powers under the indenture at the request of any of the holders
of the notes, unless they shall have offered to the trustee security and
indemnity satisfactory to the trustee.
The indenture and provisions of the Trust Indenture Act contain limitations
on the rights of the trustee, should it become a creditor of Mohawk, to obtain
payment of claims in certain cases or to liquidate certain property received by
it in respect of any such claim as security or otherwise. The trustee is
permitted to engage in other transactions with Mohawk or any of its affiliates.
If the trustee acquires any conflicting interest, it must eliminate such
conflict or resign.
Affiliates of the trustee serve as trustee under various of Mohawk's debt
instruments and as agents and lenders under Mohawk's revolving credit facility.
In addition, one of the initial purchasers of the old notes is an affiliate of
the trustee.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section describes the material United States federal tax consequences
of owning and disposing of the notes and of exchanging old notes for new notes
in this exchange offer. It applies to you only if you hold the notes as capital
assets for tax purposes. This section does not discuss all aspects of United
States federal income tax which may be important to you in light of your
individual investment circumstances, and does not apply to you if you are a
member of a class of holders subject to special rules, such as a dealer in
securities or currencies, a trader in securities that elects to use a
mark-to-market method of accounting for securities holdings, a bank or other
financial institution, a life insurance company, a tax-exempt organization, a
regulated investment company, a person that owns notes that are a hedge or that
are hedged against interest rate or currency risks, a person that owns the
notes as part of a straddle or conversion transaction for tax purposes, or a
person whose functional currency for tax purposes is not the U.S. dollar.
This section is based on the Internal Revenue Code of 1986, as amended (the
"Code"), its legislative history, existing and proposed regulations under the
Code, published rulings and court decisions, all as currently in effect. These
authorities are subject to change, possibly on a retroactive basis. This
discussion does not consider the effect of any applicable foreign, state,
local, or other tax laws.
The federal tax discussion set forth below is included for general
information only and may not be applicable depending upon a holder's particular
situation. Holders should consult their own tax advisors with respect to the
tax consequences to them of the beneficial ownership and disposition of the
notes, including the tax consequences under state, local, foreign and other tax
laws and the possible effects of changes in federal or other tax laws.
United States Holders
This subsection describes the tax consequences to a United States holder of
owning and disposing of the notes. You are a United States holder if you are a
beneficial owner of a note and you are:
. a citizen or resident of the United States;
. a corporation, partnership or other entity created or organized under the
laws of the United States or political subdivision thereof;
. an estate whose income is subject to United States federal income tax
regardless of its source; or
. a trust if a United States court can exercise primary supervision over
the trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
If a partnership holds our notes, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership. If
you are a partner of a partnership holding our notes, you should consult your
tax advisor. If you are not a United States holder, this section does not apply
to you and you should refer to the section titled "Foreign Holders" below.
Payments of Interest. The notes will not be considered as issued with
"original issue discount" for U.S. federal income tax purposes. Accordingly, a
United States holder will be taxed on any stated interest on its note as
ordinary income at the time such holder receives the interest or when it
accrues, depending on the holder's method of accounting for tax purposes.
Exchange of Old Notes for New Notes Pursuant to this Exchange Offer. The
exchange of the old notes for these substantially identical new notes
registered under the Securities Act that do not differ materially in kind or
extent from the old notes will not constitute a taxable event for United States
federal income tax purposes. Accordingly, the exchange should have no United
States federal income tax consequences to a United States holder, so that the
United States holder's holding period and adjusted tax basis for a note would
not be affected, and the United States holder would continue to take into
account income in respect of a note in the same manner as before the exchange.
36
Sale, Exchange or Redemption of a Note. Upon the disposition of a note by
sale, exchange or redemption, a United States holder will generally recognize
gain or loss equal to the difference between (i) the amount of cash proceeds
and the fair market value of any property a United States holder receives on
the sale, exchange or redemption, except to the extent such amount is
attributable to accrued interest not previously included in income, which is
taxable as ordinary income, and (ii) such holder's adjusted federal income tax
basis in the note. A United States holder's initial tax basis in a note
generally will be the purchase price of the note. Such gain or loss will
generally constitute capital gain or loss and will be long-term capital gain or
loss if the United States holder has held the note for longer than one year.
The deductibility of capital losses is subject to certain limitations.
Foreign Holders
A foreign holder is a beneficial owner of a note that is not a United States
holder. The following discussion is a summary of material United States federal
tax considerations for a foreign holder of notes. Special rules may apply to
certain foreign holders, such as "controlled foreign corporations," "passive
foreign investment companies," "foreign personal holding companies," and
corporations that accumulate earnings to avoid United States federal income
tax, that are subject to special treatment under the Code. These entities
should consult their own tax advisors to determine the United States federal,
state, local and other tax consequences that may be relevant to them.
Payments of Interest. Subject to the discussion below concerning backup
withholding, payments of interest on the notes by us or any paying agent of
ours to any foreign holder will not be subject to U.S. federal income or
withholding tax provided that (i) the foreign holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of our voting stock, (ii) the certification requirement, as described
below, has been fulfilled with respect to the beneficial owner of the note, and
(iii) the interest is not effectively connected with the conduct of a U.S.
trade or business of the foreign holder.
The certification requirement referred to above will be fulfilled if the
beneficial owner of a note certifies on IRS Form W-8BEN (or other appropriate
substitute form) under penalties of perjury, that the beneficial owner is not a
U.S. person and provides its name and address, and (1) such beneficial owner
files such IRS Form W-8BEN (or other appropriate substitute form) with the
withholding agent or, (2) in the case of a note held on behalf of the
beneficial owner by a securities clearing organization, bank or other financial
institution holding customers' securities in the ordinary course of its trade
or business that holds a note on behalf of such beneficial owner, such
financial institution files a statement with the withholding agent in which it
certifies, under penalties of perjury, that it has received the Form W-8BEN (or
other appropriate substitute form) from the foreign holder and furnishes the
withholding agent with a copy thereof.
The gross amount of payments of interest that do not qualify for the
exception from withholding described above will be subject to U.S. withholding
tax at a rate of 30% unless a treaty applies to reduce or eliminate withholding
and the foreign holder properly certifies to its entitlement to such treaty
benefits. If the interest on the notes, however, is effectively connected with
the conduct by the foreign holder (or a partnership in which the foreign holder
is a partner, or a trust or estate of which the foreign holder is a
beneficiary) of a business within the United States (or if a tax treaty
applies, such interest is attributable to a permanent establishment maintained
in the United States by the foreign holder) then such interest will generally
be subject to tax to the foreign holder in the same manner as a United States
holder. In addition, such effectively connected income received by a foreign
holder which is a corporation may in certain circumstances be subject to an
additional "branch profits tax" at a 30% rate or, if applicable, a lower treaty
rate.
Sale, Exchange or Redemption of a Note. A foreign holder generally will not
be subject to U.S. federal income tax or withholding tax on gain realized on
the sale, exchange or redemption of notes unless (1) the holder is an
individual who was present in the United States for 183 days or more during the
taxable year of the sale, exchange or redemption, and certain other conditions
are met, or (2) the gain is effectively connected with the
37
conduct of a trade or business of the holder in the United States and, if a
treaty applies, such gain is attributable to a permanent establishment
maintained in the United States by such holder.
U.S. Federal Estate Tax
A note held by an individual who is not for United States federal estate tax
purposes a citizen or resident of the United States at the time of death will
not be includable in the decedent's gross estate for United States federal
estate tax purposes, provided that such holder or beneficial owner did not at
the time of death actually or constructively own 10% or more of the combined
voting power of our stock entitled to vote, and provided that, at the time of
death, payments with respect to such note would not have been effectively
connected with the conduct by such foreign holder of a trade or business within
the United States.
Backup Withholding and Information Reporting
Under current United States federal income tax law, a backup withholding tax
at the tax rate of 30% for years 2002 and 2003, 29% for years 2004 and 2005,
28% for years 2006 through 2010 and 31% for years after 2010, and information
reporting requirements apply to certain payments of principal and interest made
to, and to proceeds of sale before maturity by, certain holders of the notes.
In the case of a United States holder, information reporting requirements
and a backup withholding tax will apply to payments of principal or interest,
and payments of the proceeds of the sale of a note if the United States holder
(i) fails to furnish or certify properly its correct taxpayer identification
number to the payer in the manner required, (ii) is notified by the IRS that it
has failed to report payments of interest or dividends properly or (iii) under
certain circumstances, fails to certify that it has not been notified by the
IRS that it is subject to backup withholding for failure to report interest or
dividend payments.
Backup withholding and information reporting do not apply with respect to
payments made to certain exempt recipients, including a corporation (within the
meaning of Code Section 7701(a)). The amount of any backup withholding imposed
upon a payment to a United States holder will be allowed as a credit against
that holder's United States federal income tax liability and may entitle that
holder to a refund, provided that required information is furnished to the IRS.
In the case of a foreign holder, backup withholding and information
reporting will generally not apply to payments of principal or interest made by
us or our paying agent (absent actual knowledge that the holder is actually a
United States holder) if the holder has provided the properly required
certification under penalties of perjury that it is not a United States holder
or has otherwise established an exemption. Failure to provide such
certifications in accordance with the requirements of the Code and applicable
Treasury Regulations could subject a holder to withholding even if such holder
were otherwise entitled to an exemption from withholding.
Foreign holders should consult their own tax advisors regarding the
application of information reporting and backup withholding in their particular
situations, the availability of an exemption therefrom, and the procedure for
obtaining this exemption, if available, and the impact, if any, of the recent
Treasury Regulations. Any amounts withheld from a payment to a foreign holder
under the backup withholding rules will be allowed as a credit against that
holder's United States federal income tax liability and may entitle that holder
to a refund, provided that required information is furnished to the Internal
Revenue Service.
38
PLAN OF DISTRIBUTION
We are not using any underwriters for this exchange offer, and we are
bearing the expenses of the exchange.
Each broker-dealer that receives new notes for its own account pursuant to
this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes if the
old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, starting on the date we issue the new
notes and ending no later than the close of business on the date which is 180
days after the completion of this exchange offering, we will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any resale.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to this exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the new notes or a combination of these
methods of resale, at market prices prevailing at the time of resale, at prices
related to the prevailing market prices or negotiated prices. Any resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer
and/or the purchasers of any new notes. Any broker-dealer that sells new notes
that were received by it for its own account pursuant to this exchange offer
and any broker or dealer that participates in a distribution of new notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit of any resale of the new notes and any commissions or concessions
received by any of these persons may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of up to 180 days after the completion of this exchange offer,
we will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests these
documents in the letter of transmittal. We have agreed to pay all expenses
incident to this exchange offer, other than commissions or concessions of any
brokers or dealers, and will indemnify the holders of the old notes (including
any broker-dealers) against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
Alston & Bird LLP, our legal counsel, will pass upon various legal matters
for us with respect to the new notes and the exchange offer.
EXPERTS
Our audited consolidated financial statements and schedules as of December
31, 2001 and 2000, and for each of the years in the three-year period ended
December 31, 2001 have been incorporated by reference into this prospectus and
into the registration statement in reliance upon the report of KPMG LLP,
independent auditors, incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Dal-Tile International Inc. and
subsidiaries, as of December 28, 2001 and December 29, 2000, and for each of
the years in the three-year period ended December 28, 2001 included in our
Current Report on Form 8-K dated March 20, 2002, which has been incorporated
herein by reference and which is referred to and made a part of this
registration statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon and incorporated by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
39
[LOGO] MOHAWK
INDUSTRIES, INC.
Offer to Exchange $300,000,000 of Its 6.50% Notes Due 2007, Series C and
$400,000,000 of Its 7.20% Notes Due 2012, Series D,
Registered under the Securities Act, for $300,000,000 of Its
Outstanding Unregistered 6.50% Notes due 2007, Series A and $400,000,000 of Its
Outstanding Unregistered 7.20% Notes due 2012, Series B
PROSPECTUS
May 1, 2002