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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
or
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission File No. 333-02972
KNOLL, INC.
A Delaware Corporation I.R.S. Employer No. 13-3873847
1235 Water Street
East Greenville, Pennsylvania 18041
Telephone Number (215) 679-7991
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
There is no public market for the voting stock of the Registrant.
At March 27, 1997, 2,322,500 shares of the Registrant's common stock, par
value $0.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
GENERAL
Knoll, Inc., a Delaware corporation, is the successor by merger to the
business and operations of The Knoll Group, Inc. and related entities ("The
Knoll Group"), which were acquired on February 29, 1996 (the "Acquisition")
from Westinghouse Electric Corporation ("Westinghouse"). The Knoll Group was
created by Westinghouse in 1989 and 1990, when it acquired The Shaw-Walker
Company, Reff Inc. and Knoll International, Inc. and combined them with its
Westinghouse Furniture Systems division.
The Acquisition was completed by T.K.G. Acquisition Corp. ("TKG"), a
corporation majority-owned by Warburg, Pincus Ventures, LLC ("Warburg") and
whose other stockholders are NationsBanc Investment Corp. and members of
Knoll's management. In the Acquisition, a wholly owned subsidiary of TKG
acquired all of the outstanding capital stock of The Knoll Group and was
merged, together with The Knoll Group, Inc. into a Knoll Group subsidiary
which changed its name in the merger to "Knoll, Inc." On March 14, 1997,
Knoll, Inc. was merged into TKG, which changed its name in the merger to
"Knoll, Inc." Unless the context requires or specifies otherwise, the terms
"Knoll" and the "Company" refer to Knoll, Inc., its subsidiaries and
predecessor entities as a combined entity.
The Company is engaged in the design, manufacture, and distribution of
office furniture products and accessories, focusing on the middle to high end
of the contract furniture market. The Company's principal executive offices
are located at 1235 Water Street, East Greenville, Pennsylvania 18041, and its
telephone number is (215) 679-7991.
Except as otherwise indicated, the market and Company market share data
contained in this Form 10-K are based on information from The Business and
Institutional Furniture Manufacturer's Association ("BIFMA"), the United
States office furniture trade association. The Company believes that such data
are considered within the industry to be the best available and generally are
indicative of the Company's relative market share and competitive position.
INDUSTRY OVERVIEW
The U.S. office furniture market consists of five major product categories:
office systems, seating, storage, desks and casegoods, and tables. The
following table indicates the percentage of sales that each product category
contributed to the estimated U.S. office furniture industry in 1996.
<TABLE>
<CAPTION>
U.S. % OF U.S.
PRODUCT CATEGORY MARKET SIZE MARKET
---------------- ----------- ---------
(IN
BILLIONS)
<S> <C> <C>
Office systems...................................... $3.4 34.1%
Seating............................................. 2.6 25.4
Storage............................................. 1.4 14.1
Desks and casegoods................................. 1.6 16.4
Tables.............................................. 0.7 6.6
</TABLE>
Office systems consist of movable panels, work surfaces and storage units,
electrical distribution, lighting, organizing tools and freestanding
components. These modular systems are popular with customers who require
flexible space configurations, or where many people share open floor space as
is common in modern office buildings. Both seating, ranging from executive
desk chairs to task chairs and side chairs, and storage products, such as
overhead shelving, file cabinets and desk pedestals (file cabinets that serve
to support desks), are sold to users of office systems and also are sold
separately to non-systems users. Desks and tables range from classic writing
desks in private offices to conference and meeting room tables that can
accommodate sophisticated technological demands.
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The Company believes that fundamental shifts in the nature of corporate
organizational structures, technology and work processes are driving growth in
the office furniture industry. Companies increasingly use workplace design and
furniture purchase decisions as catalysts for organizational and cultural
change. Several significant factors that influence this change include:
continued corporate reengineering, restructuring and reorganizing; corporate
relocations; new office technology and the resulting necessity for improved
wire and data management; and heightened sensitivity to concerns about
ergonomic standards. In addition, other factors such as white collar
employment levels, corporate cash flow and non-residential construction
reflect certain macroeconomic conditions which management believes influence
industry growth.
PRODUCTS
The Company offers a broad range of office furniture and accessories in five
basic categories: (i) office systems, comprised mainly of the Reff, Morrison
and Equity product lines; (ii) seating, including the Sapper, Bulldog,
Parachute and SoHo chairs; (iii) storage solutions and filing cabinets,
including the Calibre collection; (iv) desks and casegoods, including
bookcases and credenzas; and (v) tables. The Company's KnollStudio collection
features its signature design classics, including high image side chairs,
sofas, desks and tables for both office and home use. The Company also carries
its own lines of textiles sold under the KnollTextiles brand, lines of leather
products sold under the Spinneybeck name and a line of desk, office and
computer accessories under the KnollExtra brand that complement its furniture
products and are also sold to other manufacturers or with products
manufactured by others.
Since 1994, nearly every product line, including each office system, has
been put under the individual management of an experienced product line
manager who carefully considers its market, competitive and strategic
positioning, marketing plan, costs, pricing, gross margin and gross profit
objective. The Company's product line managers have conducted extensive market
studies and, in coordination with the product development team that was
brought under their control, used the results of the studies to re-design
portions of every major product line in an effort to respond to customer needs
and reduce manufacturing costs.
The following is a description of the Company's major product categories
and lines:
Office Systems
The Company offers a complete line of systems products in order to meet the
needs of a variety of organizations. Systems may be used for teamwork
settings, private offices and open floor plans and are composed of adjustable
partitions, work surfaces, storage cabinets and electrical and lighting
systems which can be moved, re-configured and re-used within the office.
Systems therefore offer a cost effective and flexible alternative to
traditional drywall office construction. The Company has focused on this area
of the office furniture industry because it is the largest category, typically
provides attractive gross margins and often leads to repeat and add-on sales
of additional systems, complementary furniture and furniture accessories.
Seating
The Company believes that the office seating market includes three major
segments: the "appearance," "comfort" and "basic" segments. The Company offers
a complete line of seating in the appearance and comfort segments at various
price, appearance, comfort and performance levels. The majority of sales in
the U.S. seating market are made to the same customers as are the office
systems sales.
Storage Solutions and Filing Cabinets
The Company offers a variety of storage options designed to be integrated
with its office systems as well as with its and others' stand-alone furniture.
These products consist of stand-alone metal filing, storage and desk products
that integrate into and support the Company's systems sales. They also
function as free-standing furniture in private offices or open-plan
environments. These products support the Company's strategy of providing its
customers with a one-stop source for office furniture and selling products to
businesses whose office furniture systems are provided by its competitors.
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Desks and Casegoods
The Company's collections of stand-alone wood furniture items, such as
desks, bookshelves and credenzas, are available in a range of designs and
price points. These products combine contemporary styling with sophisticated
workplace solutions and attract a wide variety of customers, from those
conducting large office reconfigurations to small retail purchasers. Casegoods
are part of the Company's strategy of being a one-stop source of quality
office furniture.
Tables
The Company recently has expanded its offerings in the table category of the
market with its innovative line of adjustable Interaction tables. Interaction
tables are designed to be integrated into the Company's systems lines and to
provide customers with ergonomically superior work surfaces. Additionally,
these tables are often sold as stand-alone products to non-systems customers.
In 1995, the Company introduced an award winning line of Propeller meeting and
conference tables that provide advanced wire management and technology support
while offering sufficient flexibility to allow end users to reconfigure a
meeting room quickly and easily to accommodate their specific needs.
KnollStudio
The Company's historically significant KnollStudio collection serves the
design-conscious segment of the fine furniture contract market, providing the
architect and design community and customers with sophisticated furniture for
high-profile office and home uses. KnollStudio provides a marketing umbrella
for the full range of the Company's office products and is recognized as the
"design engine" of the Company. KnollStudio products, including a wide variety
of chairs and sofas, as well as conference, training, side and dining tables,
were created by many of this century's most prominent architects and
designers, such as Ludwig Mies van der Rohe, Marcel Breuer, Eero Saarinen and
Frank Gehry, for prestigious corporate and residential interiors. This line
includes complete collections by individual designers as well as distinctive
single items.
Complementary Products
The Company offers product lines that complement its primary office systems
and seating business, permitting it to sell a complete package of office
interiors by supplying many of its own component products. Such products help
maintain the Company's unique design image by incorporating elements developed
by its own team of designers.
KnollExtra. KnollExtra is a rapidly growing line of desk and office
accessories, including letter trays, sorters, binder bins, file holders,
calendars, desk pads, planters, wastebaskets and bookends. In addition,
KnollExtra offers a number of computer accessories and ergonomic office
products.
KnollTextiles. KnollTextiles offers a wide range of coverings for walls,
panels and seating. KnollTextiles was established in 1947 to develop high
quality fabrics for Knoll furniture. These products allow the Company to
distinguish its systems offerings by providing specialty fabric options and
flexibility in fabric selection and application. As it does with its furniture
lines, the Company uses many independent designers to create its fabrics which
has helped it establish what management believes to be a unique reputation for
textile design.
Leather. Spinneybeck Enterprises, Inc., a wholly owned subsidiary of the
Company, supplies quality upholstery leather to the Company, to other
furniture manufacturers and to aviation, custom coach and boating
manufacturers.
European Products
Knoll Europe has a broad product offering which allows customers to single-
source a complete office environment, including certain products designed
specifically for the European market. Knoll Europe's core product categories
include: (i) office systems, including the Hannah Desking System which is
targeted to Northern Europe, the Allesandri System which is targeted to the
French market and the SoHo Desking System, which has broad market appeal; (ii)
KnollStudio, which serves the image- and design-oriented segment of the
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fine furniture market; (iii) seating, including a comprehensive range of
chairs such as Sapper, Bulldog, and Parachute; and (iv) cabinets, which are
designed to complement its systems products. The Company also sells its
products designed and manufactured in North America to the international
operations of its core North American customers.
PRODUCT DESIGN AND DEVELOPMENT
Knoll's design philosophy is linked to its commitment to working with the
world's preeminent designers to develop products that delight and inspire. The
Company's collection of classic and current designs includes works by such
internationally recognized architects and designers as Ludwig Mies van der
Rohe, Marcel Breuer, Eero Saarinen, Harry Bertoia, Massimo Vignelli and Frank
Gehry. Today, the Company continues to engage prominent outside architects and
designers to create new products and product enhancements. By combining the
creative vision of architects and designers with a corporate commitment to
products which address changing business needs, the Company seeks to launch
new offerings which achieve recognition in the architect and design community
and generate strong demand among corporate customers.
Since 1994, under the leadership of Carl G. Magnusson, the Company's Senior
Vice President-Design, the Company has won over 20 design awards for its
recent product introductions. An important part of the Company's product
development capabilities is its responsiveness to customer needs and
flexibility to handle customized manufacturing requests. In order to develop
products across its product range, the Company works closely with independent
designers from a number of industries. By utilizing these long-standing design
relationships and listening to customers to analyze their needs, since 1994
the Company has redesigned or enhanced virtually every product line in order
to better meet customer preferences.
SALES AND DISTRIBUTION
The Company employs approximately 290 direct sales representatives, who work
closely with its approximately 200 independent dealers in North America to
present the Company's products to prospective customers. The sales force, in
conjunction with the dealer network, has close relationships with architects,
designers and corporate facility managers, who often have a significant
influence on product selection on large orders.
In addition to coordinating sales efforts with the Company's sales
representatives, the Company's dealers generally handle project management,
installation and maintenance for the account after the initial product
selection and sale. Although many of these dealers also carry products of
other manufacturers, none of them acts as a dealer for the Company's principal
direct competitors. The Company has not experienced significant turnover in
its dealer network except at its own initiation, as the dealer's economic
investment in learning all aspects of a particular manufacturer's product
offerings and the value of the relationships the dealer forms with the Company
and with customers discourage dealers from changing their vendor affiliations.
The Company is not dependent on any one of its dealers, the largest of them
accounting for less than 5% of the Company's 1996 North American sales. No
customer represents more than 10% of the Company's 1996 North American sales.
However, a number of U.S. government agencies purchase the Company's products
through multiple contracts with the General Services Administration ("GSA").
Sales to the GSA aggregated approximately 10% in 1996.
In Europe, the Company sells its products in largely the same manner as it
does in North America, through a direct sales force and a network of dealers,
though each major European market has its own distinct characteristics. In the
Latin American and Asia-Pacific markets, the Company uses both dealers and
independent licensees.
MANUFACTURING AND OPERATIONS
The Company operates four manufacturing sites in North America, with plants
located in East Greenville, Pennsylvania; Grand Rapids and Muskegon, Michigan;
and Toronto, Canada. In addition, the Company has two plants in Italy: one in
Foligno and one in Graffignana. In 1994, all of the Company's plants were
awarded registration to ISO 9000, an internationally developed set of
manufacturing facility quality criteria.
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RAW MATERIALS AND SUPPLIERS
Based on management's initiatives, the Company has centralized purchasing in
its East Greenville facility and has formed close working relationships with
its main suppliers. This effort focuses on achieving purchasing economies and
"just-in-time" inventory practices. The Company utilizes steel, lumber, paper,
paint, plastics, laminates, particleboard, veneers, glass, fabrics, leathers
and upholstery filling material. Management currently maintains no long-term
supply contracts and believes that the supply sources for these materials are
adequate. The Company does not rely on any sole source suppliers for any of
its raw materials (other than certain electrical products).
COMPETITION
The office furniture market is highly competitive. Office furniture
companies compete on the basis of (i) product design, including ergonomic and
aesthetic factors, (ii) product quality and durability, (iii) price (primarily
in the middle and budget segments), (iv) on-time delivery and (v) service and
technical support. In the United States, where the Company had a 5.8% market
share and derived approximately 86% of its sales in 1996, five companies
(including the Company) represent approximately 59% of the market.
Many of the Company's competitors, especially those in North America, are
large and have significantly greater financial, marketing, manufacturing and
technical resources than those of the Company. The Company's most significant
competitors in its primary markets are Steelcase, Inc., Herman Miller, Inc.,
Haworth, Inc. and HON Industries, Inc. These competitors have a substantial
volume of furniture installed at businesses throughout the country, providing
a continual source of demand for further products and enhancements. Although
the Company believes that it has been able to compete successfully in its
markets to date, there can be no assurance that it will be able to continue to
do so in the future.
The European market accounted for approximately 8% of the Company's sales in
1996. This market is highly fragmented, as the combined sales of the estimated
top 20 manufacturers represent less than 40% of the market. The Company
believes that no single company holds more than a 5% share of the European
market.
PATENTS AND TRADEMARKS
The Company has approximately 87 active United States utility patents on
various components used in its products and systems and approximately 115
active United States design patents. The Company also has approximately 200
patents in various foreign countries. Knoll(R), The Knoll Group(R),
KnollStudio(R), KnollExtra(R), Reff(TM), Bulldog(R), Calibre(R), Equity(R),
Parachute(R), Good Design Is Good Business(R), Propeller(TM) and SoHo(TM) are
trademarks of the Company. The Company considers securing and protecting its
intellectual property rights to be important to its business.
BACKLOG
The Company's backlog of unfilled orders was $94.1 million at December 31,
1996 and $70.8 million at December 31, 1995. The Company expects to fill all
outstanding unfilled orders within the next twelve months. The Company
manufactures substantially all of its products to order, and its average
manufacturing time is approximately five weeks. As a result, backlog is not a
significant factor used to predict the Company's long-term business prospects.
FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
For information regarding foreign and domestic operations and exports sales,
refer to Note 21 (Business Segment and Geographical Region Information) of the
Notes to the Consolidated Financial Statements beginning on page F-26.
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ENVIRONMENTAL MATTERS
The Company believes that it is substantially in compliance with all
applicable laws and regulations for the protection of the environment and the
health and safety of its employees based upon existing facts known to
management. Compliance with federal, state, local and foreign environmental
regulations relating to the discharge of substances into the environment, the
disposal of hazardous wastes and other related activities has had and will
continue to have an impact on the operations of the Company, but has, since
the formation of Knoll in 1990, been accomplished without having a material
adverse effect on the operations of the Company. There can be no assurance
that such regulations will not change in the future or that the Company will
not incur material costs as a result of such regulations. While it is
difficult to estimate the timing and ultimate costs to be incurred due to
uncertainties about the status of laws, regulations and technology, management
presently has no planned expenditures of significant amounts for future
environmental compliance. The Company has trained staff responsible for
monitoring compliance with environmental, health and safety requirements. The
Company's ultimate goal is to reduce and, wherever possible, eliminate the
creation of hazardous waste in its manufacturing processes.
The Company has been identified as a potentially responsible party pursuant
to the Comprehensive Environmental Response Compensation and Liability Act
("CERCLA") for remediation costs associated with waste disposal sites
previously used by the Company. CERCLA imposes liability without regard to
fault or the legality of the disposal. The remediation costs at the CERCLA
sites are unknown; however, the Company does not expect its liability to be
material. At each of the sites, the Company is one of many potentially
responsible parties and expects to have only a small percentage of liability.
At some of the sites, the Company expects to qualify as a de minimis or de
micromis contributor, eligible for a cash-out settlement. In addition,
Westinghouse has agreed to indemnify the Company for certain costs associated
with CERCLA liabilities known as of the date of the Acquisition.
EMPLOYEES
As of February 1, 1997, the Company employed a total of 3,550 people,
including 2,266 hourly and 1,284 salaried employees. The Grand Rapids,
Michigan plant is the only unionized Company plant within the United States,
with the Carpenters and Joiners of America-Local 1615 having a four-year
contract expiring August 30, 1998. While management believes that relations
with this union are positive, management cannot assure that it will be
successful in reaching a new contract. Certain workers in the Company's
facilities in Italy are represented by unions. The Company has experienced
brief work stoppages from time to time at the Company's plants in Italy,
certain of which related to national or local issues. Such work stoppages have
not materially affected the Company.
ITEM 2. PROPERTIES
The Company operates over 2,947,000 square feet of facilities, including
manufacturing plants, warehouses and sales offices. Of these facilities, the
Company owns approximately 2,372,000 square feet and leases approximately
575,000 square feet. The Company's manufacturing plants are located in East
Greenville, Pennsylvania; Grand Rapids and Muskegon, Michigan; Toronto,
Canada; and Foligno and Graffignana, Italy.
The Company's corporate headquarters are located in East Greenville,
Pennsylvania, where the Company owns two manufacturing facilities aggregating
approximately 547,000 square feet and leases three warehouses aggregating
approximately 142,000 square feet. The East Greenville facility is also the
distribution center for KnollStudio, KnollExtra and KnollTextiles.
The Company owns one approximately 500,000 square foot manufacturing
facility in Grand Rapids, Michigan and one approximately 274,000 square foot
plant in Muskegon, Michigan. The Company's plants in Toronto, Canada consist
of one approximately 375,000 square foot owned building and two leased
properties aggregating approximately 230,000 square feet. The Company's owned
facilities in East Greenville, Grand Rapids and Muskegon are encumbered by
mortgages securing an original aggregate principal amount of $230 million that
were entered into in connection with the Company's existing bank credit
facilities (the "Credit Facilities").
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The Company owns two manufacturing facilities in Italy: an approximately
258,000 square foot building in Foligno, which houses the Knoll Europe
headquarters, and an approximately 110,000 square foot building in
Graffignana.
The Company believes that its plants and other facilities are sufficient for
its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to litigation in the ordinary course of its business.
The Company is not a party to any lawsuit or proceeding which, in the opinion
of management, based on information presently known, is likely to have a
material adverse effect on the Company.
The Company, for a number of years, has sold various products to the United
States Government under GSA multiple award schedule contracts. The GSA is
permitted to audit the Company's compliance with the terms of the GSA
contracts. As a result of one such audit, the GSA has asserted refund claims
under 1985-88 and 1987-90 contracts between GSA and The Shaw-Walker Company,
which has been merged into the Company, for approximately $2.15 million
("Shaw-Walker GSA Claims") and has other contracts under audit review. GSA has
referred both of these Shaw-Walker contracts to the Justice Department for
consideration of potential civil False Claims Act cases. Under the civil False
Claims Act, the Company is potentially liable for treble damages plus
penalties of up to $10,000 for each "false" invoice submitted to the
Government. The former shareholders of The Shaw-Walker Company have agreed to
indemnify the Company for the Shaw-Walker GSA Claims. Based upon information
presently known, management disputes the audit results and does not expect
resolution of the Shaw-Walker GSA Claims to have a material adverse effect on
the Company's consolidated financial statements. Management does not have
information which would indicate a substantive basis for a civil False Claims
Act case under the contracts.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 16, 1996 and March 4, 1997, by written consents of the Company's
majority stockholder in actions taken without a meeting, amendments to and
restatements of the Company's certificate of incorporation were approved and
adopted.
On February 14, 1997, by written consent of the Company's majority
stockholder in an action taken without a meeting, the Knoll, Inc. 1997 Stock
Incentive Plan (the "1997 Stock Plan") was approved and adopted.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION AND DIVIDEND POLICY
(a) There is no established public trading market for the Company's common
stock, par value $0.01 per share (the "Common Stock").
(b) At March 27, 1997, there were 39 holders of record of the Company's
Common Stock.
(c) The Company has not paid a cash dividend on its Common Stock since the
Acquisition, and does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. The current policy of the Company's Board of
Directors is to retain earnings to finance the operations and expansion of the
Company's business. In addition, the Company's Credit Facilities and indenture
(the "Indenture") relating to the Company's 10 7/8% Senior Subordinated Notes
(the "Notes") restrict the Company's ability to pay dividends to its
stockholders. Any future determination to pay dividends will depend on the
Company's results of operations, financial condition, capital requirements,
contractual restrictions and other factors deemed relevant by the Board of
Directors.
On March 14, 1997, the Company filed a registration statement on Form S-1
with the Securities and Exchange Commission in anticipation of possible public
offerings of Common Stock (the "Offerings"). Application will be made for
listing the Common Stock on the New York Stock Exchange. However, there is no
assurance that an active trading market for the Common Stock will develop or
be sustained.
RECENT SALES OF UNREGISTERED SECURITIES
On February 29, 1996 and October 21, 1996, Warburg, NationsBanc Investment
Corp. and certain members of management purchased an aggregate of 1,002,500
shares of the Common Stock and 1,602,997 shares of Series A 12% Participating
Convertible Preferred Stock, par value $1.00 per share (the "Series A
Preferred Stock"), for an aggregate purchase price of $160.4 million. Such
sales were made in reliance on the exemption from registration pursuant to
Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
For a description of the conversion feature of Series A Preferred Stock, see
Note 11 (Preferred Stock) of the Notes to the Consolidated Financial
Statements appearing on page F-17.
On February 29, 1996, in connection with the Acquisition, the Company sold
$165 million aggregate principal amount of the Notes to NationsBanc Capital
Markets, Inc. at a price of 96.75% of its face value. Such sale was made in
reliance on the exemption from registration pursuant to Section 4(2) of the
Securities Act and Rule 144A and Regulation D promulgated thereunder.
On February 29, 1996 and August 20, 1996, certain members of management were
granted a total of 1,320,000 shares of Common Stock, respectively, pursuant to
the Knoll, Inc. 1996 Stock Incentive Plan (the "1996 Stock Plan", and together
with the 1997 Stock Plan, the "Stock Plans"). These shares vest over periods
determined at their date of grant. These grants were made in reliance on the
exemption from registration pursuant to Section 4(2) of the Securities Act and
Rule 701 promulgated thereunder.
Options to purchase 180,000 shares of Common Stock were granted to certain
employees of the Company on March 7, 1997 pursuant to the 1996 Stock Plan.
These options vest over periods determined at their date of grant. Such grants
were made in reliance on the exemption from registration pursuant to Section
4(2) of the Securities Act.
Options to purchase 240,000 shares of Common Stock were granted to certain
employees of the Company on March 7, 1997 pursuant to the 1997 Stock Plan.
These options vest over periods determined at their date of grant. Such grants
were made in reliance on the exemption from registration pursuant to Section
4(2) of the Securities Act.
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ITEM 6. SELECTED FINANCIAL DATA
The following table presents (i) selected historical consolidated financial
information of the Company's predecessor (the "Predecessor"), as of the dates
and for the periods indicated, (ii) selected historical consolidated financial
information of the Company, as of the date and for the period indicated and
(iii) summary pro forma consolidated financial information of the Company, as
of the dates and for the periods indicated, after giving effect to the events
described in the notes below. The historical consolidated financial
information for each of the three years in the period ended December 31, 1995
has been derived from the Predecessor's financial statements, which have been
audited by Price Waterhouse LLP. The historical consolidated financial
information for the two month period ended February 29, 1996 and the ten month
period ended December 31, 1996 has been derived from the Predecessor's and the
Company's financial statements, respectively, which have been audited by Ernst
& Young LLP. The historical consolidated financial information for the year
ended December 31, 1992 has been derived from unaudited financial statements
and, in the opinion of management, includes all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of financial
position and results of operations as of the date and for the period
indicated. The summary pro forma information does not purport to represent
what the Company's results actually would have been if such events had
occurred at the dates indicated, nor does such information purport to project
the results of the Company for any future period. The selected financial
information should be read in conjunction with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Item 8, "Financial Statements and Supplementary Data."
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
---------------------------------------------------- ---------------------------------------
PRO FORMA YEAR
TWO MONTHS TEN MONTHS ENDED
YEAR ENDED DECEMBER 31, ENDED ENDED DECEMBER 31,
-------------------------------------- FEBRUARY 29, DECEMBER 31, ------------------
1992 1993 1994 1995 1996 1996 1995(1) 1996(1)
-------- -------- -------- -------- ------------ ------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total sales............. $576,621 $508,383 $562,869 $620,892 $ 90,232 $561,534 $620,892 $651,766
Cost of sales(2)........ 417,213 376,875 410,104 417,632 59,714 358,841 425,327 419,908
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit............ 159,408 131,508 152,765 203,260 30,518 202,693 195,565 231,858
Provision for
restructuring.......... 26,000 6,165 29,180 -- -- -- -- --
Selling, general and
administrative
expenses(3)............ 165,913 163,015 167,238 138,527 21,256 131,349 142,582 153,388
Westinghouse long-term
incentive
compensation(4)........ -- -- -- -- 47,900 -- -- --
Allocated corporate
expenses(2)(3)......... 5,036 4,899 5,881 9,528 921 -- 4,000 --
-------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................. (37,541) (42,571) (49,534) 55,205 (39,559) 71,344 48,983 78,470
Interest expense........ 3,866 3,301 3,225 1,430 340 32,952 40,945 40,030
Other income (expense),
net.................... (929) 2,082 699 (1,597) (296) 447 (1,597) 151
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes,
cumulative effect of
changes in accounting
principles and
extraordinary item..... (42,336) (43,790) (52,060) 52,178 (40,195) 38,839 6,441 38,591
Income tax expense
(benefit).............. (4,795) (3,571) 7,713 22,846 (16,107) 16,844 2,705 16,848
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of
changes in accounting
principles and
extraordinary item..... (37,541) (40,219) (59,773) 29,332 (24,088) 21,995 3,736 21,743
Cumulative effect of
changes in accounting
principles............. 11,202 1,118 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item..... (48,743) (41,337) (59,773) 29,332 (24,088) 21,995 3,736 21,743
Extraordinary loss on
early extinguishment of
debt, net of taxes..... -- -- -- -- -- 5,159 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)(5).... $(48,743) $(41,337) $(59,773) $ 29,332 $(24,088) $ 16,836 $ 3,736 $ 21,743
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------------------------- ------------
DECEMBER 31,
------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996
------- ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD
END):
Working capital................... $67,063 $41,933 $22,898 $82,698 $64,754
Total assets...................... 726,469 691,043 705,316 656,710 675,712
Total long-term debt, including
current portion.................. 16,623 12,215 12,451 3,538 354,154
Total liabilities................. 186,347 205,104 247,310 176,259 497,908
Stockholders' equity.............. 540,122 485,939 458,006 480,451 177,804
</TABLE>
- --------
(1) Reflects summary pro forma financial information of the Company derived
from the Financial Statements and notes thereto included elsewhere in this
Form 10-K, adjusted for the completion of the Acquisition and the
application of the net proceeds of $160,000 from the sale of capital stock
of the Company and borrowings of $260,000 and $165,000 under the Credit
Facilities and the Notes, respectively.
(2) Cost of sales has been increased by (i) $4,158 in pro forma 1995 and $801
in pro forma 1996 to reflect an increase in amortization and depreciation
resulting from the Acquisition, (ii) $450 in pro forma 1995 to reflect the
sale of inventory acquired as part of the Acquisition and (iii) $3,087 in
pro forma 1995 and $552 in pro forma 1996 in order to reflect the
reclassification of a portion of allocated corporate expenses. The
reclassified allocated corporate expenses approximate the replacement cost
to the Company for services formerly provided by Westinghouse to the
Predecessor, including (i) benefit expense related to the adoption of
various independent benefit plans comparable to Westinghouse benefit plans
and (ii) the cost of services required to replace specific activities
formerly provided by Westinghouse to the Predecessor, including audit,
tax, general ledger, accounts receivable, human resources, legal,
insurance and data communications.
(3) Selling, general and administrative expenses have been increased by (i)
$2,441 in pro forma 1995 and $369 in pro forma 1996 to reflect the
reclassification of allocated corporate expenses which approximate the
replacement cost to the Company (described above in note 2) and (ii)
$1,614 in pro forma 1995 and $414 in pro forma 1996 to reflect an increase
in amortization and depreciation resulting from the Acquisition.
(4) Westinghouse long-term incentive compensation has been eliminated in pro
forma 1996. Such compensation became payable from Westinghouse, and the
amounts payable were established, as a result of consummation of the
Acquisition.
(5) The pro forma 1996 income statement data presented does not include the
$5,159 extraordinary loss on early extinguishment of debt, net of taxes.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's historical and pro forma results
of operations and of its liquidity and capital resources should be read in
conjunction with Item 6, "Selected Financial Data" and Item 8, "Financial
Statements and Supplementary Data."
Prior to the Acquisition, the Predecessor's results of domestic operations
were included in the consolidated U.S. federal income tax return of
Westinghouse and the results of the Canadian and European operations were
reported separately in their respective taxing jurisdictions. For the purposes
of this Form 10-K, the income tax expense and other tax-related items included
in the financial statements are presented as if the Predecessor had been a
stand-alone taxpayer.
BACKGROUND
Westinghouse created The Knoll Group by acquiring The Shaw-Walker Company,
Reff Inc. and Knoll International, Inc. in 1989 and 1990 and combining them
with Westinghouse Furniture Systems, a division of Westinghouse. By joining
these four separate companies under the Knoll name, Westinghouse created a
business with a full line of office furnishings, a reputation for high quality
and superior design, and an internationally recognized brand name.
For various reasons, the combined entities did not perform well. The Company
continued to be run as four separate entities, with essentially separate
operations with independent factories and administrative support personnel. In
addition, the Company believes that former management's steps to rationalize
the Company's U.S. dealer network and consolidate its sales forces may have
impaired Knoll's distribution and sales capabilities. A decline in revenues in
the U.S. office furniture industry in 1991, followed in 1992 by Westinghouse's
10
<PAGE>
announcement of its intention to sell Knoll, exacerbated the difficult
operating environment within Knoll. As a result, under previous management
from 1991 to 1993, sales and net income deteriorated. In December 1993,
Westinghouse appointed Burton B. Staniar, then Chairman and Chief Executive
Officer of Westinghouse Broadcasting, as Knoll's Chairman and Chief Executive
Officer, and ended its efforts to sell Knoll. Mr. Staniar promptly recruited
John H. Lynch as Vice Chairman, and in 1994 they initiated a major turnaround
and restructuring program which led to significantly improved financial
performance. Management's turnaround efforts had a dramatic impact on the
Company's competitive position and financial performance and positioned the
Company for growth.
OVERVIEW
Operating performance improved from 1994 to 1996, primarily due to the
turnaround program and the restructuring efforts undertaken by the Company.
Sales increased from $562.9 million in 1994 to $651.8 million in 1996. Gross
margins increased from 27.1% in 1994 to 32.7% in 1995 and, on a pro forma
basis, from 31.5% in 1995 to 35.6% in 1996. Operating income improved by
$104.7 million from a loss of $49.5 million in 1994 to a profit of $55.2
million in 1995; pro forma operating income improved by $29.5 million from
$49.0 million in 1995 to $78.5 million in 1996. Operating margins increased
from (8.8)% in 1994 to 8.9% in 1995 and, on a pro forma basis, from 7.9% in
1995 to 12.0% in 1996. The most significant cost reductions, which improved
operating performance, were in 1995, when the Company eliminated approximately
$25.0 million in variable operating costs and approximately $45.0 million in
fixed operating costs and general expenses. The Company's improved financial
and operating results allowed it in 1996 to prepay $72.0 million under its
Credit Facilities and refinance such facilities on more favorable terms.
Periods prior to the Acquisition are not comparable to periods after the
Acquisition on a non-pro forma basis.
Since 1994, virtually every product line has been modified and improved, and
the lead time required to bring new and enhanced products to the market has
been decreased significantly through the use of computer-aided design
techniques and other process improvements; average lead times between order
entry and delivery of products to customers have been reduced from seven weeks
to five weeks; and on-time shipments, a measure of customer service, improved
to approximately 95% in the fourth quarter of 1996. Management renewed sales
growth by refocusing and retraining the Company's sales force, and instituted
product line profitability measures and management incentive programs.
Finally, management accelerated the development of new and enhanced products
and restructured the European business.
The Company believes that its recent sales growth exceeded industry growth
as a whole. According to BIFMA, U.S. furniture industry shipments have
increased at a compound annual growth rate of 4.3% over the ten-year period
ended December 31, 1996. In addition, BIFMA estimates that the U.S. office
furniture industry will grow approximately 5% in 1997. The Company's sales
increased 10.7% in 1994 and 10.3% in 1995. Sales increases of 5.0% in 1996
were negatively affected by management initiatives undertaken in the
turnaround to increase the profitability of the Company's sales, including (i)
the discontinuation of several products that were sold to customers in 1995
and (ii) an intentional decrease in heavily discounted, lower profit sales to
selected customers. During this transitional period, orders for new products
increased at a faster rate than sales, with 1996 orders of $686.8 million, up
$87.3 million, or 14.6%, over 1995 orders of $599.5 million.
11
<PAGE>
The Company believes that it is well-positioned for growth in sales and
profitability. The Company intends to pursue growth by introducing new
products in the office systems category, where the Company is already a
recognized leader, and in other product categories where the Company's market
share could be increased by leveraging the Company's design expertise and
brand awareness. The Company estimates that its share of the 1996 U.S. office
furniture market was 11.2% for office systems, 2.1% for seating, 2.1% for
storage, 1.2% for desks and casegoods and 1.8% for tables. Such percentages do
not include sales of KnollStudio, KnollExtra, textiles and leather products.
The following table describes the estimated 1996 U.S. office furniture market
sales by category.
<TABLE>
<CAPTION>
U.S. MARKET % OF
PRODUCT CATEGORY SIZE U.S. MARKET
---------------- ------------- -----------
(IN BILLIONS)
<S> <C> <C>
Office systems.................................. $3.4 34.1%
Seating......................................... 2.6 25.4
Storage......................................... 1.4 14.1
Desks and casegoods............................. 1.6 16.4
Tables.......................................... 0.7 6.6
</TABLE>
In addition, the Company had 1996 sales of approximately $79.5 million in
Canada and Europe. European sales are primarily in the United Kingdom,
Germany, France, Belgium and Italy.
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations on a pro
forma basis for both 1995 and 1996 and as a percentage of net sales as if the
Acquisition had been consummated at the beginning of each period.
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Total sales............. $620.9 100.0% $651.8 100.0%
Cost of sales........... 425.3 68.5 419.9 64.4
------ ----- ------ -----
Gross profit............ 195.6 31.5 231.9 35.6
Selling, general and
administrative
expenses............... 142.6 23.0 153.4 23.6
Allocated corporate
expenses............... 4.0 0.6 -- --
------ ----- ------ -----
Operating income........ 49.0 7.9 78.5 12.0
Interest expense........ 41.0 6.6 40.0 6.1
Other income (expense),
net.................... (1.6) (0.3) 0.1 --
------ ----- ------ -----
Income before income
taxes and extraordinary
item................... 6.4 1.0 38.6 5.9
Income tax expense...... 2.7 0.4 16.9 2.6
------ ----- ------ -----
Income before
extraordinary item..... $ 3.7 0.6% $ 21.7 3.3%
====== ===== ====== =====
</TABLE>
COMPARISON OF PRO FORMA YEAR ENDED DECEMBER 31, 1996 TO PRO FORMA YEAR ENDED
DECEMBER 31, 1995
Total sales. Total sales were $651.8 million for the year ended December 31,
1996, an increase of $30.9 million, or 5.0%, from $620.9 million for the year
ended December 31, 1995. The sales growth resulted from price increases (an
average of 2.4% over 1995) and increased volume across all North American
product categories, and was partially offset by the elimination of certain
lower profit product lines and contracts during 1995. Sales of office systems
grew $27.8 million, or 6.0%, while sales of the Company's specialty products
(KnollStudio, KnollExtra, KnollTextiles and Spinneybeck) and seating grew
$10.4 million (10.8%) and $3.1 million (5.7%), respectively. This growth is
attributable to product enhancements in all categories as well as
12
<PAGE>
continued growth from new product introductions. The 1996 sales increase of
continued product was $41.3 million (6.8%), as 1995 sales included lower
profit discontinued product sales of $10.4 million.
Gross profit. Gross profit was $231.9 million for the year ended December
31, 1996, increasing $36.3 million, or 18.6%, from gross profit of $195.6
million for the year ended December 31, 1995. Gross profit as a percentage of
sales increased to 35.6% for the year ended December 31, 1996 from 31.5% for
the previous year. These increases were principally due to the higher sales
volume in North America, better pricing, discontinuance of unprofitable
products, continued factory operating cost improvements, consolidation of
European operations and other fixed cost reductions.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $153.4 million for the year ended December 31,
1996, up $10.8 million (7.6%) from the year ended December 31, 1995. The
increase was primarily due to increased sales incentive compensation and
employee benefits related to higher sales volumes in North America, and
expenses related to new product and technology initiatives, partially offset
by savings resulting from showroom consolidations in Germany, Italy and
Belgium along with the centralization of administrative functions in Europe.
As a percentage of sales, the Company's selling, general and administrative
expenses were 23.6% for the year ended December 31, 1996 and 23.0% for the
year ended December 31, 1995.
Allocated corporate expenses. Allocated corporate expenses of $4.0 million
in 1995 represents incentive compensation payable to Knoll executives under
Westinghouse long-term incentive plans.
Operating income. Operating income increased to $78.5 million for the year
ended December 31, 1996 from $49.0 million for the year ended December 31,
1995. As a percentage of sales, operating income increased to 12.0% for the
year ended December 31, 1996 from 7.9% for the same period in 1995. As noted
above, these improvements were driven by higher sales volume, better pricing,
discontinuance of lower profit product lines, factory cost improvements and
efficiencies gained from consolidation and centralization of administrative
functions.
Interest expense. Interest expense decreased for the year ended December 31,
1996 from 1995 due to the prepayment of $72.0 million of indebtedness under
the Credit Facilities.
Income tax expense. Income tax expense for the year ended December 31, 1996
was 43.8% of pre-tax income as compared to 42.2% in 1995. The increase in the
effective tax rate is primarily the result of increased earnings for 1996 in
foreign countries with effective tax rates higher than those present in the
United States.
Extraordinary item. For the year ended December 31, 1996, there was an
extraordinary charge of $5.2 million net of a tax benefit of $3.3 million
relating to the write-off of unamortized financing costs following the
refinancing of the Company's previous credit agreement.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
Total sales. Total sales were $620.9 million for the year ended December 31,
1995, an increase of $58.0 million, or 10.3%, from $562.9 million for the year
ended December 31, 1994. Sales growth resulted from price increases (an
average increase of 1.6% over 1994) and increased volume across all major
North American product categories (an average increase of 8.7% over 1994).
Sales of office systems grew $50.7 million, or 15.1%, as sales of the Equity,
Morrison and Reff product lines increased due to product enhancements and
sales incentives at both the dealer and sales division level. Sales from the
Company's specialty products (KnollStudio, KnollExtra, Spinneybeck and
KnollTextiles) and seating products grew $4.9 million and $2.4 million,
respectively, a combined increase of 6.3% over 1994, due in part to continued
growth from new product introductions such as the Propeller table and the
Parachute and SoHo chairs.
Gross profit. Gross profit was $203.3 million for the year ended December
31, 1995, an increase of $50.5 million, or 33.0%, from $152.8 million for the
year ended December 31, 1994. This increase was principally due
13
<PAGE>
to the higher sales volume, better pricing, discontinuance of lower profit
product lines, factory operating cost improvements, and cost reductions
realized from closing the Company's Legnano, Italy factory and consolidating
its Muskegon, Michigan operations. As a result, gross profit as a percentage
of sales increased to 32.7% for the year ended December 31, 1995 from 27.1%
for the year ended December 31, 1994.
Restructuring provision. The Company's restructuring provision of $29.2
million for the year ended December 31, 1994 includes costs associated with
the factory closing and consolidation referred to above, lease cancellations,
product discontinuations and employee separation costs associated with
initiatives implemented by management in the turnaround program that commenced
in early 1994.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $138.5 million for the year ended December 31,
1995, representing a decrease of $28.7 million, or 17.2%, from $167.2 million
for the year ended December 31, 1994. This decrease is primarily attributable
to the cost reductions and improved operating efficiencies derived from
consolidating and centralizing human resources, finance, purchasing and
logistics, order entry and customer service, and management information
systems operations at one facility, as well as from reducing marketing and
selling expenses associated with showroom and sales office consolidations and
eliminations. As a percentage of sales, selling, general and administrative
expenses improved to 22.3% for the year ended December 31, 1995 from 29.7% for
the year ended December 31, 1994.
Allocated corporate expenses. Allocated corporate expenses, which include
Westinghouse overhead charges for Westinghouse executive management and
corporate legal, environmental, audit, tax, treasury, and other related
services, were $9.5 million for the year ended December 31, 1995, an increase
of $3.6 million, or 61.0%, from $5.9 million for the year ended December 31,
1994. Allocated corporate expenses for 1995 include approximately $4.0 million
of long-term incentive compensation payable to Knoll executives. These
allocated corporate expenses, which are payable by Westinghouse and "pushed
down" to Knoll from Westinghouse, are allocated primarily based on sales, with
the exception of the incentive compensation, and are not necessarily
indicative of actual or future costs.
Operating income (loss). Operating income increased to $55.2 million for the
year ended December 31, 1995, representing an increase of $104.7 million, as
compared to a loss of $49.5 million for the year ended December 31, 1994. As a
percentage of total sales, operating income (loss) increased to 8.9% for the
year ended December 31, 1995 from (8.8)% for the same period in 1994. This
improvement was driven by higher sales volume, better pricing, cost reductions
and improved operating efficiencies, decreased depreciation and amortization
expense and the restructuring provision charged in 1994 as described above.
Interest expense. Interest expense decreased to $1.4 million for the year
ended December 31, 1995, a decrease of $1.8 million, or 56.3%, as compared to
$3.2 million for the year ended December 31, 1994. This decrease was due
primarily to the reduction of debt in the Company's European subsidiaries.
Other income (expense). The Company incurred other expenses of $1.6 million
for the year ended December 31, 1995, primarily due to the one-time write-off
of certain tooling that was purchased but not used, as compared to $0.7
million in other income for the year ended December 31, 1994.
Income tax expense. Income tax expense of $22.8 million was recorded for the
Company as a stand-alone entity for the year ended December 31, 1995, an
increase of $15.1 million from $7.7 million for the year ended December 31,
1994. The deferred income tax liability increased from $3.3 million at
December 31, 1994 to $11.3 million at December 31, 1995. This increase
resulted in deferred income tax expense of $8.0 million for the year ended
December 31, 1995, an increase of $2.2 million from $5.8 million for the year
ended December 31, 1994. The increase in the deferred income tax liability is
due primarily to the reversal of temporary differences arising from
restructuring charges recorded in 1994 partially offset by temporary
differences arising from certain charges recorded in 1995. The effective tax
rate increased to 43.8% in 1995 from an effective rate of 14.8% in 1994,
reflecting the impact of positive income from operations.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's free cash flow has historically been used to fund capital
expenditures, working capital requirements and debt service. Following the
Acquisition, interest expense associated with borrowings under the Credit
Facilities and the issuance of the Notes, as well as scheduled principal
payments of term loans under the Credit Facilities, significantly increased
interest expense and cash requirements compared to previous years. If the
Offerings are completed as contemplated, the Company will reduce outstanding
indebtedness, which will partly reduce the Company's interest expense.
The Credit Facilities provide for a $100 million term loan and a $130
million revolving credit facility. The term loan is subject to quarterly
amortization of principal commencing on March 31, 1997, in an aggregate amount
of $15 million in 1997, $15 million in 1998, $15 million in 1999, $15 million
in 2000, $20 million in 2001 and $20 million in 2002. Loans made pursuant to
the revolving credit facility may be borrowed, repaid and reborrowed from time
to time until December 17, 2002. Indebtedness under the Credit Facilities
bears interest at a floating rate based, at the Company's option, upon (i)
LIBOR plus 0.875% or (ii) the prime rate. These rates are subject to change
based on the Company's ratio of funded debt to EBITDA. The Credit Facilities
contain restrictive covenants, financial covenants and events of default.
In addition to the Credit Facilities, in connection with the Acquisition the
Company also issued $165 million aggregate principal amount of the Notes. The
Notes are subordinated to all existing and future senior indebtedness of the
Company, including all indebtedness under the Credit Facilities. The Indenture
governing the terms of the Notes imposes certain restrictions on the Company
and its subsidiaries, including restrictions on its ability to incur
indebtedness, pay dividends, make investments, grant liens and engage in
certain other activities. The Notes may be required to be purchased by the
Company upon a change of control (as defined) and in certain circumstances
with the proceeds of asset sales. The Notes are redeemable at the option of
the Company at any time after March 15, 2001, initially at 105.438% of their
principal amount at maturity, plus accrued interest, declining to 100% of
their principal amount at maturity, plus accrued interest, on or after March
15, 2004. At any time on or before March 15, 1999 the Company may redeem up to
35% of the original aggregate principal amount of the Notes at a redemption
price of 110% of their principal amount with the net proceeds of a public
equity offering by the Company. If the Offerings are completed as
contemplated, the Company will redeem up to $57.8 million aggregate principal
amount of the Notes with the net proceeds of the Offerings.
The Company's foreign subsidiaries from time to time maintain local credit
facilities to provide credit for overdraft, working capital and other
purposes. The Credit Facilities restrict such indebtedness to $10 million at
any one time. As of December 31, 1996, the Company's total credit available
under such facilities was approximately $9.7 million, of which none had been
utilized. The Company believes that it is currently in compliance with all
terms of its indebtedness and that it has been in such compliance since the
Acquisition.
Cash provided by (used in) operating activities totaled $89.5 million for
the ten months ended December 31, 1996, $(54.0) million for the two months
ended February 29, 1996, $51.9 million in 1995 and $(3.8) million in 1994.
Cash provided by operations resulted primarily from net earnings, depreciation
and amortization, as well as increases in accounts payable and other current
liabilities and decreases in inventory.
Cash used in investing activities totaled $15.0 million for the ten months
ended December 31, 1996, $2.3 million for the two months ended February 29,
1996, $19.0 million in 1995 and $19.8 million in 1994 and primarily was
comprised of capital expenditures by the Company. The Company's capital
expenditures totaled $15.3 million for the ten months ended December 31, 1996,
$2.3 million for the two months ended February 29, 1996, $19.3 million in 1995
and $20.2 million in 1994. Capital expenditures have primarily been for new
manufacturing equipment and information systems. The Company expects to
increase its capital expenditures over the next few years as part of its
growth strategy and efforts to provide superior service and products to its
customers. The Company estimates that capital expenditures will be
approximately $30 million in 1997. The Credit Facilities restrict the
Company's capital expenditures to $36 million annually (plus up to $10 million
carried forward from a previous year).
15
<PAGE>
Cash provided by (used in) financing activities totaled $(73.2) million for
the ten months ended December 31, 1996, $57.0 million for the two months ended
February 29, 1996 and $(36.8) million and $28.3 million for the years ended
December 31, 1995 and 1994, respectively. The $73.2 million used by the
Company in its financing activities during the ten months ended December 31,
1996 included $72.0 million for the prepayment of indebtedness under the
Credit Facilities.
The Company uses interest rate collar agreements in order to manage its
exposure to fluctuations in interest rates on its floating rate debt. At
December 31, 1996, the Company had five outstanding interest rate collar
agreements with a total notional principal amount of $185 million and maximum
and minimum rates ranging from 7.5% to 7.99% and 5.00% to 5.5%, respectively.
These agreements mature over the next two years. Aggregate maturities of the
total notional principal amount are $70 million in 1998 and $115 million in
1999.
The past and present business operations of the Company and the past and
present ownership and operation of manufacturing plants on real property by
the Company are subject to extensive and changing federal, state, local and
foreign environmental laws and regulations. As a result, the Company is
involved from time to time in administrative and judicial proceedings and
inquiries relating to environmental matters. The Company cannot predict what
environmental legislation or regulations will be enacted in the future, how
existing or future laws or regulations will be administered or interpreted or
what environmental conditions may be found to exist. Compliance with more
stringent laws or regulations, or stricter interpretation of existing laws,
may require additional expenditures by the Company, some of which may be
material. The Company has been identified as a potentially responsible party
pursuant to CERCLA for remediation costs associated with waste disposal sites
previously used by the Company. The remediation costs at these CERCLA sites
are unknown, but the Company does not expect any liability it may have under
CERCLA to be material, based on the information presently known to the
Company. In addition, Westinghouse has agreed to indemnify the Company for
certain costs associated with CERCLA liabilities known as of the date of the
Acquisition.
The Company continues to have significant liquidity requirements. In
addition to working capital needs and capital expenditures, the Company has
cash requirements for debt service. The Company believes that existing cash
balances and cash flow from operating activities, together with borrowings
available under the Credit Facilities, will be sufficient to fund working
capital needs, capital spending requirements and debt service requirements of
the Company for at least the next 12 months.
INFLATION
There was no significant impact on Knoll's operations as a result of
inflation during the three years ended December 31, 1996.
BACKLOG
The Company's backlog of unfilled orders was $94.1 million at December 31,
1996 and $70.8 million at December 31, 1995. The Company expects to fill all
outstanding unfilled orders within the next twelve months. The Company
manufactures substantially all of its products to order, and its average
manufacturing time is approximately five weeks. As a result, backlog is not a
significant factor used to predict the Company's long-term business prospects.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and supplementary data
are filed under this Item, beginning on page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the names, ages and positions of the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Burton B. Staniar................... 55 Chairman of the Board
John H. Lynch....................... 44 Vice Chairman of the Board, President
and Chief Executive Officer
Wolfgang Billstein.................. 48 Managing Director--Knoll Europe
Kathleen G. Bradley................. 47 Senior Vice President--Sales,
Distribution and Customer Service
Andrew B. Cogan..................... 34 Senior Vice President--Marketing and
Product Development and Director
Carl G. Magnusson................... 57 Senior Vice President--Design
Senior Vice President and Chief
Douglas J. Purdom................... 38 Financial Officer
Barbara E. Ellixson................. 43 Vice President--Human Resources
Vice President, Controller and
Barry L. McCabe..................... 50 Treasurer
Vice President, General Counsel and
Patrick A. Milberger................ 40 Secretary
Jeffrey A. Harris................... 41 Director
Sidney Lapidus...................... 59 Director
Kewsong Lee......................... 31 Director
John L. Vogelstein.................. 62 Director
</TABLE>
Burton B. Staniar was appointed Chairman of the Board of the Company in
December 1993 to effect the restructuring of the Company and restore it to
profitability. Mr. Staniar served as Chief Executive Officer of the Company
from December 1993 to January 1997. Prior to that time, Mr. Staniar had held a
number of assignments at Westinghouse, including President of Group W Cable
and Chairman and Chief Executive Officer of Westinghouse Broadcasting. Prior
to joining Westinghouse in 1980, he held a number of marketing and general
management positions at Colgate Palmolive and Church and Dwight Co., Inc.
John H. Lynch joined the Company as President and Vice Chairman of the Board
in April 1994 and was elected Chief Executive Officer in January 1997. Prior
to joining the Company, Mr. Lynch was a partner in BGI, a consulting company,
and an associate dean at the Harvard Business School. Mr. Lynch is a director
of Renaissance Cosmetics, Inc.
Wolfgang Billstein was recruited in November 1994 to lead the restructuring
of the Company's European operations as Managing Director--Knoll Europe. A
German citizen, Mr. Billstein previously worked in Europe for the Procter &
Gamble Company and Benckiser GmbH, a consumer products company.
Kathleen G. Bradley was named Senior Vice President--Sales, Distribution and
Customer Service in January 1996, after serving as Divisional Vice President
for Knoll's southeast region since 1988. Prior to that time, Ms. Bradley was
regional manager for the Company's Atlanta territory, a position to which she
was promoted in 1983. She began her career with Knoll in 1979.
Andrew B. Cogan has been a director of the Company since February 1996. He
has held the position of Senior Vice President--Marketing and Product
Development since May 1994. Mr. Cogan has held several positions in the design
and marketing group since joining the Company in 1989.
Carl G. Magnusson has held the position of Senior Vice President--Design
since February 1993. Mr. Magnusson has been involved in design, product
development, quality and communications since joining the Company in 1976.
17
<PAGE>
Douglas J. Purdom joined the Company as Senior Vice President and Chief
Financial Officer in August 1996. Prior to that time, Mr. Purdom served as
Vice President and Chief Financial Officer of Magma Copper Company since 1992,
and as Corporate Controller of that company from 1989 to 1991.
Barbara E. Ellixson was promoted to her current position as Vice President--
Human Resources in August 1994, after serving as Manager of Human Resources
for the Company's East Greenville site. Ms. Ellixson began her career with
Westinghouse in 1971 and has held a variety of human resources positions in
several different business units.
Barry L. McCabe joined the Company in August 1990 as Controller. Mr. McCabe
worked with a number of Westinghouse business units after joining Westinghouse
in 1974 in the Auditing Department.
Patrick A. Milberger joined the Company as Vice President and General
Counsel in April 1994. Prior to joining the Company, Mr. Milberger was an
Assistant General Counsel at Westinghouse and was in private practice at
Buchanan Ingersoll, P.C.
Jeffrey A. Harris, a director of the Company since February 1996, has been a
General Partner of Warburg, Pincus & Co. and a Member and Managing Director of
E.M. Warburg, Pincus & Co., LLC and its predecessors since 1988, where he has
been employed since 1983. Mr. Harris is a director of Newfield Exploration
Company, Comcast UK Cable Partners Limited, Industri-Matematik International
Corp., ECsoft Group plc and several privately held companies.
Sidney Lapidus, a director of the Company since February 1996, has been a
General Partner of Warburg, Pincus & Co. and a Member and Managing Director of
E.M. Warburg, Pincus & Co., LLC and its predecessors since January 1982, where
he has been employed since 1967. Mr. Lapidus is currently a director of
Pacific Greystone Corporation, Caribiner International, Inc., Grubb and Ellis
Company and Panavision Inc., as well as several privately held companies.
Kewsong Lee, a director of the Company since February 1996, has been a
General Partner of Warburg, Pincus & Co. and a Member and Managing Director of
E.M. Warburg, Pincus & Co., LLC and its predecessors since January 1997. From
January 1995 to January 1997, Mr. Lee was Vice President of Warburg, Pincus
Ventures, Inc. From 1992 to 1995, Mr. Lee was an associate at E.M. Warburg,
Pincus & Co., Inc. and prior to that had been a consultant at McKinsey &
Company, Inc. since 1990. Mr. Lee is currently a director of RenaissanceRe
Holdings Ltd. and several privately held companies.
John L. Vogelstein has been a director of the Company since February 1996.
Mr. Vogelstein is a General Partner of Warburg, Pincus & Co., and a Member,
Vice Chairman and President of E. M. Warburg, Pincus & Co., LLC, where he has
been employed since 1967. Mr. Vogelstein is currently a director of ADVO Inc.,
Aegis Group p1c., Golden Books Family Entertainment, Inc., LCI International,
Inc., Mattel, Inc., Value Health, Inc., Vanstar Corporation and several
privately held companies.
The employment agreements of Messrs. Staniar and Lynch provide that the
Company will nominate them to the board of directors during the term of their
employment pursuant to their employment agreements. In addition, the Company's
Stockholders Agreement, dated February 29, 1996, entitles Warburg to designate
between one and four directors depending on its percentage ownership of the
Company's outstanding shares of Common Stock or Series A Preferred Stock. If
the Offerings are completed as contemplated, Warburg will own more than 50% of
the Common Stock of the Company and will therefore be entitled pursuant to the
Stockholders Agreement to nominate four members of the Board of Directors of
the Company.
18
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for the years ended December 31, 1996 and
December 31, 1995, individual compensation information for the Chief Executive
Officer of the Company and each of the four other most highly compensated
executive officers of the Company who were serving as executive officers at
December 31, 1996 (the "named executive officers").
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
RESTRICTED
NAME AND PRINCIPAL STOCK ALL OTHER
POSITION YEAR SALARY($) BONUS($) AWARDS($)(1) COMPENSATION($)(2)
------------------ ---- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Burton B. Staniar....... 1996 410,830 600,000 30,000 5,595
Chairman of the Board 1995 465,000 350,000 -- 4,500
John H. Lynch........... 1996 393,330 600,000 30,000 9,449
Vice Chairman of the 1995 360,000 360,000 -- 6,075
Board,
President and Chief
Executive Officer
Andrew B. Cogan......... 1996 197,930 250,000 12,000 --
Senior Vice President-- 1995 187,620 187,000 -- --
Marketing
and Product Development
Kathleen G. Bradley..... 1996 197,050 250,000 6,000 4,328
Senior Vice President-- 1995 163,668 256,740 -- 4,755
Sales,
Distribution and
Customer Service
Wolfgang Billstein...... 1996 396,000 572,836 -- --
Managing Director-- 1995 360,000 653,100 -- --
Knoll Europe
</TABLE>
- --------
(1) On February 29, 1996, Messrs. Staniar, Lynch and Cogan and Ms. Bradley
were granted 300,000, 300,000, 120,000 and 60,000 shares of restricted
stock, respectively. Holders of shares of restricted stock will not be
entitled to receive dividends until such shares vest and become
unrestricted. As of March 1, 1997, 40% of the grants of restricted stock
to each of Messrs. Staniar, Lynch and Cogan had vested and an additional
20% will vest on each of the next three anniversaries thereof. As to Ms.
Bradley, 20% of the grants of restricted stock vested on March 1, 1997 and
an additional 20% will vest on each of the next four anniversaries
thereof. The value of the shares listed above is based on the fair value
thereof on the date of grant, based on the price of the shares of Common
Stock sold in conjunction with the Acquisition.
(2) Amounts in this column represent the Company's matching contributions to
the Knoll, Inc. Retirement Savings Plan.
PENSION PLANS
Retirement benefits are provided to employees through two pension plans.
Prior to the purchase of the Company from Westinghouse, benefits were provided
under The Knoll Group Pension Plan which was retained by Westinghouse (the
"Westinghouse Pension Plan"). Effective March 1, 1996, the Company established
the Knoll, Inc. Pension Plan (the "Company Pension Plan"). The Westinghouse
Pension Plan provides eligible employees with retirement benefits based on a
career average compensation formula. The formula for computing normal
retirement benefits under this plan is 1.45% of career compensation divided by
twelve. Once a participant accumulates 5 years of vesting service, he or she
can take early retirement anytime after reaching age 55. Accrued normal
retirement benefit is reduced 6% per year prior to normal retirement age. The
minimum benefit earned for any year of participation in the plan is $300 ($25
per month), prorated for the partial years worked during the first and last
years of employment. The estimated annual benefits payable upon normal
retirement under this plan for each of the named executive officers is as
follows: Staniar ($0); Lynch ($4,712); Bradley ($24,648); and Cogan ($16,500).
Mr. Billstein has never participated in the Westinghouse Pension Plan.
19
<PAGE>
The terms of the Company Pension Plan are the same as those of the
Westinghouse Pension Plan. The estimated annual benefits payable upon normal
retirement under this plan for each of the named executive officers is as
follows: Staniar ($1,812); Lynch ($1,812); Bradley ($1,812); and Cogan
($1,812). Mr. Billstein never participated in the Company Pension Plan.
Messrs. Staniar, Lynch, and Cogan and Ms. Bradley also participated in the
Westinghouse Executive Pension Program (the "Westinghouse Excess Plan")
through the first two months of fiscal 1996, which provides for benefits not
payable by the Westinghouse Pension Plan because of limitations imposed by the
Internal Revenue Code of 1986, as amended (the "Code"). The benefit formula
for this plan is average total compensation and years of eligibility service
multiplied by 1.47% minus amounts payable under the Westinghouse Pension Plan.
The estimated annual benefits payable under this plan upon normal retirement
for each of the named executive officers is as follows: Staniar ($263,000);
Lynch ($13,972); Bradley ($5,820); and Cogan ($14,089). Mr. Billstein has
never participated in the Westinghouse Excess Plan.
Remuneration covered by the Westinghouse Pension Plan, the Company Pension
Plan and the Westinghouse Excess Plan primarily includes salary and bonus, as
set forth in the Summary Compensation Table. Under the Westinghouse Pension
Plan, the Company Pension Plan and the Westinghouse Excess Plan, Messrs.
Staniar, Lynch, and Cogan and Ms. Bradley have the following years of credited
service, as of December 31, 1996: 0.00/0.84/15.44, 1.75/0.84/1.75,
7.14/0.84/5.498 and 16.64/0.84/5.498 years, respectively.
DIRECTOR COMPENSATION
Directors do not receive compensation for service on the Company's Board of
Directors but are reimbursed for certain expenses in connection with
attendance at Board and committee meetings.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Burton B. Staniar,
the Company's Chairman of the Board, John H. Lynch, the Company's Vice
Chairman, Chief Executive Officer and President, and Andrew B. Cogan, the
Company's Senior Vice President--Marketing and Product Development, for a term
expiring on the first anniversary of the Acquisition closing, subject to
automatic one-year extensions unless either party gives 60 days notice not to
renew. The agreements with Messrs. Staniar and Lynch provide for a base salary
of $400,000, with a service bonus of 25% of base salary at the end of each
calendar year, and an annual bonus of up to 125% of base salary based on the
attainment of targets set by the Board of Directors. The agreement with Mr.
Cogan provides for a base salary of $200,000 and an annual bonus of up to 100%
of base salary based on the attainment of targets set by the Board of
Directors. The agreements may be terminated at any time by the Company, but if
so terminated without "cause," or if the Company fails to renew the
agreements, the Company must pay the employee 125% of one year's base salary
(100% of base salary in the case of Mr. Cogan). The agreements also contain
non-compete and non-solicitation (during the term of the agreement and for one
year thereafter) and confidentiality provisions.
In addition, the Company has entered into a Consulting Agreement, dated as
of December 1, 1996, with Mr. Wolfgang Billstein. Pursuant to this agreement,
Mr. Billstein receives a monthly fee of 52,249 Deutsche Marks, and contingent
incentives based on the positive operating profit of Knoll Europe (subject to
certain conditions) and Knoll Europe's order volume. The agreement terminates
on November 30, 1997 but is automatically renewed for two one-year periods
unless either party elects not to renew. Knoll has the right to terminate this
agreement upon three months notice and payment of 313,494 Deutsche Marks plus
a portion of Mr. Billstein's incentive compensation.
STOCK INCENTIVE PLANS
Under the 1996 Stock Plan, 1,500,000 shares of the Common Stock were
reserved for issuance pursuant to grants of restricted shares or options to
purchase shares to officers, key employees, directors and consultants of
20
<PAGE>
Knoll and its subsidiaries selected for participation in the 1996 Stock Plan.
The Company has issued all 1,500,000 shares of restricted shares and options
to acquire shares pursuant to the 1996 Stock Plan. On February 14, 1997 Knoll
adopted the 1997 Stock Plan. The 1997 Stock Plan contains terms substantially
similar to the 1996 Stock Plan, except that pursuant to the 1997 Stock Plan
(i) an aggregate of only 400,000 shares of the Common Stock are reserved for
issuance thereunder, (ii) discounted options may be granted, (iii) options may
be repriced and (iv) the Board of Directors has greater flexibility to amend
the 1997 Stock Plan. The Company has issued 240,000 options to acquire shares
pursuant to the 1997 Stock Plan. The Stock Plans are intended as an incentive
to encourage stock ownership by such individuals in order to increase their
proprietary interest in Knoll's success and to encourage them to remain in the
employ of Knoll.
The Stock Plans provide for the grant of restricted shares ("Restricted
Stock"), non-qualified stock options ("NQSOs") and incentive stock options as
defined in Section 422 of the Code ("ISOs").
The Stock Plans are administered by a Committee of at least two directors,
appointed by the Board of Directors of Knoll (the "Committee"). The Committee
determines the eligible individuals who are to receive shares of Restricted
Stock, the number of shares to be granted, the terms of the restrictions and
period of time that the restrictions will be effective. The Committee will
also determine the eligible individuals who are to receive options and the
terms of each option grant, including (i) the option prices of shares subject
to options, (ii) the dates on which options become exercisable and (iii) the
expiration date of each option. The Committee has the power to accelerate the
exercisability of outstanding options and to reprice any option at any time.
The purchase price of the shares subject to options will be fixed by the
Committee, in its discretion, at the time options are granted, provided that
in no event shall the per share purchase price of an option granted under the
1996 Stock Plan or any ISO granted under the 1997 Stock Plan be less than the
Fair Market Value Per Share (as defined in the Stock Plans) on the date of
grant.
Optionees and holders of Restricted Stock will have no voting, dividend, or
other rights as stockholders prior to the lapse of all restrictions or the
receipt of unrestricted shares upon the exercise of options. The exercise
price for options may be paid in cash or, at the discretion of the Committee,
satisfied by tendering shares having a value equal to the exercise price. The
number of shares covered by options will be appropriately adjusted in the
event of any stock split, merger, recapitalization or similar corporate event.
No adjustments will be made upon conversion of the Company's Series A
Preferred Stock.
The Board of Directors of Knoll may at any time terminate either or both of
the Stock Plans or from time to time make such modifications or amendments to
the Stock Plans as it may deem advisable; provided that, with respect to the
1997 Stock Plan, the Board may not, without the approval of the Knoll
stockholders, (i) increase the maximum number of shares of Common Stock for
which options may be granted under the Stock Plans, (ii) expand the class of
employees eligible to participate therein, (iii) reduce the minimum purchase
price at which options may be granted under the Stock Plans, (iv) extend the
maximum term of options, or (v) extend the term of the 1997 Stock Plan.
Options and Restricted Stock granted under the Stock Plans will be evidenced
by written agreements between the recipient and Knoll. Subject to limitations
set forth in the Stock Plans, the terms of option and Restricted Stock
agreements will be determined by the Committee, and need not be uniform among
recipients.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company currently does not have a Compensation Committee. During the
fiscal year ended December 31, 1996 the compensation of Messrs. Staniar, Lynch
and Cogan was determined pursuant to employment agreements which each of them
has with the Company. The incentive portion of the compensation of each of
Messrs. Staniar and Lynch was determined by Messrs. Lapidus, Harris, and Lee
and confirmed by the entire Board of Directors, including Messrs. Staniar and
Lynch. For the fiscal year ended December 31, 1996 the incentive compensation
of Mr. Cogan and the compensation for all other executive officers was
determined by Messrs. Staniar and Lynch.
21
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the ownership of the Common Stock and Series
A Prefered Stock of the Company as of March 27, 1997, of (i) each person known
by the Company to own beneficially more than 5% of the outstanding shares of
Common Stock or Series A Preferred Stock, (ii) each director and named
executive officer of the Company and (iii) all current directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME AND ADDRESS OF SERIES A PREFERRED NUMBER OF SHARES OF % OF EACH CLASS
BENEFICIAL OWNER STOCK (1) COMMON STOCK (1) OUTSTANDING
------------------- ------------------- ------------------- ---------------
<S> <C> <C> <C>
Warburg, Pincus
Ventures, LLC (2)....... 1,469,081 918,750 91.6%/65.1%
466 Lexington Avenue
New York, NY 10017
Burton B. Staniar....... 20,507 132,825 1.3/9.4
John H. Lynch........... 20,507 132,825 1.3/9.4
Wolfgang Billstein...... 320 200 */*
Kathleen G. Bradley..... 640 12,400 */*
Andrew B. Cogan......... 3,998 50,500 */3.6
John L. Vogelstein (3).. 1,469,081 918,750 91.6/65.1
Sidney Lapidus (3)...... 1,469,081 918,750 91.6/65.1
Jeffrey A. Harris (3)... 1,469,081 918,750 91.6/65.1
Kewsong Lee (3)......... 1,469,081 918,750 91.6/65.1
All executive officers
and directors as a
group (14 persons)..... 1,520,969 1,269,200 94.8%/89.9%
</TABLE>
- --------
* Less than 1%.
(1) Except as otherwise indicated, the persons in this table have sole voting
and investment power with respect to all shares of Common Stock and Series
A Preferred Stock of the Company shown as beneficially owned by them,
subject to community property laws where applicable and subject to the
information contained in the footnotes to this table.
(2) The sole general partner of Warburg is Warburg, Pincus & Co., a New York
general partnership ("WP"). E.M. Warburg, Pincus & Co., LLC, a New York
limited liability company ("EMW LLC"), manages Warburg. The members of EMW
LLC are substantially the same as the partners of WP. Lionel I. Pincus is
the managing partner of WP and the managing member of EMW LLC and may be
deemed to control both WP and EMW LLC. WP has a 15% interest in the
profits of Warburg as the general partner. Jeffrey A. Harris, Sidney
Lapidus, Kewsong Lee and John L. Vogelstein, directors of the Company, are
Managing Directors and members of EMW LLC and general partners of WP. As
such, Messrs. Harris, Lapidus, Lee and Vogelstein may be deemed to have an
indirect pecuniary interest (within the meaning of Rule l6a-1 under the
Securities Exchange Act of 1934) in an indeterminate portion of the shares
beneficially owned by Warburg. See Note 3 below.
(3) All of the shares indicated as owned by Messrs. Harris, Lapidus, Lee and
Vogelstein are owned directly by Warburg and are included because of the
affiliation of such persons with Warburg. Messrs. Harris, Lapidus, Lee and
Vogelstein disclaim "beneficial ownership" of these shares within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934. See Note
2 above.
22
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE ACQUISITION
On February 29, 1996, pursuant to the Stock Purchase Agreement, the Company
acquired all of the outstanding capital stock of the companies that constitute
the Knoll business for an aggregate purchase price of $579,801,000. The
Company was formed by Warburg, NationsBanc Investment Corp. and certain
members of the Company's management to consummate the Acquisition. The
Acquisition and related fees and expenses were financed through a $260 million
term loan, issuance of the Notes and with a $160.4 million equity contribution
by Warburg, NationsBanc Investment Corp. and senior management of the Company.
Of the $160.4 million of Company capital stock sold in connection with the
Acquisition (plus shares sold on October 21, 1996), certain members of the
Company's management (including the named executive officers) purchased $5.4
million, NationsBanc Investment Corp. purchased $8 million and Warburg
purchased $147 million. The equity consisted of 1,002,500 shares of common
stock, sold for $100,250, and 1,602,997 shares of Series A Preferred Stock,
sold for $160.3 million.
STOCKHOLDERS AGREEMENT
In connection with the acquisition of the Company in 1996, Warburg Pincus
Ventures, L.P., NationsBanc Investment Corp. and certain senior members of
management (each a "Holder" and collectively, the "Holders") and the Company
entered into a Stockholders Agreement (the "Stockholders Agreement"), dated as
of February 29, 1996, which governs certain matters related to corporate
governance and registration of shares of Common Stock and Series A Preferred
Stock ("Registrable Securities") held by such Holders (other than shares
acquired pursuant to the Stock Plans). The following description of the
Stockholders Agreement is qualified in its entirety by reference to the
Stockholders Agreement (Common Stock and Preferred Stock), which is filed as
an exhibit to this Form 10-K.
Pursuant to the Stockholders Agreement, Warburg is entitled to request on up
to two occasions that the Company file a registration statement under the
Securities Act covering the sale of at least $25 million of shares of Common
Stock or Series A Preferred Stock, subject to certain conditions. If officers
or directors of the Company holding other securities of the Company request
inclusion of their securities in any such registration, or if holders of
securities of the Company other than Registrable Securities who are entitled,
by contract with the Company or otherwise, to have securities included in such
a registration (the "Other Stockholders"), request such inclusion, the Holders
shall offer to include the securities of such officers, directors and Other
Stockholders in any underwriting involved in such registration, provided,
among other conditions, that the underwriter representative of any such
offering has the right, subject to certain conditions, to limit the number of
Registrable Securities included in the registration. The Company may defer the
registration for 120 days if it believes that it would be seriously
detrimental to the Company for such registration statement to be filed.
The Stockholders Agreement further provides that, if the Company proposes to
register any of its securities (other than registrations related solely to
employee benefit plans or pursuant to Rule 145 or on a form which does not
permit secondary sales or does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of Registrable Securities), either for its own account or for the account
of other security holders, holders of Registrable Securities may require the
Company to include all or a portion of their Registrable Securities in the
registration and in any underwriting involved therein, provided, among other
conditions, that the underwriter representative of any such offering has the
right, subject to certain conditions, to limit the number of Registrable
Securities included in the registration. In addition, after the Company
becomes qualified to use Form S-3, the holders of Registrable Securities will
have the right to request an unlimited number of registrations on Form S-3 to
register at least $5 million of such shares, subject to certain conditions,
provided that the Company will not be required to effect such a registration
within 180 days of the effective date of the most recent registration pursuant
to this provision.
In general, all fees, costs and expenses of such registrations (other than
underwriting discounts and selling commissions applicable to sales of the
Registrable Securities and all fees and disbursements of counsel for the
23
<PAGE>
Holders) will be borne by the Company. The registration rights described above
apply to 1,002,500 shares of Common Stock and 1,602,997 shares of Series A
Preferred Stock held by the Holders.
The Stockholders Agreement provides that the original Board of Directors of
the Company was to be composed of Messrs. Staniar, Lynch, Vogelstein, Lapidus,
Harris and Lee. Pursuant to the Stockholders Agreement, the stockholders who
are a party thereto have agreed to vote their shares of Common Stock for four
directors nominated by Warburg if Warburg owns 50% or more of the Company's
outstanding shares of Common Stock and Series A Preferred Stock, three
directors if it owns 25% or more, two directors if it owns 15% or more and one
director if it owns 5% or more.
ISSUANCE OF RESTRICTED SHARES OF COMMON STOCK
In connection with the issuance of 1,320,000 restricted shares of Common
Stock pursuant to the Company's 1996 Stock Plan established in connection with
the Acquisition, Warburg and the Company also entered into separate
Stockholders Agreements with all of the Company's executive officers and other
members of the Company's management. Pursuant to these agreements, members of
management agreed not to transfer their shares except (i) to members of their
immediate families and other related or controlled entities, (ii) to Warburg
or an affiliate thereof or (iii) after a public offering of Common Stock, upon
30 days prior written notice to the Board of Directors. The restrictions on
transfer terminate after a public offering of Common Stock when Warburg owns
less than 10% of the outstanding shares of Common Stock and less than 10% of
the outstanding shares of Series A Preferred Stock. In addition, pursuant to
these agreements, the Company agreed that, if the Company determined to
register any shares of Common Stock for its own account or for the account of
security holders, the Company would include in such registration all of the
vested shares of Common Stock received by management pursuant to the 1996
Stock Plan. In addition, after the Company qualifies for Form S-3, management
may request unlimited registrations of at least $5,000,000 of securities on
Form S-3, provided that the Company is not required to effect a registration
pursuant to this provision within 180 days of the effective date of the most
recent registration pursuant to this provision.
Pursuant to the 1996 Stock Incentive Plan, the Company also entered into
Restricted Share Agreements with each recipient of restricted shares of Common
Stock, including each of the Company's executive officers. Pursuant to these
agreements, Burton Staniar received 300,000 restricted shares, John Lynch
received 300,000 restricted shares, Andrew Cogan received 120,000 restricted
shares and Kathleen Bradley received 60,000 restricted shares. The agreements
were dated February 29, 1996 and the shares vested at a rate of 20% per year,
commencing on the date of grant (in the case of Messrs. Staniar, Lynch and
Cogan) or on the first anniversary of the date of grant. The agreements
provide that upon the voluntary termination of employment for reasons other
than death, disability or retirement at age 65, or if the grantee's employment
was terminated without cause, the nonvested restricted shares were to be
immediately forfeited to the Company. Upon termination with cause, the
agreements provide (i) in the case of Messrs. Staniar and Lynch, for the
immediate forfeiture of all restricted shares, regardless of whether vested
prior to termination, and (ii) that the Company may repurchase the shares of
Common Stock at $0.10 per share.
OTHER
During 1996, the Company paid $137,337 to Emanuela Frattini Magnusson for
design services and product royalties, the bulk of which was payable pursuant
to the terms of a July 1993 Design Development Agreement between Emanuela
Frattini and the Company pertaining to the Company's Propeller product line.
Emanuela Frattini Magnusson is the wife of Carl G. Magnusson, the Company's
Senior Vice President--Design.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of the report:
(1) CONSOLIDATED FINANCIAL STATEMENTS. The Consolidated Financial Statements
of the Company are listed in the Index to Financial Statements beginning on
page F-1 of this Form 10-K.
(2) FINANCIAL STATEMENT SCHEDULES. Financial Statement Schedule II-Valuation
and Qualifying Accounts is filed with this Form 10-K beginning on page S-1 of
this Form 10-K preceding the exhibits. All other schedules for which provision
is made in the applicable regulation of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable and
therefore have been omitted.
(3) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 --Amended and Restated Certificate of Incorporation of the Company.
3.2 --Certificate of Ownership and Merger Merging Knoll, Inc. With And
Into T.K.G. Acquisition Corp.
3.3 --Restated By-Laws of the Company.
4.1 --Indenture, dated as of February 29, 1996, by and among the Company,
T.K.G. Acquisition Corp., T.K.G. Acquisition Sub, Inc., The Knoll
Group, Inc., Knoll North America, Inc., Spinneybeck Enterprises, Inc.
and Knoll Overseas, Inc., as guarantors, and IBJ Schroder Bank and
Trust Company, as trustee, relating to $165,000,000 principal amount
of 10 7/8% Senior Subordinated Notes due 2006, including form of
Initial Global Note. (Incorporated herein by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-4, Registration No.
333-2972.)
4.2 --Supplemental Indenture, dated as of February 29, 1996, by and among
the Company, as successor to T.K.G. Acquisition Sub, Inc., the
Guarantors (as defined therein), and IBJ Schroder Bank & Trust
Company, as trustee, relating to $165,000,000 principal amount of 10
7/8% Senior Subordinated Notes due 2006, including form of Initial
Global Note. (Incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-4, Registration No. 333-
2972.)
4.3 --Supplemental Indenture No. 2, dated as of March 14, 1997, by and
among the Company, the Guarantors (as defined therein), and IBJ
Schroder Bank & Trust Company, as trustee, relating to $165,000,000
principal amount of 10 7/8% Senior Subordinated Notes due 2006,
including form of Initial Global Note.
4.4 --Credit Agreement, dated as of February 29, 1996, by and among T.K.G.
Acquisition Sub, Inc., the Guarantors (as defined therein),
NationsBank, N.A., Chemical Bank and other lending institutions.
(Incorporated herein by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-4, Registration No. 333-2972.)
4.5 --Security Agreement dated February 29, 1996, by and among T.K.G.
Acquisition Sub, Inc., the Guarantors (as defined therein), Knoll
North America, Inc., The Knoll Group, Inc., and NationsBank, N.A. and
other lending institutions. (Incorporated herein by reference to
Exhibit 4.4 to the Company's Registration Statement on Form S-4,
Registration No. 333-2972.)
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.6 --Registration Rights Agreement, dated as of February 29, 1996, by and
among T.K.G. Acquisition Sub, Inc., The Knoll Group, Inc., Knoll
North America, Inc., the Guarantors (as defined therein) and
NationsBanc Capital Markets, Inc., as initial purchaser.
(Incorporated herein by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-4, Registration No. 333-2972.)
10.1 --Stock Purchase Agreement, dated as of December 20, 1995, by and
between Westinghouse and TKG. (Incorporated herein by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-4,
Registration No. 333-2972.)
10.2 --Knoll, Inc. 1996 Stock Incentive Plan. (Incorporated herein by
reference to Exhibit 10.2 to the Company's Registration Statement on
Form S-4, Registration No. 333-2972.)
10.3 --Employment Agreement, dated as of February 29, 1996, between T.K.G.
Acquisition Corp. and Burton B. Staniar.
10.4 --Employment Agreement, dated as of February 29, 1996, between T.K.G.
Acquisition Corp. and John H. Lynch.
10.5 --Employment Agreement dated as of February 29, 1996, between T.K.G.
Acquisition Corp. and Andrew B. Cogan.
10.6 --Stockholders Agreement (Common Stock and Preferred Stock), dated as
of February 29, 1996, among T.K.G. Acquisition Corp., Warburg, Pincus
Ventures, L.P., and the signatories thereto.
10.7 --Form of Stockholders Agreement (Restricted Shares), dated as of
February 29, 1996, among T.K.G. Acquisition Corp., Warburg, Pincus
Ventures L.P. and the signatories thereto.
10.8 --Knoll, Inc. 1997 Stock Incentive Plan.
10.9 --Consulting Agreement, dated as of December 1, 1996, between Wolfgang
Billstein and Knoll, Inc.
21 --Subsidiaries of the Registrant.
27 --Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last quarter of
the year ended December 31, 1996.
26
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT ON FORM 10-K
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, THIS
28TH DAY OF MARCH, 1997.
KNOLL, INC.
/s/ Burton B. Staniar
By:__________________________________
BURTON B. STANIAR
CHAIRMAN OF THE BOARD
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THIS REPORT ON FORM 10-K HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE(S) INDICATED.
/s/ Burton B. Staniar Chairman of the March 28, 1997
- ------------------------------------- Board
BURTON B. STANIAR
/s/ John H. Lynch President, Chief March 28, 1997
- ------------------------------------- Executive Officer
JOHN H. LYNCH and Director
(Principal
Executive Officer)
/s/ Douglas J. Purdom Chief Financial March 28, 1997
- ------------------------------------- Officer (Principal
DOUGLAS J. PURDOM Financial Officer)
/s/ Barry L. McCabe Controller March 28, 1997
- ------------------------------------- (Principal
BARRY L. MCCABE Accounting Officer)
/s/ Andrew B. Cogan Director March 28, 1997
- -------------------------------------
ANDREW B. COGAN
/s/ Jeffrey A. Harris Director March 28, 1997
- -------------------------------------
JEFFREY A. HARRIS
/s/ Sidney Lapidus Director March 28, 1997
- -------------------------------------
SIDNEY LAPIDUS
/s/ Kewsong Lee Director March 28, 1997
- -------------------------------------
KEWSONG LEE
/s/ John L. Vogelstein Director March 28, 1997
- -------------------------------------
JOHN L. VOGELSTEIN
27
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders of the
Company.
28
<PAGE>
KNOLL, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
HISTORICAL PAGE
----
Reports of Independent Auditors........................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1995 (Predecessor)... F-4
Consolidated Statements of Operations for the Ten Months Ended December
31, 1996, the Two Months Ended February 29, 1996 (Predecessor) and the
Years Ended December 31, 1995 and 1994 (Predecessor)..................... F-5
Consolidated Statements of Cash Flows for the Ten Months Ended December
31, 1996, the Two Months Ended February 29, 1996 (Predecessor) and the
Years Ended December 31, 1995 and 1994 (Predecessor)..................... F-6
Consolidated Statements of Changes in Stockholders' Equity for the Ten
Months Ended December 31, 1996, the Two Months Ended February 29, 1996
(Predecessor) and the Years Ended December 31, 1995 and 1994
(Predecessor)............................................................ F-7
Notes to the Consolidated Financial Statements............................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Knoll, Inc.
We have audited the accompanying consolidated balance sheet of Knoll, Inc.
as of December 31, 1996 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the ten month period ended
December 31, 1996 (post-acquisition period), and the consolidated statements
of operations, changes in stockholders' equity and cash flows of The Knoll
Group, Inc. (Predecessor) for the two month period ended February 29, 1996
(pre-acquisition period). Our audits also included the financial statement
schedule (as it pertains to 1996) as listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Knoll, Inc. at December 31, 1996, and the consolidated results of its
operations and its cash flows for the post-acquisition period in conformity
with generally accepted accounting principles. Further, in our opinion, the
aforementioned Predecessor consolidated financial statements present fairly,
in all material respects, the consolidated results of operations and cash
flows of the Knoll Group, Inc. for the pre-acquisition period in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
1996 financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 14, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Knoll, Inc.
In our opinion, the consolidated financial statements listed in the Index
appearing under Item 14(a)(1) and (2) present fairly, in all material
respects, the financial position of The Knoll Group, Inc., an organizational
unit of Westinghouse Electric Corporation (Westinghouse), at December 31,
1995, and the results of their operations, cash flows and changes in
stockholders' equity for each of the two years in the period ended December
31, 1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of Westinghouse's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of The Knoll Group, Inc. for any period subsequent to December 31,
1995.
The Knoll Group, Inc. is a business unit of Westinghouse for each of the two
years ended December 31, 1995 and, as disclosed in Note 4 to the accompanying
financial statements, engaged in various transactions and relationships with
other Westinghouse entities.
/s/ Price Waterhouse LLP
Pittsburgh, Pennsylvania
January 15, 1996
F-3
<PAGE>
KNOLL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
THE KNOLL GROUP, INC.
(PREDECESSOR)
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ---------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 8,804 $ 1,569
Customer receivables, net................. 111,166 114,592
Inventories............................... 57,811 59,643
Deferred income taxes..................... 17,474 18,273
Prepaid and other current assets.......... 7,424 8,465
-------- --------
Total current assets.................... 202,679 202,542
Property, plant, and equipment.............. 176,218 164,633
Intangible assets........................... 286,940 240,772
Prepaid pension cost........................ -- 45,161
Other noncurrent assets..................... 9,875 3,602
-------- --------
Total Assets............................ $675,712 $656,710
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt........................... $ -- $ 1,496
Current maturities of long-term debt...... 23,265 3,287
Accounts payable--trade................... 50,250 45,850
Accounts payable--related parties......... -- 413
Income taxes payable...................... 388 13,973
Accrued restructuring costs............... 1,979 10,868
Other current liabilities................. 62,043 43,957
-------- --------
Total current liabilities............... 137,925 119,844
Long-term debt.............................. 330,889 251
Deferred income taxes....................... 1,931 29,574
Postretirement benefits obligation.......... 15,873 20,593
Other noncurrent liabilities................ 11,290 5,997
-------- --------
Total liabilities....................... 497,908 176,259
-------- --------
Stockholders' equity:
Preferred stock; $1.00 par value;
authorized 3,000,000 shares, issued and
outstanding 1,602,997 shares of Series A
12% Participating Convertible Preferred
Stock (liquidation preference of
$160,299,700)............................ 1,603 --
Common stock, $.01 par value; authorized
24,000,000 shares; issued and outstanding
2,322,500 shares......................... 23 --
Additional paid-in-capital................ 158,906 --
Unearned stock grant compensation......... (96) --
Retained earnings......................... 16,836 --
Parent company investment................. -- 503,317
Cumulative foreign currency translation
adjustment............................... 532 (22,866)
-------- --------
Total stockholders' equity.............. 177,804 480,451
-------- --------
Total Liabilities and Stockholders'
Equity................................. $675,712 $656,710
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
KNOLL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THE KNOLL
GROUP, INC.
(PREDECESSOR) THE KNOLL GROUP, INC.
TEN MONTHS TWO MONTHS (PREDECESSOR)
ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, FEBRUARY 29, ------------------------
1996 1996 1995 1994
------------ ------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales to customers........ $561,534 $ 89,933 $ 610,723 $ 562,598
Sales to related parties.. -- 299 10,169 271
-------- -------- ----------- -----------
Total sales............... 561,534 90,232 620,892 562,869
Cost of sales to
customers................ 358,841 59,514 410,615 409,909
Cost of sales to related
parties.................. -- 200 7,017 195
-------- -------- ----------- -----------
Gross profit.............. 202,693 30,518 203,260 152,765
Provision for
restructuring............ -- -- -- 29,180
Selling, general, and
administrative expenses.. 131,349 21,256 138,527 167,238
Westinghouse long-term
incentive compensation... -- 47,900 -- --
Allocated corporate
expenses................. -- 921 9,528 5,881
-------- -------- ----------- -----------
Operating income (loss)... 71,344 (39,559) 55,205 (49,534)
Interest expense.......... 32,952 340 1,430 3,225
Other income (expense),
net...................... 447 (296) (1,597) 699
-------- -------- ----------- -----------
Income (loss) before
income taxes and
extraordinary item....... 38,839 (40,195) 52,178 (52,060)
Income tax expense
(benefit)................ 16,844 (16,107) 22,846 7,713
-------- -------- ----------- -----------
Income (loss) before
extraordinary item....... 21,995 (24,088) 29,332 (59,773)
Extraordinary loss on
early extinguishment of
debt, net of taxes....... 5,159 -- -- --
-------- -------- ----------- -----------
Net income (loss)......... $ 16,836 $(24,088) $ 29,332 $ (59,773)
======== ======== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
KNOLL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THE KNOLL
GROUP, INC.
(PREDECESSOR) THE KNOLL GROUP, INC.
TEN MONTHS TWO MONTHS (PREDECESSOR)
ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, FEBRUARY 29, -------------------------
1996 1996 1995 1994
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss)........ $ 16,836 $ (24,088) $ 29,332 $ (59,773)
Noncash items included in
income:
Depreciation........... 19,251 3,150 19,006 21,478
Amortization of
intangible assets..... 7,881 1,167 6,993 7,006
Loss on disposal of
assets................ 87 -- -- --
Extraordinary loss..... 8,542 -- -- --
Noncash restructuring
charges............... -- -- -- 9,367
Foreign currency
transaction loss...... 354 -- -- --
Changes in assets and
liabilities:
Customer receivables... (5,110) 8,798 (5,850) (11,269)
Inventories............ 1,416 671 (76) (9,619)
Accounts payable....... 15,870 (15,292) (7,005) 18,533
Current and deferred
income taxes.......... (3,961) (16,627) 13,185 2,186
Other current assets... 747 2,283 453 (1,186)
Other current
liabilities........... 18,372 (7,190) (23,177) 16,951
Other noncurrent assets
and liabilities....... 9,217 (6,911) 19,003 2,542
--------- --------- ----------- ------------
Cash provided by (used
in) operating
activities.............. 89,502 (54,039) 51,864 (3,784)
--------- --------- ----------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures..... (15,255) (2,296) (19,334) (20,157)
Proceeds from sale of
assets.................. 218 -- 316 332
--------- --------- ----------- ------------
Cash used in investing
activities.............. (15,037) (2,296) (19,018) (19,825)
--------- --------- ----------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Repayment of short-term
debt, net............... (1,483) (3,805) (20,961) (2,758)
Proceeds from long-term
debt.................... 190,000 -- -- --
Repayment of long-term
debt.................... (262,130) -- (8,913) (2,753)
Additional equity
contribution............ 400 -- -- --
Net receipts from
(payments to) parent
company................. -- 60,848 (6,900) 33,836
--------- --------- ----------- ------------
Cash provided by (used
in) financing
activities.............. (73,213) 57,043 (36,774) 28,325
--------- --------- ----------- ------------
Effect of exchange rate
changes on cash and cash
equivalents............. 18 58 13 (1,996)
--------- --------- ----------- ------------
Increase (decrease) in
cash and cash
equivalents............. 1,270 766 (3,915) 2,720
Cash and cash equivalents
at beginning of period.. 7,534 1,569 5,484 2,764
--------- --------- ----------- ------------
Cash and cash equivalents
at end of period........ $ 8,804 $ 2,335 $ 1,569 $ 5,484
========= ========= =========== ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
KNOLL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
THE KNOLL
GROUP, INC.
(PREDECESSOR) THE KNOLL GROUP, INC.
TEN MONTHS TWO MONTHS (PREDECESSOR)
ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, FEBRUARY 29, ------------------------
1996 1996 1995 1994
------------ ------------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
PREFERRED STOCK
Balance at beginning of
period
(1,599,000 shares)....... $ 1,599 $ -- $ -- $ --
Shares issued (3,997
shares).................. 4 -- -- --
--------- --------- ----------- -----------
Balance at end of period.. 1,603 -- -- --
--------- --------- ----------- -----------
COMMON STOCK
Balance at beginning of
period
(1,000,000 shares)....... 10 -- -- --
Shares issued under the
Stock Incentive Plan
(1,320,000 shares)....... 13 -- -- --
--------- --------- ----------- -----------
Balance at end of period.. 23 -- -- --
--------- --------- ----------- -----------
ADDITIONAL PAID-IN-CAPITAL
Balance at beginning of
period................... 158,391 -- -- --
Shares issued............. 396 -- -- --
Shares issued under the
Stock Incentive Plan..... 119 -- -- --
--------- --------- ----------- -----------
Balance at end of period.. 158,906 -- -- --
--------- --------- ----------- -----------
UNEARNED STOCK GRANT
COMPENSATION
Balance at beginning of
period................... -- -- -- --
Shares issued under the
Stock Incentive Plan..... (132) -- -- --
Earned stock grant
compensation............. 36 -- -- --
--------- --------- ----------- -----------
Balance at end of period.. (96) -- -- --
--------- --------- ----------- -----------
RETAINED EARNINGS
Balance at beginning of
period................... -- -- -- --
Net income................ 16,836 -- -- --
--------- --------- ----------- -----------
Balance at end of period.. 16,836 -- -- --
--------- --------- ----------- -----------
PARENT COMPANY INVESTMENT
Balance at beginning of
period................... -- 503,317 480,885 506,822
Net income (loss)......... -- (24,088) 29,332 (59,773)
Capital expenditures...... -- 2,296 19,334 20,157
Proceeds from asset
sales.................... -- -- (316) (332)
Net interunit
transactions............. -- 58,552 (25,918) 14,011
--------- --------- ----------- -----------
Balance at end of period.. -- 540,077 503,317 480,885
--------- --------- ----------- -----------
CUMULATIVE FOREIGN
CURRENCY TRANSLATION
ADJUSTMENT
Balance at beginning of
period................... -- (22,866) (22,879) (20,883)
Translation adjustment.... 532 58 13 (1,996)
--------- --------- ----------- -----------
Balance at end of period.. 532 (22,808) (22,866) (22,879)
--------- --------- ----------- -----------
TOTAL STOCKHOLDERS'
EQUITY................... $ 177,804 $ 517,269 $ 480,451 $ 458,006
========= ========= =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-7
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Knoll, Inc. and its subsidiaries (the Company or Knoll) are engaged in the
design, manufacture, and sale of office furniture products and accessories,
focusing on the middle to high end segments of the contract furniture
market. The Company has operations in the United States (U.S.), Canada, and
Europe and sells its products primarily through its direct sales
representatives and independent dealers.
The Company was formed on February 29, 1996 as a result of the acquisition
of the office furniture business unit (The Knoll Group, Inc. and related
entities) of Westinghouse Electric Corporation (Westinghouse). See Note 3
for further discussion of the acquisition.
The accompanying consolidated financial statements present the financial
position of the Company as of December 31, 1996 and of the Predecessor as
of December 31, 1995, the results of operations, cash flows, and changes in
stockholders' equity of the Company for the ten month period ended December
31, 1996, and the results of operations, cash flows, and changes in
stockholders' equity of the Predecessor for the two month period ended
February 29, 1996 and the years ended December 31, 1995 and 1994.
Since the Predecessor was a business unit of Westinghouse, the accompanying
financial statements of the Predecessor include estimates for certain
expenses incurred by the parent on its behalf. These expenses generally
include, but are not limited to, officer and employee salaries, rent,
depreciation, accounting and legal services, other selling, general and
administrative expenses, and other such expenses.
The results of the Predecessor's domestic operations were included in the
consolidated United States federal income tax return of Westinghouse, while
the results of its operations in Canada and Europe were reported separately
to their respective taxing jurisdictions. The income tax information in the
accompanying financial statements of the Predecessor is presented as if the
Predecessor had not been included in the consolidated tax returns of
Westinghouse or other affiliates (i.e. on a stand-alone basis). The
recognition and measurement of income tax expense and deferred income taxes
required certain assumptions, allocations, and significant estimates that
management believes are reasonable to measure the tax consequences as if
the Predecessor were a stand-alone taxpayer.
The operating results of the European subsidiaries are reported and
included in the consolidated financial statements on a one month lag to
allow for the timely presentation of consolidated information. The effect
of this presentation is not material to the financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of Knoll, Inc. and its wholly owned subsidiaries. Intercompany transactions
and balances have been eliminated in consolidation.
The consolidated financial statements of the Predecessor include the
accounts of The Knoll Group, Inc. and related entities after elimination of
intercompany transactions and balances except for those with other units of
Westinghouse as described in Note 4.
Revenue Recognition
Sales are recognized as products are shipped and services are rendered.
F-8
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and investments with
original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
Property, Plant, Equipment, and Depreciation
Property, plant, and equipment are recorded at cost. Depreciation of plant
and equipment is computed using the straight-line method over the estimated
useful lives of the assets. The useful lives are as follows: 45 years for
buildings and 3 to 12 years for machinery and equipment.
Intangible Assets
Intangible assets consist of goodwill, patents and trademarks, and deferred
financing fees. Goodwill is recorded at the amount by which cost exceeds
the net assets of acquired businesses, and all other intangible assets are
recorded at cost. Goodwill and patents and trademarks are amortized under
the straight-line method over 40 years, while deferred financing fees are
amortized over the life of the respective debt.
Management reviews the carrying value of goodwill and other intangibles on
an ongoing basis. When factors indicate that an intangible asset may be
impaired, management uses an estimate of the undiscounted future cash flows
over the remaining life of the asset in measuring whether the intangible
asset is recoverable. If such an analysis indicates that impairment has in
fact occurred, the book value of the intangible asset is written down to
its estimated fair value.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and are measured using enacted tax rates expected to
apply to taxable income in the years in which the temporary differences are
expected to reverse.
As discussed in Note 1, the U.S. operations of the Predecessor for the
first two months of 1996 and for the years ended December 31, 1995 and 1994
were included in a consolidated U.S. income tax return of Westinghouse and
its subsidiaries. Income taxes are provided in the accompanying financial
statements as if the Predecessor had filed a separate tax return.
Foreign Currency Translation
Results of foreign operations are translated into U.S. dollars using
average exchange rates during the period, while assets and liabilities are
translated into U.S. dollars using current rates. The resulting translation
adjustments are accumulated as a separate component of stockholders'
equity.
Transaction gains and losses resulting from exchange rate changes on
transactions denominated in currencies other than those of the foreign
subsidiaries are included in income in the year in which the change occurs.
F-9
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," encourages entities to record compensation
expense for stock-based employee compensation plans at fair value but
provides the option of measuring compensation expense using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," the former standard. The
Company has elected to account for stock-based compensation under the
former standard. Accordingly, compensation expense for restricted stock
awards and stock options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. For those entities which
choose to measure compensation expense under the former standard, SFAS No.
123 requires supplemental disclosure to show the effects on operations as
if the new measurement criteria had been used. If the new measurement
criteria under SFAS No. 123 had been adopted, the Company's results of
operations would not differ from those reflected in the historical
financial statements.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of certain
assets, liabilities, revenues and expenses and the disclosure of certain
contingent assets and liabilities. Actual future results may differ from
such estimates.
Reclassifications
Certain amounts in the accompanying financial statements of the Predecessor
have been reclassified to conform with the Company's 1996 classifications.
3. ACQUISITION
On December 20, 1995, Westinghouse entered into a Stock Purchase Agreement
(the Agreement) with T.K.G. Acquisition Corp. (TKG), a subsidiary of
Warburg, Pincus Ventures, L.P. Under the terms of the Agreement, TKG
acquired all of the outstanding capital stock of The Knoll Group, Inc. and
related entities on February 29, 1996 through its wholly owned subsidiary
T.K.G. Acquisition Sub, Inc. Immediately following this transaction, T.K.G.
Acquisition Sub, Inc. and The Knoll Group, Inc. merged with and into Knoll
North America, Inc., the principal U.S. operating company of The Knoll
Group, Inc. Knoll North America, Inc. changed its name to Knoll, Inc. at
the time of the merger. On March 14, 1997, Knoll, Inc. merged with and into
TKG. TKG then changed its name to Knoll, Inc.
The cost of the acquisition was $579,801,000. TKG funded the acquisition
through proceeds of $160,000,000 received from the sale of TKG capital
stock, $165,000,000 received from an offering of 10.875% senior
subordinated notes due 2006, and $260,000,000 in borrowings under senior
bank credit facilities. T.K.G. Acquisition Sub, Inc. executed the offering
of the senior notes and borrowings under the credit facilities. As such,
upon the acquisition and subsequent merger, the senior notes and credit
facility borrowings became obligations of Knoll, Inc.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based upon fair market value at the date of
acquisition. The excess of the consideration paid over the estimated fair
value of the net assets
F-10
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
acquired, totaling $66,850,000, has been recorded as goodwill and is being
amortized on a straight-line basis over 40 years. The purchase price
allocation is summarized as follows (in thousands):
<TABLE>
<S> <C>
Net working capital............................................. $101,446
Property, plant and equipment................................... 180,074
Goodwill........................................................ 66,850
Other intangible assets......................................... 239,557
Other noncurrent liabilities, net............................... (8,126)
--------
$579,801
========
</TABLE>
The following table sets forth unaudited pro forma consolidated results of
operations assuming that the acquisition had taken place at the beginning
of the years presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Sales........................................... $ 651,766 $ 620,892
Cost of sales................................... 419,908 425,327
----------- -----------
Gross profit.................................... 231,858 195,565
Selling, general and administrative expenses.... 153,388 142,582
Allocated corporate expenses.................... -- 4,000
----------- -----------
Operating income................................ 78,470 48,983
Interest expense................................ 40,030 40,945
Other income (expense), net..................... 151 (1,597)
----------- -----------
Income before income taxes and extraordinary
item........................................... 38,591 6,441
Income taxes.................................... 16,848 2,705
----------- -----------
Income before extraordinary item................ 21,743 3,736
Extraordinary loss on early extinguishment of
debt, net of taxes............................. 5,159 --
----------- -----------
Net income...................................... $ 16,584 $ 3,736
=========== ===========
</TABLE>
These pro forma results of operations have been prepared for comparative
purposes only and include certain adjustments, such as additional
depreciation expense as a result of a step-up in the basis of fixed assets,
additional selling, general and administrative costs for services
previously provided by Westinghouse, additional amortization expense as a
result of goodwill and other intangible assets, increased interest expense
as a result of the debt assumed to finance the acquisition, elimination of
incentive compensation under Westinghouse's long-term incentive plans which
became payable, and for which amounts payable were established, as a result
of the acquisition, and related income tax effects. Such results do not
purport to be indicative of the actual results which would have occurred
had the acquisition been consummated at the beginning of each year
presented, nor do they purport to be indicative of results that will be
obtained in the future.
4. RELATED PARTY TRANSACTIONS OF THE PREDECESSOR
The Predecessor purchased products from and sold products to other
Westinghouse operations. The Predecessor also purchased certain services
from Westinghouse, including liability, property, and workers' compensation
insurance. These transactions are discussed in further detail below.
F-11
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
The Predecessor utilized Westinghouse's centralized cash management
services in North America. Accounts receivable were collected and cash was
invested at a central location. Additionally, disbursements were funded
centrally on demand. As a result, the Predecessor maintained a low cash
balance on its books, and received charges and credits against the parent
company's investment for cash used and collected through a central
clearinghouse arrangement.
Intercompany Purchases and Payables
The Predecessor purchased products and services from other Westinghouse
operations. For intercompany purchases in the U.S., the Predecessor used
the central clearinghouse arrangement through which intercompany
transactions were settled at the transfer date.
Accounts payable to related parties at December 31, 1995 represents
balances payable for purchases from units of Westinghouse that do not
participate in the central clearinghouse arrangement.
Intercompany Sales and Receivables
The Predecessor sold products to various Westinghouse operations. These
transactions were settled immediately through the central clearinghouse or
the internal customer was invoiced and an intercompany receivable was
established.
Corporate Services
The Predecessor used, and was charged directly for, certain services that
Westinghouse provided to its business units. These services generally
included information systems support, certain accounting functions such as
transaction processing, legal, environmental affairs and human resources
consulting and compliance support.
Westinghouse centrally developed, negotiated, and administered the
Predecessor's insurance programs. The insurance included broad all-risk
coverage for real and personal property and third-party liability coverage,
employer's liability coverage, automobile liability, general and product
liability, and other standard liability coverage. The Predecessor also
maintained a program of self-insurance for workers' compensation in the
United States through Westinghouse. Westinghouse charged its business units
for all of the centrally administered insurance programs based in part on
claims history. Specific liabilities for general and product liability,
automobile liability and workers' compensation claims are presented in the
Predecessor's consolidated financial statements.
All of the charges for the corporate services described above are included
in the costs of the Predecessor's operations in the consolidated statements
of operations. Such charges were based on costs which directly related to
the Predecessor or on a pro rata portion of Westinghouse's total costs for
the services provided. These costs were allocated to the Predecessor on a
basis that management believes is reasonable. However, management believes
that it is possible that the costs of these transactions may differ from
those that would result from transactions among unrelated parties. For the
two month period ended February 29, 1996 and the years ended December 31,
1995 and 1994, charges related to corporate services above totaled
$510,000, $3,304,000, and $4,172,000, respectively.
The Predecessor also purchased other Westinghouse internally-provided
services as necessary including telecommunications, printing, productivity
and quality consulting, and other services.
F-12
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Allocated Corporate Expenses
Westinghouse allocated a certain portion of its corporate expenses to its
business units. These allocated costs include Westinghouse executive
management and corporate overhead; corporate legal, environmental, audit,
treasury and tax services, pension charges related to corporate functions,
and other corporate support and executive costs. For the year ended
December 31, 1995, allocated corporate expenses also include $4,000,000 of
incentive compensation payable to the Predecessor's executives under
Westinghouse long-term incentive plans.
These corporate expenses were allocated primarily based on sales with the
exception of the incentive compensation allocation. This methodology of
allocating corporate expenses to business units is reasonable and
consistent, but such allocations are not necessarily indicative of actual
costs. On an annual basis, it was not practical for Westinghouse management
to estimate the level of expenses that might have been incurred had the
Predecessor operated as a separate stand-alone entity.
Westinghouse did not charge its business units for the carrying costs
related to its investment in such units (parent company investment).
Therefore, the Predecessor's results of operations for each of the periods
presented do not include any allocated interest charges from Westinghouse.
Westinghouse Long-Term Incentive Compensation
Certain key executives of the Predecessor were participants in a long-term
incentive compensation plan established by Westinghouse. The plan provided
for payment of awards at the end of a five year period based on the
achievement of certain performance goals set by Westinghouse's Board of
Directors. As a result of the consummation of the acquisition discussed in
Note 3, the payment of awards was accelerated pursuant to the terms of the
plan, resulting in a charge to operations of $47,900,000 for the two months
ended February 29, 1996.
Parent Company Investment
Since the Predecessor was an operating unit of Westinghouse and was not a
distinct legal entity, there were no customary equity and capital accounts
recorded on the consolidated balance sheet. Instead, parent company
investment was maintained by the Predecessor and Westinghouse to account
for interunit transactions described above.
5. CUSTOMER RECEIVABLES
Customer receivables are presented net of an allowance for doubtful
accounts of $5,713,000 and $5,782,000 at December 31, 1996 and 1995,
respectively. Management performs ongoing credit evaluations of its
customers and generally does not require collateral. As of December 31,
1996 and 1995, the U.S. government represented approximately 17.3% and
16.4%, respectively, of gross customer receivables.
F-13
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INVENTORIES
<TABLE>
<CAPTION>
THE KNOLL GROUP,
INC. (PREDECESSOR)
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................. $34,147 $34,857
Work in process........................... 7,508 9,829
Finished goods............................ 16,156 14,957
------- -------
Inventories............................... $57,811 $59,643
======= =======
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
THE KNOLL GROUP,
INC. (PREDECESSOR)
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Land and buildings........................ $ 61,844 $ 100,197
Machinery and equipment................... 122,573 180,057
Construction in progress.................. 11,066 10,473
-------- ---------
Property, plant and equipment, at cost.... 195,483 290,727
Accumulated depreciation.................. (19,265) (126,094)
-------- ---------
Property, plant and equipment, net........ $176,218 $ 164,633
======== =========
</TABLE>
8. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
THE KNOLL GROUP,
INC. (PREDECESSOR)
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Goodwill.................................. $ 62,627 $277,833
Patents and trademarks.................... 219,900 623
Deferred financing fees................... 11,226 --
-------- --------
293,753 278,456
Accumulated amortization.................. (6,813) (37,684)
-------- --------
Intangible assets, net.................... $286,940 $240,772
======== ========
</TABLE>
9. OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
THE KNOLL GROUP,
INC. (PREDECESSOR)
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Accrued employee compensation............. $27,881 $19,486
Accrued product warranty.................. 7,173 6,763
Other..................................... 26,989 17,708
------- -------
Other current liabilities................. $62,043 $43,957
======= =======
</TABLE>
F-14
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INDEBTEDNESS
The Company did not have any short-term borrowings outstanding as of
December 31, 1996. As of December 31, 1995, the Predecessor had outstanding
short-term European bank loans totaling $1,496,000. The composite and
weighted average interest rates on these borrowings was 11.00% and 10.356%,
respectively.
The Company's and the Predecessor's long-term debt is summarized as
follows:
<TABLE>
<CAPTION>
THE KNOLL GROUP, INC.
(PREDECESSOR)
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ---------------------
(IN THOUSANDS)
<S> <C> <C>
10.875% Senior subordinated notes, due
2006.................................... $165,000 $ --
Term loans, variable rate (6.515% at
December 31, 1996) due through 2002..... 100,000 --
Revolving loans, variable rate (6.515% at
December 31, 1996) due 2002............. 88,000 --
7.00% Urban Redevelopment Authority
Grant, due 1996......................... -- 2,055
Other.................................... 1,154 1,483
-------- ------
354,154 3,538
Less current maturities.................. (23,265) (3,287)
-------- ------
Long-term debt........................... $330,889 $ 251
======== ======
</TABLE>
Senior Subordinated Notes
The Company assumed the obligations under the 10.875% senior subordinated
notes as a direct result of the acquisition and merger which occurred on
February 29, 1996, as discussed in Note 3. The notes are unsecured and are
guaranteed by each existing and future wholly owned domestic subsidiary of
Knoll, Inc. However, if the Company is unable to satisfy all or any portion
of its obligations with respect to the notes, it is unlikely that the
guarantors will be able to pay all or any portion of such unsatisfied
obligations. There are no sinking fund requirements related to these notes,
and they are not redeemable at the Company's option prior to March 15,
2001. At such date, the notes are redeemable at 105.438% of principal
amount, and thereafter at an annually declining premium over par until
March 15, 2004 when they are redeemable at par. Notwithstanding the
foregoing, at any time on or before March 15, 1999, the Company may, under
certain conditions, redeem up to 35% of the original aggregate principal
amount of the notes at a redemption price of 110% of principal amount plus
interest with net proceeds from a public equity offering made by the
Company. The indenture limits the payment of dividends and incurrence of
indebtedness and includes certain other restrictions and limitations that
are customary with subordinated indebtedness of this type.
Term and Revolving Loans
On December 17, 1996, the Company entered into a $230,000,000 credit
agreement with a group of financial institutions that provides for a six
year term loan facility in the aggregate principal amount of $100,000,000
and a six year revolving credit facility in an aggregate amount of up to
$130,000,000. In addition, the revolving credit facility contains a letter
of credit subfacility which allows for the issuance of
F-15
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
up to $20,000,000 in letters of credit. The amount available for borrowing
under the revolving credit facility is reduced by the total outstanding
letters of credit. This credit agreement expires in December 2002.
The proceeds of the facilities were used to refinance the Company's debt
under the previously existing senior bank credit facilities that was
assumed as a result of the acquisition, as discussed in Note 3, and for
working capital and general corporate purposes. The refinancing resulted in
an extraordinary charge of $8,542,000 on a pre-tax basis, $5,159,000 on an
after-tax basis, to operations for the ten months ended December 31, 1996.
This extraordinary charge consisted of the write-off of unamortized
financing costs related to the refinanced debt.
Borrowings under the existing credit agreement bear interest at rates based
on a bank base rate or the Eurodollar rate adjusted by a certain percentage
which depends on the Company's leverage ratio, as defined by the agreement.
The Company is required to make quarterly principal payments on the term
loans through December 2002, commencing on March 31, 1997. All loans under
the agreement are secured by substantially all of the Company's assets,
100% of the capital stock of the Company's domestic operations, and 65% of
the capital stock of the Company's foreign operations. All borrowings are
also unconditionally guaranteed by the Company's existing and future wholly
owned domestic subsidiaries. However, if the Company is unable to satisfy
all or any portion of its obligations with respect to the credit agreement,
it is unlikely that the guarantors will be able to pay all or any portion
of such unsatisfied obligations.
The credit agreement subjects the Company to various affirmative and
negative covenants. Among other things, the covenants limit the Company's
ability to incur additional indebtedness, declare or pay dividends, and
make capital expenditures; require the Company to maintain certain
financial ratios with respect to interest coverage and funded debt
leverage; and require the Company to maintain interest rate protection
agreements in a notional amount of at least 40% of the outstanding
principal amount. See note 12 for further discussion of interest rate
protection agreements.
At December 31, 1996, the Company had outstanding borrowings totaling
$88,000,000, of which $8,000,000 has been classified as current, and total
letters of credit of approximately $1,406,000, under the revolving credit
facility. There were no borrowings under the letters of credit. The Company
pays a commitment fee ranging from 0.175% to 0.375%, depending on the
Company's leverage ratio, on the unused portion of the revolving credit
facility. In addition, a letter of credit fee ranging from 0.50% to 1.50%,
depending on the Company's leverage ratio, is required to be paid on the
amount available to be drawn under letters of credit.
The Company also has a revolving credit agreement with various European
financial institutions that allows for borrowings up to an aggregate amount
of $9,685,000 or the European equivalent. There is currently no expiration
date on this agreement. The interest rate on borrowings varies by bank. The
majority of the banks involved assess a fixed rate ranging from 6.0% to
11.0%, while others charge a floating rate equal to the monetary market
rate plus 0.6% to 1.1%. Any borrowings would be collateralized by certain
real property and receivables of the Company's European operations. As of
December 31, 1996, the Company did not have any outstanding borrowings
under this European credit facility.
Interest Paid
For the ten months ended December 31, 1996, the Company made interest
payments totaling $25,775,000.
F-16
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maturities
Aggregate maturities of the Company's indebtedness are as follows (in
thousands):
<TABLE>
<S> <C>
1997............................................................. $ 23,265
1998............................................................. 15,000
1999............................................................. 15,000
2000............................................................. 15,000
2001............................................................. 20,000
Thereafter....................................................... 265,889
--------
$354,154
========
</TABLE>
11. PREFERRED STOCK
Dividends on the Series A 12% Participating Convertible Preferred Stock are
fully cumulative, accrue on a quarterly basis at a rate of $12 per annum,
and are payable only at the discretion of the Board of Directors. Upon
conversion, the holders of the outstanding Series A Preferred Stock lose
their right to any dividends, including dividends in arrears. As of
December 31, 1996, the aggregate and per share amounts of cumulative
dividends in arrears were $16.6 million and $10.36, respectively. Each
share of Series A Preferred Stock is convertible into a certain number of
shares of the Company's common stock based on the fair market equity value
of the Company at the time of conversion. Only the holder or holders of a
majority of the outstanding Series A Preferred Stock can cause all or a
portion of such stock to be converted. The Company may not redeem any of
the Series A Preferred Stock at its option. Holders are not granted the
benefit of any sinking fund. Upon involuntary liquidation, holders are
entitled to receive $100 per share plus any unpaid dividends. For each
share of Series A Preferred Stock, the holder is entitled to one thousand
votes on matters generally submitted to the stockholders of the Company and
certain matters on which a majority vote of holders of the Series A
Preferred Stock is required by the Company's Articles of Incorporation.
12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate collar agreements for other than trading
purposes to manage its exposure to fluctuations in interest rates on its
floating rate debt. Such agreements effectively set agreed-upon maximum and
minimum rates on a notional principal amount and utilize the London
Interbank Offered Rate (LIBOR) as a floating rate reference. The notional
amounts are utilized to measure the amount of interest to be paid or
received and do not represent the amount of exposure to credit loss. These
interest rate collar agreements provide that, at specified intervals, when
the floating rate is less than the minimum rate, the Company will pay the
counterparty the differential computed on the notional principal amount,
and when the floating rate exceeds the maximum rate, the counterparty will
pay the Company the differential computed on the notional principal amount.
The net amount paid or received on the interest rate collar agreements is
recognized as an adjustment to interest expense. During the ten months
ended December 31, 1996, the Company was not required to make nor was it
entitled to receive any payments as a result of these hedging activities.
At December 31, 1996, the Company had five outstanding interest rate collar
agreements with a total notional principal amount of $185,000,000 and
maximum and minimum rates ranging from 7.50% to 7.99% and 5.00% to 5.50%,
respectively. These agreements mature over the next two years. Aggregate
maturities of the total notional principal amount are as follows:
$70,000,000 in 1998 and $115,000,000 in 1999.
The counterparties to the interest rate collar agreements are major
financial institutions. The Company continually monitors its positions and
the credit ratings of the counterparties and does not anticipate
nonperformance by them. The Company has not been required to provide nor
has it received any collateral related to its hedging activities.
F-17
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. CONTINGENT LIABILITIES AND COMMITMENTS
There are various claims and lawsuits pending against the Company, all of
which management believes, based upon information presently known, either
to be without merit or subject to adequate defenses. The resolution of
these claims and lawsuits is not expected to have a material adverse effect
on the Company.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair values
of each class of financial instruments:
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, and Short-
Term Debt
The fair values of these financial instruments approximate their carrying
amounts due to their immediate or short-term periods to maturity.
Long-Term Debt
The fair values of the variable rate long-term debt instruments approximate
their carrying amounts. The fair value of other long-term debt was
estimated using quoted market values or discounted cash flow analyses based
on current incremental borrowing rates for similar types of borrowing
arrangements. The fair value of the Company's long-term debt, including the
current portion, is approximately $371,892,000 at December 31, 1996 while
the carrying amount is $354,154,000. The fair value of the Predecessor's
long-term debt, including the current portion, approximates its carrying
amount at December 31, 1995.
Interest Rate Collar Agreements
The fair value of the Company's interest rate collar agreements
approximates cost as of December 31, 1996.
15.INCOME TAXES
Income (loss) before income taxes and extraordinary item consists of the
following:
<TABLE>
<CAPTION>
THE KNOLL
GROUP, INC.
(PREDECESSOR) THE KNOLL GROUP, INC.
TEN MONTHS TWO MONTHS (PREDECESSOR)
ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, FEBRUARY 29, ------------------------
1996 1996 1995 1994
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. operations......... $23,381 $(39,105) $ 46,908 $ 7,729
Foreign operations...... 15,458 (1,090) 5,270 (59,789)
------- -------- ----------- ------------
$38,839 $(40,195) $ 52,178 $ (52,060)
======= ======== =========== ============
</TABLE>
F-18
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense (benefit), excluding extraordinary items, is comprised
of the following:
<TABLE>
<CAPTION>
THE KNOLL
GROUP, INC.
(PREDECESSOR) THE KNOLL GROUP, INC.
TEN MONTHS TWO MONTHS (PREDECESSOR)
ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, FEBRUARY 29, -----------------------
1996 1996 1995 1994
------------ ------------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal............... $10,909 $(13,801) $ 11,130 $ --
State................. 2,953 (1,814) 3,687 1,920
Foreign............... 661 28 -- --
------- -------- ------------ -----------
Total current....... 14,523 (15,587) 14,817 1,920
------- -------- ------------ -----------
Deferred:
Federal............... (2,850) (460) 7,795 5,704
State................. (612) (60) 234 89
Foreign............... 5,783 -- -- --
------- -------- ------------ -----------
Total deferred...... 2,321 (520) 8,029 5,793
------- -------- ------------ -----------
Income tax expense
(benefit).............. $16,844 $(16,107) $ 22,846 $ 7,713
======= ======== ============ ===========
</TABLE>
Income taxes paid by the Company for the ten months ended December 31, 1996
totaled $13,137,000.
The following table sets forth the tax effects of temporary differences
that give rise to significant portions of the deferred tax assets and
liabilities:
<TABLE>
<CAPTION>
THE KNOLL GROUP,
INC. (PREDECESSOR)
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts....... $ 1,659 $ 1,753
Inventories............................ 2,603 4,856
Net operating loss carryforwards....... 28,253 37,339
Accrued restructuring costs............ 966 3,367
Postretirement benefit obligation...... 6,880 8,925
Accrued liabilities and other items.... 20,669 9,344
-------- --------
Gross deferred tax assets................ 61,030 65,584
Valuation allowance...................... (33,161) (37,990)
-------- --------
Net deferred tax assets.................. 27,869 27,594
-------- --------
Deferred tax liabilities:
Intangibles, principally due to
differences in amortization........... 3,338 --
Plant and equipment, principally due to
differences in depreciation and
assigned values....................... 1,930 22,369
Prepaid pension cost................... -- 16,526
-------- --------
Gross deferred tax liabilities........... 5,268 38,895
-------- --------
Net deferred tax asset (liability)....... $ 22,601 $(11,301)
======== ========
</TABLE>
F-19
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As discussed in Notes 1 and 2, the recognition and measurement of income
tax expense and deferred taxes for the Predecessor required certain
assumptions, allocations, and significant estimates in order to measure the
tax consequences as if the Predecessor were a stand-alone taxpayer.
As of December 31, 1996, the Company has pre-acquisition net operating loss
carryforwards totaling approximately $76,000,000 in various foreign tax
jurisdictions which generally expire between 1997 and 2001 or may be
carried forward for an unlimited time.
At February 29, 1996 and December 31, 1994 and 1993, the Predecessor had
recorded a valuation allowance of $38,446,000, $43,066,000, and
$24,881,000, respectively.
For the ten months ended December 31, 1996, tax benefits recognized through
reductions of the valuation allowance had the effect of reducing goodwill
by $4,246,000. If additional tax benefits are recognized in the future
through further reduction of the valuation allowance, such benefits will
reduce goodwill.
The following table sets forth a reconciliation of the statutory federal
income tax rate to the effective income tax rate:
<TABLE>
<CAPTION>
THE KNOLL THE KNOLL
GROUP, INC. GROUP, INC.
(PREDECESSOR) (PREDECESSOR)
TEN MONTHS TWO MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
DECEMBER 31, FEBRUARY 29, ---------------
1996 1996 1995 1994
------------ ------------- ------ -------
<S> <C> <C> <C> <C>
Federal statutory tax rate.. 35.0% (35.0%) 35.0% (35.0%)
Increase (decrease) in the
tax rate resulting from:
State taxes, net of
federal effect........... 3.9 (4.5) 4.9 2.5
Higher effective income
taxes of other countries,
net of change in
valuation allowance...... 3.2 (0.2) (1.4) 41.8
Non-deductible goodwill
amortization............. 1.0 1.1 4.7 4.7
Other..................... 0.3 (1.4) 0.6 0.8
---- ----- ------ -------
Effective tax rate.......... 43.4% (40.0%) 43.8% 14.8%
==== ===== ====== =======
</TABLE>
At December 31, 1996, the Company has not made provision for U.S. federal
and state income taxes on approximately $9,194,000 of foreign earnings
which are expected to be reinvested indefinitely. Upon distribution of
those earnings in the form of dividends or otherwise, the Company would be
subject to U.S. income taxes (subject to an adjustment for foreign tax
credits) and withholding taxes payable to the various foreign countries.
Determination of the amount of the unrecognized deferred tax liability is
not practicable.
F-20
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. RESTRUCTURING
In 1994, the Predecessor adopted a $61,345,000 restructuring program that
included the separation of approximately 500 employees, the closing of
various facilities, and the exiting of several product lines. The total
cost of this program was offset by accruals previously established for
actions that were deferred and subsequently included in this program,
resulting in a net charge to operations in 1994 of $29,180,000. A summary
of the program's costs is shown below.
<TABLE>
<CAPTION>
FACILITY
EMPLOYEE CLOSURE AND
SEPARATION ASSET RATIONALIZATION
COSTS WRITEDOWN COSTS TOTAL
---------- --------- --------------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
North America................ $10,559 $19,104 $ 7,982 $37,645
Europe....................... 7,526 9,264 6,910 23,700
------- ------- ------- -------
Total.................... $18,085 $28,368 $14,892 $61,345
======= ======= ======= =======
</TABLE>
At December 31, 1995, the restructuring actions were essentially complete.
The remaining accrued costs totaling $10,868,000 at December 31, 1995
consist primarily of employee separation costs, lease costs related to
properties that are no longer being utilized, and product guarantees. The
remaining accrued costs of $1,979,000 at December 31, 1996 consist of
employee separation costs and product guarantees. The Company expects to
pay the remaining accrued restructuring costs during 1997.
17. LEASES
The Company has commitments under operating leases for certain machinery
and equipment and facilities used in its operations. Total rental expense
for the ten months ended December 31, 1996 was $7,787,000. Future minimum
rental payments required under those operating leases that have an initial
or remaining noncancelable lease term in excess of one year are as follows
(in thousands):
<TABLE>
<S> <C>
1997............................................................. $ 5,270
1998............................................................. 4,731
1999............................................................. 3,550
2000............................................................. 2,390
2001............................................................. 1,907
Subsequent years................................................. 3,241
-------
Total minimum rental payments.................................... $21,089
=======
</TABLE>
The Predecessor also had operating leases for certain machinery and
equipment and facilities. Total rental expense charged to operations was
$1,668,000 for the two months ended February 29, 1996 and $10,149,000 and
$10,917,000 for the years ended December 31, 1995 and 1994, respectively.
18. STOCK INCENTIVE PLANS
In connection with the acquisition discussed in Note 3, the Company
established the Knoll, Inc. 1996 Stock Incentive Plan (the 1996 Plan).
Under the 1996 Plan, awards denominated or payable in shares or options to
purchase shares of the Company's common stock may be granted to officers
and other key employees of the Company. A combined maximum of 1,500,000
shares or options may be granted under the 1996 Plan. A Stock Plan
Committee of the Company's Board of Directors has sole discretion
concerning administration of the 1996 Plan, including selection of
individuals to receive awards, types of awards, the terms and conditions of
the awards, and the time at which awards will be granted. The Board of
Directors may terminate the 1996 Plan at its discretion at any time.
F-21
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For the ten months ended December 31, 1996, the Company granted 1,320,000
restricted common shares, with a fair market value of $.10 per share, to
key employees. Of such amount, 720,000 of these restricted common shares
vest ratably over five years beginning on the grant date, while the other
600,000 shares vest over five years commencing one year subsequent to the
grant date. The fair market value of the shares on the date of the grant
has been recorded as unearned stock grant compensation and is presented as
a separate component of stockholders' equity. Compensation expense is
recognized ratably over the vesting period. No options were granted during
the ten month period ended December 31, 1996. The remaining 180,000 shares
available under the 1996 Plan were granted in the form of options on March
7, 1997.
The Knoll, Inc. 1997 Stock Incentive Plan (the 1997 Plan) was established
on February 14, 1997. The terms of the 1997 Plan are essentially the same
as those of the 1996 Plan, except that pursuant to the 1997 Plan an
aggregate of only 400,000 shares of common stock are reserved for issuance
thereunder, discounted options may be granted, options may be repriced and
the Board of Directors has greater flexibility to amend the 1997 Plan. On
March 7, 1997, the Company granted 240,000 options to purchase shares under
the 1997 Plan.
19. PENSION PLANS
On March 1, 1996, the Company established two defined benefit pension
plans: The Knoll Pension Plan and The Knoll Pension Plan for Bargaining
Unit Employees. The first plan covers all eligible U.S. employees who are
not members of a collective bargaining unit (i.e. union), while the second
plan pertains to all U.S. employees who are covered by a collective
bargaining agreement. Benefits for these plans are based primarily on years
of credited service, annual compensation for each year of participation,
and age when payments begin. In order to accrue benefits under The Knoll
Pension Plan for Bargaining Unit Employees, participants are required to
make certain contributions to the plan. The Company makes contributions to
both plans as determined by an actuarial funding method. This funding
policy is consistent with the minimum funding requirements set forth by the
Employee Retirement Income Security Act of 1974, as amended, and other
governmental laws and regulations.
The Company's net periodic pension cost, which consists entirely of service
cost, for the ten months ended December 31, 1996 was $3,953,000.
The funded status of the Company's pension plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Actuarial present value of benefit obligation:
Vested.................................................. $(2,784)
Nonvested............................................... (273)
-------
Accumulated benefit obligation.......................... (3,057)
Additional obligation for projected compensation
increases on accumulated years of service.............. (896)
-------
Projected benefit obligation.............................. (3,953)
Plan assets at fair value................................. 30
-------
Plan assets less than projected benefit obligation and
accrued pension cost..................................... $(3,923)
=======
</TABLE>
F-22
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The projected benefit obligation was measured using a discount rate of
7.25%. The assumed rate of compensation increase was 4.5%.
Prior to March 1, 1996, the Predecessor sponsored a defined benefit pension
plan, The Knoll Group Pension Plan, for all eligible U.S. nonunion
employees. The plan provisions were substantially the same as the current
pension plan for nonunion employees offered by Knoll, Inc. As a result of
the sale of the Predecessor by Westinghouse, benefits earned through
February 29, 1996 under The Knoll Group Pension Plan were frozen and
participants were fully vested in their benefits. The plan was subsequently
merged into a Westinghouse pension plan.
The following table sets forth the Predecessor's net periodic pension cost
(income) for The Knoll Group Pension Plan:
<TABLE>
<CAPTION>
TWO MONTHS
ENDED YEAR ENDED DECEMBER 31,
FEBRUARY 29, -------------------------
1996 1995 1994
------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost..................... $ 522 $ 2,278 $ 2,955
Interest cost on projected
benefit obligation.............. 933 5,212 5,016
Amortization of unrecognized
prior service cost.............. 68 385 385
Amortization of unrecognized net
loss............................ 197 -- 468
------ ------------ -----------
1,720 7,875 8,824
Return on plan assets............ (1,543) (8,993) (8,846)
------ ------------ -----------
Net periodic pension cost
(income)........................ $ 177 $ (1,118) $ (22)
====== ============ ===========
</TABLE>
The return on plan assets was determined based on a weighted-average
expected long-term rate of return on plan assets of 9.75% for each period
presented.
The following table sets forth the funded status of The Knoll Group Pension
Plan:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Actuarial present value of benefit obligation:
Vested.................................................. $ (68,081)
Nonvested............................................... (3,363)
---------
Accumulated benefit obligation.......................... (71,444)
Additional obligation for projected compensation
increases on accumulated years of service.............. (12,491)
---------
Projected benefit obligation.............................. (83,935)
Plan assets at fair value................................. 95,940
---------
Plan assets in excess of projected benefit obligation..... 12,005
Unrecognized prior service cost........................... 4,458
Unrecognized net loss..................................... 28,698
---------
Prepaid pension cost...................................... $ 45,161
=========
</TABLE>
F-23
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The projected benefit obligation was measured using a discount rate of
6.75%. The assumed rate of compensation increase was 4.0%. As of December
31, 1995, plan assets consisted primarily of listed stocks, fixed income
securities, and real estate investments.
The Predecessor also participated in two single-employer defined benefit
pension plans sponsored by Westinghouse. These plans covered all U.S. union
employees of the Predecessor, certain domestic Westinghouse employees, and
certain domestic executives of the Predecessor and Westinghouse.
For purposes of these financial statements, the Predecessor's participation
in the plans sponsored by Westinghouse is accounted for as though such
plans were multiemployer plans. For multiemployer plans, employers are
required to recognize total contributions for the period as net pension
expense. For the two months ended February 29, 1996 and the years ended
December 31, 1995 and 1994, the Predecessor's contributions to Westinghouse
for these defined benefit pension plans totaled $212,000, $1,076,000, and
$1,223,000, respectively.
Employees of the Canadian and United Kingdom (U.K.) operations participate
in defined contribution plans. The Company's expense related to the
Canadian plan for the ten months ended December 31, 1996 was $607,000. The
Predecessor's expense for the two months ended February 29, 1996 and years
ended December 31, 1995, and 1994 totaled $114,000; $398,000; and $398,000;
respectively. Expense for the U.K. plan during each of the four
aforementioned periods was not significant.
The Company also sponsors a retirement savings plan, which is an employee
savings plan that qualifies as a deferred salary arrangement under Section
401(k) of the Internal Revenue Code, for all U.S. nonunion employees and
U.S. hourly union employees. Under this plan, participants may defer a
portion of their pretax earnings up to the annual contribution limit
established by the Internal Revenue Service. The Company matches 40% of
employee contributions on up to 6% of employee compensation. The plan also
provides for additional employer matching based on the achievement of
certain profitability goals. The Company's total expense under this plan
was $2,957,000 for the ten months ended December 31, 1996. The Predecessor
administered a similar retirement savings plan and incurred related expense
totaling $406,000; $2,675,000; and $1,592,000 for the two months ended
February 29, 1996 and the years ended December 31, 1995 and 1994,
respectively.
20. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement medical and life insurance coverage for
certain retired U.S. nonunion and union employees and their eligible
dependents. The amount of benefits provided to retired nonunion employees
varies according to the age of the retiree as of a predetermined date,
while benefits provided to retired union employees are based on annual
compensation. The Company does not currently fund its obligation related to
postretirement medical and life insurance benefits.
Net periodic postretirement benefit cost for the Company includes the
following components:
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Service cost............................................... $ 440
Interest cost on projected benefit obligation.............. 1,000
------
Net periodic postretirement benefit cost................... $1,440
======
</TABLE>
F-24
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's liability related to the postretirement medical and life
insurance benefits is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $ (7,329)
Fully eligible active participants....................... (1,593)
Other active participants................................ (8,235)
--------
Total accumulated postretirement benefit obligation........ (17,157)
Unrecognized net gain...................................... (217)
--------
Accrued postretirement benefit cost........................ $(17,374)
========
</TABLE>
The accumulated postretirement benefit obligation was measured using the
following assumptions: discount rate of 7.25%, rate of compensation
increase of 4.5%, and health care cost trend rate of 9.5% in 1996,
decreasing by 1.0% per year to 5.5% in 2000, and remaining at that level
thereafter. Increasing the assumed health care cost trend rate by one
percentage point in each year would increase the accumulated postretirement
benefit obligation by approximately $1,450,000 and increase the aggregate
of the service and interest cost by approximately $151,000.
The Predecessor provided postretirement medical and life insurance benefits
to U.S. retired nonunion employees. The current postretirement medical and
life insurance benefits which the Company provides to retired nonunion
employees remain essentially unchanged from those which the Predecessor had
provided.
Net periodic postretirement benefit cost incurred by the Predecessor
includes the following:
<TABLE>
<CAPTION>
TWO MONTHS
ENDED YEAR ENDED DECEMBER 31,
FEBRUARY 29, ------------------------
1996 1995 1994
------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost....................... $103 $ 449 $ 556
Interest cost on projected benefit
obligation........................ 207 1,509 1,509
Amortization of unrecognized prior
service cost...................... (56) (12) --
Amortization of unrecognized net
(gain) loss....................... 10 (25) 18
---- ----------- -----------
Net periodic postretirement benefit
cost.............................. $264 $ 1,921 $ 2,083
==== =========== ===========
</TABLE>
The Predecessor's liability related to the postretirement medical and life
insurance benefits which it provided to U.S. retired nonunion employees is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $ (7,581)
Fully eligible active participants....................... (1,680)
Other active participants................................ (8,480)
---------
Total accumulated postretirement benefit obligation........ (17,741)
Unrecognized prior service cost............................ (4,155)
Unrecognized net loss...................................... 1,303
---------
Accrued postretirement benefit cost........................ $ (20,593)
=========
</TABLE>
F-25
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accumulated postretirement benefit obligation was measured using the
following assumptions: discount rate of 7.25%, rate of compensation
increase of 4.0%, and health care cost trend rate of 11.5% in 1995,
decreasing by 0.5% per year to 7.0% in 2004, and remaining at that level
thereafter.
The Predecessor also participated in a single-employer postretirement
benefit arrangement maintained by Westinghouse. Westinghouse provided
medical and life insurance benefits to all retired U.S. union employees and
certain Westinghouse employees. For purposes of these financial statements,
the Predecessor's participation in this postretirement benefit arrangement
is accounted for as though it was a multiemployer postretirement benefit
plan. For multiemployer plans, employers are required to recognize total
contributions for the period as net periodic postretirement benefit
expense. The Predecessor's contributions for the postretirement benefit
arrangements sponsored by Westinghouse totaled $82,500 for the two months
ended February 29, 1996, $151,000 for the year ended December 31, 1995 and
$122,000 for the year ended December 31, 1994.
21. BUSINESS SEGMENT AND GEOGRAPHICAL REGION INFORMATION
The Company conducts business predominantly in the office furniture
industry through its operations in the United States, Canada, and Europe.
Summarized financial information regarding the Company's operations in
these geographic areas is presented below:
<TABLE>
<CAPTION>
TEN MONTHS ENDED UNITED
DECEMBER 31, 1996 STATES CANADA EUROPE ELIMINATIONS TOTALS
----------------- -------- ------- ------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales to customers........ $493,653 $24,456 $43,425 $ -- $561,534
Sales between geographic
areas.................... 13,637 60,866 1,714 (76,217) --
-------- ------- ------- --------- --------
Net sales................. $507,290 $85,322 $45,139 $ (76,217) $561,534
======== ======= ======= ========= ========
Operating profit.......... $ 54,381 $10,681 $ 6,282 -- $ 71,344
======== ======= ======= ========= ========
Identifiable assets....... $648,868 $52,690 $39,725 $ (65,571) $675,712
======== ======= ======= ========= ========
</TABLE>
F-26
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Predecessor also operated primarily in the office furniture industry in
the United States, Canada, and Europe. Summarized financial data regarding
the Predecessor's operations according to geographic area is as follows:
<TABLE>
<CAPTION>
TWO MONTHS ENDED UNITED
FEBRUARY 29, 1996 STATES CANADA EUROPE ELIMINATIONS TOTALS
----------------- -------- ------- -------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales to customers...... $ 78,267 $ 4,415 $ 7,251 $ -- $ 89,933
Sales to related
parties................ 299 -- -- -- 299
Sales between geographic
areas.................. 1,377 6,708 227 (8,312) --
-------- ------- -------- -------- ---------
Net sales............... $ 79,943 $11,123 $ 7,478 $ (8,312) $ 90,232
======== ======= ======== ======== =========
Operating profit........ $(39,010) $ (734) $ 185 -- $ (39,559)
======== ======= ======== ======== =========
<CAPTION>
YEAR ENDED UNITED
DECEMBER 31, 1995 STATES CANADA EUROPE ELIMINATIONS TOTALS
----------------- -------- ------- -------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales to customers...... $517,314 $31,132 $ 62,277 $ -- $ 610,723
Sales to related
parties................ 10,169 -- -- -- 10,169
Sales between geographic
areas.................. 17,349 61,262 1,882 (80,493) --
-------- ------- -------- -------- ---------
Net sales............... $544,832 $92,394 $ 64,159 $(80,493) $ 620,892
======== ======= ======== ======== =========
Operating profit........ $ 54,043 $ 483 $ 679 -- $ 55,205
======== ======= ======== ======== =========
Identifiable assets..... $455,784 $98,953 $ 72,265 $(32,698) $ 594,304
======== ======= ======== ========
General corporate
assets................. 62,406
Total assets............ $ 656,710
=========
<CAPTION>
YEAR ENDED UNITED
DECEMBER 31, 1994 STATES CANADA EUROPE ELIMINATIONS TOTALS
----------------- -------- ------- -------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales to customers...... $471,662 $30,294 $ 60,642 $ -- $ 562,598
Sales to related par-
ties................... 271 -- -- 271
Sales between geographic
areas.................. 20,994 43,541 2,445 (66,980) --
-------- ------- -------- -------- ---------
Net sales............... $492,927 $73,835 $ 63,087 $(66,980) $ 562,869
======== ======= ======== ======== =========
Operating profit........ $(11,378) $(7,292) $(30,864) -- $ (49,534)
======== ======= ======== ======== =========
Operating profit without
restructuring.......... $ 7,134 $(7,292) $(20,196) -- $ (20,354)
======== ======= ======== ======== =========
</TABLE>
For the two months ended February 29, 1996 and the years ended December 31,
1995 and 1994, allocated corporate expenses from Westinghouse were prorated
to the geographic segments based on sales. In addition, general corporate
assets at December 31, 1995 include cash and cash equivalents, prepaid
pension assets, and current and deferred tax assets that were maintained by
Westinghouse.
The Predecessor typically derived more than 10% of net sales from the U.S.
federal government. The Predecessor's sales to the U.S. federal government
totaled $9,925,000 for the two months ended February 29, 1996 and
$58,090,000 and $56,142,000 for the years ended December 31, 1995 and 1994,
F-27
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
respectively. The Company's total sales to the U.S. federal government were
$51,046,000 for the ten months ended December 31, 1996. Neither the Company
nor the Predecessor engaged in export sales from the U.S. to unaffiliated
customers in foreign countries.
Sales between geographic areas are made at a transfer price that includes
an appropriate mark-up.
22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth summary information on a quarterly basis for
the Company and the Predecessor for the respective periods presented below.
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
----------- -------------------------------------
TWO MONTHS ONE MONTH
ENDED ENDED SECOND THIRD FOURTH
FEBRUARY 29 MARCH 31 QUARTER QUARTER QUARTER
----------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1996
Net sales................. $ 90,232 $ 48,080 $166,520 $ 167,184 $179,750
Gross profit.............. 30,518 15,537 58,574 61,046 67,536
Income (loss) before ex-
traordinary item......... (24,088) 449 7,527 7,685 6,334
Net income (loss)......... (24,088) 449 7,527 7,685 1,175
<CAPTION>
PREDECESSOR
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995
Net sales................. $147,410 $159,352 $155,055 $159,075
Gross profit.............. 42,919 50,279 54,829 55,233
Net income................ 1,216 5,945 12,174 9,997
</TABLE>
Results for 1996 and 1995 have been restated to reflect the
reclassification of certain expenses, principally product development, from
cost of sales to selling, general and administrative expenses as compared
to previously reported results.
During the quarter ended December 31, 1996, the Company recorded a loss on
the early extinguishment of debt amounting to $8,542,000 pre-tax,
$5,159,000 after-tax. The loss consisted of the write-off of unamortized
deferred financing fees.
23. SUBSEQUENT EVENT
On March 14, 1997, the Company filed a registration statement on Form S-1
with the Securities and Exchange Commission in anticipation of possible
public offerings of common stock. If the public offerings are completed,
the net proceeds will be used to reacquire a portion of Series A Preferred
Stock, to redeem up to $57.8 million of the 10.875% senior subordinated
notes, to repay indebtedness under the Company's term and revolving loans,
and to fund general working capital needs or retire additional debt.
24. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT
As discussed in Note 10, certain debt of the Company is guaranteed by all
existing and future directly or indirectly wholly owned domestic
subsidiaries of the Company (the "Guarantors"). The Guarantors are Knoll
Overseas, Inc., a holding company for the entities that conduct the
Company's European business, and Spinneybeck Enterprises, Inc., which
directly and through a Canadian subsidiary operates the Company's leather
business.
F-28
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
These Guarantors will irrevocably and unconditionally, jointly and
severally, guarantee the performance and payment in full when due of all
obligations under the 10.875% Senior Subordinated Notes and credit
agreement outstanding as of December 31, 1996, limited to the largest
amount that would not render such Guarantor's obligations under the
guarantees subject to avoidance under any applicable federal or state
fraudulent conveyance or similar law.
The condensed consolidating information which follows presents:
. Condensed financial statements as of December 31, 1996 and 1995, and for
the ten months ended December 31, 1996, two months ended February 29,
1996, and the years ended December 31, 1995 and 1994 of (a) Knoll, Inc.
(as the Issuer), (b) the Guarantors, (c) the combined non-Guarantors,
(d) elimination entries and (e) the Company on a consolidated basis.
. The Issuer and the Guarantors are shown with their investments in their
wholly owned subsidiaries accounted for on the equity method.
The condensed consolidating financial statements should be read in
connection with the consolidated financial statements of the Company.
Separate financial statements of the Guarantors are not presented because
the Guarantors are jointly, severally and unconditionally liable under the
guarantees, and the Company believes the condensed consolidating financial
statements presented are more meaningful in understanding the financial
position of the Guarantors.
F-29
<PAGE>
KNOLL, INC.
BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTORS
---------------------------
SPINNEYBECK
ENTERPRISES, KNOLL NON-
KNOLL, INC. INC. OVERSEAS, INC. GUARANTORS ELIMINATIONS TOTAL
----------- ------------ -------------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 41 $ 267 $ -- $ 8,496 $ -- $ 8,804
Customer receivables.. 85,959 1,398 -- 23,809 -- 111,166
Inventories........... 39,951 6,747 -- 11,113 -- 57,811
Deferred income
taxes................ 17,079 -- -- 395 -- 17,474
Prepaid and other
current assets....... 9,769 50 (586) 2,817 (4,626) 7,424
-------- ------ ------- ------- -------- --------
Total current assets.... 152,799 8,462 (586) 46,630 (4,626) 202,679
Property, plant, and
equipment.............. 141,357 368 -- 34,493 -- 176,218
Intangible assets....... 278,389 -- -- 8,551 -- 286,940
Equity investments...... 75,571 550 12,789 -- (88,910) --
Other noncurrent
assets................. 9,976 13 97 2,289 (2,500) 9,875
-------- ------ ------- ------- -------- --------
Total assets............ $658,092 $9,393 $12,300 $91,963 $(96,036) $675,712
======== ====== ======= ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt....... $ 23,000 $ -- $ -- $ 265 $ -- $ 23,265
Accounts payable--
trade................ 34,076 350 -- 15,824 -- 50,250
Accounts payable--
related parties...... 1,543 -- (5,169) 8,252 (4,626) --
Income taxes payable.. 11 19 (1) 359 -- 388
Accrued restructuring
costs................ 1,598 -- -- 381 -- 1,979
Other current
liabilities.......... 54,649 288 1,668 5,438 -- 62,043
-------- ------ ------- ------- -------- --------
Total current
liabilities............ 114,877 657 (3,502) 30,519 (4,626) 137,925
Long-term debt.......... 330,000 2,500 -- 889 (2,500) 330,889
Deferred income taxes... -- -- -- 1,931 -- 1,931
Postretirement benefits
obligation............. 15,873 -- -- -- -- 15,873
Other noncurrent
liabilities............ 6,391 -- -- 4,899 -- 11,290
-------- ------ ------- ------- -------- --------
Total liabilities....... 467,141 3,157 (3,502) 38,238 (7,126) 497,908
Stockholders' equity:
Preferred stock....... 1,603 -- -- -- -- 1,603
Common stock.......... 23 -- -- -- -- 23
Additional paid-in-
capital.............. 172,585 4,033 14,034 43,999 (75,745) 158,906
Unearned stock grant
compensation......... (96) -- -- -- -- (96)
Retained earnings..... 16,836 2,203 1,768 9,194 (13,165) 16,836
Cumulative foreign
currency translation
adjustment........... -- -- -- 532 -- 532
-------- ------ ------- ------- -------- --------
Total stockholders'
equity................. 190,951 6,236 15,802 53,725 (88,910) 177,804
-------- ------ ------- ------- -------- --------
Total liabilities and
stockholders' equity... $658,092 $9,393 $12,300 $91,963 $(96,036) $675,712
======== ====== ======= ======= ======== ========
</TABLE>
F-30
<PAGE>
KNOLL, INC.
BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTORS
---------------------------
SPINNEYBECK
ENTERPRISES, KNOLL NON-
KNOLL, INC. INC. OVERSEAS, INC. GUARANTORS ELIMINATIONS TOTAL
----------- ------------ -------------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ (182) $ 182 $ -- $ 1,569 $ -- $ 1,569
Customer receivables.. 88,656 1,173 135 24,628 -- 114,592
Inventories........... 38,570 6,436 -- 14,637 -- 59,643
Deferred income
taxes................ 17,024 528 411 310 -- 18,273
Prepaid and other
current assets....... 2,093 6 4,554 26,377 (24,565) 8,465
-------- ------- ------- -------- -------- --------
Total current assets.... 146,161 8,325 5,100 67,521 (24,565) 202,542
Property, plant, and
equipment.............. 121,144 310 -- 43,179 -- 164,633
Intangible assets....... 160,072 4,430 626 75,644 -- 240,772
Prepaid pension cost.... 45,161 -- -- -- -- 45,161
Equity investments...... 32,050 2,140 26,152 -- (60,342) --
Other noncurrent
assets................. 2,568 30 97 3,151 (2,244) 3,602
-------- ------- ------- -------- -------- --------
Total assets............ $507,156 $15,235 $31,975 $189,495 $(87,151) $656,710
======== ======= ======= ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt....... $ -- $ -- $ -- $ 1,496 $ -- $ 1,496
Current maturities of
long-term debt....... 2,055 -- -- 1,232 -- 3,287
Accounts payable--
trade................ 27,534 910 123 17,283 -- 45,850
Accounts payable--
related parties...... 633 117 -- 6,591 (6,928) 413
Income taxes payable.. 13,760 984 (771) -- -- 13,973
Accrued restructuring
costs................ 5,893 -- -- 4,975 -- 10,868
Other current
liabilities.......... 36,726 861 1,778 4,592 -- 43,957
-------- ------- ------- -------- -------- --------
Total current
liabilities............ 86,601 2,872 1,130 36,169 (6,928) 119,844
Long-term debt.......... -- -- -- 251 -- 251
Deferred income taxes... 27,566 (56) 56 2,008 -- 29,574
Postretirement benefits
obligation............. 20,593 -- -- -- -- 20,593
Other noncurrent
liabilities............ 2,256 -- -- 3,741 -- 5,997
-------- ------- ------- -------- -------- --------
Total liabilities....... 137,016 2,816 1,186 42,169 (6,928) 176,259
Stockholders' equity:
Parent company
investment........... 370,140 12,419 30,789 170,192 (80,223) 503,317
Cumulative foreign
currency translation
adjustment........... -- -- -- (22,866) -- (22,866)
-------- ------- ------- -------- -------- --------
Total stockholders'
equity................. 370,140 12,419 30,789 147,326 (80,223) 480,451
-------- ------- ------- -------- -------- --------
Total liabilities and
stockholders' equity... $507,156 $15,235 $31,975 $189,495 $(87,151) $656,710
======== ======= ======= ======== ======== ========
</TABLE>
F-31
<PAGE>
KNOLL, INC.
STATEMENT OF OPERATIONS
TEN MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTORS
---------------------------
SPINNEYBECK
ENTERPRISES, KNOLL NON-
KNOLL, INC. INC. OVERSEAS, INC. GUARANTORS ELIMINATIONS TOTAL
----------- ------------ -------------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Sales to customers...... $480,857 $12,796 $ -- $67,881 $ -- $561,534
Sales to related
parties................ 13,227 2,210 -- 62,580 (78,017) --
-------- ------- ------ ------- --------- --------
Total sales............. 494,084 15,006 -- 130,461 (78,017) 561,534
Cost of sales to
customers.............. 323,607 6,109 521 50,293 (21,689) 358,841
Cost of sales to related
parties................ 8,902 1,054 -- 46,372 (56,328) --
-------- ------- ------ ------- --------- --------
Gross profit............ 161,575 7,843 (521) 33,796 -- 202,693
Selling, general, and
administrative
expenses............... 108,713 4,342 1,461 16,833 -- 131,349
-------- ------- ------ ------- --------- --------
Operating income
(loss)................. 52,862 3,501 (1,982) 16,963 -- 71,344
Interest expense........ 32,706 -- -- 246 -- 32,952
Other income (expense),
net.................... 757 (4) 953 (1,259) -- 447
Income (loss) from
equity investments..... 10,319 77 2,769 -- (13,165) --
-------- ------- ------ ------- --------- --------
Income (loss) before
income taxes and
extraordinary item..... 31,232 3,574 1,740 15,458 (13,165) 38,839
Income tax expense
(benefit).............. 9,237 1,371 (28) 6,264 -- 16,844
-------- ------- ------ ------- --------- --------
Income (loss) before
extraordinary item..... 21,995 2,203 1,768 9,194 (13,165) 21,995
Extraordinary loss on
early extinguishment of
debt, net of taxes..... 5,159 -- -- -- -- 5,159
-------- ------- ------ ------- --------- --------
Net income (loss)....... $ 16,836 $ 2,203 $1,768 $ 9,194 $ (13,165) $ 16,836
======== ======= ====== ======= ========= ========
</TABLE>
F-32
<PAGE>
KNOLL, INC.
STATEMENT OF OPERATIONS
TWO MONTHS ENDED FEBRUARY 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTORS
---------------------------
SPINNEYBECK
ENTERPRISES, KNOLL NON-
KNOLL, INC. INC. OVERSEAS, INC. GUARANTORS ELIMINATIONS TOTAL
----------- ------------ -------------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Sales to customers...... $ 76,172 $2,095 $ -- $11,666 $ -- $ 89,933
Sales to related
parties................ 1,617 330 -- 6,935 (8,583) 299
-------- ------ ----- ------- ------- --------
Total sales............. 77,789 2,425 -- 18,601 (8,583) 90,232
Cost of sales to
customers.............. 50,380 931 111 9,041 (949) 59,514
Cost of sales to related
parties................ 1,083 149 -- 6,602 (7,634) 200
-------- ------ ----- ------- ------- --------
Gross profit............ 26,326 1,345 (111) 2,958 -- 30,518
Selling, general, and
administrative
expenses............... 16,800 725 224 3,507 -- 21,256
Westinghouse long-term
incentive
compensation........... 47,900 -- -- -- -- 47,900
Allocated corporate
expenses............... 921 -- -- -- -- 921
-------- ------ ----- ------- ------- --------
Operating income
(loss)................. (39,295) 620 (335) (549) -- (39,559)
Other income (expense),
net.................... (265) -- 170 (201) -- (296)
Income (loss) from
equity investments..... (218) 23 (493) -- 688 --
Interest expense........ -- -- -- 340 -- 340
-------- ------ ----- ------- ------- --------
Income (loss) before
income taxes........... (39,778) 643 (658) (1,090) 688 (40,195)
Income tax expense
(benefit).............. (16,338) 259 (56) 28 -- (16,107)
-------- ------ ----- ------- ------- --------
Net income (loss)....... $(23,440) $ 384 $(602) $(1,118) $ 688 $(24,088)
======== ====== ===== ======= ======= ========
</TABLE>
F-33
<PAGE>
KNOLL, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTORS
---------------------------
SPINNEYBECK
ENTERPRISES, KNOLL NON-
KNOLL, INC. INC. OVERSEAS, INC. GUARANTORS ELIMINATIONS TOTAL
----------- ------------ -------------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Sales to customers...... $500,892 $14,090 $ -- $ 93,409 $ 2,332 $610,723
Sales to related
parties................ 12,411 2,332 -- 60,309 (64,883) 10,169
-------- ------- ------- -------- ------- --------
Total sales............. 513,303 16,422 -- 153,718 (62,551) 620,892
Cost of sales to
customers.............. 342,202 5,501 831 84,544 (22,463) 410,615
Cost of sales to related
parties................ 8,564 2,472 373 35,696 (40,088) 7,017
-------- ------- ------- -------- ------- --------
Gross profit............ 162,537 8,449 (1,204) 33,478 -- 203,260
Selling, general, and
administrative
expenses............... 104,388 4,894 1,749 27,496 -- 138,527
Allocated corporate
expenses............... 9,528 -- -- -- -- 9,528
-------- ------- ------- -------- ------- --------
Operating income
(loss)................. 48,621 3,555 (2,953) 5,982 -- 55,205
Interest expense........ 282 -- -- 1,148 -- 1,430
Other income (expense),
net.................... (2,101) -- 68 436 -- (1,597)
Income (loss) from
equity investments..... 211 -- (166) -- (45) --
-------- ------- ------- -------- ------- --------
Income (loss) before
income taxes........... 46,449 3,555 (3,051) 5,270 (45) 52,178
Income tax expense (ben-
efit).................. 22,553 1,476 (1,183) -- -- 22,846
-------- ------- ------- -------- ------- --------
Net income (loss)....... $ 23,896 $ 2,079 $(1,868) $ 5,270 $ (45) $ 29,332
======== ======= ======= ======== ======= ========
</TABLE>
F-34
<PAGE>
KNOLL, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTORS
---------------------------
SPINNEYBECK
ENTERPRISES, KNOLL NON-
KNOLL, INC. INC. OVERSEAS, INC. GUARANTORS ELIMINATIONS TOTAL
----------- ------------ -------------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Sales to customers...... $ 453,792 $15,123 $ (1) $ 90,936 $ 2,748 $ 562,598
Sales to related
parties................ 7,035 2,766 -- 43,775 (53,305) 271
--------- ------- -------- --------- ------- ---------
Total sales............. 460,827 17,889 (1) 134,711 (50,557) 562,869
Cost of sales to
customers.............. 324,051 7,497 412 87,937 (9,988) 409,909
Cost of sales to related
parties................ 5,065 2,915 314 32,470 (40,569) 195
--------- ------- -------- --------- ------- ---------
Gross profit............ 131,711 7,477 (727) 14,304 -- 152,765
Provision for
restructuring.......... -- -- -- 29,180 -- 29,180
Selling, general, and
administrative
expenses............... 118,188 6,215 (489) 43,324 -- 167,238
Allocated corporate
expenses............... 5,881 -- -- -- -- 5,881
--------- ------- -------- --------- ------- ---------
Operating income
(loss)................. 7,642 1,262 (238) (58,200) -- (49,534)
Interest expense........ 626 -- -- 2,599 -- 3,225
Other income (expense),
net.................... (300) -- (11) 1,010 -- 699
Income (loss) from
equity investments..... (19,724) -- (20,103) -- 39,827 --
--------- ------- -------- --------- ------- ---------
Income (loss) before
income taxes........... (13,008) 1,262 (20,352) (59,789) 39,827 (52,060)
Income tax expense
(benefit).............. 7,079 639 (5) -- -- 7,713
--------- ------- -------- --------- ------- ---------
Net income (loss)....... $ (20,087) $ 623 $(20,347) $ (59,789) $39,827 $ (59,773)
========= ======= ======== ========= ======= =========
</TABLE>
F-35
<PAGE>
KNOLL, INC.
STATEMENT OF CASH FLOWS
TEN MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTORS
---------------------------
SPINNEYBECK
ENTERPRISES, KNOLL NON-
KNOLL, INC. INC. OVERSEAS, INC. GUARANTORS ELIMINATIONS TOTAL
----------- ------------ -------------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY
OPERATING ACTIVITIES... $ 78,889 $ 399 $ -- $ 10,214 $ -- $ 89,502
CASH FLOWS FROM
INVESTING ACTIVITIES
Capital expenditures.... $(12,531) $ (134) $ -- $ (2,590) $ -- $(15,255)
Proceeds from sale of
assets................. 43 -- -- 175 -- 218
-------- ------ ----- -------- ----- --------
Cash used in investing
activities............. (12,488) (134) -- (2,415) -- (15,037)
CASH FLOWS FROM
FINANCING ACTIVITIES
Repayment of short-term
debt, net.............. -- -- -- (1,483) -- (1,483)
Repayment of long-term
debt, net.............. (72,000) -- -- (130) -- (72,130)
Additional equity
contribution........... 400 -- -- -- -- 400
Net receipts from
(payments to) parent
company................ (120) -- -- 120 -- --
-------- ------ ----- -------- ----- --------
Cash used in financing
activities............. (71,720) -- -- (1,493) -- (73,213)
Effect of exchange rate
changes on cash and
cash equivalents....... -- -- -- 18 -- 18
-------- ------ ----- -------- ----- --------
Increase (decrease) in
cash and cash
equivalents............ (5,319) 265 -- 6,324 -- 1,270
Cash and cash
equivalents at
beginning of period.... 5,360 2 -- 2,172 -- 7,534
-------- ------ ----- -------- ----- --------
Cash and cash
equivalents at end of
period................. $ 41 $ 267 $ -- $ 8,496 $ -- $ 8,804
======== ====== ===== ======== ===== ========
</TABLE>
F-36
<PAGE>
KNOLL, INC.
STATEMENT OF CASH FLOWS
TWO MONTHS ENDED FEBRUARY 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTORS
---------------------------
SPINNEYBECK
ENTERPRISES, KNOLL NON-
KNOLL, INC. INC. OVERSEAS, INC. GUARANTORS ELIMINATIONS TOTAL
----------- ------------ -------------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED
IN) OPERATING
ACTIVITIES............. $ (53,218) $ 1,267 $ 651 $ 17,142 $ (19,881) $ (54,039)
CASH FLOWS FROM
INVESTING ACTIVITIES
Capital expenditures.... (2,022) (28) -- (246) -- (2,296)
--------- ------- ----- -------- --------- ---------
Cash used in investing
activities............. (2,022) (28) -- (246) -- (2,296)
CASH FLOWS FROM
FINANCING ACTIVITIES
Repayment of short-term
debt, net.............. (2,055) -- -- (1,750) -- (3,805)
Net receipts from
(payments to) parent
company................ 57,635 (1,419) (651) (14,598) 19,881 60,848
--------- ------- ----- -------- --------- ---------
Cash provided by (used
in) financing
activities............. 55,580 (1,419) (651) (16,348) 19,881 57,043
Effect of exchange rate
changes on cash and
cash equivalents....... -- -- -- 58 -- 58
--------- ------- ----- -------- --------- ---------
Increase (decrease) in
cash and cash
equivalents............ 340 (180) -- 606 -- 766
Cash and cash
equivalents at
beginning of period.... (182) 182 -- 1,569 -- 1,569
--------- ------- ----- -------- --------- ---------
Cash and cash
equivalents at end of
period................. $ 158 $ 2 $ -- $ 2,175 $ -- $ 2,335
========= ======= ===== ======== ========= =========
</TABLE>
F-37
<PAGE>
KNOLL, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTORS
---------------------------
SPINNEYBECK
ENTERPRISES, KNOLL NON-
KNOLL, INC. INC. OVERSEAS, INC. GUARANTORS ELIMINATIONS TOTAL
----------- ------------ -------------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED
IN) OPERATING
ACTIVITIES............. $ 50,270 $ 6,203 $ (4,017) $ (9,992) $ 9,400 $ 51,864
CASH FLOWS FROM
INVESTING ACTIVITIES
Capital expenditures.... (14,871) -- -- (4,463) -- (19,334)
Proceeds from sale of
assets................. 42 -- -- 274 -- 316
Net receipts from
(payments to) equity
investments............ (186) -- -- -- 186 --
-------- ------- -------- -------- ------- --------
Cash provided by (used
in) investing
activities............. (15,015) -- -- (4,189) 186 (19,018)
CASH FLOWS FROM
FINANCING ACTIVITIES
Repayment of short-term
debt, net.............. -- -- -- (20,961) -- (20,961)
Repayment of long-term
debt................... (6,646) -- -- (2,267) -- (8,913)
Net receipts from
(payments to) parent
company................ (28,791) (6,021) 4,017 33,481 (9,586) (6,900)
-------- ------- -------- -------- ------- --------
Cash provided by (used
in) financing
activities............. (35,437) (6,021) 4,017 10,253 (9,586) (36,774)
Effect of exchange rate
changes on cash and
cash equivalents....... -- -- -- 13 -- 13
-------- ------- -------- -------- ------- --------
Increase (decrease) in
cash and cash
equivalents............ (182) 182 -- (3,915) -- (3,915)
Cash and cash
equivalents at
beginning of year...... -- -- -- 5,484 -- 5,484
-------- ------- -------- -------- ------- --------
Cash and cash
equivalents at end of
year................... $ (182) $ 182 $ -- $ 1,569 $ -- $ 1,569
======== ======= ======== ======== ======= ========
</TABLE>
F-38
<PAGE>
KNOLL, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTORS
---------------------------
SPINNEYBECK
ENTERPRISES, KNOLL NON-
KNOLL, INC. INC. OVERSEAS, INC. GUARANTORS ELIMINATIONS TOTAL
----------- ------------ -------------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED
IN) OPERATING
ACTIVITIES............. $ 23,756 $ 887 $(1,725) $(30,368) $ 3,666 $ (3,784)
CASH FLOWS FROM
INVESTING ACTIVITIES
Capital expenditures.... (12,935) (72) -- (7,150) -- (20,157)
Proceeds from sale of
assets................. 189 -- -- 143 -- 332
Net receipts from
(payments to) equity
investments............ (1,429) 738 (1,488) -- 2,179 --
-------- ------- ------- -------- ------- --------
Cash provided by (used
in) investing
activities............. (14,175) 666 (1,488) (7,007) 2,179 (19,825)
CASH FLOWS FROM
FINANCING ACTIVITIES
Repayment of short-term
debt, net.............. -- -- -- (2,758) -- (2,758)
Repayment of long-term
debt................... (263) -- -- (2,490) -- (2,753)
Net receipts from
(payments to) parent
company................ (11,080) (1,553) 3,147 49,167 (5,845) 33,836
-------- ------- ------- -------- ------- --------
Cash provided by (used
in) financing
activities............. (11,343) (1,553) 3,147 43,919 (5,845) 28,325
Effect of exchange rate
changes on cash and
cash equivalents....... -- -- -- (1,996) -- (1,996)
-------- ------- ------- -------- ------- --------
Increase (decrease) in
cash and cash
equivalents............ (1,762) -- (66) 4,548 -- 2,720
Cash and cash
equivalents at
beginning of year...... 1,762 -- 66 936 -- 2,764
-------- ------- ------- -------- ------- --------
Cash and cash
equivalents at end of
year................... $ -- $ -- $ -- $ 5,484 $ -- $ 5,484
======== ======= ======= ======== ======= ========
</TABLE>
F-39
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(1) OF PERIOD
----------- ------------ ---------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
VALUATION ACCOUNTS DEDUCTED IN
THE CONSOLIDATED BALANCE
SHEET FROM THE ASSETS TO
WHICH THEY APPLY:
Ten Months Ended December 31,
1996:
Allowance for doubtful
accounts.................... $5,838 $2,098 $2,223 $5,713
Two Months Ended February 29,
1996:
Allowance for doubtful
accounts.................... 5,790 159 210 5,739
Year Ended December 31, 1995:
Allowance for doubtful
accounts.................... 4,700 2,720 1,630 5,790
Year Ended December 31, 1994:
Allowance for doubtful
accounts.................... 2,162 3,636 1,098 4,700
</TABLE>
- --------
(1) Uncollectible accounts written off.
S-1
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
T.K.G. ACQUISITION CORP.
It is hereby certified that:
The present name of the corporation (hereinafter called the "Corporation")
is T.K.G. Acquisition Corp. The date of filing of the original Certificate of
Incorporation of the Corporation with the Secretary of State of the State of
Delaware was December 15, 1995.
This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with Sections 228, 242 and 245 of the General Corporation
Law of the State of Delaware. The majority stockholder has consented in writing
to the adoption of this Amended and Restated Certificate of Incorporation.
The text of the certificate of incorporation of the Corporation as amended
hereby is restated to read in its entirety as follows:
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
T.K.G. ACQUISITION CORP.
* * * * * * *
FIRST: The name of the corporation (the "Corporation") is T.K.G.
-----------
ACQUISITION CORP.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is Corporation Trust Company, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of its registered agent at
such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware as now in effect or as hereafter
amended.
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 27,000,000 shares, consisting of (i) 24,000,000
shares of common stock, par value $0.01 per share ("Common Stock"), and (ii)
------------
3,000,000 shares of preferred stock, par value $1.00 per share (the "Preferred
---------
Stock"), of which 1,920,000 shares shall be designated as "Series A 12%
- -----
Participating Convertible Preferred Stock" (the "Series A Preferred Stock").
------------------------
The Preferred Stock may be issued from time to time in one or more series. The
Board of Directors of the Corporation (the "Board of Directors") is expressly
------------------
authorized at any time, and from time to time, to provide for the issuance of
shares of Preferred Stock in one or more series, for such consideration (not
less than its par value) and with the designations, powers, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations, or restrictions thereof, as shall be determined by
the Board of Directors and fixed by resolution or resolutions adopted by the
Board of Directors providing for the number of shares in each such series.
The Common Stock and Series A Preferred Stock shall have the
designations, powers, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations, or restrictions thereof, as
hereinafter set forth in this Article FOURTH.
The ability of the Corporation to issue shares of its capital stock
shall be subject to the subscription rights of
<PAGE>
certain stockholders of the Corporation set forth in Section 1(d) of that
certain Stockholders Agreement (Common Stock and Preferred Stock), dated as of
February 29, 1996, by and among the Corporation, Warburg, Pincus Ventures, L.P.
("Warburg") and certain other stockholders of the Corporation, as the same may
-------
be amended from time to time.
(A) COMMON STOCK.
------------
(1) Dividends. The holders of Common Stock shall be entitled to
---------
receive, when and as declared, out of assets and funds legally available
therefor, cash or non-cash dividends payable as and when the Board of
Directors in its sole business judgment so declares. Any such dividend
shall be payable ratably to all record holders of Common Stock as of the
record date fixed by the Board of Directors in accordance with the By-Laws
of the Corporation for the payment thereof.
(2) Liquidation Rights. In the event of any voluntary or
------------------
involuntary liquidation, dissolution or winding up of the Corporation
("Liquidation"), the holders of Common Stock then outstanding shall be
-------------
entitled to be paid ratably out of the assets and funds of the Corporation
available for distribution to its stockholders, after and subject to the
payment in full of all amounts required to be distributed to the holders of
any Preferred Stock upon Liquidation, an amount equal to their share
(including any declared but unpaid dividends on the Common Stock, subject
to proportionate adjustment in the event of any stock dividend, stock
split, stock distribution or combination with respect to such shares) of
such assets and funds.
(3) Voting.
------
(a) Except as required by law, as may be limited in the T.K.G.
Acquisition Corp. 1996 Stock Incentive Plan (the "Stock Plan") or any other
----------
incentive plan established for the directors or employees of the
Corporation or any of its subsidiaries, or as otherwise provided herein or
in any amendment hereof, the entire voting power of the Corporation shall
be vested in the holders of the Common Stock and Series A Preferred Stock
voting together as a single class.
(b) Each holder of Common Stock entitled to vote shall at every
meeting of the stockholders of the Corporation be entitled to one vote for
each share of Common Stock registered in his or her name on the record of
stockholders. Prior to the Conversion Date (as defined herein), each
holder of Series A Preferred Stock entitled to vote shall at every meeting
of the stockholders of the Corporation be entitled to one thousand votes
for each share of Series A Preferred Stock registered in his or her name on
the record of stockholders. From and after the Conversion
-2-
<PAGE>
Date, each holder of Series A Preferred Stock entitled to vote shall at
every meeting of the stockholders of the Corporation be entitled to the
number of votes equal to the number of shares of Common Stock into which
each share of Series A Preferred Stock would have been convertible at the
Conversion Date (assuming all outstanding shares of Series A Preferred
Stock were converted) for each share of Series A Preferred Stock registered
in his or her name on the record of stockholders.
(c) Without first obtaining the affirmative vote or written
consent of a majority of the stockholders of the Corporation, the
Corporation shall not amend the Stock Plan, adopt any other incentive plan
that provides for the grant or sale of shares of the Corporation's capital
stock or securities convertible or exchangeable therefor or issue any
shares of the Corporation's capital stock or securities convertible or
exchangeable therefor.
(B) SERIES A PREFERRED STOCK.
------------------------
(1) Dividends. (a) The holders of Series A Preferred Stock
---------
shall be entitled to receive, when and as declared, out of funds legally
available therefor, dividends at the rate of $12.00 per annum, payable as
the Board of Directors may determine, before any dividends or other amounts
shall be set apart for or paid upon the Common Stock in any year. All
dividends declared upon the Series A Preferred Stock shall be declared pro
rata per share.
(b) Dividends on the Series A Preferred Stock shall be fully
cumulative, whether or not in any fiscal year there shall be net profits or
surplus available for the payment of dividends in such fiscal year, so that
if in any fiscal year or years dividends in whole or in part are not paid
upon the Series A Preferred Stock, unpaid dividends shall accumulate and be
compounded quarterly. Dividends on the Series A Preferred Stock shall
accrue on a quarterly basis. Notwithstanding the foregoing, no dividends
on any shares of Series A Preferred Stock shall be declared after the
Conversion Date or shall accrue from and after such date.
(c) Notwithstanding Section (A)(1) of this Article FOURTH, for so
long as dividends on the Series A Preferred Stock are accrued and unpaid,
the Corporation shall not pay any dividend upon the Common Stock, whether
in cash or other property (other than Common Stock), or purchase, redeem or
otherwise acquire any such Common Stock (other than redemptions or
repurchases of any Common Stock held by employees of the Corporation or its
subsidiaries, and then only upon such person's ceasing to be an employee of
the Corporation or its subsidiaries, each in accordance with terms of any
applicable agreement between the
-3-
<PAGE>
Corporation or its subsidiaries and any such employee or the terms of any
agreement or plan pursuant to which such Common Stock was issued).
(2) Liquidation Rights. (a) In the event of Liquidation, the
------------------
holders of Series A Preferred Stock then outstanding shall be entitled to
be paid out of the assets of the Corporation available for distribution to
its stockholders upon Liquidation, but before any payment shall be made to
the holders of Common Stock, an amount equal to $100 per share plus any
dividends thereon declared or accrued but unpaid (including as a result of
quarterly compounding), subject to proportionate adjustment in the event of
any stock dividend, stock split, stock distribution or combination with
respect to such shares.
(b) If upon Liquidation the remaining assets of the Corporation
available for the distribution to its stockholders shall be insufficient to
pay the holders of Series A Preferred Stock the full preferential amount
set forth in paragraph (a) above, the holders of Series A Preferred Stock
shall share ratably in any distribution of the remaining assets and funds
of the Corporation in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to said shares were
paid in full.
(c) After the payment of all preferential amounts required to be
paid to the holders of Series A Preferred Stock upon Liquidation, the
holders of Common Stock then outstanding shall be entitled to receive the
remaining assets and funds of the Corporation available for distribution to
its stockholders, as provided in Section (A)(2) above.
(d) The merger or consolidation of the Corporation into or with
another corporation, the merger or consolidation of any other corporation
into or with the Corporation, or the sale, conveyance, mortgage, pledge or
lease of all or substantially all the assets of the Corporation shall not
be deemed to be a Liquidation for purposes of this Section 3.
(3) Voting. In addition to the voting rights of holders of
------
Series A Preferred Stock provided in Section A(3) above or as required by
law, the Corporation shall not (and the holders of the Common Stock shall
not cause the Corporation to), without first obtaining the affirmative vote
or written consent of the holders of a majority of the outstanding Series A
Preferred Stock:
(a) amend or repeal any provision of the Corporation's
Certificate of Incorporation or By-Laws;
-4-
<PAGE>
(b) authorize or effect (i) any sale, lease, transfer or other
disposition of all or substantially all the assets of the Corporation or of
any assets of the Corporation not in the ordinary course of its business
(including, without limitation, capital stock of or other ownership
interests in any other entity); (ii) any merger or consolidation or other
reorganization of the Corporation with or into another corporation, (iii)
the acquisition by the Corporation of another corporation by means of a
purchase of all or substantially all the assets of such corporation, or
(iv) a liquidation, winding up or dissolution of the Corporation or
adoption of any plan for the same;
(c) employ or terminate the employment of the chief executive
officer, chief financial officer or chief operating officer of the
Corporation or any of its subsidiaries (or any person serving in any such
capacity); or
(d) amend the Stock Plan, adopt any other incentive plan that
provides for the grant or sale of shares of the Corporation's capital stock
or securities convertible or exchangeable therefor or issue any shares of
the Corporation's capital stock or securities convertible or exchangeable
therefor.
(C) CONVERSION OF SERIES A PREFERRED STOCK. Each holder of
--------------------------------------
Series A Preferred Stock shall be entitled to convert such Series A
Preferred Stock into Common Stock upon the terms and subject to conditions
hereinafter set forth in this Article FOURTH (C):
(1) Conversion Decision. The holder or holders of a majority of
-------------------
the outstanding Series A Preferred Stock, upon written notice to the
Corporation, may elect (the "Conversion Decision") to cause all or a
-------------------
portion of the shares of Series A Preferred Stock to be converted into
shares of Common Stock and to determine the percentage of the shares of
Series A Preferred Stock outstanding to be so converted (the "Conversion
----------
Percentage") as set forth herein. Such notice shall set forth the date (the
----------
"Conversion Date"), which shall not precede the date of the Conversion
---------------
Decision nor be more than sixty days following such date and which may be
conditioned on the occurrence of one or more events. Within five days
following receipt of such notice, the Corporation shall notify all holders
of Series A Preferred Stock of the Conversion Decision and the terms
thereof, including the Conversion Percentage and the Conversion Date. Such
notice shall be sent by overnight mail, postage prepaid, to each record
holder of Series A Preferred Stock at such holder's address appearing on
the stock register of the Corporation. Upon conversion of shares of Series
A Preferred Stock on the Conversion Date,
-5-
<PAGE>
the Series A Preferred Stock shall no longer be convertible into Common
Stock or any other class of capital stock of the Corporation.
Notwithstanding anything to the contrary contained herein, the holder or
holders of a majority of the outstanding Series A Preferred Stock, upon
written notice to the Corporation prior to the Conversion Date, may elect
to revoke the Conversion Decision. Within five days following receipt of
such notice, the Corporation shall notify all holders of Series A Preferred
Stock of such revocation of the Conversion Decision.
(2) Conversion of Shares. (a) On the Conversion Date, each share
--------------------
of Series A Preferred Stock to be converted pursuant to Section (C)(1)
above (the aggregate of such shares of Series A Preferred Stock being the
"Aggregate Preferred Conversion Shares") shall be converted into that
--------------------------------------
number of fully paid and nonassessable shares of Common Stock as shall be
equal to the quotient of (x) the Aggregate Common Conversion Shares (as
------------ --
defined below) divided by (y) the Aggregate Preferred Conversion Shares;
-------
provided, however, that if the Conversion Decision was made prior to March
-------- -------
1, 1998, then such number of fully paid and nonassessable shares of Common
Stock shall be equal to the lesser of (i) the Ceiling Ratio (as defined
--- ------ --
below) and (ii) the foregoing quotient.
---
(b) For purposes of the foregoing conversion formula,
(i) "Aggregate Common Conversion Shares" shall be equal to
----------------------------------
(NPF x GPS)
___________ - NPS
1 - NPF
where
GPS = the number of shares of Common Stock outstanding
immediately prior to conversion that have been granted,
whether vested or unvested, under the Stock Plan (also
referred to herein as the "Granted Plan Shares");
-------------------
NPS = the number of shares of Common Stock issued and outstanding
immediately prior to conversion other than Granted Plan
Shares (also referred to herein as the "Non-Plan Shares");
---------------
and
NPF = the Non-Plan Fraction (as defined below).
-6-
<PAGE>
(ii) "Non-Plan Fraction" shall be equal to
-----------------
P + (M x (E - P))
_________________
E
where
P = the sum of (x) the aggregate liquidation preference of the
Aggregate Preferred Conversion Shares but not including any
dividends declared or accrued thereon, less any dividends
previously paid thereon, plus (y) the aggregate purchase
----
price paid for the Non-Plan Shares;
M = 1 minus the product of .15 and the Granted Plan Shares
-----
Percentage; and
E = the fair market value of the Corporation (also referred to
herein as the "Total Equity Value"), determined in good
------------------
faith by the Board of Directors; provided that the fair
market value of the Corporation with respect to any
Conversion Decision made in connection with an initial
public offering of the Corporation's equity securities shall
be determined by reference to the initial public offering
price of such securities, net of any underwriting discounts
or commissions.
(iii) "Ceiling Ratio" shall be equal to
-------------
(CRM x GPS) - ((1 - CRM) x NPS)
___________________________________________________
(1 - CRM) x (Aggregate Preferred Conversion Shares)
where
CRM = 1 minus the product of .10 and the
-----
Granted Plan Shares Percentage.
(iv) "Granted Plan Shares Percentage" shall be equal to the
------------------------------
quotient of (x) the Granted Plan Shares divided by (y) the sum of (a)
-------- -------
the Granted Plan Shares and (b) the total number of shares of Common
Stock available for future grant under the Stock Plan.
(v) Notwithstanding anything in this Section (C)(2) of
Article FOURTH to the contrary, shares of the Corporation's capital
stock issued or issuable pursuant to the Corporation's 1997 Stock
Incentive Plan shall be ignored for purposes of determining the number
of Aggregate Common Conversion Shares and making the other
calculations pursuant to such Section.
-7-
<PAGE>
(c) If any fraction of a share of Common Stock would be issuable
upon conversion of any Series A Preferred Stock, the Corporation may issue
fractions of the shares of Common Stock, or in lieu thereof, pay to the
person entitled thereto an amount in cash equal to the current value of
such fraction, calculated to the nearest one-hundredth (1/100) of a share,
to be computed (i) if the Common Stock is listed on any national securities
exchange, on the basis of the last sales price per share of the Common
Stock on such exchange (or the quoted closing bid price if there shall have
been no sales) on the date of conversion, or (ii) if the Common Stock shall
not be so listed, on the basis of the mean between the closing bid and
asked prices per share for the Common Stock on the date of conversion as
reported by NASDAQ, or its successor, and if there are not such closing bid
and asked prices, on the basis of the fair market value per share as
determined by the Board of Directors.
(3) Conversion Procedure.
--------------------
(a) On or after the Conversion Date, each holder of Series A
Preferred Stock (i) shall surrender the certificate or certificates
therefor to the principal office of the transfer agent for the Series A
Preferred Stock (or if no transfer agent be at the time appointed, then to
the Corporation at its principal office), and (ii) shall give written
notice to the Corporation at such office of the name or names (with
address) in which the certificate or certificates for Common Stock which
shall be issuable on such conversion shall be issued, subject to any
restrictions on transfer relating to shares of the Series A Preferred Stock
or Common Stock upon conversion thereof. If so required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly authorized in writing. As soon as
practicable after receipt of such notice and the surrender of the
certificate or certificates for Series A Preferred Stock as aforesaid, the
Corporation shall cause to be issued and delivered at such office to such
holder, or on such holder's written order, a certificate or certificates
for (i) the number of full shares of Common Stock issuable on such
conversion of each holder's Conversion Percentage of his Series A Preferred
Stock in accordance with the provisions hereof and fractional shares of
Common Stock or cash as provided in Section (C)(2)(c) in respect of any
fraction of a Common Stock otherwise issuable upon such conversion, and
(ii) the number of shares of Series A Preferred Stock not being converted.
The Corporation may legend or alter the form of the certificates for such
shares of Series A Preferred Stock not being converted to reflect changes
in the rights thereof as a result of the conversion.
-8-
<PAGE>
(b) The Corporation shall at all times when Series A Preferred
Stock shall be outstanding reserve and keep available out of its authorized
but unissued stock, for the purposes of effecting the conversion of the
Series A Preferred Stock, such number of shares of its duly authorized
Common Stock as shall from time to time be sufficient to effect the
conversion of all then outstanding Series A Preferred Stock.
Notwithstanding the foregoing, for purposes of this Section (C) of Article
FOURTH, the Corporation shall not be required to determine Total Equity
Value except in connection with a Conversion Decision.
(c) From and after the Conversion Date, all Series A Preferred
Stock which shall have been surrendered for conversion and converted as
herein provided shall no longer be deemed to be outstanding and all rights
with respect to such shares, including the rights, if any, to receive
notices and to vote, shall forthwith cease and terminate except only the
right of the holder thereof to receive certificates representing Common
Stock in exchange therefor and payment of any accrued and unpaid dividends
upon such Common Stock. Any Series A Preferred Stock so converted shall be
retired and canceled and shall not be reissued, and the Corporation may
from time to time take such appropriate action as may be necessary to
reduce the authorized Preferred Stock accordingly.
FIFTH: The mailing address of the Corporation is as follows:
c/o Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
SIXTH: In furtherance and not in limitation of the powers conferred
by statute, the by-laws of the Corporation may be made, altered, amended or
repealed by the stockholders or by a majority of the entire Board of Directors.
SEVENTH: Elections of directors need not be by written ballot.
EIGHTH: 1. Indemnification. The Corporation shall indemnify to the
---------------
fullest extent permitted under and in accordance with the laws of the State of
Delaware any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, incorporator, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, trustee,
employee or agent of or in any other similar capacity with another corporation,
partnership, joint venture, trust or other enterprise, against
-9-
<PAGE>
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, shall not,
of itself, create a presumption that the person had reasonable cause to believe
that his conduct was unlawful.
2. Payment of Expenses. Expenses (including attorneys' fees) incurred
-------------------
in defending any civil, criminal, administrative or investigative action, suit
or proceeding shall (in the case of any action, suit or proceeding against a
director of the Corporation) or may (in the case of any action, suit or
proceeding against an officer, trustee, employee or agent) be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the indemnified person to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article EIGHTH.
3. Nonexclusivity of Provision. The indemnification and other rights
---------------------------
set forth in this Article EIGHTH shall not be exclusive of any provisions with
respect thereto in the by-laws or any other contract or agreement between the
Corporation and any officer, director, employee or agent of the Corporation.
4. Effect of Repeal. Neither the amendment nor repeal of this Article
----------------
EIGHTH, subparagraph 1, 2, or 3, nor the adoption of any provision of this
Certificate of Incorporation inconsistent with Article EIGHTH, subparagraph 1,
2, or 3, shall eliminate or reduce the effect of this Article EIGHTH,
subparagraphs 1, 2, and 3, in respect of any matter occurring before such
amendment, repeal or adoption of an inconsistent provision or in respect of any
cause of action, suit or claim relating to any such matter which would have
given rise to a right of indemnification or right to receive expenses pursuant
to this Article EIGHTH, subparagraph 1, 2, or 3, if such provision had not been
so amended or repealed or if a provision inconsistent therewith had not been so
adopted.
5. Limitation on Liability. No director or officer shall be
-----------------------
personally liable to the Corporation or any stockholder for monetary damages for
breach of fiduciary duty as a director or officer, except for any matter in
respect of which such
-10-
<PAGE>
director or officer (A) shall be liable under Section 174 of the General
Corporation Law of the State of Delaware or any amendment thereto or successor
provision thereto, or (B) shall be liable by reason that, in addition to any and
all other requirements for liability, he:
(i) shall have breached his duty of loyalty to the Corporation or its
stockholders;
(ii) shall not have acted in good faith or, in failing to act, shall
not have acted in good faith;
(iii) shall have acted in a manner involving intentional misconduct
or a knowing violation of law or, in failing to act, shall have acted
in a manner involving intentional misconduct or a knowing violation of
law; or
(iv) shall have derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is amended
after the date of the filing of this Amended and Restated Certificate of
Incorporation to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted
by the General Corporation Law of the State of Delaware, as so amended.
NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
-11-
<PAGE>
IN WITNESS WHEREOF, T.K.G. Acquisition Corp. has caused this Amended and
Restated Certificate of Incorporation to be signed by Burton B. Staniar, its
-----------------
Chairman of the Board, this 3rd day of March, 1997.
- --------------------- ---
/s/ Burton B. Staniar
____________________________
Name: Burton B. Staniar
Title: Chairman of the Board
-12-
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING KNOLL, INC. WITH AND INTO
T.K.G. ACQUISITION CORP.
.
T.K.G. Acquisition Corp., a corporation organized and existing under
the laws of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That the Company was incorporated on December 15, 1995,
pursuant to the Delaware General Corporation Law (the "DGCL"), the provisions of
which permit the merger of a subsidiary corporation organized and existing under
the laws of said State into a parent corporation organized and existing under
the laws of said State.
SECOND: That the Company owns at least ninety percent (90%) of the
outstanding shares of the Common Stock ("Common Stock"), par value $1.00 per
share, of Knoll, Inc. ("Knoll"), a corporation incorporated on February 29,
1996, pursuant to the DGCL, as successor by merger to Knoll North America, Inc.,
a corporation incorporated on December 19, 1990, pursuant to the DGCL, and
having no class of stock outstanding other than the Common Stock.
THIRD: That the Company, by the following resolutions of its Board of
Directors, duly adopted at a meeting held on March 13, 1997 and filed with the
minutes of such Board, in accordance with Section 141(f) of the DGCL, determined
to, and effective upon the filing of this Certificate of Ownership and Merger
with the Secretary of State of the State of Delaware does, merge Knoll into the
Company:
<PAGE>
WHEREAS, the Company is the legal and beneficial owner of at least
ninety percent (90%) of the outstanding Common Stock; and
WHEREAS, the only issued and outstanding class of stock of Knoll is
the Common Stock; and
WHEREAS, the Company desires to merge Knoll with and into the Company
(the "Merger") pursuant to the provisions of Section 253 of the DGCL.
NOW, THEREFORE, BE IT RESOLVED, that effective upon the filing of an
appropriate Certificate of Ownership and Merger embodying these resolutions with
the Secretary of State of Delaware (the "Effective Time"), Knoll hereby does
merge with and into the Company; and be it
FURTHER RESOLVED, that the terms and conditions of the Merger are as
follows:
1. At the Effective Time, Knoll shall be merged into the Company in
accordance with the DGCL, whereupon the separate existence of Knoll shall
cease, and the Company shall be the surviving corporation (the "Surviving
Corporation") and the Surviving Corporation shall be renamed "Knoll, Inc."
At the Effective Time, the effect of the Merger shall be as provided in the
applicable provisions of Delaware Law, including, without limitation,
Section 259 of the DGCL. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Knoll shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the
Company and Knoll shall become the debts, liabilities and duties of the
Surviving Corporation.
2. The Certificate of Incorporation of the Company, as in effect
immediately before the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation (except that the name of the
Surviving Corporation shall be "Knoll, Inc." as set forth above) until
thereafter amended in accordance with applicable law and such Certificate
of Incorporation.
3. The By-Laws of the Company, as in effect immediately before the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended in accordance with applicable law, the certificate of
incorporation of the Surviving Corporation and such By-Laws.
4. At the Effective Time, the shares of common stock and preferred
stock of the Company issued and outstanding prior to the Effective Time
shall be converted into and become validly issued, fully paid and
nonassessable shares
-2-
<PAGE>
of common stock and preferred stock, respectively, of the Surviving
Corporation, with the same rights and privileges in the Surviving
Corporation as such shares of common stock and preferred stock, as
applicable, held in the Company. Each certificate representing such shares
of common stock and preferred stock of the Company issued prior to the
Effective Time shall represent the same number of shares of common stock
and preferred stock, as applicable, of the Surviving Corporation as stated
thereon with respect of shares of such stock of the Company.
5. Each share of capital stock of Knoll immediately prior to the
Effective Time shall be canceled and extinguished and no payment or other
consideration shall be made with respect thereto.
6. The directors of the Company immediately before the Effective Time
shall be the directors of the Surviving Corporation, and the officers of
the Company immediately before the Effective Time shall be the officers of
the Surviving Corporation, in each case until their successors are elected
or appointed and qualified. If, at the Effective Time, a vacancy shall
exist on the Board of Directors or in any office of the Surviving
Corporation, such vacancy may thereafter be filled in the manner provided
by law.
FURTHER RESOLVED, that the Chairman, Vice Chairman, President or any
Vice President of the Company be, and each of them hereby is, authorized to
make, execute and deliver, and the Secretary or any Assistant Secretary of the
Company, be, and each of them hereby is, authorized to attest, a Certificate of
Ownership and Merger setting forth a copy of these resolutions providing for the
Merger, and the date of adoption hereof, and to cause the same to be filed with
the Secretary of State of the State of Delaware and a certified copy recorded in
the office of the recorder of the county in the State of Delaware, in which the
registered office of each of the Company and Knoll is located and to do all acts
and things, whatsoever, whether within or without the State of Delaware, which
may be in any way necessary or appropriate to effect said Merger or to give
effect to he foregoing resolutions.
-3-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed
by Douglas J. Purdom, its authorized officer, this 14th day of March, 1997.
T.K.G. Acquisition Corp.
By: /s/ Douglas J. Purdom
______________________
Title: Senior Vice President and
Chief Financial Officer
-4-
<PAGE>
EXHIBIT 3.3
T.K.G. ACQUISITION CORP.
Incorporated Under the Laws of
the State of Delaware
BY-LAWS
-------
ARTICLE I
OFFICES
-------
The registered office of the Corporation in Delaware shall be at 1209
Orange Street in the City of Wilmington, County of New Castle, and The
Corporation Trust Company will be the resident agent of the Corporation in
charge thereof. The Corporation may also have such other offices at such other
places, within or without the State of Delaware, as the Board of Directors may
from time to time designate or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
------------
Section 1. Annual Meeting. The annual meeting of stockholders for
--------------
the election of directors and the transaction of any other business will be held
on such day in March, in such city and state and at such time and place as may
be designated by the Board of Directors and set forth in the notice of such
meeting. At the annual meeting any business may be transacted and any corporate
action may be taken, whether stated in the notice of meeting or not, except as
otherwise expressly provided by statute or the Certificate of Incorporation.
Section 2. Special Meetings. Special meetings of the stockholders
----------------
for any purpose may be called at any time by the Board of Directors, or by the
President, and will be called by the President at the request of the holders of
a majority of the outstanding shares of capital stock entitled to vote. Special
meetings shall be held at such place or places within or without the State of
Delaware as shall from time to time be designated by the Board of Directors and
stated in the notice of such meeting. At a special meeting no business shall be
transacted and no corporate action shall be taken other than that stated in the
notice of the meeting.
Section 3. Notice of Meetings. Written notice of the time and place
------------------
of any stockholders' meeting, whether annual or special, will be given to each
stockholder entitled to vote at that meeting, by personal delivery or by mailing
the same to him
<PAGE>
or her at his or her address as the same appears upon the records of the
Corporation at least ten days but not more than sixty days before the day of the
meeting. Notice of any adjourned meeting need not be given except by
announcement at the meeting so adjourned, unless otherwise ordered in connection
with such adjournment. Further notice, if any, will be given as may be required
by law.
Section 4. Quorum. Any number of stockholders, together holding at
------
least a majority of the capital stock of the Corporation issued and outstanding
and entitled to vote, who will be present in person or represented by proxy at
any meeting duly called, shall constitute a quorum for the transaction of all
business, except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws.
Section 5. Adjournment of Meetings. If less than a quorum is in
-----------------------
attendance at the time for which a meeting is called, the meeting may adjourn by
a majority vote of the stockholders present or represented by proxy and entitled
to vote at the meeting, without notice other than announcement at such meeting,
until a quorum is in attendance. Any meeting at which a quorum is present may
also be adjourned in like manner and for the amount of time as may be determined
by a majority vote of the stockholders present or represented by proxy and
entitled to vote. At any adjourned meeting at which a quorum is present, any
business may be transacted and any corporate action may be taken which might
have been transacted at the meeting as originally called.
Section 6. Voting List. The Secretary will prepare and make, at
-----------
least ten days before every election of directors, a complete list of the
stockholders entitled to vote, arranged in alphabetical order and showing the
address of each stockholder and the number of shares of each stockholder. The
list will be open at either (i) a place within the city where the meeting is to
be held, which place shall be specified in the notice of such meeting, or (ii)
if not so specified, at the place the meeting is to be held, for said ten days,
as well as at the time and place of such meeting, and will be subject to the
inspection of any stockholder.
Section 7. Voting. Each stockholder entitled to vote at any meeting
------
may vote either in person or by proxy, but no proxy shall be voted on or after
three years from its date, unless the proxy provides for a longer period. Each
stockholder entitled to vote will at every meeting of the stockholders be
entitled to one vote for each share of stock registered in his or her name on
the record of stockholders. At all meetings of stockholders, all matters,
except as otherwise provided by statute, will be determined by the affirmative
vote of the majority of shares present in person or by proxy and entitled to
vote on the subject matter. Voting at meetings of stockholders need not be by
written ballot.
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Section 8. Record Date of Stockholders. The Board of Directors is
---------------------------
authorized to fix in advance a date not exceeding sixty days nor less than ten
days preceding the date of any meeting of stockholders, or the date for the
payment of any dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of capital stock will go into effect,
or a date in connection with obtaining the consent of stockholders for any
purpose, as a record date for the determination of the stockholders entitled to
notice of, and to vote at, any meeting of stockholders, and any adjournment of a
meeting of stockholders, or entitled to receive payment of any dividend, or to
any allotment of rights, or to exercise the rights in respect of any change,
conversion or exchange of capital stock, or to give consent. Only the
stockholders that are stockholders of record on the date so fixed shall be
entitled to notice of, and to vote at, the meeting of stockholders, and any
adjournment of the meeting, or to receive payment of the dividend, or to receive
the allotment of rights, or to exercise the rights, or to give the consent, as
the case may be, notwithstanding any transfer of any stock on the books of the
Corporation, after the record date fixed in accordance with this Section 8.
Section 9. Action Without Meeting. Any action required or permitted
----------------------
to be taken at any annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken (i) is signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take the action at a meeting at which
all shares entitled to vote on the action were present and voted and (ii) is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent will be given to those stockholders who have not
consented in writing.
Section 10. Conduct of Meetings. The Chairman of the Board of
-------------------
Directors, or in his absence the President or any Vice President designated by
the Chairman of the Board, shall preside at all regular or special meetings of
stockholders. To the maximum extent permitted by law, the presiding person will
have the power to set procedural rules, including but not limited to rules
respecting the time allotted to stockholders to speak, governing all aspects of
the conduct of the meetings. The Secretary of the Corporation will act as
secretary of each meeting. In the absence of the Secretary, the chairman of the
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meeting will appoint any person to act as secretary of the meeting.
ARTICLE III
DIRECTORS
---------
Section 1. Number and Qualifications. The Board of Directors will
-------------------------
consist initially of two directors, and thereafter will consist of the number as
may be fixed from time to time by resolution of the Board. The directors need
not be stockholders.
Section 2. Election of Directors. The directors will be elected by
---------------------
the stockholders at the annual meeting of stockholders.
Section 3. Duration of Office. The directors chosen at any annual
------------------
meeting will, except as otherwise provided in these By-Laws, hold office until
the next annual election and until their successors are elected and qualify.
Section 4. Removal and Resignation of Directors. Any director may be
------------------------------------
removed from the Board of Directors, with or without cause, by the holders of a
majority of the shares of capital stock entitled to vote, either by written
consent or consents or at any special meeting of the stockholders called for
that purpose, and the office of a removed director will immediately become
vacant.
Any director may resign at any time. Such resignation will take
effect at the time specified in the resignation, and if no time is specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation will not be necessary to make it effective, unless so specified in
the resignation.
Section 5. Filling of Vacancies. Any vacancy among the directors,
--------------------
occurring from any cause whatsoever, may be filled by a majority of the
remaining directors, though less than a quorum, provided however, that the
-------- -------
stockholders removing any director may at the same meeting fill the vacancy
caused by the removal, and provided further, that if the directors fail to fill
-------- -------
any vacancy, the stockholders may at any special meeting called for that purpose
fill the vacancy. In case of any increase in the number of directors, the
additional directors may be elected by the directors in office before the
increase.
Any person elected to fill a vacancy will hold office, subject to the
right of removal as provided in these By-Laws, until the next annual election
and until his successor is elected and qualified.
Section 6. Regular Meetings. The Board of Directors will hold an
----------------
annual meeting for the purpose of organization
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and the transaction of any business immediately after the annual meeting of the
stockholders, provided a quorum of directors is present. Other regular meetings
may be held at any time as may be determined from time to time by resolution of
the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by the Chairman of the Board of Directors or by the
President.
Section 8. Notice and Place of Meetings. Meetings of the Board of
----------------------------
Directors may be held at the principal office of the Corporation, or at any
other place as is stated in the notice of such meeting. Notice of any special
meeting, and except as the Board of Directors may otherwise determine by
resolution, notice of any regular meeting, will be mailed to each director
addressed to him or her at his residence or usual place of business at least two
days before the day on which the meeting is to be held, or if sent to him or her
at such place by telegraph, cable or facsimile, or delivered personally or by
telephone, not later than the day before the day on which the meeting is to be
held. No notice of the annual meeting of the Board of Directors will be
required if it is held immediately after the annual meeting of the stockholders
and if a quorum is present.
Section 9. Business Transacted at Meetings, etc. Any business may be
-------------------------------------
transacted and any corporate action may be taken at any regular or special
meeting of the Board of Directors at which a quorum is present, whether the
business or proposed action is stated in the notice of that meeting or not,
unless special notice of such business or proposed action is required by
statute.
Section 10. Quorum. A majority of the Board of Directors at any time
------
in office will constitute a quorum. At any meeting at which a quorum is
present, the vote of a majority of the members present will be the act of the
Board of Directors unless the act of a greater number is specifically required
by law or by the Certificate of Incorporation or these By-Laws. The members of
the Board will act only as the Board and the individual members of the Board
will not have any powers in their individual capacities.
Section 11. Compensation. The directors will not receive any stated
------------
salary for their services as directors, but by resolution of the Board of
Directors a fixed fee and expenses of attendance may be allowed for attendance
at each meeting. Nothing herein contained shall preclude any director from
serving the Corporation in any other capacity, as an officer, agent or
otherwise, and receiving compensation therefor.
Section 12. Action Without a Meeting. Any action required or
------------------------
permitted to be taken at any meeting of the Board of Directors, or of any
committee of the Board of Directors, may be
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<PAGE>
taken without a meeting if all members of the Board or committee, as the case
may be, consent to the action in writing, and the writing or writings are filed
with the minutes of the proceedings of the Board or committee.
Section 13. Meetings Through Use of Communications Equipment.
------------------------------------------------
Members of the Board of Directors, or any committee designated by the Board of
Directors, will, except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, have the power to participate in a meeting of
the Board of Directors, or any committee, by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and this participation will constitute presence
in person at the meeting.
ARTICLE IV
COMMITTEES
----------
Section 1. Executive Committee. The Board of Directors may, by
-------------------
resolution passed by a majority of the entire Board, designate two or more of
their number to constitute an Executive Committee to hold office at the pleasure
of the Board, which Committee will, during the intervals between meetings of the
Board of Directors, have and exercise all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation,
subject only to restrictions or limitations as the Board of Directors may from
time to time specify, or as limited by the Delaware Corporation Law, and will
have power to authorize the seal of the Corporation to be affixed to all papers
that may require it.
Any member of the Executive Committee may be removed at any time, with
or without cause, by a resolution of a majority of the entire Board of
Directors.
Any person ceasing to be a director shall ipso facto cease to be a
---- -----
member of the Executive Committee.
Any vacancy in the Executive Committee occurring from any cause
whatsoever may be filled from among the directors by a resolution of a majority
of the entire Board of Directors.
Section 2. Other Committees. Other committees, whose members need
----------------
not be directors, may be appointed by the Board of Directors or the Executive
Committee, which committees shall hold office for an amount of time and have
powers and perform duties as may from time to time be assigned to them by the
Board of Directors or the Executive Committee.
Any member of these committees may be removed at any time, with or
without cause, by the Board of Directors or the Executive Committee. Any
vacancy in a committee occurring from
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any cause whatsoever may be filled by the Board of Directors or the Executive
Committee.
Section 3. Resignation. Any member of a committee may resign at any
-----------
time. This resignation will be made in writing and will take effect at the time
specified in the resignation, or, if no time is specified, at the time of its
receipt by the President or Secretary. The acceptance of a resignation will not
be necessary to make it effective unless so specified in the resignation.
Section 4. Quorum. A majority of the members of a committee shall
------
constitute a quorum. The act of a majority of the members of a committee
present at any meeting at which a quorum is present will be the act of the
committee. The members of a committee will act only as a committee, and the
individual members of the committee will not have any powers in their individual
capacities.
Section 5. Record of Proceedings, etc. Each committee will keep a
---------------------------
record of its acts and proceedings, and will report the same to the Board of
Directors when and as required by the Board of Directors.
Section 6. Organization, Meetings, Notices, etc. A committee may
-------------------------------------
hold its meetings at the principal office of the Corporation, or at any other
place that a majority of the committee may at any time agree upon. Each
committee may make rules as it deems expedient for the regulation and carrying
on of its meetings and proceedings. Unless otherwise ordered by the Executive
Committee, any notice of a meeting of a committee may be given by the Secretary
of the Corporation or by the chairman of the committee and will be sufficient if
mailed to each member at his residence or usual place of business at least two
days before the day on which the meeting is to be held, or if sent to him or her
at that place by telegraph, cable or facsimile, or delivered personally or by
telephone not later than 24 hours before the time at which the meeting is to be
held.
Section 7. Compensation. The members of any committee will be
------------
entitled to such compensation as may be allowed them by resolution of the Board
of Directors.
ARTICLE V
OFFICERS
--------
Section 1. Number. The officers of the Corporation shall be a
------
Chairman of the Board, a Vice Chairman of the Board, a President, a Managing
Director for European Operations, such number of Vice Presidents (including
Executive and Senior Vice Presidents) as may from time to time be elected by the
Board, a Controller, a Treasurer, one or more Assistant Treasurers, a Secretary,
one or more Assistant Secretaries, and such other
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<PAGE>
officers as the Board may from time to time determine. Such other officers shall
be elected or appointed in such manner, have such duties and hold their offices
for such terms as may be determined by the Board of Directors.
Section 2. Election, Term of Office and Qualifications. The officers
-------------------------------------------
of the Corporation shall be elected annually by the Board of Directors and,
except in the case of officers appointed in accordance with the provisions of
Section 1 of this Article, each shall hold office until the next annual election
of officers and until his successor shall have been duly chosen and shall
qualify or until his earlier death, resignation or removal in the manner
hereinafter provided.
Section 3. Other Officers. Other officers, including one or more
--------------
additional vice presidents, assistant secretaries or assistant treasurers, may
from time to time be appointed by the Board of Directors, which other officers
shall have powers and perform duties as may be assigned to them by the Board of
Directors or the officer or committee appointing them.
Section 4. Removal of Officers. Any officer of the Corporation may
-------------------
be removed from office, with or without cause, by a vote of a majority of the
Board of Directors.
Section 5. Resignation. Any officer of the Corporation may resign at
-----------
any time. This resignation shall be in writing and take effect at the time
specified in the resignation, or if no time is specified, at the time of its
receipt by the President or Secretary. The acceptance of a resignation shall
not be necessary in order to make it effective, unless so specified in the
resignation.
Section 6. Filling of Vacancies. A vacancy in any office will be
--------------------
filled by the Board of Directors or by the authority appointing the predecessor
in such office.
Section 7. Compensation. The compensation of the officers will be
------------
fixed by the Board of Directors, or by any committee upon whom power in that
regard may be conferred by the Board of Directors.
Section 8. Chairman of the Board. The Chairman of the Board shall
---------------------
preside at all meetings of the stockholders and Board of Directors. He shall be
ex-officio a member and chairman of all standing committees. He shall be the
medium of communication to the Board and to the standing committees of all
matters presented for their consideration, and have general charge of the
affairs of the Corporation.
Section 9. Vice Chairman of the Board. In the absence of the
--------------------------
Chairman of the Board, the Vice Chairman of the Board shall preside at meetings
of the stockholders and the Board of Directors. He shall advise and counsel
with the President and
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<PAGE>
the Chairman of the Board and shall perform such other duties as may be
requested by the Board of Directors, or as shall be jointly determined by the
Chairman of the Board or the President and himself.
Section 10. President. The President shall have, subject to the
---------
direction and control of the Chairman of the Board, the Vice Chairman, and the
Board, immediate supervision and control of the Corporation's business. He may
sign, with any other proper officer of the Corporation thereunto authorized,
certificates for stock of the Corporation. Subject to the Board, the Chairman
of the Board and the Vice Chairman, he shall have and perform such other powers
and duties as from time to time may be assigned or delegated to him by the
Board, the Chairman of the Board or the Vice Chairman.
Section 11. Managing Director for European Operations. The Managing
-----------------------------------------
Director for European Operations, subject to the direction and control of the
Board, the Chairman of the Board, the Vice Chairman of the Board and the
President, shall have general charge of the European operations of the
Corporation. Subject to the Board, the Chairman of the Board, the Vice Chairman
of the Board and the President, he shall have and perform such powers and duties
as from time to time may be assigned or delegated to him by the Board, the
Chairman of the Board, the Vice Chairman of the Board or the President.
Section 12. Vice Presidents. At the request of the President, or in
---------------
his absence or inability to act, the Vice President or, if there be more than
one, the Vice President designated by the Board, shall perform all the duties of
the President and, when so acting, shall have all the powers of and be subject
to all the restrictions placed upon the President. Each Vice President shall
perform such duties as from time to time may be assigned to him by the Chairman
of the Board, the Vice Chairman, the President or the Board. Except where by
law the signature of the President is required, each of the Vice Presidents
shall possess the same power as the President to sign all certificates,
contracts, obligations and other instruments of the Corporation.
Section 13. Controller. The Controller shall have general charge of
----------
the Accounting Department of the Corporation. He shall prescribe and supervise
a system of accounting and internal auditing that shall be adopted and followed
by the Corporation. He, or some other person or persons designated by name, in
writing, by him, shall prepare and certify all vouchers and payrolls. The
Controller shall, except as otherwise provided in this Section 9 or in Section
10 of this Article IV, sign all checks before they are presented to the
Treasurer. The Controller may designate by name, in writing, one or more other
persons, each of whom may sign checks for him and on his behalf. The Controller
shall at the close of each month present for the information of the Board of
Directors a complete statement of the
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<PAGE>
Corporation's financial affairs and of its operations for the preceding month
and for the months elapsed from the commencement of the fiscal year. He shall
also present a full statement of the properties owned and controlled by the
Corporation, under appropriate headings as the Board of Directors may at any
time require. He shall carefully preserve and keep in his custody in the office
of the Corporation all contracts, leases, assignments and other valuable
instruments of writing. He shall be charged with the duty of verification of all
property of the Corporation and of its proprietary companies and the supervision
of taking of all inventories.
Section 14. Treasurer. The Treasurer shall have charge of all monies
---------
and securities belonging to the Corporation. He shall deposit all monies
received by him in the name and to the credit of the Corporation, in such bank
or other place or places of deposit as the Board of Directors shall from time to
time designate; and for that purpose shall have power to endorse for collection
or payment all checks or other negotiable paper drawn payable to his order or to
the order of the Corporation. He shall disburse the monies of the Corporation
as directed by the Board, by checks which shall bear his signature as Treasurer,
or that of an Assistant Treasurer, and also the signature of the Controller or
some other person designated by name, in writing, by the Controller. The
Treasurer may designate by name, in writing, one or more other persons, each of
whom may sign checks for him and on his behalf. The Board of Directors may
authorize the establishment of dividend, disbursing, petty cash and payroll
accounts in such banks or other place or places of deposit as the Board of
Directors may from time to time designate, and monies of the Corporation may be
deposited in such accounts by checks signed as above provided in this Section
10. The Treasurer may designate by name, in writing, one or more persons each
of whom may sign checks on any one or more of such accounts for him or on his
behalf and, notwithstanding the foregoing provisions of Section 9 and of this
Section 10, funds in any such account may be withdrawn or disbursed by checks
bearing the single signature of a person so designated, or bearing the
Treasurer's facsimile signature by a check-signing machine if authorized by the
Treasurer in writing. The Treasurer shall execute a bond (in the penalty fixed
by the Board, with such surety as the Board may approve) conditioned for the
delivery to the President, or according to the order of the Board, in case of
his decease, resignation or discharge, of all monies, bonds, evidences of debts,
vouchers, accounts, books, writings and papers, and securities of any kind
belonging to the Corporation received by him or in his possession, charge or
custody, and for the faithful performance of all the duties of his office.
Section 15. Secretary. The Secretary, if present, shall act as
---------
secretary at all meetings of the Board and of the stockholders and keep the
minutes thereof in a book or books to be provided for that purpose; shall see
that all notices required to be given by the Corporation are duly given and
served; shall
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<PAGE>
be custodian of the seal of the Corporation and shall affix the seal or cause it
to be affixed on all certificates of stock of the Corporation and to all
documents the execution of which on behalf of the Corporation under its seal
shall be duly authorized in accordance with the provisions of these By-laws;
shall have charge of the stock records of the Corporation; may sign, with any
other proper officer of the Corporation thereunto authorized, certificates for
stock of the Corporation; and in general, shall perform all the duties incident
to the office of Secretary and such other duties as from time to time may be
assigned to him by the President or the Board.
Section 16. Assistant Controller, Assistant Secretary and Assistant
-------------------------------------------------------
Treasurer. In the event of the absence or inability to serve of the Controller,
- ---------
an assistant controller shall perform all the duties of the Controller; in the
event of the absence or inability to serve of the Secretary, an assistant
secretary shall perform all the duties of the Secretary, and in the event of the
absence or inability to serve of the Treasurer, an assistant treasurer shall
perform all the duties of the Treasurer.
ARTICLE VI
CAPITAL STOCK
-------------
Section 1. Issue of Certificates of Stock. Certificates of capital
------------------------------
stock will be in the form approved by the Board of Directors. The certificates
will be numbered in the order of their issue and will be signed by the Chairman
of the Board of Directors, the President or one of the Vice Presidents, and the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer,
and the seal of the Corporation or a facsimile of the seal will be impressed or
affixed or reproduced on the certificates, provided, however, that where the
certificates are signed by a transfer agent or an assistant transfer agent or by
a transfer clerk acting on behalf of the Corporation and a registrar, the
signature of the Chairman of the Board of Directors, President, Vice President,
Secretary, Assistant Secretary, Treasurer or Assistant Treasurer may be
facsimile. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on any certificate or certificates ceases
to be an officer of the Corporation, whether because of death, resignation or
otherwise, before that certificate or certificates are delivered by the
Corporation, that certificate or certificates may nevertheless be adopted by the
Corporation and be issued and delivered as though the person or persons who
signed that certificate or certificates, or whose facsimile signature or
signatures is used thereon have not ceased to be an officer or officers of the
Corporation.
Section 2. Registration and Transfer of Shares. The name of each
-----------------------------------
person owning a share of the capital stock of the
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Corporation will be entered on the books of the Corporation together with the
number of shares held by him or her, the numbers of the certificates covering
the shares and the dates of issue of the certificates. The shares of stock of
the Corporation will be transferable on the books of the Corporation by the
holders of the shares in person, or by their duly authorized attorneys or legal
representatives, on surrender and cancellation of certificates for a like number
of shares, accompanied by an assignment or power of transfer endorsed thereon or
attached thereto, duly executed, and with such proof of the authenticity of the
signature as the Corporation or its agents may reasonably require. A record will
be made of each transfer.
The Board of Directors may make other rules and regulations concerning
the transfer and registration of certificates for stock and may appoint a
transfer agent or registrar or both and may require all certificates of stock to
bear the signature of either or both.
Section 3. Lost, Destroyed and Mutilated Certificates. The holder of
------------------------------------------
any stock of the Corporation will immediately notify the Corporation of any
loss, theft, destruction or mutilation of the certificates. The Corporation may
issue a new certificate of stock in the place of any certificate previously
issued by it and alleged to have been lost, stolen or destroyed, and the Board
of Directors may, in its discretion, require the owner of the lost, stolen or
destroyed certificate, or his legal representatives, to give the Corporation a
bond, in such sum not exceeding double the value of the stock and with such
surety or sureties as they may require, to indemnify it against any claim that
may be made against it by reason of the issue of the new certificate and against
all other liability in the premises, or may remit the owner to any remedy or
remedies he or she may have under the laws of the State of Delaware.
ARTICLE VII
DIVIDENDS, SURPLUS, ETC.
------------------------
Section 1. General Discretion of Directors. The Board of Directors
-------------------------------
will have power to fix and vary the amount to be set aside or reserved as
working capital of the Corporation, or as reserves, or for other proper purposes
of the Corporation, and, subject to the requirements of the Certificate of
Incorporation, to determine whether any part of the surplus or net profits of
the Corporation will be declared as dividends and paid to the stockholders, and
to fix the date or dates for the payment of dividends.
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ARTICLE VIII
MISCELLANEOUS PROVISIONS
------------------------
Section 1. Fiscal Year. The fiscal year of the Corporation will
-----------
commence on the first day of January and end on the last day of December.
Section 2. Corporate Seal. The corporate seal will be in the form
--------------
approved by the Board of Directors and may be altered at their pleasure. The
corporate seal may be used by causing it or a facsimile of the seal to be
impressed or affixed or reproduced or otherwise.
Section 3. Notices. Except as otherwise expressly provided, any
-------
notice required to be given by these By-Laws will be sufficient if given by
depositing the same in a post office or letter box in a sealed postpaid wrapper
addressed to the person entitled to the notice at his address, as the same
appears upon the books of the Corporation, or by telegraphing or cabling the
same to that person at that address, or by facsimile transmission to a number
designated upon the books of the Corporation, if any; and the notice will be
deemed to be given at the time it is mailed, telegraphed or cabled, or sent by
facsimile.
Section 4. Waiver of Notice. Any stockholder or director may at any
----------------
time, by writing or by telegraph, cable or facsimile transmission, waive any
notice required to be given under these By-Laws, and if any stockholder or
director is present at any meeting his presence will constitute a waiver of
notice.
Section 5. Checks, Drafts, etc. All checks, drafts or other orders
--------------------
for the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, will be signed by an officer or officers, agent or
agents of the Corporation, and in such manner, as will from time to time be
designated by resolution of the Board of Directors.
Section 6. Deposits. All funds of the Corporation will be deposited
--------
from time to time to the credit of the Corporation in a bank or banks, trust
companies or other depositories as the Board of Directors may select, and, for
the purpose of the deposit, checks, drafts, warrants and other orders for the
payment of money which are payable to the order of the Corporation, may be
endorsed for deposit, assigned and delivered by any officer of the Corporation,
or by agents of the Corporation as the Board of Directors or the President may
authorize for that purpose.
Section 7. Voting Stock of Other Corporations. Except as otherwise
----------------------------------
ordered by the Board of Directors or the Executive Committee, the President or
the Treasurer has full power and authority on behalf of the Corporation to
attend and to act and to vote at any meeting of the stockholders of any
corporation of
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which the Corporation is a stockholder, and to execute a proxy to any other
person to represent the Corporation at any meeting, and at any meeting of the
stockholders of any corporation of which the Corporation is a stockholder. The
President or the Treasurer or the holder of any proxy, as the case may be, will
possess and may exercise any and all rights and powers incident to ownership of
the stock which the Corporation might have possessed and exercised if present.
The Board of Directors or the Executive Committee may from time to time confer
like powers upon any other person or persons.
Section 8. Indemnification of Officers and Directors. The
-----------------------------------------
Corporation will indemnify any and all of its directors and officers, including
former directors and officers, including those serving as an officer or director
of any corporation at the request of this Corporation, to the fullest extent
permitted under and in accordance with the laws of the State of Delaware.
ARTICLE IX
AMENDMENTS
----------
The Board of Directors will have the power to make, rescind, alter,
amend and repeal these By-Laws, provided, however, that the stockholders will
have power to rescind, alter, amend or repeal any by-laws made by the Board of
Directors, and to enact by-laws that will not be rescinded, altered, amended or
repealed by the Board of Directors. Notice of the proposal to make, amend or
repeal any provision of these By-Laws will be included in the notice of any
meeting of the stockholders or the Board of Directors at which the action is to
be considered. No change of the time or place for the annual meeting of the
stockholders for the election of directors will be made except in accordance
with the laws of the State of Delaware.
Dated: February 28, 1996
-14-
<PAGE>
EXHIBIT 4.3
THIS SUPPLEMENTAL INDENTURE No. 2 (the "Supplemental Indenture") dated
as of March 14, 1997 among Knoll, Inc. (formerly T.K.G. Acquisition Corp.), a
Delaware corporation, as successor (the "Successor") to Knoll, Inc., a Delaware
corporation ("Old Knoll"), as the Company, Knoll Overseas, Inc., a Delaware
corporation and Spinneybeck Enterprises, Inc., a New York corporation, (the
"Guarantors"), and IBJ Schroder Bank & Trust Company, as Trustee.
W I T N E S S E T H:
WHEREAS, there has previously been executed and delivered to the
Trustee an Indenture (the "Indenture") dated as of February 29, 1996 among
T.K.G. Acquisition Sub, Inc., a Delaware corporation ("Sub"), as the Company,
the Successor, the Guarantors, The Knoll Group, Inc., a Delaware corporation,
and Knoll North America, Inc., a Delaware corporation, as guarantors and the
Trustee, providing for the issuance of 10 7/8% Senior Subordinated Notes due
2006 (the "Notes");
WHEREAS, there has previously been executed and delivered to the
Trustee Supplemental Indenture No. 1 dated as of February 29, 1996 among the
Successor, Sub, Old Knoll, the Guarantors and the Trustee pursuant to which Old
Knoll succeeded Sub as the Company;
WHEREAS, pursuant to the terms of the Certificate of Ownership and
Merger, dated as of March 14, 1997, by and between the Successor and Old Knoll,
Old Knoll merged with and into the Successor with the Successor being the
surviving entity and being renamed "Knoll, Inc." (the "Merger");
WHEREAS, the provision of clause (i)(a) of the definition of Change of
Control in the Indenture expressly contemplates that the Successor and Old Knoll
could merge pursuant to Section 5.01 of the Indenture;
WHEREAS, the Successor is planning to effectuate an initial public
offering of the shares of capital stock of the Successor following the Merger;
WHEREAS, under the Indenture, the Successor, the Guarantors and the
Trustee may enter into a supplemental indenture (i) to evidence the succession
of another person to the Company and the assumption by such successor of the
covenants of the Company contained in the Indenture and in the Notes and (ii) to
cure any ambiguity therein, or to correct or supplement any provision thereof
which may be inconsistent with any other provision thereof, provided that such
actions do not adversely affect the legal rights of the Holder of Notes, which
supplement, pursuant to Section 9.01 of the Indenture, does not require the
consent of the Holders of Notes;
<PAGE>
WHEREAS, the Successor wishes by this Supplemental Indenture to
evidence its succession to the Company and its assumption of the covenants of
the Company contained in the Indenture and the Notes; and
WHEREAS, all acts and proceedings required by law and by the Indenture
to constitute this Supplemental Indenture a valid and binding agreement for the
uses and purposes set forth herein, in accordance with its terms, have been done
and taken, and the execution of this Supplemental Indenture have been in all
respects duly authorized by the Successor and the Guarantors;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Successor, the Guarantors and the Trustee hereby agree as follows:
1. The Successor hereby acknowledges and agrees that it has
succeeded Old Knoll as the Company under the Indenture and the Notes, and does
hereby assume and agree to perform each and every covenant of the Company
contained in the Indenture and the Notes and does otherwise agree to be bound by
and subject to the terms and provisions of the Indenture and the Notes in each
and every respect as if it had been initially named as the Company therein.
Without in any way limiting the generality of the foregoing, the Successor
hereby agrees to be liable for the due and punctual payment of principal (and
premium, if any) and interest (and Special Interest) on all the Notes.
2. The Guarantors hereby agree, jointly and severally, that their
respective Note Guarantees, including, without limitation, their Guarantees
under Article XI of the Indenture of (i) the due and punctual payment of
principal of, premium, if any, and interest (including Special Interest) in full
on each Note when and as the same shall become due and payable whether at Stated
Maturity, by declaration of acceleration, in connection with a Change of Control
Offer, Asset Sale Offer or redemption, or otherwise, (ii) the due and punctual
payment of interest on the overdue principal of, premium, if any, and interest,
including Special Interest, if any, in full of each Note, to the extent
permitted by law, and (iii) the due and punctual performance of all other
Obligations of the Company and the other Guarantor to the Holders or the
Trustee, including without limitation the payment of fees, expenses,
indemnification or other amounts, all in accordance with the terms of the Notes
and the Indenture, have not been amended, modified, rescinded or revoked in any
respect whatsoever since their undertaking and remain in full force and effect
upon the execution and delivery of this Supplemental Indenture.
3. The Notes issued on or after the effective date of the Merger
shall bear a legend to the effect that: "On March 14, 1997, Knoll, Inc., a
Delaware corporation (the "Predecessor"), merged with and into T.K.G.
Acquisition Corp., a Delaware
-2-
<PAGE>
corporation (the "Successor"), which changed its name to Knoll, Inc. (the
"Merger"). Immediately following the Merger, the Successor executed a
supplemental indenture no. 2, dated as of March 14, 1997, among the Successor,
the Guarantors (as defined therein) and the Trustee, under which the Successor
acknowledged and agreed that it had succeeded the Predecessor as the Company
under the Indenture and the Notes, agreed to perform each and every covenant of
the Company contained in the Indenture and the Notes and agreed to be bound by
and subject to the terms and provision of the Indenture and the Notes in each
and every respect as if it had been initially named as the Company in the
Indenture and the Notes."
4. Section 4.17 of the Indenture is amended by inserting the
following sentence as a new last sentence thereof: "The provisions of this
Section 4.17 shall not prevent, and shall terminate upon a merger of Knoll, Inc.
into TKG so long as such merger otherwise complies with the provisions of
Section 5.01."
5. The Successor hereby represents and warrants to the Trustee that
as of the date hereof:
a. the Successor is a corporation validly existing and in good
standing under the laws of the State of Delaware; and
b. no Default or Event of Default will result from the Merger or the
execution and delivery of this Supplemental Indenture.
6. For all purposes of this Supplemental Indenture, except as otherwise
herein expressly provided or unless the context otherwise requires: (i) the
terms and expressions used herein shall have the same meanings as corresponding
terms and expressions used in the Indenture; and (ii) the words "herein,"
"hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
any particular Section of this Supplemental Indenture.
7. The Trustee accepts the amendment to the Indenture effected by this
Supplemental Indenture and agrees to execute the trust created by the Indenture,
as hereby amended, but only upon the terms and conditions set forth in the
Indenture, as hereby amended, including the terms and provisions defining and
limiting the liabilities and responsibilities of the Trustee, which terms and
provisions shall in like manner define and limit the Trustee's liabilities in
the performance of the trust created by the Indenture, as hereby amended, and,
without limiting the generality of the foregoing, the Trustee has no
responsibility for the correctness of recitals of fact herein contained which
shall be taken as the statements of the Successor and each Guarantor and makes
no representations as to the validity or sufficiency of this Supplemental
Indenture and shall incur no
-3-
<PAGE>
liability or responsibility in respect of the validity thereof. In furtherance
thereof, the Successor shall indemnify the Trustee and hold it harmless against
any and all loss, damage, claim, liability or expense (including reasonable
attorneys' fees and expenses) arising out of or incurred by it in connection
with its acceptance and execution of this Supplemental Indenture.
Notwithstanding the foregoing, the Successor need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee through
the Trustee's own willful misconduct, negligence or bad faith.
8. Except as expressly amended hereby, the Indenture is in all respects
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect.
9. This Supplemental Indenture shall form a part of the Indenture for all
purposes, and every Holder of Notes heretofore and hereafter authenticated and
delivered shall be bound hereby.
10. This Supplemental Indenture may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and all of such counterparts shall together constitute one and the same
instrument.
11. This Supplemental Indenture shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be governed
by and construed in accordance with such laws.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the day and year first above written.
KNOLL, INC. (formerly T.K.G.
ACQUISITION CORP.)
By /s/ Douglas J. Purdom
____________________________
Name: Douglas J. Purdom
Title: Senior Vice President and
Chief Financial Officer
KNOLL, INC.
By /s/ Douglas J. Purdom
____________________________
Name: Douglas J. Purdom
Title: Senior Vice President and
Chief Financial Officer
KNOLL OVERSEAS, INC.
By /s/ Douglas J. Purdom
____________________________
Name: Douglas J. Purdom
Title: Senior Vice President and
Chief Financial Officer
SPINNEYBECK ENTERPRISES, INC.
By /s/ Douglas J. Purdom
____________________________
Name: Douglas J. Purdom
Title: Senior Vice President and
Chief Financial Officer
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By /s/ Barbara McCluskey
____________________________
Name: Barbara McCluskey
Title: Vice President
-5-
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is dated as of February 29, 1996, and is
entered into between T.K.G. Acquisition Corp., a Delaware corporation (the
"Company"), and Burton B. Staniar ("Executive").
WHEREAS, Executive and the Company desire to embody in this Agreement
the terms and conditions of Executive's employment by the Company.
NOW, THEREFORE, the parties hereby agree:
ARTICLE I
Employment, Duties and Responsibilities
---------------------------------------
1.01. Employment. The Company shall employ Executive as Chairman and
----------
Chief Executive Officer of the Company. Executive hereby accepts such
employment. Executive agrees to devote his full business time and efforts to
promote the interests of the Company.
1.02. Duties and Responsibilities. Executive shall have such duties
---------------------------
and responsibilities as are customarily associated with such position and as are
assigned to the Executive from time to time by the Board of Directors of the
Company (the "Board"). Executive and the Company agree that the Company may
assign all or part of its rights and obligations under this Agreement, other
than those set forth under Sections 1.03 hereof, to its principal United States
operating subsidiary, and Executive consents to any such assignment and agrees
that he will perform all of his duties and responsibilities for such assignee in
the manner directed by its Board of Directors, unless otherwise directed by the
Board. Executive shall in any event perform such additional services, without
the receipt of additional compensation, with respect to the Company's
subsidiaries as are assigned from time to time by the Board.
1.03 Member of the Board. During the Term (as defined below),
-------------------
prior to any stockholder meeting at which directors will be elected (or prior to
the circulation of any written consent in respect of the election of directors),
the Company shall nominate Executive to be a member of the Board and of the
Board of Directors of the Company's principal United States operating
subsidiary.
<PAGE>
ARTICLE II
Term
----
2.01. Term. (a) The term of this Agreement (the "Term") shall
----
commence on the date of the closing of the acquisition (the "Acquisition") by
the Company of the Knoll companies from Westinghouse Electric Corporation and
shall continue for a period of one year from such date; provided, however, that
the term of the Executive's employment shall be automatically extended without
further action of either party for successive additional periods of one year,
unless written notice of either party's intention not to extend has been given
to the other party at least sixty (60) days prior to the expiration of the then
effective term.
(b) Executive represents and warrants to the Company that to the best
of his knowledge, neither the execution and delivery of this Agreement nor the
performance of his duties hereunder violates or will violate the provisions of
any other agreement to which he is a party or by which he is bound.
ARTICLE III
Compensation and Expenses
-------------------------
3.01. Salary, Bonuses and Benefits. As compensation and
----------------------------
consideration for the performance by Executive of his obligations under this
Agreement, Executive shall be entitled to the following (subject, in each case,
to the provisions of Article V hereof):
(a) The Company shall pay Executive a base salary ("Base Salary")
during the Term, payable in accordance with the normal payment procedures of the
Company and subject to such withholdings and other normal employee deductions as
may be required by law, at the rate of not less than $400,000 per annum. The
Company agrees to review such compensation (for possible increases, not
decreases) not less frequently than annually during the Term.
(b) Executive shall participate during the Term in such pension, life
insurance, health, disability and major medical insurance plans, and in such
other employee benefit plans and programs, for the benefit of the employees of
the Company, as may be maintained from time to time during the Term, in each
case to the extent and in the manner available to other executive officers of
the Company and subject to the terms and provisions of such plans or programs.
Executive confirms that he is aware that the Company or one of its affiliates
may seek to obtain for their benefit "key man" insurance covering the Executive
and Executive agrees to use his reasonable best efforts (without the incurrence
of any unreimbursed out-of-pocket expenses) to cooperate in connection
therewith.
2
<PAGE>
(c) Executive shall receive a service bonus equal to 25% of Base
Salary (each a "Service Bonus") to be paid promptly after completion of each
calendar year of employment during the Term; provided, however, that upon the
Executive's termination of employment hereunder, a pro-rated Service Bonus shall
be paid to the Executive based on the ratio of (a) the number of days from the
later of (i) the Executive's employment commencement date or (ii) January 1 of
the year of termination, until the date of termination to (b) 365.
(d) Executive shall participate during the Term in such other bonus
plans or programs that are established during the Term for senior management by
the Board, with a maximum target annual bonus opportunity for each year during
the Term of up to 125% of Executive's Base Salary, which shall be calculated on
the basis of achievement of goals set by the Board, which goals may include,
without limitation, specific individual goals and/or corporate performance
parameters such as revenue, profit, balance sheet and cash management
objectives. The Board shall establish the goals applicable to Executive in
consultation with the Executive in advance of any fiscal year or other
applicable period.
(e) Executive shall be entitled to a paid vacation, in accordance with
Company policy (but not necessarily consecutive vacation weeks) during the Term.
(f) During and after the Term the Company agrees that if Executive is
made a party, or compelled to testify or otherwise participate in, any action,
suit or proceeding, (a "Proceeding"), by reason of the fact that he is or was a
director or officer of the Company or any of its subsidiaries, the Executive
shall be indemnified by the Company to the fullest extent permitted by Section
145 of the Delaware General Corporation Law or authorized by the Company's
certificate of incorporation or bylaws or resolutions of the Company's Board
against all cost, expense, liability and loss reasonably incurred or suffered by
the Executive in connection therewith, and such indemnification shall continue
as to the Executive even if he has ceased to be a director or officer of the
Company or subsidiary, for the period of any applicable statute of limitations
or, if longer, for the period in which any such Proceeding which commenced
within the period of any such statute of limitations is pending. The Company
shall advance to the Executive all reasonable costs and expenses incurred by him
in connection with a Proceeding within 20 days after receipt by the Company of a
written request for such advance. Such request shall include an itemized list
of the costs and expenses and an undertaking by the Executive to repay the
amount of such advance if it shall ultimately be determined that, pursuant to
applicable law, he is not entitled to be indemnified against such costs and
expenses. During the Term (and thereafter for the period of any applicable
statute of limitations), the Company agrees to purchase from a
3
<PAGE>
reputable insurance company, and maintain, a directors' and officers' liability
insurance policy covering the Executive, in amounts reasonably determined by the
Board to be appropriate for directors and officers of the Company given the
Company's business, securities, operations and financial condition.
3.02. Expenses. The Company will reimburse Executive for reasonable
--------
business-related expenses incurred by him in connection with the performance of
his duties hereunder during the Term, subject, however, to the Company's
policies relating to business-related expenses as in effect from time to time
during the Term.
3.03. Parachute Gross-Up. The sole shareholder of the Company has
------------------
previously approved the making of all payments due under or pursuant to this
Agreement after having received full disclosure of all material facts concerning
such payments. As a result, the provisions of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code") are expected to be inapplicable.
Notwithstanding anything to the contrary in this Agreement and in addition to
any other compensation or other amount payable by the Company to the Executive
pursuant to this Agreement or otherwise, if it shall be determined that,
notwithstanding such shareholder approval, any payment or distribution by the
Company to or for the benefit of the Executive, pursuant to the terms of this
Agreement or otherwise or resulting from the accelerated vesting of shares of
common stock or options to acquire common stock of the Company (a "Payment"),
are subject to the excise tax imposed by Section 4999 of the Code, or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes on the Gross-Up Payment, (including any interest or
penalties imposed with respect to such taxes, and any Excise Tax imposed upon
the Gross-Up Payment), the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. If the Excise Tax is
determined to exceed the amount taken into account hereunder at the time of the
termination of the Executive's employment or otherwise (including by reason of
any payment the existence or amount of which cannot be determined at the time of
the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or additions payable by the
Executive with respect to such excess) at the time that the amount of such
excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Payments. All determinations required to be made under
this Section, including whether a Gross-Up Payment is required and the amount of
such Gross-Up Payment, shall be made by the Company's
4
<PAGE>
independent accountants. If the Internal Revenue Service determines that Excise
Tax is larger than the amount calculated by the Company's accountants, and the
Company does not contest such determination and prevail in such contest at its
own expense, the Gross-Up Payment due the Executive shall be recalculated and
any additional amounts owed Executive shall be promptly paid to him.
ARTICLE IV
Exclusivity, Etc.
-----------------
4.01. Exclusivity. Executive agrees to perform his duties,
-----------
responsibilities and obligations hereunder efficiently and to the best of his
ability. Executive agrees that he will devote his entire working time, care and
attention and best efforts to such duties, responsibilities and obligations
throughout the Term. Executive also agrees that he will not engage in any other
business activities, pursued for gain, profit or other pecuniary advantage, that
are competitive with the activities of the Company, except as permitted in
Section 4.02 below. Executive agrees that all of his activities as an employee
of the Company shall be in conformity with all policies, rules and regulations
and directions of the Company not inconsistent with this Agreement.
4.02. Other Business Ventures. Executive agrees that, so long as he
-----------------------
is employed by the Company, he will not own, directly or indirectly, any
controlling or substantial stock or other beneficial interest in any business
enterprise which is engaged in, or competitive with, any business engaged in by
the Company. Notwithstanding the foregoing, Executive may own, directly or
indirectly, up to 1% of the outstanding capital stock of any business having a
class of capital stock which is traded on any national stock exchange or in the
over-the-counter market.
4.03. Confidentiality; Non-competition. (a) Executive agrees that
--------------------------------
he will not, at any time during or after the Term, make use of or divulge to any
other person, firm or corporation any trade or business secret, any information
pertaining to any business process, method or means, any customer lists, details
of contracts with or requirements of customers, any information pertaining to
the Company's financial records, computer systems and software, sales or
marketing plans, or any other written information treated as confidential or as
a trade secret by the Company, which he may have learned or acquired in
connection with his employment (collectively, "Confidential Information").
Executive's obligation under this Section 4.03(a) shall not apply to any
information which (i) is known publicly; (ii) is in the public domain or
hereafter enters the public domain without the fault of Executive; (iii) is
known to Executive prior to his receipt of such information from the Company or
any predecessor of the Company with which he was employed, as evidenced by
written records of Executive or (iv) is
5
<PAGE>
hereafter disclosed to Executive by a third party which, to Executive's
knowledge, is not under an obligation of confidence to the Company. Executive
agrees not to remove from the premises of the Company, except as an employee of
the Company in pursuit of the business of the Company or except as specifically
permitted in writing by the Company, any notes, memoranda, papers, documents,
correspondence or writing (which shall include information recorded or stored in
writing, on magnetic tape or disc, or otherwise stored for reproduction, whether
by mechanical or electronic means and whether or not such reproduction will
result in a permanent record being made) containing or reflecting any
Confidential Information ("Documents"). Executive recognizes that all such
Documents, whether developed by him or by someone else, will be the sole and
exclusive property of the Company. Upon termination of his employment hereunder,
Executive shall forthwith deliver to the Company all such Confidential
Information, including without limitation all Documents, correspondence, and any
other property held by him or under his control in relation to the business or
affairs of the Company, and no copy of any Confidential Information shall be
retained by him.
(b) Upon any termination of Executive's employment with the Company,
the Executive shall not, for a period of one year from the date of such
termination, directly or indirectly, whether as an employee, consultant,
independent contractor, partner, joint venture or otherwise, (i) engage in any
business activities which are competitive, to a material extent, with any
substantial type or kind of business activities conducted by the Company at the
time of such termination (provided that Executive may own, directly or
--------
indirectly, up to 1% of the outstanding capital stock of any business having a
class of capital stock which is traded on any national stock exchange or in the
over-the-counter market); (ii) solicit or induce, or in any manner attempt to
solicit or induce, any person employed by, or as agent of, the Company to
terminate such person's contract of employment or agency, as the case may be,
with the Company or (iii) divert, or attempt to divert, any person, concern, or
entity from doing business with the Company, nor will he attempt to induce any
such person, concern or entity to cease being a customer or supplier of the
Company.
(c) Executive agrees that, at any time and from time to time during
and after the Term, he will execute any and all documents which the Company may
deem reasonably necessary or appropriate to effectuate the provisions of this
Section 4.03.
4.04. Equitable Relief. Executive and the Company agree that the
----------------
restrictions, prohibitions and other provisions of Article IV of this Agreement
are reasonable, fair, and equitable in scope, terms, and duration, are necessary
to protect the legitimate business interests of the Company and are a material
inducement to the Company to enter into this Agreement. The Company and the
Executive recognize that the services to be
6
<PAGE>
rendered under this Agreement by the Executive are special, unique and of
extraordinary character, and that in the event of the breach by the Executive of
the terms and conditions of this Agreement or if the Executive, without the
prior consent of the Board, shall leave his employment for any reason and take
any action in violation of this Article IV, the Company will be entitled to
institute and prosecute proceedings in any court of competent jurisdiction
referred to in Section 4.05 below, to enjoin the Executive from breaching the
provisions of Article IV. In such action, the Company will not be required to
plead or prove irreparable harm or lack of an adequate remedy at law. Nothing
contained in this Article IV shall be construed to prevent the Company from
seeking such other remedy in arbitration in case of any breach of this Agreement
by the Executive, as the Company may elect.
4.05. Submission to Jurisdiction. Any proceeding or action must be
--------------------------
commenced in the federal courts, or in the absence of federal jurisdiction in
state court, in either case in New York. The Executive and the Company
irrevocably and unconditionally submit to the jurisdiction of such courts and
agree to take any and all future action necessary to submit to the jurisdiction
of such courts. The Executive and the Company irrevocably waive any objection
that they now have or hereafter may have to the laying of venue of any suit,
action or proceeding brought in any court and further irrevocably waive any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. Final judgment against the Executive or
the Company in any such suit shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment, a certified or true copy or which shall
be conclusive evidence of the fact and the account of any liability of the
Executive or the Company therein described, or by appropriate proceedings under
an applicable treaty or otherwise.
7
<PAGE>
ARTICLE V
Termination
-----------
5.01. Termination by the Company. The Company shall have the right
--------------------------
to terminate Executive's employment at any time, with or without "Cause". For
purposes of this Agreement, "Cause" shall mean (i) the substantial and continued
failure of Executive to perform material duties reasonably required of Executive
by the Board (it being understood that a failure to attain performance
objectives shall not be treated as a failure to perform material duties for
purpose of this clause (i)) for a period of not less than 30 consecutive days,
provided notice in writing from the Board is given to Executive specifying in
reasonable detail the circumstances constituting such substantial and continued
failure, (ii) conduct substantially disloyal to the Company which conduct is
identified in reasonable detail by notice in writing from the Board and which
conduct, if susceptible of cure, is not remedied by Executive within 30 days of
Executive's receipt of such notice, (iii) any act of fraud, embezzlement or
misappropriation against the Company, or (iv) the conviction of Executive of a
felony.
5.02. Death. In the event Executive dies during the Term, his
-----
employment shall automatically terminate effective on the date of his death.
5.03. Disability. In the event that Executive shall suffer a
----------
disability which shall have prevented him from performing satisfactorily his
obligations hereunder for a period of at least 90 consecutive days, or 180 non-
consecutive days within any 365 day period, the Company shall have the right to
terminate Executive's employment for "Disability," such termination to be
effective upon the giving of notice thereof to Executive in accordance with
Section 6.03 hereof.
5.04. Compensation upon Termination. (a) In the event of termination
-----------------------------
of Executive's employment by the Company (other than for Cause or Disability),
or in the event of termination of Executive's employment by the Company as a
result of the Company's failure to renew this Agreement, or in the event of a
termination of Executive's employment by Executive following a breach of a
material provision of this Agreement by the Company, provided that the Executive
has given advance written notice to the Company, identifying the basis for the
breach in reasonable detail and, except in the event of a failure to pay Base
Salary, giving the Company 30 days' opportunity to cure, the Company shall pay
Executive an amount equal to 125% of the Executive's then current Base Salary,
in twelve equal monthly installments following the date of such termination.
(b) The Executive's rights upon termination of employment with respect
to stock options or other incentive awards shall be governed by the terms and
conditions of any stock
8
<PAGE>
option agreements or as established by the Company with respect to such awards.
(c) Upon termination of Employment for any reason, Executive shall be
entitled to continued coverage under the Company's health, disability and
medical benefits for the greater of (i) the period provided under applicable law
(but only to the extent the Executive takes whatever actions are required of him
under applicable law to secure such continued coverage) or (ii) 90 days from the
date of termination; provided that nothing in this Section 5.04 shall affect
--------
Executive's continuing entitlement under any disability insurance policy if
Executive's employment is terminated by the Company for Disability.
Notwithstanding the preceding sentence, if the Executive's employment is
terminated under the circumstances described in Section 5.04(a), such continued
coverage shall be provided on the same basis as for active employees for a
period of one year from the date of termination.
(d) Except as provided in this Section 5.04, Executive shall not be
entitled to compensation as a result of any termination of his employment with
the Company.
ARTICLE VI
Miscellaneous
-------------
6.01. Mitigation; Offset. Executive shall not be required to
------------------
mitigate damages resulting from his termination of employment and, during such
time, the amounts payable to Executive pursuant to Article V of this Agreement
shall not be offset or reduced by any other compensation earned by Executive.
6.02. Benefit of Agreement; Assignment; Beneficiary. (a) This
---------------------------------------------
Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns, including, without limitation, any corporation or person
which may acquire all or substantially all of the Company's assets or business,
or with or into which the Company may be consolidated or merged. This Agreement
shall also inure to the benefit of, and be enforceable by, the Executive and his
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amount would still be payable to the Executive hereunder if he had continued to
live, all such amounts shall be paid in accordance with the terms of this
Agreement to the Executive's beneficiary, devisee, legatee or other designee, or
if there is no such designee, to the Executive's estate.
(b) The Company shall require any successor (whether direct or
indirect, by operation of law, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the
9
<PAGE>
same extent that the Company would be required to perform it if no such
succession had taken place.
6.03. Notices. Any notice required or permitted hereunder shall be
-------
in writing and shall be sufficiently given if personally delivered or if sent by
telegram or telecopier or by registered or certified mail, postage prepaid, with
return receipt requested, addressed: (a) in the case of the Company to: T.K.G.
Acquisition Corp., c/o Warburg, Pincus Ventures, L.P., 466 Lexington Avenue, New
York, NY 10017, Attention: Jeffrey A. Harris, tel: (212) 878-0638; fax: (212)
878-9351, or to such other address and/or to the attention of such other person
as the Company shall designate by written notice to Executive; and (b) in the
case of Executive, to: Burton B. Staniar, 23 Glendon Road, Ho-Ho-Kus, NJ 07423,
tel: (201) 447-5716; fax: (201) 612-9531, or to such other address as Executive
shall designate by written notice to the Company, with a copy to F. George
Davitt, Testa, Hurwitz & Thibeault, 125 High Street, Boston, MA 02110, tel:
(617) 248-7000, fax: (617) 248-7100. Any notice given hereunder shall be deemed
to have been given at the time of receipt thereof by the person to whom such
notice is given.
6.04. Entire Agreement; Amendment. This Agreement contains the
---------------------------
entire agreement of the parties hereto with respect to the terms and conditions
of Executive's employment during the term and supersedes any and all prior
agreements and understandings, whether written or oral, between the parties
hereto with respect to compensation due for services rendered hereunder. This
Agreement may not be changed or modified except by an instrument in writing
signed by both of the parties hereto.
6.05. Waiver. The waiver by either party of a breach of any
------
provision of this Agreement shall not operate or be construed as a continuing
waiver or as a consent to or waiver of any subsequent breach hereof.
6.06. Headings. The Article and Section headings herein are for
--------
convenience of reference only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions hereof.
6.07. Governing Law. This Agreement shall be governed by, and
-------------
construed and interpreted in accordance with, the internal laws of the State of
New York without reference to the principles of conflict of laws.
6.08. Agreement to Take Actions. Each party hereto shall execute and
-------------------------
deliver such documents, certificates, agreements and other instruments, and
shall take such other actions, as may be reasonably necessary or desirable in
order to perform his or its obligations under this Agreement or to effectuate
the purposes hereof.
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6.09. Survivorship. The respective rights and obligations of the
------------
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
6.10. Validity. The invalidity or unenforceability of any provision
--------
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision or provisions of this Agreement, which shall remain in
full force and effect.
6.11. Information Rights. Until the earlier of (i) such time as
------------------
Executive no longer owns at least 50% of the shares of the Company's capital
stock purchased by Executive pursuant to the Management Subscription Agreement,
dated as of the date hereof, between Executive and the Company, (ii) an Initial
Public Offering (as defined in the Stockholders Agreement referred to below),
(iii) the termination of Executive's employment with the Company for Cause (as
defined below), and (iv) Executive's employment by, or provision of consulting
services to, a competitor of the Company or any of its subsidiaries, the Company
shall provide Executive with the information set forth in Section 5(a) of the
Stockholders Agreement (Common Stock and Preferred Stock), dated as of the date
hereof, among the Company, Executive and certain other stockholders of the
Company. For purposes of this paragraph, "Cause" shall having the meaning set
forth in clauses (iii) and (iv) only in Section 5.01 of this Agreement.
6.12. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement
effective as of the date first above written.
T.K.G. Acquisition Corp.
By: /s/ Barry L. McCabe
________________________________
Name:
Title:
/s/ Burton B. Staniar
________________________________
Burton B. Staniar
12
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is dated as of February 29, 1996, and is
entered into between T.K.G. Acquisition Corp., a Delaware corporation (the
"Company"), and John H. Lynch ("Executive").
WHEREAS, Executive and the Company desire to embody in this Agreement
the terms and conditions of Executive's employment by the Company.
NOW, THEREFORE, the parties hereby agree:
ARTICLE I
Employment, Duties and Responsibilities
---------------------------------------
1.01. Employment. The Company shall employ Executive as Vice-
----------
Chairman and President of the Company. Executive hereby accepts such
employment. Executive agrees to devote his full business time and efforts to
promote the interests of the Company.
1.02. Duties and Responsibilities. Executive shall have such duties
---------------------------
and responsibilities as are customarily associated with such position and as are
assigned to the Executive from time to time by the Board of Directors of the
Company (the "Board"). Executive and the Company agree that the Company may
assign all or part of its rights and obligations under this Agreement, other
than those set forth under Sections 1.03 hereof, to its principal United States
operating subsidiary, and Executive consents to any such assignment and agrees
that he will perform all of his duties and responsibilities for such assignee in
the manner directed by its Board of Directors, unless otherwise directed by the
Board. Executive shall in any event perform such additional services, without
the receipt of additional compensation, with respect to the Company's
subsidiaries as are assigned from time to time by the Board.
1.03 Member of the Board. During the Term (as defined below),
-------------------
prior to any stockholder meeting at which directors will be elected (or prior to
the circulation of any written consent in respect of the election of directors),
the Company shall nominate Executive to be a member of the Board and of the
Board of Directors of the Company's principal United States operating
subsidiary.
<PAGE>
ARTICLE II
Term
----
2.01. Term. (a) The term of this Agreement (the "Term") shall
----
commence on the date of the closing of the acquisition (the "Acquisition") by
the Company of the Knoll companies from Westinghouse Electric Corporation and
shall continue for a period of one year from such date; provided, however, that
the term of the Executive's employment shall be automatically extended without
further action of either party for successive additional periods of one year,
unless written notice of either party's intention not to extend has been given
to the other party at least sixty (60) days prior to the expiration of the then
effective term.
(b) Executive represents and warrants to the Company that to the best
of his knowledge, neither the execution and delivery of this Agreement nor the
performance of his duties hereunder violates or will violate the provisions of
any other agreement to which he is a party or by which he is bound.
ARTICLE III
Compensation and Expenses
-------------------------
3.01. Salary, Bonuses and Benefits. As compensation and
----------------------------
consideration for the performance by Executive of his obligations under this
Agreement, Executive shall be entitled to the following (subject, in each case,
to the provisions of Article V hereof):
(a) The Company shall pay Executive a base salary ("Base Salary")
during the Term, payable in accordance with the normal payment procedures of the
Company and subject to such withholdings and other normal employee deductions as
may be required by law, at the rate of not less than $400,000 per annum. The
Company agrees to review such compensation (for possible increases, not
decreases) not less frequently than annually during the Term.
(b) Executive shall participate during the Term in such pension, life
insurance, health, disability and major medical insurance plans, and in such
other employee benefit plans and programs, for the benefit of the employees of
the Company, as may be maintained from time to time during the Term, in each
case to the extent and in the manner available to other executive officers of
the Company and subject to the terms and provisions of such plans or programs.
Executive confirms that he is aware that the Company or one of its affiliates
may seek to obtain for their benefit "key man" insurance covering the Executive
and Executive agrees to use his reasonable best efforts (without the incurrence
of any unreimbursed out-of-pocket expenses) to cooperate in connection
therewith.
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<PAGE>
(c) Executive shall receive a service bonus equal to 25% of Base
Salary (each a "Service Bonus") to be paid promptly after completion of each
calendar year of employment during the Term; provided, however, that upon the
Executive's termination of employment hereunder, a pro-rated Service Bonus shall
be paid to the Executive based on the ratio of (a) the number of days from the
later of (i) the Executive's employment commencement date or (ii) January 1 of
the year of termination, until the date of termination to (b) 365.
(g) (d) Executive shall participate during the Term in such other
bonus plans or programs that are established during the Term for senior
management by the Board, with a maximum target annual bonus opportunity for each
year during the Term of up to 125% of Executive's Base Salary, which shall be
calculated on the basis of achievement of goals set by the Board, which goals
may include, without limitation, specific individual goals and/or corporate
performance parameters such as revenue, profit, balance sheet and cash
management objectives. The Board shall establish the goals applicable to
Executive in consultation with the Executive in advance of any fiscal year or
other applicable period.
(e) Executive shall be entitled to a paid vacation, in accordance with
Company policy (but not necessarily consecutive vacation weeks) during the Term.
(f) During and after the Term the Company agrees that if Executive is
made a party, or compelled to testify or otherwise participate in, any action,
suit or proceeding, (a "Proceeding"), by reason of the fact that he is or was a
director or officer of the Company or any of its subsidiaries, the Executive
shall be indemnified by the Company to the fullest extent permitted by Section
145 of the Delaware General Corporation Law or authorized by the Company's
certificate of incorporation or bylaws or resolutions of the Company's Board
against all cost, expense, liability and loss reasonably incurred or suffered by
the Executive in connection therewith, and such indemnification shall continue
as to the Executive even if he has ceased to be a director or officer of the
Company or subsidiary, for the period of any applicable statute of limitations
or, if longer, for the period in which any such Proceeding which commenced
within the period of any such statute of limitations is pending. The Company
shall advance to the Executive all reasonable costs and expenses incurred by him
in connection with a Proceeding within 20 days after receipt by the Company of a
written request for such advance. Such request shall include an itemized list
of the costs and expenses and an undertaking by the Executive to repay the
amount of such advance if it shall ultimately be determined that, pursuant to
applicable law, he is not entitled to be indemnified against such costs and
expenses. During the Term (and thereafter for the period of any applicable
statute of limitations), the Company agrees to purchase from a reputable
insurance company, and maintain, a directors' and
3
<PAGE>
officers' liability insurance policy covering the Executive, in amounts
reasonably determined by the Board to be appropriate for directors and officers
of the Company given the Company's business, securities, operations and
financial condition.
3.02. Expenses. The Company will reimburse Executive for reasonable
--------
business-related expenses incurred by him in connection with the performance of
his duties hereunder during the Term, subject, however, to the Company's
policies relating to business-related expenses as in effect from time to time
during the Term.
3.03. Parachute Gross-Up. The sole shareholder of the Company has
------------------
previously approved the making of all payments due under or pursuant to this
Agreement after having received full disclosure of all material facts concerning
such payments. As a result, the provisions of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code") are expected to be inapplicable.
Notwithstanding anything to the contrary in this Agreement and in addition to
any other compensation or other amount payable by the Company to the Executive
pursuant to this Agreement or otherwise, if it shall be determined that,
notwithstanding such shareholder approval, any payment or distribution by the
Company to or for the benefit of the Executive, pursuant to the terms of this
Agreement or otherwise or resulting from the accelerated vesting of shares of
common stock or options to acquire common stock of the Company (a "Payment"),
are subject to the excise tax imposed by Section 4999 of the Code, or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes on the Gross-Up Payment, (including any interest or
penalties imposed with respect to such taxes, and any Excise Tax imposed upon
the Gross-Up Payment), the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. If the Excise Tax is
determined to exceed the amount taken into account hereunder at the time of the
termination of the Executive's employment or otherwise (including by reason of
any payment the existence or amount of which cannot be determined at the time of
the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or additions payable by the
Executive with respect to such excess) at the time that the amount of such
excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Payments. All determinations required to be made under
this Section, including whether a Gross-Up Payment is required and the amount of
such Gross-Up Payment, shall be made by the Company's independent accountants.
If the Internal Revenue Service
4
<PAGE>
determines that Excise Tax is larger than the amount calculated by the Company's
accountants, and the Company does not contest such determination and prevail in
such contest at its own expense, the Gross-Up Payment due the Executive shall be
recalculated and any additional amounts owed Executive shall be promptly paid to
him.
ARTICLE IV
Exclusivity, Etc.
-----------------
4.01. Exclusivity. Executive agrees to perform his duties,
-----------
responsibilities and obligations hereunder efficiently and to the best of his
ability. Executive agrees that he will devote his entire working time, care and
attention and best efforts to such duties, responsibilities and obligations
throughout the Term. Executive also agrees that he will not engage in any other
business activities, pursued for gain, profit or other pecuniary advantage, that
are competitive with the activities of the Company, except as permitted in
Section 4.02 below. Executive agrees that all of his activities as an employee
of the Company shall be in conformity with all policies, rules and regulations
and directions of the Company not inconsistent with this Agreement.
4.02. Other Business Ventures. Executive agrees that, so long as he
-----------------------
is employed by the Company, he will not own, directly or indirectly, any
controlling or substantial stock or other beneficial interest in any business
enterprise which is engaged in, or competitive with, any business engaged in by
the Company. Notwithstanding the foregoing, Executive may own, directly or
indirectly, up to 1% of the outstanding capital stock of any business having a
class of capital stock which is traded on any national stock exchange or in the
over-the-counter market.
4.03. Confidentiality; Non-competition. (a) Executive agrees that
--------------------------------
he will not, at any time during or after the Term, make use of or divulge to any
other person, firm or corporation any trade or business secret, any information
pertaining to any business process, method or means, any customer lists, details
of contracts with or requirements of customers, any information pertaining to
the Company's financial records, computer systems and software, sales or
marketing plans, or any other written information treated as confidential or as
a trade secret by the Company, which he may have learned or acquired in
connection with his employment (collectively, "Confidential Information").
Executive's obligation under this Section 4.03(a) shall not apply to any
information which (i) is known publicly; (ii) is in the public domain or
hereafter enters the public domain without the fault of Executive; (iii) is
known to Executive prior to his receipt of such information from the Company or
any predecessor of the Company with which he was employed, as evidenced by
written records of Executive or (iv) is hereafter disclosed to Executive by a
third party which, to
5
<PAGE>
Executive's knowledge, is not under an obligation of confidence to the Company.
Executive agrees not to remove from the premises of the Company, except as an
employee of the Company in pursuit of the business of the Company or except as
specifically permitted in writing by the Company, any notes, memoranda, papers,
documents, correspondence or writing (which shall include information recorded
or stored in writing, on magnetic tape or disc, or otherwise stored for
reproduction, whether by mechanical or electronic means and whether or not such
reproduction will result in a permanent record being made) containing or
reflecting any Confidential Information ("Documents"). Executive recognizes that
all such Documents, whether developed by him or by someone else, will be the
sole and exclusive property of the Company. Upon termination of his employment
hereunder, Executive shall forthwith deliver to the Company all such
Confidential Information, including without limitation all Documents,
correspondence, and any other property held by him or under his control in
relation to the business or affairs of the Company, and no copy of any
Confidential Information shall be retained by him.
(b) Upon any termination of Executive's employment with the Company,
the Executive shall not, for a period of one year from the date of such
termination, directly or indirectly, whether as an employee, consultant,
independent contractor, partner, joint venture or otherwise, (i) engage in any
business activities which are competitive, to a material extent, with any
substantial type or kind of business activities conducted by the Company at the
time of such termination (provided that Executive may own, directly or
--------
indirectly, up to 1% of the outstanding capital stock of any business having a
class of capital stock which is traded on any national stock exchange or in the
over-the-counter market); (ii) solicit or induce, or in any manner attempt to
solicit or induce, any person employed by, or as agent of, the Company to
terminate such person's contract of employment or agency, as the case may be,
with the Company or (iii) divert, or attempt to divert, any person, concern, or
entity from doing business with the Company, nor will he attempt to induce any
such person, concern or entity to cease being a customer or supplier of the
Company.
(c) Executive agrees that, at any time and from time to time during
and after the Term, he will execute any and all documents which the Company may
deem reasonably necessary or appropriate to effectuate the provisions of this
Section 4.03.
4.04. Equitable Relief. Executive and the Company agree that the
----------------
restrictions, prohibitions and other provisions of Article IV of this Agreement
are reasonable, fair, and equitable in scope, terms, and duration, are necessary
to protect the legitimate business interests of the Company and are a material
inducement to the Company to enter into this Agreement. The Company and the
Executive recognize that the services to be rendered under this Agreement by the
Executive are special,
6
<PAGE>
unique and of extraordinary character, and that in the event of the breach by
the Executive of the terms and conditions of this Agreement or if the Executive,
without the prior consent of the Board, shall leave his employment for any
reason and take any action in violation of this Article IV, the Company will be
entitled to institute and prosecute proceedings in any court of competent
jurisdiction referred to in Section 4.05 below, to enjoin the Executive from
breaching the provisions of Article IV. In such action, the Company will not be
required to plead or prove irreparable harm or lack of an adequate remedy at
law. Nothing contained in this Article IV shall be construed to prevent the
Company from seeking such other remedy in arbitration in case of any breach of
this Agreement by the Executive, as the Company may elect.
4.05. Submission to Jurisdiction. Any proceeding or action must be
--------------------------
commenced in the federal courts, or in the absence of federal jurisdiction in
state court, in either case in New York. The Executive and the Company
irrevocably and unconditionally submit to the jurisdiction of such courts and
agree to take any and all future action necessary to submit to the jurisdiction
of such courts. The Executive and the Company irrevocably waive any objection
that they now have or hereafter may have to the laying of venue of any suit,
action or proceeding brought in any court and further irrevocably waive any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. Final judgment against the Executive or
the Company in any such suit shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment, a certified or true copy or which shall
be conclusive evidence of the fact and the account of any liability of the
Executive or the Company therein described, or by appropriate proceedings under
an applicable treaty or otherwise.
7
<PAGE>
ARTICLE V
Termination
-----------
5.01. Termination by the Company. The Company shall have the right
--------------------------
to terminate Executive's employment at any time, with or without "Cause". For
purposes of this Agreement, "Cause" shall mean (i) the substantial and continued
failure of Executive to perform material duties reasonably required of Executive
by the Board (it being understood that a failure to attain performance
objectives shall not be treated as a failure to perform material duties for
purpose of this clause (i)) for a period of not less than 30 consecutive days,
provided notice in writing from the Board is given to Executive specifying in
reasonable detail the circumstances constituting such substantial and continued
failure, (ii) conduct substantially disloyal to the Company which conduct is
identified in reasonable detail by notice in writing from the Board and which
conduct, if susceptible of cure, is not remedied by Executive within 30 days of
Executive's receipt of such notice, (iii) any act of fraud, embezzlement or
misappropriation against the Company, or (iv) the conviction of Executive of a
felony.
5.02. Death. In the event Executive dies during the Term, his
-----
employment shall automatically terminate effective on the date of his death.
5.03. Disability. In the event that Executive shall suffer a
----------
disability which shall have prevented him from performing satisfactorily his
obligations hereunder for a period of at least 90 consecutive days, or 180 non-
consecutive days within any 365 day period, the Company shall have the right to
terminate Executive's employment for "Disability," such termination to be
effective upon the giving of notice thereof to Executive in accordance with
Section 6.03 hereof.
5.04. Compensation upon Termination. (a) In the event of termination
-----------------------------
of Executive's employment by the Company (other than for Cause or Disability),
or in the event of termination of Executive's employment by the Company as a
result of the Company's failure to renew this Agreement, or in the event of a
termination of Executive's employment by Executive following a breach of a
material provision of this Agreement by the Company, provided that the Executive
has given advance written notice to the Company, identifying the basis for the
breach in reasonable detail and, except in the event of a failure to pay Base
Salary, giving the Company 30 days' opportunity to cure, the Company shall pay
Executive an amount equal to 125% of the Executive's then current Base Salary,
in twelve equal monthly installments following the date of such termination.
(b) The Executive's rights upon termination of employment with respect
to stock options or other incentive awards shall be governed by the terms and
conditions of any stock
8
<PAGE>
option agreements or as established by the Company with respect to such awards.
(c) Upon termination of Employment for any reason, Executive shall be
entitled to continued coverage under the Company's health, disability and
medical benefits for the greater of (i) the period provided under applicable law
(but only to the extent the Executive takes whatever actions are required of him
under applicable law to secure such continued coverage) or (ii) 90 days from the
date of termination; provided that nothing in this Section 5.04 shall affect
--------
Executive's continuing entitlement under any disability insurance policy if
Executive's employment is terminated by the Company for Disability.
Notwithstanding the preceding sentence, if the Executive's employment is
terminated under the circumstances described in Section 5.04(a), such continued
coverage shall be provided on the same basis as for active employees for a
period of one year from the date of termination.
(d) Except as provided in this Section 5.04, Executive shall not be
entitled to compensation as a result of any termination of his employment with
the Company.
ARTICLE VI
Miscellaneous
-------------
6.01. Mitigation; Offset. Executive shall not be required to
------------------
mitigate damages resulting from his termination of employment and, during such
time, the amounts payable to Executive pursuant to Article V of this Agreement
shall not be offset or reduced by any other compensation earned by Executive.
6.02. Benefit of Agreement; Assignment; Beneficiary. (a) This
---------------------------------------------
Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns, including, without limitation, any corporation or person
which may acquire all or substantially all of the Company's assets or business,
or with or into which the Company may be consolidated or merged. This Agreement
shall also inure to the benefit of, and be enforceable by, the Executive and his
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amount would still be payable to the Executive hereunder if he had continued to
live, all such amounts shall be paid in accordance with the terms of this
Agreement to the Executive's beneficiary, devisee, legatee or other designee, or
if there is no such designee, to the Executive's estate.
(b) The Company shall require any successor (whether direct or
indirect, by operation of law, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the
9
<PAGE>
same extent that the Company would be required to perform it if no such
succession had taken place.
6.03. Notices. Any notice required or permitted hereunder shall be
-------
in writing and shall be sufficiently given if personally delivered or if sent by
telegram or telecopier or by registered or certified mail, postage prepaid, with
return receipt requested, addressed: (a) in the case of the Company to: T.K.G.
Acquisition Corp., c/o Warburg, Pincus Ventures, L.P., 466 Lexington Avenue, New
York, NY 10017, Attention: Jeffrey A. Harris, tel: (212) 878-0638; fax: (212)
878-9351, or to such other address and/or to the attention of such other person
as the Company shall designate by written notice to Executive; and (b) in the
case of Executive, to: John H. Lynch, 166 Hopkins Green, Hopkinton, NH 03229,
tel: (603) 224-4824; fax: (603) 669-1612, or to such other address as Executive
shall designate by written notice to the Company, with a copy to F. George
Davitt, Testa, Hurwitz & Thibeault, 125 High Street, Boston, MA 02110, tel:
(617) 248-7000, fax: (617) 248-7100. Any notice given hereunder shall be deemed
to have been given at the time of receipt thereof by the person to whom such
notice is given.
6.04. Entire Agreement; Amendment. This Agreement contains the
---------------------------
entire agreement of the parties hereto with respect to the terms and conditions
of Executive's employment during the term and supersedes any and all prior
agreements and understandings, whether written or oral, between the parties
hereto with respect to compensation due for services rendered hereunder. This
Agreement may not be changed or modified except by an instrument in writing
signed by both of the parties hereto.
6.05. Waiver. The waiver by either party of a breach of any
------
provision of this Agreement shall not operate or be construed as a continuing
waiver or as a consent to or waiver of any subsequent breach hereof.
6.06. Headings. The Article and Section headings herein are for
--------
convenience of reference only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions hereof.
6.07. Governing Law. This Agreement shall be governed by, and
-------------
construed and interpreted in accordance with, the internal laws of the State of
New York without reference to the principles of conflict of laws.
6.08. Agreement to Take Actions. Each party hereto shall execute and
-------------------------
deliver such documents, certificates, agreements and other instruments, and
shall take such other actions, as may be reasonably necessary or desirable in
order to perform his or its obligations under this Agreement or to effectuate
the purposes hereof.
10
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6.09. Survivorship. The respective rights and obligations of the
------------
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
6.10. Validity. The invalidity or unenforceability of any provision
--------
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision or provisions of this Agreement, which shall remain in
full force and effect.
6.11. Information Rights. Until the earlier of (i) such time as
------------------
Executive no longer owns at least 50% of the shares of the Company's capital
stock purchased by Executive pursuant to the Management Subscription Agreement,
dated as of the date hereof, between Executive and the Company, (ii) an Initial
Public Offering (as defined in the Stockholders Agreement referred to below),
(iii) the termination of Executive's employment with the Company for Cause (as
defined below), and (iv) Executive's employment by, or provision of consulting
services to, a competitor of the Company or any of its subsidiaries, the Company
shall provide Executive with the information set forth in Section 5(a) of the
Stockholders Agreement (Common Stock and Preferred Stock), dated as of the date
hereof, among the Company, Executive and certain other stockholders of the
Company. For purposes of this paragraph, "Cause" shall having the meaning set
forth in clauses (iii) and (iv) only in Section 5.01 of this Agreement.
6.12. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement effective as of the date first above written.
T.K.G. Acquisition Corp.
By: /s/ Burton B. Staniar
--------------------------------
Name: Burton B. Staniar
Title: President and Chief Executive Officer
/s/ John H. Lynch
--------------------------------
John H. Lynch
12
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is dated as of February 29, 1996, and is
entered into between T.K.G. Acquisition Corp., a Delaware corporation (the
"Company"), and Andrew B. Cogan ("Executive").
WHEREAS, Executive and the Company desire to embody in this Agreement
the terms and conditions of Executive's employment by the Company.
NOW, THEREFORE, the parties hereby agree:
ARTICLE I
Employment, Duties and Responsibilities
---------------------------------------
1.01. Employment. The Company shall employ Executive as Senior Vice
----------
President, Marketing and Product Development of the Company. Executive hereby
accepts such employment. Executive agrees to devote his full business time and
efforts to promote the interests of the Company.
1.02. Duties and Responsibilities. Executive shall have such duties
---------------------------
and responsibilities as are customarily associated with such position and as are
assigned to the Executive from time to time by the Company's Chairman and Chief
Executive Officer ("CEO"). Executive and the Company agree that the Company may
assign all or part of its rights and obligations under this Agreement, other
than those set forth under Sections 1.03 hereof, to its principal United States
operating subsidiary, and Executive consents to any such assignment and agrees
that he will perform all of his duties and responsibilities for such assignee in
the manner directed by its Board of Directors, unless otherwise directed by the
Board of Directors of the Company (the "Board"). Executive shall in any event
perform such additional services, without the receipt of additional
compensation, with respect to the Company's subsidiaries as are assigned from
time to time by the CEO.
ARTICLE II
Term
----
2.01. Term. (a) The term of this Agreement (the "Term") shall
----
commence on the date of the closing of the acquisition (the "Acquisition") by
the Company of the Knoll companies from Westinghouse Electric Corporation and
shall
<PAGE>
continue for a period of one year from such date; provided, however, that
the term of the Executive's employment shall be automatically extended without
further action of either party for successive additional periods of one year,
unless written notice of either party's intention not to extend has been given
to the other party at least sixty (60) days prior to the expiration of the then
effective term.
(b) Executive represents and warrants to the Company that to the best
of his knowledge, neither the execution and delivery of this Agreement nor the
performance of his duties hereunder violates or will violate the provisions of
any other agreement to which he is a party or by which he is bound.
ARTICLE III
Compensation and Expenses
-------------------------
3.01. Salary, Bonuses and Benefits. As compensation and
----------------------------
consideration for the performance by Executive of his obligations under this
Agreement, Executive shall be entitled to the following (subject, in each case,
to the provisions of Article V hereof):
(a) The Company shall pay Executive a base salary ("Base Salary")
during the Term, payable in accordance with the normal payment procedures of the
Company and subject to such withholdings and other normal employee deductions as
may be required by law, at the rate of not less than $200,000 per annum. The
Company agrees to review such compensation (for possible increases, not
decreases) not less frequently than annually during the Term.
(b) Executive shall participate during the Term in such pension, life
insurance, health, disability and major medical insurance plans, and in such
other employee benefit plans and programs, for the benefit of the employees of
the Company, as may be maintained from time to time during the Term, in each
case to the extent and in the manner available to other executive officers of
the Company and subject to the terms and provisions of such plans or programs.
Executive confirms that he is aware that the Company or one of its affiliates
may seek to obtain for their benefit "key man" insurance covering the Executive
and Executive agrees to use his reasonable best efforts (without the incurrence
of any unreimbursed out-of-pocket expenses) to cooperate in connection
therewith.
(c) Executive shall participate during the Term in such other bonus
plans or programs that are established during the Term for senior management by
the Board, with a maximum target annual bonus opportunity for each year during
the Term of up to 100% of Executive's Base Salary, which shall be calculated on
the basis of achievement of goals set by the Board, which goals may include,
without limitation, specific individual goals
2
<PAGE>
and/or corporate performance parameters such as revenue, profit, balance sheet
and cash management objectives. The Board shall establish the goals applicable
to Executive in consultation with the Executive in advance of any fiscal year or
other applicable period.
(d) Executive shall be entitled to a paid vacation, in accordance with
Company policy (but not necessarily consecutive vacation weeks) during the Term.
(e) During and after the Term the Company agrees that if Executive is
made a party, or compelled to testify or otherwise participate in, any action,
suit or proceeding, (a "Proceeding"), by reason of the fact that he is or was a
director or officer of the Company or any of its subsidiaries, the Executive
shall be indemnified by the Company to the fullest extent permitted by Section
145 of the Delaware General Corporation Law or authorized by the Company's
certificate of incorporation or bylaws or resolutions of the Company's Board
against all cost, expense, liability and loss reasonably incurred or suffered by
the Executive in connection therewith, and such indemnification shall continue
as to the Executive even if he has ceased to be a director or officer of the
Company or subsidiary, for the period of any applicable statute of limitations
or, if longer, for the period in which any such Proceeding which commenced
within the period of any such statute of limitations is pending. The Company
shall advance to the Executive all reasonable costs and expenses incurred by him
in connection with a Proceeding within 20 days after receipt by the Company of a
written request for such advance. Such request shall include an itemized list
of the costs and expenses and an undertaking by the Executive to repay the
amount of such advance if it shall ultimately be determined that, pursuant to
applicable law, he is not entitled to be indemnified against such costs and
expenses. During the Term (and thereafter for the period of any applicable
statute of limitations), the Company agrees to purchase from a reputable
insurance company, and maintain, a directors' and officers' liability insurance
policy covering the Executive, in amounts reasonably determined by the Board to
be appropriate for directors and officers of the Company given the Company's
business, securities, operations and financial condition.
3.02. Expenses. The Company will reimburse Executive for reasonable
--------
business-related expenses incurred by him in connection with the performance of
his duties hereunder during the Term, subject, however, to the Company's
policies relating to business-related expenses as in effect from time to time
during the Term.
3.03. Parachute Gross-Up. The sole shareholder of the Company has
------------------
previously approved the making of all payments due under or pursuant to this
Agreement after having received full disclosure of all material facts concerning
such payments. As a result, the provisions of Section 280G of the Internal
3
<PAGE>
Revenue Code of 1986, as amended (the "Code") are expected to be inapplicable.
Notwithstanding anything to the contrary in this Agreement and in addition to
any other compensation or other amount payable by the Company to the Executive
pursuant to this Agreement or otherwise, if it shall be determined that,
notwithstanding such shareholder approval, any payment or distribution by the
Company to or for the benefit of the Executive, pursuant to the terms of this
Agreement or otherwise or resulting from the accelerated vesting of shares of
common stock or options to acquire common stock of the Company (a "Payment"),
are subject to the excise tax imposed by Section 4999 of the Code, or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes on the Gross-Up Payment, (including any interest or
penalties imposed with respect to such taxes, and any Excise Tax imposed upon
the Gross-Up Payment), the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. If the Excise Tax is
determined to exceed the amount taken into account hereunder at the time of the
termination of the Executive's employment or otherwise (including by reason of
any payment the existence or amount of which cannot be determined at the time of
the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or additions payable by the
Executive with respect to such excess) at the time that the amount of such
excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Payments. All determinations required to be made under
this Section, including whether a Gross-Up Payment is required and the amount of
such Gross-Up Payment, shall be made by the Company's independent accountants.
If the Internal Revenue Service determines that Excise Tax is larger than the
amount calculated by the Company's accountants, and the Company does not contest
such determination and prevail in such contest at its own expense, the Gross-Up
Payment due the Executive shall be recalculated and any additional amounts owed
Executive shall be promptly paid to him.
ARTICLE IV
Exclusivity, Etc.
-----------------
4.01. Exclusivity. Executive agrees to perform his duties,
-----------
responsibilities and obligations hereunder efficiently and to the best of his
ability. Executive agrees that he will devote his entire working time, care and
attention and best efforts to such duties, responsibilities and obligations
throughout the Term. Executive also agrees that he will not
4
<PAGE>
engage in any other business activities, pursued for gain, profit or other
pecuniary advantage, that are competitive with the activities of the Company,
except as permitted in Section 4.02 below. Executive agrees that all of his
activities as an employee of the Company shall be in conformity with all
policies, rules and regulations and directions of the Company not inconsistent
with this Agreement.
4.02. Other Business Ventures. Executive agrees that, so long as he
-----------------------
is employed by the Company, he will not own, directly or indirectly, any
controlling or substantial stock or other beneficial interest in any business
enterprise which is engaged in, or competitive with, any business engaged in by
the Company. Notwithstanding the foregoing, Executive may own, directly or
indirectly, up to 1% of the outstanding capital stock of any business having a
class of capital stock which is traded on any national stock exchange or in the
over-the-counter market.
4.03. Confidentiality; Non-competition. (a) Executive agrees that
--------------------------------
he will not, at any time during or after the Term, make use of or divulge to any
other person, firm or corporation any trade or business secret, any information
pertaining to any business process, method or means, any customer lists, details
of contracts with or requirements of customers, any information pertaining to
the Company's financial records, computer systems and software, sales or
marketing plans, or any other written information treated as confidential or as
a trade secret by the Company, which he may have learned or acquired in
connection with his employment (collectively, "Confidential Information").
Executive's obligation under this Section 4.03(a) shall not apply to any
information which (i) is known publicly; (ii) is in the public domain or
hereafter enters the public domain without the fault of Executive; (iii) is
known to Executive prior to his receipt of such information from the Company or
any predecessor of the Company with which he was employed, as evidenced by
written records of Executive or (iv) is hereafter disclosed to Executive by a
third party which, to Executive's knowledge, is not under an obligation of
confidence to the Company. Executive agrees not to remove from the premises of
the Company, except as an employee of the Company in pursuit of the business of
the Company or except as specifically permitted in writing by the Company, any
notes, memoranda, papers, documents, correspondence or writing (which shall
include information recorded or stored in writing, on magnetic tape or disc, or
otherwise stored for reproduction, whether by mechanical or electronic means and
whether or not such reproduction will result in a permanent record being made)
containing or reflecting any Confidential Information ("Documents"). Executive
recognizes that all such Documents, whether developed by him or by someone else,
will be the sole and exclusive property of the Company. Upon termination of his
employment hereunder, Executive shall forthwith deliver to the Company all such
Confidential Information, including without limitation all Documents,
correspondence, and any other property held by him or under his
5
<PAGE>
control in relation to the business or affairs of the Company, and no copy of
any Confidential Information shall be retained by him.
(b) Upon any termination of Executive's employment with the Company,
the Executive shall not, for a period of one year from the date of such
termination, directly or indirectly, whether as an employee, consultant,
independent contractor, partner, joint venture or otherwise, (i) engage in any
business activities which are competitive, to a material extent, with any
substantial type or kind of business activities conducted by the Company at the
time of such termination (provided that Executive may own, directly or
--------
indirectly, up to 1% of the outstanding capital stock of any business having a
class of capital stock which is traded on any national stock exchange or in the
over-the-counter market); (ii) solicit or induce, or in any manner attempt to
solicit or induce, any person employed by, or as agent of, the Company to
terminate such person's contract of employment or agency, as the case may be,
with the Company or (iii) divert, or attempt to divert, any person, concern, or
entity from doing business with the Company, nor will he attempt to induce any
such person, concern or entity to cease being a customer or supplier of the
Company.
(c) Executive agrees that, at any time and from time to time during
and after the Term, he will execute any and all documents which the Company may
deem reasonably necessary or appropriate to effectuate the provisions of this
Section 4.03.
4.04. Equitable Relief. Executive and the Company agree that the
----------------
restrictions, prohibitions and other provisions of Article IV of this Agreement
are reasonable, fair, and equitable in scope, terms, and duration, are necessary
to protect the legitimate business interests of the Company and are a material
inducement to the Company to enter into this Agreement. The Company and the
Executive recognize that the services to be rendered under this Agreement by the
Executive are special, unique and of extraordinary character, and that in the
event of the breach by the Executive of the terms and conditions of this
Agreement or if the Executive, without the prior consent of the Board, shall
leave his employment for any reason and take any action in violation of this
Article IV, the Company will be entitled to institute and prosecute proceedings
in any court of competent jurisdiction referred to in Section 4.05 below, to
enjoin the Executive from breaching the provisions of Article IV. In such
action, the Company will not be required to plead or prove irreparable harm or
lack of an adequate remedy at law. Nothing contained in this Article IV shall
be construed to prevent the Company from seeking such other remedy in
arbitration in case of any breach of this Agreement by the Executive, as the
Company may elect.
4.05. Submission to Jurisdiction. Any proceeding or action must be
--------------------------
commenced in the federal courts, or in the
6
<PAGE>
absence of federal jurisdiction in state court, in either case in New York. The
Executive and the Company irrevocably and unconditionally submit to the
jurisdiction of such courts and agree to take any and all future action
necessary to submit to the jurisdiction of such courts. The Executive and the
Company irrevocably waive any objection that they now have or hereafter may have
to the laying of venue of any suit, action or proceeding brought in any court
and further irrevocably waive any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum. Final
judgment against the Executive or the Company in any such suit shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment, a
certified or true copy or which shall be conclusive evidence of the fact and the
account of any liability of the Executive or the Company therein described, or
by appropriate proceedings under an applicable treaty or otherwise.
ARTICLE V
Termination
-----------
5.01. Termination by the Company. The Company shall have the right
--------------------------
to terminate Executive's employment at any time, with or without "Cause". For
purposes of this Agreement, "Cause" shall mean (i) the substantial and continued
failure of Executive to perform material duties reasonably required of Executive
by the Board (it being understood that a failure to attain performance
objectives shall not be treated as a failure to perform material duties for
purpose of this clause (i)) for a period of not less than 30 consecutive days,
provided notice in writing from the Board is given to Executive specifying in
reasonable detail the circumstances constituting such substantial and continued
failure, (ii) conduct substantially disloyal to the Company which conduct is
identified in reasonable detail by notice in writing from the Board and which
conduct, if susceptible of cure, is not remedied by Executive within 30 days of
Executive's receipt of such notice, (iii) any act of fraud, embezzlement or
misappropriation against the Company, or (iv) the conviction of Executive of a
felony.
5.02. Death. In the event Executive dies during the Term, his
-----
employment shall automatically terminate effective on the date of his death.
5.03. Disability. In the event that Executive shall suffer a
----------
disability which shall have prevented him from performing satisfactorily his
obligations hereunder for a period of at least 90 consecutive days, or 180 non-
consecutive days within any 365 day period, the Company shall have the right to
terminate Executive's employment for "Disability," such termination to be
effective upon the giving of notice thereof to Executive in accordance with
Section 6.03 hereof.
7
<PAGE>
5.04. Compensation upon Termination. (a) In the event of termination
-----------------------------
of Executive's employment by the Company (other than for Cause or Disability),
or in the event of termination of Executive's employment by the Company as a
result of the Company's failure to renew this Agreement, or in the event of a
termination of Executive's employment by Executive following a breach of a
material provision of this Agreement by the Company, provided that the Executive
has given advance written notice to the Company, identifying the basis for the
breach in reasonable detail and, except in the event of a failure to pay Base
Salary, giving the Company 30 days' opportunity to cure, the Company shall pay
Executive an amount equal to 100% of the Executive's then current Base Salary,
in twelve equal monthly installments following the date of such termination.
(b) The Executive's rights upon termination of employment with respect
to stock options or other incentive awards shall be governed by the terms and
conditions of any stock option agreements or as established by the Company with
respect to such awards.
(c) Upon termination of Employment for any reason, Executive shall be
entitled to continued coverage under the Company's health, disability and
medical benefits for the greater of (i) the period provided under applicable law
(but only to the extent the Executive takes whatever actions are required of him
under applicable law to secure such continued coverage) or (ii) 90 days from the
date of termination; provided that nothing in this Section 5.04 shall affect
--------
Executive's continuing entitlement under any disability insurance policy if
Executive's employment is terminated by the Company for Disability.
Notwithstanding the preceding sentence, if the Executive's employment is
terminated under the circumstances described in Section 5.04(a), such continued
coverage shall be provided on the same basis as for active employees for a
period of one year from the date of termination.
(d) Except as provided in this Section 5.04, Executive shall not be
entitled to compensation as a result of any termination of his employment with
the Company.
ARTICLE VI
Miscellaneous
-------------
6.01. Mitigation; Offset. Executive shall not be required to
------------------
mitigate damages resulting from his termination of employment and, during such
time, the amounts payable to Executive pursuant to Article V of this Agreement
shall not be offset or reduced by any other compensation earned by Executive.
6.02. Benefit of Agreement; Assignment; Beneficiary. (a) This
---------------------------------------------
Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns,
8
<PAGE>
including, without limitation, any corporation or person which may acquire all
or substantially all of the Company's assets or business, or with or into which
the Company may be consolidated or merged. This Agreement shall also inure to
the benefit of, and be enforceable by, the Executive and his personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to the Executive hereunder if he had continued to live, all such
amounts shall be paid in accordance with the terms of this Agreement to the
Executive's beneficiary, devisee, legatee or other designee, or if there is no
such designee, to the Executive's estate.
(b) The Company shall require any successor (whether direct or
indirect, by operation of law, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place.
6.03. Notices. Any notice required or permitted hereunder shall be
-------
in writing and shall be sufficiently given if personally delivered or if sent by
telegram or telecopier or by registered or certified mail, postage prepaid, with
return receipt requested, addressed: (a) in the case of the Company to: T.K.G.
Acquisition Corp., c/o Warburg, Pincus Ventures, L.P., 466 Lexington Avenue, New
York, NY 10017, Attention: Jeffrey A. Harris, tel: (212) 878-0638; fax: (212)
878-9351, or to such other address and/or to the attention of such other person
as the Company shall designate by written notice to Executive; and (b) in the
case of Executive, to: Andrew B. Cogan, 1 West 64th Street, Apartment 4B, New
York, New York 10023, or to such other address as Executive shall designate by
written notice to the Company, with a copy to F. George Davitt, Testa, Hurwitz &
Thibeault, 125 High Street, Boston, MA 02110, tel: (617) 248-7000, fax: (617)
248-7100. Any notice given hereunder shall be deemed to have been given at the
time of receipt thereof by the person to whom such notice is given.
6.04. Entire Agreement; Amendment. This Agreement contains the
---------------------------
entire agreement of the parties hereto with respect to the terms and conditions
of Executive's employment during the term and supersedes any and all prior
agreements and understandings, whether written or oral, between the parties
hereto with respect to compensation due for services rendered hereunder. This
Agreement may not be changed or modified except by an instrument in writing
signed by both of the parties hereto.
6.05. Waiver. The waiver by either party of a breach of any
------
provision of this Agreement shall not operate or be construed as a continuing
waiver or as a consent to or waiver of any subsequent breach hereof.
9
<PAGE>
6.06. Headings. The Article and Section headings herein are for
--------
convenience of reference only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions hereof.
6.07. Governing Law. This Agreement shall be governed by, and
-------------
construed and interpreted in accordance with, the internal laws of the State of
New York without reference to the principles of conflict of laws.
6.08. Agreement to Take Actions. Each party hereto shall execute and
-------------------------
deliver such documents, certificates, agreements and other instruments, and
shall take such other actions, as may be reasonably necessary or desirable in
order to perform his or its obligations under this Agreement or to effectuate
the purposes hereof.
6.09. Survivorship. The respective rights and obligations of the
------------
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
6.10. Validity. The invalidity or unenforceability of any provision
--------
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision or provisions of this Agreement, which shall remain in
full force and effect.
6.11. Information Rights. Until the earlier of (i) such time as
------------------
Executive no longer owns at least 50% of the shares of the Company's capital
stock purchased by Executive pursuant to the Management Subscription Agreement,
dated as of the date hereof, between Executive and the Company, (ii) an Initial
Public Offering (as defined in the Stockholders Agreement referred to below),
(iii) the termination of Executive's employment with the Company for Cause (as
defined below), and (iv) Executive's employment by, or provision of consulting
services to, a competitor of the Company or any of its subsidiaries, the Company
shall provide Executive with the information set forth in Section 5(a) of the
Stockholders Agreement (Common Stock and Preferred Stock), dated as of the date
hereof, among the Company, Executive and certain other stockholders of the
Company. For purposes of this paragraph, "Cause" shall having the meaning set
forth in clauses (iii) and (iv) only in Section 5.01 of this Agreement.
6.12. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement
effective as of the date first above written.
T.K.G. Acquisition Corp.
By: /s/ Burton B. Staniar
________________________________
Name: Burton B. Staniar
Title: President and Chief Executive Officer
/s/ Andrew B. Cogan
________________________________
Andrew B. Cogan
11
<PAGE>
EXHIBIT 10.6
T.K.G. ACQUISITION CORP.
STOCKHOLDERS AGREEMENT
(COMMON STOCK AND PREFERRED STOCK)
Stockholders Agreement, dated as of this 29th day of February,
1996, by and among Warburg, Pincus Ventures, L.P., a Delaware limited
partnership ("Warburg"); the individuals whose names and addresses appear from
time to time on Schedule I hereto (the "Management Investors"); the persons
whose names and addresses appear from time to time on Schedule II hereto (the
"Non-Management Investors," and, together with the Management Investors, the
"Third Party Investors" and, together with Warburg and the Management Investors,
the "Investors"); and T.K.G. Acquisition Corp., a Delaware corporation (the
"Company"). Certain terms used in this Agreement are defined in Section 8
hereof.
R E C I T A L S
---------------
WHEREAS, certain of the Investors, pursuant to the terms of certain
subscription agreements with the Company (collectively, the "Subscription
Agreements"), have agreed to purchase shares of the Common Stock, par value $.01
per share, of the Company (the "Common Stock") and the Series A 12%
Participating Convertible Preferred Stock, par value $1.00 per share, of the
Company (the "Preferred Stock"); and
WHEREAS, the Investors and the Company desire to promote their mutual
interests by agreeing to certain matters relating to the operations of the
Company and the disposition and voting of the shares of Common Stock and
Preferred Stock purchased by the Investors pursuant to the Subscription
Agreements, together with any other shares of Common Stock or Preferred Stock
acquired by them (other than shares of Common Stock issued under the T.K.G.
Acquisition Corp. 1996 Stock Incentive Plan (as it may be amended from time, the
"Stock Plan")) (collectively, the "Shares").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:
1. COVENANTS OF THE PARTIES
------------------------
(a) Legends. The certificates evidencing the Shares acquired by the
-------
Investors pursuant to the Subscription Agreements or their permitted transferees
will bear the following legend reflecting the restrictions on the transfer of
such securities contained in this Agreement:
<PAGE>
"The securities evidenced hereby are subject to the terms of that
certain Stockholders Agreement (Common Stock and Preferred Stock),
dated as of February 29, 1996, by and among the Company and certain
holders of the Common Stock and Preferred Stock, including certain
restrictions on transfer and rights of first refusal. A copy of such
Stockholders Agreement has been filed with the Secretary of the
Company and is available upon request."
(b) Election of Directors.
---------------------
(i) As of the date hereof, the Board of Directors of the Company (the
"Board") will consist of Burton B. Staniar ("Staniar"), John H. Lynch ("Lynch"),
John L. Vogelstein, Sidney Lapidus, Jeffrey A. Harris and Kewsong Lee. From and
after the date hereof, the Investors and the Company shall take all action
within their respective power, including but not limited to, the voting of all
shares of capital stock of the Company owned by them, required to cause the
Board to consist of six members or such other number as the Board may from time
to time establish, and at all times throughout the term of this Agreement to
include (A) that number of Warburg Directors as shall constitute a majority of
the Board, or, at Warburg's written election, which election shall be
irrevocable, as shall constitute one director less than a majority of the Board,
(B) Staniar, who shall be entitled to be a member of the Board until termination
of his employment in accordance with the terms of the Staniar Employment
Agreement, and (C) Lynch, who shall be entitled to be a member of the Board
until termination of his employment in accordance with the terms of the Lynch
Employment Agreement.
(ii) From the later of the date on which the Company completes an Initial
Public Offering and the date (the "Lender Board Requirement Termination Date")
when the Company's lenders no longer require that Warburg Directors constitute a
majority of the Board: (i) for as long as Warburg owns beneficially at least 50%
of the outstanding shares of Common Stock or Preferred Stock, the Company and
each Investor will nominate and use its best efforts to have four Warburg
Directors elected to the Board, (ii) for as long as Warburg owns beneficially at
least 25% of the outstanding shares of Common Stock or Preferred Stock, the
Company and each Investor will nominate and use its best efforts to have three
Warburg Directors elected to the Board, (iii) for as long as Warburg owns
beneficially at least 15% of the outstanding shares of Common Stock or Preferred
Stock, the Company and each Investor will nominate and use its best efforts to
have two Warburg Directors elected to the Board and (iv) for as long as Warburg
owns beneficially at least 5% of the outstanding shares of Common Stock or
Preferred Stock, the Company and each Investor will nominate and use its best
efforts to have one Warburg Director elected to the Board.
2
<PAGE>
(c) Replacement Directors. In the event that any Warburg Director is
---------------------
unable to serve, or once having commenced to serve, is removed or withdraws from
the Board (a "Withdrawing Director"), such Withdrawing Director's replacement
(the "Substitute Director") will be designated by Warburg. A Warburg Director
may be removed, with or without cause, by Warburg, and Warburg shall thereafter
have the right to nominate a replacement for such director. The Investors and
the Company agree to take all action within their respective power, including
but not limited to, the voting of all shares of capital stock of the Company
owned by them, to cause the election of such Substitute Director promptly
following his or her nomination pursuant to this Section 1(c).
(d) Subscription Right. If at any time after the date hereof, except
------------------
for (i) grants or issuances of equity securities pursuant to the Stock Plan or
any other incentive plan for the Company's or any of its Subsidiaries' directors
or employees (collectively, "Plan Stock") and (ii) securities issuable upon
exercise of previously issued warrants, options or other rights to acquire
equity securities or upon conversion of previously issued securities convertible
into equity securities, the Company proposes to sell equity securities of any
kind (the term "equity securities" shall include for these purposes any
warrants, options or other rights to acquire equity securities and debt
securities convertible into equity securities) of the Company, then, as to each
Investor who holds shares of capital stock of the Company, the Company shall:
(i) give written notice setting forth in reasonable detail (1)
the designation and all of the terms and provisions of the securities
proposed to be issued (the "Proposed Securities"), including, where
applicable, the voting powers, preferences and relative participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof and interest rate and maturity; (2) the price and
other terms of the proposed sale of such securities; (3) the amount of
such securities proposed to be issued; and (4) such other information as
may be reasonably required in order to evaluate the proposed issuance;
and
(ii) offer to sell to each such Investor a portion of the
Proposed Securities equal to a percentage determined by dividing (x) the
number of shares of Preferred Stock then held by such Investor (and if no
shares of Preferred Stock are outstanding, then the number of shares of
Common Stock (other than Plan Stock)) by (y) the total number of shares
of Preferred Stock then outstanding (and if no shares of Preferred Stock
are outstanding, then the number of shares of Common Stock (other than
Plan Stock)).
3
<PAGE>
Each such Investor must exercise its purchase rights hereunder within ten (10)
days after receipt of such notice from the Company. If all of the Proposed
Securities offered to such Investors are not fully subscribed by such Investors,
the remaining Proposed Securities will be reoffered to those Investors
purchasing their full allotment upon the terms set forth in this Section 1(d)
(with an allocation based on the respective percentages of the aggregate number
of shares of Preferred Stock held by such Investors and, if no shares of
Preferred Stock are outstanding, then of the aggregate number of shares of
Common Stock (other than Plan Stock)), until all such Proposed Securities are
fully subscribed for or until all such Investors have subscribed for all such
Proposed Securities which they desire to purchase, except that such Investors
must exercise their purchase rights within five days after receipt of all such
reoffers. To the extent that the Company offers two or more securities in
units, Investors must purchase such units as a whole and will not be given the
opportunity to purchase only one of the securities making up such unit.
Upon the expiration of the offering periods described above, the Company
will be free to sell such Proposed Securities that the Investors have not
elected to purchase during the ninety (90) days following such expiration on
terms and conditions no more favorable to the purchasers thereof than those
offered to such holders. Any Proposed Securities offered or sold by the Company
after such 90-day period must be reoffered to the Investors pursuant to this
Section 1(d). The election by an Investor not to exercise its subscription
rights under this Section 1(d) in any one instance shall not affect its right
(other than in respect of a reduction in its percentage holdings) as to any
subsequent proposed issuance. Any sale of such securities by the Company
without first giving the Investors the rights described in this Section 1(d)
shall be void and of no force and effect.
(e) Additional Investors. The parties hereto acknowledge that, subject
--------------------
to the terms hereof, certain employees of the Company or its Subsidiaries or
other investors may become shareholders of the Company after the date hereof and
that each such employee or other investor will be required, as a condition to
the issuance of shares of Common Stock or Preferred Stock to them, to execute a
Joinder Agreement in the form attached hereto as Exhibit A (the "Joinder
Agreement"). Upon execution of a Joinder Agreement, each such employee or other
investor shall be deemed to be a Management Investor (with respect to employees
of the Company or its Subsidiaries) or a Non-Management Investor (with respect
to additional investors who are not employees of the Company or its
Subsidiaries) under this Agreement and shall be entitled to all of the rights
and benefits afforded to, and shall be subject to all the obligations of, such
Investors hereunder.
4
<PAGE>
2. TRANSFER OF STOCK
-----------------
(a) Resale of Securities. Without the approval of the Board, no Third
--------------------
Party Investor shall Transfer any Shares, or any beneficial interest therein,
other than in accordance with the provisions of this Section 2. Any Transfer or
purported Transfer made in violation of this Section 2 shall be null and void
and of no effect.
(b) Rights of First Refusal. No Third Party Investor shall Transfer
-----------------------
any Shares, or any beneficial interest therein (except (i)(x) to an Affiliate of
such Investor or to members of such Third Party Investor's immediate family or
trusts for the benefit of such Investor or such Third Party Investor's immediate
family, and (y) upon the death of any Management Investor, to his or her
respective executors, administrators, or testamentary trustees; to a corporation
or partnership, the sole stockholders or limited or general partners of which
include only such Management Investor and members of such Management Investor's
immediate family; a transfer from a Management Investor's trust or other
transferee back to such Management Investor; a transfer to the legal guardian of
a disabled Management Investor or of a Management Investor's disabled immediate
family member, provided in each instance in this clause (i) that such transferee
--------
executes and delivers to the Company and Warburg a Joinder Agreement, or (ii) to
Warburg or an Affiliate thereof), unless the Third Party Investor desiring to
make the Transfer (hereinafter referred to as the "Transferor") shall have first
made the offers to sell to the Company and then to Warburg as contemplated by
Section 2(c) through 2(i), and such offers shall not have been accepted.
(c) Offer by Transferor. Copies of the Transferor's offer shall be
-------------------
given to the Company and Warburg and shall consist of an offer to sell to the
Company or, failing its election to purchase, then to Warburg, all of the shares
then proposed to be transferred by the Transferor (the "Subject Shares")
pursuant to a bona fide offer of a third party, to which copies shall be
attached a statement of intention to Transfer to such third party, the name and
address of the prospective third party transferee, the number of shares of
Common Stock and/or Preferred Stock involved in the proposed Transfer and terms
of such Transfer.
(d) Acceptance of Offer. (i) Within 10 days after the receipt of the
-------------------
offer described in Section 2(c), the Company may, at its option, elect to
purchase all, but not less than all, of the Subject Shares. The Company shall
exercise such option by giving notice thereof to the Transferor and to Warburg
within such 10 day period.
(ii) In the event that the Company does not exercise its option to
purchase the Subject Shares within such 10 day period, Warburg may exercise its
election to purchase all, but
5
<PAGE>
not less than all, of the Subject Shares by giving notice thereof to the
Transferor and to the Company within 10 days after receipt of notice from the
Transferor in accordance with Section 2(c) to the effect that the Company did
not exercise its option to purchase.
(iii) In either event, the notice required to be given by the
purchasing party (the "Purchaser") shall specify a date for the closing of the
purchase which shall not be more than 30 days after the date of the giving of
such notice.
(e) Purchase Price. The purchase price per share for the Subject
--------------
Shares shall be the price per share offered to be paid by the prospective
transferee described in the offer, which price shall be paid in cash or, if so
provided in the offer of the prospective transferee, cash plus deferred payments
of cash in the same proportions, and with the same terms of deferred payment as
therein set forth.
(f) Consideration Other Than Cash. If the offer of Subject Shares
-----------------------------
under this Section 2 is for consideration other than cash or cash plus deferred
payments of cash, the Purchaser shall pay the cash equivalent of such other
consideration. If the Transferor and the Purchaser cannot agree on the amount
of such cash equivalent within 10 days after the beginning of the 10-day period
under Section 2(d)(i), any of such parties may, by 3 days' written notice to the
other, initiate appraisal proceedings under Section 2(g) for determination of
the cash equivalent.
(g) Appraisal Procedure. If any party shall initiate an appraisal
-------------------
procedure to determine the amount of the cash equivalent of any consideration
for Subject Shares under Section 2(f), then the Transferor, on the one hand, and
the Purchaser, on the other hand, shall each promptly appoint as an appraiser an
individual who shall be a member of a reputable valuation firm. Each appraiser
shall, within 30 days of appointment, separately investigate the value of the
consideration for the Subject Shares as of the proposed transfer date and shall
submit a notice of an appraisal of that value to each party. Each appraiser
shall be instructed to determine such value without regard to income tax
consequences to the Transferor as a result of receiving cash rather than other
consideration. If, upon the completion of the initial appraisals (the "Earlier
Appraisals"), the higher appraised value of such consideration is not more than
110% of the lower appraised value of such consideration, the average of the two
appraisals on a per share basis shall be controlling as the amount of the cash
equivalent. If the higher appraised value is more than 110% of the lower
appraised value, the appraisers, within 10 days of the submission of the last
appraisal, shall appoint a third appraiser who shall be member of a reputable
valuation firm. The third appraiser shall, within 30 days of his appointment,
appraise the value of the consideration for the
6
<PAGE>
Subject Shares (without regard to the income tax consequences to the Transferor
as a result of receiving cash rather than other consideration) as of the
proposed transfer date and submit notice of his appraisal to each party. The
value determined by the third appraiser shall be controlling as the amount of
the cash equivalent unless the value is greater than the two Earlier Appraisals,
in which case the higher of the two Earlier Appraisals will control, and unless
that value is lower than the two Earlier Appraisals, in which case the lower of
the two Earlier Appraisals will control. If any party fails to appoint an
appraiser or if one of the two initial appraisers fails after appointment to
submit his appraisal within the required period, the appraisal submitted by the
remaining appraiser shall be controlling. The cost of the foregoing appraisals
shall be shared one-half by the Transferor and one-half by the Purchaser.
(h) Closing of Purchase. The closing of the purchase shall take place
-------------------
at the office of the Company or such other location as shall be mutually
agreeable and the purchase price, to the extent comprised of cash, shall be paid
at the closing, and cash equivalents and documents evidencing any deferred
payments of cash permitted pursuant to Section 2(e) above shall be delivered at
the closing. At the closing, the Transferor shall deliver to the Purchaser the
certificates evidencing the Subject Shares to be conveyed, duly endorsed and in
negotiable form with all the requisite documentary stamps affixed thereto.
(i) Release from Restriction; Termination of Rights. If the offer to
-----------------------------------------------
sell is neither accepted by the Company nor by Warburg, the Transferor may make
a bona fide Transfer to the prospective transferee named in the statement
attached to the offer in accordance with the agreed upon terms of such Transfer,
provided, that (A) such Transfer shall be made only in strict accordance with
- --------
the terms therein stated and (B) the transferee executes and delivers to the
Company and Warburg a copy of the Joinder Agreement. If the Transferor shall
fail to make such Transfer within sixty (60) days following the expiration of
the time hereinabove provided for the election by Warburg or, in the event the
Purchaser revokes an election to purchase the Subject Shares pursuant to Section
2(f), within sixty (60) days of the date of such notice of revocation, such
Shares shall again become subject to all the restrictions of this Section 2.
3. RIGHT OF CO-SALE.
----------------
(a) In the event that Warburg intends to Transfer (i) shares of
Common Stock which, together with any previous sales of shares of Common Stock
by Warburg, represent more than fifteen percent (15%) of the issued and
outstanding shares of Common Stock on a cumulative basis or (ii) shares of
Preferred Stock which, together with any previous sales of shares of Preferred
Stock by Warburg, represent more than fifteen percent (15%) of the issued and
outstanding shares of Preferred Stock on a cumulative basis (in each case other
than to an Affiliate of
7
<PAGE>
Warburg or pursuant to a distribution of such shares to its partners), Warburg
shall notify each other Investor holding shares of such class of stock, in
writing, of such Transfer and its terms and conditions (the "Proposed Sale").
Within 10 days of the date of such notice, each Investor that wishes to
participate in the Proposed Sale shall so notify Warburg in writing (a "Transfer
Notice"). In the event Warburg fails to receive a Transfer Notice from any
Investor within such 10-day period, such Investor shall be deemed to have
declined to participate in the Proposed Sale. Each Investor delivering a
Transfer Notice shall have the right to sell, at the same price and on the same
terms as Warburg, that number of shares of Common Stock or Preferred Stock, as
the case may be, equal to the number of shares of Common Stock or Preferred
Stock, as the case may be, the third party proposes to purchase multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
or Preferred Stock (other than Plan Stock), as the case may be, issued and owned
by such Investor and the denominator of which shall be the aggregate number of
shares of Common Stock or Preferred Stock (other than Plan Stock), as the case
may be, issued and owned by Warburg and each other Investor (including such
Investor exercising its rights under this Section 3). Nothing contained herein
shall obligate Warburg to consummate the Proposed Sale or limit Warburg's right
to amend or modify the terms of the Proposed Sale in any respect; provided that
the Investors are offered the opportunity to participate in the Proposed Sale on
such amended or modified terms.
(b) Notwithstanding anything contained in this Section 3, in the event
that all or a portion of the consideration to be paid in the Proposed Sale
consists of securities and the sale of such securities to Investors would
require either a registration under the Securities Act or the preparation of a
disclosure document pursuant to Regulation D under the Securities Act (or any
successor regulation) or a similar provision of any applicable state securities
law, then, at the option of Warburg, the Third Party Investors may receive, in
lieu of such securities, the fair market value of such securities in cash, as
determined in good faith by the Board unless (i) the holders of a majority of
the shares other than those held by Warburg or its Affiliates or (ii) Management
Investors holding a majority of shares held by Management Investors shall
request an appraisal, in which case the appraisal procedure set forth in Section
2(g) shall be followed as closely as practicable, with such majority holders
(which shall include Management Investors holding a majority of such shares held
by Management Investors), on the one hand, and Warburg, on the other hand, each
appointing an appraiser meeting the qualifications set forth in said Section
2(g).
8
<PAGE>
4. DRAG-ALONG RIGHT
----------------
(a) If at any time and from time to time after the date of this
Agreement, the holder or holders of a majority of the outstanding shares of
voting capital stock of the Company (the "Proposed Transferors") wish to
Transfer in a bona fide arms' length sale all shares of Common Stock and
Preferred Stock then owned by them to any Person or Persons who are not
Affiliates of the Proposed Transferors (for purposes of this Section 4(a), the
"Proposed Transferee"), the Proposed Transferors shall have the right (the
"Drag-Along Right") to require each Investor to sell to the Proposed Transferee
all shares of Common Stock and Preferred Stock (for the same per share
consideration received by the Proposed Transferor for each such class of capital
stock) then held by the Investors, subject to purchase by the Proposed
Transferee. Each Investor agrees to take all steps necessary to enable him or
it to comply with the provisions of this Section 4(a), including, if necessary,
voting any shares of Common Stock and Preferred Stock in favor of the
transaction with the Proposed Transferee (whether effected as a merger or
otherwise) to facilitate the Proposed Transferors' exercise of a Drag-Along
Right.
(b) To exercise a Drag-Along Right, the Proposed Transferors shall
give each Investor a written notice (for purposes of this Section 4, a "Drag-
Along Notice") containing (i) the number of shares of Common Stock and Preferred
Stock that the Proposed Transferee proposes to acquire from the Proposed
Transferors, (ii) the name and address of the Proposed Transferee, and (iii) the
proposed purchase price, terms of payment and other material terms and
conditions of the Proposed Transferee's offer. Each Investor shall thereafter
be obligated to sell the shares of Common Stock (and, if applicable, Preferred
Stock) subject to such Drag-Along Notice, provided that the sale to the Proposed
--------
Transferee is consummated within 120 days of delivery of the Drag-Along Notice.
If the sale is not consummated within such 120-day period, then each Investor
shall no longer be obligated to sell such shareholder's shares pursuant to that
specific Drag-Along Right but shall remain subject to the provisions of this
Section 4.
(c) Notwithstanding anything contained in this Section 4, in the
event that all or a portion of the purchase price consists of securities and the
sale of such securities to the Investors would require either a registration
under the Securities Act or the preparation of a disclosure document pursuant to
Regulation D under the Securities Act (or any successor regulation) or a similar
provision of any applicable state securities law, then, at the option of the
Proposed Transferors, the Third Party Investors may receive, in lieu of such
securities, the fair market value of such securities in cash, as determined in
good faith by the Board unless (i) the Third Party Investors holding a majority
of the shares or (ii) Management Investors holding a majority of shares held by
9
<PAGE>
Management Investors shall request an appraisal, in which case the appraisal
procedure set forth in Section 2(g) shall be followed as closely as practicable,
with such majority holders (which shall include Management Investors holding a
majority of such shares held by Management Investors), on the one hand, and
Warburg, on the other hand, each appointing an appraiser meeting the
qualifications set forth in Section 2(g).
5. INFORMATION AS TO COMPANY AND RELATED COVENANTS
-----------------------------------------------
(a) Investor Financial Information. From and after the date hereof,
------------------------------
the Company shall deliver to each Investor owning more than 5% of the issued and
outstanding shares of Common Stock or Preferred Stock (except for the annual
reports referred to in (a)(ii) below, which shall be delivered to each Investor
as long as such Investor owns any shares of Common Stock or Preferred Stock):
(i) Quarterly Statements. As soon as practicable, and in any event
--------------------
within 45 days after the close of each of the first three fiscal quarters of
each fiscal year of the Company, a consolidated balance sheet, statement of
income and statement of changes in cash flow of the Company and its Subsidiaries
(as hereinafter defined) as of the close of such quarter and the portion of the
Company's fiscal year ending on the last day of such quarter, all in reasonable
detail and prepared in accordance with U.S. generally accepted accounting
principles, consistently applied, subject to audit and year end adjustments,
setting forth in each case in comparative form the figures for the comparable
period of the previous year;
(ii) Annual Statements. As soon as practicable after the end of each
-----------------
fiscal year of the Company, and in any event within 120 days thereafter, a copy
of the consolidated balance sheet, and consolidated statements of income,
stockholders' equity and changes in cash flow of the Company and its
Subsidiaries for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and accompanied
by an opinion thereon of independent certified public accountants of recognized
national standing selected by the Company, which opinion shall state that such
financial statements fairly present the financial position and results of
operations of the Company and its Subsidiaries on a consolidated basis and have
been prepared in accordance with U.S. generally accepted accounting principles
consistently applied (except for changes in application in which such
accountants concur) and that the examination of such accountants has been made
in accordance with generally accepted auditing standards, and accordingly
included such tests of the accounting records and such other auditing procedures
as were considered necessary in the circumstances.
(b) Director Materials. The Company shall prepare and deliver to each
------------------
director of the Company:
10
<PAGE>
(i) Monthly Financial Statements. As soon as practicable, and in any
----------------------------
event within 30 days after the close of each of month of each fiscal year of the
Company, a consolidated balance sheet, statement of income and statement of
changes in cash flow of the Company and its Subsidiaries as of the close of each
month and the portion of the Company's fiscal year ending on the last day of
such month, all in reasonable detail and prepared in accordance with U.S.
generally accepted accounting principles, consistently applied, subject to audit
and year end adjustments, setting forth in each case in comparative form the
figures for the comparable period of the previous year;
(ii) Business Plan; Projections. Prior to the commencement of each
--------------------------
fiscal year of the Company, an annual business plan of the Company and
projections of operating results, prepared on a monthly basis, and a three-year
business plan of the Company and projections of operating results. Within 45
days of the close of each fiscal quarter of the Company, the Company shall
provide its directors with a comparison of actual year-to-date results with the
corresponding budgeted figures;
(iii) Audit Reports. Promptly upon receipt thereof, one copy of each
-------------
other financial report and internal control letter submitted to the Company by
independent accountants in connection with any annual, interim or special audit
made by them of the books of the Company and its Subsidiaries; and
(iv) Requested Information. With reasonable promptness, the Company
---------------------
shall furnish each director with such other data and information as from time to
time may be reasonably requested.
The Company acknowledges that its obligations under this Section 5(b)
shall not limit the rights of its directors under applicable law to obtain
information and other materials from the Company.
(c) Inspection. From and after the date hereof, the Company will
----------
permit each Investor owning more than 5% of the issued and outstanding shares of
Common Stock or Preferred Stock, its nominee, assignee or its representative to
visit and inspect any of the properties of the Company, to examine all its books
of account, records, reports and other papers not contractually required of the
Company to be confidential or secret, to make copies and extracts therefrom, and
to discuss its affairs, finances and accounts with its officers, directors, key
employees and independent public accountants or any of them (and by this
provision the Company authorizes said accountants to discuss with said Investor,
its nominee, assign and representatives the finances and affairs of the Company
and its Subsidiaries), all at such reasonable times and as often as may be
reasonably requested.
11
<PAGE>
(d) Confidentiality. As to so much of the information and other
---------------
material furnished under or in connection with this Agreement (whether furnished
before, on or after the date hereof) as constitutes or contains confidential
business, financial or other information of the Company or its Subsidiaries,
each Investor covenants for itself and its directors, officers, partners and
stockholders that it will use due care to prevent its respective officers,
directors, employees, counsel, accountants and other representatives from
disclosing such information to persons other than their respective authorized
employees, counsel, accountants, stockholders, partners, limited partners and
other authorized representatives; provided, however, that the Investor may
-------- -------
disclose or deliver any information or other material disclosed to or received
by the Investor should such disclosure or delivery be required by law.
6. REGISTRATION RIGHTS
-------------------
(a) Definitions. As used in this Section 6:
(i) "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act;
(ii) the term "Holder" shall mean any holder of Registrable
Securities;
(iii) the term "Initiating Holder" shall mean Warburg;
(iv) the terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of such
registration statement;
(v) the term "Registrable Securities" means (A) the shares of Common
Stock and Preferred Stock issued to the Investors pursuant to the Subscription
Agreements, dated as of February 29, 1996, between each of such Investors and
the Company, (B) any additional shares of Common Stock or Preferred Stock
acquired by the Investors (other than pursuant to the Stock Plan or any other
incentive plan), (C) any shares of Common Stock issued in exchange for, or upon
the conversion of, Preferred Stock and (D) any capital stock of the Company
issued as a dividend or other distribution with respect to, or in exchange for
or in replacement of, the shares of Common Stock or Preferred Stock referred to
in clause (A), (B) or (C) above;
(vi) "Registration Expenses" shall mean (x) all expenses incurred by
the Company in compliance with Sections 6(b) and (c) hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company blue sky fees and expenses and the
12
<PAGE>
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company) and (y) all reasonable fees and
disbursements of counsel for each of the Holders; and
(vii) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities.
(b) Requested Registration.
----------------------
(i) Request for Registration. If the Company shall receive from the
------------------------
Initiating Holder, at any time, a written request that the Company effect any
registration with respect to all or a part of the Registrable Securities, the
Company will:
(A) promptly give written notice of the proposed registration to
all other Holders of Registrable Securities of the same class as the
Registrable Securities specified in such request; and
(B) as soon as practicable, use all reasonable efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification
under applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act) as
may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of the same class as the Registrable Securities
specified in such request of any Holder or Holders joining in such request
as are specified in a written request received by the Company within 10
business days after written notice from the Company is given under Section
6(b)(i)(A) above; provided that the Company shall not be obligated to
--------
effect, or take any action to effect, any such registration pursuant to
this Section 6(b):
(x) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance, unless
the Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act or applicable rules or
regulations thereunder;
(y) (i) With respect to a request for registration of shares
of Common Stock, after the Company has effected two (2) such
registrations pursuant to this Section 6(b) requested by the
13
<PAGE>
Initiating Holder and (ii) with respect to a request for registration
of shares of Preferred Stock, after the Company has effected two (2)
such registrations pursuant to this Section 6(b) requested by the
Initiating Holder, and, in each case, such registrations have been
declared or ordered effective and the sales of such Registrable
Securities shall have closed; or
(z) If the Registrable Securities requested by all Holders
to be registered pursuant to such request do not have an anticipated
aggregate public offering price (before any underwriting discounts and
commissions) of at least $25,000,000.
The registration statement filed pursuant to the request of the
Initiating Holder may, subject to the provisions of Section 6(b)(ii) below,
include other securities of the Company which are held by officers or directors
of the Company, or which are held by Persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration,
but the Company's right to include any of its securities in any such
registration shall be subject to the limitations set forth in Section 6(b)(ii)
below.
The registration rights set forth in this Section 6 shall be
assignable, in whole or in part, to any permitted transferee of the Shares,
provided such transferee executes and delivers to the Company and Warburg a
Joinder Agreement.
(ii) Underwriting. If the Initiating Holder intends to distribute
------------
the Registrable Securities covered by its request by means of an underwriting,
it shall so advise the Company as a part of its request made pursuant to Section
6(b).
If officers or directors of the Company holding shares of Common Stock
(other than Registrable Securities) shall request inclusion in any registration
pursuant to Section 6(b), or if holders of securities of the Company other than
Registrable Securities who are entitled, by contract with the Company or
otherwise, to have securities included in such a registration (the "Other
Shareholders") request such inclusion, the Holders shall offer to include the
securities of such officers, directors and Other Shareholders in the
underwriting and may condition such offer on their acceptance of the further
applicable provisions of this Section 6. The Holders whose shares are to be
included in such registration and the Company shall (together with all officers,
directors and Other Shareholders proposing to distribute their securities (in
each case, other than Registrable Securities) through such underwriting) enter
into an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by the Initiating
Holder and reasonably acceptable to the Company. Notwithstanding any other
provision of this Section 6(b), (i) if
14
<PAGE>
the representative advises the Holders in writing that marketing factors require
a limitation on the number of shares to be underwritten, then the securities of
the Company held by officers or directors (other than Registrable Securities) of
the Company and the securities held by Other Shareholders shall be excluded from
such registration to the extent so required by such limitations and (ii) if the
representative advises the Holders in writing that marketing factors require a
limitation on the number of shares to be sold by officers and directors of the
Company, the securities of the Company held by such officers or directors
(including Registrable Securities) shall be excluded from such registration to
the extent so required by such limitations. If, after the exclusion of such
shares, further reductions are still required, the number of shares included in
the registration by each Holder shall be reduced on a pro rata basis (based on
the number of shares held by the respective Holders) by such minimum number of
shares as is necessary to comply with such request. No Registrable Securities or
any other securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. If
any officer, director or Other Shareholder who has requested inclusion in such
registration as provided above disapproves of the terms of the underwriting,
such person may elect to withdraw therefrom by written notice to the Company,
the underwriter and the Initiating Holder. The securities so withdrawn shall
also be withdrawn from registration. If the underwriter has not limited the
number of Registrable Securities or other securities to be underwritten, the
Company may include its securities for its own account in such registration if
the representative so agrees and if the number of Registrable Securities and
other securities which would otherwise have been included in such registration
and underwriting will not thereby be limited.
(iii) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting the filing of a registration statement pursuant to this
Section 6(b), a certificate signed by the President or Chief Executive Officer
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for a period of not more than 120 days
after receipt of the request of the Initiating Holder; provided, however, that
-------- -------
the Company may not utilize this right more than once in any twelve (12) month
period.
(c) Company Registration.
--------------------
(i) If the Company shall determine to register any of its equity
securities either for its own account or for the account of a security holder or
holders, other than a registration relating solely to employee benefit plans, or
a registration relating solely to a Commission Rule 145
15
<PAGE>
transaction, or a registration on any registration form which does not permit
secondary sales or does not include substantially the same information as would
be required to be included in a registration statement covering the sale of
Registrable Securities, the Company will:
(A) promptly give to each of the Holders a written notice thereof
(which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky
or other state securities laws); and
(B) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities (of the same class of equity
securities being registered under such registration statement) specified in
a written request or requests, made by the Holders within ten business days
after receipt of the written notice from the Company described in clause
(i) above, except as set forth in Section 6(c)(ii) below. Such written
request may specify all or a part of the Holders' Registrable Securities of
the same class of equity securities being registered under such
registration statement.
(ii) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise each of the Holders as a part of the written notice
given pursuant to Section 6(c)(i)(A). In such event, the right of each of the
Holders to registration pursuant to this Section 6(c) shall be conditioned upon
such Holders' participation in such underwriting and the inclusion of such
Holders' Registrable Securities (of the same class of equity securities being
registered under such registration statement) in the underwriting to the extent
provided herein. The Holders whose shares are to be included in such
registration shall (together with the Company and the Other Shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 6(c), if the representative
determines that marketing factors require a limitation on the number of shares
to be underwritten, the Company shall so advise all holders of securities
requesting registration, and the number of shares of securities that are
entitled to be included in the registration and underwriting shall be allocated
in the following manner: The securities of the Company held by officers,
directors and Other Shareholders of the Company (in each case, other than
Registrable Securities) and, if required by the representative of the
underwriters, the securities of the Company held by officers and directors of
the Company (including Registrable Securities), shall be excluded from such
registration and underwriting to the extent required by such limitation, and,
16
<PAGE>
if a limitation on the number of shares is still required, the number of shares
that may be included in the registration and underwriting by each of the Holders
shall be reduced, on a pro rata basis (based on the number of shares held by
such Holder), by such minimum number of shares as is necessary to comply with
such limitation. If any of the Holders or any officer, director or Other
Shareholder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the underwriter. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
(iii) Number and Transferability. Each of the Holders shall be
--------------------------
entitled to have its shares included in an unlimited number of registrations
pursuant to this Section 6(c). The registration rights granted pursuant to this
Section 6(c) shall be assignable, in whole or in part, to any permitted
transferee of the Shares, provided such transferee executes and delivers to the
Company and to Warburg a Joinder Agreement.
(d) Form S-3. Following the Initial Public Offering the Company shall
--------
use its best efforts to qualify for registration on Form S-3 for secondary
sales. After the Company has qualified for the use of Form S-3, Holders of
Registrable Securities shall have the right to request unlimited registrations
on Form S-3 (such requests shall be in writing and shall state the number of
shares of Registrable Securities to be disposed of and the intended method of
disposition of shares by such holders), subject only to the following:
(i) The Company shall not be required to effect a registration
pursuant to this Section 6(d) unless the Holder or Holders of Registrable
Securities requesting registration propose to dispose of shares of Registrable
Securities having an aggregate price to the public (before deduction of
underwriting discounts and expenses of sale) of more than $5,000,000.
(ii) The Company shall not be required to effect a registration
pursuant to this Section 6(d) within 180 days of the effective date of the most
recent registration pursuant to this Section 6(d) in which securities held by
the requesting Holder could have been included for sale or distribution.
(iii) The Company shall not be required to effect a registration
pursuant to this Section 6(d) if the Company shall furnish to the Holders a
certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement. In such event, the Company
shall have the right to defer the filing of the registration statement no more
than once during any twelve (12) month period for a period of not more than one
hundred
17
<PAGE>
twenty (120) days after receipt of the request of the Holder or Holders under
this Section 6(d).
(iv) The Company shall not be obligated to effect any registration
pursuant to this Section 6(d) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act or applicable rules or regulations thereunder.
The Company shall give written notice thereof to all Holders of
Registrable Securities within five (5) days of the receipt of a request for
registration pursuant to this Section 6(d) and shall provide a reasonable
opportunity for other Holders of Registrable Securities to participate in the
registration, provided that if the registration is for an underwritten offering,
the terms of Section 6(b)(ii) shall apply to all participants in such offering.
Subject to the foregoing, the Company will use its best efforts to effect
promptly the registration of all shares of Registrable Securities on Form S-3 to
the extent requested by the Holder or Holders thereof for purposes of
disposition.
(e) Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Section 6 (whether or not such registration, qualification or compliance is
effectuated) shall be borne by the Company, and all Selling Expenses shall be
borne by the Holders of the securities so registered (or proposed to be
registered) pro rata on the basis of the number of their shares so registered
(or proposed to be registered).
(f) Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to Section 6, the Company will keep the
Holders, as applicable, advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense, the Company
will:
(i) keep such registration effective for a period of one hundred
twenty (120) days or until the Holders, as applicable, have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; provided, however, that (A) such 120-day period shall be extended
for a period of time equal to the period during which the Holders, as
applicable, refrain from selling any securities included in such registration in
accordance with provisions in Section 6(j) hereof; and (B) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 120-day period shall be extended
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the
18
<PAGE>
Securities Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Securities Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a post-
effective amendment which (y) includes any prospectus required by Section
10(a)(3) of the Securities Act or (z) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (y) and (z) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement; and
(ii) furnish such number of prospectuses and other documents incident
thereto as each of the Holders, as applicable, from time to time may reasonably
request.
(g) Indemnification.
---------------
(i) The Company will indemnify each of the Holders, as applicable,
each of its officers, directors and partners, and each person controlling each
of the Holders, with respect to each registration which has been effected
pursuant to this Section 6, and each underwriter, if any, and each person who
controls any underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each of
the Holders, each of its officers, directors and partners, and each person
controlling each of the Holders, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by any Holder with respect to such Holder
or underwriter with respect to such underwriter and stated to be specifically
for use therein.
(ii) Each of the Holders will, if Registrable Securities held by it
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and each underwriter, if any, of the Company's securities covered by
19
<PAGE>
such a registration statement, each person who controls the Company or such
underwriter within the meaning of the Securities Act and the rules and
regulations thereunder, each Other Shareholder and each of their officers,
directors, and partners, and each person controlling such Other Shareholder
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact with respect to such Holder contained in any such
registration statement, prospectus, offering circular or other document made by
such Holder, or any omission (or alleged omission) to state therein a material
fact with respect to such Holder required to be stated therein or necessary to
make the statements by such Holder therein not misleading, and will reimburse
the Company and such Other Shareholders, directors, officers, partners, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder with respect to such Holder and stated
to be specifically for use therein; provided, however, that the obligations of
each of the Holders hereunder shall be limited to an amount equal to the
proceeds to such Holder of securities sold as contemplated herein.
(iii) Each party entitled to indemnification under this Section 6(g)
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom provided that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or any litigation resulting
therefrom shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of counsel shall be at the expense of the Indemnifying Party),
and provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 6 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
20
<PAGE>
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
(iv) If the indemnification provided for in this Section 6(g) is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(v) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with any underwritten public offering contemplated by
this Agreement are in conflict with the foregoing provisions, the provisions in
such underwriting agreement shall be controlling.
(vi) The foregoing indemnity agreement of the Company and Holders is
subject to the condition that, insofar as they relate to any loss, claim,
liability or damage made in a preliminary prospectus but eliminated or remedied
in the amended prospectus on file with the Commission at the time the
registration statement in question becomes effective or the amended prospectus
filed with the Commission pursuant to Commission Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
underwriter if a copy of the Final Prospectus was furnished to the underwriter
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(vii) Any indemnification payments required to be made to an
Indemnified Party under this Section 6(g) shall be made as the related claims,
losses, damages, liabilities or expenses are incurred.
21
<PAGE>
(h) Information by the Holders. Each of the Holders and each Other
--------------------------
Shareholder holding securities included in any registration, shall furnish to
the Company such information regarding such Holder or Other Shareholder and the
distribution proposed by such Holder or Other Shareholder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this Section
6. Neither Warburg nor any Non-Management Investor shall be required, in
connection with any underwriting arrangements entered into in connection with
any registration, to provide any information, representations or warranties, or
covenants with respect to the Company, its business or its operations, and such
Investors shall not be required to provide any indemnification with respect to
any registration statement except as specifically provided for in Section
6(g)(ii) hereof.
(i) Rule 144 Reporting.
------------------
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of the restricted
securities to the public without registration, the Company agrees to:
(A) make and keep public information available as those terms
are understood and defined in Rule 144, at all times from and after
ninety (90) days following the effective date of the first registration
under the Securities Act filed by the Company for an offering of its
securities to the general public;
(B) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(C) so long as the Holder owns any Registrable Securities,
furnish to the Holder upon request, a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any
time from and after ninety (90) days following the effective date of the
first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents so filed as the Holder
may reasonably request in availing itself of any rule or regulation of
the Commission allowing the Holder to sell any such securities without
registration.
22
<PAGE>
(j) "Market Stand-off" Agreement. Each of the Holders agrees, if
----------------------------
requested by the Company and an underwriter of Common Stock or Preferred Stock
(or other securities) of the Company, not to sell or otherwise transfer or
dispose of any shares of Common Stock or Preferred Stock (or other securities)
of the Company held by such Holder during the 90-day period (or such longer
period if requested by such underwriter, up to 180 days) following the effective
date of a registration statement of the Company filed under the Securities Act,
provided that:
(i) such agreement only applies to the first such registration
statement of the Company which includes securities to be sold on the Company's
behalf to the public in an underwritten offering; and
(ii) all officers and directors of the Company enter into similar
agreements.
If requested by the underwriters, the Holders shall execute a separate
agreement to the foregoing effect. The Company may impose stop-transfer
instructions with respect to the shares (or securities) subject to the foregoing
restriction until the end of said 90-day period (or such longer period if
requested by the underwriter, up to 180 days). The provisions of this Section
6(j) shall be binding upon any transferee who acquires Registrable Securities,
whether or not such transferee is entitled to the registration rights provided
hereunder.
(k) Termination. The registration rights set forth in this Section 6
-----------
shall not be available to any Holder if, in the opinion of counsel to the
Company, all of the Registrable Securities then owned by such Holder could be
sold in any 90-day period pursuant to Rule 144 under the Securities Act (without
giving effect to the provisions of Rule 144(k)). The Company will arrange for a
provision to the transfer agent for such shares of an opinion of counsel in
connection with any such sale under Rule 144.
7. TERMINATION. The Agreement shall terminate:
-----------
(a) upon the closing of the Initial Public Offering, except for the
provisions of Sections 1(b)(i), 1(b)(ii), 1(c), 5(d) and 6, any election made by
Warburg pursuant to Section 1(b)(i) or 9(d) and any election made by NationsBanc
Investment Corp. pursuant to Section 9(d), which shall remain in full force and
effect following the closing of the Initial Public Offering, provided, however,
that Section 1(b)(i) shall terminate upon the later of the closing of an Initial
Public Offering and the Lender Board Requirement Termination Date; or
(b) on the date on which (i) Warburg, (ii) the holder or holders of a
majority of the shares of Common Stock (other than Plan Stock and other than
those shares held by Warburg or its Affiliates), which shall include Management
Investors holding
23
<PAGE>
a majority of such shares held by Management Investors, and (iii) during such
time that the Preferred Stock is convertible into Common Stock, the holder or
holders of a majority of the shares of Preferred Stock (other than those shares
held by Warburg or its Affiliates), which shall include Management Investors
holding a majority of such shares held by Management Investors, shall have
agreed in writing to terminate this Agreement.
Notwithstanding anything in this Agreement to the contrary, if a
Management Investor's employment with the Company and its Subsidiaries is
terminated, whether by such Management Investor or by the Company, whether with
or without cause or whether due to the death or disability, all rights (other
than his rights under Section 6) of such Management Investor under this
Agreement (but not the obligations) shall be terminated.
8. INTERPRETATION OF THIS AGREEMENT
--------------------------------
(a) Terms Defined. As used in this Agreement, the following terms
-------------
have the respective meaning set forth below:
Affiliate: any person or entity, directly or indirectly, controlling,
---------
controlled by or under common control with such person or entity.
Exchange Act: the Securities Exchange Act of 1934, as amended.
------------
Initial Public Offering: the completion of an underwritten initial
-----------------------
public offering for shares of Common Stock pursuant to a registration statement
under the Securities Act resulting in net proceeds to the Company and/or any
selling shareholders of not less than $25,000,000.
Lynch Employment Agreement: the Employment Agreement, dated as of
--------------------------
February 29, 1996, between Lynch and the Company.
Person: an individual, partnership, joint-stock company, corporation,
------
limited liability company, trust or unincorporated organization, and a
government or agency or political subdivision thereof.
Security, Securities: as defined in Section 2(1) of the Securities
--------------------
Act.
Securities Act: the Securities Act of 1933, as amended.
--------------
Staniar Employment Agreement: the Employment Agreement, dated as of
----------------------------
February 29, 1996, between Staniar and the Company.
Subsidiary: a corporation of which the Company owns, directly or
----------
indirectly, more than fifty percent 50% of the Voting Stock.
24
<PAGE>
Transfer: any sale, assignment, pledge, hypothecation, or other
--------
disposition or encumbrance, whether or not for consideration.
Voting Stock: securities of any class or classes of a corporation the
------------
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
Warburg Directors: any director of the Company, including a
-----------------
Substitute Director, designated by Warburg pursuant to a provision of this
Agreement.
(b) Accounting Principles. Where the character or amount of any asset
---------------------
or amount of any asset or liability or item of income or expense is required to
be determined or any consolidation or other accounting computation is required
to be made for the purposes of this Agreement, this shall be done in accordance
with U.S. generally accepted accounting principles at the time in effect, to the
extent applicable, except where such principles are inconsistent with the
requirements of this Agreement.
(c) Directly or Indirectly. Where any provision in this Agreement
----------------------
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether such action is taken
directly or indirectly by such Person.
(d) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York applicable to contracts
made and to be performed entirely within such State.
(e) Section Headings. The headings of the sections and subsections of
----------------
this Agreement are inserted for convenience only and shall not be deemed to
constitute a part thereof.
9. MISCELLANEOUS
-------------
(a) Notices.
-------
(i) All communications under this Agreement shall be in writing and
shall be delivered by hand or mailed by overnight courier or by registered or
certified mail, postage prepaid:
(A) if to any of the Management Investors, at the address of such
Management Investor shown on Schedule I, or at such other address as the
Management Investor may have furnished the Company in writing;
(B) if to Warburg, at 466 Lexington Avenue, New York, New York 10017,
Attention: Jeffrey A. Harris, or at such
25
<PAGE>
other address as Warburg may have furnished the Company in writing;
(C) if to the Company, to T.K.G. Acquisition Corp., c/o Warburg,
Pincus Ventures, L.P., 466 Lexington Avenue, New York, New York 10017,
Attention: Jeffrey A. Harris, or at such other address as it may have furnished
in writing to each of the Investors; and
(D) if to any of the Non-Management Investors, at the address of such
Non-Management Investor shown on Schedule II, or at such other address as the
Non-Management Investor may have furnished the Company in writing.
(ii) Any notice so addressed shall be deemed to be given: if
delivered by hand, on the date of such delivery; if mailed by courier, on the
first business day following the date of such mailing; and if mailed by
registered or certified mail, on the third business day after the date of such
mailing.
(b) Reproduction of Documents. This Agreement and all documents
-------------------------
relating thereto, including, without limitation, (i) consents, waivers and
modifications which may hereafter be executed, (ii) documents received by each
Investors pursuant hereto and (iii) financial statements, certificates and other
information previously or hereafter furnished to each Investor, may be
reproduced by each Investor by an photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and each Investor may
destroy any original document so reproduced. All parties hereto agree and
stipulate that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by each
Investor in the regular course of business) and that any enlargement, facsimile
or further reproduction of such reproduction shall likewise be admissible in
evidence.
(c) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties.
(d) Entire Agreement; Amendment and Waiver. This Agreement and the
--------------------------------------
Subscription Agreements constitute the entire understanding of the parties
hereto relating to the subject matter hereof and supersede all prior
understandings among such parties. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with (and only with) the
written consent of (i) Warburg, (ii) the holder or holders of a majority of the
shares of Common Stock (other than Plan Stock and other than those shares held
by Warburg or its Affiliates), which shall include Management Investors holding
a majority of such shares held by Management Investors, and (iii) during such
time that the Preferred Stock is convertible into Common Stock,
26
<PAGE>
the holder or holders of a majority of the shares of Preferred Stock (other than
those shares held by Warburg or its Affiliates), which shall include Management
Investors holding a majority of such shares held by Management Investors.
Without limiting the foregoing, at any time, by written notice to the Company,
(I) Warburg may elect, which election shall be irrevocable, (A) to limit its
rights to vote the shares of Common Stock and Preferred Stock held by it to the
lesser of (i) 50.0% of the voting rights of the Common Stock and Preferred Stock
outstanding and (ii) the voting rights of the Common Stock and Preferred Stock
held by it, or (B) to waive any or all rights it may have under this Agreement;
provided, that, unless such election shall expressly state to the contrary, such
election shall not apply to any shares that are Transferred by Warburg and (II)
NationsBanc Investment Corp. may elect, which election shall be irrevocable, (A)
to limit its rights to vote the shares of Common Stock and Preferred Stock held
by it to the lesser of (i) 5.0% of the voting rights of the Common Stock and
Preferred Stock outstanding and (ii) the voting rights of the Common Stock and
Preferred Stock held by it, or (B) to waive any or all rights it may have under
this Agreement; provided, that, unless such election shall expressly state to
the contrary, such election shall not apply to any shares that are Transferred
by NationsBanc Investment Corp.
(e) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement as of the date first above written.
T.K.G. ACQUISITION CORP.
By: /s/ Burton B. Staniar
_______________________________
Name: Burton B. Staniar
Title: Chairman of the Board and
Chief Executive Officer
WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Jeffrey A. Harris
_______________________________
Name: Jeffrey A. Harris
Title: Managing Director
NON-MANAGEMENT INVESTOR:
NATIONSBANC INVESTMENT CORP.
By: /s/ Ann B. Hayes
________________________________
Name: Ann B. Hayes
Title: Senior Vice President
MANAGEMENT INVESTORS:
[Signatures on following pages]
<PAGE>
Signature Page to Stockholders Agreement (Common Stock and Preferred
Stock), dated as of February 29, 1996, among T.K.G. Acquisition Corp., Warburg,
-------- --
Pincus Ventures, L.P. and certain other stockholders, including the Management
Investor
set forth below.
/s/ Burton B. Staniar
-----------------------------------
Burton B. Staniar
<PAGE>
Signature Page to Stockholders Agreement (Common Stock and Preferred Stock),
dated as of February 29, 1996, among T.K.G. Acquisition Corp., Warburg, Pincus
-------- --
Ventures, L.P. and certain other stockholders, including the Management Investor
set forth below.
/s/ John H. Lynch
-----------------------------------
John H. Lynch
<PAGE>
Signature Page to Stockholders Agreement (Common Stock and Preferred Stock),
dated as of February 29, 1996, among T.K.G. Acquisition Corp., Warburg, Pincus
-------- --
Ventures, L.P. and certain other stockholders, including
the Management Investor
set forth below.
/s/ Wolfgang Billstein
-----------------------------------
Wolfgang Billstein
<PAGE>
Signature Page to Stockholders Agreement (Common Stock and Preferred Stock),
dated as of February 29, 1996, among T.K.G. Acquisition Corp., Warburg, Pincus
Ventures, L.P. and certain other stockholders, including the Management Investor
set forth below.
/s/ Kathleen G. Bradley
-----------------------------------
Kathleen G. Bradley
<PAGE>
Signature Page to Stockholders Agreement (Common Stock and Preferred Stock),
dated as of February 29, 1996, among T.K.G. Acquisition Corp., Warburg, Pincus
Ventures, L.P. and certain other stockholders, including the Management Investor
set forth below.
/s/ Andrew B. Cogan
-----------------------------------
Andrew B. Cogan
<PAGE>
Signature Page to Stockholders Agreement (Common Stock and Preferred Stock),
dated as of February 29, 1996, among T.K.G. Acquisition Corp., Warburg, Pincus
-------- --
Ventures, L.P. and certain other stockholders, including the Management Investor
set forth below.
/s/ Barbara E. Ellixson
-----------------------------------
Barbara E. Ellixson
<PAGE>
Signature Page to Stockholders Agreement (Common Stock and Preferred Stock),
dated as of February 29, 1996, among T.K.G. Acquisition Corp., Warburg, Pincus
-------- --
Ventures, L.P. and certain other stockholders, including the Management Investor
set forth below.
/s/ Arthur C. Graves
-----------------------------------
Arthur C. Graves
<PAGE>
Signature Page to Stockholders Agreement (Common Stock and Preferred Stock),
dated as of February 29, 1996, among T.K.G. Acquisition Corp., Warburg, Pincus
-------- --
Ventures, L.P. and certain other stockholders, including the Management Investor
set forth below.
/s/ Pamela G. Jones
-----------------------------------
Pamela G. Jones
<PAGE>
Signature Page to Stockholders Agreement (Common Stock and Preferred Stock),
dated as of February 29, 1996, among T.K.G. Acquisition Corp., Warburg, Pincus
Ventures, L.P. and certain other stockholders, including the Management Investor
set forth below.
/s/ Barry L. McCabe
-----------------------------------
Barry L. McCabe
<PAGE>
Signature Page to Stockholders Agreement (Common Stock and Preferred Stock),
dated as of February 29, 1996, among T.K.G. Acquisition Corp., Warburg, Pincus
-------- --
Ventures, L.P. and certain other stockholders, including the Management Investor
set forth below.
/s/ Patrick A. Milberger
-----------------------------------
Patrick A. Milberger
<PAGE>
Signature Page to Stockholders Agreement (Common Stock and Preferred Stock),
dated as of February 29, 1996, among T.K.G. Acquisition Corp., Warburg, Pincus
-------- --
Ventures, L.P. and certain other stockholders, including the Management Investor
set forth below.
/s/ Alan S. Millstein
-----------------------------------
Alan S. Millstein
<PAGE>
SCHEDULE I
Management Investors
--------------------
Wolfgang Billstein
Ziegelhoette 32
61476 Kronberg
Germany
Kathleen G. Bradley
3925 N. Stratford
Atlanta, Georgia 30342
Andrew B. Cogan
1 West 64th Street, Apt. 4B
New York, New York 10023
Barbara E. Ellixson
308 Country Club Dr.
Lansdale, Pennsylvania 19446
Arthur C. Graves
222 Cazneau Ave.
Sausalito, California 94965
Pamela G. Jones
6205 Mountain Brook Lane
Atlanta, Georgia 30328
John H. Lynch
c/o F. George Davitt, Esq.
Testa Hurwitz & Thibeault
125 High Street
Boston, Massachusetts 02110
Barry L. McCabe
5255 Deborah Court
Doylestown, Pennsylvania 18901
Patrick A. Milberger
2427 Saucon Circle
Emmaus, Pennsylvania 18049
Alan S. Millstein
750 Hunt Drive
Yardley, Pennsylvania 19067
Burton B. Staniar
23 Glendon Road
Ho-Ho-Kus, New Jersey 07423
<PAGE>
SCHEDULE II
Non-Management Investors
------------------------
NationsBanc Investment Corp.
100 North Tryon Street, 10th Floor
Charlotte, North Carolina 28255
Attn: Ann Hayes
<PAGE>
EXHIBIT A
---------
JOINDER AGREEMENT
-----------------
Joinder Agreement, dated as of this ____ day of February, 1996, by and
among T.K.G. Acquisition Corp., a Delaware corporation (the "Company"), and the
undersigned (the "Investor").
Reference is made to that certain Stockholders Agreement (Common Stock
and Preferred Stock) (the "Stockholders Agreement"), dated as of February 29,
1996, by and among T.K.G. Acquisition Corp., Warburg, Pincus Ventures, L.P. and
the other holders of Common Stock and Preferred Stock from time to time party
thereto, as the same may from time to time be amended.
By executing this Joinder Agreement, the Investor hereby agrees to be
bound by the terms of the Stockholders Agreement as if he were an original
signatory to such Agreement and shall be deemed to be a [Non-]Management
Investor thereunder.
[insert for corporations only: The Investor hereby represents and
warrants that (i) it is a corporation duly organized, validly existing and in
good standing under the laws of ____________ and has the power and authority to
------------
execute and deliver this Agreement and perform its obligations hereunder, (ii)
the execution, delivery and performance of this Agreement has been authorized by
the board of directors of the Investor and no other approval or authorization is
necessary and (iii) the execution, delivery and performance of this Agreement
does not conflict with or violate the terms of its Certificate of Incorporation
or By-laws or any agreement to which it is a party or may be bound.]
IN WITNESS WHEREOF, the parties hereto have executed this Joinder
Agreement as of the date first above written.
------------------------------
Name:
Agreed to and Accepted by:
T.K.G. ACQUISITION CORP.
_____________________________
Name:
Title:
<PAGE>
EXHIBIT 10.7
T.K.G. ACQUISITION CORP.
STOCKHOLDERS AGREEMENT
(COMMON STOCK UNDER STOCK INCENTIVE PLAN)
Stockholders Agreement, dated as of this ____ day of _________, 1996,
by and among Warburg, Pincus Ventures, L.P., a Delaware limited partnership
("Warburg"); the individuals whose names and addresses appear from time to time
on Schedule I hereto (the "Management Stockholders"); and T.K.G. Acquisition
Corp., a Delaware corporation (the "Company"). Certain terms used in this
Agreement are defined in Section 6 hereof.
R E C I T A L S
---------------
WHEREAS, pursuant to the T.K.G. Acquisition Corp. 1996 Stock Incentive
Plan (the "Stock Plan") of the Company, the Company will make certain grants or
sales of shares (including any capital stock of the Company issued as a dividend
or other distribution with respect to, or in exchange for or in replacement of
such shares and any shares of Common Stock issued upon exercise of any Options
(as defined below), the "Shares") of its Common Stock, par value $.01 per share
(the "Common Stock"), or options to purchase shares of Common Stock ("Options"
and, together with the Shares, the "Securities") to the Management Stockholders;
and
WHEREAS. Warburg and certain management investors have agreed to
purchase from the Company shares of its Common Stock and Series A 12%
Participating Convertible Preferred Stock, par value $1.00 per share (the
"Preferred Stock"); and
WHEREAS, the Warburg, the Management Stockholders and the Company
desire to promote their mutual interests by agreeing to certain matters relating
to the operations of the Company and the disposition and voting of the
Securities.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:
1. COVENANTS OF THE PARTIES
------------------------
(a) Legends. The certificates evidencing the Securities acquired by
-------
the Stockholders pursuant the Stock Plan or their permitted transferees will
bear the following legend
<PAGE>
reflecting the restrictions on the transfer of such securities contained in this
Agreement:
"The securities evidenced hereby are subject to the terms of that
certain Stockholders Agreement (Common Stock Under Stock Incentive
Plan), dated as of February 29, 1996, by and among the Company,
--
Warburg, Pincus Ventures, L.P. and certain holders of Common Stock,
including certain restrictions on transfer. A copy of such
Stockholders Agreement has been filed with the Secretary of the
Company and is available upon request."
(b) Employee Stock Incentives. The Company shall reserve an aggregate
-------------------------
of 1,500,000 shares (the "Incentive Shares") of Common Stock for grant or sale
to key employees of the Company or its Subsidiaries, in such amounts and in such
manner (including incentive and non-qualified stock options, restricted stock
grants, stock bonuses or other stock incentive programs) as the Board of
Directors of the Company (the "Board") shall, from time to time, determine in
accordance with the provisions of the Stock Plan. The number of Incentive
Shares so reserved shall be adjusted as set forth in the Stock Plan.
(c) Additional Stockholders. The parties hereto acknowledge that,
-----------------------
subject to the terms hereof, certain employees of the Company or its
Subsidiaries may become stockholders of the Company after the date hereof and
that such employees will be required, as a condition to the issuance of
Securities to them under the Stock Plan, to execute a Joinder Agreement in the
form attached hereto as Exhibit A (the "Joinder Agreement"). Upon execution of
a Joinder Agreement, such employees shall be deemed to be Management
Stockholders under this Agreement and shall be entitled to all of the rights and
benefits afforded to, and shall be subject to all the obligations of, such
Stockholders hereunder.
2. TRANSFER OF SECURITIES
----------------------
Without the approval of the Board and subject to the restrictions on
transfer under the Stock Plan, no Management Stockholder shall Transfer any
Securities, or any beneficial interest therein, except (i) to members of such
Management Stockholder's immediate family or trusts for the benefit of such
Management Stockholder or such Management Stockholder's immediate family; upon
the death of any Management Investor, to his or her respective executors,
administrators or testamentary trustees; to a corporation or partnership, the
sole stockholders or limited or general partners of which include only such
Management Investor and members of such Management Investor's immediate family;
a transfer from a Management Investor's trust or other transferee back to such
Management Investor; a transfer to the legal guardian of a disabled Management
Investor or of a Management
2
<PAGE>
Investor's disabled immediate family member, provided in each instance that (A)
--------
such transferee executes and delivers to the Company and Warburg a Joinder
Agreement and (B) any such transferee shall take such Securities subject to all
limitations and obligations imposed on the Management Stockholder under the
Stock Plan and any related grant agreement, (ii) to Warburg or an Affiliate
thereof or (iii) after an Initial Public Offering, upon 30 days prior written
notice to the Board; provided, however, that the restrictions on Transfer
pursuant to this Section 2 shall terminate after an Initial Public Offering when
Warburg owns less than 10% of the outstanding Common Stock and less than 10% of
the outstanding Preferred Stock. Any Transfer or purported Transfer made in
violation of this Section 2 shall be null and void and of no effect.
3. DRAG-ALONG RIGHT
----------------
(a) If at any time and from time to time after the date of this
Agreement, the holder or holders of a majority of the outstanding shares of
voting capital stock of the Company (the "Proposed Transferors") wish to
Transfer in a bona fide arms' length sale all shares of Common Stock and
Preferred Stock then owned by them to any Person or Persons who are not
Affiliates of the Proposed Transferors (for purposes of this Section 3(a), the
"Proposed Transferee"), the Proposed Transferors shall have the right (the
"Drag-Along Right") to require each Management Stockholder to sell to the
Proposed Transferee all Securities (for the same per share consideration
received by the Proposed Transferor for each such class of capital stock, and
with respect to unexercised Options, less any exercise price payable with
respect thereto) then held by the Management Stockholders, subject to purchase
by the Proposed Transferee. Each Management Stockholders, agrees to take all
steps necessary to enable him or it to comply with the provisions of this
Section 3(a), including, if necessary, voting any Securities in favor of the
transaction with the Proposed Transferee (whether effected as a merger or
otherwise) to facilitate the Proposed Transferors' exercise of a Drag-Along
Right.
(b) To exercise a Drag-Along Right, the Proposed Transferors shall
give each Management Stockholder a written notice (for purposes of this Section
3, a "Drag-Along Notice") containing (i) the number of Securities that the
Proposed Transferee proposes to acquire from the Proposed Transferors, (ii) the
name and address of the Proposed Transferee, and (iii) the proposed purchase
price, terms of payment and other material terms and conditions of the Proposed
Transferee's offer. Each Management Stockholder shall thereafter be obligated
to sell the Securities subject to such Drag-Along Notice, provided that the sale
--------
to the Proposed Transferee is consummated within 120 days of delivery of the
Drag-Along Notice. If the sale is not consummated within such 120-day period,
then each Management Stockholder shall no longer be obligated to sell such
Management
3
<PAGE>
Stockholder's Securities pursuant to that specific Drag-Along Right but shall
remain subject to the provisions of this Section 3.
(c) Notwithstanding anything contained in this Section 3, in the
event that all or a portion of the purchase price consists of securities and the
sale of such securities to the Management Stockholders would require either a
registration under the Securities Act or the preparation of a disclosure
document pursuant to Regulation D under the Securities Act (or any successor
regulation) or a similar provision of any applicable state securities law, then,
at the option of the Proposed Transferors, the Management Stockholders may
receive, in lieu of such securities, the fair market value of such securities in
cash, as determined in good faith by the Board, unless, at the request of the
Management Stockholders holding a majority of the Shares, the appraisal
procedure set forth in Section 3(d) below is invoked.
(d) Appraisal Procedure. If the Management Stockholders invoke an
-------------------
appraisal procedure to determine the amount of the fair market value in cash of
the consideration for the Securities under Section 3(c) (the "Subject
Securities"), then the Proposed Transferors, on the one hand, and the Management
Stockholders, on the other hand, shall each promptly appoint as an appraiser an
individual who shall be a member of a reputable valuation firm. Each appraiser
shall, within 30 days of appointment, separately investigate the value of the
consideration for the Subject Securities as of the proposed transfer date and
shall submit a notice of an appraisal of that value to each party. Each
appraiser shall be instructed to determine such value without regard to income
tax consequences to the Management Stockholders as a result of receiving cash
rather than other consideration. If, upon the completion of the initial
appraisals (the "Earlier Appraisals"), the higher appraised value of such
consideration is not more than 110% of the lower appraised value of such
consideration, the average of the two appraisals on a per share basis shall be
controlling as the amount of the cash equivalent. If the higher appraised value
is more than 110% of the lower appraised value, the appraisers, within 10 days
of the submission of the last appraisal, shall appoint a third appraiser who
shall be member of a reputable valuation firm. The third appraiser shall,
within 30 days of his appointment, appraise the value of the consideration for
the Subject Securities (without regard to the income tax consequences to the
Management Stockholders as a result of receiving cash rather than other
consideration) as of the proposed transfer date and submit notice of his
appraisal to each party. The value determined by the third appraiser shall be
controlling as the amount of the cash equivalent unless the value is greater
than the two Earlier Appraisals, in which case the higher of the two Earlier
Appraisals will control, and unless that value is lower than the two Earlier
Appraisals, in which case the lower of the two Earlier Appraisals will control.
If any party fails to
4
<PAGE>
appoint an appraiser or if one of the two initial appraisers fails after
appointment to submit his appraisal within the required period, the appraisal
submitted by the remaining appraiser shall be controlling. The cost of the
foregoing appraisals shall be shared one-half by the Proposed Transferor and
one-half by the Management Stockholders.
4. REGISTRATION RIGHTS
-------------------
(a) Definitions. As used in this Section 4:
(i) "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act;
(ii) the term "Holder" shall mean any holder of Registrable
Securities;
(iii) the terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of such
registration statement;
(iv) the term "Registrable Securities" means (A) the shares of Common
Stock issued to Management Stockholders under the Stock Plan, which have
theretofore become vested and have not theretofore become forfeited under the
Stock Plan, and (B) any capital stock of the Company issued as a dividend or
other distribution with respect to, or in exchange for or in replacement of, the
shares of Common Stock referred to in clause (A) above; provided that
"Registrable Securities" shall not include any shares previously registered on a
registration relating solely to employee benefit plans.
(v) "Registration Expenses" shall mean (x) all expenses incurred by
the Company in compliance with Sections 4(b) hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company) and (y) all reasonable fees and
disbursements of counsel for each of the Holders; and
(vi) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities.
(b) Company Registration.
--------------------
5
<PAGE>
(i) If the Company shall determine to register any shares of Common
Stock either for its own account or for the account of a security holder or
holders, other than a registration relating solely to employee benefit plans, or
a registration relating solely to a Commission Rule 145 transaction, or a
registration on any registration form which does not permit secondary sales or
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable
Securities, the Company will:
(A) promptly give to each of the Holders a written notice thereof
(which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky
or other state securities laws); and
(B) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities (of the same class of equity
securities being registered under such registration statement) specified in
a written request or requests, made by the Holders within fifteen (15) days
after receipt of the written notice from the Company described in clause
(i) above, except as set forth in Section 4(b)(ii) below. Such written
request may specify all or a part of the Holders' Registrable Securities of
the same class of equity securities being registered under such
registration statement.
(ii) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise each of the Holders as a part of the written notice
given pursuant to Section 4(b)(i)(A). In such event, the right of each of the
Holders to registration pursuant to this Section 4(b) shall be conditioned upon
such Holders' participation in such underwriting and the inclusion of such
Holders' Registrable Securities in the underwriting to the extent provided
herein. The Holders whose shares are to be included in such registration shall
(together with the Company and the Other Stockholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for underwriting by the Company. Notwithstanding any other provision
of this Section 4(b), if the representative determines that marketing factors
require a limitation on the number of shares to be underwritten, the Company
shall so advise all holders of Registrable Securities requesting registration,
and the Registrable Securities of the Company held by Holders shall be excluded
from such registration and underwriting to the extent required by such
limitation. If any of the Holders or any officer, director or Other Stockholder
disapproves of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to the Company and the
6
<PAGE>
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
(iii) Number and Transferability. Each of the Holders shall be
--------------------------
entitled to have its shares included in an unlimited number of registrations
pursuant to this Section 4(b). The registration rights granted pursuant to this
Section 4(b) shall be assignable, in whole or in part, to any permitted
transferee of the Shares, provided such transferee executes and delivers to the
Company and to Warburg a Joinder Agreement.
(c) Form S-3. Following the Initial Public Offering the Company shall
--------
use its best efforts to qualify for registration on Form S-3 for secondary
sales. After the Company has qualified for the use of Form S-3, Holders of
Registrable Securities shall have the right to request unlimited registrations
on Form S-3 (such requests shall be in writing and shall state the number of
shares of Registrable Securities to be disposed of and the intended method of
disposition of shares by such holders), subject only to the following:
(i) The Company shall not be required to effect a registration
pursuant to this Section 4(c) unless the Holder or Holders of Registrable
Securities requesting registration propose to dispose of shares of Registrable
Securities having an aggregate price to the public (before deduction of
underwriting discounts and expenses of sale) of more than $5,000,000.
(ii) The Company shall not be required to effect a registration
pursuant to this Section 4(c) within 180 days of the effective date of the most
recent registration pursuant to this Section 4(c) in which securities held by
the requesting Holder could have been included for sale or distribution.
(iii) The Company shall not be required to effect a registration
pursuant to this Section 4(c) if the Company shall furnish to the Holders a
certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement. In such event, the Company
shall have the right to defer the filing of the registration statement no more
than once during any twelve (12) month period for a period of not more than one
hundred twenty (120) days after receipt of the request of the Holder or Holders
under this Section 4(d).
(iv) The Company shall not be obligated to effect any registration
pursuant to this Section 4(c) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
7
<PAGE>
already subject to service in such jurisdiction and except as may be required by
the Securities Act or applicable rules or regulations thereunder.
The Company shall give written notice thereof to all Holders of
Registrable Securities within five (5) days of the receipt of a request for
registration pursuant to this Section 4(c) and shall provide a reasonable
opportunity for other Holders of Registrable Securities to participate in the
registration, provided that if the registration is for an underwritten offering,
the terms of Section 4(b)(ii) shall apply to all participants in such offering.
Subject to the foregoing, the Company will use its best efforts to effect
promptly the registration of all shares of Registrable Securities on Form S-3 to
the extent requested by the Holder or Holders thereof for purposes of
disposition.
(d) Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Section 4 (whether or not such registration, qualification or compliance is
effectuated) shall be borne by the Company, and all Selling Expenses shall be
borne by the Holders of the securities so registered (or proposed to be
registered) pro rata on the basis of the number of their shares so registered
(or proposed to be registered.
(e) Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to Section 4, the Company will keep the
Holders, as applicable, advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense, the Company
will:
(i) keep such registration effective for a period of one hundred
twenty (120) days or until the Holders, as applicable, have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; provided, however, that (A) such 120-day period shall be extended
for a period of time equal to the period during which the Holders, as
applicable, refrain from selling any securities included in such registration in
accordance with provisions in Section 4(i) hereof; and (B) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 120-day period shall be extended
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Securities Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the Securities
Act governing the obligation to file a post-effective amendment permit, in lieu
of filing a post-effective amendment which (y) includes any prospectus required
by Section 10(a)(3) of the Securities Act or (z) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the incorporation by reference of
8
<PAGE>
information required to be included in (y) and (z) above to be contained in
periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in
the registration statement; and
(ii) furnish such number of prospectuses and other documents incident
thereto as each of the Holders, as applicable, from time to time may reasonably
request.
(f) Indemnification.
---------------
(i) The Company will indemnify each of the Holders, as applicable,
each of its officers, directors and partners, and each person controlling each
of the Holders, with respect to each registration which has been effected
pursuant to this Section 4, and each underwriter, if any, and each person who
controls any underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each of
the Holders, each of its officers, directors and partners, and each person
controlling each of the Holders, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by any Holder with respect to such Holder
or underwriter with respect to such underwriter and stated to be specifically
for use therein.
(ii) Each of the Holders will, if Registrable Securities held by it
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company or such
underwriter within the meaning of the Securities Act and the rules and
regulations thereunder, each Other Stockholder and each of their officers,
directors, and partners, and each person controlling such Other Stockholder
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact with respect to such
9
<PAGE>
Holder contained in any such registration statement, prospectus, offering
circular or other document made by such Holder, or any omission (or alleged
omission) to state therein a material fact with respect to such Holder required
to be stated therein or necessary to make the statements by such Holder therein
not misleading, and will reimburse the Company and such Other Stockholders,
directors, officers, partners, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
with respect to such Holder and stated to be specifically for use therein;
provided, however, that the obligations of each of the Holders hereunder shall
be limited to an amount equal to the proceeds to such Holder of securities sold
as contemplated herein.
(iii) Each party entitled to indemnification under this Section 4(f)
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom provided that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or any litigation resulting
therefrom shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of counsel shall be at the expense of the Indemnifying Party),
and provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 4 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
10
<PAGE>
(iv) If the indemnification provided for in this Section 4(f) is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(v) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with any underwritten public offering contemplated by
this Agreement are in conflict with the foregoing provisions, the provisions in
such underwriting agreement shall be controlling.
(vi) The foregoing indemnity agreement of the Company and Holders is
subject to the condition that, insofar as they relate to any loss, claim,
liability or damage made in a preliminary prospectus but eliminated or remedied
in the amended prospectus on file with the Commission at the time the
registration statement in question becomes effective or the amended prospectus
filed with the Commission pursuant to Commission Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
underwriter if a copy of the Final Prospectus was furnished to the underwriter
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(vii) Any indemnification payments required to be made to an
Indemnified Party under this Section 4(f) shall be made as the related claims,
losses, damages, liabilities or expenses are incurred.
(g) Information by the Holders. Each of the Holders and each Other
--------------------------
Stockholder holding securities included in any registration, shall furnish to
the Company such information regarding such Holder or Other Stockholder and the
distribution proposed by such Holder or Other Stockholder as the Company may
reasonably request in writing and as shall be reasonably required
11
<PAGE>
in connection with any registration, qualification or compliance referred to in
this Section 4.
(h) Rule 144 Reporting.
------------------
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of the restricted
securities to the public without registration, the Company agrees to:
(A) make and keep public information available as those terms
are understood and defined in Rule 144, at all times from and after
ninety (90) days following the effective date of the first registration
under the Securities Act filed by the Company for an offering of its
securities to the general public;
(B) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(C) so long as the Holder owns any Registrable Securities,
furnish to the Holder upon request, a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any
time from and after ninety (90) days following the effective date of the
first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents so filed as the Holder
may reasonably request in availing itself of any rule or regulation of
the Commission allowing the Holder to sell any such securities without
registration.
(i) "Market Stand-off" Agreement. Each of the Holders agrees, if
----------------------------
requested by the Company and an underwriter of shares of Common Stock (or other
securities) of the Company, not to sell or otherwise transfer or dispose of any
shares of Common Stock (or other securities) of the Company held by such Holder
during the 90-day period (or such longer period if requested by such
underwriter, up to 180 days) following the effective date of a registration
statement of the Company filed under the Securities Act, provided that:
(i) such agreement only applies to the first such registration
statement of the Company which includes securities to be sold on the Company's
behalf to the public in an underwritten offering; and
12
<PAGE>
(ii) all officers and directors of the Company enter into similar
agreements.
If requested by the underwriters, the Holders shall execute a separate
agreement to the foregoing effect. The Company may impose stop-transfer
instructions with respect to the shares (or securities) subject to the foregoing
restriction until the end of said 90-day period (or such longer period if
requested by the underwriter, up to 180 days). The provisions of this Section
4(i) shall be binding upon any transferee who acquires Registrable Securities,
whether or not such transferee is entitled to the registration rights provided
hereunder.
(j) Termination. The registration rights set forth in this Section 4
-----------
shall not be available to any Holder if, in the opinion of counsel to the
Company, all of the Registrable Securities then owned by such Holder could be
sold in any 90-day period pursuant to Rule 144 under the Securities Act (without
giving effect to the provisions of Rule 144(k)). The Company will arrange for a
provision to the transfer agent for such shares of an opinion of counsel in
connection with any such sale under Rule 144.
5. TERMINATION. The Agreement shall terminate on the date on which
-----------
the Board and the holder or holders of a majority of the Securities issued under
the Stock Plan shall have agreed in writing to terminate this Agreement;
provided that Section 3 shall terminate upon an Initial Public Offering.
Notwithstanding anything in this Agreement to the contrary, if a
Management Stockholder's employment with the Company or its Subsidiaries is
terminated, whether by such Management Stockholder or by the Company or its
Subsidiaries, whether with or without cause, all rights of such Management
Stockholder under this Agreement (but not the obligations) shall be terminated;
provided that the Company's rights under Section 3 shall remain in full force
and effect.
6. INTERPRETATION OF THIS AGREEMENT
--------------------------------
(a) Terms Defined. As used in this Agreement, the following terms
-------------
have the respective meaning set forth below:
Affiliate: means any person or entity, directly or indirectly,
---------
controlling, controlled by or under common control with such person or entity.
Exchange Act: the Securities Exchange Act of 1934, as amended.
------------
Initial Public Offering: means the completion of an underwritten
-----------------------
initial public offering for shares of Common Stock pursuant to a registration
statement under the Securities Act
13
<PAGE>
resulting in net proceeds to the Company and/or any selling stockholders of not
less than $25,000,000.
Other Stockholders: holders of securities of the Company other than
------------------
Registrable Securities who are entitled, by contract with the Company or
otherwise, to have securities included in a registration.
Person: an individual, partnership, joint-stock company, corporation,
------
limited liability company, trust or unincorporated organization, and a
government or agency or political subdivision thereof.
Security, Securities: as defined in Section 2(1) of the Securities
--------------------
Act.
Securities Act: the Securities Act of 1933, as amended.
--------------
Subsidiary: a corporation of which the Company owns, directly or
----------
indirectly, more than fifty percent (50%) of the Voting Stock.
Transfer: any sale, assignment, pledge, hypothecation, or other
--------
disposition or encumbrance, whether or not for consideration.
Voting Stock: securities of any class or classes of a corporation the
------------
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
(b) Accounting Principles. Where the character or amount of any asset
---------------------
or amount of any asset or liability or item of income or expense is required to
be determined or any consolidation or other accounting computation is required
to be made for the purposes of this Agreement, this shall be done in accordance
with U.S. generally accepted accounting principles at the time in effect, to the
extent applicable, except where such principles are inconsistent with the
requirements of this Agreement.
(c) Directly or Indirectly. Where any provision in this Agreement
----------------------
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether such action is taken
directly or indirectly by such Person.
(d) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York applicable to contracts
made and to be performed entirely within such State.
14
<PAGE>
(e) Section Headings. The headings of the sections and subsections of
----------------
this Agreement are inserted for convenience only and shall not be deemed to
constitute a part thereof.
7. MISCELLANEOUS
-------------
(a) Notices.
-------
(i) All communications under this Agreement shall be in writing and
shall be delivered by hand or mailed by overnight courier or by registered or
certified mail, postage prepaid:
(A) if to any of the Management Stockholders, at the address of such
Management Stockholder shown on Schedule I, or at such other address as the
Management Stockholder may have furnished the Company in writing;
(B) if to Warburg, at 466 Lexington Avenue, New York, New York 10017,
Attention: Jeffrey A. Harris, or at such other address as Warburg may have
furnished the Company in writing; and
(C) if to the Company, to T.K.G. Acquisition Corp., c/o Warburg,
Pincus Ventures, L.P., 466 Lexington Avenue, New York, New York 10017,
Attention: Jeffrey A. Harris, or at such other address as it may have furnished
in writing to each of the Stockholders.
(ii) Any notice so addressed shall be deemed to be given: if
delivered by hand, on the date of such delivery; if mailed by courier, on the
first business day following the date of such mailing; and if mailed by
registered or certified mail, on the third business day after the date of such
mailing.
(b) Reproduction of Documents. This Agreement and all documents
-------------------------
relating thereto, including, without limitation, (i) consents, waivers and
modifications which may hereafter be executed and , (ii) documents received by
each Stockholders pursuant hereto and (iii) financial statements, certificates
and other information previously or hereafter furnished to each Management
Stockholder, may be reproduced by each Management Stockholder by an
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and each Management Stockholder may destroy any original
document so reproduced. All parties hereto agree and stipulate that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by each Management
Stockholder in the regular course of business) and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.
15
<PAGE>
(c) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties.
(d) Entire Agreement; Amendment and Waiver. This Agreement, together
--------------------------------------
with the Stock Plan, and the Subscription Agreements constitute the entire
understanding of the parties hereto relating to the subject matter hereof and
supersede all prior understandings among such parties. This Agreement may be
amended, and the observance of any term of this Agreement may be waived, with
(and only with) the written consent of Warburg and the holder or holders (other
than Warburg) of a majority of the shares of Common Stock.
(e) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement as of the date first above written.
T.K.G. ACQUISITION CORP.
By: _______________________________
Name:
Title:
WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: _______________________________
Name:
Title:
MANAGEMENT STOCKHOLDERS:
-----------------------------------
Burton B. Staniar
-----------------------------------
John H. Lynch
17
<PAGE>
SCHEDULE I
Management Stockholders
-----------------------
Burton B. Staniar
[address]
John H. Lynch
[address]
<PAGE>
EXHIBIT A
---------
JOINDER AGREEMENT
-----------------
Joinder Agreement, dated as of this ____ day of February, 1996, by and
among T.K.G. Acquisition Corp., a Delaware corporation (the "Company"), and the
undersigned (the "Stockholder").
Reference is made to that certain Stockholders Agreement (Common Stock
Under Stock Incentive Plan) (the "Stockholders Agreement"), dated as of February
29, 1996, by and among T.K.G. Acquisition Corp., Warburg, Pincus Ventures, L.P.
and the other holders of Securities from time to time party thereto, as the same
may from time to time be amended.
By executing this Joinder Agreement, the Stockholder hereby agrees to
be bound by the terms of the Stockholders Agreement as if he were an original
signatory to such Agreement and shall be deemed to be a Management Stockholder
thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Joinder
Agreement as of the date first above written.
------------------------------
Name:
Agreed to and Accepted by:
T.K.G. ACQUISITION CORP.
_____________________________
Name:
Title:
<PAGE>
EXHIBIT 10.8
1997 STOCK INCENTIVE PLAN
ARTICLE I
PURPOSE
-------
The TKG Acquisition Corp. 1997 Stock Incentive Plan (the "Plan") is
intended as an incentive to encourage stock ownership by officers, certain other
key employees, directors and consultants of TKG Acquisition Corp. (the
"Company") in order to increase their proprietary interest in the Company's
success and to encourage them to remain in the employ of the Company.
The term "Company," when used in the Plan or a related Restricted
Share agreement or option agreement with reference to eligibility and
employment, shall include the Company and its subsidiaries. The word
"subsidiary," when used in the Plan, shall mean any subsidiary of the Company
within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as
amended (the "Code").
It is intended that certain options granted under this Plan will
qualify as "incentive stock options" under Section 422 of the Code.
ARTICLE II
ADMINISTRATION
--------------
The Plan shall be administered by a Committee (the "Committee")
appointed by the Board of Directors of the Company (the "Board") and shall
consist of not less than two members. Upon and after the time that the Company
first becomes subject to Section 16(b) of the Securities Exchange Act of 1934
(the "Exchange Act"), each member of the Committee must be a "Non-Employee
Director" within the meaning of the rules promulgated under Section 16(b) and
upon and after the time that grants under the Plan become subject to Section
162(m) of the Code, each member of the Committee shall also be an "outside
director" within the meaning of Section 162(m) of the Code. Subject to the
provisions of the Plan, the Committee shall have sole authority, in its absolute
discretion: (a) to determine which individuals shall be granted shares of
restricted stock ("Restricted Shares") and which shall be granted options; (b)
to make grants of Restricted Shares, incentive stock options and nonqualified
options to acquire Common Stock; (c) to determine the times when Restricted
Shares and options shall be granted and the number of shares to be granted or
optioned; (d) to determine the option price of the shares subject to each
option; (e) to determine the nature of any rights and restrictions to be imposed
on Restricted Shares granted under the Plan; (f) to
<PAGE>
determine the time or times when each option becomes exercisable, the duration
of the exercise period and any other restrictions on the exercise of options
issued hereunder; (g) to determine the time or times at which options shall be
repriced and the terms and conditions of such repriced options; (h) to prescribe
the form or forms of agreements for Restricted Shares granted under the Plan and
the form or forms of the option agreements for options granted under the Plan
(which forms shall be consistent with the terms of the Plan but need not be
identical); (i) to adopt, amend and rescind such rules and regulations as, in
its opinion, may be advisable in the administration of the Plan; and (j) to
construe and interpret the Plan, the rules and regulations, the Restricted Share
agreements and the option agreements under the Plan and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations and interpretations of the Committee shall be
final and binding on all grantees and optionees.
ARTICLE III
STOCK
-----
The stock to be granted or optioned under the Plan shall be shares of
authorized but unissued Common Stock of the Company, par value $.01 per share,
or previously issued shares of Common Stock reacquired by the Company (the
"Stock"). Under the Plan, the total number of shares of Stock which may be
granted or purchased pursuant to options granted hereunder shall not exceed, in
the aggregate, 400,000 shares, except as such number of shares shall be adjusted
in accordance with the provisions of ARTICLE XII hereof.
The number of shares of Stock available for issuance or grant of
options under the Plan shall be decreased by the sum of (i) the number of
Restricted Shares which are granted and then outstanding, (ii) the number of
shares with respect to which options have been issued and are then outstanding
and (iii) the number of shares issued upon exercise of options. In the event
that any Restricted Shares are forfeited or that any outstanding option under
the Plan for any reason expires, is terminated or is canceled without exercise
prior to the end of the period during which options may be granted, the
Restricted Shares so forfeited and the shares of Stock called for by the
unexercised portion of such option shall again be available for grant or
issuance under the Plan.
ARTICLE IV
ELIGIBILITY OF PARTICIPANTS
---------------------------
Subject to ARTICLE IX in the case of incentive stock options, officers
and other key employees of the Company shall be eligible to receive Restricted
Shares and options under the Plan.
<PAGE>
In addition, Restricted Shares and options which are not incentive stock options
may be granted to directors, consultants (including employees of consultants) or
other key persons who the Committee determines shall receive options under the
Plan.
As of any grant date which is prior to the occurrence of an initial
public offering of the Stock ("IPO"), it shall be a condition to the grant of
Restricted Shares or options under the Plan that the grantee or optionee execute
a Joinder Agreement in the form attached to the TKG Acquisition Corp.
Stockholders Agreement (Common Stock Under Stock Incentive Plan) (the
"Stockholders Agreement") agreeing to be bound by the terms of such Agreement.
ARTICLE V
FAIR MARKET VALUE
-----------------
"Fair Market Value" means, (1) as of any date prior to an IPO, the
Fair Market Value of the Company's Stock on such date, as determined by the
Board in good faith, and (2) at the time of an IPO, the per share price to the
public in such IPO, less any underwriting discount, multiplied by the number of
shares of Stock issued and outstanding immediately prior to the time such IPO
occurs.
"Fair Market Value Per Share" means (1) prior to an IPO, the Fair
Market Value per share of Stock, determined on a Fully Diluted Basis, (2) at the
time of an IPO, the per share price to the public in such IPO less any per share
underwriting discount, and (3) after an IPO, as of any date when the Stock is
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") National Market System ("NMS") or listed on one or more
national securities exchanges, the closing price reported on NASDAQ-NMS or the
principal national securities exchange on which such Stock is listed and traded
on the date of determination. If, after an IPO, the Stock is not quoted on
NASDAQ-NMS or listed on an exchange, or representative quotes are not otherwise
available, the Fair Market Value Per Share shall mean the amount determined by
the Board in good faith to be the fair market value per share of Stock.
"Fully Diluted Basis" means, with regard to determining Fair Market
Value Per Share, the amount determined by dividing (1) the sum of (i) the Fair
Market Value as of the date of determination, plus (ii) the exercise or
conversion price, if any, associated with any dilutive options, warrants or
other securities which could be exchanged for Stock, by (2) the sum of (i) the
total number of shares of Stock outstanding, plus (ii) the number of shares of
Stock subject to such dilutive options, warrants or other securities.
<PAGE>
ARTICLE VI
TERMS AND CONDITIONS OF RESTRICTED SHARES
-----------------------------------------
Restricted Shares will become unrestricted and vest only in accordance
with a vesting period set by the Committee with respect to each grant of
Restricted Shares (the "Restriction Period"). The Committee may provide in the
Restricted Share Agreement for acceleration of the Restriction Period and
accelerated vesting upon termination of the grantee's employment by reason of
death or disability, or by the Company without Cause, or upon any other event
for which the Committee determines, in its discretion, that such acceleration is
appropriate. With respect to each grant of Restricted Shares, "Cause" shall
have the meaning given such term in a grantee's Restricted Share Agreement.
During the Restriction Period, Restricted Shares shall constitute
issued and outstanding shares of Stock for all corporate purposes but unless and
until such Restricted Shares shall have become vested (i.e., the date at which
such shares shall not be subject to forfeiture) (a) the Company shall retain
custody of the stock certificate or certificates representing such shares, (b)
the Company will retain custody of all dividends and distributions ("Retained
Distributions") made or declared thereon (and such Retained Distributions shall
be subject to the same restrictions, terms and vesting and other conditions as
are applicable to the Restricted Shares) until such time, if ever, as the
Restricted Shares with respect to which such Retained Distributions shall have
been made, paid or declared shall have become vested, and such Retained
Distributions shall not bear interest or be segregated in a separate account;
provided, however, that in the event such retained dividends or distributions
are taxable to the grantee in the year of payment, notwithstanding their failure
to have become vested by the date of payment, the Company shall arrange for the
release to the grantee of such part of the retained dividiends or distributions
as are sufficient to cover the taxes payable by the grantee with respect
thereto; (c) the grantee of such Restricted Shares shall not be entitled to vote
such shares, and (d) except as otherwise permitted by the Stockholders
Agreement, the grantee of such Restricted Shares may not, whether voluntarily or
involuntarily, sell, assign, transfer, pledge, exchange, encumber or dispose of
the Restricted Shares or any Retained Distributions thereon or his interest in
any of them (it being understood that, except to the extent so permitted, any
sale, assignment, transfer, pledge, exchange, or disposition (i) before the
shares shall have become vested shall be null and void and of no effect and (ii)
after the shares shall have become vested shall only be as permitted under the
terms of the Stockholders Agreement). Any Restricted Shares which have not
vested as of, or by reason of, a grantee's termination of employment shall be
immediately forfeited to the Company and the grantee and any permitted
transferee shall have no further rights in respect of such forfeited shares.
<PAGE>
With respect to Restricted Shares which have become vested pursuant to
the provisions of the Restricted Share Agreement, the Company shall promptly
deliver the Stock certificate or certificates representing such shares to the
grantee, registered in the name of the grantee. The Company may endorse such
legends on such certificates as may be required by law or under the terms of
this Agreement, the Restricted Share Agreement or the Stockholders Agreement.
ARTICLE VII
OPTION EXERCISE PRICE
---------------------
The option price per share of Stock for each option shall be set by
the Committee at the time of grant, subject to the ability of the Committee to
reprice options pursuant to ARTICLE VIII; provided, however, that the option
price per share of Stock for incentive stock options, subject to ARTICLE IX,
shall not be less than the Fair Market Value Per Share at the time the option
was granted.
ARTICLE VIII
EXERCISE AND TERMS OF OPTIONS
-----------------------------
The Committee shall determine the dates after which options may be
exercised, in whole or in part. If an option is exercisable in installments,
installments or portions thereof which are exercisable and not exercised shall
remain exercisable.
Any other provision of the Plan to the contrary notwithstanding, but
subject to ARTICLE IX in the case of incentive stock options, no option shall be
exercised after the date ten years from the date of grant of such option (the
"Termination Date").
Options shall become exercisable only in accordance with the exercise
schedule set forth in the option agreement entered into with respect to each
grant of options (the "Option Agreement"). The Committee may provide in the
Option Agreement for acceleration of exercisability upon termination of the
optionee's employment by reason of death, disability, or by the Company without
Cause, or upon any other event for which the Committee determines, in its
discretion, that such acceleration is appropriate. With respect to each grant
of options, "Cause" shall have the meaning given such term in the optionee's
Option Agreement.
Notwithstanding the foregoing provisions of this ARTICLE VIII or the
terms of any option agreement, the Committee may in its sole discretion (i)
accelerate the exercisability of any option
<PAGE>
granted hereunder and (ii) reprice any option to a lower exercise price. Any
such acceleration shall not affect the terms and conditions of any such option
other than with respect to exercisability.
ARTICLE IX
SPECIAL PROVISIONS APPLICABLE
TO INCENTIVE STOCK OPTIONS ONLY
-------------------------------
To the extent the aggregate Fair Market Value Per Share (determined as
of the time the option is granted in accordance with Article V) with respect to
which any options granted hereunder which are intended to be incentive stock
options may be exercisable for the first time by the optionee in any calendar
year (under this Plan or any other stock option plan of the Company or any
parent or subsidiary thereof) exceeds $100,000, such options shall not be
considered incentive stock options but rather shall be nonqualified options.
No incentive stock option may be granted to an individual who, at the
time the option is granted, owns directly, or indirectly within the meaning of
Section 424(d) of the Code, stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or of any parent or
subsidiary thereof, unless such option (i) has an option price of at least 110
percent of the Fair Market Value Per Share on the date of the grant of such
option; and (ii) cannot be exercised more than five years after the date it is
granted.
Each optionee who receives an incentive stock option must agree to
notify the Company in writing immediately after the optionee makes a
disqualifying disposition of any Stock acquired pursuant to the exercise of an
incentive stock option. A disqualifying disposition is any disposition
(including any sale) of such Stock made within the period which is (a) two years
after the date the optionee was granted the incentive stock option or (b) one
year after the date the optionee acquired Stock by exercising the incentive
stock option.
ARTICLE X
PAYMENT FOR SHARES
------------------
Payment for shares of Stock purchased under an option granted
hereunder shall be made in full upon exercise of the option, by certified or
bank cashier's check payable to the order of the Company or by any other means
acceptable to the Company. The Committee, in its discretion, may allow an
optionee to pay such exercise price by having the Company withhold shares of
Stock being purchased having an aggregate Fair Market Value equal to the amount
of such exercise price.
<PAGE>
ARTICLE XI
NON-TRANSFERABILITY OF OPTION RIGHTS
------------------------------------
No option shall be transferable except by will or the laws of descent
and distribution. During the lifetime of the optionee, the option shall be
exercisable only by him. The Committee may, however, in its sole discretion,
allow for transfer of options which are not incentive stock options to other
persons or entities, subject to such conditions or limitations as it may
establish.
ARTICLE XII
ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
---------------------------------------------
The aggregate number of shares of Stock which may be granted or
purchased pursuant to options granted hereunder, the number of shares of Stock
covered by each outstanding option and the price per share thereof in each such
option shall be appropriately adjusted for any increase or decrease in the
number of outstanding shares of stock resulting from a stock split or other
subdivision or consolidation of shares of Stock or for other capital adjustments
or payments of stock dividends or distributions or other increases or decreases
in the outstanding shares of Stock without receipt of consideration by the
Company. No adjustments shall be made upon any conversion of the Company's
Series A Preferred Stock. Any adjustment shall be conclusively determined by
the Committee.
In the event of any change in the outstanding shares of Stock by
reason of any recapitalization, merger, consolidation, spin-off, combination or
exchange of shares or other corporate change, or any distributions to common
shareholders other than cash dividends, the Committee shall make such
substitution or adjustment, if any, as it deems to be equitable, as to the
number or kind of shares of Stock or other securities issued or reserved for
issuance pursuant to the Plan, and the number or kind of shares of Stock or
other securities covered by outstanding options, and the option price thereof.
In instances where another corporation or other business entity is being
acquired by the Company, and the Company has assumed outstanding employee option
grants and/or the obligation to make future or potential grants under a prior
existing plan of the acquired entity, similar adjustments are permitted at the
discretion of the Committee. The Committee shall notify optionees of any
intended sale of all or substantially all of the Company's assets within a
reasonable time prior to such sale.
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Committee in
<PAGE>
its sole discretion. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to an option.
ARTICLE XIII
NO OBLIGATION TO EXERCISE OPTION
--------------------------------
The granting of an option shall impose no obligation on the recipient
to exercise such option.
ARTICLE XIV
USE OF PROCEEDS
---------------
The proceeds received from the sale of Stock pursuant to the Plan
shall be used for general corporate purposes.
ARTICLE XV
RIGHTS AS A STOCKHOLDER
-----------------------
An optionee or a transferee of an option shall have no rights as a
stockholder with respect to any share covered by his option until he shall have
become the holder of record of such share, and he shall not be entitled to any
dividends or distributions or other rights in respect of such share for which
the record date is prior to the date on which he shall have become the holder of
record thereof.
Notwithstanding anything herein to the contrary, the Committee, in its
sole discretion, may restrict the transferability of all or any number of shares
issued under the Plan upon the exercise of an option by legending the stock
certificate as it deems appropriate.
ARTICLE XVI
EMPLOYMENT RIGHTS
-----------------
Nothing in the Plan or in any agreement related to options or
Restricted Shares granted hereunder shall confer on any optionee or grantee any
right to continue in the employ of the Company or any of its subsidiaries, or to
be evidence of any agreement or understanding, express or implied, that the
Company or any if its subsidiaries will employ the optionee or grantee in any
particular position or at any particular rate of remuneration, or for any
particular period of time, or to interfere in any way with the right of the
Company or any of its subsidiaries to terminate the optionee's employment at any
time.
<PAGE>
ARTICLE XVII
COMPLIANCE WITH THE LAW
-----------------------
The Company is relieved from any liability for the nonissuance or non-
transfer or any delay in issuance or transfer of any shares of Stock subject to
options under the Plan which results from the inability of the Company to obtain
or any delay in obtaining from any regulatory body having jurisdiction, all
requisite authority to issue or transfer shares of Stock of the Company either
upon exercise of the options under the Plan or shares of Stock issued as a
result of such exercise, if counsel for the Company deems such authority
necessary for lawful issuance or transfer of any such shares. Appropriate
legends may be placed on the stock certificates evidencing shares issued upon
exercise of options to reflect such transfer restrictions.
Each option granted under the Plan is subject to the requirement that
if at any time the Committee determines, in its discretion, that the listing,
registration or qualification of shares of Stock issuable upon exercise of
options is required by any securities exchange or under any state or Federal
law, or that the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the grant of
options or the issuance of shares of Stock, no shares of Stock shall be issued,
in whole or in part, unless such listing, registration, qualification, consent
or approval has been effected or obtained free of any conditions or with such
conditions as are acceptable to the Committee.
ARTICLE XVIII
CANCELLATION OF OPTIONS
-----------------------
The Committee, in its discretion, may, with the consent of any
optionee, cancel any outstanding option hereunder.
ARTICLE XIX
EFFECTIVE DATE AND EXPIRATION DATE OF PLAN
------------------------------------------
The Plan is effective as of February 14, 1997, the date of adoption of
the Plan by the Company's Board, subject to approval by the stockholders of the
Company in a manner which complies with Section 422(b)(1) of the Code and the
Treasury Regulations thereunder. The expiration date of the Plan, after which
no option may be granted hereunder, shall be February 13, 2007.
<PAGE>
ARTICLE XX
AMENDMENT OR DISCONTINUANCE OF PLAN
-----------------------------------
The Board may, without the consent of the Company's stockholders or
optionees under the Plan, at any time terminate the Plan entirely and at any
time or from time to time amend or modify the Plan, provided that no such action
shall adversely affect Restricted Shares or options theretofore granted
hereunder without the grantee's or optionee's consent.
ARTICLE XXI
REPURCHASE OF OPTIONS
---------------------
In granting options hereunder, the Committee may in its discretion,
and on terms it considers appropriate, require an optionee, or the executors or
administrators of an optionee's estate, to sell back to the Company such options
in the event such optionee's employment with the Company is terminated.
ARTICLE XXII
MISCELLANEOUS
-------------
(a) Grants of options and Restricted Shares shall be evidenced by agreements
(which need not be identical) in such forms as the Committee may from time
to time approve. Such agreements shall conform to the terms and conditions
of the Plan and may provide that the grant of any Restricted Share or
option under the Plan and Stock acquired upon the exercise of options shall
also be subject to such other conditions (whether or not applicable to any
other grantee or optionee) as the Committee determines appropriate,
including, without limitation, provisions to assist the Optionee in
financing the purchase of Stock through the exercise of options, provisions
for the forfeiture of, or restrictions on, resale or other disposition of
shares under the Plan, provisions giving the Company the right to
repurchase shares acquired under the Plan in the event the participant
elects to dispose of such shares, and provisions to comply with Federal and
state securities laws and Federal and state income tax withholding
requirements.
(b) At such time that the delivery of shares of Stock to a grantee or optionee
becomes subject to tax withholding requirements, the Company may require
that the grantee or optionee pay to the Company such amount as the Company
deems necessary to satisfy its obligation to withhold Federal, state or
local income or other taxes. The Committee, in its discretion, may allow
the grantee or optionee to pay such amount by having
<PAGE>
the Company withhold shares of Stock which would otherwise be delivered to
such grantee or optionee having an aggregate Fair Market Value equal to
such amount.
(c) If the Committee shall find that any person to whom any amount is payable
under the Plan is unable to care for his affairs because of illness or
accident, or is a minor, or has died, then any payment due to such person
or his estate (unless a prior claim therefor has been made by a duly
appointed legal representative) may, if the Committee so directs the
Company, be paid to his spouse, child, relative, an institution maintaining
or having custody of such person, or any other person deemed by the
Committee to be a proper recipient on behalf of such person otherwise
entitled to payment. Any such payment shall be a complete discharge of the
liability of the Committee and the Company therefor.
(d) No member of the Committee shall be personally liable by reason of any
contract or other instrument executed by such member or on his behalf in
his capacity as a member of the Committee nor for any mistake of judgment
made in good faith, and the Company shall indemnify and hold harmless each
member of the Committee and each other employee, officer or director of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan may be allocated or delegated, against any cost
or expense (including counsel fees) or liability (including any sum paid in
settlement of a claim) arising out of any act or omission to act in
connection with the Plan unless arising out of such person's own fraud or
bad faith; provided, however, that approval of the Company's Board shall be
required for the payment of any amount in settlement of a claim against any
such person. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be
entitled under the Company's Certificate of Incorporation or By-Laws, as a
matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
(e) The Plan shall be governed by and construed in accordance with the internal
laws of the State of New York without reference to the principles of
conflicts of law thereof.
(f) No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets, nor shall the Company maintain separate
bank accounts, books, records or other evidence of the existence of a
segregated or separately maintained or administered fund for such purposes.
Optionees shall have no rights under the Plan other than as unsecured
general creditors of the Company, except that insofar as
<PAGE>
they may have become entitled to payment of additional compensation by
performance of services, they shall have the same rights as other employees
under general law.
(g) Each member of the Committee and each member of the Company's Board shall
be fully justified in relying, acting or failing to act, and shall not be
liable for having so relied, acted or failed to act in good faith, upon any
report made by the independent public accountant of the Company and upon
any other information furnished in connection with the Plan by any person
or persons other than such member.
(h) Except as otherwise specifically provided in the relevant plan document, no
payment under the Plan shall be taken into account in determining any
benefits under any pension, retirement, profit-sharing, group insurance or
other benefit plan of the Company.
(i) The expenses of administering the Plan shall be borne by the Company.
(j) Masculine pronouns and other words of masculine gender shall refer to both
men and women.
* * *
As adopted by the Board of Directors of
TKG Acquisition Corp. as of February 14, 1997
<PAGE>
EXHIBIT 10.9
December 1, 1996
Mr. Wolfgang Billstein
Ziegelhuette 32
D-61476 Kronberg
GERMANY
RE: CONSULTING AGREEMENT BETWEEN KNOLL, INC. AND WOLFGANG BILLSTEIN
Dear Wolfgang:
This letter, once it is signed by both parties, shall act as the Consulting
Agreement ("Agreement") between Knoll, Inc. ("Knoll") and Wolfgang Billstein
("Consultant"). Please sign both originals of this letter and return one
original to me.
ENGAGEMENT - Consultant will perform a variety of consulting services to Knoll
- ----------
and its European affiliates, as directed by the Chairman or the Vice Chairman of
Knoll during the term of this Agreement, including but not limited to the
following services:
a. Developing and implementing a plan to maximize the financial
performance and revenue growth of Knoll Europe in accordance with the
financial objectives agreed upon with Knoll;
b. Advising the management of Knoll and of Knoll Europe, as appropriate;
and
c. Continuing to implement and monitor performance under the Knoll Ethics
Program.
Major financial, structural, legal issues as well as all contracts and personnel
matters and "extraordinary business matters" (as hereinafter defined) shall be
pre-approved by the Chairman or Vice Chairman of Knoll.
Consultant shall keep Knoll Europe's affairs completely separate from any other
business(es) for which Consultant does work or in which Consultant has any
direct or indirect ownership, financial or other interest.
Consultant will spend whatever amount of his personal time is necessary or
appropriate to complete Consultant's services and duties hereunder. Consultant
will spend his full time performing consulting services for Knoll.
Page 1
<PAGE>
Mr. Wolfgang Billstein
December 1, 1996
COMPENSATION - Consultant shall receive a monthly fee of 52,249 Deutsche Marks
- ------------
("Monthly Fee") and shall be reimbursed on a monthly basis for his reasonable
out-of-pocket travel and business expenses. Consultant shall submit monthly
invoices with supporting documentation as reasonably required by Knoll. Payment
terms are net thirty (30) days.
For Fiscal 1997, in addition to the Monthly Fee, Consultant shall receive a
contingent incentive in U.S. Dollars equal to 6% of the positive operating
profit of Knoll Europe on Knoll's U.S. Dollar internal financial statements for
Knoll Europe for the fiscal year commencing on December 1, 1996 and ending on
November 30, 1997 ("Fiscal 1997"), provided that such operating profit is at
least $2 Million ("OP Incentive"). If operating profit for Knoll Europe is less
than $2 Million for Fiscal 1997, the OP Incentive shall be zero.
Notwithstanding anything to the contrary, the OP Incentive shall not exceed the
sum of $240,000.
For example:
(a) If operating profit for Knoll Europe for Fiscal 1997 is $1.9 Million,
the OP Incentive shall be zero.
(b) If operating profit for Knoll Europe for Fiscal 1997 is $2.9 Million,
the OP Incentive shall be $174,000.
(c) If operating profit for Knoll Europe for Fiscal 1997 is $3.9 Million,
the OP Incentive shall be $234,000.
For Fiscal 1997, in addition to the Monthly Fee and the OP Incentive, Consultant
shall receive a contingent incentive in U.S. Dollars equal to 4% of the
incremental "Orders" (as defined by this Agreement and Knoll's internal
accounting policies, practices and procedures) volume in excess of $55 Million
for Fiscal 1997 for Knoll Europe on Knoll's U.S. Dollar financial statements,
provided that Knoll Europe's operating profit for Fiscal 1997 is at least $2
Million ("Orders Incentive"). If Knoll Europe's operating profit for Fiscal
1997 is less than $2 Million, the Orders Incentive shall be zero. There is no
maximum payout or limit on the amount of the Orders Incentive.
For example:
(a) If operating profit for Knoll Europe for Fiscal 1997 is $1.9 Million
and Orders for Fiscal 1997 are $60 Million, the Orders Incentive shall
be zero.
(b) If operating profit for Knoll Europe for Fiscal 1997 is equal to or
greater than $2.0 Million and Orders for Fiscal 1997 are $60 Million,
the Orders Incentive shall be $200,000 ($60 Million less $55 Million =
$5 Million x 4% = $200,000).
Page 2
<PAGE>
Mr. Wolfgang Billstein
December 1, 1996
(c) If the facts are the same as section (b) above except that Orders for
Fiscal 1997 are $65 Million, the Orders Incentive shall be $400,000
($65 Million less $55 Million = $10 Million x 4% = $400,000).
All determinations of valid Orders and all operating profit calculations for
purposes of determining the Orders Incentive and OP Incentive shall be made
using Knoll's internal accounting policies, practices and procedures as
interpreted and determined by Knoll's Vice President and Controller in his sole
discretion and after Knoll Europe's financial statements are converted to U.S.
Dollars using Knoll's internal currency conversion policies. The calculation of
Knoll Europe's operating profit on Knoll's internal financial statements shall
include charges for Consultant's Monthly Fees, OP Incentive, Orders Incentive,
travel and business expenses and incentive accruals for all other Knoll Europe
incentives. Unusual income (such as gains on sales of fixed assets), unusual
expenditures (such as restructuring costs), changes in depreciation and goodwill
(other than changes in depreciation and goodwill in the ordinary course of
business) shall be disregarded in determining operating profit as determined by
the Chairman of Knoll.
Knoll Europe is the group of Knoll entities included in Knoll's internal
financial statements as of the date hereof. Payment of the Orders Incentive and
OP Incentive, if appropriate hereunder, would be paid to Consultant on or before
February 28, 1998. The payments of the OP Incentive and the Orders Incentive
shall be made in German Deutsche Marks using the exchange rate from the U.S.
Dollar calculations contemplated hereby at the exchange rates that are reported
in the Wall Street Journal on the date of the payments.
-------------------
For the fiscal years after Fiscal 1997, the parties will discuss and attempt in
good faith to design incentives for Consultant that are consistent with Knoll's
financial objectives for said fiscal years; provided, however, that Knoll
reserves the right to ultimately determine said incentives in its sole
discretion.
TERM; TERMINATION - The term of this Agreement shall begin on December 1, 1996
- -----------------
and end on November 30, 1997, subject to termination as hereinafter set forth.
This Agreement shall automatically renew for an additional one (1)-year period
for "Fiscal 1998" (December 1, 1997 to November 30, 1998) and "Fiscal 1999"
(December 1, 1998 to November 30, 1999) unless either party elects not to renew
and informs the other party prior to October 1, 1997 (for Fiscal 1998) or
October 1, 1998 (for Fiscal 1999). If a party elects not to renew this
Agreement or if Knoll terminates the Agreement for "Good Cause," Knoll shall be
released for any and all future liability to Consultant under this Agreement,
including any liability for a "Termination Payment" (as hereinafter defined),
fees, compensation or any incentives.
Page 3
<PAGE>
Mr. Wolfgang Billstein
December 1, 1996
In addition, notwithstanding any other provision hereof, Knoll shall have the
unilateral right to terminate Consultant with or without any cause and without
any further liability for fees, compensation or incentives whatsoever upon three
(3) month's notice and upon payment to Consultant of the "Termination Payment".
Payment of the Termination Payment, if appropriate hereunder, would be made
within thirty (30) days of the effective date of termination.
For purposes of this Agreement, the term "Termination Payment" means 313,494
Deutsche Marks ("Base Termination Payment") plus the "Additional Termination
Payment" (as hereinafter defined). In addition, for notices of termination of
Consultant sent by Knoll during Fiscal 1997, the "Additional Termination
Payment" shall be defined as the sum of the OP Incentive and the Orders
Incentive determined in accordance hereunder multiplied by a fraction having as
its numerator the number of months actually worked by Consultant after December
1, 1996 but before the earlier of notice of termination is given to Consultant
and November 30, 1997, and having as its denominator the number twelve (12).
For Fiscal 1998 and Fiscal 1999, assuming this Agreement is in force and has not
earlier been terminated, not renewed or expired, if incentives have been
successfully determined for said fiscal years, then the parties will discuss and
attempt in good faith to design an Additional Termination Payment that is
consistent with the above approach and is consistent with Knoll's financial
objectives for said fiscal years; provided, however, that Knoll reserves the
right to ultimately determine said Additional Termination Payments in its sole
discretion.
As a condition precedent to receiving the Termination Payment, Consultant shall
execute a complete release of Knoll and its affiliates in a form satisfactory to
Knoll.
For purposes of this Agreement, "Good Cause" means:
a. Termination or breach of this Agreement by Consultant;
b. Conviction of Consultant or any employee of Consultant of a felony (or
similar international law); or
c. Consultant's willful misconduct or fraud.
The expiration or termination by this Agreement shall not affect Knoll's rights
to enforce the "Miscellaneous" provisions hereof.
MISCELLANEOUS - Consultant is an independent contractor and not an agent or
- -------------
employee of Knoll. Consultant is not integrated into the operation of Knoll
Europe and is free to decide how, were and when to work on the assignments
necessary for it to perform under
Page 4
<PAGE>
Mr. Wolfgang Billstein
December 1, 1996
this Agreement. Except as permitted herein, Consultant shall not enter into any
contracts on behalf of Knoll or its affiliates.
Consultant shall keep all information and trade secrets regarding Knoll or its
affiliates strictly confidential, including the terms of this Agreement. Any
and all intellectual property rights and other drawings, designs,
specifications, data maskworks, copyrightable works, inventions, discoveries,
computer programs, photos and documents developed by Consultant, his employees,
agents and subcontractors during this Agreement or for a period of one (1) year
thereafter shall belong to Knoll.
Consultant shall not take any action which directly or indirectly competes with
or conflicts with the business of Knoll in Europe during the term of this
Agreement.
Knoll acknowledges that on July 1, 1996, the Board of Directors of Knoll
International S.p.A. (Italy) appointed Consultant as Chairman of the Board of
Knoll International S.p.A. (Italy) and granted certain powers to Consultant to
manage that company.
Knoll is aware that certain managerial powers relating to extraordinary business
matters of Knoll International S.p.A. (Italy) may conflict with the provisions
set forth in this Agreement. Therefore, Consultant will have full authority for
any ordinary business matters while Knoll will require that any extraordinary
business matters are referred to the Chairman or Vice Chairman of Knoll for
Knoll's prior approval, as required hereunder. For purposes of this Agreement,
"extraordinary business matters" shall include the following with respect to
Knoll or any Knoll subsidiary or affiliate: acquisitions, divestitures, joint
ventures, partnerships, or other unusual business combinations; purchasing,
selling or leasing real estate; major product development initiatives; licensing
agreements or other purchase or sale of intellectual property; covenants not to
compete; hiring, firing and promoting senior management; consulting agreements
or other material agreements outside the ordinary course of business.
Knoll will also keep Consultant indemnified against any losses and damages which
Consultant may suffer in connection with the performance of Consultant's duties
as Chairman of the Board of Knoll International S.p.A. (Italy) under the law and
under the Knoll International S.p.A. (Italy) Board of Directors' resolution of
July 1, 1996, except in the event that Wolfgang Billstein has performed his
duties with gross negligence or fraud or in a manner inconsistent with the terms
hereof.
All services performed by Consultant, including, but not limited to, the
services rendered in the capacity of Chairman of the Board of Knoll
International S.p.A. (Italy) shall not entitle Consultant to any compensation or
benefits in addition to the compensation provided in the Agreement.
Page 5
<PAGE>
Mr. Wolfgang Billstein
December 1, 1996
All taxes applicable to any amounts paid by Knoll to Consultant shall be
Consultant's liability and Knoll shall not withhold any such amounts for taxes.
Consultant shall comply with all applicable laws (including U.S. laws) in the
performance of his duties hereunder.
This Agreement sets forth the entire understanding of the parties with regard to
the subject matter herein and merges and supersedes any other oral or written
agreements, discussions, understandings and/or terms.
This Agreement shall be construed in accordance with and governed by the laws of
the State of New York, United States of America applicable to agreements made
and to be performed wholly within such jurisdiction. The parties agree that any
legal action, suit or proceeding arising out of or relating to this Agreement
shall be instituted in a Federal or State court sitting in the State of New York
which shall be the exclusive jurisdiction and venue of said legal proceedings
and each party hereto waives any objection which such party may now or hereafter
have to the laying of venue of any such actions, suit or proceeding, and
irrevocably submits to the jurisdiction of any such court in any such action,
suit or proceeding. Any and all service of process and any other notice in any
such action, suit or proceeding shall be effective against such party when
transmitted in writing to the address of each contained herein. Nothing
contained herein shall be deemed to affect the right of any party hereto to
serve process in any manner permitted by law.
Consultant shall not assign this Agreement. Any attempted assignment shall be
null, void and of no legal effect.
This Agreement shall not become effective until and unless the Agreement and
Exhibit "A" are signed by the Consultant and the Agreement signed by Knoll.
KNOLL , INC.
BY:_________________________________
BURTON B. STANIAR, CHAIRMAN
AGREED:
BY:________________________________
WOLFGANG BILLSTEIN
Page 6
<PAGE>
EXHIBIT "A"
CONSULTANT CERTIFICATION
The undersigned hereby certifies that Wolfgang Billstein has not made and
will not make any gift or payment of money or anything of value, directly or
indirectly, to any official or employee of any government, or any department or
agency thereof (including government-owned companies) or to any political party
or candidate for political office for the corrupt purpose of inducing such
official, employee, party or candidate to misuse his position or to influence
any act or decision of a government, department or agency thereof in order to
obtain, retain or direct business to or for Knoll, Inc. and/or any subsidiary or
affiliate thereof.
WITNESS:
____________________________ ____________________________
Wolfgang Billstein
Date:_______________________
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Wholly Owned
Subsidiaries of the Company Jurisdiction of Incorporation
- --------------------------- -----------------------------
T.K.G. Canada, Inc. New Brunswick,
Canada
Knoll North America Corp. Ontario, Canada
(wholly owned by T.K.G.
Canada, Inc.)
Spinneybeck Enterprises, Inc. New York
Spinneybeck, Ltd. Ontario, Canada
(wholly owned subsidiary of
Spinneybeck Enterprises, Inc.)
Knoll Overseas, Inc. Delaware
Knoll Europe B.V. Netherlands
(wholly owned subsidiary of
Knoll Overseas, Inc.)
Knoll Italy, Ltd. England & Wales
(wholly owned subsidiary
of Knoll Europe B.V.)
Knoll International S.p.A. Italy
(75% owned by Knoll Europe
B.V. and 25% owned by Knoll
Italy, Ltd.)
Knoll International, Ltd. England & Wales
(wholly owned subsidiary
of Knoll Europe B.V.)
Knoll International S.A. France
(wholly owned subsidiary
of Knoll Europe B.V.)
Knoll International
Deutschland GmBH Germany
(wholly owned subsidiary
of Knoll Europe B.V.)
Knoll International
Belgium S.A. Belgium
(wholly owned subsidiary
of Knoll Europe B.V.)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,804
<SECURITIES> 0
<RECEIVABLES> 116,879
<ALLOWANCES> 5,713
<INVENTORY> 57,811
<CURRENT-ASSETS> 202,679
<PP&E> 195,483
<DEPRECIATION> 19,265
<TOTAL-ASSETS> 675,712
<CURRENT-LIABILITIES> 137,925
<BONDS> 330,889
0
1,603
<COMMON> 23
<OTHER-SE> 176,178
<TOTAL-LIABILITY-AND-EQUITY> 675,712
<SALES> 561,534
<TOTAL-REVENUES> 561,534
<CGS> 358,841
<TOTAL-COSTS> 358,841
<OTHER-EXPENSES> 131,349
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<INTEREST-EXPENSE> 32,952
<INCOME-PRETAX> 38,839
<INCOME-TAX> 16,844
<INCOME-CONTINUING> 21,995
<DISCONTINUED> 0
<EXTRAORDINARY> (5,159)
<CHANGES> 0
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</TABLE>
